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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
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<S> <C> <C>
FLORIDA 7373 59-3389871
(State or other jurisdiction Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number Identification No.)
</TABLE>
101 SOUTHHALL LANE, SUITE 210
MAITLAND, FLORIDA 32751
(407) 875-9991
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MITCHEL J. LASKEY, PRESIDENT
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
101 SOUTHHALL LANE, SUITE 210
MAITLAND, FLORIDA 32751
(407) 875-9991
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
RICHARD N. BERNSTEIN, ESQ. AND
KAREN Z. ROSEN, ESQ.
COHEN, BERKE, BERNSTEIN,
BRODIE & KONDELL, P.A.
2601 SOUTH BAYSHORE DRIVE, SUITE 1900
MIAMI, FLORIDA 33133
TEL: (305) 854-5900
FAX: (305) 857-9322
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment, please check the following
box. / /
If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
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(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE REGISTRATION FEE
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Common Stock, $0.01 par value.......... 1,260,996 $6.0625 $7,644,788 $2,636.00
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Common Stock, $0.01 par value(2)....... 1,252,000 $6.0625 $7,590,250 $2,617.00
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Common Stock, $0.01 par value(3)....... 42,000 $6.0625 $254,625 $88.00
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Common Stock, $0.01 par value(4)....... 3,723,750 $6.0625 $22,435,593 $7,736.00
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Total registration fee............ $13,077.00
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933 on the basis of
the average high and low sales prices of the Company's Common Stock on
August 28, 1996, as reported by Nasdaq.
(2) Represents shares issuable upon the exercise of outstanding options and
warrants and are being registered for resale.
(3) Represents shares to be issued upon the exercise of options and warrants to
be issued pursuant to the Director and Management Stock Warrant and Option
Plan described herein and are being registered for resale.
(4) Represents shares to be issued upon conversion of outstanding shares of
Series A Preferred Stock and Series B Preferred Stock, which conversion will
occur automatically upon the effectiveness of this Registration Statement,
and are being registered for resale.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION DATED SEPTEMBER 3, 1996
6,278,746 SHARES
DYNAMIC HEALTHCARE TECHNOLOGIES (LOGO)
COMMON STOCK
------------------------
All shares of common stock, par value $0.01 per share (the "Common Stock"),
offered hereby, are being sold by certain shareholders of the Company (the
"Selling Shareholders"). The Company will not receive any proceeds from the sale
of shares offered hereby. See "Principal and Selling Shareholders."
The Company has made an application to list the Common Stock on the Nasdaq
National Market under the trading symbol "DHTI." The Common Stock is currently
traded on the over-the-counter market and is quoted on the Nasdaq SmallCap
Market under the symbol "DHTI." On August 28, 1996 the last reported sales price
for the Common Stock was $6.00.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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PRICE TO
PUBLIC PROCEEDS
TO SELLING
SHAREHOLDERS
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Per Share.................................................... $ $
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Total........................................................ $ $
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</TABLE>
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The date of this Prospectus is , 1996
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference into this Prospectus: the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996
and June 30, 1996 and the Company's Current Report on Form 8-K dated May 14,
1996.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Common Stock shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement contained herein, in any
supplement or amendment hereof or in a document all or any portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any supplement or amendment hereof modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any supplement or amendment hereof.
Neither the delivery of this Prospectus nor any sale of securities made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company or its affiliates since the date
hereof or that the information contained herein is correct as of any time
subsequent to its date.
Copies of the documents incorporated by reference herein are available from
the Company without charge (other than exhibits to such document, unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates) to any person to whom this Prospectus is
delivered, upon written request of such person. Requests for such copies should
be directed to Mitchel J. Laskey, President and Chief Executive Officer of the
Company, at the Company's offices located at 101 Southhall Lane, Suite 210,
Maitland, Florida 32751. The Company's telephone number is (407) 875-9991.
This Prospectus may contain trademarks and servicemarks of other parties.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all financial
information and share data in this Prospectus have been adjusted to reflect the
conversion of all outstanding shares of the Company's Series A Preferred Stock
into 968,750 shares of Common Stock and all outstanding shares of the Company's
Series B Preferred Stock into 3,750,000 shares of Common Stock concurrently with
the consummation of this Offering.
THE COMPANY
Dynamic Healthcare Technologies, Inc. ("Dynamic" or the "Company") is a
leading provider of enterprise-wide, patient-centered healthcare information
systems. These systems enable hospitals, physician practice groups and
integrated delivery networks to capture, store, archive and retrieve clinical,
financial and administrative patient information. The Company's products enhance
productivity, reduce costs and improve the quality of patient care by providing
on-line access to patient information previously maintained on a variety of
media, including paper, X-ray film, magnetic disk, and video and audio
recordings. The Company's current product lines include clinical information
systems for use in laboratory, radiology, anatomic pathology and anesthesiology
applications, and imaging and electronic health record solutions. The Company
provides support for all of its systems and provides systems integration and
other consulting services.
The Company currently serves over 250 customers in 44 states. Key customers
include the University of California at Los Angeles Medical Center, University
of Illinois at Chicago Medical Center, Methodist Hospital of Memphis, Memorial
Sloan-Kettering Cancer Center, Ohio State University Hospital, Columbia/HCA,
Greater Dayton Area Hospital Association, Advocate Health Care, Temple
University Hospital, UniHealth and Orlando Regional Health System.
Utilizing the Company's healthcare information experience, imaging
technologies and customer input, the Company is focusing on a new product
strategy for electronic health records. The Company's new electronic health
record product, DynamicVision, provides connectivity and enabling technologies
that integrate clinical and imaging information systems to create an open
architecture, multi-media clinical workstation. DynamicVision provides prompt
and simultaneous on-line access to information stored in various systems and
data repositories located at multiple sites. This information can include
documents, medical images such as X-rays, MRIs and CAT scans, and video and
audio recordings. DynamicVision is currently being beta-tested and is scheduled
for general availability by the end of 1996.
The healthcare information industry is undergoing rapid and significant
change. Cost containment pressures, industry consolidation, the movement toward
managed care and rising standards of healthcare quality represent fundamental
trends in today's healthcare operating environment. Increasingly, the key to
effective cost control and quality management lies in the collection,
availability and analysis of medical records in order to assess treatment
patterns, resource utilization and outcomes. As a result, the information
demands in the healthcare industry are rapidly increasing for caregivers,
managers and third party payors. Total healthcare information technology
spending in the United States was estimated to be $8.5 billion in 1994, and is
projected to reach $13.0 billion by 1997 and $20.0 billion by 2000.
The Company's new product development, including DynamicVision, employs
technical designs based on open architecture at all levels of data capture,
information management and workflow, application software and connectivity,
which permits platform independence and plug and play capability. Dynamic's
strategy to utilize open architecture leverages its own technology with
capabilities of leading technology companies, enabling the Company to focus its
research and development on healthcare software applications. The Company has
entered into strategic relationships with several leading technology developers,
including International Business Machines Corporation ("IBM"), Wang
Laboratories, Inc. ("Wang") and others, to gain access to certain technologies
that are integrated into the Company's systems. The Company's platform
independent systems run on a variety of operating systems, including UNIX,
Windows 95/NT, IBM AS/400 and other proprietary platforms. Dynamic's systems are
developed using Internet/Intranet standards and
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protocols, are fully scaleable and preserve the customers' investment in
existing systems. The Company believes its technical designs and strategic
relationships enable it to respond more rapidly to changes in core technologies
at a lower cost than companies utilizing proprietary information systems.
The Company's objective is to be the leading provider of enterprise-wide,
patient-centered healthcare information systems that enable the efficient
capture, storage, archival and retrieval of electronic health information and
the secure sharing of this information across the continuum of care throughout a
patient's lifetime. To achieve this objective, the Company intends to employ the
following strategies: (i) aggressively expand its position in the rapidly
growing electronic health record market through the commercial availability of
DynamicVision; (ii) focus on cross-selling additional applications and services
to existing and new customers; (iii) provide solutions utilizing open
architecture that offer cost-effective and flexible information solutions; (iv)
maintain its technological advantage by investing in proprietary research and
development for healthcare software applications while integrating
state-of-the-art technology through strategic relationships with industry
leading technology companies; and (v) acquire complementary businesses, products
and technologies.
The Company was originally incorporated in California in 1977,
reincorporated in Nebraska in 1982 and subsequently reincorporated in Florida in
1996. The Company's executive offices are located at 101 Southhall Lane, Suite
210, Maitland, Florida 32751, its telephone number is (407) 875-9991 and its
World Wide Web address is http://www.dht.com.
THE OFFERING
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<S> <C>
Common Stock Offered by the Selling Shareholders........ 6,278,746 shares
Common Stock to be Outstanding after the Offering....... 15,400,536 shares(1)
Use of Proceeds......................................... The Company will receive no
proceeds from the sale of the
shares of Common Stock being
offered hereby.
Nasdaq Symbol........................................... DHTI
</TABLE>
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(1) Does not include 1,908,190 shares issuable upon the exercise of outstanding
options and warrants. Includes 4,000,000 shares of Common Stock being
issued and sold by the Company pursuant to a registration statement
expected to become effective concurrently with the registration statement
of which this Prospectus is a part (the "Concurrent Offering").
4
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ---------------------------------
1993 1994(1) 1995 1995 1996
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ACTUAL PRO FORMA(2) ACTUAL ACTUAL(3) PRO FORMA(2)
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total operating revenues... $9,688 $ 6,987 $8,886 $ 14,150 $4,502 $ 6,317 $ 7,323
Operating income (loss).... 253 (3,559) (162) (219) (503) (417) (1,537)
Net earnings (loss)........ 246 (4,307) (513) (646) (706) (522) (1,632)
Earnings (loss) per common
share.................... $ 0.05 $ (0.78) $(0.08) $ (0.10) $(0.11) $ (0.08) $ (0.25)
Weighted average common
shares outstanding....... 5,363 5,536 6,443 6,443 6,295 6,619 6,619
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
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ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 771 $ 19,950
Working capital..................................................... 122 19,301
Total assets........................................................ 11,040 30,219
Long-term obligations, net of current maturities.................... 2,922 234
Series A preferred stock............................................ 10 --
Series B preferred stock............................................ 38 --
Total shareholders' equity.......................................... 3,597 25,537
</TABLE>
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(1) Includes the operating results and related financial information since the
acquisition of Dynamic Technical Resources, Inc. on August 23, 1994,
accounted for by the purchase method.
(2) Gives effect to the acquisition of Dimensional Medicine, Inc. ("DMI") as if
the acquisition occurred on January 1, 1995. See "Pro Forma Condensed
Consolidated Statement of Operations."
(3) Includes the operating results and related financial information since the
acquisition of DMI on May 1, 1996, accounted for by the purchase method.
(4) Adjusted to give effect to the sale of 4,000,000 shares of Common Stock
offered by the Company in the Concurrent Offering at an assumed price of
$6.00 per share and the application of the estimated net proceeds
therefrom.
5
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RISK FACTORS
Prospective investors should carefully consider the specific factors set
forth below, as well as the other information contained in this Prospectus
before deciding to invest in the Common Stock offered hereby.
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") which represent the Company's expectation or beliefs
including, but not limited to, statements regarding growth in sales of the
Company's products, profit margins and the sufficiency of the Company's cash
flow for its future liquidity and capital resource needs. For this purpose, any
statements contained in this Prospectus that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "estimate" or "continue" or the negative or other variations thereof
or comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors,
including those described below.
RECENT LOSSES; POTENTIAL NEED FOR ADDITIONAL FINANCING
The Company has in recent periods incurred operating losses. The Company
incurred a net loss of $513,000 for the year ended December 31, 1995 and a net
loss of $522,000 for the six months ended June 30, 1996. There can be no
assurance that the Company will be able to achieve or maintain profitability on
a quarterly or annual basis or that it will be able to sustain or increase
revenue growth. The Company believes that the net proceeds from the Concurrent
Offering, together with funds from operations, will be sufficient to finance the
Company's foreseeable cash requirements for at least the next twelve months. If
the Company requires additional funds, there can be no assurance that additional
financing can be obtained on acceptable terms, if at all. The inability to
obtain such financing, if necessary, could have a material adverse effect on the
Company. If additional funds are raised by issuing equity securities, dilution
to existing shareholders may result. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
UNCERTAINTY OF MARKET DEVELOPMENT, DELIVERY AND ACCEPTANCE OF THE COMPANY'S
SYSTEMS
The market for electronic health record systems and clinical information
systems is relatively new and may not develop as the Company expects, which
could have a material adverse effect on the Company. The Company's success is
dependent upon market acceptance of its systems. The Company's future success
and financial performance will depend in large part on the Company's ability to
continue to meet the increasingly sophisticated needs of its customers through
the timely development and successful introduction of enhanced versions of its
existing systems, complementary systems and new systems. There can be no
assurance that the Company will successfully complete, develop, introduce and
market new systems or system enhancements, or that systems or system
enhancements currently in development or that may be developed by the Company in
the future will meet the requirements of healthcare providers and achieve market
acceptance. The Company has experienced delays from time to time in completing
the development of new or enhanced systems and may experience additional delays
in the future. The inability of the Company to develop and deliver new systems
on a timely basis could have a material adverse effect on the Company. Changing
prices of computer hardware could have a material effect on the cost of products
sold and the related selling price of software and hardware sales.
VARIABILITY OF QUARTERLY OPERATING RESULTS; EXTENDED SALES CYCLE
The Company's revenues and operating results may vary significantly from
quarter to quarter as a result of a number of factors, many of which are outside
the Company's control. These factors include, among others, the magnitude of
customer agreements; unpredictability in the number and timing of systems sales;
length of the sales cycle; possible delays in the installation process; and
changes in the customer's financial condition or budget. The Company's systems
may be implemented in several phases, in some cases over several years. The
decision by a healthcare provider to replace, substantially modify or upgrade
its information systems involves a large capital commitment and an extended
review and approval process. The sales cycle for
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the Company's systems is typically six to eighteen months from initial contact
with a customer to execution of a master sales agreement with the Company.
During this period, the Company may expend substantial time, effort and funds
preparing proposals and negotiating a master sales agreement with no certainty
of an agreement being reached.
The Company's revenue recognition policies vary depending upon the source
of revenue and recognition does not necessarily coincide with payment. As a
result of many factors, including the timing of system sales and installations,
there may be significant variations in operating results from quarter to
quarter. In the past, customers have delayed installations from the originally
scheduled installation date and have modified the original system configuration.
There can be no assurance that customers will not cancel all or portions of
master sales agreements in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE UPON THIRD PARTIES
The Company enters into strategic relationships for the non-exclusive use
of information management technologies of leading technology developers. Among
others, the Company has entered into agreements with IBM for its Medical
RecordsPlus imaging software and with Wang for its Physician Workstation and
OPEN/software products. There can be no assurance that these companies will
continue these strategic relationships with the Company or that the Company will
obtain rights to newly developed technologies of these companies or other
technology developers. The Company's products are based upon industry adherence
to open architecture systems. In the event that a non-open architecture standard
is developed and widely accepted, the Company may need to change its interfaces
or develop its own information management technology. There can be no assurance
that the Company's efforts to develop such technology would be successful or
that there would be adequate funds available for such effort. Furthermore, there
can be no assurance that the Company's relationship with IBM, Wang or others
will be successful or that any similar relationships will develop or be
successful. See "Business -- Strategic Relationships" and "Business --
Competition."
ABILITY TO MANAGE GROWTH
The Company is currently experiencing a period of rapid growth and
expansion which has placed, and could continue to place, a significant strain on
the Company's service and support operations, sales and administrative personnel
and other resources. In order to serve the needs of its existing and anticipated
customer base, the Company believes that it will have to increase its workforce
substantially, which will require the Company to attract, train, motivate,
manage and retain highly qualified employees. The Company's ability to manage
its planned growth also will require the Company to continue to expand its
operational, management and financial systems and controls, all of which may
significantly increase its operating expenses. If the Company fails to achieve
its growth as planned or is unsuccessful in managing growth that does occur,
there could be a material adverse effect on the Company. See
"Business -- Strategy."
DEPENDENCE UPON KEY PERSONNEL
The Company's business is dependent upon the performance of its senior
executives. The loss of the services of one or more of those individuals or the
Company's inability to attract, motivate and retain highly qualified employees
in the future could have a material adverse effect on the Company. The Company
maintains key man life insurance policies in the amount of $2.0 million on the
lives of each of Mitchel J. Laskey and David M. Pomerance. See "Management."
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COMPETITION; RAPID CHANGES IN TECHNOLOGY
The market for information technology in the healthcare industry is
intensely competitive. Many of the Company's competitors have significantly
greater financial, research and development, technical and marketing resources
than the Company. Competitors vary in size and in the scope and breadth of the
products and services they offer. The Company's systems compete both with other
technologies and with similar systems developed by other companies. Other major
information management companies, including the companies with whom the Company
has strategic relationships, may enter the markets in which the Company
competes. Competitive pressures and other factors, such as new system
introductions by the Company's competitors, may result in significant pricing
pressures that could have a material adverse effect on the Company. In addition,
in the professional and technical consulting segment, the Company competes with
the consulting divisions of national accounting firms as well as national and
regional healthcare specialty consulting firms.
The computer and information systems industries are characterized by rapid
technological advances in both software and hardware, frequent new product
introductions and enhancements as well as changes in customer needs. New
developments of software or hardware could have a material adverse effect on the
Company's sales or render the Company's systems non-competitive or obsolete. To
respond to rapidly changing technology, the Company will be required to make
substantial continuing investments in research and development, and there can be
no assurance that its efforts will be successful or that there will be adequate
funds available for such efforts. During the period from January 1, 1994 through
June 30, 1996, the Company spent $5.0 million on software development. The
Company believes that to sustain its growth it must continue to devote
substantial resources to its product development efforts, including
DynamicVision, PACsPlus+ and Monitrax, and the maintenance and enhancement of
its existing products. See "Business -- Strategy" and "Business -- Competition."
RESTATED FINANCIAL REPORTS
In July 1994, David M. Pomerance, a non-employee director, was appointed
Chief Executive Officer and President of the Company, and James Terrano, the
former Chief Executive Officer and President of the Company, was appointed
Executive Vice President. In August 1994, the Company merged with Dynamic
Technical Resources, Inc. ("DTR"). Following the merger, Mitchel J. Laskey, the
former chief executive officer and principal shareholder of DTR, was appointed
the Company's President. In September 1994, the Company's Chief Financial
Officer was dismissed and replaced by Paul S. Glover. In October 1994, Messrs.
Laskey, Pomerance and Glover ("New Management") discovered possible
misapplication and errors in the application of generally accepted accounting
principles relating to the Company's method of income recognition in its
previously issued financial statements. In November 1994, the Company's Audit
Committee authorized an independent internal investigation which revealed that
the Company's financial statements during certain periods prior to September 30,
1994 had improperly recognized income and recommended that the Company restate
and amend its previously reported financial statements for the years ended
December 31, 1992 and 1993 and for the quarters ended March 31, June 30, and
September 30, 1994. Effective December 2, 1994, Mr. Terrano's employment was
terminated and his resignation as a director was accepted. The Company no longer
employs any of the 12 senior managers who held such positions in July 1994. Of
the 90 employees of the Company in July 1994, 84 are no longer associated with
the Company. In January 1995, restated financial statements were filed with the
Securities and Exchange Commission ("SEC") and Nasdaq. Shortly thereafter, the
Company's prior auditors were dismissed and its current auditors were retained.
In April 1995, the SEC commenced an investigation related to the Company's
previous revenue recognition practices. The Company has fully cooperated with
the SEC's investigation, has not received any substantive correspondence from
the SEC with respect to the investigation since December 1995 and does not
believe that it or New Management is the target of any SEC proceeding. There can
be no assurances, however, that an SEC proceeding will not be commenced against
the Company, New Management or prior management, or, if commenced, will not
result in substantial fines and penalties that could have a material adverse
effect on the Company. In addition, while the Company has received no
notification of any claims arising from the financial statements discussed
above, and while the Company believes that the statute of limitations has
expired with respect to any material potential claims, there can be no
assurances that actions will not be brought and that such actions, if determined
adversely to the Company, would not have a material adverse effect on the
Company.
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POSSIBLE VOLATILITY OF STOCK PRICE
The Company's stock price has experienced significant volatility over the
past several years. Moreover, the stock market has from time to time experienced
extreme price and volume fluctuations, particularly in the high technology
sector, which may be unrelated to the operating performance of particular
companies. Market fluctuations and factors, such as announcements of
technological innovations or new products by the Company, its competitors or
third parties, as well as market conditions in the computer software or hardware
industries and healthcare reform measures, may have a significant effect on the
market price of the Company's Common Stock. Since the Company recognizes
revenues for certain products upon the completion of identified milestone
conditions, delays in meeting such conditions could result in the shift of
revenue recognition from one quarter to another. Any such shift could adversely
impact the results of operations for a particular quarter, which in turn could
cause fluctuations in the Company's stock price. See "Price Range of Common
Stock."
DEPENDENCE UPON PROPRIETARY SOFTWARE
The Company's healthcare information systems consist primarily of the
Company's software integrated with third party hardware and software. The
Company does not hold any patents nor has it filed copyrights with respect to
any of its software systems. To protect its proprietary rights, the Company
primarily relies upon trade secrets, copyright laws and confidentiality
agreements with employees and customers. These safeguards provide only limited
protection, and competitors may imitate the Company's systems and attempt to
integrate the same or similar third party systems into systems competitive with
those licensed by the Company. Furthermore, there can be no assurance that
others will not independently develop systems similar or superior to those of
the Company. There has been substantial litigation regarding intellectual
property rights in the computer industry. Although no such litigation is pending
or threatened against the Company, there can be no assurance that third parties
will not assert infringement claims against the Company in the future. Moreover,
the Company may need to initiate litigation from time to time to enforce or
protect the Company's intellectual property rights and to determine the validity
and scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources, which could have a material
adverse effect on the Company. See "Business -- Intellectual Property."
UNCERTAINTY RELATED TO ACQUISITIONS
The Company may pursue the acquisition of complementary businesses,
products or technologies. Acquisitions involve a number of risks that could
adversely affect the Company's operating results, including the diversion of
management's attention, the assimilation of the operations and personnel of the
acquired companies, the amortization of acquired intangible assets and the
potential loss of key employees of the acquired companies. There can be no
assurance that the Company will consummate future acquisitions on satisfactory
terms, if at all, that adequate financing will be available on terms acceptable
to the Company, if at all, or that any acquired operations will be successfully
integrated. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Strategy."
UNCERTAINTY IN HEALTHCARE INDUSTRY; GOVERNMENT REGULATION
The healthcare industry is undergoing significant and rapid changes,
including the consolidation of hospitals and other healthcare providers to form
integrated delivery networks as well as market-driven and government initiatives
to reform healthcare, which the Company anticipates will affect the operation
and procurement process of healthcare providers. The increased bargaining power
of such combined enterprises and their focus on cost containment could force the
Company to reduce prices for its systems, which could have a material adverse
effect on the Company. As the number of hospitals and other healthcare providers
decreases due to further industry consolidation, each potential sale of the
Company's systems becomes more significant and competition for each sale will be
greater. Such consolidation also creates the possibility that the Company's
customers could cancel their master sales agreements if the other healthcare
information providers involved in the consolidation have installed or selected a
competing or potentially incompatible information
9
<PAGE> 11
system. Further, healthcare providers may react to proposed federal and state
reform measures and cost containment pressures by curtailing or delaying
investments, including those for the Company's systems and related services.
Although the effects of federal and state initiatives for healthcare reform are
unknown, the Company believes that competitive factors in the healthcare
industry will continue to drive reform of healthcare delivery. The Company
cannot predict with any certainty what impact, if any, such market and
government initiatives might have on the Company.
The United States Food and Drug Administration ("FDA") has issued a draft
guidance document addressing the regulation of certain computer products as
devices under the Federal Food, Drug, and Cosmetic Act (the "FFDCA"). To the
extent that computer software is classified as a device under the applicable
regulations, the manufacturers of such products could be required, depending
upon the product, to: (i) register and list their products with the FDA; (ii)
notify the FDA and demonstrate substantial equivalence to other products on the
market before marketing such products; or (iii) obtain FDA clearance by filing a
pre-market application that establishes the safety and effectiveness of the
product. Compliance with these requirements can be burdensome, time consuming
and expensive and there can be no assurance that the Company will ultimately be
able to obtain the required FDA clearances to market its products. The Company
has two products considered devices under the FFDCA. Failure to obtain or
maintain compliance with FDA regulations could result in withdrawal of the
products from the market, which could have a material adverse effect on the
Company. See "Business -- Government Regulation."
POTENTIAL LIABILITY TO CUSTOMERS OR THIRD PARTIES
Certain of the Company's systems provide access to patient information used
by physicians and other medical personnel in providing medical care. The medical
care provided by physicians and other medical personnel is subject to numerous
medical malpractice risks and other claims. The Company may be subject to claims
by parties who may seek damages from any or all persons or entities connected to
the process of delivering patient care. Although the Company maintains liability
insurance to protect against certain claims associated with the use of its
systems, there can be no assurance that the Company will not be subject to
product liability or other claims and that its insurance coverage and the
contractual limitations on liability typically contained in master sales
agreements will provide adequate protection. A successful claim brought against
the Company, or unsuccessful claims causing a substantial expenditure of funds
and a diversion of management's time and resources, could have a material
adverse effect on the Company. While the Company has been able to obtain
liability insurance, there can be no assurance that the Company will be able to
maintain such insurance or that it will continue to be available on terms
acceptable to the Company or at all.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in the public market
or the perception that such sales could occur may adversely affect the market
price of the Common Stock. Upon completion of the Concurrent Offering, the
Company will have 15,400,536 shares of Common Stock outstanding. The holders of
substantially all the shares of Common Stock being offered in this Offering have
agreed with the underwriters of the Concurrent Offering not to sell or otherwise
dispose of any of such shares for a period of 180 days after the closing of the
Concurrent Offering. Of the shares of Common Stock outstanding and underlying
options and warrants, 4,979,596 shares are held by persons deemed "affiliates"
of the Company as such term is defined in Rule 144 and are subject to the
"manner of sale" restrictions under Rule 144. See "Principal and Selling
Shareholders," "Description of Capital Stock -- Registration Rights," "Shares
Eligible for Future Sale" and "Underwriting."
EFFECTS OF AUTHORIZED BUT UNISSUED STOCK AND CERTAIN ANTI-TAKEOVER
CONSIDERATIONS
The Company's Board of Directors has the authority to issue 10,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the Company's shareholders. There are 1,055,938 shares of Series A
Preferred Stock authorized, of which 968,750 shares are outstanding and
4,384,375 shares of Series B Preferred Stock authorized, of which 3,750,000
shares are outstanding. All outstanding shares of Series A Preferred Stock and
10
<PAGE> 12
Series B Preferred Stock are being mandatorily converted to shares of Common
Stock on a one-to-one basis concurrently with the consummation of this Offering.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. The issuance of additional preferred stock, as well as
certain provisions of the Company's Articles of Incorporation and By-laws and of
Florida law, could have the effect of delaying, deferring or preventing a change
in control of the Company or removal of management and may limit the price
certain investors may be willing to pay in the future for shares of Common
Stock. See "Description of Capital Stock."
NO DIVIDENDS
The Company intends to retain future earnings for use in its business and
does not anticipate paying any cash dividends on shares of its Common Stock in
the foreseeable future. See "Dividend Policy."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock being offered hereby. See "Principal and Selling Shareholders."
11
<PAGE> 13
CAPITALIZATION
The following table sets forth as of June 30, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
to reflect the conversion of the Company's Series A Preferred Stock and Series B
Preferred Stock into Common Stock upon consummation of this Offering, and (iii)
the pro forma capitalization of the Company as adjusted to reflect the sale of
4,000,000 shares of Common Stock by the Company (at an offering price of $6.00
per share) in the Concurrent Offering and the application of the net proceeds
therefrom. The table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
(IN THOUSANDS)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED(2)
------- --------- --------------
<S> <C> <C> <C>
Long-term obligations........................................ $ 2,922 $ 2,922 $ 234
------- -------- --------
Shareholders' equity:
Series A preferred stock, $0.01 par value (liquidating
preference of $792,438); 1,055,938 shares authorized;
968,750 shares outstanding actual; none outstanding, pro
forma and pro forma as adjusted......................... 10 -- --
Series B preferred stock, $0.01 par value (liquidating
preference of $3,067,500); 4,384,375 shares authorized;
3,750,000 shares outstanding actual; none outstanding,
pro forma and pro forma as adjusted..................... 37 -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized; 6,681,886 shares outstanding actual;
11,400,536 pro forma and 15,400,536 pro forma as
adjusted(1)............................................. 67 114 154
Additional paid-in capital................................. 12,955 12,955 34,855
Deficit.................................................... (9,472) (9,472) (9,472)
------- ------- --------
Total shareholders' equity............................ 3,597 3,597 25,537
------- ------- --------
Total capitalization............................. $ 6,519 $ 6,519 $ 25,771
======= ======= ========
</TABLE>
- ---------------
(1) Excludes approximately 1,908,190 shares issuable upon the exercise of stock
options to be outstanding upon consummation of this Offering.
(2) Adjusted to give effect to the sale of 4,000,000 shares of Common Stock
offered by the Company in the Concurrent Offering and the application of
the net proceeds therefrom.
12
<PAGE> 14
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq SmallCap Market under the symbol
"DHTI." The following table sets forth the range of quarterly high and low bid
quotations per share for the Common Stock for the periods indicated, as reported
by Nasdaq.
<TABLE>
<CAPTION>
COMMON STOCK
---------------
HIGH LOW
------ ------
<S> <C> <C>
1996:
Third Quarter (through August 28).......................................... $6.375 $3.750
Second Quarter............................................................. 7.375 2.250
First Quarter.............................................................. 2.375 1.625
1995:
Fourth Quarter............................................................. $2.313 $1.000
Third Quarter.............................................................. 1.125 0.625
Second Quarter............................................................. 1.000 0.875
First Quarter.............................................................. 1.375 0.875
1994:
Fourth Quarter............................................................. $2.000 $1.000
Third Quarter.............................................................. 1.875 1.500
Second Quarter............................................................. 2.125 1.750
First Quarter.............................................................. 2.750 2.000
</TABLE>
The latest reported sale price of the Common Stock as reported on the
Nasdaq SmallCap Market on August 28, 1996 was $6.00 per share. The number of
registered record holders of Common Stock at August 5, 1996 was 453. The Company
believes that there are in excess of 1,500 beneficial owners of the Common
Stock.
DIVIDEND POLICY
No cash dividends have been paid on Common Stock to date, and none are
anticipated in the foreseeable future. Any future determination concerning the
payment of cash dividends will depend upon the Company's results of operations,
financial condition, capital requirements and other factors deemed relevant by
the Company's Board of Directors. In addition, the loan agreement between the
Company and its primary lender prohibits the payment of dividends under certain
conditions.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Except for the pro forma information, the following selected consolidated
financial data for the years ended December 31, 1991, 1992, 1993, 1994 and 1995
was derived from the financial statements of the Company which have been audited
by the Company's independent auditors. The following selected consolidated
financial data for the six months ended June 30, 1995 and 1996, have been
derived from the unaudited consolidated financial statements of the Company,
which in the Company's opinion include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. This data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------- ---------------------------------
1995 1995 1996
--------------------- ------ ------------------------
1991 1992 1993 1994(1) ACTUAL PRO FORMA(2) ACTUAL ACTUAL(3) PRO FORMA(2)
------ ------- ------ ------- ------ ------------ ------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenues:
Computer system equipment
sales and support....... $4,472 $ 3,712 $3,961 $ 1,873 $ 1,101 $ 2,619 $ 742 $ 1,592 $ 2,037
Application software
licenses................ 2,828 3,066 3,578 1,849 2,429 4,477 1,547 1,306 1,339
Software support.......... 1,387 1,633 2,149 2,550 3,731 4,898 1,696 2,295 2,728
Services and other........ -- -- -- 715 1,625 2,156 516 1,124 1,217
------ ------ ------ ------- ----- ------ ------ ------ ------
Total operating
revenues.......... 8,687 8,411 9,688 6,987 8,886 14,150 4,501 6,317 7,321
------ ------ ------ ------- ----- ------ ------ ------ ------
Costs and expenses:
Cost of products sold..... 3,181 2,850 3,159 1,547 881 1,887 659 1,359 1,738
Client services
expenses................ 852 1,236 1,437 2,601 2,825 4,386 1,365 2,003 2,567
Software development
costs................... 1,043 1,388 1,425 1,775 1,643 3,024 915 827 1,242
Sales and marketing....... 1,450 1,655 2,032 1,718 1,931 2,689 1,118 1,536 1,744
General and
administrative.......... 1,084 1,358 1,382 2,219 1,768 2,383 948 1,009 1,568
Loss from discontinuance
of product line(4)...... -- 2,000 -- -- -- -- -- -- --
Restructuring costs(5).... -- -- -- 686 -- -- -- -- --
------ ------ ------ ------- ----- ------ ------ ------ ------
Total costs and
expenses.......... 7,610 10,487 9,435 10,546 9,048 14,369 5,005 6,734 8,859
------ ------ ------ ------- ----- ------ ------ ------ ------
Operating income (loss)..... 1,077 (2,076) 253 (3,559) (162) (219) (504 ) (417) (1,538)
Other income (expense)...... (7) (42) (7) (748) (351) (427) (203 ) (105) (95)
------ ------ ------ ------- ------ ------ ------ ------ ------
Net earnings (loss)......... $1,070 $(2,118) $ 246 $(4,307) $ (513) $ (646) $(707 ) $ (522) $ (1,633)
====== ====== ====== ======= ====== ====== ====== ====== ======
Earnings (loss) per common
share..................... $ 0.22 $ (0.40) $ 0.05 $ (0.78) $(0.08) $ (0.10) $(0.11) $ (0.08) $ (0.25)
====== ====== ====== ======= ====== ====== ====== ====== ======
Weighted average common
shares outstanding........ 4,882 5,266 5,363 5,536 6,443 6,443 6,295 6,619 6,619
</TABLE>
- ---------------
(1) Includes the operating results and related financial information since the
acquisition of Dynamic Technical Resources, Inc. on August 23, 1994,
accounted for by the purchase method.
(2) Gives pro forma effect to acquisition of DMI assuming such transaction
occurred on January 1, 1995. See "Pro Forma Condensed Consolidated
Statement of Operations."
(3) Includes the operating results and related financial information since the
acquisition of Dimensional Medicine, Inc. on May 1, 1996, accounted for by
the purchase method.
(4) The Company recorded a one time charge of $2.0 million relating to the
estimated losses and write downs associated with the discontinuance of a
product line operating on the Prime computer platform, which was no longer
commercially available.
(5) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note F of the December 31, 1995 financial statements
included herein.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT HISTORY
During the period from July 1994 through December 1994, the Company
underwent a significant management restructuring which included a change in all
senior management personnel. During this process, the Company retained a new
senior management team comprised of Messrs. David M. Pomerance, Mitchel J.
Laskey and Paul S. Glover ("New Management"). During the year ended December 31,
1995, the Company completed a restructuring plan (the "Restructuring Plan")
begun during 1994 and developed and executed a refinancing plan (the
"Refinancing Plan"). In addition, the Company changed its name to Dynamic
Healthcare Technologies, Inc. and re-engineered its product strategy to provide
the healthcare industry with a comprehensive electronic health record solution
which included the announcement of its new DynamicVision product.
The Restructuring Plan resulted in the closing of the Company's Lincoln,
Nebraska facility, the relocation of sales, marketing, accounting and
administrative personnel to Orlando, Florida and the organization of a national
support center based in Orlando, Florida. Throughout the restructuring process,
New Management maintained a commitment to preserving its customer base by
improving customer satisfaction. The Restructuring Plan included a
re-engineering of the Company's laboratory product line, enhancement of product
quality control processes and standards, the timely delivery of scheduled
installations and a commitment to meeting all outstanding customer contract
obligations. During the restructuring process, New Management determined that
additional financing was required. The Company was in default of certain
financial covenants contained in the loan agreement with its primary lender, and
was delisted from the Nasdaq stock market system for failing to meet the
continuing maintenance requirements of such listing.
In July 1995, the Company completed the private placement of Subordinated
Convertible Notes (the "Notes"), with detachable warrants, for an aggregate
consideration of $775,000. In November 1995, the Notes were converted into an
aggregate of 968,750 shares of the Company's newly designated Series A Preferred
Stock. In December 1995, the Company completed the private placement of
3,750,000 shares of Series B Preferred Stock for an aggregate consideration of
$3,025,000. The final phase of the Refinancing Plan included the restructuring
of the Company's $3,500,000 demand line of credit into a long-term $2,800,000
note, payable in monthly installments, based upon a 17 1/2 year amortization and
a balloon payment in March 1998. The Company subsequently regained listing on
the Nasdaq SmallCap Market in December 1995.
Following the completion of the Restructuring Plan and the Refinancing
Plan, the Company shifted its focus to new product development. Utilizing the
Company's healthcare information experience, document imaging technologies and
customer input, the Company focused on a new product strategy for electronic
health records. The Company's new electronic health record product,
DynamicVision, provides connectivity and enabling technologies that integrate
clinical and imaging information systems to create an open architecture,
multi-media clinical workstation. In February 1996, the Company demonstrated
DynamicVision at a major industry trade show. As a direct result of that
demonstration, the Company signed a beta-site agreement with an existing
customer. The beta-site installation commenced in July 1996.
In May 1996, the Company completed the acquisition of Dimensional Medicine,
Inc. ("DMI") in order to strategically expand its customer base as well as the
Company's clinical information systems product offerings. The DMI office in
Minnetonka, Minnesota was subsequently converted into the Company's radiology
technology center.
On June 10, 1996, the Company announced the appointment of Nikhil A. Bhatt
as Senior Vice President and Chief Technical Officer. In addition, David M.
Pomerance was named Chairman of the Board and Mitchel J. Laskey was named Chief
Executive Officer in addition to retaining his positions as President and
Treasurer.
15
<PAGE> 17
OVERVIEW
The Company's revenues are derived from (i) computer equipment sales and
support, (ii) application software licenses, (iii) software support and (iv)
services and other revenues. The Company generally recognizes revenues from
computer equipment sales at the time the products are shipped. Computer system
equipment sales and support revenues include hardware support contracts for a
specific period from which revenue is recognized ratably over the corresponding
contract period. Application software license revenues are recognized when
application software is delivered to the customer. Installation and training
service revenues, included with application software licenses, are recognized as
the services are performed. Software support revenues principally include
contracts for remote dial-up problem diagnosis, maintenance and corrective
support services, each of which covers a specified period for which revenue is
recognized ratably over the corresponding contract period. Services and other
revenues include project management, training, consulting, custom programming
services, post-contract support obligations and other services, which are
provided under separate contract and are recognized as services are performed.
Revenues from professional services and maintenance and support services
typically increase as the number of installed systems increases.
Cost of products sold includes the cost of hardware sold, costs of third
party software licenses and hardware support subcontracts. Client service
expense includes the direct and indirect costs associated with implementation
and support personnel. Software development costs include the direct and
indirect salaries and wages of software research and development personnel,
direct research and development expenses, and software amortization expense,
reduced by capitalized software development costs. Software development costs
are expensed until such time as technological feasibility is established and
then are capitalized in compliance with Statement of Financial Accounting
Standards No. 86 "Accounting for Costs of Computer Software to be Sold, Leased
or Otherwise Marketed." Sales and marketing costs include direct and indirect
salaries, commissions, joint marketing costs, advertising, trade show costs,
user group costs and travel and entertainment expenses related to the sale and
marketing of the Company's products and services. General and administrative
expenses include salaries and expenses for corporate administration, financial,
legal and human resources.
The sales cycle for the Company's systems is typically six to eighteen
months from initial contact to contract signing. The product delivery cycle is
variable. Based on the customer's implementation plan, product delivery may take
two or more years, particularly with enterprise-wide electronic healthcare
record solutions involving significant and continuing customer service
requirements. Accordingly, the product delivery cycle depends upon the
combination of products purchased and the implementation plan defined by the
customer in the master sales agreement. Each customer contract is separately
negotiated. The installation schedule for a clinical information systems, or
departmental electronic healthcare record implementations, typically require six
to twelve months. Under its standard master sales agreement, the Company
generally receives a partial payment upon execution of the agreement, a hardware
installment payment upon delivery of hardware, installation progress payments
upon the completion of defined milestones and final payment, which may vary with
each contract.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth, for each of the periods indicated, certain
selected statement of operations data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Operating revenues:
Computer system equipment sales and
support............................... 40.9% 26.8% 12.4% 16.5% 25.2%
Application software licenses............ 36.9 26.5 27.3 34.4 20.7
Software support......................... 22.2 36.5 42.0 37.7 36.3
Services and other....................... -- 10.2 18.3 11.4 17.8
----- ----- ----- ----- -----
Total operating revenues......... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Costs and expenses:
Cost of products sold.................... 32.6 22.1 9.9 14.7 21.5
Client services expenses................. 14.8 37.2 31.8 30.3 31.7
Software development costs............... 14.7 25.4 18.5 20.3 13.1
Sales and marketing...................... 21.0 24.6 21.7 24.8 24.3
General and administrative............... 14.3 31.8 19.9 21.1 16.0
Restructuring costs...................... -- 9.8 -- -- --
----- ----- ----- ----- -----
Total costs and expenses......... 97.4 150.9 101.8 111.2 106.6
----- ----- ----- ----- -----
Operating income (loss).................... 2.6 (50.9) (1.8) (11.2) (6.6)
Other income (expense)..................... (0.1) (10.7) (4.0) (4.5) (1.7)
----- ----- ----- ----- -----
Net earnings (loss)........................ 2.5% (61.6)% (5.8)% (15.7)% (8.3)%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Operating Revenues. The Company's total consolidated operating revenues
were $6,317,000 for the first six months of 1996, as compared to $4,502,000 for
the corresponding period in 1995, representing an increase of $1,815,000 or
40.3%. This increase was primarily attributable to the inclusion of $1,380,000
in revenues for the two months ended June 30, 1996 resulting from the May 1996
acquisition of DMI. The balance of this increase was primarily attributable to
growth in laboratory system sales and upgrades, new imaging systems sales and
increased services and software support revenues.
Computer system equipment and sales support revenues were $1,592,000 for
the first six months of 1996, as compared to $742,000 for the corresponding
period in 1995, representing an increase of $850,000 or 114.6%. This increase
was primarily due to systems sales for laboratory migrations, imaging and
radiology.
Application software license revenues were $1,306,000 for the first six
months of 1996, as compared to $1,547,000 for the corresponding period in 1995,
representing a decrease of $241,000 or 15.6%. The Company had no new LabPro 2000
system sales during the first six months of 1996. LabPro 2000 installations
during the first six months of 1996 consisted solely of migrations converting
from the Prime computer platform to the IBM AS/400 platform, for which the
Company did not charge any application license fees. However, during the first
six months of 1996, $527,000 of radiology system application license revenues
were recognized and $343,000 of imaging software revenues were recognized, with
no such corresponding revenues recognized for the corresponding period in 1995.
Software support revenues were $2,295,000 for the first six months of 1996,
as compared to $1,696,000 for the corresponding period in 1995, representing an
increase of $599,000 or 35.3%. This increase was primarily due to radiology
systems support revenues attributable to DMI, LabPro 2000 support revenues from
the completion of system deliveries and revenues from the software support of
imaging and health information systems.
17
<PAGE> 19
Services and other revenues for the first six months of 1996 were
$1,124,000, as compared to $516,000 for the corresponding period in 1995,
representing an increase of $608,000 or 117.8%. This increase was primarily
attributable to a shift of resources to billable professional services from
non-billable customer support stabilization undertaken as part of the
Restructuring Plan, as well as additional revenues from professional services
efforts related to complex systems integrations and implementations.
Cost of Products Sold. The cost of products sold was $1,359,000 for the
first six months of 1996, as compared to $659,000 for the corresponding period
in 1995, representing an increase of $700,000 or 106.2%. This increase was
primarily attributable to a higher percentage of revenues associated with
hardware sales and the payment of licensing fees to IBM with respect to the
imaging software licenses.
Client Services Expenses. Client services expenses were $2,003,000 for the
first six months of 1996, as compared to $1,365,000 for the corresponding period
in 1995, representing an increase of $638,000 or 46.7%. This increase was
largely attributable to DMI and its client services expenses for the two months
ended June 30, 1996, as well as increased professional staffing in anticipation
of professional services requirements associated with the DMI consolidation and
the general availability of DynamicVision and PACsPlus+.
Software Development Costs. Software development costs were $827,000 for
the first six months of 1996, as compared to $915,000 for the corresponding
period in 1995, representing a decrease of $88,000 or 9.6%. This decrease was
primarily attributable to an increase in capitalized software development costs
during 1996. During the first six months of 1996, $604,000 of software
development costs were capitalized, as compared to $447,000 of software
development costs capitalized during the first six months of 1995.
Sales and Marketing Expenses. The Company's sales and marketing expenses
were $1,536,000 for the first six months of 1996, as compared to $1,118,000 for
the corresponding period in 1995, representing an increase of $418,000 or 37.4%.
This increase was primarily attributable to additional sales and marketing
personnel hired or employed in anticipation of the general availability of
DynamicVision, PACsPlus+ and imaging products. This increase was also
attributable to sales and marketing expenses related to DMI.
General and Administrative Expenses. General and administrative expenses
were $1,009,000 for the first six months of 1996, as compared to $948,000 for
the corresponding period in 1995, representing an increase of $61,000 or 6.4%.
As a percentage of total revenues, general and administrative expenses were
16.0% for the six months ended June 30, 1996, as compared to 21.1% for the six
months ended June 30, 1995.
Other Income (Expense). The Company's total other expense for the first
six months of 1996 was $105,000, as compared to $203,000 for the corresponding
period in 1995, representing a decrease of $98,000 or 48.3%. This decrease was
primarily attributable to a decrease in interest expense and financing charges
resulting from the restructuring of the Company's demand line of credit into a
long-term note.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Operating Revenues. The Company's total operating revenues for 1995 were
$8,886,000, as compared to $6,987,000 for 1994, representing an increase of
$1,899,000 or 27.2%. Computer system equipment sales and support revenues for
1995 were $1,101,000, as compared to $1,873,000 for 1994, representing a
decrease of $772,000 or 41.2%. Application software license revenues for 1995
were $2,429,000, as compared to $1,849,000 for 1994, representing an increase of
$580,000 or 31.4%. Although the Company had fewer system placements of its
laboratory product line during 1995, these variances were primarily the result
of an increased focus on installing software sales contracted for in 1994 which
were completed during 1995. Software support revenues for 1995 were $3,731,000,
as compared to $2,550,000 for 1994, representing an increase of $1,181,000 or
46.3%. The increase was principally attributed to increased laboratory system
installations, the acquisition in August 1994 of Dynamic Technical Resources,
Inc. ("DTR") and revenues associated with a contract with IBM for support of
Medical RecordsPlus software installations. Services and other revenues for 1995
were $1,625,000, as compared to $715,000 for 1994, representing an increase of
$910,000 or 127.3%. This increase was primarily attributable to the acquisition
of DTR, which expanded the Company's custom programming, technical consulting
and other professional services revenues.
18
<PAGE> 20
Cost of Products Sold. The cost of products sold during 1995 was $881,000,
as compared to $1,547,000 during 1994, representing a decrease of $666,000 or
43.1%. This decrease was primarily attributable to a decrease in hardware sales.
Client Services Expenses. Client services expenses for 1995 were
$2,825,000, as compared to $2,601,000 for 1994, representing an increase of
$224,000 or 8.6%. This increase was primarily attributable to the inclusion of a
full year of related client services expenses for 1995 following the acquisition
of DTR in August 1994.
Software Development Costs. Software development costs for 1995 were
$1,643,000, as compared to $1,775,000 for 1994, representing a decrease of
$132,000 or 7.4%. This decrease was principally attributable the effects of
restructuring and the reassignment of the Company's technical personnel to
product delivery and support installation activities. Capitalized software
development activities initially slowed during the restructuring process in
early 1995, but increased at the end of 1995 as a result of development work on
LabPro 2000, Monitrax and DynamicVision. Capitalized software expenses were
$796,000 for 1995, as compared to $854,000 for 1994. Software amortization
expenses were $563,000 for 1995, as compared to $506,000 for 1994, reflecting
the inclusion of DTR for the full year.
Sales and Marketing Expenses. Sales and marketing expenses were $1,931,000
for 1995, as compared to $1,717,000 for 1994, representing an increase of
$214,000 or 12.5%. This increase was principally attributable to an increase in
sales and marketing personnel and associated costs. This increase began in the
fourth quarter of 1995 as a result of the Company's new product introductions.
In addition, during 1995, the Company changed its corporate name and incurred
expenses in developing sales and marketing materials involving its new corporate
image.
General and Administrative Expenses. General and administrative expenses
for 1995 were $1,768,000, as compared to $2,219,000 for 1994, representing a
decrease of $451,000 or 20.3%. This decrease resulted from the centralization of
administrative functions after the DTR merger and a reduction in executive and
administrative salaries and personnel expenses. Amortization of goodwill
increased from $55,000 in 1994 to $155,000 in 1995 in direct proportion to the
periods of amortization occurring each year. As a percentage of total revenues,
general and administrative expenses were 19.9% for 1995, as compared to 31.7%
for 1994.
Restructuring Costs. During 1994, $686,000 of restructuring costs were
incurred, as compared to no restructuring costs in 1995. These expenses resulted
from consolidation of sales, marketing, accounting, administration and national
support functions to Orlando, Florida, from Lincoln, Nebraska, as well as the
re-engineering of the laboratory product line. These expenses were recognized in
order to write down assets to net realizable value and to record costs
associated with the Company's Restructuring Plan.
Other Income (Expense). The Company's total other expense for 1995 was
$351,000, as compared to $748,000 for 1994, representing a decrease of $397,000
or 53.1%. The decrease was attributable to a $610,000 charge to operations in
1994 as a result of the issuance of an additional 610,000 shares of Common
Stock, with a market value of $1.00 per share, as an adjustment to the
consideration paid to former DTR shareholders pursuant to the DTR merger which
the Company's Board of Directors determined was required due to breaches by the
Company of representations and warranties (the "Acquisition Contingency").
Notwithstanding this decrease, interest expense and financing charges for 1995
were $378,000, as compared to $143,000 for 1994, representing an increase of
$235,000 or 164.3%. This increase was primarily attributable to debt financing
required to fund the Restructuring Plan and pay interest on the Notes.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Operating Revenues. The Company's total operating revenues for 1994 were
$6,987,000, as compared to $9,688,000 for 1993, representing a decrease of
$2,701,000 or 27.9%. This reduction was primarily attributable to significantly
lower revenues from the sale of computer systems equipment and support as well
as the reduction in application software licenses. During 1994, the Company sold
significantly fewer laboratory information systems, as compared to 1993, and a
significant percentage of customers purchased hardware from sources other than
the Company. Computer system equipment sales and support revenues for 1994 were
19
<PAGE> 21
$1,873,000, as compared to $3,961,000 for 1993, representing a decrease of
$2,088,000 or 52.7%. This was the result of fewer customer sales of new systems
and an increase in customers who purchased computer systems directly from IBM or
an IBM authorized dealer. Application software license revenues for 1994 were
$1,849,000, as compared to $3,578,000 for 1993, representing a decrease of
$1,729,000 or 48.3%. This decrease was primarily attributable to fewer new
customer sales and increased customer discounts. Software support revenues for
1994 were $2,550,000, as compared to $2,149,000 for 1993, representing an
increase of $401,000 or 18.7%. This increase was primarily attributable to
customers having completed the installation process and thereupon commencing
support and maintenance services. Services and other revenues for 1994 were
$715,000, as compared to no corresponding revenues for 1993. The services
revenues increase was related solely to the acquisition of DTR in August 1994.
Cost of Products Sold. The cost of products sold during 1994 was
$1,547,000, as compared to $3,159,000 during 1993, representing a decrease of
$1,612,000 or 51.0%. This decrease was attributable to a decrease in computer
system equipment sales. This, in part, reflected the competitive marketplace for
hardware systems, as well as competitive pricing as a result of re-marketer
sales.
Client Services Expenses. Client services expenses for 1994 were
$2,601,000, as compared to $1,437,000 for 1993, representing an increase of
$1,164,000 or 81.0%. This increase was primarily attributable to two factors.
First, the inclusion of client services expenses attributable to DTR reflected
$415,000 for the four months during 1994 following the Company's merger with
DTR. Second, and more significantly, personnel costs and operational
inefficiencies that existed in the Company's laboratory product line required
extensive resources during the latter part of 1994 to effect product
re-engineering and restructuring.
Software Development Costs. Software development costs for 1994 were
$1,775,000, as compared to $1,425,000 for 1993, representing an increase of
$350,000 or 24.6%. The cost of producing software product masters subsequent to
establishing technological feasibility was capitalized whereas all other
development and research costs were expensed. Capitalized software development
costs were amortized primarily over a five-year estimated economic life, and
$854,000 was capitalized in 1994, as compared to $887,000 capitalized in 1993.
In addition, during 1994, and as part of the Restructuring Plan, New Management
took a charge to operations of approximately $122,000 for the carrying value of
certain software products after a determination of net realizable value.
Sales and Marketing Expenses. Sales and marketing expenses for 1994 were
$1,717,000, as compared to $2,032,000 for 1993, representing a decrease of
$315,000 or 15.5%. This decrease was primarily the result of reduced joint
marketing costs due to the Company directly marketing to its customers and not
relying upon former business partners to market its systems. These actions were
caused primarily as a result of two of the Company's largest business partners
being merged into other companies and the joint marketing agreements with the
Company being terminated.
General and Administrative Expenses. General and administrative expenses
for 1994 were $2,219,000, as compared to $1,382,000 for 1993, representing an
increase of $837,000 or 60.6%. This increase was primarily attributable to the
replacement of the entire management and the retention of New Management during
the third and fourth quarters of 1994, the merger of DTR and the inclusion of
related consolidated costs, including amortization of goodwill, and increased
legal and accounting costs, as well as expenses attributable to the restatement
of prior period financial statements. As a percentage of total revenues, general
and administrative expenses were 31.7% for 1994, as compared to 14.3% for 1993.
Other Income (Expense). The Company's total other expense for 1994 was
$748,000, as compared to $7,000 for 1993, representing an increase of $741,000.
This increase was attributable to a $610,000 charge to operations resulting from
the Acquisition Contingency. This increase was also attributable to increased
interest expense and financing charges resulting from increases in the Company's
line of credit to effect borrowings necessary to implement the Restructuring
Plan and to continue operations.
20
<PAGE> 22
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain quarterly financial data for the
four quarters during the fiscal year ended December 31, 1995, and the two
quarters ended March 31, 1996 and June 30, 1996. This quarterly information is
unaudited, has been prepared on the same basis as the annual financial
statements and, in the opinion of the Company's management, reflects all
normally recurring adjustments necessary for fair presentation of the
information for the periods presented. Operating results for any quarter are not
necessarily indicative of results of any future period. See "Risk
Factors -- Variability of Quarterly Operating Results; Extended Sales Cycle."
<TABLE>
<CAPTION>
1995 1996
------------------------------------------------- -----------------------
FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues............ $2,234,190 $2,267,300 $2,213,396 $2,171,450 $2,309,838 $4,007,551
Operating income (loss)............. (366,291) (136,478) 251,646 89,825 (323,458) (93,066)
Net earnings (loss)................. (443,037) (262,402) 148,313 44,502 (366,911) (155,208)
Earnings (loss) per common share.... $ (0.07) $ (0.04) $ 0.02 $ 0.01 $ (0.06) $ (0.02)
Weighted average common shares
outstanding....................... 6,003,871 6,582,883 6,589,071 6,589,316 6,611,646 6,626,733
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $772,000 for the six months
ended June 30, 1996. Net cash used in investment activities was $2,234,000 for
the six months ended June 30, 1996, principally as a result of the DMI
acquisition. Net cash used in financing activities for the six months ended June
30, 1996 was $57,000, reduced principally as a result of $110,000 paid as
dividends on preferred stock, repayments under bank indebtedness and lease
obligations, offset by proceeds of stock sales and the exercise of stock options
in the amount of $165,000.
Net cash used in operating activities for the twelve months ended December
31, 1995 was $25,000, principally attributable to increases in accounts
receivable, and offset by decreases in unbilled receivables and decreases in
accounts payables. Net cash used in investing activities was $1,102,000 for the
twelve months ended December 31, 1995, principally as a result of capitalization
of software development costs, purchases of property and equipment, and a
restricted cash deposit associated with the DMI acquisition. Net cash received
from financing activities for the twelve months ended December 31, 1995 was
$3,407,000, principally the result of the proceeds from the sale of Series B
Preferred Stock, warrants and the conversion of convertible notes into Series A
Preferred Stock.
The Company currently has a long-term promissory note payable to a bank in
the original principal amount of $2.8 million, with interest at the lender's
prime rate plus 2% per annum. As of July 31, 1996, the rate of interest on this
note was 10.25% per annum. This note is payable on a 17.5 year amortization
schedule, matures on March 31, 1998 and is secured by substantially all of the
assets of the Company. The Company does not currently have an available working
capital line of credit facility. On August 16, 1996, the Company executed
unsecured notes in an aggregate amount of $1.0 million payable to certain
officers, directors and other parties affiliated with the Company. These notes
provide for payment, in full, at the earlier of the completion of this Offering
or November 14, 1996, together with interest at a rate of 13% per annum. See
"Certain Transactions."
As of December 31, 1995 the Company had net operating loss carryforwards
for federal income tax purposes of approximately $9.8 million, which can be used
to offset taxable income in future years. Future equity offerings combined with
sales of the Company's equity during the preceding years may cause changes in
ownership under Section 382 of the Internal Revenue Code of 1986, as amended,
which will limit the use of the Company's net operating loss carryforward
existing as of the date of the ownership change. In the event the Company has
taxable income in the future, a change of ownership under Section 382 may result
in the application of such limitations and could have a material adverse effect
on the Company.
21
<PAGE> 23
Due primarily to the DMI acquisition in May 1996, the Company has recently
experienced a depletion in its working capital. The Company's future capital
needs will include requirements for office facilities and office equipment, as
personnel increases for sales, marketing and research and development.
Short-term borrowings, a restructured credit facility or modification of the
terms of the Unsecured Notes will be required to meet necessary liquidity needs
in the event that this Offering is not completed.
The Company believes that the net proceeds of the Concurrent Offering, in
addition to operating cash flow, will be sufficient to finance the Company's
planned growth and cash requirements for at least the next twelve months. The
Company's ability to meet its cash obligations on a long-term basis will depend
upon, among other factors, achieving profitable operations and the consistent
and timely collection of accounts receivable.
INFLATION
The Company believes that the general state of the economy and inflationary
trends have only a limited effect on its business. Historically, inflation has
not had a material effect on the Company. Changing prices of computer hardware
could have a material effect on the cost of materials sold and the related
selling price of software and hardware sales.
22
<PAGE> 24
BUSINESS
GENERAL
The Company is a leading provider of enterprise-wide, patient-centered
healthcare information systems. These systems enable hospitals, physician
practice groups and integrated delivery networks to capture, store, archive and
retrieve clinical, financial and administrative patient information. The
Company's products enhance productivity, reduce costs and improve the quality of
patient care by providing on-line access to patient information previously
maintained on a variety of media, including paper, X-ray film, magnetic disk and
video and audio recordings. The Company's current product lines include clinical
information systems for use in laboratory, radiology, anatomic pathology and
anesthesiology applications, and imaging and electronic health record solutions.
The Company provides support for all of its systems and provides systems
integration and other consulting services.
The Company currently serves over 250 customers in 44 states. Key customers
include the University of California at Los Angeles Medical Center, University
of Illinois at Chicago Medical Center, Methodist Hospital of Memphis, Memorial
Sloan-Kettering Cancer Center, Ohio State University Hospital, Columbia/HCA,
Greater Dayton Area Hospital Association, Advocate Health Care, Temple
University Hospital, UniHealth and Orlando Regional Health System.
Utilizing the Company's healthcare information experience, imaging
technologies and customer input, the Company is focusing on a new product
strategy for electronic health records. The Company's new electronic health
record product, DynamicVision, provides connectivity and enabling technologies
that integrate clinical and imaging information systems to create an open
architecture, multi-media clinical workstation. DynamicVision provides prompt
and simultaneous on-line access to information stored in various systems and
data repositories located at multiple sites. This information can include
documents, medical images such as X-rays, MRIs and CAT scans, and video and
audio recordings. DynamicVision is currently being beta-tested and is scheduled
for general availability by the end of 1996.
INDUSTRY
The healthcare information industry is undergoing rapid and significant
change. Cost containment pressures, industry consolidation, the movement toward
managed care and rising standards of healthcare quality represent fundamental
trends in today's healthcare operating environment. Increasingly, the key to
effective cost control and quality management lies in the collection,
availability and analysis of medical records in order to assess treatment
patterns, resource utilization and outcomes. As a result, the information
demands in the healthcare industry are rapidly increasing for caregivers,
managers and third party payors. Total healthcare information technology
spending in the United States was estimated to be $8.5 billion in 1994, and is
projected to reach $13.0 billion by 1997 and $20.0 billion by 2000.
Cost containment and quality management efforts in the healthcare industry
have historically been hampered by a lack of integrated clinical and financial
information and the fact that a large amount of healthcare information exists on
paper and is not accessible by computer. The paper based storage of patient
information creates costly information management problems including: (i) delays
in accessing information; (ii) space and personnel costs to store paper-based
records; (iii) lost and misfiled documents; (iv) single user access to relevant
data; and (v) errors in entering and reading information. As reimbursement is
shifting more toward risk sharing and capitation, providers and payors need to
better manage risk by controlling costs, demonstrating quality, measuring
outcomes and influencing utilization.
Healthcare providers have recently begun to view information systems
technology as a viable alternative for increasing productivity and efficiency,
measuring and managing costs, and improving the quality of services delivered.
The 1996 Annual Healthcare Information Management and Systems Society ("HIMSS")/
Hewlett Packard Leadership Survey showed that 63% of its respondents indicated
that their healthcare information systems budgets will increase by 20% or more
over the next two years. In addition, 45% of respondents indicated that the most
important advantage of computer technology for healthcare providers is the
ability to access current patient information across the enterprise.
23
<PAGE> 25
As the need for readily accessible information throughout the healthcare
enterprise continues to grow, hospitals, providers and payors of all sizes are
faced with the challenge of implementing healthcare information management
systems that are scaleable, capable of working with existing multiple legacy
information systems and flexible to adapt to changes in the healthcare
marketplace. Also, such systems must be patient-centered, integrating all
aspects of managing the healthcare process, such as clinical care, financial
management and administrative decision support.
Industry changes are resulting in fewer but larger healthcare entities and
the emerging organizational model is the integrated delivery network ("IDN"). An
IDN is a network of healthcare organizations that assumes and manages healthcare
risk, provides coordinated care and is held financially and clinically
accountable for the health of the population it serves. The 1996 HIMSS/Hewlett
Packard Leadership Survey indicated that 83% of the respondents are now or will
soon be part of an IDN.
IDNs require innovative information systems infrastructure to support their
multi-entity, multi-site environments. Their information systems must contribute
to making the delivery of healthcare services more efficient and effective
across the continuum of care. They must deliver tangible cost reductions and
measurable productivity and quality improvements, making the availability of
complete, timely and cost-effective patient-centered information essential.
The Company believes that one of the most significant changes in healthcare
information needs will be the development and implementation of the electronic
health record. Electronically capturing, storing, indexing, archiving and
disseminating information enables physicians, health information managers,
clinicians, claims processors and others across an entire healthcare enterprise
to share centralized comprehensive patient information. The Company believes
that the electronic health record will be an essential part of information
systems that support IDNs.
STRATEGY
The Company's objective is to be the leading provider of enterprise-wide,
patient-centered healthcare information systems that enable the efficient
capture, storage, archival and retrieval of electronic patient health
information and the secure sharing of this information across the continuum of
care throughout a patient's lifetime. To achieve this objective, the Company
intends to employ the following strategies:
AGGRESSIVELY EXPAND ITS POSITION IN THE ELECTRONIC HEALTH RECORD
MARKET. The Company believes the rapidly growing electronic health record
market represents a significant growth opportunity. The Company believes
DynamicVision, its new electronic health record product, provides an
opportunity to capture a significant share of this emerging and potentially
large market. As such, the Company plans to aggressively market
DynamicVision to existing and new customers through a combination of direct
sales, strategic relationships, trade shows and other forums.
FOCUS ON CROSS-SELLING TO EXISTING AND NEW CUSTOMERS. The Company
believes its customer relationships with key decision makers, many of whom
may have only purchased systems for one department, provide it with a
significant opportunity to sell existing and new systems and services.
Furthermore, the addition of new products, such as DynamicVision, better
leverages the Company's sales and marketing expenditures. Accordingly, the
Company intends to focus its sales and marketing efforts on increased
penetration of existing customers and broad penetration of new accounts.
PROVIDE SOLUTIONS UTILIZING OPEN ARCHITECTURE. The Company's strategy
is to continue to develop systems utilizing open, client/server
architecture. The Company believes that this strategy provides distinct
advantages over competitive product offerings in the marketplace. The
Company's new product development, including DynamicVision, employs
technical designs based on open architecture at all levels of data capture,
information management and workflow, application software and connectivity,
which permits platform independence and plug and play capability. This
capability is critical to customers because it protects their investment in
existing information systems. In addition, the Company's use of open
architecture provides its customers with the flexibility to acquire
incrementally, or upgrade to, new state-of-the-art information solutions as
they become available without incurring the substantial expenses that may
be required with closed or "proprietary" system solutions.
24
<PAGE> 26
MAINTAIN TECHNOLOGICAL ADVANTAGE BY LEVERAGING TECHNOLOGY OF INDUSTRY
LEADERS. The Company's commitment to open architecture leverages its own
technology with capabilities of leading technology companies, enabling the
Company to invest in research and development for its healthcare software
applications. The Company has entered into strategic relationships with
industry leaders, including IBM, Wang and others. The Company believes its
technical designs enable it to respond more rapidly to changes in core
technologies at a lower cost than companies utilizing proprietary
information systems.
ACQUIRE COMPLEMENTARY BUSINESSES, PRODUCTS AND TECHNOLOGIES. The
Company believes it is well positioned to capitalize on the significant
consolidation opportunities which exist in the healthcare information
systems industry. For example, the Company recently completed its
acquisition of DMI, a radiological information and imaging software company
which is now a wholly-owned subsidiary of the Company. The Company will
continue to evaluate potential acquisitions and strategic relationships
which are consistent with its business strategy, complementary to its
product line or which incorporate new technologies.
25
<PAGE> 27
PRODUCTS AND SERVICES
The Company has a broad offering of products and services that are based
upon a strategic mix of applications and technologies that support the
restructuring of healthcare delivery information systems backed by
implementation and support services. The Company's products are organized into
two areas: electronic health record and imaging solutions, and clinical
information systems.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SITES/
PRODUCT TYPE OF SOLUTION STATUS DESCRIPTION
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
ELECTRONIC HEALTH RECORD AND IMAGING SOLUTIONS
- -----------------------------------------------------------------------------------------------------------------------
DynamicVision.................. Electronic Health Record Beta Site An enterprise-wide multi-media electronic
System health records clinical workstation and system
Medical RecordsPlus............ Enterprise-wide Document 45 Based on IBM's ImagePlus/400 image processing
Imaging System system, enables authorized caregivers to access
centralized repositories of document images
Professional Access
Facility(1).................... OS/2 based Workstation 22 Enables authorized caregivers to review and
complete charts
Open Image Server.............. Enterprise-wide Document Available Based on Wang OPEN/software, enables authorized
Imaging System First Half caregivers to access centralized repositories
1997 of document images
Maxiview....................... Diagnostic Image Graphics 20 An advanced imaging and graphic workstation
Workstation that enables two- and three-dimensional image
processing
PACsPlus+...................... Diagnostic Image Management Beta Site Enables physicians and caregivers to access and
and Distribution System review images from local and remote locations
- -----------------------------------------------------------------------------------------------------------------------
CLINICAL INFORMATION SYSTEMS
- -----------------------------------------------------------------------------------------------------------------------
LabPro 2000.................... Laboratory Information 92 Manages clerical and administrative functions
System in the laboratory including monitoring and
controlling specimens, ordering, tracking, and
results reporting
Transfusion Service
Manager(2)..................... Blood Bank System 33 Manages specialized result entry, blood
storage, patient history storage, and product
inventory
Maxifile....................... Radiology Information System 63 Manages clerical and administrative functions
of radiology department including patient
scheduling and film tracking
OPTIMA(3)...................... Radiology Mammography 21 Manages clerical and administrative functions
Manager for mammography services
ANSIRS......................... Anatomic Pathology System 27 Manages clerical and administrative functions
of cytology/pathology department
Monitrax....................... Perioperative Information Available Facilitates the collection and presentation of
System Second Half vital patient, surgical and anesthesia data
1997 through the perioperative process
Physician's Workstation........ Point-of-Care Patient Available A Wang product that facilitates real time data
Record System First Half capture of patient information which the
1997 Company intends to incorporate into its systems
solutions
---------------
(1) Professional Access Facility is an add-on component which may be used only in conjunction with Medical RecordsPlus.
(2) Transfusion Service Manager is an add-on component which may be used only in conjunction with LabPro 2000.
(3) OPTIMA is an add-on component which may be used only in conjunction with Maxifile.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 28
ELECTRONIC HEALTH RECORD AND IMAGING SOLUTIONS
DynamicVision, the Company's electronic health record, is a universal,
clinical workstation which provides enterprise-wide connectivity through a
master patient index to systems and data repositories existing in the healthcare
environment, giving physicians, caregivers and other authorized individuals
prompt and simultaneous access to both current and historical health
information. DynamicVision enables physicians, clinicians and other technical
professionals to: (i) view records, report results and worklist assignments;
(ii) display and manipulate document and diagnostic images; (iii) handle the
analysis and assignment of chart deficiencies and electronically sign records;
(iv) play video and audio recordings; and (v) participate in video
consultations. DynamicVision provides business process and workflow automation
that streamlines the flow of tasks and information throughout an enterprise. In
addition, system administration capabilities include security profiling and
specific permissions for the enterprise. DynamicVision provides the connectivity
and enabling technologies that integrate Dynamic's imaging and clinical
information systems, as well as those from other companies, into a virtual
healthcare information systems environment. DynamicVision is currently being
beta-tested and is scheduled for general availability by the end of 1996.
Medical RecordsPlus is an industry leading, enterprise-wide document
imaging solution based on IBM's ImagePlus/400 image processing system. Medical
RecordsPlus gathers information from scanned or faxed paper documents or
directly from existing provider systems which enables physicians, medical
records personnel and other authorized individuals to access centralized
electronic health record information operating on IBM AS/400.
Professional Access Facility is an OS/2 based clinical workstation which is
used with Medical RecordsPlus to enable physicians, clinicians and other
technical professionals to view records and worklist assignments, display and
manipulate document images, handle the analysis and assignment of record
deficiencies and electronically sign records.
Open Image Server is an open architecture, platform independent,
enterprise-wide document imaging solution based on Wang's Enterprise Work
Management software (OPEN/workflow, OPEN/image and OPEN/COLD) and is available
for both UNIX and Windows NT environments. Open Image Server enables physicians,
medical records personnel and other authorized individuals to access centralized
electronic health record information. Open Image Server gathers information from
scanned or faxed paper documents or directly from existing provider systems.
Maxiview is an advanced imaging and graphics workstation which accommodates
two- and three-dimensional image processing and is compatible with imaging
equipment from all major manufacturers. It enables a physician to observe
interrelationships of soft tissue and bone, precisely locate lesions and tumors
and perform a variety of measurements. See " -- Government Regulation."
PACsPlus+ is an enterprise-wide, diagnostic image management and
distribution system. It provides physicians and caregivers local and remote
access to review quality or diagnostic quality images from cost effective,
standard workstations. PACsPlus+ provides remote access to diagnostic images
across a network already functioning at the customer's location.
CLINICAL INFORMATION SYSTEMS
LabPro 2000 is a clerical and administrative laboratory information system
that allows the laboratory to monitor and control the flow of specimens through
the department. It computerizes the process of ordering, tracking and reporting
results of procedures performed by the clinical laboratory. Patient and
management reporting capabilities provide support for diagnostic and therapeutic
decision making. Multiple LabPro 2000 laboratory systems may be linked,
providing economies of scale through specialized testing stations.
Transfusion Service Manager is a blood bank system which manages
specialized blood test result entries, blood product inventory, blood storage
and patient transfusion histories. Transfusion Service Manager may be used only
in conjunction with LabPro 2000. In addition, management reports enable the
department to evaluate the effectiveness of transfusion services provided.
Transfusion Service Manager is an FDA regulated product for which approval is
pending. See "-- Government Regulation."
27
<PAGE> 29
Maxifile is a radiology information system that computerizes the clerical
and administrative functions of the radiology department. Modular in design,
Maxifile applications include patient scheduling and tracking, film management,
statistical reporting, quality control and patient billing. Maxifile schedules
patient appointments and automatically generates documents which are available
when the patient arrives. The system monitors the patient throughout the
radiology process and offers time and status reports. Film management tracks
film movement among departments, film libraries, clinics and off-site locations.
Diagnostic reports can be approved electronically and then printed, communicated
via a network or automatically faxed through Maxifile's AutoFAX capability.
Primary markets include hospitals, clinics and independent diagnostic imaging
centers.
OPTIMA is a radiology mammography manager which performs clerical and
administrative functions for mammography services, including American College of
Radiology compliance. OPTIMA may be used only in conjunction with Maxifile.
OPTIMA displays an on-line patient history, including breast diagrams.
ANSIRS is an anatomic pathology system that functions independently, or
with LabPro 2000, to manage clerical and administrative functions within
cytology/pathology departments. ANSIRS provides on-line workstation access for
cytologists/histologists, medical secretaries and pathologists. Major functional
areas include report transcription and word processing, quality assurance,
regulatory requirements and on-line access to patient history.
Monitrax is designed to be a point-of-care clinical information system that
will allow the collection and presentation of vital patient, surgical and
anesthesia data through each phase of the perioperative process. The portable
hardware platform will allow for entry of vital signs, drugs, fluids and notes
from any location. Monitrax will capture the data collected during the
perioperative process, organize it, and display it in real-time to facilitate
both clinical and management decision making. The anesthesia record will be
available to become a part of the patient electronic health record. The data
elements are designed to be stored in a repository of clinical information
available for query and outcome reporting.
Physician's Workstation, a Wang product, is a scaleable, point-of-care
patient record application designed by physicians and intended to be
incorporated into the Company's systems solutions. Physician's Workstation
communicates with existing information systems to provide for the real-time
capture of clinical and administrative information and build a comprehensive
electronic health record. Information can be scanned, received by fax or updated
by the physician during the delivery of care.
CONSULTING, SYSTEMS INTEGRATION AND OTHER SERVICES
The Company provides a full range of professional consulting services
including project management, implementation planning, training and education.
The Company's technical services include network design, implementation and
support, custom software development, interfaces and modifications and systems
integration. The Company also provides support services including 24 hour
telephone support, and software maintenance and enhancements.
RESEARCH AND DEVELOPMENT
The Company's research and development program is designed to extend the
capabilities of existing products and develop new healthcare software
applications. The Company believes that a substantial and sustained commitment
to product development is important to the long term success of its business. As
of July 31, 1996, 23 professional employees were engaged in research and
development activities. During the years ended December 31, 1993, 1994 and 1995,
the Company spent $1,984,000, $2,068,000 and $1,862,000, respectively, on
research and development. The Company's research and development is influenced
by customer input and user group forums. Currently, the Company's research and
development efforts are primarily focused on the DynamicVision, PACsPlus+ and
Monitrax product lines.
28
<PAGE> 30
SALES AND MARKETING
As of July 31, 1996, the Company had five sales representatives focusing on
new business development reporting to the Vice President -- New Business Sales
and four account executives focusing on existing customers reporting to the Vice
President -- Customer Sales. New business sales and existing customer sales are
supported by six product specialists who cover the entire United States. The
compensation of the Company's sales employees is substantially dependent on the
achievement of individual sales targets. In addition, a ten person sales support
group provides telemarketing, proposal development, demonstration coordination
and administrative support. The Company's marketing department consists of four
individuals who develop product competitive analyses, sales collateral, audio
and video products and coordinate trade shows, advertising and public relations
activities.
The Company's sales cycle is typically six to eighteen months and includes
several steps: (i) initial contact and qualification; (ii) development of
proposal in response to request for a proposal or direct sales lead; (iii)
business problem requirements definition; (iv) product demonstrations; (v) site
visits; and (vi) contract preparation and negotiations. Members of the Company's
professional services, product management and sales support departments, and
members of executive management assist the sales force in completing the
proposal, conducting demonstrations and analyzing the requirements. In support
of the sales efforts, the Company advertises in trade journals, participates in
trade shows, publishes articles and provides speakers for industry shows and
conferences. In addition, the Company receives qualified leads as well as
support in proposal development, demonstrations and site visits from its
strategic business partners, which include IBM, Wang and others.
STRATEGIC RELATIONSHIPS
The Company has entered into strategic relationships with several leading
technology developers, including IBM, Wang and others, to gain access to certain
technologies that are integrated into the Company's systems. In addition,
through these strategic relationships the Company is able to cross-market its
internally developed or acquired technologies to customers of its business
partners.
In November 1994, the Company signed a non-exclusive agreement with IBM to
market, support and enhance Medical RecordsPlus. The Company is responsible for
providing maintenance, support, product shipment and product enhancements and
offers customers a wide range of additional services including telephone and
remote diagnostic assistance, problem resolution, implementation, training and
consulting services. A fee based on IBM's then current list price, less certain
allowances, is paid to IBM by the Company for licenses sold by the Company. IBM
has retained the right to market the product and, pursuant to the terms of the
Agreement, pays a license fee to the Company for sales of the product by IBM.
In March 1996, the Company signed non-exclusive agreements with Wang. This
relationship provides open systems, core imaging technology and business process
automation capabilities to the Company through Wang's suite of OPEN/software
products which includes OPEN/image, OPEN/workflow, and OPEN/ COLDplus. In
addition, Physician's Workstation provides the Company with a scaleable,
point-of-care patient record application which facilitates the real-time capture
of clinical and administrative information and the construction of a
comprehensive patient health record. The agreements also provide for the mutual
sharing of technology and permits the Company to market these products, for
which the Company pays a fee to Wang.
CUSTOMERS
The Company currently supports over 250 customers in 44 states. The Company
generates revenues almost exclusively through sales to the healthcare industry
located in the United States. Due to this concentration, substantially all
receivables of the Company are from healthcare institutions which may be
similarly affected by changes in economic, regulatory or other industry related
conditions. Key customers include the University of California at Los Angeles
Medical Center, University of Illinois at Chicago Medical Center, Methodist
Hospital of Memphis, Memorial Sloan-Kettering Cancer Center, Ohio State
University Hospital, Columbia/HCA, Greater Dayton Area Hospital Association,
Advocate Health Care, Temple University Hospital, UniHealth Hospital and Orlando
Regional Health System.
29
<PAGE> 31
COMPETITION
The market for information technology in the healthcare industry is
intensely competitive. Many of the Company's competitors have significantly
greater financial, research and development, technical and marketing resources
than the Company. Competitors vary in size and in the scope and breadth of the
products and services they offer. The Company's systems compete both with other
technologies and with similar systems developed by other companies. Other major
information management companies, including the companies with whom the Company
has strategic relationships, may enter the markets in which the Company
competes. Competitive pressures and other factors, such as new system
introductions by the Company's competitors, may result in significant pricing
pressures that could have a material adverse effect on the Company. In addition,
in the professional and technical consulting segment, the Company competes with
the consulting divisions of national accounting firms as well as national and
regional healthcare specialty consulting firms.
GOVERNMENT REGULATION
The FDA has issued a draft guidance document addressing the regulation of
certain computer products as devices under the FFDCA. To the extent that
computer software is classified as a device under applicable regulations, the
manufacturers of such products could be required, depending upon the product,
to: (i) register and list their products with the FDA, (ii) notify the FDA and
demonstrate substantial equivalence to other products on the market before
marketing such products or (iii) obtain FDA clearance by filing a pre-market
application that establishes the safety and effectiveness of the product. The
Company has two products considered devices under the FFDCA: Maxiview and
Transfusion Service Manager. As a result of the characterization of certain of
the Company's products as devices, the Company's manufacturing facilities are
registered with the FDA and its manufacturing operations regarding devices are
required to be in compliance with the FDA's rules and regulations. The FDA
conducted on-site inspections at the Maitland facility in May 1996 and at the
Minnetonka facility in June 1996. Both inspections were concluded without
incident. There can be no assurance that the Company will ultimately be able to
obtain or maintain required FDA approvals to market its products. Of the
Company's two regulated products, Maxiview cleared as substantially equivalent
to a predicate device by the FDA in December 1995 and the 510(k) submission to
demonstrate substantial equivalence for the Transfusion Service Manager was
submitted to the FDA in March 1996 and is pending.
INTELLECTUAL PROPERTY
The Company primarily relies upon trade secrets, copyright laws and
confidentiality agreements with employees and customers to protect its rights in
its software technology. The Company does not hold any patents nor has it filed
copyrights with respect to any of its software technology. Due to the rapid pace
of innovation within the software industry, the Company believes that patent,
trade secret and copyright protection are less significant than the Company's
ability to further develop, enhance and modify its current products and other
clinical information systems through the technological and creative skills of
its personnel. To minimize the possibility of third parties imitating the
Company's systems, the Company only licenses object code and does not license or
otherwise distribute source code.
The Company's employees are required to enter into confidentiality
agreements which prohibit the disclosure of confidential information and require
employees to report and assign to the Company all concepts, developments,
discoveries and inventions conceived during their employment.
The Company has federal trademark registration for Maxifile(R) and has
applied for federal trademark registration for DynamicVision, Monitrax,
PACSPlus+, ASAP, OPTIMA and Maxiview.
There can be no assurance that the legal protections and precautions taken
by the Company will be adequate to prevent misappropriation of the Company's
technology. In addition, these protections do not prevent independent
third-party development of functionally equivalent or superior technologies or
services. The Company does not believe that its operations or products infringe
on the intellectual property rights of others. There can be no assurance that
others will not assert infringement or trade secret claims against the Company
with respect to its current or future products or that the Company will be
successful in defending any such claim.
30
<PAGE> 32
EMPLOYEES
As of July 31, 1996, the Company had 135 full time employees, of which 23
were employed in the research and development department, 72 were involved in
client services, 18 performed general and administrative functions and 22 were
engaged in sales and marketing. None of the Company's employees is represented
by a labor union or subject to a collective bargaining agreement. The Company
has never experienced a work stoppage and believes that its employee relations
are good.
LEGAL PROCEEDINGS
In February 1996, the Company instituted an action against James A.
Terrano, the Company's former President and Chief Executive Officer, in the
District Court of Lancaster County, Nebraska, alleging that Mr. Terrano (i) made
fraudulent and negligent representations to the Company's Board of Directors,
which resulted in the Company's acceptance of a handwritten memorandum modifying
Terrano's employment agreement, (ii) breached his fiduciary duty to the Company
and (iii) breached his obligations under his employment agreement with the
Company. The Company is seeking to recover damages in the amount of at least
$50,000 in addition to the declaratory judgment determining that no severance
pay is due Mr. Terrano and that the handwritten memorandum is invalid and
unenforceable and does not modify the employment agreement. Mr. Terrano has
counter-claimed that he has been defamed by the Company. The Company is a
defendant in an action in which Mr. Terrano has a demand for $280,000 in
severance pay together with two years worth of benefits unquantified to include
the use of an automobile, club dues and insurance policies. The Company is
vigorously contesting this case.
The Company is a defendant in an action filed by a former Vice-President in
March, 1995 in the District Court of Lancaster County, Nebraska, alleging that
the Company did not lawfully terminate her for cause, and, therefore, breached
her employment agreement. The former employee is seeking severance payment. The
Company is vigorously contesting this case.
The Company is a defendant in a claim by a customer for $250,000 for
compensatory damages and unspecified punitive damages alleging that the Company
breached express and implied warranties and committed fraud in connection with
the sale of a laboratory information system. The Company intends to vigorously
contest the allegations. The Company continues to provide software support
services on an ongoing basis to this customer.
The above cases are in the early stages of discovery and the Company
believes that it is not possible to evaluate the likelihood of a favorable or
unfavorable outcome of either case at this time. As of the date hereof, there
are no other material legal proceedings pending against the Company.
FACILITIES
The Company's corporate headquarters are located at 101 Southhall Lane,
Suite 210, in Maitland, Florida 32751. The Maitland location consists of
approximately 20,000 square feet of office space under a lease which expires
March 31, 1999. The Company also maintains an office at 10901 Bren Road East,
Minnetonka, Minnesota 55343 (the former DMI facility) as the Company's radiology
technology center. The Minnetonka location consists of approximately 13,000
square feet under lease which expires on July 31, 1999. The Company considers
its existing facilities to be adequate for its foreseeable needs.
31
<PAGE> 33
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Certain information is set forth below concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- -----------------------------------------------------------
<S> <C> <C>
David M. Pomerance.......... 51 Chairman of the Board and Secretary
Mitchel J. Laskey........... 46 President, Chief Executive Officer, Treasurer and Director
Nikhil A. Bhatt............. 43 Senior Vice President and Chief Technical Officer
Paul S. Glover.............. 37 Vice President -- Finance and Chief Financial Officer
Jerry L. Carson............. 55 Director
Thomas J. Martinson......... 46 Director
Bret R. Maxwell............. 37 Director
Daniel Raynor............... 36 Director
Richard W. Truelick......... 55 Director
</TABLE>
Certain information is set forth below concerning additional key employees
of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Steven J. Akerson........... 46 Vice President -- Clinical Products
Philip R. Kneeland.......... 39 Vice President -- Technical Operations
Mary Lu Lander.............. 55 Vice President -- Marketing
Matthew P. Lawton........... 52 Vice President -- Customer Sales
Linda A. Moline............. 40 Vice President -- Professional Services
Bruce B. Sherr.............. 57 Vice President -- Sales
</TABLE>
DAVID M. POMERANCE has been Chairman of the Board of Directors since May
1996, Secretary of the Company since August 1994 and a director since 1991. Mr.
Pomerance served as Chief Executive Officer of the Company from July 1994 to May
1996 and was President from July 1994 through August 1994. He is the managing
general partner of Martin Magnetic Imaging, Ltd., a magnetic resonance imaging
(MRI) facility in Stuart, Florida. From 1990 through 1994, and from 1985 through
1989, Mr. Pomerance was a principal in various private businesses. During 1989
and 1990, Mr. Pomerance was the president of the Healthcare Systems Division of
UNISYS Corporation. From 1983 through 1985, Mr. Pomerance was the president of
the Dynamic Control Division of Baxter International. From 1974 until its sale
to Baxter International in 1983, he was the president and controlling
shareholder of Dynamic Control Corporation, a healthcare information systems
company which he founded.
MITCHEL J. LASKEY has been Chief Executive Officer since May 1996,
President, Chief Operating Officer and Treasurer since August 1994 and a
director since December 1994. From 1992 to 1994, Mr. Laskey was chairman and
chief executive officer of DTR, which was acquired by the Company in August
1994. From 1985 through 1991, Mr. Laskey was a principal or managing partner in
various entrepreneurial investments and also acted as a volunteer officer for a
not-for-profit social agency. From 1983 through 1985, Mr. Laskey was executive
vice president of the Dynamic Control Division of Baxter International and from
1980 until its sale to Baxter International in 1983 was the executive vice
president of Dynamic Control Corporation, a healthcare information systems
company. Mr. Laskey has been a licensed certified public accountant since 1974
and is a member of the American and Florida Institutes of Certified Public
Accountants.
NIKHIL A. BHATT has been Senior Vice President and Chief Technical Officer
of the Company since June 1996. From January 1989 to May 1996, Mr. Bhatt was
senior vice president and chief technical officer of IMNET Systems, Inc. Mr.
Bhatt has more than 20 years experience in the image processing industry,
specializing in software development, engineering and research and development.
Mr. Bhatt was directly responsible for the design and development of the IMNET
MegaSAR(R) Microfilm Jukebox and personally holds numerous patents, including 15
in image processing and seven in biomedical engineering.
32
<PAGE> 34
PAUL S. GLOVER has been Vice President -- Finance and Chief Financial
Officer of the Company since December 1994 and was Director of Financial
Operations from August 1994 through December 1994. Mr. Glover was the executive
vice president of Uniprompt Microsystems, Inc. and president of its wholly owned
subsidiary, Unisoft, Inc., from August 1990 through July 1994. Mr. Glover served
as a certified public accountant with the national accounting firms of Main
Hurdman and Company (now part of KPMG Peat Marwick LLP) and Deloitte, Haskins
and Sells (now part of Deloitte & Touche LLP).
JERRY L. CARSON has been a director of the Company since January 1993. Mr.
Carson has been executive vice president and chief financial officer of Evans
Enterprises, a property management and real estate development firm in Bedford,
New Hampshire, since 1990. Mr. Carson was executive vice president and chief
financial officer of Playboy Enterprises, Inc. from 1988 to 1990 and held the
positions of vice president of corporate development and treasurer of Baxter
International from 1980 to 1986.
THOMAS J. MARTINSON has been a director of the Company since 1986. He also
was the Company's Chairman of the Board from 1986 until 1996 and Secretary from
1986 until 1994. Mr. Martinson has been president of Martinson & Company, Ltd.
of Wayzata, Minnesota, an investment banking firm, since 1985. In March 1996,
Mr. Martinson became the chairman of the board of directors of Interventional
Innovations Corporation of St. Paul, Minnesota.
BRET R. MAXWELL has been a director of the Company since May 1996. Mr.
Maxwell is a managing director of First Analysis Corporation, a securities
investment firm which he joined in 1982. Mr. Maxwell is also a director of
Continental Waste Industries, Inc. and numerous privately held companies.
DANIEL RAYNOR has been a director of the Company since May 1996. Mr. Raynor
has been the president of a general partner of The Argentum Group, a private
investment firm, since November, 1987, and chairman of the general partner of
Argentum Capital Partners, L.P., a small business investment company, since its
organization in February 1990.
RICHARD W. TRUELICK has been a director of the Company since May 1996. Mr.
Truelick is the sole owner of Truelick Associates, a merger consulting and
investment firm, where he has been employed since 1988. From 1979 through 1988,
Mr. Truelick was a partner in Adler-Truelick Associates, also a merger
consulting and investment firm. Mr. Truelick was vice president corporate
development for Beatrice Foods Company from 1968 through 1979.
STEVEN J. AKERSON has been Vice President -- Clinical Products of the
Company since March 1996. Mr. Akerson was the Company's Director of Product
Development from 1994 until March 1996. From 1983 to 1994, Mr. Akerson was
employed by IBAX Healthcare Systems in various management and director level
positions in the product development area.
PHILIP R. KNEELAND has been Vice President -- Technical Operations of the
Company since August 1994. From 1992 to 1994 Mr. Kneeland was vice president of
development of DTR. From 1983 to 1992, Mr. Kneeland was employed by IBAX
Healthcare Systems in capacities related to healthcare data processing
consulting and facilities management with emphasis in developing and
implementing new service products. Mr. Kneeland is married to Ms. Moline.
MARY LU LANDER has been Vice President -- Marketing of the Company since
September 1994. From 1991 to 1994 Ms. Lander was president of Health Practice
Services, a re-marketer of physician practice management systems. Prior to 1991,
Ms. Lander was director of marketing services for Unisys Corporation, Healthcare
Systems Division.
MATTHEW P. LAWTON has been Vice President -- Customer Sales of the Company
since August 1994. Mr. Lawton was Director of Sales and Marketing for DTR from
1992 to 1994. He has significant healthcare systems experience with multiple
healthcare information system vendors, including IBAX Healthcare Systems, where
he held the position of vice president of product development.
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<PAGE> 35
LINDA A. MOLINE has been Vice President -- Professional Services of the
Company since August 1994. From 1992 to 1994 Ms. Moline held the position of
director of customer services for DTR. Ms. Moline, who is a registered records
administrator, was development manager of application design for IBAX Healthcare
Systems, where she was employed from 1985 to 1992. Ms. Moline is married to Mr.
Kneeland.
BRUCE B. SHERR has been Vice President -- Sales of the Company since
October 1995. Prior to joining the Company in 1995 and during 1994, Mr. Sherr
was vice president of sales and marketing for Biovation, a laboratory
information systems company. During 1993 and 1994, Mr. Sherr was vice president
of sales for the Western Division of First Data Corporation, Health System
Group. Mr. Sherr was vice president of sales for Micro Health Systems during
1992 and 1993, and was director of sales for Critikon, a division of Johnson &
Johnson, from 1990 to 1992.
Officers of the Company serve at the pleasure of the Board of Directors,
subject to the terms of any employment agreements with the Company. The term of
office of each director of the Company ends at the next annual meeting of the
Company's shareholders or when their successor is duly elected and qualified.
Other than Mr. Kneeland and Ms. Moline, there are no family relationships among
any of the Company's officers and directors. See "Management -- Employment
Agreements."
COMPENSATION OF DIRECTORS
Non-employee directors are compensated at the rate of $500 plus expenses
for each Board meeting attended in person and receive a five-year warrant for
25,500 shares of Common Stock upon their election to the Board of Directors. The
exercise price of the warrant is equal to the average of the closing bid and ask
prices of Common Stock on the date of issuance. Prior to June 14, 1995, these
warrants vested one-third upon issuance and one-third upon each of the first and
second anniversaries of issuance. After June 13, 1995, these warrants were
issued to vest 40% upon issuance and 20% on each of the next three
anniversaries. In addition, warrants to purchase 5,000 shares of Common Stock
are issued annually to non-employee directors starting at the beginning of that
director's third consecutive term in office. Each warrant has a five year term
and an exercise price equal to the average of the closing bid and ask prices of
Common Stock on the date of issuance. Prior to June 14, 1995, these warrants
vested fully upon issuance. After June 13, 1995 these warrants were issued to
vest 40% upon issuance and 20% on each of the next three anniversaries. With
certain exceptions, all outside director warrants expire upon the termination of
that director's service to the Company as a director. See "-- Director and
Management Stock Warrant and Option Plan."
No director receives any additional compensation for services as a member
of any committee of the Board of Directors.
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<PAGE> 36
EXECUTIVE COMPENSATION
The following table is a summary of the annual, long-term and other
compensation of the Company's Chief Executive Officer and each other corporate
officer whose total salary and bonus during the fiscal year ended December 31,
1995 exceeded $100,000 (collectively, the "Named Officers.")
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION
------------------------ AWARDS PAYOUTS
OTHER ANNUAL -------- ------- ALL OTHER
NAME AND COMPENSATION OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY (1) SARS PAYOUTS (2)
------------------ ---- -------- ------------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
David M. Pomerance............... 1995 $151,750 $ 7,800 -- -- $2,772
Chairman of the Board 1994 73,365 2,600 250,000(3) -- 804
and Secretary
Mitchel J. Laskey................ 1995 151,750 7,800 -- $50,000 2,772
President, Chief Executive 1994 50,000 2,600 250,000(3) 20,833(4) 924
Officer and Treasurer
Philip R. Kneeland............... 1995 100,000 7,800 25,000(5) -- 2,772
Vice President -- Technical 1994 33,333 2,600 -- -- 920
Operations
Matthew P. Lawton................ 1995 100,000 -- 10,000(5) -- --
Vice President -- Customer 1994 31,667 -- -- -- --
Sales
</TABLE>
- ---------------
(1) Includes amounts paid as car allowances.
(2) Includes Company contributions to the individual employee's 401(k)
Retirement Plan.
(3) Options awarded during 1994 to Messrs. Pomerance and Laskey were in addition
to compensation paid under their respective employment agreements.
(4) Represents amounts paid under a deferred compensation agreement with Mitchel
J. Laskey assumed in connection with the acquisition of DTR which is
payable in monthly installments of $4,167. As of July 31, 1996, $50,004 was
owed to Mr. Laskey under this agreement.
(5) Options awarded under the 1993 Incentive Stock Option Plan.
STOCK OPTION INFORMATION
The following table sets forth information relative to stock options
granted to the Named Officers. The Company has not granted any stock
appreciation rights.
OPTION GRANTS DURING 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE
----------------------------------------------- AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK
NUMBER OF TOTAL PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------
NAME GRANTED IN 1995 PER SHARE DATE 5% 10%
- -------------------------------------- --------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Mitchel J. Laskey..................... 250,000(1) 38.00% $1.00 8/23/99 $15,131 $68,524
David M. Pomerance.................... 250,000(2) 38.00 1.00 7/06/99 13,484 64,737
Philip R. Kneeland.................... 25,000(2) 3.80 1.00 6/13/05 13,177 35,791
Matthew P. Lawton..................... 10,000(3) 1.52 1.00 6/13/05 5,271 14,316
</TABLE>
- ---------------
(1) Represents previously granted employment contract options covering 250,000
shares as to which the option price was reduced to $1.00 from $1.6875 per
share of Common Stock on September 13, 1995.
(2) Represents previously granted employment contract options covering 250,000
shares as to which the option price was reduced to $1.00 from $1.875 per
share of Common Stock on September 13, 1995.
(3) Options awarded under the 1993 Incentive Stock Option Plan.
35
<PAGE> 37
The following table sets forth information relative to stock options
exercised by the Named Officers and values of stock options held by those
officers that were outstanding at year end. No options were exercised by any
executive officer of the Company during 1995.
AGGREGATED OPTION EXERCISES AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT YEAR END OPTIONS AT YEAR END
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David M. Pomerance..................... 180,500 100,000 $ 213,282 $ 140,625
Mitchel J. Laskey...................... 180,500 100,000 210,938 140,625
Philip R. Kneeland..................... -- 25,000 -- 35,156
Matthew P. Lawton...................... -- 10,000 -- 14,063
</TABLE>
EMPLOYMENT AGREEMENTS
In August 1994, the Company entered into an employment agreement with
Mitchel J. Laskey to serve as the Company's President and Chief Operating
Officer. The agreement is for a term of three years, which automatically renews
for two successive one-year periods, unless terminated by either party not less
than 60 days prior to end of the initial, or renewal term, as the case may be.
The agreement provides for an annual base salary of $150,000, which is to be
reviewed annually by the Board of Directors. In March 1996, the Board of
Directors approved an increase in the base salary of Mr. Laskey to $187,500,
effective March 1, 1996. If the employment agreement is terminated without
cause, one year of Mr. Laskey's annual base salary as of the date of
termination, in addition to all other benefits and other compensation, if any,
shall accrue and be paid. The agreement contains a covenant not to compete for
two years after termination.
In June 1996, the Company entered into an employment agreement with Nikhil
A. Bhatt to serve as the Company's Senior Vice President and Chief Technical
Officer. The agreement is for a term of three years, which automatically renews
for three successive one-year periods, unless terminated by the Company not less
than 60 days prior to the commencement of any renewal period. The agreement
provides for an annual base salary of $155,000, which is to be reviewed annually
by the Board of Directors and is subject to increases based on the Consumer
Price Index. If the employment agreement is terminated without cause, the
Company fails to renew the contract or Mr. Bhatt elects to terminate for "good
reason," Mr. Bhatt is to receive on the termination date a lump sum cash payment
equal to one year of Mr. Bhatt's annual base salary, in addition to all other
benefits and other compensation to which he would be entitled if he were an
employee during the one-year period. The agreement contains a covenant not to
compete for a period of 18 months after termination.
In August 1994, the Company entered into an employment agreement with David
M. Pomerance, which was amended effective August 1, 1996. Pursuant to the
amended agreement, Mr. Pomerance serves as Chairman of the Board and a part-time
consultant to the Company. The agreement, as amended, is for a term of one year
commencing August 1, 1996 and automatically renews for successive one-year
periods unless terminated by written notice from either party within 60 days
prior to the commencement of any renewal term. The agreement provides for a
one-time payment of approximately $10,000 on August 1, 1996, monthly payments of
$1,500 for his services as Chairman of the Board and per diem payments of
$2,500, with a non-cumulative minimum of five days per month, for his part-time
services as a consultant. The agreement, as amended, also provides that Mr.
Pomerance shall be reimbursed for all reasonable expenses incurred by him in the
performance of his duties. Mr. Pomerance has waived participation in the MIC
Plan and in all vacation and sick day benefit programs. In consideration for Mr.
Pomerance entering into the amendment, the Company agreed (i) to pay Mr.
Pomerance a bonus of $12,500 per quarter for four calendar quarters commencing
August 1, 1996, and (ii) that certain unvested options held by Mr. Pomerance to
purchase an aggregate of 50,000 shares of Common Stock be deemed vested as of
August 1, 1996.
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<PAGE> 38
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Company has a Management Incentive Compensation ("MIC") Plan pursuant
to which cash distributions may be made annually based on the Company's earnings
growth and on each participating officer's contributions to the Company's
profits and other corporate goals. Distributions are made from a pool, the
amount of which is established by the Company's Board of Directors, annually as
a percentage of targeted increases in net earnings. Individual distributions
from the pool are determined by the Compensation Committee based on
recommendations from the Company's President and Chief Executive Officer. With
respect to 1996, the Board of Directors has established $1,000,000 as the target
of pre-tax net income before any amount is paid pursuant to the MIC Plan.
Maximum bonuses to be paid for 1996 will not be greater than 20% of pre-tax net
income. No amounts were accrued or paid under the MIC Plan based on the
Company's operating results in 1995.
1983 INCENTIVE STOCK OPTION PLAN
The Company had an incentive stock option plan which expired March 1993
("1983 Plan"). Under the 1983 Plan as of July 31, 1996, there are 9,000 shares
of Common Stock underlying unexpired outstanding incentive options. Options may
be exercised for periods up to ten years from date of grant or, in the case of
holders of ten percent or more of the Company's Common Stock five years from
date of grant. The expiration of the 1983 Plan does not effect the right of the
holders to exercise unexpired options under such plan.
1993 INCENTIVE STOCK OPTION PLAN
The Company adopted an incentive stock option plan in 1993 ("1993 Plan").
As of July 31, 1996, there were 392,190 shares of Common Stock underlying
unexpired outstanding options granted under the 1993 Plan. The exercise price of
the options granted under the Plan may not be less than 100% of the fair market
value of the Company's Common Stock on the grant date or, in the case of holders
of ten percent or more of the Company's Common Stock, 110% of the fair market
value of the Company's Common Stock at grant date. Options may be exercised to
acquire 40% of the shares underlying the option after one year, 30% after two
years and 30% after three years. The terms and vesting schedule of options
granted under both the 1983 Plan and 1993 Plan are the same. All full-time
permanent Company employees have been eligible to participate under both plans.
Options may be exercised either by payment of cash or, at the discretion of the
Compensation Committee, delivery of shares of Common Stock.
DIRECTOR AND MANAGEMENT STOCK WARRANT AND OPTION PLAN
The Company adopted the director and management stock warrant and option
plan in 1993 ("D&M Plan") for the issuance of stock purchase warrants and stock
options to directors, officers and key management employees of the Company.
Grants under this plan are made under the direction of the Company's
Compensation Committee. The purpose of the plan is to attract and retain
talented directors, officers and key management employees of the Company.
The Company has reserved 250,000 shares of its Common Stock for issuance
upon the exercise of warrants and options granted under the D&M Plan. As of July
31, 1996, there were 157,000 shares of Common Stock underlying unexpired
outstanding warrants granted under the D&M Plan. Under the D&M Plan, warrants to
directors are to be issued with an exercise price equal to the average of the
closing bid and ask prices of the Company's Common Stock on the date of
issuance. Options to employees and officers are to be issued with an exercise
price of no less than 85% of the fair market value of the Company's Common Stock
on the date of issuance.
EMPLOYEE STOCK PURCHASE PLAN
The Company adopted the Employee Stock Purchase Plan in 1993 for the
purpose of encouraging full-time employees to become shareholders in the
Company. The Company has reserved 200,000 shares of its Common Stock for
issuance pursuant to purchases under this plan. As of July 31, 1996, 50,666
shares have been issued under the Employee Stock Purchase Plan.
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<PAGE> 39
The price for stock purchased under the Employee Stock Purchase Plan is the
lesser of 85% of the average bid and ask prices of the Company's Common Stock at
the beginning of and at the end of each six month purchase period. Employees pay
for the shares through payroll deductions. This Plan qualifies for favorable tax
treatment to employees under Sections 421 and 423 of the Internal Revenue Code.
CERTAIN TRANSACTIONS
During 1993, 1994 and 1995, the Company incurred $0, $55,000 and $65,000,
respectively, of airline transportation charges from DDK Enterprises LLC ("DDK")
on terms which management believes approximate fair market value. DDK is
majority owned by Mr. David Pomerance, Chairman of the Board. Effective August
1, 1996 the Company will no longer incur such expenses.
In each of 1993, 1994 and 1995, Thomas Martinson received $12,000 plus
reimbursement of expenses for his services as the Company's Chairman of the
Board. In addition, Martinson & Company, Ltd., which is wholly-owned by Mr.
Martinson, provides financial, consulting and advisory services to the Company.
The Company incurred $18,500 plus expenses to Martinson & Company, Ltd. for
these services in 1995. The Company has not paid Martinson & Company, Ltd. for
financial consulting and advisory services in 1996 and does not anticipate
incurring fees for such services in the future.
In connection with the private placement offering of subordinated
convertible notes in June 1995 David M. Pomerance, Mitchel J. Laskey and Thomas
J. Martinson purchased notes in the principal amount of $100,000, $100,000 and
$50,000, respectively, and received warrants to purchase 20,000, 20,000 and
10,000 shares of Common Stock, respectively. See "Description of
Securities -- Warrants." These notes were converted into Series A Preferred
Stock on November 28, 1995 at $0.80 per share.
In December 1995, in connection with the private placement of Series B
Preferred Stock, The Argentum Group was paid a financial consulting fee of
$175,000 and purchased warrants to purchase 210,000 shares of Common Stock for
$25,000. Daniel Raynor is the president of a general partner of The Argentum
Group.
On August 16, 1996, Messrs. Pomerance, Laskey, Maxwell and certain other
shareholders of the Company made unsecured loans to the Company in an aggregate
amount of $1,000,000, pursuant to which the Company executed the Unsecured
Notes. The Unsecured Notes provide for payment, in full, at the earlier of the
completion of this Offering or November 14, 1996, together with interest at a
rate of 13% per annum.
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<PAGE> 40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information concerning the beneficial
ownership of Common Stock as of July 31, 1996 by (i) each person (or group of
affiliated persons) known by the Company to be the beneficial owner of five
percent or more of the outstanding Common Stock, (ii) each director and current
executive officer, (iii) the Selling Shareholders, and (iv) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO
OFFERING(2)
----------------------- NUMBER OF SHARES
NAME(1) NUMBER PERCENT BEING OFFERED(3)
- -------------------------------------------------------- --------- ------- ----------------
<S> <C> <C> <C>
Mitchel J. Laskey....................................... 938,255(4) 8.1% 1,023,255(49)
David M. Pomerance...................................... 437,900(5) 3.8 425,500(50)
Nikhil A. Bhatt......................................... 60,000(6) * 150,000(51)
Paul S. Glover.......................................... 10,000(7) * --
Daniel Raynor........................................... 2,186,450(8) 18.9 51,750(52)
Bret R. Maxwell......................................... 2,103,950(9) 18.4 51,750(53)
Thomas J. Martinson..................................... 177,500(10) 1.6 77,500
Richard W. Truelick..................................... 102,700(11) * 88,000(54)
Jerry L. Carson......................................... 40,500(12) * 35,500
Philip R. Kneeland...................................... 349,401(13) 3.1 260,311
Linda Ann Moline........................................ 349,401(14) 3.1 28,090
Matthew P. Lawton....................................... 67,690(15) * 56,120
Walter Barandiaran...................................... 2,245,000(16) 19.7 34,000
First Analysis Corporation.............................. 2,062,500(17) 18.1 --
F. Oliver Nicklin....................................... 2,062,500(18) 18.1 --
Environmental Private Equity Fund II, L.P. ............. 1,031,250(19) 9.0 866,250
The Productivity Fund, III, L.P......................... 1,031,250(20) 9.0 866,250
Argentum Capital Partners, L.P.......................... 938,750(21) 8.2 788,750
Okabena Partnership, K.................................. 500,000(22) 4.4 101,050
First Bank System, Inc. ................................ 499,600 4.4 0
Charles Richard Johnson................................. 255,120(23) 2.2 179,720
The Argentum Group...................................... 175,000(24) 1.5 175,000
Gary A. Krosin.......................................... 145,000(25) 1.3 145,000
Jocelyn Barandarian..................................... 100,000(26) * 50,000
Advisors Trust.......................................... 93,750(27) * 78,750
Robert Goldstein........................................ 93,750(28) * 78,750
Joseph Cooper........................................... 82,500(29) * 72,500
Ronald J. Adams......................................... 72,500(30) * 10,000
Bruce Falk.............................................. 72,500(31) * 72,500
Charles Farrow.......................................... 72,500(32) * 10,000
Kenneth J. Jindra....................................... 72,500(33) * 72,500
David Moore............................................. 72,500(34) * 10,000
Don Aron................................................ 62,500(35) * 52,500
Mathers Associates, L.P. ............................... 62,500(36) * 52,500
Edward M. Sellian....................................... 62,500(37) * 52,500
Robert L. Frome......................................... 43,750(38) * 36,750
Arnold and Sandra Raynor................................ 31,250(39) * 26,250
Richard Fields.......................................... 30,000(40) * 25,200
Principal Financial Securities.......................... 29,750(41) * 29,750
Kenneth C. Coon......................................... 20,000(42) * 20,000
Benjamin M. Fishman..................................... 27,500(43) * 25,500
Charles H. Altshuler.................................... 25,500(44) * 25,500
Steven Wolosky.......................................... 18,750(45) * 15,750
Robert Grossman......................................... 12,500(46) * 10,500
Mark L. Bartholomay..................................... 2,625(47) * 2,625
George G. Bonniwell..................................... 2,625(48) * 2,625
Other Selling Shareholders.............................. -- * 42,000(55)
All executive officers and directors as a group (nine
persons).............................................. 5,026,005 41.2 4,599,505
</TABLE>
- ---------------
* Less than 1.0%
39
<PAGE> 41
(1) The address for each of the officers and directors is 101 Southhall Lane,
Suite 210, Maitland, Florida 32751. The other addresses are as follows: Mr.
Raynor, c/o The Argentum Group, 405 Lexington Avenue, 54th Floor, New York,
NY 10174; Mr. Maxwell, c/o First Analysis Corporation, The Sears Tower,
Suite 9500, 233 South Wacker Drive, Chicago, IL 60606; Mr. Carson, Venetian
Tower Place, PH 302, 2971 Gulf Shore Boulevard N., Naples, FL 33940, Mr.
Martinson, c/o Martinson & Company, 140 Barry Avenue North, Wayzata, MN
55391; Mr. Truelick, c/o Truelick Associates, 167 Regatta Drive, Jupiter,
FL 33477; The Productivity Fund, III, L.P., 233 South Wacker Drive, Suite
9500, Chicago, IL 60606; Environmental Private Equity Fund II, L.P., 233
South Wacker Drive, Suite 9500, Chicago, IL 60606; Argentum Capital
Partners, L.P., 405 Lexington Avenue, 54th Floor, New York, NY 10174; First
Analysis Corporation, 233 South Wacker Drive, Suite 9500, Chicago, IL
60606; The Argentum Group, 405 Lexington Avenue, 54th Floor, New York, New
York 10174; Jocelyn Barandarian, 245 East 93rd Street, Apt. 26D, New York,
New York 10128; Mr. Barandiaran, 245 East 93rd Street, Apt. 26D, New York,
NY 10128; Mr. Nicklin, 233 South Wacker Drive, Suite 9500, Chicago, IL
60606; Okabena Partnership, K, 5140 Norwest Center, Minneapolis, MN 55402;
First Bank System, Inc., 601 Second Avenue South, Minneapolis, MN 55402;
Mr. Moore, 2814 S.E. Dune Drive, #2211, Stuart, FL 34996; Mr. Farrow, 47
North River Road, Stuart, FL 34996; Mr. Jindra, 13524 Gladiola NW, Anoka,
MN 55301; Dr. Krosin, 3622 Mashie Court, Palm City, FL 34990; Mr. Adams,
395 Golf Brook Circle, #111, Longwood, FL 32779; Dr. Bruce Falk, HC-1 Box
216, Salol, MN 56756; Principal Financial Securities, 701 4th Avenue South,
Minneapolis, MN 55415; Mr. Coon, 334 Pine St., Omaha, NE 68105; Mr.
Fishman, c/o The Argentum Group, 405 Lexington Avenue, 54th Floor, New
York, NY 10174; Mr. Grossman, 420 East 70th Street, Apt. 8Q, New York, NY
10021; Advisors Trust, c/o Mr. Tessler, c/o Fusion Systems Corp., 7600
Standish Place, Rockville, MD 20855; Mr. Goldstein, c/o Equity Group Profit
Sharing Plan & Trust, 919 Third Avenue, 18th Floor, New York, NY 10022;
Mathers Associates, L.P., 160 East 65th Street, Apt. 23F, New York, NY
10021; Mr. Cooper, 415 Northern Boulevard, Great Neck, NY 10021; Mr.
Sellian, 6794 S.E. Isle Way, Stuart, FL 34996; Mr. Fields, c/o Allen &
Company, 711 Fifth Avenue, 9th Floor, New York, NY 10022; Mr. Frome, c/o
Olshan, Grundman, Frome & Rosenweig, 505 Park Avenue, 16th Floor, New York,
NY 10022-1170; Mr. Wolosky, c/o Olshan, Grundman, Frome & Rosenweig, 505
Park Avenue, 16th Floor, New York, New York 10022-1170; Mr. and Mrs.
Raynor, c/o Shapiro & Lobel, 111 West 40th Street, New York, NY 10018; Mr.
Aron, c/o The Aron Companies, 1400 Post Oak Blvd., Suite 500, Houston, TX
77056 and Mr. Johnson, 124 Meadow Boulevard, Sanford, FL 32771; Mr.
Bartholomay, 60 South 6th St., Minneapolis, MN 55402; Mr. Bonniwell, 18107
Woolman Dr., Minnetoska, MN 55345.
(2) Shares not actually outstanding are deemed to be beneficially owned by an
individual and outstanding if such individual has the right to acquire the
shares within 60 days.
(3) Does not include the shares of Common Stock being offered in the Concurrent
Offering by the Selling Shareholders and does include shares which may be
acquired at any time upon the exercise of outstanding options or warrants.
Upon completion of this Offering Selling Shareholders will not own any
shares of Common Stock, except with respect to (i) shares underlying
options issued pursuant to the 1993 Plan to Selling Shareholders as
follows: Mr. Laskey -- 50,000 shares; Mr. Pomerance -- 50,000 shares; Mr.
Glover -- 55,000 shares; Mr. Kneeland -- 35,000 shares; Mr.
Lawton -- 20,000 shares; and Ms. Moline 35,000 shares, and (ii) shares of
registered Common Stock previously acquired by Selling Shareholders in open
market transactions as follows: Mr. Laskey -- 15,000 shares; Mr.
Pomerance -- 62,400 shares; Mr. Martinson -- 85,000 shares; Mr.
Truelick -- 20,000 shares; Mr. Kneeland -- 10,500 shares; Ms.
Moline -- 3,000 shares; and Mr. Lawton -- 2,570 shares. See "Plan of
Distribution".
(4) Includes 125,000 shares of Series A Preferred Stock and 220,000 shares of
Common Stock that Mr. Laskey may acquire within 60 days upon the exercise
of stock purchase warrants. Does not reflect the occurrence of the
following events that took place after July 31, 1996: (i) on August 15,
1996, Mr. Laskey transferred 125,000 shares of Series A Preferred Stock to
the Laskey Family Irrevocable Trust, with respect to which he exercises no
control and disclaims any beneficial ownership interest; and (ii) on August
15, 1996, the Board of Directors granted Mr. Laskey options to purchase
50,000 shares of Common Stock at an exercise price equal to the offering
price set forth on the cover of this Prospectus, 40% of which vested on the
date of the grant, and 20% of which will vest on each of three successive
anniversaries thereafter.
(5) Includes 125,000 shares of Series A Preferred Stock and 225,000 shares of
Common Stock that Mr. Pomerance may acquire within 60 days upon the
exercise of stock purchase warrants.
(6) Includes 60,000 shares of Common Stock that Mr. Bhatt may acquire within 60
days upon the exercise of stock options.
(7) Includes 10,000 shares of Common Stock that Mr. Glover may acquire within
60 days upon the exercise of stock purchase warrants.
(8) Includes 31,250 shares of Series B Preferred Stock owned by Mr. Raynor and
10,200 shares of Common Stock that he may acquire within 60 days upon the
exercise of stock purchase warrants. In addition, by reason of Mr. Raynor's
status as controlling person of Argentum Capital Partners, L.P. ("ACP"),
The Argentum Group ("TAG") and as an ultimate general partner of
Environmental Private Equity Fund II, L.P. ("EPEF"), includes 1,970,000
shares of Series B Preferred Stock owned by ACP and EPEF, and 175,000
additional shares of Common Stock which may be acquired by TAG within 60
days upon the exercise of stock purchase warrants but he disclaims any
beneficial ownership therein, except to the extent of his pecuniary
interest therein.
(9) Includes 2,062,500 shares of Series B Preferred Stock owned by The
Productivity Fund III, L.P. ("PFIII") and EPEF in which Mr. Maxwell
disclaims any beneficial ownership, except to the extent of his pecuniary
interest therein. By reason of his status as an ultimate general partner,
Mr. Maxwell may be deemed to be the indirect beneficial owner of shares
owned by PFIII and EPEF.
(10) Includes 10,000 shares attributed to him through ownership by Joan
Martinson, his spouse. Also includes 62,500 shares of Series A Preferred
Stock and 30,000 shares of Common Stock that Mr. Martinson may acquire
within 60 days upon exercise of stock purchase warrants.
(11) Includes 62,500 shares of Series A Preferred Stock and 20,200 shares of
Common Stock that Mr. Truelick may acquire within 60 days upon the exercise
of stock purchase warrants.
(12) Includes 35,500 shares of Common Stock that Mr. Carson may acquire within
60 days upon the exercise stock purchase warrants.
(13) Includes 33,590 shares of Common Stock attributed to him through ownership
by Ms. Moline, his spouse. Also, includes 10,000 shares of Common Stock
that Ms. Moline may acquire, and 10,000 shares that Mr. Kneeland may
acquire, within 60 days upon the exercise of stock purchase warrants.
(14) Includes 295,811 shares of Common Stock attributed to her through ownership
by Mr. Kneeland, her spouse. Additionally, includes 10,000 shares of Common
Stock that Mr. Kneeland may acquire, and 10,000 shares of Common Stock that
Ms. Moline may acquire, within 60 days upon the exercise of stock purchase
warrants.
(15) Includes 4,000 shares of Common Stock that Mr. Lawton may acquire within 60
days upon the exercise of stock purchase warrants.
(16) Includes 50,000 shares of Series B Preferred Stock held by an individual
retirement account for the benefit of his spouse and controlled by Mr.
Barandiaran pursuant to a power of attorney in which Mr. Barandiaran
disclaims any beneficial ownership, and 50,000 shares of Series B Preferred
Stock owned by Mr. Barandiaran through his individual retirement account.
In addition, by reason of Mr. Barandiaran's status as a controlling person
of ACP, TAG and as an ultimate general partner of EPEF, includes 1,031,250
shares of Series B Preferred Stock owned by EPEF, 938,570 shares of Series
B Preferred Stock owned by ACP and 175,000 shares of Common Stock which may
be acquired by TAG within 60 days upon the exercise of stock purchase
warrants but Mr. Barandiaran disclaims any beneficial ownership therein,
except to the extent of his pecuniary interest therein.
(17) Includes 1,031,250 shares of Series B Preferred Stock owned by EPEF and
1,031,250 shares of Series B Preferred Stock owned by PFIII in which FAC
disclaims any beneficial ownership, except to the extent of its pecuniary
interest therein. By reason of First Analysis Corporation's ("FAC") status
as an ultimate general partner of PFIII and EPEF, FAC may be deemed to be
the indirect beneficial owner of shares held by PFIII and EPEF.
40
<PAGE> 42
(18) Includes 1,031,250 shares of Series B Preferred Stock owned by EPEF and
1,031,250 shares of Series B Preferred Stock owned by PFIII in which Mr.
Nicklin disclaims any beneficial interest, except to the extent of his
pecuniary interest therein. By reason of Mr. Nicklin's status as the
majority shareholder of FAC, the ultimate general partner of PFIII and
EPEF, Mr. Nicklin may be deemed to be the indirect beneficial owner of
PFIII and EPEF.
(19) Includes 1,031,250 shares of Series B Preferred Stock.
(20) Includes 1,031,250 shares of Series B Preferred Stock.
(21) Includes 938,750 shares of Series B Preferred Stock.
(22) Includes 125,000 shares of Series A Preferred Stock and 20,000 shares of
Common Stock that Okabena Partnership, K may acquire within 60 days upon
the exercise of stock purchase warrants.
(23) Includes 400 shares of Common Stock that Mr. Johnson may acquire within 60
days upon the exercise of stock purchase warrants.
(24) Includes 175,000 that TAG may acquire within 60 days upon the exercise of
stock purchase warrants.
(25) Includes 125,000 shares of Series A Preferred Stock and 20,000 shares of
Common Stock that Dr. Krosin may acquire within 60 days upon the exercise
of stock purchase warrants.
(26) Includes 50,000 shares of Series B Preferred Stock owned by Ms. Barandarian
through her individual retirement account and 50,000 shares of Series B
Preferred Stock owned by Mr. Barandarian through his individual retirement
account.
(27) Includes 93,750 shares of Series B Preferred Stock.
(28) Includes 93,750 shares of Series B Preferred Stock.
(29) Includes 62,500 shares of Series B Preferred Stock and 20,000 shares of
Common Stock that Mr. Cooper may acquire within 60 days upon the exercise
of stock purchase warrants.
(30) Includes 62,500 shares of Series A Preferred Stock and 10,000 shares of
Common Stock that Mr. Adams may acquire within 60 days upon exercise of
stock purchase warrants.
(31) Includes 62,500 shares of Series A Preferred Stock and 10,000 shares of
Common Stock that Dr. Falk may acquire within 60 days upon the exercise of
stock purchase warrants.
(32) Includes 62,500 shares of Series A Preferred Stock and 10,000 shares of
Common Stock that Mr. Farrow may acquire within 60 days upon exercise of
stock purchase warrants.
(33) Includes 62,500 shares of Series A Preferred Stock and 10,000 shares of
Common Stock that Mr. Jindra may acquire within 60 days upon the exercise
of stock purchase warrants.
(34) Includes 62,500 shares of Series A Preferred Stock and 10,000 shares of
Common Stock that Mr. Moore may acquire within 60 days upon exercise of
stock purchase warrants.
(35) Includes 62,500 shares of Series B Preferred Stock.
(36) Includes 62,500 shares of Series B Preferred Stock.
(37) Includes 62,500 shares of Series B Preferred Stock.
(38) Includes 43,750 shares of Series B Preferred Stock.
(39) Includes 31,250 shares of Series B Preferred Stock.
(40) Includes 30,000 shares of Series B Preferred Stock.
(41) Includes 29,750 shares of Common Stock that Principal Financial Securities
may acquire within 60 days upon the exercise of stock purchase warrants.
(42) Includes 20,000 shares of Common Stock that Mr. Coon may acquire within 60
days upon the exercise of stock purchase warrants.
(43) Includes 5,625 shares of Series B Preferred Stock owned by Mr. Fishman
through his individual retirement account and 6,875 shares of Series B
Preferred Stock owned by Mr. Fishman. Also includes 15,000 shares of Common
Stock that Mr. Fishman may acquire within 60 days upon exercise of stock
purchase warrants.
(44) Includes 25,500 shares of Common Stock that may be acquired within 60 days
upon the exercise of stock purchase warrants.
(45) Includes 18,750 shares of Series B Preferred Stock.
(46) Includes 5,625 shares of Series B Preferred Stock owned by Mr. Grossman
through his individual retirement account and 6,875 shares of Series B
Preferred Stock owned by Mr. Grossman.
(47) Includes 2,625 shares of Common Stock that Mr. Bartholomay may acquire
within 60 days upon the exercise of stock purchase warrants.
(48) Includes 2,625 shares of Common Stock that Mr. Bonniwell may acquire within
60 days upon the exercise of stock purchase warrants.
(49) Includes options to purchase 50,000 shares of Common Stock granted to Mr.
Laskey by the Board of Directors at a meeting held on August 15, 1996,
20,000 of which are exercisable within 60 days. Also includes 50,000 shares
of Common Stock underlying stock options which cannot be exercised by Mr.
Laskey within 60 days. Also includes 125,000 shares of Series A Preferred
Stock transferred from Mr. Laskey to the Laskey Family Irrevocable Trust on
August 15, 1996.
(50) Includes 50,000 shares of Common Stock that Mr. Pomerance may acquire upon
the exercise of stock options which became vested effective August 1, 1996.
(51) Includes 90,000 shares of Common Stock underlying stock options that cannot
be exercised by Mr. Bhatt within 60 days.
(52) Includes 15,300 shares of Common Stock underlying stock purchase warrants
that cannot be exercised by Mr. Raynor within 60 days.
(53) Includes 15,300 shares of Common Stock underlying stock purchase warrants
that cannot be exercised by Mr. Maxwell within 60 days.
(54) Includes 15,300 shares of Common Stock underlying stock purchase warrants
that cannot be exercised by Mr. Truelick within 60 days.
(55) Includes 42,000 shares of Common Stock which have been authorized but not
yet granted under the D&M Plan. Accordingly, the identity of these Selling
Shareholders is unknown at this time.
41
<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue up to 20,000,000 shares of Common Stock,
par value $0.01 per share. The holders of Common Stock have the following
rights: (i) to share ratably in the distribution of dividends as and when
declared by the Board of Directors out of funds legally available therefor; (ii)
to cast one vote per share on all matters voted on by shareholders, generally;
and (iii) in the event of liquidation, dissolution or winding up of the Company,
to share ratably in all assets remaining after payment of liabilities, subject
to the prior distribution rights of preferred stock, if any, then outstanding.
The shares of Common Stock are not redeemable and do not carry any preemptive
rights to subscribe for or purchase any additional shares of any class of stock.
PREFERRED STOCK
General
Under the Company's Articles of Incorporation, the Board of Directors of
the Company has the authority to divide the 10,000,000 authorized shares of
preferred stock, $0.01 par value, into series and to fix the rights and
preferences of any series so established. Variations between different series
may be created by the Board of Directors with respect to such matters as voting
rights, if any, the rate of dividend, the priority of payment thereof, and the
right to cumulation thereof, if any, redemption terms and conditions, and the
right of conversion, if any. The holders of preferred stock have no preemptive
right to subscribe to any additional securities which may be issued by the
Company, except as provided below.
The Board of Directors has adopted a Certificate of Designation of the 9%
Cumulative Convertible Preferred Stock, Series A (the "Series A Preferred
Stock") and the 9% Cumulative Convertible Preferred Stock, Series B (the "Series
B Preferred Stock"). The 968,750 outstanding shares of Series A Preferred Stock
and 3,750,000 outstanding shares of Series B Preferred Stock will be
automatically converted into shares of Common Stock on a one-to-one basis on the
effectiveness of the Registration Statement of which this Prospectus is a part.
Series A Preferred Stock and Series B Preferred Stock have certain dividend,
liquidation, redemption, voting, conversion and pre-emptive rights. See Note E
to the December 31, 1995 financial statements included herein.
The following summary of the terms and provisions of the Series A Preferred
Stock and Series B Preferred Stock does not purport to be complete and is
qualified in its entirety by reference to the pertinent sections of the
Certificate of Designation, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
WARRANTS
The Company has outstanding the following warrants as of June 30, 1996: (i)
warrants to purchase up to 155,000 shares of Common Stock exercisable at a price
of $1.00 per share at any time prior to July 31, 2000; (ii) warrants to purchase
up to 210,000 shares of Common Stock exercisable at a price of $1.00 per share
at any time prior to December 4, 2002; (iii) warrants to purchase up to 35,000
shares of Common Stock exercisable at a price of $4.32 per share at any time
prior to December 12, 1996; and (iv) warrants to purchase 157,000 shares of
Common Stock at exercise prices ranging from $1.00 to $6.025 issued pursuant to
the D&M Plan. See "Management."
REGISTRATION RIGHTS
An aggregate of 7,059,246 shares of the Common Stock outstanding or
issuable upon exercise of certain warrants and options or upon conversion of the
Series A Preferred Stock and Series B Preferred Stock have certain registration
rights. All of such shares of Common Stock are either being offered hereby or
registered in a registration statement being filed concurrently with the
registration statement of which this Prospectus is a part.
42
<PAGE> 44
CERTAIN FLORIDA LEGISLATION
The State of Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations. The Florida Control Share Act generally
provides that shares acquired in excess of certain specified thresholds will not
possess any voting rights unless such voting rights are approved by a majority
of a corporation's disinterested shareholders. The Florida Affiliated
Transactions Act generally requires super-majority approval by disinterested
shareholders of certain specified transactions between a public corporation and
holders of more than ten percent of the outstanding voting shares of the
corporation (or their affiliates).
Florida law and the Company's Articles of Incorporation also authorize the
Company to indemnify the Company's directors, officers, employees and agents. In
addition, Florida law and the Company's Articles of Incorporation presently
limit the personal liability of corporate directors for monetary damages, except
where the directors (i) breach their fiduciary duties, and (ii) such breach
constitutes or includes certain violations of criminal law, a transaction from
which the directors derived an improper personal benefit, certain unlawful
distributions or certain other reckless, wanton or willful acts or misconduct.
The Company may also indemnify any person who was or is a party to any
proceeding by reason of the fact that he is or was a director, officer, employee
or agent of such corporation (or is or was serving at the request of such
corporation in such a position for another entity) against liability if he acted
in good faith and in a manner he reasonably believed to be in the best interests
of such corporation and, with respect to criminal proceedings, had no reasonable
cause to believe his conduct was unlawful.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved shares of Common
Stock and Preferred Stock may enable the Board of Directors to issue shares to
persons friendly to current management which would render more difficult or
discourage an attempt to obtain control of the Company by means of a proxy
contest, tender offer, merger or otherwise, and may thereby protect the
continuity of the Company's management.
TRANSFER AGENT
The Company's transfer agent is Norwest Bank Minnesota, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Concurrent Offering, the Company will have
15,400,536 shares of Common Stock outstanding. The holders of substantially all
the shares of Common Stock being offered in this offering have agreed with the
underwriters of the Concurrent Offering not to sell or otherwise dispose of any
of such shares for a period of 180 days after the closing of the Concurrent
Offering. Of the shares of Common Stock outstanding and underlying options and
warrants 4,979,596 shares are held by persons deemed "affiliates" of the Company
as such term is defined in Rule 144 and are subject to the "manner of sale"
restrictions under Rule 144.
43
<PAGE> 45
PLAN OF DISTRIBUTION
The securities which may be sold by the Selling Shareholders may be offered
and sold by them from time to time (subject to such Selling Shareholders
agreement not to sell such shares for a period of 180 days following the closing
of the Concurrent Offering) as market conditions permit in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then current market price, or in negotiated transactions. See "Shares
Eligible for Future Sale." Such securities may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell such securities as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a dealer as principal and resale thereby for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) face-to-face
transactions between sellers and purchasers without a broker or dealer. In
effecting sales, brokers or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Such brokers or dealers may
receive commissions or discounts from the Selling Shareholders in amounts to be
negotiated. Such brokers and dealers and any other participating brokers or
dealers may each be deemed to be an "underwriter," as that term is defined in
the Securities Act, in connection with offers or sales of securities owned by
the Selling Shareholders.
LEGAL MATTERS
Certain legal matters relating to the shares of Common Stock offered hereby
will be passed upon for the Company by Cohen, Berke, Bernstein, Brodie &
Kondell, P.A., Miami, Florida. Mr. Richard N. Bernstein, a principal in the law
firm of Cohen, Berke, Bernstein, Brodie & Kondell, P.A., is the trustee of the
Laskey Family Irrevocable Trust, which is the owner of 125,000 shares of Series
A Preferred Stock.
EXPERTS
The financial statements and schedule of Dynamic Healthcare Technologies,
Inc. as of December 31, 1994 and 1995, and for each of the years then ended,
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended June 30, 1995 and 1996, included herein, the independent certified public
accountants have reported that they applied limited procedures in accordance
with professional standards for a review of such information. However, the
separate report included herein for the six months ended June 30, 1995 and 1996,
states that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act for their report on the
unaudited interim financial information because that report is not a "report" or
a "part" of the Registration Statement prepared or certified by the accountants
within the meaning of Sections 7 and 11 of the Securities Act.
The financial statements of Terrano Corporation, the previous corporate
name of the Company, for the year ended December 31, 1993 included in this
Prospectus and the related financial statement schedule for the year ended
December 31, 1993 included elsewhere in the Registration Statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the Registration Statement, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The financial statements of DMI as of March 31, 1995 and 1996 and for each
of the years then ended included in this Prospectus and the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
44
<PAGE> 46
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files, reports, proxy statements and other
information with the SEC. These materials can be inspected and copied at the
public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, and at the following Regional Offices
of the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661. Copies of these materials may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, DC
25049 at prescribed rates. The Company's Common Stock is quoted on Nasdaq.
Reports, proxy statements and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, DC 20006.
A Registration Statement on Form S-3 relating to the Common Stock offered
hereby has been filed by the Company with the SEC in Washington, DC. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement and
the exhibits and schedules thereto. A copy of the Registration Statement may be
inspected by anyone without charge and may be obtained at prescribed rates from
the SEC at the Public Reference Section of the SEC maintained at its principal
office located at 450 Fifth Street, N.W., Washington, DC 25049, the New York
Regional Office located at 75 Park Place, Room 1228, New York, New York 10007,
or the Chicago Regional Office located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 or Internet Address:
http://www.sec.gov.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
Independent Auditors' Report -- KPMG Peat Marwick LLP............................... F-2
Independent Auditors' Report -- Deloitte & Touche LLP............................... F-3
Balance Sheets as of December 31, 1994 and 1995..................................... F-4
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995....... F-5
Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1994 and
1995............................................................................. F-6
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995....... F-7
Notes to Financial Statements....................................................... F-8
Independent Auditors' Review Report -- KPMG Peat Marwick LLP........................ F-19
Condensed Consolidated Balance Sheet as of June 30, 1996 (Unaudited)................ F-20
Condensed Consolidated Statement of Operations for the Six Months Ended
June 30, 1995 and 1996 (Unaudited)............................................... F-21
Condensed Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 1995 and 1996 (Unaudited)............................................... F-22
Notes to Condensed Consolidated Financial Statements (Unaudited).................... F-23
DIMENSIONAL MEDICINE, INC.
Independent Auditors' Report -- Ernst & Young LLP................................... F-27
Balance Sheets as of March 31, 1995 and 1996........................................ F-28
Statements of Operations for the Years Ended March 31, 1995 and 1996................ F-29
Statements of Shareholders' Equity for the Years Ended March 31, 1995 and 1996...... F-30
Statements of Cash Flows for the Years Ended March 31, 1995 and 1996................ F-31
Notes to Financial Statements....................................................... F-32
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Basis of Presentation............................................................... F-38
Pro Forma Condensed Consolidated Statements of Operations........................... F-38
Notes to Pro Forma Condensed Consolidated Statements of Operations.................. F-39
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Dynamic Healthcare Technologies, Inc.:
We have audited the accompanying balance sheets of Dynamic Healthcare
Technologies, Inc. as of December 31, 1994 and 1995, and the related statements
of operations, shareholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1994 and 1995 financial statements referred to above
present fairly, in all material respects, the financial position of Dynamic
Healthcare Technologies, Inc. as of December 31, 1994 and 1995, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------------------
KPMG PEAT MARWICK LLP
Orlando, Florida
March 6, 1996
F-2
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Terrano Corporation:
We have audited the statements of operations, shareholders' equity, and
cash flows of Terrano Corporation for the year ended December 31, 1993. 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. Our audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1993 financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Terrano Corporation for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
The accompanying financial statements for the year ended December 31, 1993
have been restated.
/s/ DELOITTE & TOUCHE LLP
--------------------------------------
DELOITTE & TOUCHE LLP
Orlando, Florida
March 16, 1994
(January 11, 1995 as to the 1993 restated financial statements)
F-3
<PAGE> 50
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 10,173 $ 2,290,366
Restricted cash (Note K).................................................... -- 50,000
Accounts receivable, net of allowance for doubtful accounts of $250,000 and
$140,837 in 1994 and 1995, respectively................................... 2,166,813 2,811,711
Unbilled receivables........................................................ 528,372 307,693
Other current assets........................................................ 199,651 141,569
----------- -----------
Total current assets................................................. 2,905,009 5,601,339
Property and equipment, net (Notes B and C)................................... 1,212,969 1,119,278
Capitalized software development costs, net of accumulated amortization of
$1,273,095 and $1,835,701 in 1994 and 1995, respectively (Note A)........... 1,821,917 2,040,727
Goodwill, net of accumulated amortization of $54,787 and $209,479 at December
31, 1994 and 1995, respectively (Note A).................................... 1,028,050 873,358
Other assets.................................................................. 32,171 24,408
----------- -----------
$ 7,000,116 $ 9,659,110
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit (Note C).................................... $ 2,788,401 $ --
Accounts payable and accrued expenses (Note F).............................. 1,182,450 852,515
Deferred revenue............................................................ 1,452,895 1,818,871
Advance billings............................................................ 351,835 80,260
Bank note payable -- current maturities..................................... -- 73,285
----------- -----------
Total current liabilities............................................ 5,775,581 2,824,931
Bank note payable (Note C).................................................... -- 2,726,715
Accrued liability -- Acquisition contingency (Note G)......................... 610,000 --
Other (Note J)................................................................ 112,569 43,053
----------- -----------
Total liabilities......................................................... 6,498,150 5,594,699
----------- -----------
Shareholders' equity (Note E):
Series A preferred stock, $0.01 par value (liquidation preference of
$782,992); authorized 1,055,938 shares; issued and outstanding 968,750
shares as of December 31, 1995............................................ -- 9,688
Series B preferred stock, $0.01 par value (liquidation preference of
$3,023,062); authorized 4,384,375 shares; issued and outstanding 3,750,000
shares as of December 31, 1995............................................ -- 37,500
Common stock, $0.01 par value, authorized 20,000,000 shares; issued and
outstanding 5,967,819 and 6,611,646 shares in 1994 and 1995,
respectively.............................................................. 59,678 66,116
Additional paid-in capital.................................................. 8,879,296 12,900,738
Deficit..................................................................... (8,437,008) (8,949,631)
----------- -----------
Total shareholders' equity........................................... 501,966 4,064,411
----------- -----------
$ 7,000,116 $ 9,659,110
============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 51
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- ----------
<S> <C> <C> <C>
Operating revenues (Note A):
Computer system equipment sales
and support........................................ $3,961,164 $ 1,873,393 $1,101,017
Application software licenses......................... 3,577,868 1,848,522 2,428,928
Software support...................................... 2,148,675 2,549,761 3,731,149
Services and other.................................... -- 715,466 1,625,242
---------- ----------- ----------
Total operating revenues...................... 9,687,707 6,987,142 8,886,336
Costs and expenses:
Cost of products sold................................. 3,158,671 1,547,453 880,639
Client services expense............................... 1,437,204 2,600,913 2,824,987
Software development costs............................ 1,425,083 1,774,897 1,642,825
Sales and marketing................................... 2,031,869 1,717,973 1,931,178
General and administrative............................ 1,381,973 2,218,807 1,768,005
Restructuring costs (Note F).......................... -- 686,439 --
---------- ----------- ----------
Total costs and expenses...................... 9,434,800 10,546,482 9,047,634
---------- ----------- ----------
Operating income (loss)....................... 252,907 (3,559,340) (161,298)
---------- ----------- ----------
Other income (expense):
Acquisition contingency (Note G)...................... -- (610,000) --
Interest expense and financing costs.................. (18,615) (143,412) (378,043)
Miscellaneous......................................... 11,392 5,252 26,718
---------- ----------- ----------
Total other expense........................... (7,223) (748,160) (351,325)
---------- ----------- ----------
Earnings (loss) before income taxes..................... 245,684 (4,307,500) (512,623)
Income taxes (Note H)................................... -- -- --
---------- ----------- ----------
Net earnings (loss)..................................... $ 245,684 $(4,307,500) $ (512,623)
========== =========== ==========
Earnings (loss) per common share........................ $ (0.05) $ (0.78) $ (0.08)
========== =========== ==========
Weighted average common shares outstanding.............. 5,362,625 5,536,202 6,443,294
</TABLE>
See notes to financial statements.
F-5
<PAGE> 52
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL
SERIES A SERIES B COMMON PAID-IN
PREFERRED PREFERRED STOCK CAPITAL DEFICIT
--------- --------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992................ $ -- $ -- $52,713 $ 7,532,617 $(4,375,192)
Exercise of stock options............... -- -- 65 6,435 --
Net earnings............................ -- -- -- -- 245,684
------ ------- ------- ----------- -----------
Balance, December 31, 1993................ -- -- 52,778 7,539,052 (4,129,508)
Common stock issued to effect merger.... -- -- 6,000 1,194,000 --
Exercise of stock options............... -- -- 822 135,142 --
Employee stock purchase plan............ -- -- 78 11,102 --
Net loss................................ -- -- -- -- (4,307,500)
------ ------- ------- ----------- -----------
Balance, December 31, 1994................ -- -- 59,678 8,879,296 (8,437,008)
Common stock issued to resolve
acquisition contingency.............. -- -- 6,100 603,900 --
Conversion of subordinated convertible
notes................................ 9,688 -- -- 760,062 --
Issuance of Series B preferred stock.... -- 37,500 -- 2,601,005 --
Issuance of warrants.................... -- -- -- 25,000 --
Exercise of stock options............... -- -- 50 4,950 --
Employee stock purchase plan............ -- -- 288 26,525 --
Net loss................................ -- -- -- -- (512,623)
------ ------- ------- ----------- -----------
Balance, December 31, 1995................ $ 9,688 $ 37,500 $66,116 $12,900,738 $(8,949,631)
====== ======= ======= =========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 53
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)..................................... $ 245,684 $(4,307,500) $ (512,623)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 677,441 1,036,740 1,081,694
Acquisition contingency............................ -- 610,000 --
Changes in assets and liabilities:
Accounts receivable.............................. (634,020) (1,096,151) (644,898)
Unbilled receivables............................. -- 1,949,552 220,679
Other............................................ 19,891 (17,844) 65,845
Accounts payable and accrued expenses............ 80,360 (95,206) (329,935)
Deferred revenue................................. 291,140 99,940 365,976
Advance billings................................. -- (45,236) (271,575)
----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................. 680,496 (1,865,705) (24,837)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Dynamic Technical Resources, Inc....... -- 286,586 --
Capitalized software development costs................ (943,595) (796,024) (781,416)
Purchases of property and equipment................... (237,238) (445,065) (270,705)
Restricted cash deposit............................... -- -- (50,000)
----------- ----------- -----------
Net cash used in investing activities......... (1,180,833) (954,503) (1,102,121)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under line of credit, net..... 239,000 1,874,401 (2,788,401)
Borrowings under bank note payable.................... -- -- 2,800,000
Proceeds from issuance of common stock................ 6,500 147,144 31,813
Other................................................. (46,392) 20,084 (5,250)
Proceeds from issuance of subordinated convertible
notes.............................................. -- -- 775,000
Proceeds from issuance of Series B preferred stock.... -- -- 2,638,505
Proceeds from issuance of warrants.................... -- -- 25,000
Principal payments on long-term debt and capital lease
obligations........................................ -- (311,390) (69,516)
----------- ----------- -----------
Net cash provided by financing activities..... 199,108 1,730,239 3,407,151
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... (301,229) (1,089,969) 2,280,193
Cash and cash equivalents, beginning of year............ 1,401,371 1,100,142 10,173
----------- ----------- -----------
Cash and cash equivalents, end of year.................. $ 1,100,142 $ 10,173 $ 2,290,366
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Interest paid......................................... $ 16,284 $ 102,354 $ 375,434
========== ========== ==========
Income taxes paid (received).......................... $ (3,823) $ 0 $ 0
========== ========== ==========
</TABLE>
See notes to financial statements.
F-7
<PAGE> 54
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- Dynamic Healthcare Technologies, Inc. (formerly Terrano
Corporation) develops, markets and supports clinical information systems and
electronic health record solutions in the healthcare industry. The specific
market segments in which the Company participates include Clinical Workstations,
Document Imaging, Diagnostic Imaging, Laboratory Information Systems, Radiology
Information Systems, and Perioperative (Anesthesiology) Information Systems. All
of the Company's products are complementary to and contribute to the creation
and maintenance of the electronic health record.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation and amortization. The cost of property and equipment is
depreciated and amortized over the estimated useful lives of the related assets,
ranging from five to ten years, using the straight-line method.
Software Development Costs -- Costs incurred to establish the technological
feasibility of computer software products are research and development costs and
are charged to expense as incurred. Costs of producing product masters
subsequent to establishing technological feasibility, including coding and
testing, are capitalized. Capitalization of computer software costs ceases when
the product is available for general release to customers. Amortization of
capitalized Software Development Costs for the years ended December 31, 1993,
1994 and 1995 were $384,569, $505,613 and $562,606, respectively, and write
downs to net realizable value of $0, $121,535 and $0, respectively. Capitalized
software development costs are amortized using either the straight-line method
over the estimated economic life of the product (currently five years) or the
ratio of current revenues to current and anticipated revenues for the product
whichever results in the greater amount of amortization. Unamortized capitalized
costs of a computer software product in excess of its net realizable value of
that asset are expensed.
Goodwill -- Goodwill is stated at cost less accumulated amortization.
Goodwill is amortized using the straight line method over a period of seven
years. The Company assesses the recoverability of goodwill based upon projected
operations over a period which represents the approximate remaining life of
goodwill. The Company evaluates the recoverability of goodwill based on this
forecast of future operations and income, and using a discount rate that
reflects the Company's average cost of funds.
Revenues -- Revenues are derived from the sale of computer hardware,
licensing and sub-licensing of software, professional and technical consulting
services, and maintenance and support services. Each customer contract is
negotiated separately. Application software licenses and computer system
equipment revenues are recorded when hardware and application software are
delivered. Installation and training revenues, which are included with
application software licenses revenues in the statements of operations are
recognized as the services are performed. Software support revenues principally
include contracts for continuing support services which cover a specific period,
and from which revenue is recognized ratably over the period of the contract.
Also included in software support revenue are revenues from other significant
continuing obligations and post contract support obligations, which are
typically under separate contract and are recognized as the services are
performed. Services revenues are recognized as the services are performed.
Employee Benefit Plan -- The Company has a 401(k) savings plan covering all
full-time employees. Eligible employees may elect to defer 20% of their
compensation up to the maximum allowed by the Internal Revenue Code. Company
contributions are made at the discretion of the Board of Directors and amounted
to $52,576, $75,545 and $63,390 in 1993, 1994 and 1995, respectively.
Stock-Based Employee Compensation Plans -- The Company's employee stock
option plans are accounted for under APB Opinion 25, Accounting for Stock Issued
to Employees, and related interpretations.
Income Taxes -- Deferred income taxes are provided on items that are
recognized in different reporting periods for financial accounting and income
tax purposes using the then enacted tax rates.
F-8
<PAGE> 55
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share -- Earnings per share is computed on the basis of the
weighted average number of shares outstanding plus the common stock equivalents
which would arise from the exercise of stock options and warrants if dilutive.
Fully diluted earnings per share do not differ significantly from primary
earnings per share.
Cash Equivalents -- For purposes of the statement of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk -- The Company generates revenue primarily
through sales to the healthcare industry located throughout the United States.
Due to this concentration, substantially all receivables at December 31, 1994
and 1995, are from healthcare institutions which may be similarly affected by
changes in economic, regulatory or other conditions. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses and such
losses have been within management's expectations.
The Company invests its excess cash in deposits with major financial
institutions, in U.S. government agency securities and in commercial paper of
companies with strong credit ratings. Generally, the investments mature within
90 days and, therefore, are subject to little risk. The Company has not
experienced losses related to these investments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments. The fair value of cash and cash and
equivalents approximates its carrying amounts because of the short maturity of
those instruments. The fair value of bank note payable is estimated based on the
current rates available to the Company for debt of the same remaining maturities
and approximates its carrying amount.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Statement,
which is effective for fiscal years beginning after December 15, 1995, provides
that an entity review long-lived assets and certain identifiable intangibles, to
be held and used, for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. The
Company will adopt this standard in 1996 and does not expect compliance with
such standard to have a material effect, if any, on the Company's financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. The Statement, which is effective for fiscal years beginning after
December 15, 1995, provides that companies must either charge the value of stock
options granted to their income statement or provide pro forma equivalent
information in a footnote disclosure. The Company will adopt this standard in
1996 by providing pro forma equivalent information in a footnote disclosure.
Reclassifications -- Certain prior year balances have been reclassified to
conform to the 1995 presentation.
F-9
<PAGE> 56
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
B. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Furniture and fixtures...................................... $ 264,424 $ 208,434
Equipment................................................... 2,778,373 2,696,946
Leasehold improvements...................................... 110,150 48,559
---------- ----------
3,152,947 2,953,939
Less accumulated depreciation and amortization.............. 1,939,978 1,834,661
---------- ----------
$1,212,969 $1,119,278
========== ==========
</TABLE>
C. BANK NOTE PAYABLE
On December 8, 1995 the Company entered into a $2,800,000 promissory note
payable to a bank (the "Note"), and discharged its line of credit. The line of
credit was due on demand with accrued interest payable monthly at the bank's
prime plus one percent per annum. The terms of the Note require fixed monthly
payments of principal and interest of $29,911 beginning January 1, 1996, and a
balloon payment equal to the remaining unpaid principal balance and accrued
interest on March 31, 1998. Principal payments are anticipated to approximate
$73,000, $76,000, and $2,651,000 during the years ending December 31, 1996, 1997
and 1998, respectively. Interest on the outstanding principal balance accrues at
the bank's prime rate plus two percent per annum (10.5% as of December 31,
1995). Under the applicable credit agreement, the bank has a security interest
in all of the assets of the Company.
D. LEASES
The Company leases certain equipment and office space under noncancelable
operating leases. The leases call for monthly payments over terms of three to
five years and include renewal options. With respect to the equipment leases,
the Company is liable for all taxes, repairs and insurance. Total rent expense
on all operating leases was $204,000, $208,000 and $161,835 for the years ended
December 31, 1993, 1994 and 1995, respectively.
The future minimum rental payments under operating leases as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------------
<S> <C>
1996............................................................... $257,026
1997............................................................... 240,718
1998............................................................... 249,390
1999............................................................... 62,890
--------
Total.............................................................. $810,024
========
</TABLE>
E. CAPITAL STOCK, WARRANTS AND OPTIONS
During 1993, the Company's Board of Directors adopted and the shareholders
approved a stock warrant and option plan for directors and management employees
(the "D&M Plan"), whereby 250,000 shares of Common Stock are reserved for
issuance. Under the D&M Plan directors' warrants are five year warrants which
vest under varying terms and are issued at an exercise price equal to the market
price of the Company's Common Stock on the date of grant. Management employee
options expire ten years after the first anniversary of the date of issuance and
are issued at an exercise price of no less than 85% of the market price of the
Company's Common Stock on the date of grant. During 1995, the shareholders
approved an amendment to
F-10
<PAGE> 57
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the D&M Plan to conform the terms of vesting to 40% upon grant plus 20% per year
for each of three years thereafter, and to provide for early vesting upon death
or employment termination without cause for all future options granted under the
D&M Plan. Additionally, annual warrants are issued to non-employee directors at
the beginning of that director's third consecutive term in office. Each annual
warrant is for 5,000 shares of the Company's Common Stock, has a five year term,
has an exercise price equal to the average of the closing bid and ask prices of
the Company's Common Stock on the date of issuance and is fully vested upon
issuance. At December 31, 1995, the Company had stock warrants and options
outstanding to purchase shares of its Common Stock under the D&M Plan as
follows:
<TABLE>
<CAPTION>
NUMBER PRESENTLY PRICE YEAR EXPIRATION
OF SHARES EXERCISABLE PER SHARE GRANTED DATE
--------- ----------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Directors'
Warrants: 25,500 25,500 $3.06 1991 May 1996
5,000 5,000 2.25 1993 June 1998
25,500 25,500 2.06 1993 January 1998
15,000 15,000 1.93 1994 June 1999
5,000 5,000 2.25 1994 June 1999
15,000 15,000 1.00 1995 June 2000
Management
Employees'
Options: -- --
------ ------
91,000 91,000
====== ======
</TABLE>
As part of a public offering of Common Stock in December 1991, the Company
granted warrants to an underwriter of its offering for 35,000 shares of Common
Stock. As of December 31, 1995, these underwriter warrants are exercisable at
$4.32 per share and will expire, if unexercised, in December 1996.
The Company's Board of Directors adopted and the shareholders approved an
incentive stock option plan in 1983 (the "1983 Plan") for key employees whereby
400,000 shares of common stock were reserved for issuance. Options granted vest
40%, 30% and 30% on the first, second and third anniversaries of their issuance,
respectively and expire ten years after the date of grant. At December 31, 1995,
the Company had granted options of 355,040 shares, of which options for 104,240
shares had been exercised and options for 19,000 shares were exercisable at
between $1.00 and $1.9375 a share. No new options will be granted under the
terms of the 1983 Plan.
During 1993, the Company's Board of Directors adopted and the shareholders
approved an incentive stock option plan (the "1993 Plan") for employees whereby
100,000 shares of Common Stock were reserved for issuance. The terms of the 1993
Plan are similar to the 1983 Plan. During 1995, the Company's Board of Directors
adopted and the shareholders approved increasing shares issuable pursuant to the
1993 Plan to 600,000. At December 31, 1995, the Company had granted options of
177,750 shares, no options had been exercised, 13,700 options were terminated
and options for 14,670 shares were exercisable between $1.93 and $2.25 a share.
Under both the 1983 Plan and the 1993 Plan, the exercise price for stock options
may not be less than the market price of the Company's Common Stock at date of
grant.
F-11
<PAGE> 58
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Incentive stock option activity under the 1983 and 1993 Plans and price
information follows:
<TABLE>
<CAPTION>
STOCK OPTION
SHARES PRICE RANGE
-------- -------------
<S> <C> <C>
Balance at December 31, 1992............................... 321,050 $1.00 - $3.06
Exercised................................................ (6,500) 1.00
Granted.................................................. 58,500 2.25
Canceled................................................. (2,000) 1.53
--------
Balance at December 31, 1993............................... 371,050 1.00 - 3.06
Exercised................................................ (56,750) 1.00 - 2.25
Granted.................................................. 34,575 1.94
Canceled................................................. (246,125) 1.00 - 3.06
--------
Balance at December 31, 1994............................... 102,750 1.00 - 2.25
Exercised................................................ (5,000) 1.00
Granted.................................................. 143,000 1.00 - 1.13
Canceled................................................. (57,700) 1.00 - 2.25
--------
Balance at December 31, 1995............................... 183,050 1.00 - 2.25
========
</TABLE>
During 1993, the Company's Board of Directors and the shareholders approved
an employee stock purchase plan effective for a five year period beginning
January 1, 1994. The Company reserved 200,000 shares of Common Stock for
issuance under this plan. This plan operates in one or more phases of six months
each and is open for enrollment by employees working at least 20 hours per week
and who have completed at least five months of service. A summary of plan
activity is as follows:
<TABLE>
<CAPTION>
PHASE PHASE ENDING DATE SHARES ISSUED PRICE
-------- ----------------- ------------- -----
<S> <C> <C> <C>
1.............................................. June 30, 1994 5,274 $1.65
2.............................................. December 31, 1994 2,535 0.98
3.............................................. June 30, 1995 6,256 0.93
4.............................................. December 31, 1995 22,575 0.93
------
36,640
======
</TABLE>
On July 6, 1994, the Company's Board of Directors, in connection with an
employment agreement, granted options to David M. Pomerance, covering 250,000
shares of Common Stock. The options are exercisable through July 6, 1999 in
accordance with a vesting schedule of 40% upon grant plus 20% per year for each
of three years thereafter at an exercise price of $1.875 per share, the fair
market value on the date of the grant. On August 23, 1994, the Company's Board
of Directors, in connection with an employment agreement, granted options to
Mitchel J. Laskey, covering 250,000 shares of Common Stock under similar terms
at an exercise price of $1.6875 per share, the fair market value on the date of
the grant. Both option agreements provide for early vesting upon death or
employment termination without cause. On September 13, 1995, the Company's Board
of Directors reduced the exercise price on these employment options to $1.00 per
share.
The Articles of Incorporation authorize 10,000,000 shares of $0.01 par
value preferred stock, in such series and variations in the relative rights and
preferences, including voting rights, if any, among series as the Board of
Directors shall determine.
On November 15, 1995 the Company was authorized by the Board of Directors
to reserve for issuance 1,055,938 Shares of 9% Series A Cumulative Convertible
Preferred Stock $0.01 par value ("Series A
F-12
<PAGE> 59
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock"), and 4,384,375 shares of 9% Series B Cumulative Convertible
Preferred Stock $0.01 par value ("Series B Preferred Stock"), (collectively,
"Preferred Stock"), with the following attributes:
(1) Rank. The Preferred Stock, with respect to dividend rights and
voluntary or involuntary liquidation, winding-up, dissolution, merger and
combination, rank prior to all classes of Common Stock.
(2) Dividends. The holders of record of any outstanding shares of
Preferred Stock are entitled to cumulative dividends on a pari passu basis
at the rate per share of nine (9%) percent per annum payable quarterly in
arrears, on March 31, June 30, September 30 and December 31 of each year.
(3) Liquidation Rights. Upon the liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, the holders of the
Preferred Stock are entitled to receive and to be paid out of the assets of
the Company available for distribution a liquidation distribution in cash
in an amount equal to $0.80 per share plus accrued and unpaid dividends
thereon to the date of such distribution.
(4) Conversion Rights. The holders of shares of Preferred Stock have
the rights, at their option, to receive on a share for share basis, Common
Stock of the Company plus any dividends accrued and unpaid on any shares of
Preferred Stock surrendered for conversion.
(5) Mandatory Conversion. Each share of Series A Preferred Stock will
automatically be converted into one share of Common Stock if (i) the
Company's Common Stock shall have traded above $1.20 for 20 consecutive
trading days on any nationally recognized stock exchange or Nasdaq and (ii)
the underlying common shares have been registered under the Securities Act
of 1933, as amended (the "Securities Act").
Each share of Series B Preferred Stock shall automatically be
converted into one share of Common Stock if (i) the Company's Common Stock
shall have traded above $2.80 for 20 consecutive trading days on any
nationally recognized stock exchange or Nasdaq and (ii) the average weekly
trading volume during such 20 consecutive trading days is equal to or
greater than 150,000 shares of Common Stock and (iii) either the underlying
Common Stock have been registered under the Securities Act or eligible to
be sold by the Series B Preferred Stock holders pursuant to Rule 144
promulgated under the Securities Act.
(6) Redemption. The shares of the Series A Preferred Stock are not
subject to redemption on or prior to June 30, 1998, or if any Series B
Preferred Stock is outstanding. After June 30, 1998 the Series A Preferred
Stock is redeemable in whole or in part, at any time at the option of the
Company, at the following redemption prices: (i) $0.90 per share, if
redeemed on or before June 30, 1999, and (ii) $0.80 per share thereafter,
plus an amount in cash equal to all accrued and unpaid dividends thereon to
the date fixed for redemption. If less than all of the outstanding shares
of Series A Preferred Stock are to be redeemed, the Company will redeem
such shares on a pro rata basis. Redemption of Series B Preferred Stock is
at the option of the holder(s) upon the occurrence of a liquidating
consolidation or merger, or a sale of substantially all of the Company's
assets. There is no mandatory redemption or sinking fund obligation with
respect to the Preferred Stock.
(7) Voting Rights. The holders of shares of the Series A Preferred
Stock are not entitled to any voting rights except as required by law or as
described below. In the event quarterly dividends are in arrears for two
calendar quarters the holder of shares of the Series A Preferred Stock
shall have the same voting rights as if such shares of Series A Preferred
Stock had been converted into shares of Common Stock.
The holders of shares of Series B Preferred Stock are entitled to vote on
all matters, in the same manner and with the same effect as holders of Common
Stock as one class. Additionally, the Company requires approval of two-thirds of
the Series B Preferred Stock holders voting as a separate class with respect to
certain matters, including (i) to authorize, alter, create or issue any class or
series of capital stock; (ii) merge or consolidate with and or into any other
entity; or (iii) permit the occurrence of a change in control as defined.
F-13
<PAGE> 60
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On July 31, 1995 the Company completed a private placement offering of
$775,000 of subordinated convertible notes, bearing simple interest at 9% per
annum, together with detachable warrants to purchase 155,000 shares of the
Company's Common Stock ("Debt Warrants") (see also Note I). The Debt Warrants
are exercisable at $1.00 per common share, and are exercisable for five years
from the date of issuance (70,000 in June 1995 and 85,000 in July 1995). On
November 28,1995 all of the subordinated convertible notes were converted into
968,750 shares of Series A Preferred Stock.
On December 5, 1995 the Company issued 3,375,000 shares of Series B
Preferred Stock for $2.7 million, and on December 29, 1995 issued 375,000 shares
of Series B Preferred Stock for an additional $300,000 in a Private Placement
transaction.
In connection with the private placement of the shares of Series B
Preferred Stock, the Board of Directors of the Company authorized the issuance
on December 8, 1995 of warrants to purchase 210,000 shares of the Company's
common stock for $1.00 per share to a financial consultant ("Series B Warrants")
for $25,000. The Series B Warrants are exercisable for seven years from the date
of issuance.
As of December 31, 1995 no dividends had been declared, and arrearages on
Series A and Series B Preferred Stock were $6,394 and $18,450, respectively.
Additionally, as of December 31, 1995 none of the Debt Warrants or the Series B
Warrants had been exercised.
F. RESTRUCTURING
On November 15, 1994 the Company adopted a plan to restructure certain of
its operations and to re-evaluate certain other activities. The Company's plan
included reduction in the workforce, restructuring of the sales compensation
program, relocation of the corporate office and the closing of the Lincoln,
Nebraska operation. Accordingly, the Company provided or incurred $686,439
during the year ended December 31, 1994 to write down assets to the net
realizable value and to cover the costs associated with the restructuring. The
costs associated with this action have been identified as "Restructuring Costs"
in the Statement of Operations for the year ended December 31, 1994, and are
summarized as follows:
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
NOVEMBER 15, PAID OR ACCRUAL DECEMBER 31,
1994 INCURRED ADJUSTMENTS 1994
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
Excess costs attributable to exit
activities............................ $254,430 $(213,930) $ -- $ 40,500
Noncancelable lease termination costs... 206,357 (28,738) -- 177,619
Involuntary employee termination
benefits.............................. 95,060 (68,215) -- 26,845
Employee costs after operations cease... 130,592 (54,592) -- 76,000
-------- --------- -------- --------
$686,439 $(365,475) $ -- $320,964
======== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
DECEMBER 31, PAID OR ACCRUAL DECEMBER 31,
1994 INCURRED ADJUSTMENTS 1995
------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
Excess costs attributable to exit
activities............................ $ 40,500 $ -- $ (40,500) $ --
Noncancelable lease termination costs... 177,619 (187,375) 9,756 --
Involuntary employee termination
benefits.............................. 26,845 (23,235) (3,610) --
Employee costs after operations cease... 76,000 (110,354) 34,354 --
-------- --------- -------- --------
$320,964 $(320,964) $ -- $ --
======== ========= ======== ========
</TABLE>
The Company completed the plan of restructure during the second quarter of
1995, and all employee groups were restructured. As of December 31, 1995 actual
involuntary termination benefits of $91,450 were paid to 31 terminated
employees.
F-14
<PAGE> 61
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
G. ACQUISITION CONTINGENCY/RESTATEMENT
In connection with the acquisition of Dynamic Technical Resources, Inc.
("DTR") in August 1994, due principally to breaches in the representations and
warranties contained in the applicable merger agreement, the Company's Board of
Directors determined that an adjustment to the consideration given to the former
DTR shareholders was required. On March 5, 1995, the Board of Directors agreed
to issue an aggregate of 610,000 additional shares of Common Stock of the
Company to be distributed among the former shareholders of DTR on a pro-rata
basis, with the same rights, privileges and restrictions as the original
consideration received by such shareholders in connection with the acquisition.
Such former DTR shareholders, in turn, agreed to release the Company from any
claims they may have against the Company, its current officers and directors and
to cooperate and assist the Company in the event the Company elects to file a
civil lawsuit against any professional or other third parties for damages
resulting from the events and matters that led to the Company's restated
financial statements. The additional shares were issued on March 27, 1995. A
charge to operations for the year ended December 31, 1994 in the amount of
$610,000 was recorded representing market value of the additional shares at the
date of issuance. As a result of review by and consultation with the staff of
the Securities and Exchange Commission, the Company restated its 1994
consolidated financial statements to reflect an accrual for this acquisition
settlement in the amount of $610,000. The amount of $610,000 represents the
market value of the additional shares at the date of their issuance. The
recorded cost of the acquired enterprise was not affected by the issuance of
these additional shares.
H. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- ----------- ---------
<S> <C> <C> <C>
Current income tax expense (benefit) before
operating loss carry forward...................... $ 3,000 $(1,523,000) $(281,000)
Tax effects of temporary differences................ 96,000 44,000 76,000
Non-recognition of benefits of operating loss
carry forward..................................... -- 1,479,000 205,000
Benefits of operating loss carry forward............ (99,000) -- --
-------- ----------- ---------
$ -- $ -- $ --
======== ========== =========
</TABLE>
Deferred income taxes reflect the net tax effects of operating loss and tax
credit carryforwards and temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
F-15
<PAGE> 62
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and the amounts used for income tax purposes. The tax effects of significant
items comprising the Company's net deferred tax as of December 31, 1994 and
1995, are as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax asset:
Operating loss carryforwards............................ $ 3,365,000 $ 3,920,000
Tax credit carryforwards................................ 701,000 717,000
Other................................................... 85,000 57,000
----------- -----------
4,151,000 4,694,000
Deferred tax liabilities:
Capitalized software development costs.................. (729,000) (816,000)
Other................................................... (46,000) --
----------- -----------
Net deferred tax asset.................................... 3,376,000 3,878,000
Valuation allowance....................................... (3,376,000) (3,878,000)
----------- -----------
Net deferred tax.......................................... $ -- $ --
=========== ===========
</TABLE>
The net deferred tax asset is reduced by a valuation allowance due to the
uncertainty associated with the realization of the net deferred tax asset. The
valuation allowance increased $502,000 from the allowance of $3,376,000 at
January 1, 1995.
The provisions for Federal income taxes differs from the amount computed by
applying the statutory rate to net earnings (loss) before income taxes for each
of the three years in the period ended December 31, 1995, as follows:
<TABLE>
<CAPTION>
AMOUNT OF TAX
----------------------------------
1993 1994 1995
-------- ----------- ---------
<S> <C> <C> <C>
Computed expected tax expense (benefit)............. $ 84,000 $(1,465,000) $(174,000)
State taxes, net of federal benefit................. 15,000 (222,000) (31,000)
Acquisition consideration not deductible for tax.... -- 208,000 --
Non-recognition of benefits of operating loss
carryforward...................................... -- 1,479,000 205,000
Benefits of operating loss carryforward............. (99,000) -- --
--------- ----------- --------
$ -- $ -- $ --
========= =========== ========
</TABLE>
At December 31, 1995 the Company had unused operating loss carryforwards
for tax and alternative minimum tax purposes of approximately $9,801,000 and
$9,423,000, respectively, and unused tax credits of approximately $717,000.
These operating loss carryforwards and tax credits expire in varying amounts
during 1996 through 2009.
F-16
<PAGE> 63
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
I. UNAUDITED QUARTERLY INFORMATION
Quarterly information is summarized as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31*
-------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
1994
Total operating revenues.......................... $2,254 $ 1,401 $1,676 $1,656
Operating income (loss)........................... (198) (674) (706) (1,981)
Net earnings (loss)............................... (204) (691) (737) (2,676)
Net earnings (loss) per share..................... (0.04) (0.13) (0.13) (0.48)
Shareholders' equity.............................. 3,298 2,652 3,133 502
1995
Total operating revenues.......................... $2,234 $ 2,267 $2,213 $ 2,172
Operating income (loss)........................... (366) (136) 252 89
Net earnings (loss)............................... (443) (262) 148 44
Net earnings (loss) per share..................... (0.07) (0.04) 0.02 0.01
Shareholders' equity.............................. 674 417 566 4,064
</TABLE>
- ---------------
* Results reported for the fourth quarter of 1994 include the fluctuations
resulting from the accrual of restructuring costs and the acquisition
contingency. See also Notes F and G.
J. RELATED PARTY TRANSACTIONS
In connection with the private placement offering of subordinated
convertible notes David M. Pomerance (CEO and Director), Mitchel J. Laskey
(President, COO and Director) and Thomas J. Martinson (Chairman) purchased
$100,000, $100,000 and $50,000, respectively and received 20,000, 20,000 and
10,000 Debt Warrants, respectively. These notes were converted into Series A
Preferred Stock on November 28, 1995 at $0.80 per share.
Included in other non-current liabilities is an installment obligation
payable in connection with a deferred compensation agreement with the Company's
current President assumed in connection with the acquisition of DTR, which is
payable in 19 remaining monthly installments of $4,167 at an imputed interest
rate of 8.25%.
The Company expensed airline transportation charges from DDK Enterprises
LLC ("DDK") on terms which approximate fair market value of $65,000 during the
year ended December 31, 1995. DDK is majority owned by Mr. Pomerance.
K. SUBSEQUENT EVENT/RESTRICTED CASH
On December 8, 1995 the Company signed a letter of intent agreeing in
principle to acquire all of the outstanding common shares of Dimensional
Medicine, Inc. ("DMI") located in Minnetonka, Minnesota. As of December 31, 1995
restricted cash of $50,000 represents an escrow deposit on the transaction
pursuant to this letter of intent.
On February 6, 1996 the Company signed a definitive merger agreement (the
"Agreement") with DMI. Under the terms of the Agreement, the Company will
acquire through a wholly owned newly created subsidiary DMI Acquisition
Corporation, on or before May 17, 1996, all of the outstanding common shares of
DMI and retire $600,000 of DMI's senior debt. The transaction is subject to
approval of the shareholders of
F-17
<PAGE> 64
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DMI scheduled for April 29, 1996. The Company and DMI are coordinating joint
management of DMI operations through the anticipated closing. DMI develops and
markets radiology information management solutions for hospitals, clinics, and
independent diagnostic imaging centers. DMI's two major products are
Maxifile(R), which computerizes the clerical and administrative functions in the
radiology department, and Maxiview(TM), an advanced imaging and graphics
workstation.
DMI also sells an image review workstation, Maxiview Powerstation (MVP),
which allows a physician to access and review images from a remote location.
Remote access to the images may be obtained either through the use of a modem or
through a network that may already be functioning at the installation's site.
DMI is publicly traded on the over-the-counter market under the symbol
DIMM. As reported in DMI's unaudited Form 10-Q for the nine months ended
December 31, 1995, DMI reported a $64,000 net loss on revenues of $3,700,000.
F-18
<PAGE> 65
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Dynamic Healthcare Technologies, Inc.
We have reviewed the condensed consolidated balance sheet of Dynamic
Healthcare Technologies, Inc. and subsidiary as of June 30, 1996, and the
related condensed consolidated statements of operations and cash flows for the
six month periods ended June 30, 1995 and 1996. These condensed consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------------------
KPMG Peat Marwick LLP
Orlando, Florida
July 30, 1996
F-19
<PAGE> 66
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 771,186
Accounts receivable, net of allowance for doubtful accounts of $283,739....... 2,914,653
Unbilled receivables.......................................................... 322,860
Lease receivables............................................................. 197,873
Other current assets.......................................................... 437,284
-------------
Total current assets.................................................. 4,643,856
Property, equipment and leasehold improvements, net of accumulated depreciation
of $2,045,490................................................................. 1,412,438
Capitalized software development costs, net of accumulated amortization of
$2,202,179.................................................................... 3,907,092
Goodwill, net of accumulated amortization of $286,825........................... 796,012
Lease receivables............................................................... 256,489
Other assets.................................................................... 24,609
-------------
$ 11,040,496
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................................... $ 2,444,019
Deferred revenue.............................................................. 1,546,026
Advance billings.............................................................. 257,436
Notes payable -- current maturities........................................... 273,958
-------------
Total current liabilities............................................. 4,521,439
Notes payable................................................................. 2,914,939
Other......................................................................... 6,855
-------------
Total liabilities..................................................... 7,443,233
-------------
Shareholders' equity:
Series A preferred stock, $0.01 par value (liquidation preference of
$792,438); authorized 1,055,938 shares; issued and outstanding 968,750
shares..................................................................... 9,688
Series B preferred stock, $0.01 par value (liquidation preference of
$3,067,500); authorized 4,384,375 shares; issued and outstanding 3,750,000
shares..................................................................... 37,500
Common stock, $0.01 par value; authorized 20,000,000 shares; issued and
outstanding 6,681,586 shares............................................... 66,816
Additional paid-in capital.................................................... 12,955,009
Deficit....................................................................... (9,471,750)
-------------
Total shareholders' equity............................................ 3,597,263
-------------
$ 11,040,496
==========
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE> 67
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1995 1996
---------- ----------
<S> <C> <C>
Operating revenues:
Computer system equipment sales and support..................... $ 742,442 $1,592,474
Application software licenses................................... 1,546,902 1,305,582
Software support................................................ 1,696,422 2,295,014
Services and other.............................................. 515,724 1,124,319
---------- ----------
Total operating revenues................................ 4,501,490 6,317,389
---------- ----------
Costs and expenses:
Cost of products sold........................................... 658,939 1,359,361
Client services expense......................................... 1,364,883 2,002,877
Software development costs...................................... 915,123 826,879
Sales and marketing costs....................................... 1,117,632 1,536,152
General and administrative expense.............................. 947,682 1,008,644
---------- ----------
Total costs and expenses................................ 5,004,259 6,733,913
---------- ----------
Operating income (loss)........................................... (502,769) (416,524)
---------- ----------
Other income (expense):
Interest expense and financing costs............................ (167,623) (179,657)
Loss on sale of fixed assets.................................... (62,283) --
Miscellaneous................................................... 27,236 74,062
---------- ----------
Total other income (expense)............................ (202,670) (105,595)
---------- ----------
Net earnings (loss) before income taxes........................... (705,439) (522,119)
Income taxes...................................................... -- --
---------- ----------
Net earnings (loss)............................................... $ (705,439) $ (522,119)
========== ==========
Net earnings (loss) per share..................................... $ (0.11) $ (0.08)
========== ==========
Weighted average number of common and common equivalent shares
outstanding..................................................... 6,294,977 6,619,190
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE> 68
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1995 1996
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................................................ $(705,439) $ (522,119)
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization................................. 536,805 654,653
Loss on sale of fixed assets.................................. 62,283 --
Changes in assets and liabilities:
Accounts receivable......................................... 508,932 467,894
Unbilled receivables........................................ (70,640) 183,498
Lease receivables........................................... -- 36,737
Other current assets........................................ 74,790 207,196
Accounts payable and accrued expenses....................... 55,440 451,509
Other current liabilities................................... -- (250,000)
Deferred revenues........................................... (417,785) (362,004)
Advance billings............................................ (105,482) (98,702)
Other assets................................................ 3,113 3,559
----------- ----------
Net cash provided by (used in) operating activities...... (57,983) 772,221
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized software development costs............................. (447,121) (604,321)
Purchases of property and equipment................................ (232,693) (280,260)
Proceeds from sale of fixed assets................................. 26,646 --
Restricted cash released from escrow............................... -- 50,000
Purchase of net assets of Dimensional Medicine, Inc................ -- (1,399,389)
----------- ----------
Net cash used in investing activities.................... (653,168) (2,233,970)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit....................................... 611,599 --
Repayments of bank note payable.................................... -- (38,669)
Proceeds from subordinated convertible notes payable............... 350,000 --
Repayments of lease obligations.................................... -- (37,535)
Repayment of other long term debt.................................. (35,559) (36,198)
Proceeds from issuance of common stock............................. -- 28,683
Proceeds from exercise of incentive stock options.................. 10,818 136,070
Payment of preferred stock dividends............................... (109,782)
----------- ----------
Net cash flows provided by (used in) financing
activities............................................. 936,858 (57,431)
----------- ----------
Net increase (decrease) in cash and cash equivalents..... 225,707 (1,519,180)
Cash and cash equivalents, beginning of period..................... 10,173 2,290,366
----------- ----------
Cash and cash equivalents, end of period........................... $ 235,880 $ 771,186
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-22
<PAGE> 69
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(A) UNAUDITED FINANCIAL STATEMENTS:
The accompanying unaudited Condensed Consolidated Balance Sheet as of June
30, 1996, Condensed Consolidated Statements of Operations and of Cash Flows for
the six month periods ended June 30, 1995 and 1996, have been prepared by
management in conformity with generally accepted accounting principles for
interim financial statements and with instructions to Form 10-Q and Regulation
S-X. Accordingly, they do not include all the disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments and accruals considered necessary for fair
presentation of financial information have been included. Operating results for
the six month period ended June 30, 1996, are not necessarily indicative of the
operating results which may be expected for the year ending December 31, 1996.
(B) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Dynamic
Healthcare Technologies, Inc. and DMI Acquisition Corporation, its newly formed
wholly owned subsidiary from inception of May 1, 1996 (collectively hereafter
referred to as the "Company" or "Registrant"). All significant intercompany
transactions and accounts have been eliminated in consolidation.
(C) ACQUISITION OF DIMENSIONAL MEDICINE, INC.:
On May 1, 1996, Dimensional Medicine, Inc. ("DMI") was purchased by and
merged into DMI Acquisition Corporation ("DMIAC"), a newly formed wholly-owned
subsidiary of the Registrant. The transaction was consummated by purchasing all
of the outstanding common stock, and retiring and assuming certain debt
obligations of DMI. The funds used for the purchase of DMI were obtained from
available cash and cash equivalents of the Registrant. Components of the payment
for the purchase of DMI on May 1, 1996 were:
<TABLE>
<S> <C>
Purchase of Common Stock......................................... $ 550,200
Satisfaction of DMI debt Obligations............................. 879,636
----------
Cash Paid........................................................ 1,429,836
Less: Cash Acquired.............................................. (30,447)
----------
Purchase of DMI, net of cash acquired.................. $1,399,389
==========
</TABLE>
F-23
<PAGE> 70
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquisition has been accounted for using the purchase method. The
purchase price was allocated to assets and liabilities presented in the
accompanying condensed consolidated balance sheet based upon their estimated
fair values. A summary of these allocations on May 1, 1996 is as follows:
<TABLE>
<S> <C>
Accounts receivable, net of allowance for doubtful accounts
of $142,902................................................... $ 570,836
Unbilled receivables............................................ 198,665
Lease receivables-current....................................... 205,981
Other current assets............................................ 502,911
-----------
Total current assets.................................. 1,478,393
Property & equipment............................................ 223,729
Capitalized software development costs.......................... 1,628,522
Lease receivables............................................... 285,118
Other assets.................................................... 3,760
-----------
Total assets acquired................................. 3,619,522
-----------
Accounts payable and accrued expenses........................... (1,139,995)
Deferred revenue................................................ (89,159)
Advanced billings............................................... (275,878)
Notes payable -- current maturities............................. (458,858)
-----------
Total current liabilities............................. (1,963,890)
Notes payable................................................... (256,243)
-----------
Net liabilities assumed............................... (2,220,133)
-----------
Purchase of DMI, net of cash acquired........................... $ 1,399,389
==========
</TABLE>
(D) UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION:
The unaudited pro forma combined financial information, for the six months
ended June 30, 1995 and 1996, presented below (in thousands, except for per
share information), gives effect to the acquisition of DMI, as though it were
effective at the beginning of those periods. The pro forma information may not
be indicative of the results that would have occurred if the acquisition had
been effective on these dates, or of results that may be obtained in the future.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------
1995 1996
------ -------
<S> <C> <C>
Total operating revenues.............................. $7,242 $ 7,323
Operating income (loss)............................... (475) (1,537)
Net income (loss)..................................... (733) (1,632)
Net income (loss) per share........................... (0.12) (0.25)
</TABLE>
F-24
<PAGE> 71
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(E) LEASE RECEIVABLES:
Prior to the merger date of May 1, 1996, DMI financed the sale of computer
equipment under lease contracts on behalf of certain of its customers. These
leases provided for monthly principal and interest payments and typically
provided for an initial five year term. Lease receivables, as shown in the
accompanying condensed consolidated balance sheet, represent the minimum lease
payments receivable less unearned interest. The future minimum lease payments to
be received (including interest) are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING JUNE 30, AMOUNT
--------------------------------------------------------------- --------
<S> <C>
1997........................................................... $225,160
1998........................................................... 171,973
1999........................................................... 81,236
2000........................................................... 11,094
2001 and thereafter............................................ --
--------
$489,468
========
</TABLE>
(F) NOTES PAYABLE:
Notes payable consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
First Union note payable.................................... $2,761
Other notes payable......................................... 428
-------
3,189
Less -- current maturities.................................. (274)
-------
$2,915
===========
</TABLE>
The First Union note payable is payable in fixed monthly payments of
principal and interest of $29,911, and a balloon payment equal to the remaining
unpaid principal balance and accrued interest on March 31, 1998. Interest on the
outstanding principal balance accrues at First Union's prime rate plus two
percent per annum (10.25% as of June 30, 1996). Under the applicable credit
agreement, First Union has a security interest in all of the assets of the
Company.
Other notes payable represent installment obligations payable in monthly
amounts of between $2,300 and $10,000 each. The notes bear fixed rate interest
ranging from 7.3% -- 11% and are secured by assignments of the lease
receivables. (See also Note E).
Maturities of long-term debt at June 30, 1996 are anticipated to
approximate the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING JUNE 30, AMOUNT
--------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1997........................................................... $ 274
1998........................................................... 2,853
1999........................................................... 51
2000........................................................... 11
2001 and thereafter............................................ --
-------
$3,189
===========
</TABLE>
F-25
<PAGE> 72
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(G) PREFERRED DIVIDENDS:
On May 21, 1996 the Company's Board of Directors declared and paid the
March 31, 1996 accumulated dividends on Series A Preferred Stock and Series B
Preferred Stock of $17,438 and $67,500, respectively. As of July 31, 1996, the
June 30, 1996 accumulated dividend preferences on Series A Preferred Stock and
Series B Preferred Stock of $17,438 and $67,500, respectively, had not been
declared by the Company's Board of Directors.
(H) SUBSEQUENT EVENT:
On July 29, 1996 the Registrant merged with and into DHT Florida, Inc., a
newly formed Florida corporation, then a wholly-owned subsidiary of the
Registrant. In connection with the merger, DHT Florida, Inc. changed its name to
Dynamic Healthcare Technologies, Inc. Each share of the Registrant's Common
Stock, Series A Preferred Stock and Series B Preferred Stock outstanding
immediately prior to the merger was converted into one share of fully paid and
non-assessable similar stock in the surviving corporation upon identical terms
and conditions. The purpose of the merger was to effect a reincorporation in the
State of Florida for the Registrant as authorized by shareholders at the
Company's Annual Shareholders' Meeting held on May 21, 1996.
F-26
<PAGE> 73
INDEPENDENT AUDITORS REPORT
To the Stockholders of
Dimensional Medicine, Inc.
We have audited the accompanying balance sheets of Dimensional Medicine,
Inc. as of March 31, 1995 and 1996, and the related statements of operations,
shareholders' equity and cash flows for each of the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dimensional Medicine, Inc.
at March 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
May 24, 1996
F-27
<PAGE> 74
DIMENSIONAL MEDICINE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 71,215 $ 153,425
Accounts receivable, less allowance for doubtful accounts of
$29,181 and $138,715 at March 31, 1995 and 1996,
respectively................................................. 1,356,298 566,458
Unbilled and other receivables.................................. 344,296 244,057
Tax benefit receivable.......................................... 172,044 64,627
Short-term lease receivables.................................... 111,960 101,677
Inventory....................................................... 186,720 71,028
Other current assets............................................ 119,126 68,360
----------- -----------
Total current assets.................................... 2,361,659 1,269,632
----------- -----------
Property.......................................................... 2,335,358 2,412,952
Accumulated depreciation.......................................... (2,060,015) (2,175,102)
----------- -----------
275,343 237,850
Other assets:
Capitalized software............................................ 470,893 460,787
Long-term tax benefit receivable................................ -- 119,542
Long-term lease receivables..................................... 284,876 182,032
----------- -----------
Total assets............................................ $ 3,392,771 $ 2,269,843
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit................................. $ 500,000 $ 500,000
Accounts payable and other accrued expenses..................... 543,424 504,568
Due to NCS...................................................... 81,691 126,527
Accrued salaries and benefits................................... 157,169 100,879
Deferred revenue................................................ 164,269 111,098
Customer deposits............................................... 59,715 106,625
Advance billings................................................ 45,835 108,583
Government overpayments......................................... 193,419 193,419
Rent abatement.................................................. 106,683 35,561
Current portion -- note payable to NCS.......................... 200,000 541,983
Current portion capital leases.................................. 7,032 19,104
Current portion other long-term debt............................ 96,173 104,466
----------- -----------
Total current liabilities............................... 2,155,410 2,452,813
----------- -----------
Long-term note payable to NCS..................................... 655,000 --
Long-term note payable............................................ 257,891 153,426
Income taxes payable.............................................. 68,875 --
Rent abatement long-term.......................................... 35,561 --
Capital leases.................................................... 2,287 10,972
----------- -----------
1,019,614 164,398
----------- -----------
Shareholders' equity:
Common Stock, $0.15 par value
Authorized shares -- 50,000,000
Issued and outstanding shares -- 32,533,460 -- 1995 and 1996.... 4,880,019 4,880,019
Additional paid-in capital...................................... 8,633,407 8,633,407
Deficit......................................................... (13,295,679) (13,860,794)
----------- -----------
Total shareholders' equity.............................. 217,747 (347,368)
----------- -----------
Total liabilities and shareholders' equity.............. $ 3,392,771 $ 2,269,843
=========== ===========
</TABLE>
See accompanying notes.
F-28
<PAGE> 75
DIMENSIONAL MEDICINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------
1995 1996
---------- ----------
<S> <C> <C>
Revenues:
Hardware revenue.................................................. $1,198,860 $ 778,186
Hardware support revenue.......................................... 993,894 672,012
Software application revenue...................................... 2,012,618 1,438,753
Software support revenue.......................................... 1,150,216 1,192,924
Other revenue..................................................... 585,996 421,600
---------- ----------
5,941,584 4,503,475
Costs and expenses:
Cost of products sold............................................. 1,190,871 950,680
Client service expense............................................ 1,879,067 1,583,591
Software development.............................................. 1,259,858 1,128,751
Sales and marketing............................................... 845,876 715,016
General and administrative........................................ 534,050 846,892
---------- ----------
Total costs and expenses............................................ 5,709,722 5,224,930
---------- ----------
Operating income (loss)............................................. 231,862 (721,455)
Other income (expense):
Interest expense.................................................. (129,649) (116,088)
Other............................................................. 37,641 23,662
---------- ----------
(92,008) (92,426)
---------- ----------
Income (loss) before income taxes................................... 139,854 (813,881)
Income tax benefit.................................................. 34,610 248,766
---------- ----------
Net income (loss)................................................... $ 174,464 $ (565,115)
========= =========
Net income (loss) per share......................................... $ 0.01 $ (0.02)
========= =========
Weighted average number of shares outstanding during the year....... 32,553,460 32,553,460
</TABLE>
See accompanying notes.
F-29
<PAGE> 76
DIMENSIONAL MEDICINE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN ESOP
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE TOTAL
---------- ---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1994.................... 32,533,460 $4,880,019 $8,690,454 $(13,470,143) $ (96,847) $ 3,483
ESOP allocation......... -- -- (57,047) -- 96,847 39,800
Net income.............. -- -- -- 174,464 -- 174,464
---------- ---------- ---------- ------------ ---------- ---------
Balance at March 31,
1995.................... 32,533,460 4,880,019 8,633,407 (13,295,679) -- 217,747
Net loss................ -- -- -- (565,115) -- (565,115)
---------- ---------- ---------- ------------ ---------- ---------
Balance at March 31,
1996.................... 32,533,460 $4,880,019 $8,633,407 $(13,860,794) $ -- $(347,368)
========= ========= ========= =========== ======== =========
</TABLE>
See accompanying notes.
F-30
<PAGE> 77
DIMENSIONAL MEDICINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss).................................................... $ 174,464 $(565,115)
Adjustments to reconcile to net cash provided by operating
activities:
Depreciation and amortization..................................... 285,986 297,103
Changes in operating assets and liabilities:
Decrease in receivables......................................... 114,539 991,081
(Increase) decrease in inventories and other current assets..... (67,805) 166,458
(Decrease) increase in accounts payable and accrued expenses.... 415,359 (119,185)
Other........................................................... (285,834) (50,196)
--------- ---------
Net cash provided by operating activities.............................. 636,709 720,146
--------- ---------
Investing activities:
Purchases of property, plant and equipment........................... (151,957) (44,646)
Capitalization of software development costs......................... (167,927) (171,910)
--------- ---------
Net cash used in investing activities.................................. (319,884) (216,556)
--------- ---------
Financing activities:
Principal payments on notes payable and capitalized lease
obligations....................................................... (285,233) (421,380)
--------- ---------
Net cash used in financing activities.................................. (285,233) (421,380)
--------- ---------
Increase in cash and cash equivalents.................................. 31,592 82,210
Cash and cash equivalents at beginning of year......................... 39,623 71,215
--------- ---------
Cash and cash equivalents at end of year............................... $ 71,215 $ 153,425
========= =========
</TABLE>
See accompanying notes.
F-31
<PAGE> 78
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Dimensional Medicine, Inc. ("DMI") designs, develops and markets
application software and imaging workstations for the radiology medical market.
The Company sells its products throughout the United States.
REVENUE RECOGNITION
System Sales: Contracts for the sale of the Company's Maxifile systems
generally require modification of the systems to meet customer requirements, may
take up to twelve months to complete and require periodic progress payments
throughout the contract by the customer. Revenue is recognized based on
completion of contract milestones measured by the delivery of contractual
elements. Sales of the Company's Maxiview system are recognized upon delivery.
Costs of products sold include the estimated costs of post contract support.
Service and Support: Agreements for service and support are recognized
over the period in which support services are provided. The costs of providing
these services are presented in the costs and expenses section of the statement
of operations.
Other: All other revenue is recognized upon the performance of services.
WARRANTIES
Software products generally carry an initial 90 day warranty. Initial
hardware warranties are provided by the original manufacturer. An additional
warranty is available in the form of maintenance contracts for both software and
hardware. Revenue for these contracts is recognized over the contract life on a
straight-line basis.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The inventory balances at March 31, 1995 and 1996 were comprised of raw
materials and component parts.
SOFTWARE
Software costs capitalized include the cost of the Maxifile software system
purchased from NCS on March 31, 1987 (original cost of $1,275,000). The Company
amortizes the software costs based on the greater of the ratio of current
revenues to total expected revenues or the straight-line method over the
estimated economic life. Accumulated amortization was $1,204,000 and $1,280,000
at March 31, 1995 and 1996, respectively.
The Company capitalized software production costs related to additional
products of $168,000 and $172,000 in 1995 and 1996, respectively. The ongoing
assessment of recoverability of these costs requires considerable judgment by
management with respect to certain external factors, including, but not limited
to, anticipated future gross product revenue, estimated economic life and
changes in software and hardware technology. Amortization of these costs is
based on the greater of the ratio of current revenues to total estimated
revenues or the straight-line method over the estimated economic life, but not
to exceed five years. Accumulated amortization was $551,000 and $657,892 at
March 31, 1995 and 1996, respectively.
Amortization of software charged to cost of products sold in 1995 and 1996
was $140,000 and $182,016, respectively.
F-32
<PAGE> 79
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LEASE RECEIVABLES
Lease receivables represent product sold under sales-type leases with a
five-year term. The lease receivables are carried at their fair market value.
In addition, the Company has sold leases without recourse to NCS and other
financial institutions, subject to limited obligations by the Company. Customers
are in compliance with the lease contracts at March 31, 1996. At March 31, 1996,
$221,510 remains outstanding on these sold leases.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. The Company
provides for amortization and depreciation at rates calculated to amortize the
cost of the property over its estimated useful life (ranging from 3 to 10 years)
using the straight-line method.
LOSS/EARNINGS PER SHARE
Loss/earnings per share is computed by dividing the net loss/income for the
period by the weighted average number of common shares outstanding during the
period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from the estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25) and related interpretations in accounting
for its stock options. Under APB 25, when the exercise price of stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company has not determined the impact of the new statement on
its financial statements.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1996
presentation.
2. FINANCIAL CONDITION AND RELATIONSHIP WITH NATIONAL COMPUTER
SYSTEMS, INC.
During recent periods, National Computer Systems, Inc. (NCS) has provided
substantial financial support to the Company in the form of debt financing and
extended payment terms on payables to NCS. On December 20, 1993, NCS converted
$3,752,746 of notes and accounts payable into 27,533,441 common
F-33
<PAGE> 80
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
shares of the Company, increasing NCS's ownership from 3% to 85%. Certain other
indebtedness to NCS was replaced by a $1,105,000 long-term note payable. The
Company's bank line of credit is guaranteed by NCS.
3. TRANSACTIONS WITH NATIONAL COMPUTER SYSTEMS, INC.
In June 1992, under a Debt Restructuring Agreement ("the 1992 Agreement")
with NCS, two outstanding promissory notes totaling $3,900,000 were replaced by
a single Promissory Note. Interest on the new note was charged at an annual rate
of 3%, such rate increasing to 8% if an event of default occurred (no interest
was charged on the Promissory Notes in the year ended March 31, 1992). The
Company defaulted on the principal and interest payments due April 30, 1993,
making the entire amount due on demand with an 8% interest rate after that date.
On December 20, 1993, the remaining balance on this note was part of a
restructuring under which NCS acquired 27,533,441 shares of the Company's common
stock in exchange for indebtedness totaling $3,752,746. Of the total amount
remaining after the forgiveness ($1,169,627), $1,105,000 was converted to a
long-term note. The note was due in quarterly installments of $50,000 plus
interest at 6% beginning March 31, 1994 through September 30, 1995, with the
balance due December 31, 1995. This note was replaced at March 31, 1995 with a
new note in the amount of the existing principal of $855,000. The note is due in
quarterly installments of $50,000 plus interest at 6% with the balance due on
April 30, 1996.
In connection with the 1993 stock purchase agreement with NCS, the Company
obtained concessions from third party vendors on accounts payable of
approximately $342,000. Under the 1992 Agreement, NCS agreed to forgive, against
accounts payable delinquent at the Agreement date ($464,000), an amount equal to
15% of the payables currently arising and due in a given month if such payables
were paid on a timely basis. Approximately $342,000 of such forgiveness was
included in the statement of operations as extraordinary gains in 1994.
In February 1993, NCS exercised its right under the 1992 Agreement to have
all cash received in the Company's bank lockbox account transferred to a
collateral account under the control of NCS. Through March 31, 1996, NCS
continues to advance monies to the Company from the collateral account receipts.
NCS provides field engineering services and other services to the Company
at specified fees, which are not significantly different from the fees charged
to unrelated parties. Fees for field engineering services provided by NCS for
maintenance of hardware for all installed systems totaled approximately $429,000
and $234,000 in 1995 and 1996, respectively.
The components of the amounts owed National Computer Systems, Inc. are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Due to National Computer Systems, Inc.:
Current portion of note payable................................ $200,000 $541,983
Accounts payable............................................... 81,691 126,527
Net receivable for income tax benefit (Note 8)................. (103,169) (184,169)
-------- --------
$178,522 $484,341
======== ========
Long-term note payable........................................... $655,000 $ --
======== ========
</TABLE>
The promissory note and accounts payable to NCS are secured by
substantially all assets of the Company.
Total interest paid, including interest paid on capital leases, for the
years ended March 31, 1995 and 1996 was approximately $130,000 and $116,000,
respectively.
F-34
<PAGE> 81
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE
The Company has obtained a bank line of credit through June 30, 1996 with a
total credit facility of $500,000. The outstanding balance at March 31, 1996 was
$500,000. This line is unsecured, bears interest at the bank's base rate and is
guaranteed by NCS.
The Company has a note payable to a finance company with a balance of
$257,892 at March 31, 1996 (current portion of $104,466). The note has an
effective interest rate of 8.3%, is payable in monthly installments of $10,163
through July 1998, is secured by the proceeds of a customer financing lease and
is guaranteed by NCS.
5. CAPITALIZED LEASE OBLIGATIONS
The Company has entered into lease agreements for various computer and
office equipment.
The present value of future minimum lease payments required on the leases
is as follows:
<TABLE>
<S> <C>
1997....................................................................... $19,104
1998....................................................................... 10,972
-------
$30,076
=======
</TABLE>
6. STOCK OPTIONS
Under the Company's stock option plans, options to acquire up to 1,000,000
shares of the Company's Common Stock may be granted to officers and key
employees at no less than 100% of the fair market value on the grant date.
Additionally, the Company has granted non-qualified stock options outside of the
plans to a director and a former president. Information concerning options
outstanding is as follows:
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING PRICE PER SHARE
----------- ----------------
<S> <C> <C>
Balance March 31, 1994................................. 728,082 $0.125 to $0.531
Options granted...................................... -- --
Options canceled..................................... (130,833) 0.250 to 0.531
--------
Balance March 31, 1995................................. 597,249 0.125 to 0.500
Options granted...................................... -- --
Options canceled..................................... (360,999) 0.125 to 0.500
--------
Balance March 31, 1996................................. 236,250 $0.250 to $0.344
========
</TABLE>
At March 31, 1996, outstanding options covering 236,250 shares were
exercisable at $0.250 to $0.344 per share (566,863 shares at $0.125 to $0.500
per share at March 31, 1995). At March 31, 1996, 600,500 shares remain available
for grant.
A total of 836,750 shares were reserved for options at March 31, 1996.
7. OPERATING LEASE
The Company leases office space and manufacturing facilities under a
non-cancelable operating lease having a remaining term through July 1996. The
lease provided for an abatement of base rent payments through January 1992 and
an abatement of the lessee's share of real estate taxes and operating expenses
through July 1991. The Company is recognizing the benefit of these abatements on
a straight-line basis over the life of the lease. In addition, the Company has
entered into other operating leases for office equipment.
F-35
<PAGE> 82
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum base rental payments under these operating leases consist of
the following at March 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31:
----------------------------------------------------------------
<S> <C>
1997..................................................... $94,000
1998..................................................... 2,000
------
$96,000
======
</TABLE>
Total rental expense to unrelated third parties for the years ended March
31, 1995 and 1996 was approximately $267,000 and $272,000, respectively.
8. INCOME TAXES
As a result of the issuance of stock to NCS in December 1993, the Company
had a change in ownership under the net operating loss limitation rules. Net
operating losses incurred through the change in ownership date are no longer
available to offset future taxable income.
Subsequent to December 20, 1993, the Company is included in the
consolidated income tax return of NCS. Under a tax sharing agreement between the
Company and NCS, the Company will be reimbursed for its share of tax return
savings resulting from the use of its operating losses. Pursuant to the
agreement, NCS owes the Company $65,000 on or before October 15, 1996 and
$120,000 before October 15, 1997.
Deferred income taxes are due to temporary differences between the carrying
values of certain assets and liabilities for financial reporting and income tax
purposes. Significant components of deferred taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1995 1996
-------- ---------
<S> <C> <C>
Deferred assets:
Accrued vacation.............................................. $ 36,000 $ 31,000
Rental abatement.............................................. 50,000 12,000
Allowance for doubtful accounts............................... 10,000 49,000
Inventory reserve............................................. 134,000 195,000
Other......................................................... 35,000 --
-------- ---------
265,000 287,000
Deferred liabilities:
Capitalized software.......................................... 165,000 161,000
Other......................................................... 18,000 11,000
-------- ---------
183,000 172,000
-------- ---------
Net deferred tax assets before valuation allowance.............. 82,000 115,000
Valuation allowance for net deferred tax assets................. (82,000) (115,000)
-------- ---------
Net deferred taxes.............................................. $ -- $ --
======== =========
</TABLE>
9. EMPLOYEE STOCK OWNERSHIP PLAN
Effective September 28, 1990, the Dimensional Medicine, Inc. Employee Stock
Ownership Plan and Trust was established. Employees who have completed six
consecutive months of employment and have met other criteria are eligible to
participate. Prior to March 31, 1995, officers, certain members of senior
management and commission based salespersons were not eligible to participate.
The Plan was amended at March 31, 1995 to allow participation by these employee
groups.
F-36
<PAGE> 83
DIMENSIONAL MEDICINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Contributions to the Plan are at the discretion of the Company and may be
in the form of cash or Company stock. There were 300,000 shares allocated to the
Plan in prior years, with no contributions to the Plan in 1996. Shares held by
the ESOP are included in the weighted average shares outstanding for purposes of
computing earnings per share.
If Company securities are not readily tradeable on an established market,
Plan participants have the right to require the Company to repurchase shares at
book value.
10. SIGNIFICANT CUSTOMERS
Revenues under contracts with U.S. Government facilities approximated 11%
and 9% of total revenues in fiscal 1995 and 1996, respectively.
11. SUBSEQUENT EVENTS
On April 29, 1996, the shareholders of the Company voted to merge with
Dynamic Healthcare Technologies, Inc. The shareholders of the Company received
$550,000 in exchange for all of the outstanding shares of the Company's common
stock.
Effective April 29, 1996, the Employee Stock Ownership Plan and Trust
(ESOP) of Dimensional Medicine, Inc. will terminate and the Plan shall
distribute to each participant his or her ESOP account in a single lump sum
following the effective date of the merger between DMI and Dynamic Healthcare
Technologies, Inc.
F-37
<PAGE> 84
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed consolidated statements of
operations have been prepared based upon certain pro forma adjustments to the
historical financial statements of the Company set forth elsewhere in this
Prospectus, as described below. The pro forma condensed consolidated statements
of operations should be read in conjunction with the notes thereto and the
historical financial statements and notes of Dynamic Healthcare Technologies,
Inc. and DMI included elsewhere in this prospectus.
The historical information for the year ended December 31, 1995 combines
operating information of Dynamic Healthcare Technologies, Inc. for its year
ended December 31, 1995 with operating information of DMI for the first nine
months ended December 31, 1995 (of its fiscal year ended March 31, 1996), and
the fourth quarter of its fiscal year ended March 31, 1995. The historical
consolidated operating information for the six months ended June 30, 1996
combines the first two quarters of unaudited consolidated financial information
of Dynamic Healthcare Technologies, Inc., the fourth quarter of DMI's fiscal
year ended March 31, 1996, and DMI's operations from April 1, 1996 until May 1,
1996 (the acquisition date).
The Pro Forma Condensed Consolidated Statements of Operations for the year
ended December 31, 1995 and for the six months ended June 30, 1996 give effect
to the acquisition of DMI as if the acquisition occurred on January 1, 1995.
These statements do not purport to be indicative of the results of operations
which actually would have occurred had the acquisition of DMI occurred on
January 1, 1995, or which may be expected to occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------
PRO FORMA NOTE
HISTORICAL ADJUSTMENTS REF. PRO FORMA
---------- ----------- ----- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Computer system equipment sales and support.......................... $2,619,414 $ -- $ 2,619,414
Application software licenses........................................ 4,477,008 -- 4,477,008
Software support..................................................... 4,897,441 -- 4,897,441
Services and other................................................... 2,155,693 -- 2,155,693
----------- --------- -----------
Total revenues................................................. 14,149,556 -- 14,149,556
----------- --------- -----------
Costs and expenses:
Cost of products sold................................................ 1,886,565 -- 1,886,565
Client services expense.............................................. 4,434,250 (48,000) (2) 4,386,250
Software development costs........................................... 2,897,358 126,000 (2&3) 3,023,358
Sales and marketing.................................................. 2,704,437 (15,000) (2) 2,689,437
General and administrative........................................... 2,404,174 (21,000) (2) 2,383,174
----------- --------- -----------
Total costs and expenses....................................... 14,326,784 42,000 14,368,784
----------- --------- -----------
Operating income (loss)................................................ (177,228) (42,000) (219,228)
Other income (expense)................................................. (515,018) 88,000 (4) (427,018)
----------- --------- -----------
Net earnings (loss) before income taxes................................ (692,246) 46,000 (646,246)
Provision for income taxes benefit (cost).............................. 180,969 (180,969) (5) --
----------- --------- -----------
Net earnings (loss).................................................... $ (511,277) $(134,969) $ (646,246)
=========== ========= ===========
Net earnings (loss) per share.......................................... $ (0.10)
===========
Weighted average number of common shares............................... 6,443,294
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-----------------------------------------------
PRO FORMA NOTE
HISTORICAL ADJUSTMENTS REF. PRO FORMA
----------- ----------- ----- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Computer system equipment sales and support......................... $ 2,037,491 $ -- $ 2,037,491
Application software licenses....................................... 1,468,036 (128,610) (1) 1,339,426
Software support.................................................... 2,728,458 -- 2,728,458
Services and other.................................................. 1,217,164 -- 1,217,164
----------- --------- -----------
Total revenues................................................ 7,451,149 (128,610) 7,322,539
----------- --------- -----------
Costs and expenses:
Cost of products sold............................................... 1,737,748 -- 1,737,748
Client services expense............................................. 2,583,459 (16,000) (2) 2,567,459
Software development costs.......................................... 1,200,429 42,000 (2&3) 1,242,429
Sales and marketing................................................. 1,749,377 (5,000) (2) 1,744,377
General and administrative.......................................... 1,574,639 (7,000) (2) 1,567,639
----------- --------- -----------
Total costs and expenses...................................... 8,845,652 14,000 8,859,652
----------- --------- -----------
Operating income (loss)............................................... (1,394,503) (142,610) (1,537,113)
Other income (expense)................................................ (139,151) 44,000 (4) (95,151)
----------- --------- -----------
Net earnings (loss) before income taxes............................... (1,533,654) (98,610) (1,632,264)
Provision for income taxes benefit (cost)............................. 293,884 (293,884) (5) --
----------- --------- -----------
Net earnings (loss)................................................... $(1,239,770) $(392,494) $(1,632,264)
=========== ========= ===========
Net earnings (loss) per share......................................... $ (0.25)
===========
Weighted average number of common shares.............................. 6,619,190
</TABLE>
See notes to pro forma condensed consolidated statements of operations.
F-38
<PAGE> 85
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
The Pro Forma Condensed Consolidated Statements of Operations give effect
to the following pro forma adjustments:
(1) Reflects an adjustment to conform the revenue recognition
principles of DMI to those of the Company.
(2) Reflects the decrease in depreciation expense resulting from the
change in the depreciable basis of the assets assumed acquired on January
1, 1995.
(3) Reflects the increase in the amortization of software development
costs resulting from the increased basis in the assets assumed acquired on
January 1, 1995.
(4) Reflects the elimination of interest expense from interest bearing
debt extinguished by the assumed purchase of DMI, net of the elimination of
interest earned on cash equivalents used by the assumed purchase.
(5) Reflects the elimination of the income tax benefit previously
recognized by DMI through a tax sharing agreement with DMI's previous
majority owner.
F-39
<PAGE> 86
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS; ANY
INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY OF THE SECURITIES COVERED BY THIS PROSPECTUS BY THE COMPANY IN
ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE COMPANY TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Capitalization........................ 12
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 23
Management............................ 32
Certain Transactions.................. 38
Principal and Selling Shareholders.... 39
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 43
Plan of Distribution.................. 44
Legal Matters......................... 44
Experts............................... 44
Available Information................. 45
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,278,746 SHARES
DYNAMIC HEALTHCARE TECHNOLOGIES (LOGO)
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities being registered, all of which
are being borne by the Registrant:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 13,077
Legal fees and expenses................................................... 25,000
Accounting fees and expenses.............................................. 15,000
Printing fees............................................................. 10,000
Blue Sky qualification fees and expenses.................................. 1,000
Miscellaneous............................................................. --
----
TOTAL........................................................... $ 64,077
====
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Company's Articles of Incorporation, Bylaws and applicable state
law, the Company will indemnify its directors, officers, employees and agents
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement which are actually and reasonably incurred in connection with
any threatened, pending or actually completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, to which any such
person becomes subject as a result of having served in such role, as an employee
or agent of the Company, or at the Company's request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise. However, except as described below, such indemnification will
be made only if such person acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent will not, of itself, create a
presumption that such person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
Company, or with respect to any criminal action or proceeding, did not have
reasonable cause to believe that his or her conduct was unlawful.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ ---------------------------------------------------------------------------------
<C> <S> <C>
3.01 -- Articles of Incorporation of Registrant**
3.02 -- Amendment to Articles of Incorporation**
3.03 -- Bylaws of Registrant**
4.01 -- Registration Rights Agreement among Terrano Corporation, Mitchel J. Laskey,
Charles Richard Johnson, Philip R. Kneeland, Linda Ann Moline and Matthew P.
Lawton***
4.02 -- Stock Option Agreement between Terrano Corporation and Mitchel J. Laskey***
4.03 -- Stock Option Agreement between Terrano Corporation and David M. Pomerance*
4.04 -- Stock Option Agreement between Dynamic Healthcare Technologies and Nikhil Bhatt*
4.05 -- Underwriters' Warrant, dated December 19, 1991****
4.06 -- Warrant Agreement, dated December 4, 1995*
4.07 -- Form of Warrant Agreement, dated July 31, 1995*
4.08 -- Series B Preferred Stock Purchase Agreement*
4.09 -- Letter Agreement, dated June 17, 1996*
5.01 -- Opinion of Cohen, Berke, Bernstein, Brodie & Kondell, P.A.*
23.01 -- Consent of Cohen, Berke, Bernstein, Brodie & Kondell, P.A. (included in Exhibit
5.01)*
23.02 -- Consents of KPMG Peat Marwick LLP*
23.03 -- Consent of Deloitte & Touche LLP*
23.04 -- Consent of Ernst & Young LLP*
24.01 -- Reference is made to the Signature section of this Registration Statement for the
Power of Attorney contained therein*
</TABLE>
II-1
<PAGE> 88
- ---------------
* Filed herewith
** Incorporated by Reference in Form 8-B, filed by Registrant on August 9,
1996
*** Incorporated by Reference in Current Report on Form 8-K filed on August 31,
1994
**** Incorporated by reference from Registration Statement on Form S-1, filed on
November 8, 1991 (No. 33-43851)
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) 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.
(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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement 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.
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
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona-fide offering thereof.
II-2
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-3 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Maitland,
Florida on the 3rd day of September, 1996.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
By: /s/ PAUL S. GLOVER
------------------------------------
Paul S. Glover,
Vice President of Finance, Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby makes, constitutes and appoints Mitchel J. Laskey or David M. Pomerance
each acting alone, with full powers of substitution in his name or stead, his
true and lawful attorney, with full power to sign for such person and in such
person's name and capacity indicated below any and all amendments to this
Registration Statement, including any post-effective amendments, and any
registration statement filed pursuant to Rule 462(b) of the Securities Act
prepared in connection herewith, hereby ratifying and confirming such person's
signature as it may be signed by said attorney to any and all amendments.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ----------------
<C> <S> <C>
/s/ DAVID M. POMERANCE Chairman of the Board and
- --------------------------------------------- Secretary
David M. Pomerance
/s/ MITCHEL J. LASKEY President, Chief Executive
- --------------------------------------------- Officer, Treasurer and
Mitchel J. Laskey Director
/s/ PAUL S. GLOVER Vice President of Finance,
- --------------------------------------------- Principal Financial Officer
Paul S. Glover and Principal Accounting
Officer
/s/ THOMAS J. MARTINSON Director
- ---------------------------------------------
Thomas J. Martinson
/s/ JERRY L. CARSON Director
- ---------------------------------------------
Jerry L. Carson
/s/ BRET R. MAXWELL Director
- ---------------------------------------------
Bret R. Maxwell
/s/ DANIEL RAYNOR Director
- ---------------------------------------------
Daniel Raynor
/s/ RICHARD W. TRUELICK Director
- ---------------------------------------------
Richard W. Truelick
</TABLE>
II-3
<PAGE> 90
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT PAGE
------ --------------------------------------------------------------------------- ----
<C> <S> <C> <C>
3.01 -- Articles of Incorporation of Registrant**
3.02 -- Amendment to Articles of Incorporation**
3.03 -- Bylaws of Registrant**
4.01 -- Registration Rights Agreement among Terrano Corporation, Mitchel J. Laskey,
Charles Richard Johnson, Philip R. Kneeland, Linda Ann Moline and Matthew
P. Lawton***
4.02 -- Stock Option Agreement between Terrano Corporation and Mitchel J. Laskey***
4.03 -- Stock Option Agreement between Terrano Corporation and David M. Pomerance*
4.04 -- Stock Option Agreement between Dynamic Healthcare Technologies and Nikhil
Bhatt*
4.05 -- Underwriters' Warrant, dated December 19, 1991****
4.06 -- Warrant Agreement, dated December 4, 1995*
4.07 -- Form of Warrant Agreement, dated July 31, 1995*
4.08 -- Series B Preferred Stock Purchase Agreement*
4.09 -- Letter Agreement, dated June 17, 1996*
5.01 -- Opinion of Cohen, Berke, Bernstein, Brodie & Kondell, P.A.*
23.01 -- Consent of Cohen, Berke, Bernstein, Brodie & Kondell, P.A. (included in
Exhibit 5.01)*
23.02 -- Consents of KPMG Peat Marwick LLP*
23.03 -- Consent of Deloitte & Touche LLP*
23.04 -- Consent of Ernst & Young LLP*
24.01 -- Reference is made to the Signature section of this Registration Statement
for the Power of Attorney contained therein*
</TABLE>
- ---------------
* Filed herewith
** Incorporated by Reference in Form 8-B, filed by Registrant on August 9,
1996
*** Incorporated by Reference in Current Report on Form 8-K filed on August 31,
1994
**** Incorporated by reference from Registration Statement on Form S-1, filed on
November 8, 1991 (No. 33-43851)
<PAGE> 1
EXHIBIT 4.03
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is entered into as of the 23rd day of
August, 1994, by and among DAVID M. POMERANCE ("Optionee") and TERRANO
CORPORATION, a Nebraska corporation (the "Corporation").
W I T N E S S E T H:
WHEREAS, Optionee and the Corporation have concurrently herewith
entered into a certain Employment Agreement (the "Employment Agreement"); and
WHEREAS, the Corporation desires to grant to Optionee the option to
acquire shares of common stock, $.01 par value, of the Corporation (the "Common
Stock") upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants set forth herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, Optionee and the Corporation hereby
agree as follows:
1. GRANT OF THE OPTIONS. Subject to the terms and conditions of
this Agreement, and the obtaining of the shareholder approval described in
paragraph 7 hereinafter, the Corporation hereby grants to Optionee the right to
purchase (individually referred to as the "Option" or collectively referred to
as the "Options") from the Corporation two hundred fifty thousand (250,000)
shares of the Common Stock (the "Option Shares") at the Purchase Price (as
subsequently defined in Section 2 of this Agreement) for a five (5) year period
("Option Period") commencing on the date such options vest in accordance with
the following:
(a) 100,000 Option Shares vesting on the date hereof;
(b) 50,000 Option Shares vesting one year from the date
hereof;
(c) 50,000 Option Shares vesting two years from the date
hereof; and
(d) 50,000 Option Shares vesting three years from the
date hereof.
2. PURCHASE PRICE. Optionee shall have the right to purchase
each Option Share pursuant to Section 5 of this Agreement at a purchase price
equal of $1.875 per share (the "Purchase Price").
3. RIGHTS OF THE OPTIONEE. Optionee by virtue of holding the
Options to purchase the Option Shares shall not have any rights to any
dividends to be distributed by the Corporation to the shareholders or any other
rights of a shareholder in the Corporation with respect to any of the Option
Shares until Optionee exercises the Option to purchase the Option Shares
pursuant
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to Section 5 of this Agreement.
4. TRANSFERABILITY OF THE OPTIONS. The Options may not be
assigned, transferred, or otherwise disposed of, or pledged or hypothecated or
in any way be subject to execution, attachment or other process. Any
assignment, transfer, pledge, hypothecation or other disposition of the Options
attempted contrary to the provisions of this Agreement or any levy, execution,
attachment or other process attempted upon the Options will be null and void
and without effect.
5. EXERCISE OF THE OPTIONS. The Option to purchase the Option
Shares shall be exercisable in whole on the terms and conditions hereinafter
set forth:
(a) Subject to the terms and conditions of this
Agreement, the Option to purchase the Option Shares shall be exercisable by
Optionee upon delivery of notice to the Corporation (the "Exercise Notice") in
accordance with the procedure prescribed in this Section 5. The Exercise
Notice shall state that Optionee elected to exercise the Option or any portion
thereof. Delivery of the Exercise Notice prior to the expiration of the Option
Period shall be sufficient to entitle Optionee to purchase the Option Shares
notwithstanding that the Closing (as subsequently defined in Section 5(b) of
this Agreement) may occur after the expiration of the Option Period. Within
ten (10) business days of receipt of the Exercise Notice, the Corporation will
specify, by written notice to Optionee, the number and the Purchase Price of
the Option Shares to be purchased by Optionee, a date and time (the "Closing
Date"), and place for payment of the Purchase Price of the Option Shares to be
purchased by Optionee. The Closing Date will not be more than fifteen (15)
business days from the date that the Exercise Notice is received by the
Corporation unless another date is agreed upon in writing by the Corporation
and Optionee.
(b) Payment of the Purchase Price of the Option Shares to
be acquired pursuant to the exercise of the Option will be made by Optionee at
the closing ("Closing") by delivering to the Corporation cash or a check
payable to the order of the Corporation for the full amount of the Purchase
Price. At the Closing, the Corporation shall deliver to Optionee the stock
certificates representing the Option Shares being purchased upon the exercise
of the Option.
6. EARLY VESTING. Optionee acknowledges and agrees that:
a. EMPLOYMENT TERMINATION. In the event that Optionee's
employment with the Corporation is terminated by the Corporation without Cause
(as such term is defined in the Employment Agreement) prior to Optionee's
vesting or exercise of all of the Options, all of the Options which have not
been vested shall become immediately vested and be exercisable until sixty (60)
days after employment termination.
b. DEATH OR DISABILITY. In the event of Optionee's
death or disability prior to Optionee's vesting or exercise of all of the
Options, all of the Options shall become
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immediately vested and exercisable until six (6) months after the date of
death, or until one year after the determination of disability, as the case may
be.
7. SHARE AUTHORIZATION AND OTHER SHAREHOLDER APPROVALS. The
Corporation covenants and agrees that at all times that this Stock Option
Agreement shall be in effect it shall have authorized, and reserved, Common
Stock of the Corporation sufficient for the exercise of the Options and the
purchase of Common Stock by Optionee. Further, the Corporation covenants and
agrees to use its best efforts, at the earliest date practicable, at the annual
and special meeting of the shareholders of the Corporation (the "Shareholders")
to be held within twelve (12) months of the date hereof, to obtain the consent
of the Shareholders to the granting of this Stock Option Agreement and the
transactions contemplated herein. The Corporation, in the exercise of such
best efforts, agrees and shall recommend that the Shareholders approve this
Stock Option Agreement and the transactions contemplated herein and that the
Corporation shall vote all proxies held by management or the Corporation in
favor of such approval.
8. INVESTMENT. Optionee acknowledges that the Option Shares are
not being offered pursuant to a registration statement under the Securities Act
of 1933, as amended (the "Act"), or any other securities laws. Optionee
acknowledges that the Option Shares are being acquired for Optionee's own
account for investment purposes only and not with a view to, or for sale in
connection with, any public distribution thereof and will not sell, or offer to
sell or otherwise dispose, of any interest in the Option Shares acquired by
Optionee in violation of the Act. Optionee has had substantial experience in
business and financial matters and in making investments of the type
contemplated by this Agreement, is capable of evaluating the merits and risks
of the purchase of the Option Shares and is able to bear the economic risks of
such investment.
9. LIQUIDITY. Although there can be no assurance that the Option
Shares will be registered under the Act, that an exemption from such
registration will be available, or that there will be a market for the Option
Shares in the future, the Corporation agrees to use its best efforts to enable
and facilitate Optionee's sale or disposition of the Option Shares in
compliance with the Act at the earliest date reasonably practicable.
10. ADJUSTMENTS. In the event of a stock dividend, stock split,
share combination, recapitalization, merger, consolidation or reorganization of
or by the Corporation, the number or class of shares purchasable upon exercise
of the Option immediately prior thereto shall be adjusted so that Optionee
shall be entitled to receive the kind and number of shares or other securities
which Optionee would have owned or have been entitled to receive after the
happening of any of the events described above, had the Option been exercised
immediately prior to the happening of any of such events or any record date
with respect thereto. Any adjustment made pursuant to this Section shall
become effective immediately after the effective date of such events
retroactive to the record date, if any, for such events.
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11. DEMAND REGISTRATION RIGHTS. The Corporation hereby covenants
and agrees with Optionee (including any subsequent holder or holders of the
Option Shares that as expeditiously as is reasonable (but in no event later
than seventy-five (75) days) after receipt of a written request from Optionee
that such holders or their designees desire or intend to transfer all or a
portion of the Option Shares under such circumstances that a public offering
within the meaning of Securities Act of 1933, as amended (the "Act") will be
involved, the Corporation shall file a registration statement (and use its best
efforts to cause such registration statement to become effective under the Act)
with respect to the offering and sale or other disposition of the Option
Shares. The Corporation shall not be required (i) to honor any such request to
register the Option Shares prior to the first day of the ninth month from the
date hereof; (ii) to maintain the effectiveness of the registration statement
beyond the period necessary to comply with the Act (otherwise than pursuant to
Rule 415 or any similar regulation permitting "shelf registration") with
respect to distribution of the Option Shares; or (iii) to file, more than two
registration statements pursuant to which any Option Shares may be sold under
this Section 1.
12. PIGGY-BACK REGISTRATION RIGHTS.
(a) The Corporation hereby covenants and agrees with
Optionee (including, any subsequent holder or holders of the Option Shares)
that, in the event the Corporation proposes to file a registration statement
under the Act (other than in connection with an exchange offer, a "rights"
offering to shareholders, a registration statement on Form S-8 or S-4 or any
successor forms relating to employee benefit plans, or in connection with a
dividend reinvestment plan, an employee benefit plan, the conversion of any
convertible securities, or a stand-by underwriting with respect to the call of
a warrant, option, right or convertible security for redemption) with respect
to any class of security then the Corporation shall in each case given written
notice of such proposed filing to Optionee at least thirty (30) calendar days
before the anticipated filing date of such registration statement or, in the
event that the Corporation has not formulated its intent to file such
registration statement at least thirty (30) calendar days before the
anticipated filing date of the registration statement, as soon as practicable
upon the formation by the Corporation of such intent, which notice shall
specify the information required to be provided to the Corporation pursuant to
Section 13. Such notice shall offer to such holders the opportunity to include
in such registration statement such number of Option Shares as Optionee may
request. The Corporation shall permit, or shall use its best efforts to cause
the managing underwriter of a proposed offering to permit, the holders of
Option Shares requested to be included in the registration (the "Piggy-Back
Shares") to include such Piggy-Back Shares in the proposed offering on the same
terms and conditions as applicable to the shares of Common Stock offered by the
Corporation and for the account of any person other than the Corporation, as
the case may be.
13. REGISTRATION PROCEDURES. If the Corporation is required by
the provisions of Section 11 or 12 to effect the registration of any of its
securities under the Act, the Corporation will, as expeditiously as is
possible:
(a) Prepare and file with U.S. Securities and Exchange
Commission (the
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"Commission") a registration statement with respect to such securities and use
its best efforts to cause such registration statement to become and remain
effective.
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such registration statement
whenever the holder of such securities shall desire to sell the same.
(c) Furnish to Optionee such number of copies of a
summary prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents, as
Optionee may reasonably request in order to facilitate the sale of the
securities owned by Optionee.
(d) Use its best efforts to register or qualify the
securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions within the United States and Puerto Rico
as Optionee shall reasonably request, and do such other reasonable acts and
things as may be required in such jurisdictions.
(e) Furnish, at the request of Optionee, on the date that
such Option Shares Securities are delivered to the underwriters for sale
pursuant to such registration or, if such Option Shares are not being sold
through underwriters, on the date that the registration statement with respect
to such Option Shares becomes effective, (1) an opinion, dated such date, of
the independent counsel representing the Corporation for the purposes of such
registration, addressed to the underwriters, if any, and if the Option Shares
are not being sold through underwriters, then to Optionee, stating that such
registration statement has become effective under the Act and that (i) to the
best knowledge of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, (ii) the registration
statement, the related prospectus, and each amendment or supplement thereto,
comply as to form in all material respects with the requirements of the Act and
the applicable rules and regulations of the Commission thereunder (except that
such counsel need express no opinion as to financial statements contained
therein), (iii) such counsel has no reason to believe that either the
registration statement or the prospectus, or any amendment or supplement
thereto, contains any untrue statement of a material fact required to be stated
therein or necessary to make the statements therein not misleading, (iv) the
descriptions in the registration statement or the prospectus, or any amendment
or supplement thereto, of all legal matters and contracts and other legal
documents or instruments are accurate and fairly present the information
required to be shown, and (v) such counsel does not know of any legal or
governmental proceedings, pending or contemplated, required to be described in
the registration statement or prospectus, or any amendment or supplement
thereto, which are not described as required, nor of any contracts or documents
or instruments of a character required to be described in the registration
statement or prospectus, or any amendment or supplement thereto, or to be filed
as exhibits to the registration statement which are not described and filed or
incorporated by reference as required; and (2) a letter dated such date, from
the independent
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certified public accountants of the Corporation, addressed to the underwriters,
if any, and if the Option Shares are not being sold through underwriters, then
to Optionee, stating that they are independent certified public accountants
within the meaning of the Act and that, in the opinion of such accountants, the
financial statements and other financial data of the Corporation included in
the registration statement or the prospectus, or any amendment or supplement
thereto, comply as to form in all material respects with the applicable
accounting requirements of the Act. Such opinion of counsel shall additionally
cover such other legal matters with respect to the registration in respect of
which such opinion is being given as Optionee may reasonably request. Such
letter from the independent certified public accountants shall additionally
cover such other financial matters (including information as to the period
ending not more than five (5) Business Days prior to the date of such letter)
with respect to the registration in respect of which such letter is being given
as Optionee may reasonably request.
(f) Otherwise use its best efforts to comply with all
application rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, but not later than 18
months, after the effective date of the registration statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
14. EXPENSES; LIMITATIONS ON REGISTRATION. All expenses incurred
in complying with Sections 11 and 12 herein, including, without limitation, all
registration and filing fees (including all expenses incident to filing with
the NASD), printing expenses, fees and disbursements of counsel for the
Corporation, the reasonable fees and expenses of counsel for Optionee, expenses
of any special audits incident to or required by any such registration and
expenses of complying with the securities or blue sky laws or any jurisdictions
pursuant to Section 13(d), shall be paid by the Corporation, except that:
(a) In the case of the exercise of the demand
registration rights under Section 1 herein, Optionee shall bear all expenses of
the offering in excess of the first $50,000. All such expenses borne by
Optionee shall be payable to the Corporation out of offering proceeds.
(b) All such expenses in connection with any amendment or
supplement to the registration statement or prospectus filed more than 24
months after the effective date of such registration statement because Optionee
has not effected the disposition of the securities requested to be registered
shall be paid by Optionee; and
(c) The Corporation shall not be liable for any discounts
or commissions to any underwriter or any fees or disbursements of counsel for
any underwriter in respect of the securities sold by Optionee; and
(d) Notwithstanding anything herein contained to the
contrary, in the event that the Corporation incurs expenses as part of
registration of shares under Section 11, and such offering is not concluded,
then the Corporation shall bear all expenses associated with such
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proposed offering, unless the failure of such offering is the result of, or
directly attributable to, an action or inaction by Optionee, in which event
Optionee shall repay the Corporation for all expenses incurred in the process
of such proposed offering.
It shall be a condition precedent to the obligation of the Corporation
to take any action pursuant to this Agreement in respect of the securities
which are to be registered at the request of Optionee that (i) the Corporation
shall have received an undertaking satisfactory to it from Optionee to pay all
expenses to be incurred by or for the account of and required to be paid by
Optionee, and (ii) Optionee shall furnish to the Corporation such information
regarding the securities held by Optionee and the intended method of
disposition thereof as the Corporation shall reasonably request and as shall be
required in connection with the action take by the Corporation.
15. INDEMNIFICATION.
(a) In the event of any registration of any of its
securities under the Act pursuant to this Agreement, the Corporation shall
indemnify and hold harmless the holder of such securities, such holder's
directors and officers, and each other person (including each underwriter) who
participated in the offering of such securities and each other person, if any,
who controls such holder or such participating person within the meaning of the
Act, against any losses, claims, damages or liabilities, joint or several, to
which such holder or any such director or officer or participating person or
controlling person may become subject under the Act or any other statute or at
common law, in so far as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any alleged
untrue statement of any material fact contained, on the effective date thereof,
in any Registration Statement under which such securities were registered under
the Act, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or (ii) any alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse such holder or such
director, officer or participating person or controlling person for any legal
or any other expenses reasonably incurred by such holder or such director,
officer or participating person or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Corporation shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon any alleged untrue statement or alleged omission made in such
registration statement, preliminary prospectus, prospectus, or amendment or
supplement in reliance upon and in conformity with written information
furnished to the Corporation by such holder specifically for use therein. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such director, officer or participating
person or controlling person, and shall survive the transfer of such securities
by such holder.
(b) Optionee, by acceptance thereof, agrees to indemnify
and hold harmless the Corporation, its directors and officers and each other
person, if any, who controls the Corporation against any losses, claims,
damages or liabilities, joint or several, to which the
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Corporation or any such director or other or any such person may become subject
under the Act or any other statute or at common law, in so far as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement of any material fact which was based upon
information in writing provided to the Corporation by Optionee on the effective
date thereof, in any registration statement under which securities were
registered under the Act at the request of such holder, any preliminary
prospectus or final prospectus contained therein, or any amendment thereto.
16. NOTICES. Each notice relating to this Agreement shall be in
writing and delivered in person or by hand delivery or certified mail, return
receipt requested, postage prepaid, as follows:
If to Optionee: David M. Pomerance
2421 Southeast Bahia Way
Stuart, Florida 34996
If to the Corporation: Terrano Corporation
245 South 84th Street
Lincoln, Nebraska 68510
Attn: Mitchel J. Laskey, President and
Chief Operating Officer
or to such other address as either party may have designated by written notice
to the other.
17. BENEFITS OF AGREEMENT. This Agreement shall inure to the
benefit and shall be binding upon the successors, heirs, legal representatives
and permitted assigns of the parties hereto.
18. SEVERABILITY. In the event that any one or more provisions of
this Agreement shall be deemed to be illegal or unenforceable such illegality
or unenforceability shall not affect the validity and enforceability of the
remaining legal and enforceable provisions hereof, which shall be construed as
if such illegal or unenforceable provision or provisions had not been inserted.
19. GOVERNING LAW; VENUE. This Agreement will be construed and
governed in accordance with the laws of the State of Florida. The proper venue
with respect to any dispute arising hereunder or connected herewith shall be
Dade County, Florida.
20. COUNTERPARTS. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE CORPORATION:
TERRANO CORPORATION, a Nebraska corporation
By: /s/ Mitchel J. Laskey
-------------------------------------------
OPTIONEE:
/s/ DAVID M. POMERANCE
----------------------------------------------
David M. Pomerance
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EXHIBIT 4.04
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into the 16th day of
May, 1996 by and among DYNAMIC HEALTHCARE TECHNOLOGIES, INC. (the
"Corporation") and NIKHIL BHATT (the "Shareholder").
W I T N E S S E T H
WHEREAS, the Corporation and Shareholder are parties to that certain
Stock Option Agreement dated as of the date hereof, pursuant to which the
Shareholder is being issued options to purchase an aggregate of 150,000 shares
of the Corporation's common stock, $.01 par value (the "Shares"); and
WHEREAS, the Corporation desires to grant to the Shareholder certain
registration rights relating to the Shares upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants set forth herein and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Corporation and the
Shareholder agree as follows:
1. PIGGY-BACK REGISTRATION RIGHTS.
(a) The Corporation hereby covenants and agrees with the
Shareholder (including, any subsequent holder or holders of the Shares) that,
in the event the Corporation proposes to file a registration statement under
the Act (other than in connection with an exchange offer, a "rights" offering
to shareholders, a registration statement on Form S-8 or S-4 or any successor
forms relating to employee benefit plans, or in connection with a dividend
reinvestment plan, an employee benefit plan, the conversion of any convertible
securities, or a stand-by underwriting with respect to the call of a warrant,
option, right or convertible security for redemption) with respect to any class
of security then the Corporation shall in each case given written notice of
such proposed filing to the Shareholder at least thirty (30) calendar days
before the anticipated filing date of such registration statement or, in the
event that the Corporation has not formulated its intent to file such
registration statement at least thirty (30) calendar days before the
anticipated filing date of the registration statement, as soon as practicable
upon the formation by the Corporation of such intent, which notice shall
specify the information required to be provided to the Company pursuant to
Section 2. Such notice shall offer to Shareholder the opportunity to include
in such registration statement such number of the Shares as the Shareholder may
request. The Corporation shall permit, or shall use its best efforts to cause
the managing underwriter of a proposed offering to permit, the Shareholder of
the Shares requested to be included in the registration (the "Piggy-Back
Shares") to include such Piggy-Back Shares in the proposed offering on the same
terms and conditions as applicable to the shares of Common Stock offered by the
Corporation and for the account of any person other than the Corporation, as
the case may be.
<PAGE> 2
2. REGISTRATION PROCEDURES. If the Corporation is required by
the provisions of Section 1 to effect the registration of any of its securities
under the Act, the Corporation will, as expeditiously as is possible:
(a) Prepare and file with U.S. Securities and Exchange
Commission (the "Commission") a registration statement with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective.
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such registration statement
whenever the holder of such securities shall desire to sell the same.
(c) Furnish to the Shareholder such number of copies of a
summary prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents, as the
Shareholder may reasonably request in order to facilitate the sale of the
securities owned by the Shareholder.
(d) Use its best efforts to register or qualify the
securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions within the United States and Puerto Rico
as the Shareholder shall reasonably request, and do such other reasonable acts
and things as may be required in such jurisdictions.
(e) Otherwise use its best efforts to comply with all
application rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, but not later than 18
months, after the effective date of the registration statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
3. EXPENSES; LIMITATIONS ON REGISTRATION. All expenses incurred
in complying with Section 1 herein, including, without limitation, all
registration and filing fees (including all expenses incident to filing with
the NASD), printing expenses, fees and disbursements of counsel for the
Corporation, the reasonable fees and expenses of counsel for the Shareholder,
expenses of any special audits incident to or required by any such registration
and expenses of complying with the securities or blue sky laws or any
jurisdictions pursuant to Section 3(d), shall be paid by the Corporation,
except that:
(a) All such expenses in connection with any amendment or
supplement to the registration statement or prospectus filed more than 24
months after the effective date of such registration statement because the
Shareholder has not effected the disposition of the securities requested to be
registered shall be paid by the Shareholder in such proportions as he agrees;
and
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(b) The Corporation shall not be liable for any discounts
or commissions to any underwriter or any fees or disbursements of counsel for
any underwriter in respect of the securities sold by the Shareholder; and
It shall be a condition precedent to the obligation of the Corporation
to take any action pursuant to this Agreement in respect of the securities
which are to be registered at the request of Shareholder that (i) the
Corporation shall have received an undertaking satisfactory to it from the
Shareholder to pay all expenses to be incurred by or for the account of and
required to be paid by the Shareholder, and (ii) the Shareholder shall furnish
to the Corporation such information regarding the securities held by the
Shareholder and the intended method of disposition thereof as the Corporation
shall reasonably request and as shall be required in connection wit the action
take by the Corporation.
4. INDEMNIFICATION.
(a) In the event of any registration of any of its
securities under the Act pursuant to this Agreement, the Corporation shall
indemnify and hold harmless the holder of such securities, such holder's
directors and officers, and each other person (including each underwriter) who
participated in the offering of such securities and each other person, if any,
who controls such holder or such participating person within the meaning of the
Act, against any losses, claims, damages or liabilities, joint or several, to
which such holder or any such director or officer or participating person or
controlling person may become subject under the Act or any other statute or at
common law, in so far as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any alleged
untrue statement of any material fact contained, on the effective date thereof,
in any Registration Statement under which such securities were registered under
the Act, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or (ii) any alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse such holder or such
director, officer or participating person or controlling person for any legal
or any other expenses reasonably incurred by such holder or such director,
officer or participating person or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Corporation shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon any alleged untrue statement or alleged omission made in such
registration statement, preliminary prospectus, prospectus, or amendment or
supplement in reliance upon and in conformity with written information
furnished to the Corporation by such holder specifically for use therein. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such director, officer or participating
person or controlling person, and shall survive the transfer of such securities
by such holder.
(b) The Shareholder, by acceptance thereof, agrees to
indemnify and hold harmless the Corporation, its directors and officers and
each other person, if any, who controls the Corporation against any losses,
claims, damages or liabilities, joint or several, to which the Corporation or
any such director or other or any such person may become subject under the Act
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or any other statute or at common law, in so far as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement of any material fact which was based upon
information in writing provided to the Corporation by the Shareholder on the
effective date thereof, in any registration statement under which securities
were registered under the Act at the request of such holder, any preliminary
prospectus or final prospectus contained therein, or any amendment thereto.
5. MISCELLANEOUS.
(a) NOTICE GENERALLY. Any notice, demand or delivery to
be made pursuant to the provisions of this Agreement shall be sufficiently
given or made if sent by first class mail, postage prepaid, addressed to (a)
the holder of the Shares at its last known address appearing on the books of
the Corporation maintained for such purpose or (b) the Corporation at its
principal office at 101 Southhall Lane, Maitland, Florida 32751. Shareholder
and the Corporation may each designate a different address by notice to the
other pursuant to this Section.
(b) SUCCESSORS AND ASSIGNS. This Agreement and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Corporation and Shareholder. The provisions of this
Agreement are intended to be for the benefit of holder of the Shares and shall
be enforceable by any such holder.
(c) AMENDMENT. This Agreement may not be modified or
amended except by written agreement of the parties.
(d) HEADINGS. The headings used in this Agreement are
for the convenience of reference only and shall not, for any purpose, be deemed
a part of this Agreement.
(e) GOVERNING LAW; VENUE. This Agreement shall be
governed by the laws of the State of Florida, with proper venue with respect to
any dispute relating hereto being Dade County, Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.,
a Nebraska corporation
By: /s/ MITCHEL J. LASKEY
---------------------------------------
Mitchel J. Laskey,
President
SHAREHOLDER:
/s/ NIKHIL BHATT
---------------------------------------
Nikhil Bhatt
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EXHIBIT 4.06
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "FEDERAL ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS. NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE ACQUIRED UPON THE
EXERCISE OF THIS WARRANT MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT AND ALL APPLICABLE STATE
SECURITIES LAWS, AND IN THE CASE OF ANY EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE WARRANT OR SUCH OTHER
SECURITIES.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT
DYNAMIC HEALTHCARE TECHNOLOGIES, INC., a Nebraska corporation (the
"Company"), hereby certifies that, in consideration of the payment of
$25,000.00 to the Company, receipt of which is hereby acknowledged, The
Argentum Group ("Argentum") or permitted assigns (Argentum or such permitted
assigns at the time being the registered holder or holders hereof being
hereinafter referred to as "Holder") is entitled, subject to the terms set
forth below, to purchase from the Company at any time or from time to time on
or after the date hereof and prior to 5:00 P.M., New York, New York time, on
the Expiration Date, 210,000 shares of the Common Stock of the Company (as
adjusted pursuant to Section 1.1, the "Warrant Number"), at a price per share
equal to $1.00, subject to adjustment hereafter as provided in Section 2 (the
"Purchase Price").
Certain capitalized terms used herein shall have the meanings set
forth in Section 7.
Section 1. EXERCISE OF WARRANT.
1.1 Exercise. This Warrant may be exercised by Holder, in whole or
in part, at any time and from time to time by surrender of this Warrant,
together with (i) the form of subscription at the end hereof duly executed by
Holder, to the Company at its principal office, and (ii) payment, by certified
or official bank check payable to the order of the Company or by wire transfer
to its account, in the amount obtained by multiplying the number of shares of
Common Stock for which the Warrant is then being exercised by the Purchase
Price then in effect. Whenever the Purchase Price is
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adjusted pursuant to Section 2, the Warrant Number shall be adjusted by
multiplying such Warrant Number immediately prior to such adjustment by a
fraction the numerator of which is the Purchase Price prior to such adjustment
and the denominator of which is the Purchase Price after such adjustment. In
the event the Warrant is not exercised in full, the Company, at its expense,
shall forthwith issue and deliver to or upon the order of Holder, subject to
Section 10 herein, a new Warrant of like tenor in the name of Holder or as
Holder (upon payment by Holder of any applicable transfer taxes) may request,
calling in the aggregate on the face thereof for the number of shares of Common
Stock equal (without giving effect to any adjustment therein) to (i) the number
of such shares called for on the face of this Warrant minus (ii) the number of
such shares for which this Warrant shall have been exercised, whether in cash
or pursuant to a Non-Cash Exercise Payment (without giving effect to any
adjustment in number as a result of changes in the Purchase Price called for
above). Notwithstanding the foregoing, this Warrant may not be exercised at any
one time for fewer than 10% (or the remaining balance) of the Warrant Number of
shares of Common Stock.
1.2 Net Issuance. At any time, or from time to time, the Holder
may, at its option, elect to pay some or all of the Purchase Price upon an
exercise of this Warrant by cancelling the number of shares of Common Stock
underlying this Warrant equal to the quotient of (i) the aggregate Purchase
Price payable in respect of the Warrant Number of shares of Common Stock
purchased upon such exercise divided by (ii) the Market Price per share of
Common Stock as of the effective date of the Holder's exercise of such option.
Such exercise is referred to herein as a "Non-Cash Exercise Payment". Such
effective date shall be the date that notice of such exercise is given by the
Holder to the Company.
1.3 Delivery of Stock Certificates. Subject to the terms and
conditions of this Agreement, as soon as practicable after the exercise of this
Warrant in full or in part, and in any event within 10 days thereafter, the
Company at its expense (including, without limitation, the payment by it of any
applicable issue taxes), and so long as such issuance and delivery is in
compliance with or exempt from the registration provisions of the Federal Act
and applicable state securities laws, will cause to be issued in the name of
and delivered to Holder, or as Holder (upon payment by Holder of any applicable
transfer taxes, and subject to the provisions of Section 10 below) may lawfully
direct, a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock to which Holder shall be entitled on such
exercise, together with any other stock or other securities and property
(including cash, where applicable) to which Holder is entitled upon such
exercise.
1.4 Fractional Shares. This Warrant may not be exercised as to
fractional shares of Common Stock. In the event that the
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exercise of this Warrant, in full or in part, would result in the issuance of
any fractional shares of Common Stock, then in such event Holder shall be
entitled to cash equal to the Market Price of such fractional shares.
Section 2. ADJUSTMENT OF PURCHASE PRICE.
2.1 Adjustment for Stock Dividends. In case the Company shall pay
a dividend or make any other distribution on any class of capital stock of the
Company in shares of Common Stock, the Purchase Price in effect at the close of
business on the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Purchase Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares of Common Stock constituting such
dividend or other distribution, such reduction to become effective immediately
prior to the opening of business on the date following the date fixed for such
determination. For the purposes of this Section 2.1, the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company.
2.2 Adjustment for Issuance of Common Stock, Rights or Warrants.
(a) In case the Company shall issue, after November 15, 1995, any Additional
Stock (as defined below) without consideration or for a consideration per share
less than the Purchase Price in effect immediately prior to the issuance of
such Additional Stock, the Purchase Price in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (a))
be reduced to (i) such lower purchase price (or in the case of options and
similar securities, the consideration received for the option and the
consideration to be received upon exercise of such option) or (ii) if such
Additional Stock is issued without consideration, $.01.
(b) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued) or rights, warrants, options or
other exchangeable securities convertible into Common Stock including shares of
Common Stock held in the Company's Treasury) by the Company after November 29,
1995 other than
(a) Common Stock issued pursuant to Section 2.1
hereto hereof;
(b) Common Stock issuable or issued to employees,
advisors, consultants or outside directors of the Company directly or pursuant
to the Company's stock option plans and restricted stock plans approved by the
Board of Directors of the Company and existing as of the date of this Warrant;
provided that (i) such issuances shall not exceed the number of shares of
Common Stock
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authorized to be issued under such plans as of the date of this Warrant and
(ii) in the case of the issuance of options under such plans, the exercise
price of such options shall not be less than the fair market value of Common
Stock on the date of issuance of such options; and
(c) Common Stock issued or issuable upon
conversion of the Series A Preferred Stock or the Series B Preferred Stock;
For the purposes of this Section 2.2, the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of the
Company.
2.3 Adjustment for Stock Subdivisions and Combinations. In case
outstanding shares of Common Stock shall be subdivided into a greater number of
shares of Common Stock, the Purchase Price in effect at the close of business
on the day upon which such subdivision becomes effective shall be
proportionately reduced and, conversely, in case outstanding shares of Common
Stock shall be combined into a smaller number of shares of Common Stock, the
Purchase Price in effect at the opening of business on the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
prior to the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
2.4 Adjustment for Distribution of Assets. In case the Company
shall, by dividend or otherwise, distribute to all holders of its Common Stock
evidences of its indebtedness or assets (including securities, but excluding
any rights or warrants referred to in Section 2.2, any dividend or distribution
paid in cash out of the earned surplus or capital surplus of the Company, and
any dividend or distribution referred to in Section 2.1), the Purchase Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Purchase Price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such distribution by a fraction of which the numerator shall be the
Market Price per share of Common Stock on the date fixed for such determination
less the then fair market value (as agreed to by good faith negotiation between
the Company and the Holder, or, absent such agreement within 10 days of such
dividend or distribution, pursuant to the appraisal process set forth in the
definition of Fair Market Value set forth in Section 7) of the portion of the
assets or evidences of indebtedness so distributed (net of the fair market
value, as so determined, of any consideration paid or exchanged with respect
thereto) applicable to one share of Common Stock and the denominator shall be
such Market Price per share of Common Stock, such adjustment to become
effective immediately prior to the opening of business on the day following the
date fixed for
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<PAGE> 5
the determination of stockholders entitled to receive such distribution.
2.5 Computation of Adjusted Purchase Price. Whenever the Purchase
Price is adjusted as provided in this Section 2:
(a) The Company shall compute the adjusted Purchase Price
to the nearest one-hundredth of a cent in accordance with this Section
2 and shall prepare a certificate signed by the Chief Financial
Officer or the Treasurer of the Company setting forth the adjusted
Purchase Price and showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall forthwith be
filed at the office maintained pursuant to Section 3.3;
(b) A notice stating that the Purchase Price has been
adjusted and setting forth the adjusted Purchase Price shall, as soon
as practicable after it is required, be mailed to Holder; and
(c) At its option, Holder may confirm the adjustment
noted on the certificate by causing such adjustment to be computed by
an independent certified public accountant at the Holder's expense;
provided, however, that if the results of such computation reveal
discrepancies from the adjustment noted on the certificate, then the
Company shall pay the costs and expenses of such computation.
2.6 Minimum Adjustment; Limitation. No adjustment in the Purchase
Price shall be required under this Section 2 unless such adjustment would
require an increase or decrease of at least one percent in such price;
provided, however, that any adjustments that by reason of this Section 2.6 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 2 shall be made to
the nearest one-hundredth of a cent or to the nearest one-hundredth of a share
as the case may be. Notwithstanding the foregoing provisions of this Section 2,
in no event shall the Purchase Price be reduced below the minimum amount for
which the Common Stock may lawfully be issued pursuant to applicable laws and
regulations; provided, however, that upon the occurrence of any event that
would, but for the foregoing limitation, give rise to an adjustment of the
Purchase Price pursuant to this Section 2, solely for purposes of determining
the Warrant Number pursuant to Section 1 above, the Purchase Price shall be
given effect as if adjusted to the full extent provided for in this Section 2,
without regard to the limitation set forth in this sentence.
Section 3. CERTAIN OBLIGATIONS OF THE COMPANY.
3.1 Reservation of Stock. The Company covenants that it will at
all times reserve and keep available out of its authorized and
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<PAGE> 6
unissued Common Stock or out of shares of its treasury stock, solely for the
purpose of issue upon exercise of the purchase rights evidenced by this
Warrant, a number of shares of Common Stock equal to the number of shares of
Common Stock issuable hereunder. The Company will from time to time, in
accordance with the laws of the State of Nebraska, take action to increase the
authorized amount of its Common Stock if at any time the number of shares of
Common Stock authorized but remaining unissued and unreserved for other
purposes shall be insufficient to permit the exercise of this Warrant.
3.2 No Valuation or Impairment. The Company will not, by amendment
of its Amended and Restated Articles of Incorporation, as amended, including,
without limitation, amendment of the par value of its Common Stock, or through
reorganization, consolidation, merger, dissolution, issuance of capital stock
or sale of treasury stock (otherwise than upon exercise of this Warrant) or
sale of assets, by effecting any subdivision of or stock split or stock
dividend with respect to its Common Stock, or by any other voluntary act or
deed, avoid or seek to avoid the performance or observance of any of the
covenants, stipulations or conditions in this Warrant to be observed or
performed by the Company. The Company will at all times in good faith assist,
insofar as it is able, in the carrying out of all of the provisions of this
Warrant in a reasonable manner and in the taking of all other action that may
be necessary in order to protect the rights of the holder of this Warrant
against dilution in the manner required by the provisions of this Warrant.
3.3 Maintenance of Office. The Company will maintain an office
where presentations and demands to or upon the Company in respect of this
Warrant may be made. The Company will give notice in writing to Holder, at the
address of Holder appearing on the books of the Company, of each change in the
location of such office.
Section 4. REORGANIZATION ETC.
If any reorganization or reclassification of the capital stock of the
Company, or consolidation or merger of the Company with another corporation, or
the sale of all or substantially all of its assets to another corporation shall
be effected, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby Holder shall thereafter have the right to purchase and receive upon the
terms and conditions herein specified and in lieu of the shares of Common Stock
of the Company immediately theretofore purchasable and receivable upon exercise
of this Warrant such securities or property as may be issued or payable with
respect to or in exchange for a number of outstanding shares of Common Stock
equal to the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of this Warrant had
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<PAGE> 7
such reorganization, reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be made with respect to
the rights and interests of Holder to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Purchase
Price and of the number of shares purchasable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be, in relation to
any securities or property thereafter deliverable upon the exercise hereof. The
Company shall not effect any such reorganization, consolidation, merger or sale
unless, prior to or contemporaneously with the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and delivered to Holder, the obligation to
deliver to Holder such securities or property as, in accordance with the
foregoing provisions, Holder may be entitled to purchase or receive.
Section 5. NOTICES OF RECORD DATE.
In the event of
(a) any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividends or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities of
property, or to receive any other right; or
(b) any capital reorganization of the Company, any
reclassification of the capital stock of the Company or any transfer
of all or substantially all the assets of the Company to or any
consolidation or merger of the Company with or into any other Person;
or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then, and in each such event, the Company will give to Holder a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, and (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding-up is to take place and the time, if any is to be fixed,
as of which the holders of record of Common Stock for securities or other
property deliverable on such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for
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<PAGE> 8
securities or other property deliverable on such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding-up. Such notice shall be given prior to the date specified in such
notice on which any such action is to be taken, and in no event later than the
time when notice of such event is given to holders of record of the Company's
issued and outstanding capital stock.
Section 6. COMPLIANCE WITH THE FEDERAL ACT: REGISTRATION RIGHTS:
REDEMPTION: TRANSFERABILITY.
6.1 Compliance with the Federal Act. The Holder acknowledges that
neither this Warrant nor the shares of Common Stock issuable upon exercise of
this Warrant have been registered under the Federal Act and applicable state
securities laws and agrees that this Warrant and all shares purchased upon
exercise hereof shall be disposed of only in accordance with the Federal Act
and applicable states securities laws and the rules and regulations of the SEC
promulgated thereunder and applicable state securities laws.
6.2 Registration Rights and Other Rights
(a) If the Company at any time proposes to register any
of its securities under the Federal Act, whether or not for sale for its own
account, the Company shall give thirty (30) days prior written notice to the
Holder of its intention to do so. The Company shall, upon the written request
of the Holder, include in the appropriate registration statement required under
the Federal Act and any applicable state securities filings such number of
shares obtainable under this Warrant as such Holder may request. The Company
agrees to keep any registration statement and prospectus required under the
Federal Act effective and current until the earlier of nine (9) months or the
date as of which such Holder advises the Company that he or she no longer
requires registration.
(b) In connection with any registration statement or
post-effective amendment or subsequent amendment to any such registration
statement or post-effective amendment or similar document filed pursuant to
this Section 6.2, the Company shall take all reasonable steps to make the
securities to which this Section 6 relates eligible for public offering and
sale by the effective date of such registration statement or post-effective
amendment or any amendment to any of the foregoing under the securities or blue
sky laws of such jurisdictions as the selling Holder may reasonably designate
in writing. The Company shall keep such filing current for the length of time
it must keep any registration statement, post-effective amendment or prospectus
and any amendment to any of the foregoing effective pursuant to this Section
6.2.
(c) In connection with any filing under this Section 6.2,
the Company shall bear all of the expenses and professional fees which arise in
connection with such filings and keeping them
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<PAGE> 9
effective and current as provided in this Section 6.2 (including reasonable
legal fees of the Holder) and shall also provide to the selling Holder a
reasonable number of printed copies of the prospectuses and/or supplemental
prospectuses or amended prospectuses in final and preliminary form.
(d) Nothing herein shall be construed to require the
Holder who may desire to include any shares in any registration statement or
post-effective amendment referred to in this Section 6.2 to exercise his or her
Warrants more than one (1) day prior to the effective date of any such
registration statement or posteffective amendment, and such Holder, at his or
her option, to the extent permissible by law, may exercise the Warrants against
payment of the proceeds of the offering. In such event, to ensure delivery of
the shares, the Holder, at the Company's request and expense, will deposit his
or her Warrants with such escrow agent selected by the Holder.
(e) In connection with any registration filed pursuant to
this Section 6.2, the Holder will reasonably cooperate with the Company and
furnish the Company in writing such information concerning the Holder and the
terms of its proposed offering as the Company shall reasonably request for
inclusion in the registration statement.
(f) The Company will indemnify the Holder and each of its
officers, directors and partners, and each person controlling such Holder, with
respect to which registration, qualification or compliance has been effected
pursuant to this Section 6.2, and each underwriter, if any, and each person who
controls an underwriter of the securities held by or issuable to such Holder,
against all claims, losses, expenses, damages and liabilities (or actions in
respect thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement or the
like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statement therein not misleading,
or any violation or alleged violation by the Company of the Federal Act, the
Exchange Act or any state securities law applicable to the Company or any rule
or regulation promulgated under the Federal Act, the Exchange Act or any such
state law and relating to action or inaction by the Company in connection with
any such registration, qualification or compliance, and will reimburse such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, within a reasonable amount of time for any reasonable legal
and any other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action.
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(g) Each Holder will, if Common Stock held by or issuable
to such Holder is included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Federal Act, and each other such Holder,
each of its officers, directors and partners and each person controlling such
Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged untrue statements) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holder, such directors, officers, partners,
persons or underwriters for any reasonable legal or any other expenses incurred
in connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder specifically for use therein; provided, however, that the indemnity
agreement contained in this Section 6.2(g) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld); and provided further that the total amount for
which any Holder shall be liable under this Section 6.2(g) shall not in any
event exceed the aggregate proceeds received by such Holder from the sale of
Common Stock held by such Holder in such registration.
(h) Each party entitled to indemnification under this
Section 6.2 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonable withheld), at the Indemnified Party's expense; and provided
further, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations hereunder,
unless such failure resulted in prejudice to the Indemnifying Party; and
provided further, that an Indemnified Party (together with all
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other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by
such counsel in such proceeding. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(i) With a view to making available to the Holder the
benefits of certain rules and regulations of the SEC which may permit the sale
of the registrable securities to the public without registration, the Company
agrees at all time to:
(A) make and keep public information available,
as those terms are understood and defined in Rule 144 under the Federal Act,
after ninety (90) days after the effective date of the first registration filed
by the Company for an offering of its securities to the public in the United
States;
(B) file with the SEC in a timely manner all
reports and other documents required of the Company under the Federal Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(C) so long as a Holder owns any securities of
the Company, furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said
Rule 144 (at any time after ninety (90) days after the effective date of the
first registration statement filed by the Company for an offering of its
securities to the public in the United States), and of the Federal Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents filed by the Company as the
Holder may reasonably request in complying with any rule or regulation of the
SEC allowing the Holder to sell any such securities without registration.
(j) The Holder's piggyback rights granted to them by the
Company under Section 6.2(a) may be assigned to transferees or assignees of a
Holder's common stock not sold to the public; provided, that the Company is
given written notice by such Holder at the time of or within a reasonable time
after said transfer, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
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rights are being assigned. Additionally, the piggyback rights in Section 6.2
may not be transferred to any person or entity residing outside the United
States.
Section 7. DEFINITIONS.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
7.1 The term "Common Stock" shall mean the Company's common stock
and any capital stock of any class of the Company hereafter authorized which is
not limited to a fixed sum or percentage of par or stated value in respect of
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company.
7.2 The term "Company" shall have the meaning set forth in the
preamble hereof.
7.3 The term "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and any successor statute thereto.
7.4 The term "Expiration Date" shall mean the seventh anniversary
of the date of this Warrant.
7.5 The term "Fair Market Value" shall mean the fair market value
of the Common Stock taken as a whole, without premium for control or discounts
for minority interests or restrictions on transfer, determined as follows:
(i) during the 10 day period following the delivery of
notice by a Holder exercising its rights pursuant to Section 1.1 (with respect
to a Non-Cash Exercise Payment or an exercise of this Warrant that would
otherwise result in the issuance of fractional shares of Common Stock), or
following the date fixed for determination of Stockholders entitled to receive
rights or warrants as set forth in Section 2.2, the Holder and the Company
shall negotiate in good faith to reach agreement on the fair market value of
the Common Stock, and such value shall be the Fair Market Value;
(ii) in the event that the Holder and the Company are
unable to reach agreement pursuant to clause (i) above, then the Fair Market
Value shall be determined by an appraiser selected by the Company (the
"Company's Appraiser") and whose appraisal (the "Company's Appraisal") shall be
furnished to the Holder within 20 days after the date of the expiration of the
10 day period set forth in clause (i) above, and if the Holder does not object
to such determination within 15 days after receipt of the Company's Appraisal,
then the fair market value determined by the Company's Appraiser shall be the
Fair Market Value;
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<PAGE> 13
(iii) in the event that the Holder objects to such
determination as set forth in clause (ii) above, then the Holder shall select
an appraiser (the "Holder's Appraiser") who at the Holder's expense, shall
review the determination of the Company's Appraiser and issue a report thereon
(the "Holder's Appraisal") within 30 days after the delivery of the Company's
Appraisal to the Holder, and within 10 days after the issuance of such report
to the Company's Appraiser, the Company's Appraiser and the Holder's Appraiser
shall meet to negotiate in good faith to reach agreement on the fair market
value of the Common Stock, and such agreed value shall be the Fair Market Value;
(iv) in the event that the Company's Appraiser and the
Holder's Appraiser are unable to reach agreement as set forth in clause (iii)
above, then such Appraisers shall select an appraiser (the "Third Appraiser")
within 5 days after the meeting described in clause (i-ii) above, and the
determination of such Third Appraiser shall be conclusive and binding on the
Company and the Holder; and
(v) the fees and expenses of the Company's Appraiser
shall be paid by the Company, the fees and expenses of the Holder's Appraiser
shall be paid by the Holder, and the fees and expenses of the of the Third
Appraiser shall be shared equally by the Company and the Holder.
7.6 The term "Federal Act" shall have the meaning set forth in the
preamble hereof.
7.7 The term "Holder" shall have the meaning set forth in the
preamble hereof.
7.8 The term "Indemnified Party" shall have the meaning set forth
in Section 6.2(j) hereof.
7.9 The term "Indemnifying Party" shall have the meaning set forth
in Section 6.2(j) hereof.
7.10 The term "Market Price" shall mean the average of the daily
closing prices for the 30 consecutive business days immediately prior to the
day in question. The closing price for each day shall be (a) the last reported
sales price or, in the case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in either case on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, on the National Association of
Securities Dealers Automated Quotation National Market System, (b) if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on such National Market System, the average of the closing
bid and asked prices in the over-the-counter market as furnished by any New
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<PAGE> 14
York Stock Exchange member firm reasonably selected from time to time by the
Company for that purpose, or (c) if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on such National
Market System and the average price cannot be determined as contemplated by
clause (b), the Fair Market Value. For the purposes of this Section 7.10, the
term "business day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are not traded on such exchange
or in such market.
7.11 The term "Non-Cash Exercise Payment" shall have the meaning
set forth in Section 1.2 hereof.
7.12 The term "Person" shall mean an individual, partnership,
corporation, association, trust, joint venture, unincorporated organization or
any government, governmental department or agency or political subdivision
thereof.
7.13 The term "Purchase Price" shall have the meaning set forth in
the preamble hereof.
7.14 The term "Warrant Number" shall have the meaning set forth in
the preamble hereof.
7.15 The term "Warrant Stock" shall mean any equity security issued
upon exercise of this Warrant.
Section 8. REPLACEMENT OF WARRANTS.
Upon (a) surrender of this Warrant in mutilated form or receipt of
evidence satisfactory to the Company of the loss, theft or destruction of this
Warrant and (b) in the case of any loss, theft or destruction of any Warrant,
receipt of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company, then in the absence of actual notice to the Company
that this Warrant has been acquired by a bona fide purchaser, the Company, at
its expense, shall execute and deliver, ln lieu of this Warrant, a new Warrant
identical in form to this Warrant.
Section 9. REMEDIES.
The Company stipulates that the remedies at law of the Holder in the
event of any breach or threatened breach by the Company of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a breach of any of the terms
hereof or otherwise.
Section 10. TRANSFER.
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<PAGE> 15
This Warrant and the shares of Common Stock issuable hereunder shall
not be sold, transferred, pledged or hypothecated unless the proposed
disposition is the subject of a currently effective registration statement
under the Federal Act or unless the Company has received an opinion of counsel,
in form and substance reasonably satisfactory to the Company, to the effect
that such registration is not required in connection with such disposition. In
the case of such a sale, transfer, pledge or hypothecation, or in the event of
the exercise hereof if the Warrant Stock so acquired is not registered under
the Federal Act, the Company may require a written statement that the Warrant
or Warrant Stock, as the case may be, are being acquired for investment and not
with a view to the distribution thereof, and any certificate representing
Warrant Stock issued pursuant to such exercise shall bear a legend in
substantially the form set forth on the face hereof. Subject to the first two
sentences of this Section, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by
the registered holder thereof in person or by a duly authorized attorney, upon
surrender of this Warrant together with an assignment hereof properly endorsed.
Notwithstanding the foregoing, this Warrant and the shares of Common Stock
issuable hereunder may be transferred, in whole or in part, to partners,
officers or directors of The Argentum Group or its affiliates. Until transfer
hereof on the registration books of the Company, the Company may treat the
existing registered holder hereof as the owner hereof for all purposes. Any
transferee of this Warrant and any rights hereunder, by acceptance thereof,
agrees to assume all of the obligations of Holder and to be bound by all of the
terms and provisions of this Warrant.
Section 11. NOTICES.
Where this Warrant provides for notice of any event, such notice shall
be given (unless otherwise herein expressly provided) in writing and either (i)
delivered personally, (ii) sent by certified, registered or express mail,
postage prepaid, (iii) telegraphed or (iv) telexed or sent by facsimile
transmission, and shall be deemed given when so delivered personally,
telegraphed, telexed, sent by facsimile transmission (confirmed in writing) or
mailed. Notices shall be addressed, if to the Holder, to the address of Holder
at such Holder's address as it appears in the records of the Company, or if to
the Company, to its office maintained pursuant to Section 3.3.
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<PAGE> 16
Section 12. MISCELLANEOUS.
This Warrant shall be binding upon the Company and Holder and their
legal representatives, successors and assigns. In case any provision of this
Warrant shall be invalid, illegal or unenforceable, or partially invalid,
illegal or unenforceable, the provision shall be enforced to the extent, if
any, that it may be legally enforced and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of The State of New York without regard to its
principles of conflicts of laws. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof. This Warrant shall take effect as an instrument under seal.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer and its corporate seal to be impressed hereon
and attested by its Secretary or Assistant Secretary.
Dated as of December , 1995
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
(Corporate Seal)
By: /s/ Mitchel J. Laskey
-------------------------------------
Michael J. Laskey, President
Attest:
/s/ David Pomerance
- --------------------------------
Secretary
-16-
<PAGE> 17
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Common Stock Purchase Warrant)
TO: Dynamic Healthcare Technologies, Inc.
The undersigned, the holder of the within Common Stock Purchase
Warrant, hereby irrevocably elects to exercise this Common Stock Purchase
Warrant for, and to purchase thereunder * shares of Common Stock of DYNAMIC
HEALTHCARE TECHNOLOGIES, INC. (the "Company") and herewith makes payment of
$________________ therefor, and requests that the certificates for such shares
be issued in the name of, and delivered to _______________________________,
whose address is
________________________________________________________________________________
Dated:
----------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
- --------------------------------
* Insert here the number of shares (all or part of the number of
shares called for in the Common Stock Purchase Warrant) as to which the Common
Stock Purchase Warrant is being exercised without making any adjustment for any
other stock or other securities or property or cash that, pursuant to the
adjustment provisions of the Common Stock Purchase Warrant, may be deliverable
on exercise.
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<PAGE> 18
FORM OF ASSIGNMENT
(To be signed only on transfer of
Common Stock Purchase Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto ____________________________ of ___________________________
the right represented by the within Common Stock Purchase Warrant to purchase
________________________ shares of Common Stock of DYNAMIC HEALTHCARE
TECHNOLOGIES, INC. to which the within Common Stock Purchase Warrant relates,
and appoints _______________________, Attorney to transfer such right on the
books of DYNAMIC HEALTHCARE TECHNOLOGIES, INC. with full power of substitution
in the premises.
Dated:
----------------------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
Signed in the presence of:
- -----------------------------------
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<PAGE> 1
EXHIBIT 4.07
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT") OR APPLICABLE STATE SECURITIES LAWS ("STATE ACTS"). THIS
WARRANT AND ANY SECURITIES ISSUED UPON EXERCISE OF THIS WARRANT MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE ACTS UNLESS THE
CORPORATION HAS RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED.
TERRANO CORPORATION
WARRANT CERTIFICATE
Warrants to Subscribe for ____________, 1995
__________ shares of Common Stock
THIS CERTIFIES that, for value received, ____________________________,
or its registered assigns (the "Holder"), is the registered owner of
___________ warrants (the "Warrants") of TERRANO CORPORATION, a Nebraska
corporation (hereinafter referred to as the "Corporation" or the "Company").
Each of the Warrants entitles the Holder to purchase one duly authorized,
validly issued, fully paid and nonassessable share of voting common stock, $.01
par value per share, of the Corporation (the "Common Stock") for a period of
five (5) days commencing on the date hereof (the "Exercise Period"). Each
share of Common Stock relating to a Warrant and/or each share of Common Stock
underlying a Warrant may sometimes hereinafter be referred to as a "Warrant
Share."
1. PURCHASE PRICE. Holder shall have the right to purchase each
Warrant Share pursuant to Section 4 of this Warrant Certificate at a purchase
price equal of $1.00 per Warrant Share (the "Purchase Price").
2. RIGHTS OF THE HOLDER. Holder by virtue of holding the
Warrants to purchase the Warrant Shares shall not have any rights to any
dividends to be distributed by the Corporation to the shareholders or any other
rights of a shareholder in the Corporation with respect to any of the Warrant
Shares until Holder exercises the Warrant to purchase the Warrant Shares
pursuant to Section 4 of this Warrant Certificate.
3. TRANSFERABILITY OF THE WARRANTS. The Warrants may not be
assigned, transferred, or otherwise disposed of, or pledged or hypothecated or
in any way be subject to
<PAGE> 2
execution, attachment or other process. Any assignment, transfer, pledge,
hypothecation or other disposition of the Warrants attempted contrary to the
provisions of this Warrant Certificate or any levy, execution, attachment or
other process attempted upon the Warrants will be null and void and without
effect.
4. EXERCISE OF THE WARRANTS. The Warrant shall be exercisable in
whole on the terms and conditions hereinafter set forth:
(a) Subject to the terms and conditions of this Warrant
Certificate, the Warrant to purchase the Warrant Shares shall be exercisable by
Holder upon delivery of notice to the Corporation (the "Exercise Notice") in
accordance with the procedure prescribed in this Section 4. The Exercise
Notice shall state that Holder elected to exercise the Warrant or any portion
thereof. Delivery of the Exercise Notice prior to the expiration of the
Exercise Period shall be sufficient to entitle Holder to purchase the Warrant
Shares notwithstanding that the Closing (as subsequently defined in Section
4(b) of this Warrant Certificate) may occur after the expiration of the
Exercise Period. Within ten (10) business days of receipt of the Exercise
Notice, the Corporation will specify, by written notice to Holder, a date and
time (the "Closing Date"), and place for payment of the Purchase Price of the
Warrant Shares to be purchased by Holder. The Closing Date will not be more
than fifteen (15) business days from the date that the Exercise Notice is
received by the Corporation unless another date is agreed upon in writing by
the Corporation and Holder.
(b) Payment of the Purchase Price of the Warrant Shares
to be acquired pursuant to the exercise of the Warrant will be made by Holder
at the closing ("Closing") by delivering to the Corporation cash or a check
payable to the order of the Corporation for the full amount of the Purchase
Price. At the Closing, the Corporation shall deliver to Holder the stock
certificates representing the Warrant Shares being purchased upon the exercise
of the Warrant.
5. SHARE AUTHORIZATION AND OTHER SHAREHOLDER APPROVALS. The
Corporation covenants and agrees that at all times that this Warrant
Certificate shall be in effect it shall have authorized, and reserved, Common
Stock of the Corporation sufficient for the exercise of the Warrants and the
purchase of Common Stock by Holder.
6. INVESTMENT. Holder acknowledges that the Warrant Shares are
not being offered pursuant to a registration statement under the Securities Act
of 1933, as amended (the "Act"), or any other securities laws. Holder
acknowledges that the Warrant Shares are being acquired for Holder's own
account for investment purposes only and not with a view to, or for sale in
connection with, any public distribution thereof and will not sell, or offer to
sell or otherwise dispose, of any interest in the Warrant Shares acquired by
Holder in violation of the Act. Holder has had substantial experience in
business and financial matters and in making investments of the type
contemplated by this Warrant Certificate, is capable of evaluating the merits
and risks of the purchase of the Warrant Shares and is able to bear the
economic risks of such investment.
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<PAGE> 3
7. LIQUIDITY. Although there can be no assurance that the
Warrant Shares will be registered under the Act, that an exemption from such
registration will be available, or that there will be a market for the Warrant
Shares in the future, the Corporation agrees to use its best efforts to enable
and facilitate Holder's sale or disposition of the Warrant Shares in compliance
with the Act at the earliest date reasonably practicable.
8. ADJUSTMENTS. In the event of a stock dividend, stock split,
share combination, recapitalization, merger, consolidation or reorganization of
or by the Corporation, the number or class of shares purchasable upon exercise
of the Warrant immediately prior thereto shall be adjusted so that Holder shall
be entitled to receive the kind and number of shares or other securities which
Holder would have owned or have been entitled to receive after the happening of
any of the events described above, had the Warrant been exercised immediately
prior to the happening of any of such events or any record date with respect
thereto. Any adjustment made pursuant to this Section shall become effective
immediately after the effective date of such events retroactive to the record
date, if any, for such events.
9. DEMAND REGISTRATION RIGHTS. The Corporation hereby covenants
and agrees with Holder (including any subsequent holder or holders of the
Warrant Shares that as expeditiously as is reasonable (but in no event later
than seventy-five (75) days) after receipt of a written request from Holder
that such holders or their designees desire or intend to transfer all or a
portion of the Warrant Shares under such circumstances that a public offering
within the meaning of Securities Act of 1933, as amended (the "Act") will be
involved, the Corporation shall file a registration statement (and use its best
efforts to cause such registration statement to become effective under the Act)
with respect to the offering and sale or other disposition of the Warrant
Shares. The Corporation shall not be required (i) to honor any such request to
register the Warrant Shares prior to the first day of the ninth month from the
date hereof; (ii) to maintain the effectiveness of the registration statement
beyond the period necessary to comply with the Act (otherwise than pursuant to
Rule 415 or any similar regulation permitting "shelf registration") with
respect to distribution of the Warrant Shares; or (iii) to file, more than one
registration statement pursuant to which any Warrant Shares may be sold under
this Section 9.
10. PIGGY-BACK REGISTRATION RIGHTS.
(a) The Corporation hereby covenants and agrees with
Holder (including, any subsequent holder or holders of the Warrant Shares)
that, in the event the Corporation proposes to file a registration statement
under the Act (other than in connection with an exchange offer, a "rights"
offering to shareholders, a registration statement on Form S-8 or S-4 or any
successor forms relating to employee benefit plans, or in connection with a
dividend reinvestment plan, an employee benefit plan, the conversion of any
convertible securities, or a stand-by underwriting with respect to the call of
a warrant, option, right or convertible security for redemption) with respect
to any class of security then the Corporation shall in each case given written
notice of such proposed filing to Holder at least thirty (30) calendar days
before the anticipated filing date of such registration statement or, in the
event that the Corporation has not formulated its intent to file such
registration statement at least thirty (30) calendar days before
- 3 -
<PAGE> 4
the anticipated filing date of the registration statement, as soon as
practicable upon the formation by the Corporation of such intent, which notice
shall specify the information required to be provided to the Corporation
pursuant to Section 12. Such notice shall offer to such holders the
opportunity to include in such registration statement such number of Warrant
Shares as Holder may request. The Corporation shall permit, or shall use its
best efforts to cause the managing underwriter of a proposed offering to
permit, the holders of Warrant Shares requested to be included in the
registration (the "Piggy-Back Shares") to include such Piggy-Back Shares in the
proposed offering on the same terms and conditions as applicable to the shares
of Common Stock offered by the Corporation and for the account of any person
other than the Corporation, as the case may be.
11. REGISTRATION PROCEDURES. If the Corporation is required by
the provisions of Section 9 or 10 to effect the registration of any of its
securities under the Act, the Corporation will, as expeditiously as is
possible:
(a) Prepare and file with U.S. Securities and Exchange
Commission (the "Commission") a registration statement with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective.
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such registration statement
whenever the holder of such securities shall desire to sell the same.
(c) Furnish to Holder such number of copies of a summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents, as
Holder may reasonably request in order to facilitate the sale of the securities
owned by Holder.
(d) Use its best efforts to register or qualify the
securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions within the United States and Puerto Rico
as Holder shall reasonably request, and do such other reasonable acts and
things as may be required in such jurisdictions.
(e) Furnish, at the request of Holder, on the date that
such Warrant Shares Securities are delivered to the underwriters for sale
pursuant to such registration or, if such Warrant Shares are not being sold
through underwriters, on the date that the registration statement with respect
to such Warrant Shares becomes effective, (1) an opinion, dated such date, of
the independent counsel representing the Corporation for the purposes of such
registration, addressed to the underwriters, if any, and if the Warrant Shares
are not being sold through underwriters, then to Holder, stating that such
registration statement has become effective under the Act and that (i) to the
best knowledge of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have
- 4 -
<PAGE> 5
been instituted or are pending or contemplated under the Act, (ii) the
registration statement, the related prospectus, and each amendment or
supplement thereto, comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations of the
Commission thereunder (except that such counsel need express no opinion as to
financial statements contained therein), (iii) such counsel has no reason to
believe that either the registration statement or the prospectus, or any
amendment or supplement thereto, contains any untrue statement of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (iv) the descriptions in the registration statement or the
prospectus, or any amendment or supplement thereto, of all legal matters and
contracts and other legal documents or instruments are accurate and fairly
present the information required to be shown, and (v) such counsel does not
know of any legal or governmental proceedings, pending or contemplated,
required to be described in the registration statement or prospectus, or any
amendment or supplement thereto, which are not described as required, nor of
any contracts or documents or instruments of a character required to be
described in the registration statement or prospectus, or any amendment or
supplement thereto, or to be filed as exhibits to the registration statement
which are not described and filed or incorporated by reference as required; and
(2) a letter dated such date, from the independent certified public accountants
of the Corporation, addressed to the underwriters, if any, and if the Warrant
Shares are not being sold through underwriters, then to Holder, stating that
they are independent certified public accountants within the meaning of the Act
and that, in the opinion of such accountants, the financial statements and
other financial data of the Corporation included in the registration statement
or the prospectus, or any amendment or supplement thereto, comply as to form in
all material respects with the applicable accounting requirements of the Act.
Such opinion of counsel shall additionally cover such other legal matters with
respect to the registration in respect of which such opinion is being given as
Holder may reasonably request. Such letter from the independent certified
public accountants shall additionally cover such other financial matters
(including information as to the period ending not more than five (5) Business
Days prior to the date of such letter) with respect to the registration in
respect of which such letter is being given as Holder may reasonably request.
(f) Otherwise use its best efforts to comply with all
application rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, but not later than 18
months, after the effective date of the registration statement, an earnings
statement covering the period of at least 12 months beginning with the first
full month after the effective date statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
12. EXPENSES; LIMITATIONS ON REGISTRATION. All expenses incurred
in complying with Sections 9 and 10 herein, including, without limitation, all
registration and filing fees (including all expenses incident to filing with
the NASD), printing expenses, fees and disbursements of counsel for the
Corporation, the reasonable fees and expenses of counsel for Holder, expenses
of any special audits incident to or required by any such registration and
expenses of complying with the securities or blue sky laws or any jurisdictions
pursuant to Section 13(d), shall be paid by the Corporation, except that:
- 5 -
<PAGE> 6
(a) In the case of the exercise of the demand
registration rights under Section 9 herein, Holder shall bear all expenses of
the offering in excess of the first $50,000. All such expenses borne by Holder
shall be payable to the Corporation out of offering proceeds.
(b) All such expenses in connection with any amendment or
supplement to the registration statement or prospectus filed more than 24
months after the effective date of such registration statement because Holder
has not effected the disposition of the securities requested to be registered
shall be paid by Holder; and
(c) The Corporation shall not be liable for any discounts
or commissions to any underwriter or any fees or disbursements of counsel for
any underwriter in respect of the securities sold by Holder; and
(d) Notwithstanding anything herein contained to the
contrary, in the event that the Corporation incurs expenses as part of
registration of shares under Section 9, and such offering is not concluded,
then the Corporation shall bear all expenses associated with such proposed
offering, unless the failure of such offering is the result of, or directly
attributable to, an action or inaction by Holder, in which event Holder shall
repay the Corporation for all expenses incurred in the process of such proposed
offering.
It shall be a condition precedent to the obligation of the Corporation
to take any action pursuant to this Warrant Certificate in respect of the
securities which are to be registered at the request of Holder that (i) the
Corporation shall have received an undertaking satisfactory to it from Holder
to pay all expenses to be incurred by or for the account of and required to be
paid by Holder, and (ii) Holder shall furnish to the Corporation such
information regarding the securities held by Holder and the intended method of
disposition thereof as the Corporation shall reasonably request and as shall be
required in connection with the action take by the Corporation.
13. INDEMNIFICATION.
(a) In the event of any registration of any of its
securities under the Act pursuant to this Warrant Certificate, the Corporation
shall indemnify and hold harmless the holder of such securities, such holder's
directors and officers, and each other person (including each underwriter) who
participated in the offering of such securities and each other person, if any,
who controls such holder or such participating person within the meaning of the
Act, against any losses, claims, damages or liabilities, joint or several, to
which such holder or any such director or officer or participating person or
controlling person may become subject under the Act or any other statute or at
common law, in so far as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any alleged
untrue statement of any material fact contained, on the effective date thereof,
in any Registration Statement under which such securities were registered under
the Act, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or (ii) any alleged omission to state
therein a material fact required to be stated therein or necessary to
- 6 -
<PAGE> 7
make the statements therein not misleading, and shall reimburse such holder or
such director, officer or participating person or controlling person for any
legal or any other expenses reasonably incurred by such holder or such
director, officer or participating person or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Corporation shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon any alleged untrue statement or alleged omission made in such
registration statement, preliminary prospectus, prospectus, or amendment or
supplement in reliance upon and in conformity with written information
furnished to the Corporation by such holder specifically for use therein. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such director, officer or participating
person or controlling person, and shall survive the transfer of such securities
by such holder.
(b) Holder, by acceptance thereof, agrees to indemnify
and hold harmless the Corporation, its directors and officers and each other
person, if any, who controls the Corporation against any losses, claims,
damages or liabilities, joint or several, to which the Corporation or any such
director or other or any such person may become subject under the Act or any
other statute or at common law, in so far as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement of any material fact which was based upon information in
writing provided to the Corporation by Holder on the effective date thereof, in
any registration statement under which securities were registered under the Act
at the request of such holder, any preliminary prospectus or final prospectus
contained therein, or any amendment thereto.
14. NOTICES. Each notice relating to this Warrant Certificate
shall be in writing and delivered in person or by hand delivery or certified
mail, return receipt requested, postage prepaid, as follows:
If to Holder: ____________________________
____________________________
____________________________
____________________________
If to the Corporation: Terrano Corporation
101 Southhall Lane, Suite 210
Maitland, Florida 32751
Attn: Mitchel J. Laskey, President
or to such other address as either party may have designated by written notice
to the other.
15. BENEFITS OF WARRANT CERTIFICATE. This Warrant Certificate
shall inure to the benefit and shall be binding upon the successors, heirs,
legal representatives and permitted assigns of the parties hereto.
- 7 -
<PAGE> 8
16. SEVERABILITY. In the event that any one or more provisions of
this Warrant Certificate shall be deemed to be illegal or unenforceable such
illegality or unenforceability shall not affect the validity and enforceability
of the remaining legal and enforceable provisions hereof, which shall be
construed as if such illegal or unenforceable provision or provisions had not
been inserted.
17. GOVERNING LAW; VENUE. This Warrant Certificate will be
construed and governed in accordance with the laws of the State of Florida.
The proper venue with respect to any dispute arising hereunder or connected
herewith shall be Orange County, Florida.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of
the day and year first above written.
TERRANO CORPORATION, a Nebraska corporation
By:_________________________________________
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EXHIBIT 4.08
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
December 4, 1995
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
made as of the 4th day of December, 1995, by and among Dynamic Healthcare
Technologies, Inc., a Nebraska corporation (the "Company"), and the investors
set forth on Schedule A (each an "Investor", collectively the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series B Preferred Stock.
(a) The Certificate of Designation of the Series
A Cumulative Convertible Preferred Stock and the Series B Convertible Preferred
Stock (the "Certificate") in the form attached hereto as Exhibit A amending the
Company's Amended and Restated Articles of Incorporation, as amended (the
"Charter"), has been filed with the Secretary of State of the State of
Nebraska.
(b) Subject to the terms and conditions of this
Agreement, each Investor severally agrees to purchase at the Closing (as
defined below), and the Company agrees to sell and issue to each Investor at
the Closing, that number of shares of the Company's Series B Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock"), set forth opposite such Investor's name on the Schedule of Investors
attached hereto as Schedule A, at a purchase price of $.80 per share.
1.2 Closing. The purchase and sale of the Series B
Preferred Stock shall take place at 10:00 a.m. on the date of the execution
and delivery of this Agreement by all the parties hereto at the offices of
Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York
10022, or at such other time and place as shall be mutually agreed upon between
the Investors and the Company (the "Closing"). At the Closing, the Company
shall deliver to each Investor a certificate representing the number of shares
of the Series B Preferred Stock that such Investor is purchasing against
receipt of a check subject to collection or a wire transfer of the purchase
price to an account designated by the Company not less than two (2) business
days prior to the date of the Closing.
2. Representations and Warranties of the Company. For purposes
of Subsections 2.6 through 2.26 and Section 6, references to the "Company"
shall include the Company and any subsidiaries of the Company. The Company
hereby represents and warrants to each Investor that, except for the exceptions
set forth on the Schedule of Exceptions attached hereto as Exhibit B and
furnished to each Investor, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
<PAGE> 3
2.1 Organization, Good Standing, Qualification and
Corporate Power.
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nebraska
and has all requisite corporate power and authority to carry on its business as
now conducted and as proposed to be conducted. The Company has applied for
qualification to transact business as a foreign corporation in each
jurisdiction where it is required to so qualify except for such jurisdictions
where the failure to so qualify would not have a Material Adverse Effect (as
defined in Section 7 below). True and correct copies of the Company's Charter
and Bylaws as in effect on the date of the Closing have been provided to each
Investor.
(b) The Company has all requisite legal and
corporate power to execute and deliver this Agreement, the Warrant (defined
below) to be issued to The Argentum Group and the other Basic Documents (as
defined in Section 7 below), and to issue and sell the Series B Preferred Stock
hereunder, to issue the Warrant and the Reserved Shares (as defined in Section
7 hereof) and to carry out and perform its obligations under the terms of this
Agreement and the other Basic Documents.
2.2 Capitalization and Voting Rights. The authorized
capital of the Company consists immediately prior to the Closing, of:
(a) Preferred Stock. 10,000,000 shares of Preferred Stock,
par value $.01 per share (the "Preferred Stock"), of which (i) 1,055,938 shares
have been designated Series A Preferred Stock and 968,750 of such shares are
issued and outstanding as of the date hereof, and (ii) 4,384,375 shares have
been designated Series B Preferred Stock and 3,750,000 of such shares are
issued and outstanding as of the consummation of the transactions contemplated
hereby. The rights, privileges and preferences of the Series A Preferred Stock
of the Company (the "Series A Preferred Stock") and the Series B Preferred
Stock are as stated in the Charter. The designation, issuance, sale and
delivery of the Series B Preferred Stock, and the reservation, issuance, sale
and delivery of the Reserved Shares, have been duly authorized by all requisite
corporation action of the Company, and when issued, sold and delivered in
accordance with this Agreement, the Series B Preferred Stock and Reserved
Shares will be validly issued and outstanding, fully paid and nonassessable and
not subject to preemptive or any other similar rights of the shareholders of
the Company or others. The designations, powers, preferences and rights and
the qualifications, limitations and restrictions of the Series B Preferred
Stock are as stated in the Certificate and the Bylaws.
(b) Common Stock. 20,000,000 shares of Common Stock, par
value $.01 per share (the "Common Stock"), of which 6,589,071 shares are issued
and outstanding.
2.3 Subsidiaries. Except as listed on Exhibit B hereto,
the Company does not presently own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity.
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<PAGE> 4
2.4 Authorization. The Basic Documents have been duly
authorized, executed and delivered by the Company and constitute the legal,
valid and binding obligation of the Company, enforceable in accordance with
their respective terms.
2.5 Valid Issuance of Preferred and Common Stock, Etc.
(a) The issuance, sale and delivery of the Series
B Preferred Stock which is being purchased by the Investors hereunder and the
Warrant and the issuance and reservation for issuance of the Reserved Shares
have been duly authorized by all required corporate action on the part of the
Company, and when issued, sold, and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly and validly issued,
fully paid and non-assessable and, based in part upon the representations and
warranties of the Investors in this Agreement, the Series B Preferred Stock
shall have been duly registered pursuant to the Securities Act of 1933, as
amended (the "Securities Act") and applicable state blue sky law. The Reserved
Shares have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Certificate and the Warrant, shall be duly and
validly issued, fully paid, and non-assessable. The Series B Preferred Stock
issued hereunder (and the Reserved Shares upon issuance) will be free and clear
from any liens or encumbrances other than those created by, or imposed upon,
the holders thereof through no action of the Company. The Series B Preferred
Stock and the Reserved Shares, upon issuance, will be free of statutory
preemptive rights.
(b) The outstanding shares of Common Stock are
all duly and validly authorized and issued, fully paid, and non-assessable, and
were issued in compliance with all applicable federal and state securities
laws.
(c) Except for (i) the conversion privileges of the
Series A Preferred Stock and the Series B Preferred Stock and the Company's 9%
Subordinated Convertible Notes, (ii) an aggregate of 210,000 shares of Common
Stock issuable upon exercise of the Warrant, (iii) options and/or warrants for
the purchase of 1,725,691 shares of Common Stock and (iv) as otherwise set
forth in Exhibit B, there are not outstanding any options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company
is not a party or subject to any agreement or understanding, and, to the
Company's knowledge, there is no agreement or understanding between any persons
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of the Company.
2.6 Financial Statements.
(a) The Company has delivered to each Investor
the audited balance sheet for the year ended December 31, 1994 (as restated)
and unaudited balance sheet of the Company as of September 30, 1995, and
statements of operations and stockholders' equity as of, and for the twelve and
nine months ended, December 31, 1994 (as restated) and September 30, 1995,
respectively (collectively, the "Financial Statements"). The Financial
Statements are
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<PAGE> 5
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated. The Financial Statements
fairly present the financial condition and results of operations of the Company
as of the dates and during the periods indicated therein, subject to normal
year end audit adjustments which are neither individually nor in the aggregate
expected to be material. Except as reflected in the Financial Statements or
disclosed in Exhibit B, the Company has no material debts, liabilities,
guarantees or other obligations, whether accrued, absolute, contingent or
otherwise.
(b) Since September 30, 1995 (i) there has been
no material adverse change in the business, condition (financial or otherwise),
operations, properties or prospects of the Company and (ii) no dividends or
other distributions have been paid or made upon any shares of capital stock of
the Company nor have any shares of capital stock of the Company been redeemed,
retired, purchased or acquired for value by the Company.
(c) The Basic Documents, the Memorandum (as
defined in Section 7) and any certificate or written statement delivered by
Company pursuant to any Basic Document or the Memorandum do not contain any
untrue statement of a material fact or omits to state a material fact (known to
the Company) necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. The
Company has furnished to the Investors certain consolidated financial
information concerning the Company and each of its subsidiaries, including
estimates and projections of the Company's and each of its subsidiaries' result
of operations and financial position for and as at the end of certain future
periods. There are no statements or conclusions therein which, when taken as a
whole, in light of the circumstances under which they are or were made, to the
knowledge and belief of the Company at the time provided, are based upon or
include materially misleading information or fail to take into account material
information regarding the matters covered therein which could be expected to
have a Material Adverse Effect. The Company has no reason to believe that any
of the statements or conclusions included therein are not true and correct in
all material respects as at the time provided. It is understood that no
representation or warranty is made by the Company concerning any predictions,
forecasts, estimates, or any other analyses prepared by or on its or its
subsidiaries' behalf, which are dependent on future events, except that such
predictions, forecasts, estimates, and analyses were prepared with reasonable
care including, but not limited to, the use of reasonable assumptions.
2.7 Changes. Since September 30, 1995, except as
disclosed in Exhibit B, there has not been:
(a) any change in the assets, liabilities,
condition (financial or otherwise), affairs, earnings, business, operations, or
prospects of the Company from that reflected in the balance sheet as at
September 30, 1995, referred to in Section 2.6 above, except for changes in the
ordinary course of business which have not been, either individually or in the
aggregate, materially adverse;
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<PAGE> 6
(b) except as noted on Exhibit B hereto, any
change in the liabilities or obligations of the Company, contingent or
otherwise, whether due or to become due, whether by way of guaranty,
endorsement, indemnity, warranty, or otherwise, except current liabilities
incurred in the ordinary course of business, none of which materially and
adversely affects the business, prospects, condition, affairs, properties or
assets of the Company;
(c) any damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting the properties,
operation or business of the Company;
(d) any waiver by the Company of a valuable right
or of a material debt owed to it;
(e) any loans made by the Company to its
employees, officers, or directors other than advances of expenses made in the
ordinary course of business;
(f) any declaration or payment of any dividend or
other distribution of the assets of the Company or any direct or indirect
redemption, purchase or acquisition of any securities of the Company;
(g) any labor organization activity or organized
labor trouble;
(h) any sale, transfer, or lease of any of the
Company's assets except in the ordinary course of business or any mortgage or
pledge of or lien imposed upon any of the Company's assets;
(i) to the best of the Company's knowledge, any
other event or condition of any character which has materially and adversely
affected the business, prospects, condition, affairs, operations, properties or
assets of the Company;
(j) any increase in compensation of any of its
existing officers, or the rate of pay of its employees as a group, except as
part of regular compensation increases in the ordinary course of business;
(k) any resignation or termination of employment
of any officer or key employee of the Company;
(l) any change in the accounting methods or
practices followed by the Company;
(m) any issuance of any stock, bonds, or other
securities of the Company or options, warrants, or rights or agreements or
commitments to purchase or issue such securities or grant such options,
warrants or rights, except for those issuances contemplated or permitted by the
Basic Documents; or
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<PAGE> 7
(n) any agreement by the Company to do or enter
into any of the foregoing.
2.8 Governmental Consents. Except as listed on Exhibit
B, no consent, approval, order, or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state,
local or provincial governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated
by the Basic Documents. Except for the filing of any notice subsequent to the
Closing that may be required under applicable Federal and/or state securities
laws (which, if required, shall be filed on a timely basis as may be so
required), no consent, approval or authorization of, or declaration to, or
filing with, any Person (governmental or private) is required for the valid
authorization, execution, delivery and performance by the Company of the Basic
Documents or for the valid authorization, designation, issuance, sale and
delivery of the Series B Preferred Stock or the Warrant or for the valid
authorization, reservation, issuance, sale and delivery of the Reserved Shares.
2.9 Litigation. Except as described on Exhibit B
hereto,(i) there is no action, suit, proceeding, or investigation pending or to
the Company's knowledge currently threatened against the Company (nor, to the
Company's knowledge, is there any reasonable basis therefor) which questions
the validity of the Basic Documents or the right of the Company to enter into
such agreements, or to consummate the transactions contemplated thereby, or
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs, or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, including, without limitation, actions pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers; (ii) the Company is not a party or subject to
the provisions of any order, writ, injunction, judgment, or decree of any court
or government agency or instrumentality; (iii) there is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate; and (iv) as of the Closing, there shall be no
action, suit, proceeding or, to the best of the Company's knowledge or belief,
investigation pending or to the best of the Company's knowledge or belief
threatened against or affecting the Company which questions the validity or the
enforceability of this Agreement, or the other Basic Documents.
2.10 Patents and Trademarks. The Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights, and processes
necessary for its business as now conducted without any conflict with or
infringement of the rights of others. The Schedule of Exceptions, attached
hereto as Exhibit B, contains a complete list of patents and patent
applications of the Company. Except as shown on Exhibit B, there are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses, or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights, and processes of any other person or entity. The Company has not
received any communications or claims alleging that the
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<PAGE> 8
Company has violated or, by conducting its business as proposed, would violate,
any of the patents, trademarks, service marks, trade names, copyrights, or
trade secrets or other proprietary rights of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's
best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of any Basic Document, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees
is now obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.
2.11 Compliance with Other Instruments. Except as noted
in Exhibit B hereto, the Company is not in violation or default of any
provisions of its Charter or Bylaws or of any instrument, judgment, order,
writ, decree, or contract to which it is a party or by which it is bound or, to
its knowledge, of any provision of federal or state statute, rule or
regulation, license, or permit applicable to the Company, the violation or
default of which would have a Material Adverse Effect. The execution,
delivery, and performance of the Basic Documents and the consummation of the
transactions contemplated thereby will not result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree, or contract or an event which results in the creation of
any lien, charge, or encumbrance upon any assets of the Company or trigger any
anti-dilution provisions, provisions for the right to purchase stock, or pre-
emptive rights in any agreements to which the Company is a party. The Company
does not have any knowledge of any termination or material breach or
anticipated termination or material breach by the other parties to any material
contract or commitment to which it is a party or to which any of its assets is
subject. To the Company's knowledge, there are no warranty claims or other
uninsured claims against the Company under completed contracts which might
involve a material monetary liability which is not reserved against in the
Financial Statements.
2.12 Agreements; Action.
(a) Except as listed on Exhibit B hereto and
except for agreements expressly contemplated by the Basic Documents, there are
no agreements, understandings, or proposed transactions between the Company and
any of its officers, directors, affiliates, or any affiliate thereof.
(b) Except as listed on Exhibit B hereto, there
are no agreements, understandings, instruments, contracts, proposed
transactions to which the Company is a party or by which it is bound which (i)
involve obligations (contingent or otherwise) of, or payments to the Company in
excess of, $50,000, (ii) are material to the conduct and operations of the
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Company's business or properties, including, without limitation, the license of
any patent, copyright, trade secret, or other proprietary rights to or from the
Company or provisions restricting or affecting the development, manufacture, or
distribution of the Company's products or services, (iii) involve any
employment or consulting arrangement, whether written or oral, between the
Company and any Person or (iv) provide for the grant to any person of a right
to cause the Company to register any securities of the Company for sale.
(c) Except as listed on Exhibit B hereto, the
Company has not (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed or any other liabilities
individually in excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of $100,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged, or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
(d) For the purposes of subsections (b) and (c)
above, all indebtedness, liabilities, agreements, understandings, instruments,
contracts, and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
(e) Other than the Basic Documents, to the extent
such agreements can be deemed to have a Material Adverse Effect, the Company is
not a party to any indenture, loan or credit agreement or any lease or other
agreement or instrument or subject to any charter or corporate restriction
which has a Material Adverse Effect on the Company, or limits or restricts the
ability of the Company to carry out its obligations under the Basic Documents.
The Company is not in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument material to its business to which it is a party.
2.13 Disclosure. The Company has fully provided each
Investor with a copy of the Memorandum and of all information which each
Investor has requested for deciding whether to purchase the Series B Preferred
Stock sold hereunder and all information which the Company believes is
reasonably necessary to enable each Investor to make such decision. Neither
this Agreement, any other Basic Document, the Memorandum nor any other
statements or certificates made or delivered by the Company in connection
herewith, contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not misleading
in light of the circumstances in which they were made.
2.14 Title to Property and Assets. The Company has good
and marketable title to its property and assets free and clear of all
mortgages, liens, loans, and encumbrances, except as disclosed in Exhibit B or
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets.
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With respect to the property and assets it leases, the Company is in compliance
with such leases and, to its knowledge, holds a valid leasehold interest free
of any liens, claims, or encumbrances. All of the Company's properties and
assets are, in all material respects, in good operating and usable condition,
subject to normal wear and tear.
2.15 Labor Agreements and Actions; Employee Benefits. The
Company is not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment, or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives, or agents of the Company. There is no strike
or other labor dispute involving the Company pending, or, to the knowledge of
the Company, threatened, which could have a Material Adverse Effect, nor is the
Company aware of any labor organization activity involving its employees.
Except as listed on Exhibit B hereto, the Company does not have any employee
benefit plans presently in force with respect to profit-sharing, pensions,
stock options or other stock benefits.
2.16 Insurance. The Company has in full force and effect
fire, casualty, and liability insurance policies, with extended coverage, in
such amounts and with such coverage as are comparable to corporations similar
in size and engaged in a business similar to the Company.
2.17 Tax Matters. The Company (i) has timely filed all
tax returns that are required to have been filed by it with all appropriate
governmental agencies (and all such returns are true and correct and fairly
reflect its operations for tax purposes); and (ii) has timely paid all taxes
owed or assessments by it (other than taxes the validity of which are being
contested in good faith by appropriate proceedings). The assessment of any
additional taxes for periods for which returns have been filed is not expected
to exceed the recorded liability therefor and, to the Company's knowledge,
there are no material unresolved questions or claims concerning the Company's
tax liability. To the best of the Company's knowledge and belief, the
Company's tax returns have not been reviewed or audited by any taxing
authority. There is no pending dispute with any taxing authority relating to
any of said returns which, if determined adversely to the Company, would result
in the assertion by any taxing authority of any valid deficiency in a material
amount for taxes.
2.18 Minute Books. The minute books of the Company
contain a complete and accurate record of all meetings of directors and
stockholders since the date of incorporation of the Company and all actions by
written consent.
2.19 U.S. Real Property Holding Corporation. The Company
is not now and has never been a "United States Real Property Holding
Corporation," as defined in Section 897(c)(2) of the Internal Revenue Code of
1986, as amended (the "Code"), and Section 1.897-2(b) of the Regulations
promulgated by the Internal Revenue Service.
2.20 Foreign Corrupt Practices Act. The Company has not
made, offered or agreed to offer anything of value to any government official,
political party or candidate for
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<PAGE> 11
political office (or any person that the Company knows or has reason to know
will offer anything of value to any such person) in violation of the Foreign
Corrupt Practices Act of 1977, as amended.
2.21 Compliance with FDA Regulations. Except as provided
in Exhibit B hereto, to the best of the Company's knowledge, the Company's
business as presently conducted, and as proposed to be conducted, complies with
all applicable regulations promulgated by the United States Food and Drug
Administration.
2.22 Regulations G, T and X. The Company does not own or
have any present intention of acquiring any "margin security" within the
meaning of Regulation G (12 C.F.R. Part 207) of the Board of Governors of the
Federal Reserve System (herein called "margin security"). None of the proceeds
of the Series B Preferred Stock will be used, directly or indirectly, by the
Company for the purpose of purchasing or carrying, or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry, any margin security or for any purpose which might cause any Basic
Document and the transactions contemplated thereby to violate Regulation G,
Regulation T, Regulation X, or any other regulation of the Board of Governors
of the Federal Reserve System or the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
2.23 Governmental Regulation. Neither the Company nor any
of the Company's subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce
Act, or the Investment Company Act of 1940, or to any United States of America,
state or local statute or regulation limiting its or their ability to incur
Debt.
2.24 Customers and Suppliers. Except as disclosed in
Exhibit B hereto, no customer or supplier of the Company, the loss of which
would have a Material Adverse Effect on the Company, has notified the Company
of its intention to terminate its relationship with the Company.
2.25 Existing Defaults. Neither the Company nor any of
the Company's subsidiaries is in default under any term of any mortgage,
indenture, deed of trust, or other agreement to which it is a party or by which
it or any of the assets owned by it may be bound that is disclosed in Exhibit B
pursuant to Section 2.12(b). Neither the Company nor any of the Company's
subsidiaries is in violation of any law, ordinance, rule, or regulation to
which it or any of its or their assets is subject.
2.26 Reports. The Company has furnished an accurate and
complete copy of each registration statement, report and proxy statement filed
by the Company with the Securities and Exchange Commission (the "Commission")
since December 31, 1992 (collectively, the "SEC Reports"). Except as listed on
Exhibit B hereto, to the best of the Company's knowledge and belief, none of
such documents, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the
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statements therein, in light of the circumstances under which they were made,
not misleading. Since December 31, 1992, to the best of the Company's
knowledge, the Company has filed all required forms, reports and documents with
the Commission required to be filed by it pursuant to the Securities Act and
the Exchange Act, all of which complied at the time of filing in all material
respects with all applicable requirements of the Securities Act and the
Exchange Act.
3. Representations and Warranties of the Investors. Each
Investor hereby represents and warrants to the Company as to such Investor
that:
3.1 Authorization. This Agreement constitute its valid
and legally binding obligation, enforceable against the Investor in accordance
with its terms. The Investor represents that it has full power and authority
to enter into this Agreement.
3.2 Purchase Entirely for Own Account. The Series B
Preferred Stock to be received by the Investor pursuant to the terms hereof
will be acquired for investment for the Investor's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that the Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, the Investor further represents and warrants that the Investor does
not have any contract, undertaking, agreement, or arrangement with any person
to sell, transfer, or grant participations to such person or to any third
person, with respect to the Series B Preferred Stock.
3.3 Investor Address, Access to Information, Experience,
Etc.
(a) The address set forth on the signature pages of
this Agreement is the Investor's true and correct business, residence or
domicile address. The Investor has received and read and is familiar with this
Agreement and the Memorandum. The Investor has had an opportunity to ask
questions of and receive answers from representatives of the Company concerning
the terms and conditions of this investment. The Investor has substantial
experience in evaluating non-liquid investments such as the Series B Preferred
Stock and is capable of evaluating the merits and risks of an investment in the
Company. Except in the cases of Benjamin M. Fishman and Robert Grossman, the
Investor is an "accredited investor" as that term is defined in Rule 501 of
Regulation D promulgated under the Securities Act.
(b) The Investor acknowledges that it has had an
opportunity to evaluate all information regarding the Company as it has deemed
necessary or desirable in connection with the transactions contemplated by this
Agreement, has independently evaluated the transactions contemplated by this
Agreement and has reached its own decision to enter into this Agreement. The
Investor acknowledges that it has relied solely upon the Company to disclose
any and all information material to the Investor's decision to enter into this
Agreement and is not relying upon any statements made by The Argentum Group
regarding the Company or the transactions contemplated by this Agreement.
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3.4 Restricted Securities. The Investor understands that
the shares of Series B Preferred Stock it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such securities
may be resold without registration under the Securities Act only in certain
limited circumstances. In this regard, the Investor represents that it is
familiar with Rule 144 promulgated under the Securities Act ("Rule 144"), as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.
3.5 Legends. It is understood that the certificates
evidencing the Series B Preferred Stock (and the Common Stock issuable upon
conversion thereof) may bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT."
The legend referred to above shall be removed by the Company
from any certificate at such time as the holder of the shares represented by
the certificate delivers an opinion of counsel reasonably satisfactory to the
Company to the effect that such legend is not required in order to establish
compliance with any provisions of the Securities Act, or at such time as the
holder of such shares satisfies the requirements of Rule 144(k) under the
Securities Act, provided that the Company has received from the holder a
written representation that (i) such holder is not an affiliate of the Company
and has not been an affiliate of the Company during the preceding three (3)
months, (ii) such holder has beneficially owned the shares represented by the
certificate for a period of at least three (3) years, and (iii) such holder
otherwise satisfies the requirements of Rule 144(k) as then in effect with
respect to such shares.
4. Conditions of each Investor's Obligations at Closing. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against an Investor
unless such Investor has consented in writing thereto:
4.1 Representations and Warranties. The representations
and warranties of the Company contained in Section 2 shall be true and correct
on and as of the date of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and
complied with all agreements, obligations, and conditions contained in the
Basic Documents that are required to be performed or complied with by it on or
before the Closing.
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4.3 Compliance Certificate. The President or Treasurer
of the Company shall deliver to the Investors at the Closing a certificate
certifying that the relevant conditions specified in Sections 4.1 and 4.2 have
been fulfilled.
4.4 Secretary's Certificate. The Secretary of the
Company shall deliver to the Investors at the Closing a certificate certifying:
(i) that attached thereto is a true and complete copy of the Bylaws of the
Company as then in effect; (ii) that attached thereto is a true and complete
copy of all resolutions adopted by the Board of Directors and the stockholders
of the Company authorizing the transactions contemplated by the Basic
Documents; (iii) that the Company's Charter has not been further amended since
the filing of the Certificate; (iv) to the incumbency and specimen signatures
of each officer of the Company executing the Basic Documents and the other
agreements and certificates contemplated thereby.
4.5 Qualifications. The Company shall have obtained all
necessary Blue Sky law permits and qualifications, or secured exemptions
therefrom, required by any state for the offer and sale of the Series B
Preferred Stock hereunder and the Reserved Shares.
4.6 Opinion of Company Counsel. Each Investor shall have
received (i) from Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo, P.A.,
counsel for the Company, an opinion, dated as of the Closing, in the form
attached hereto as Exhibit C-1 and (ii) from Harding & Ogborn, Nebraska counsel
to the Company, an opinion, dated as of the Closing, in the form attached
hereto as Exhibit C-1.
4.7 Consents and Waivers. The Company shall have
obtained any and all consents and waivers necessary or appropriate for
consummation of the transactions contemplated by the Basic Documents.
4.8 Fees. The Company shall have paid to The Argentum
Group a financial advisory fee in the sum of $175,000 plus out-of-pocket
expenses.
4.9 Stock Certificates. Each Investor shall have
received a stock certificate dated the date of the Closing for the number of
shares of Series B Preferred Stock set forth opposite such Investor's name on
Schedule A hereto.
4.10 Information. Each Investor shall have received all
information reasonably requested by the Investors relating to the business of
the Company, including all operational, financial, legal, technological and
other areas, including but not limited to the strategic relationship with IBM,
status of the Commission investigation and customer satisfaction with the
Company's products and services.
4.11 Capitalization. Evidence in form and substance
satisfactory to each Investor that immediately prior to the issuance and sale
of the Series B Preferred Stock contemplated hereby demonstrating that the
Company's total issued and outstanding and issuable shares of capital stock, on
a fully diluted basis, shall consist of 6,589,071 shares of Common Stock or
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equivalents, par value $0.01 per share; 968,750 shares of Series A Preferred
Stock, par value $0.01 per share; and options and/or warrants to purchase
1,725,691 shares of Common Stock including: (i) an aggregate of 312,800 issued
pursuant to 1983 and 1993 employee Stock Option Plans and Director & Officer
Option plans; (ii) 35,000 Underwriter's Warrants; (iii) Warrants issued to the
holders of the Bridge Note Debt to purchase 155,000 shares of Common Stock at
an exercise price of $1.00 per share; (iv) options issued to the CEO and
President of the Company to purchase 500,000 shares of Common Stock at an
exercise price of $1.00 per share; and (v) options to purchase no more than
722,891 shares of Common Stock pursuant to other option plan(s).
4.12 Bank Debt. The Company shall have received a
commitment letter from First Union Bank of Florida (the "Bank") in form and
substance satisfactory to the Investors providing for the refinancing of the
Bank Debt (as defined below) and such other terms and provisions which shall be
acceptable to each Investor.
4.13 Lock-Up Agreement. Each of Mitchel Laskey, and David
Pomerance shall have delivered a Lock-up Agreement in favor of the Investors
(the "Lock-Up Agreement") in the form of Exhibit D.
4.14 No Material and Adverse Change. Each Investor shall
have received a certificate signed by the President and Chief Financial Officer
of the Company stating that no material adverse change has occurred since
September 30, 1995 in the assets, condition (financial or otherwise), affairs,
business, operations, or prospects of the Company.
4.15 Other Fees and Expenses. The Company shall have paid
to counsel to the Investors all fees and expenses payable pursuant to Section
10.11 hereof.
4.16 Warrants. The Company shall have sold to The
Argentum Group the Warrant, in form and substance satisfactory to The Argentum
Group, duly executed by the Company, and evidence that the Company shall have
reserved for issuance an adequate number of shares of Common Stock to be issued
upon exercise of the Warrant.
4.17 Indemnity Agreement. The Company shall have
delivered to The Argentum Group an indemnification agreement in form and
substance satisfactory to The Argentum Group.
4.18 Bridge Notes. Each Investor shall have received
evidence that the holders of the Bridge Note Debt (as defined in Section 7)
shall have converted their notes evidencing the Bridge Note Debt into Series A
Preferred Stock of the Company, upon the terms and conditions acceptable to
each Investor.
4.19 Proxies. Each of Michael Laskey and David Pomerance
shall have delivered voting proxies in the form of Exhibit E (the "Proxies").
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4.20 SBA. The Company shall have provided each Investor
that is a Small Business Investment Company with such documentation and
certifications as shall be necessary to comply with the rules and regulations
of the Small Business Administration, including appropriate size status
declarations and assurance of compliance declarations.
4.21 All Proceedings to be Satisfactory. All corporate
and other proceedings to be taken by the Company in connection with the
transactions contemplated by the Basic Documents and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Investors
and their counsel, and the Investors and their counsel shall have received all
such counterpart originals or certified or other copies of such documents as
they reasonably may request.
5. Affirmative Covenants. The Company covenants and agrees that
so long as any shares of the Series B Preferred Stock shall remain outstanding:
5.1 Financial Statements. The Company will furnish or
cause to be furnished to each Investor and subsequent holders of the Series B
Preferred Stock:
(a) as soon as reasonably possible, and in any event
within 45 days after the end of each of the first three fiscal quarters of each
fiscal year of the Company, the unaudited consolidated and statements of
operations and retained earnings and cash flow of the Company for such quarter,
all in reasonable detail, prepared in accordance with GAAP, and certified to be
complete and correct (subject to year-end adjustments) by the chief financial
officer of the Company;
(b) as soon as reasonably possible, and in any event
within 90 days after the end of each fiscal year of the Company, the audited
consolidated balance sheet of the Company as at the end of such fiscal year,
and audited consolidated statements of operations and retained earnings and
cash flow of the Company for such fiscal year, all in reasonable detail,
accompanied by consolidating schedules, and prepared in accordance with GAAP,
and accompanied by the unqualified report thereon of KPMG Peat Marwick, LLP,
certified public accountants or such other firm of nationally recognized
independent certified public accountants as shall be reasonably satisfactory to
the holders of a majority of the Series B Preferred Stock then outstanding;
(c) promptly after the commencement thereof or threatened
commencement of action, notice of all actions, suits, investigations, and
proceedings before any court or governmental department, arbitration panel,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Company or any of its subsidiaries other than ordinary and
routine litigation covered under the limits of existing insurance policies;
(d) promptly after the sending or filing thereof, copies
of all proxy statements, financial statements and reports which the Company
sends to its stockholders, and copies of all regular, periodic and special
reports, and all registration statements, if any, which the Company may file
with the Commission or any governmental authority which may be substituted
therefor
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<PAGE> 17
or with any national securities exchange (including, without limitation,
reports relating to the Commission's investigation of the Company's revenue
recognition practice);
(e) minutes of meetings of the Board of Directors of the
Company and copies of any press releases issued by the Company;
(f) promptly after the end of each fiscal year of the
Company consolidating (based upon business segments) plan and financial
forecasts for the forthcoming year, as customarily prepared by the management
of the Company for internal use and any other similar reports, if any,
customarily prepared by the management of the Company;
(g) promptly, copies of all amendments to the Charter or
Bylaws of the Company; and
(h) such other information regarding the business,
affairs and condition of the Company, as Investors may from time to time
reasonably request.
5.2 Legal Existence of the Company and its Subsidiaries.
(a) The Company will maintain its existence as a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation.
(b) The Company will conduct its business in compliance
in all material respects with all permits and licenses issued by, and all
statutes, rules, regulations and orders of, and all restrictions imposed by,
all governmental authorities, domestic or foreign, federal or state, applicable
to the conduct of business and the ownership of its or their property
(including, without limitation, applicable statutes, rules, regulations, orders
and restrictions relating to environmental, safety and other similar standards
or controls or promulgated by the United States Food and Drug Administration),
the noncompliance with which might have, either in any case or in the
aggregate, a Material Adverse Effect.
(c) The Company will conduct its business in compliance
in all material respects with all licenses, agreements and contracts to which
it is a party, the noncompliance with which might have, either in any case or
in the aggregate, a Material Adverse Effect.
(d) The Company will keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all of its financial transactions.
(e) The Company will maintain, keep, and preserve all of
its material properties (tangible and intangible), necessary in the proper
conduct of its business in good working order and condition, ordinary wear and
tear expected.
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(f) The Company will maintain or cause to be maintained,
with financially sound and reputable insurers, insurance with respect to its
assets and businesses against loss or damage of the kinds customarily insured
against by corporations of established reputation similar in size and engaged
in a business similar to the Company of such types and in such amounts and with
such deductibles as are customarily carried by such other corporations.
5.3 Reservation of Shares. The Company shall at all
times duly reserve for issuance the Reserved Shares and any other shares of the
Company's capital stock issuable pursuant to the terms of the Certificate. The
Company shall comply with the terms and conditions of the Series B Preferred
Stock as set forth in the Certificate.
5.4 Registration. (a) Each time the Company proposes to
file on its behalf and/or on behalf of any of its security holders a
registration statement under the Securities Act on any form (other than a
registration statement on Form S-4 or S-8 or any successor form for securities
to be offered in a transaction of the type referred to in Rule 145 under the
Securities Act or to an employee of the Company pursuant to any employee
benefit plan, respectively) for the general registration of securities to be
sold for cash with respect to its Common Stock, it will give written notice to
each holder of Series B Preferred Stock or Restricted Shares (as defined below)
at least 30 days before the initial filing with the Commission of such
registration statement, which notice shall set forth the intended method of
disposition of the securities proposed to be registered by the Company. The
notice shall offer to include in such filing the aggregate number of shares
issuable upon conversion of Series B Preferred Stock held by each such holder
and shares of Common Stock which may be issued to each such holder pursuant to
Section 2(b) of the Certificate (collectively, "Restricted Shares"), as each
such holder may request.
If a holder of Series B Preferred Stock or Restricted Shares
desires to have Restricted Shares registered under this Section 5.4(a), he
shall advise the Company in writing within 15 days after the date of receipt of
such offer from the Company, setting forth the amount of such Restricted Shares
for which registration is requested. The Company shall thereupon include in
such filing the number of shares of Restricted Shares for which registration is
so requested. In the event that the proposed registration by the Company is,
in whole or in part, an underwritten public offering of securities of the
Company, the Company shall not be required to include any of the Restricted
Shares in such underwriting unless the holder agrees to accept the offering on
the same terms and conditions as the shares of Common Stock, if any, otherwise
being sold through underwriters under such registration; provided, however,
that: (i) if the managing underwriter determines and advises the Company in
writing that the inclusion of all Restricted Shares proposed to be included by
the holders in the underwritten public offering and other issued and
outstanding shares of Common Stock proposed to be included therein by persons
who have contractual rights on the date of this Agreement to require the
Company to register such shares (the "Other Shares") other than the holders of
Series B Preferred Stock or Restricted Shares and the Company would jeopardize
the success of the Company's offering, then the Company shall be required to
include in the offering (in addition to the number of shares to be sold by the
Company) only that number of Restricted Shares that the managing underwriter
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<PAGE> 19
believes will not jeopardize the success of the Company's offering and the
number of Restricted Shares and Other Shares not included in such underwritten
public offering shall be reduced pro rata based upon the number of shares of
Restricted Shares and Other Shares requested by the holders thereof to be
registered in such underwritten public offering; and (ii) in each case all
shares of Common Stock owned by the holders of Series B Preferred Stock and
Restricted Shares which are not included in the underwritten public offering
shall be withheld from the market by such holders for a period, not to exceed
ninety (90) calendar days, which the managing underwriter reasonably determines
as necessary in order to effect the underwritten public offering, except that
such holders shall not be prohibited from selling shares in a private
transaction and may be prohibited from selling shares only following one
underwritten public offering. In the event the Company chooses a registration
form which limits the size offering either in terms of the number of shares or
dollar amount, the Company shall be required to include in the offering (in
addition to the number of shares to be sold by the Company) Restricted Shares
and Other Shares on a pro rata basis which would not exceed such limits.
(b) At any time beginning six-months after the date of
this Agreement, the holders of fifty percent of the outstanding Series B
Preferred Stock and Restricted Shares may request, on two occasions only, that
the Company effect the registration of Restricted Shares under the Securities
Act. Upon receipt of such request (which shall specify the intended method or
methods of disposition), the Company shall promptly notify all holders of
Series B Preferred Stock and Restricted Shares in writing of the receipt of
such request and each such holder may elect (by written notice sent to the
Company within 15 days from the date of such holders' receipt of the
aforementioned Company's notice) to have Restricted Shares included in such
registration thereof pursuant to this Section 5.4. Thereupon the Company
shall, as expeditiously as is possible, use its best efforts to effect the
registration under the Securities Act of all shares of Restricted Shares which
the Company has been so requested to register by such holders for sale, all to
the extent required to permit the disposition (in accordance with the intended
method or methods thereof, as aforesaid).
(c) If the Company is required by the provisions of
Section 5.4(a) or Section 5.4(b) to use its best efforts to effect the
registration of any of its Series B Preferred Stock or its Common Stock under
the Securities Act, the Company will, as expeditiously as possible:
(i) prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for a
period of time required for the disposition of such securities by the holders
thereof;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities covered by such
registration statement until the earlier of such time as all of such securities
have been disposed of in a public offering;
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(iii) furnish to such selling security holders such
number of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents, as such selling security holders may reasonably
request;
(iv) use its best efforts to register or qualify
the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions within the United States and
Puerto Rico as each holder of such securities shall reasonably request
(provided, however, the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any jurisdiction in which it is
not then qualified or to file any general consent to service or process), and
do such other reasonable acts and things as may be required of it to enable
such holder to consummate the disposition in such jurisdiction of the
securities covered by such registration statement; and
(v) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Series B Preferred Stock or Common Stock and as shall be required in connection
with the action taken by the Company.
(d) All expenses incurred in complying with this Section
5.4, including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company and the Investors (provided that the
Company shall only be obligated to pay the fees and expenses of one counsel
representing the Investors), expenses of any special audits incident to or
required by any such registration and expenses (including attorneys' fees) of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 5.4(c)(iv), except to the extent required to be paid by participating
selling security holders by state securities or blue sky laws, shall be paid by
the Company, except that the Company shall not be liable for any fees,
discounts or commissions to any underwriter in respect of the securities sold
by the Investors.
(e) In the event of any registration of any Restricted
Shares under the Securities Act pursuant to this Section 5.4, the Company shall
indemnify and hold harmless the seller of such shares, each underwriter of such
shares, if any, each such broker or any other person, if any, who controls any
of the foregoing persons, within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which any of the
foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement of a material fact
contained in any registration statement under which such Restricted Shares were
registered under the Securities Act, any final prospectus contained therein, or
any amendment or supplement thereto, or any document prepared and/or furnished
by the Company incident to the registration or qualification of any Restricted
Shares, 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 or, with respect to any final prospectus, necessary to
make the statements therein in light of the circumstances under which they were
made, not misleading, or
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any violations by the Company of the Securities Act or state securities or
"blue sky" laws applicable to the Company relating to action or inaction
required of the Company in connection with such registration or qualification
under such state securities or blue sky laws; and shall reimburse such seller,
such underwriter, broker or other person acting on behalf of such seller and
each such controlling person for any legal or any other expenses reasonably
incurred by any of them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
shall not be liable 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 final prospectus or said amendment or supplement or any document incident
to the registration or qualification of any Restricted Shares in reliance upon
and in conformity with written information furnished by the seller of such
shares to the Company for use in preparation thereof. In the event that
Restricted Shares held by an Investor shall be included in any registration
pursuant to this Agreement, such Investor hereby agrees to indemnify and hold
harmless (in the same manner and to the same extent as set forth in this
Section 5.4(e) for the indemnification of such prospective seller and
underwriter by the Company) the Company, each director of the Company, each
officer of the Company who shall sign such registration statement and any
person who controls the Company within the meaning of the Securities Act, with
respect to any untrue statement or omission from such registration statement or
final prospectus contained therein or any amendment or supplement thereto, if
such untrue statement or omission was made in reliance upon and in conformity
with written information furnished by the seller of such shares to the Company
for use in the preparation of such registration statement, final prospectus or
amendment or supplement. Promptly after receipt by an indemnified party of
notice of the commencement of any action involving a claim referred to in this
Section 5.4(e), such indemnified party will, if a claim in respect thereof is
made against any indemnifying party, give written notice to the latter of such
claim and/or the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled
to participate in and assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election to assume
the defense thereof, the indemnifying party shall be responsible for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof, provided that if any indemnified party shall have reasonably
concluded that there may be one or more legal defenses available to such
indemnified party which conflict in any material respect with those available
to the indemnifying party, or that such claim or litigation involves or could
have an effect upon matters beyond the scope of the indemnity agreement
provided in this Section 5.4(e), such indemnifying party shall reimburse such
indemnified party and shall not have the right to assume the defense of such
action on behalf of such indemnified party and such indemnifying party shall
reimburse such indemnified party and any person controlling such indemnified
party for that portion of the fees and expenses of any counsel retained by the
indemnified party which are reasonably related to the matters covered by the
indemnity agreement provided in this Section 5.4(e). The indemnifying party
shall not make any settlement of any claims indemnified against thereunder
without the written consent of the indemnified party or parties, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing provisions
of this Section 5.4, if pursuant
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to an underwritten public offering of the Common Stock, the Company, the
selling shareholders and the underwriters enter into an underwriting or
purchase agreement relating to such offering which contains provisions covering
indemnification among the parties thereto in connection with such offering, the
indemnification provisions of this Section 5.4(e) shall be deemed inoperative
for purposes of such offering.
(f) The Company will, at its expense, obtain and maintain
approval for trading or listing of all Reserved Shares on NASDAQ and any
national securities exchange on which any shares of Common Stock are admitted
for trading or are listed.
(g) Each Investor that elects to have Restricted
Securities included in a registration pursuant to this Section 5.4 agrees to
furnish the Company such information regarding such Investor and such
Investor's intentions in connection with such registration as the Company may
from time to time reasonably request in writing.
5.5 Use of Proceeds. The Company shall use not more than
$500,000 of the proceeds received from the sale and issuance of the Series B
Preferred Stock to retire a portion of the Bank Debt and the balance for
working capital for product development and increased sales and marketing
expenses.
5.6 Right of Inspection. At any reasonable time and from
time to time, upon reasonable notice, the Company shall permit any Investor or
any agent or representative thereof to examine and make copies of and abstracts
from the records and books of account of, and visit the properties of, the
Company and to discuss the affairs, finances and accounts of the Company with
any of its officers and directors and furnish to each Investor, promptly upon
the request of such Investor, copies of such financial and operating data (such
as patents, issued or filed, licensing agreements, research and development
contracts, joint venture agreements, etc.) and other information as reasonably
requested by such Investor. The Company will permit the Investors to inspect,
audit and make copies of the books and records of the Company, to discuss the
business and affairs of the Company with the officers of the Company, and to
inspect any of the properties or assets of the Company upon reasonable notice
to the Company and at such reasonable times as the Investors may from time to
time request. Upon three business days' prior notice to the Company, the
Investors shall have the right to confer in their discretion with the
independent certified public accountants of the Company at any time during
normal business hours upon any matter involving the financial condition of the
Company and such accountants are hereby irrevocably authorized to fully discuss
with and disclose to the Investors all such matters; provided that each
Investor shall bear its own expenses in connection with the exercise of such
right. Each Investor severally and not jointly agrees to maintain the
confidentiality of any information received by it pursuant to this Section 5.6,
until such information becomes public or is otherwise no longer confidential or
as otherwise required by law.
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5.7 Additional Agreements of the Company.
(a) The Company shall call, and use its best
efforts to have, regular meetings of the Board of Directors of the Company, not
less often than quarterly.
(b) The Company shall pay all reasonable travel
expenses and other out-of-pocket disbursements incurred by all non-employee
directors in connection with attending meetings of the Board of Directors of
the Company.
(c) So long as the Series B Preferred Stock shall
be outstanding, the Company shall include in its slate of nominees for
directors up to two individuals designated by the holders of Series B Preferred
Stock and use its best efforts to cause such nominees to be elected to the
Board of Directors of the Company as soon as possible. The initial nominees
selected by the holders of Series B Preferred Stock are Bret Maxwell and Daniel
Raynor.
5.8 Transfer Pursuant to Rule 144A. The Company agrees
to provide to the Investors and upon an Investor's request to any prospective
purchaser designated by such Investor the financial and other information
specified in Rule 144A(d)(4) under the Securities Act and to take any other
action reasonably requested by such Investor or to execute any certificates
necessary to permit a transfer by any Investor to qualify for the exemption set
forth in Rule 144A.
5.9 Further Assurances. At any time or from time to time
upon the request of any Investor, the Company shall execute and deliver such
further documents and do such other acts and things as such Investor may
reasonably request in order to effect fully the purposes of the Basic
Documents.
6. Negative Covenants. The Company covenants and agrees that so
long as any Series B Preferred Stock shall remain outstanding:
6.1 Transactions with Affiliates. Except as otherwise
specifically permitted under the Basic Documents, the Company will not, and
will not permit any of its subsidiaries to, be a party to, directly or
indirectly, any transaction with any officer, director or affiliate of the
Company unless such transaction has been approved in advance by a majority of
the disinterested directors of the Company's Board of Directors and the terms
of such transaction (i) are no less favorable to the Company than those which
might be obtained at the time from persons who are not affiliates of the
Company and (ii) are in accordance with standard industry practices.
6.2 Amendment of Charter Documents. The Company will not
take any action to amend, modify, alter or repeal any provision of it Charter
or Bylaws.
-22-
<PAGE> 24
6.3 Certain Covenants. The Company will not:
(a) Indebtedness. Incur any Indebtedness, unless
after giving effect thereto, the ratio of the Company's total Debt to Tangible
Net Worth is equal to or less than 2:1.
(b) Dividends. Make or declare, directly or
indirectly, any dividend (in cash, return of capital, or any other form of
assets) on, or make any other payment or distribution on account of, or set
aside assets for a sinking or other similar fund for the purchase, redemption,
or retirement of, or redeem, purchase, retire, or otherwise acquire any shares
of interest of any of its Common Stock, whether now or hereafter outstanding,
or grant or issue any warrant, right, or option pertaining thereto, or other
security convertible into any of the foregoing, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash or assets or
in obligations other than on the Series A Preferred Stock and the Series B
Preferred Stock.
(c) Acquisitions. (i) Purchase or acquire,
directly or indirectly, in one or a series of related transactions any assets
of any Person having an aggregate fair market value in excess of $500,000 or
(ii) purchase or acquire the business, or all or substantially all of the
capital stock, or other equity interests or assets of any other Person unless,
in the case of such purchase or acquisition, the aggregate purchase price
(whether paid in cash, stock or other consideration), including liabilities
assumed, does not exceed $500,000.
(d) Asset Dispositions. Make any Asset
Disposition (other than in the ordinary course of business or in connection
with the disposition of assets attributable to discontinued operations).
(e) Fundamental Changes. (i) Consolidate or
merge with and into any other Person, or convey, transfer, or lease all or any
substantial portion of its properties and assets substantially as an entity to
any Person or (ii) engage in any business other than the business in which it
is engaged in as of the Closing.
(f) Preferred Stock. Create or issue any class
or series of Preferred Stock ranking senior to or on pari passu basis in any
respect with the Series B Preferred Stock.
6.4 Misrepresentations. The Company shall not furnish to
the Investors any certificate or other document that contains any untrue
statement of material fact or omits to state a fact necessary to make it not
materially misleading in light of the circumstances under which it was
furnished.
7. Definitions. All capitalized terms used in this Agreement
shall have the meanings assigned to them elsewhere in this Agreement or as
specified below:
"Asset Disposition" means any conveyance, transfer or lease,
directly or indirectly in any consecutive 12-month period, in one or a series
of related transactions, of all or substantially all of the properties and
assets of any division or line of business of the Corporation.
-23-
<PAGE> 25
For the purposes of this definition, the term "Asset Disposition" shall not
include any conveyance, transfer or lease, directly or indirectly, in any
consecutive 12-month period, in one or a series of related transactions, of
assets having in the aggregate a fair market value of less than $250,000.
"Accommodation Obligation" shall mean, as applied to any
Person and without duplication of amounts, any obligation of such Person
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to such Person) any indebtedness, lease,
dividend, letter of credit, or other obligations ("primary obligation") of any
Person in any manner whether directly or indirectly, including any obligation
of such Person or on behalf of any other person (irrespective of whether
contingent), or to otherwise assure or hold harmless the owner of such primary
obligation against loss in respect thereof. The amount of any Accommodation
Obligation shall be deemed to be an amount equal to the maximum amount of a
Person's liability with respect to the stated or determinable amount of the
primary obligation for which such Accommodation Obligation is incurred.
"Bank Debt" shall mean the indebtedness in the principal
amount of $3,400,000 outstanding as of the date hereof arising under the
Revolving Credit and Security Agreement dated as of October 12, 1994 between
the Company, Terrano Corporation and the Bank, as amended through the Closing
date.
"Basic Document" shall mean each of this Agreement, the
Certificate, the Warrant, the Lock-Up Agreements and the Proxies, each as at
any time amended and in effect from time to time.
"Bridge Note Debt" shall mean the indebtedness in the
principal amount of $775,000 arising under the Company's 9% Subordinated
Convertible Notes.
"Capitalized Lease" shall mean any lease of an asset by the
Company or any subsidiary as lessee which would, in conformity with GAAP, be
required to be accounted for as a capital lease on the balance sheet of the
Company or such subsidiary.
"Capitalized Lease Obligations" shall mean the aggregate
amount which in accordance with GAAP is required to be reported as a liability
on the balance sheet of the Company or any subsidiary at such time in respect
of its respective interest as lessee under a Capitalized Lease.
"Debt" shall mean, with respect to any Person, the aggregate
amount of, without duplication: (a) all obligations of such Person for borrowed
money; (b) all obligations of such Person evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of such Person in respect of letters of credit, bankers acceptances, interest
rate swaps or other financial products; (c) all obligations of such Person to
pay the deferred purchase price of assets or services, exclusive of trade
payables which, by their terms, are due and payable within ninety (90) calendar
days of the creation thereof; (d) all Capitalized Lease Obligations of such
Person; (e) all obligations or liabilities of others secured by a lien on any
-24-
<PAGE> 26
asset owned by such Person, irrespective of whether such obligation or
liability is assumed by such Person, to the extent of the lesser of such
obligation or liability or the fair market value of such asset; and (f) all
Accommodation Obligations of such Person.
"GAAP" shall mean generally accepted accounting principles in
the United States of America.
"Intangible Assets" shall mean that portion of the book value
of any Person's assets which would be treated as intangibles under GAAP,
including all items such as goodwill, trademarks, trade names, brand names,
trade secrets, customer lists, computer software, copyrights, patents,
licenses, franchises, franchise conversion rights, covenants not to compete,
research and development expense, and rights with respect to any of the
foregoing and all unamortized debt discount and expenses.
"Material Adverse Effect" shall mean a material adverse effect
on the assets, condition (financial or otherwise), affairs, earnings, business,
operations or prospects of the Company.
"Memorandum" means the Private Placement Memorandum of the
Company dated November 28, 1995 relating to the offering of the Series B
Preferred Stock.
"Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature, including,
as appropriate, the Company or any subsidiary thereof.
"Reserved Shares" shall mean (i) the 3,812,500 shares of
Common Stock issuable upon conversion of Series B Preferred Stock pursuant to
the Certificate, (ii) the shares of Common Stock issuable upon conversion of
Series B Preferred Stock issuable as dividends pursuant to Section 2(b) of the
Certificate and (iii) the 210,000 shares of Common Stock issuable upon exercise
of the Warrant, in each case, subject to adjustment.
"Tangible Net Worth" shall mean, on the date any determination
thereof is to be made, the amount calculated as the difference of: (a) the
Company's stockholders' equity, determined on a consolidated basis; minus (b)
the Intangible Assets of the Company and its subsidiaries, determined on a
consolidated basis.
"Warrant" shall mean the common stock purchase warrant for
210,000 shares of Common Stock to be issued by the Company to The Argentum
Group on the date of the closing.
8. Stock Option Grant.
(a) The Company hereby grants to each Investor and each
subsequent holder of Series B Preferred Stock (each a "Purchaser") an option to
purchase all or any part of his or its pro rata share of New Securities (as
defined below) which the Corporation may, from time to time, propose to sell
and issue. A pro rata share of New Securities for purposes of this option
-25-
<PAGE> 27
is the ratio of the number of shares of Common Stock issuable upon conversion
of the Series B Preferred Stock then held by a Purchaser to the sum of the
Company's outstanding Common Stock immediately prior to such issuance of New
Securities plus the number of shares of Common Stock then issuable upon
conversion or exchange of all securities convertible or exchangeable into
Common Stock. "New Securities" shall mean any Common Stock of the Company
whether now authorized or not, and securities issued upon exercise of rights,
options, warrants or other securities convertible into Common Stock; provided,
that the term "New Securities" does not include (i) Common Stock purchased for
more than 200% of the then effective Conversion Price (as defined in the
Certificate) for the Series B Preferred Stock in connection with an
underwritten public offering effected pursuant to a registration statement
under the Securities Act; (ii) the Common Stock issuable upon the conversion of
the Company's Series A Cumulative Convertible Preferred Stock or Series B
Preferred Stock; (iii) securities issued pursuant to the acquisition of another
business by the Company by merger, purchase of assets or other reorganization
whereby the Company owns not less than fifty-one percent (51%) of the voting
power of such acquired corporation upon consummation of such transaction; (iv)
shares of Common Stock of the Company issued in connection with any stock
split, stock dividend or recapitalization of the Company; and (v) Common Stock
issued pursuant to employee benefit plans in the normal course of business
approved by the Board of Directors of the Corporation on or prior to the date
hereof.
(b) The purchase price of Common Stock issued upon
conversion or exchange of securities convertible into Common Stock shall equal
the sum of (i) the consideration paid for the convertible securities converted
or exchanged plus (ii) the consideration paid upon conversion or exchange of
such convertible securities divided by the aggregate number of shares of Common
Stock issuable upon conversion or exchange of such convertible securities. If
the New Securities are sold for consideration other than cash, the purchase
price therefor shall be the fair market value of the consideration as
reasonably determined by the Board of Directors of the Company.
(c) In the event the Company proposes to undertake an
issuance of New Securities, it shall give each Purchaser written notice of its
intention, describing the type of New Securities, the price and the general
terms upon which the Company proposes to issue the same. If the terms involve
a unique consideration which the Purchasers are unable to deliver, the Board of
Directors of the Company shall determine, in good faith and on a reasonable
basis, the fair market value of such consideration and such fair market value
shall be the price offered to the Purchasers, payable in cash. Each Purchaser
shall have 30 days from the date such notice is given to agree to purchase its
pro rata share of such New Securities for the price and upon the general terms
specified in such notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
(d) In the event any Purchaser fails to exercise fully
the option granted under this Section 8 within such 30 day period, the Company
shall have 90 days thereafter to sell or enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within 90 days from the date of such agreement) to sell the New Securities in
respect of which such Purchaser's rights were not exercised on substantially
the same terms or
-26-
<PAGE> 28
terms more favorable to the Company than specified in the Company's notice. In
the event the Company has not sold such New Securities in accordance with the
foregoing within such 90 day period, the Company shall not thereafter issue or
sell any of such New Securities without first offering such securities to the
Purchasers in the manner provided above.
9. Indemnity. The Company shall, with respect to the
representations, warranties, covenants and agreements made by the Company
herein and in the Memorandum indemnify, defend and hold The Argentum Group, the
Investors and the holders of Series B Preferred Stock (and their respective
shareholders, directors, officers, employees, agents, affiliates and
controlling parties) (each, an "Indemnified Party") harmless against all
liability, loss or damage, together with all reasonable costs and expenses
related thereto (including legal and accounting fees and expenses), arising
from the untruth, inaccuracy or breach of any such representations, warranties,
covenants or agreements of the Company contained in this Agreement or the
Memorandum or the assertion of any claims relating to the foregoing. Without
limiting the generality of the foregoing, each Indemnified Party shall be
deemed to have suffered liability, loss or damage as a result of the untruth,
inaccuracy or breach of any such representations, warranties, covenants or
agreements if such liability, loss or damage shall be suffered by the
Indemnified Party as a result of, or in connection with, such untruth,
inaccuracy or breach or any facts or circumstances constituting such untruth,
inaccuracy or breach. In case any such action is brought against an
Indemnified Party, the Company will be entitled to participate in and assume
the defense thereof with counsel reasonably satisfactory to such Indemnified
Party, and after notice from the Company to such Indemnified Party of its
election to assume the defense thereof, the Company shall be responsible for
any reasonable legal or other expenses subsequently incurred by the latter in
connection with the defense thereof, provided that if any Indemnified Party
shall have reasonably concluded that there may be one or more legal defenses
available to such Indemnified Party which conflict in any material respect with
those available to the Company, or that such claim or litigation involves or
could have an effect upon matters beyond the scope of the indemnity agreement
provided in this Section 9, the Company shall reimburse such Indemnified Party
and shall not have the right to assume the defense of such action on behalf of
such Indemnified Party and Company shall reimburse such Indemnified Party and
any person controlling such Indemnified Party for that portion of the
reasonable fees and expenses of any counsel retained by the indemnified party
which are reasonably related to the matters covered by the indemnity agreement
provided in this Section 9. The Company shall not make any settlement of any
claims indemnified against hereunder without the written consent of the
Indemnified Party or Parties, which consent shall not be unreasonably withheld.
10. Miscellaneous.
10.1 Survival of Warranties. The warranties,
representations, and covenants of the Company and the Investors contained in or
made pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.
-27-
<PAGE> 29
10.2 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Series B Preferred Stock sold hereunder
or any shares of Common Stock issuable upon conversion of the Series B
Preferred Stock). Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
The Company may not assign or transfer any of its rights under this Agreement
without the prior written consent of the holders of a majority of the Series B
Preferred Stock. Each Investor (or subsequent holder of any Series B Preferred
Stock) may assign and transfer its rights under this Agreement at such times
and upon such conditions as such Investor shall determine in its sole
discretion subject to the obligations imposed on such Investor by this
Agreement.
10.3 Governing Law; Jurisdiction. This Agreement and the
other Basic Documents shall be governed by, construed, applied and enforced in
accordance with the laws of the State of New York, including the Uniform
Commercial Code, except that no doctrine of choice of law shall be used to
apply any law other than that of New York, and no defense, counterclaim or
right of set-off given or allowed by the laws of any other state or
jurisdiction, or arising out of the enactment, modification or repeal of any
law, regulation, ordinance or decree of any foreign jurisdiction, shall be
interposed in any action hereon. The Company agrees that any action or
proceeding to enforce any right arising out of this Agreement and the other
Basic Documents, may be commenced in the Supreme Court of New York or in the
United States District Court for the District of New York, and the Company
consents to such jurisdiction, agrees that venue will be proper in such courts
in any such matter, agrees that New York is the most convenient forum for
litigation in any such suit, action or legal proceeding, and agrees that a
summons and complaint commencing an action or proceeding in any such court
shall be properly served and shall confer personal jurisdiction if served by
registered or certified mail to the Company, or as otherwise provided by the
laws of the State of New York or the United States. The Company agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
10.4 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.5 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.6 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
or four (4) days after deposit with the United States Post
-28-
<PAGE> 30
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties, with a copy of notices for
the Company to Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo, P.A., 2601
South Bayshore Drive, 19th Floor, Miami, Florida 33133, Attention: Richard N.
Bernstein, Esq. and with a copy of notices to the Investors to Olshan Grundman
Frome & Rosenzweig LLP, 505 Park Avenue, New York, New York 10022-1170,
Attention: Steven Wolosky, Esq.
10.7 Finder's Fee. Except for the fees due The Argentum
Group pursuant to Section 4.8., each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction. The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees, or
representatives is responsible. Each Investor severally agrees to indemnify
and hold harmless the Company from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against any such liability or asserted liability) for which such
Investor is responsible.
10.8 Consent to Additional Stock Issuance. The Investors
hereby consent to the issuance on or before December 31, 1995 of up to an
additional 437,500 shares of Series B Preferred Stock to one or more
individuals who execute an amendment or supplement to this Agreement pursuant
to which each such individual becomes an additional Investor under this
Agreement and becomes subject to the terms, and entitled to the benefits, of
this Agreement.
10.9 Entire Agreement; Amendments and Waivers. This
Agreement constitutes the full and entire understanding and agreement between
the parties with regard to the subject hereof. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
66 2/3% of the Series B Preferred Stock then outstanding. Any amendment or
waiver effected in accordance with this Section 10.9 shall be binding upon each
holder of the Series B Preferred Stock at the time outstanding and the Company.
10.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
10.11 Expenses and Taxes. At the Closing, upon receipt of
an invoice, the Company shall reimburse the reasonable fees and expenses (which
shall not exceed an aggregate of $50,000 for fees and $10,000 for expenses) of
Olshan Grundman Frome & Rosenzweig, LLP counsel to the Investors, incurred in
connection with this transaction. The Company agrees to pay on demand all
costs and expenses, if any, in connection with the enforcement of this
Agreement. In addition, the Company shall pay any and all stamp and other
taxes and fees
-29-
<PAGE> 31
payable or determined to be payable in connection with the execution, delivery,
filing and recording of this Agreement and agrees to save the holders of Series
B Preferred Stock harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
and fees.
10.12 Waiver of Trial By Jury. TO THE EXTENT THEY MAY
LEGALLY DO SO, THE COMPANY AND THE HOLDERS OF SERIES B PREFERRED STOCK HEREBY
EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE
OF ACTION, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS AGREEMENT AND
THE BASIC DOCUMENTS OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL
TO, THE DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS AGREEMENT OR THE
TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
TO THE EXTENT THEY MAY LEGALLY DO SO, THE COMPANY AND THE HOLDERS OF SERIES B
PREFERRED STOCK HEREBY AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF
ACTION, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT
ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION
10.12 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE OTHER PARTY OR
PARTIES HERETO TO WAIVER OF ITS OR THEIR RIGHT TO TRIAL BY JURY.
10.13 Independence of Covenants. All covenants under
this Agreement shall be given independent effect so that if a particular action
or condition is not permitted by any one covenant, the fact that it would be
permitted by another covenant, by an exception thereto, or would otherwise be
within the limitations thereof, shall not avoid the occurrence of breach of
this Agreement if such action is taken or condition exists.
10.14 Exchanges; Lost, Stolen or Mutilated Certificates.
Upon surrender by a holder of Series B Preferred Stock to the Company of any
certificate representing Series B Preferred Stock purchased or acquired
hereunder, the Company at its expense will issue in exchange therefor, and
deliver to the holder of Series B Preferred Stock, a new certificate or
certificates representing such shares, in such denominations as may be
requested by the holder of Series B Preferred Stock. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any certificate representing any Series B Preferred Stock purchased or acquired
by a holder of Series B Preferred Stock hereunder, and in case of any such
loss, theft or destruction, upon delivery of any indemnity agreement
satisfactory to the Company, or in case of any such mutilation, upon surrender
and cancellation of such certificate, the Company at its expense will issue and
deliver to such holder a new certificate for such Series B Preferred Stock of
like tenor, in lieu of such lost, stolen or mutilated certificate.
-30-
<PAGE> 32
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
By: /s/ Mitchel J. Laskey
--------------------------------
Mitchel J. Laskey, President
Address: 101 Southall Lane
Maitland, Florida 32751
-31-
<PAGE> 33
Schedule A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
TOTAL
SHARES OF PURCHASE
INVESTOR SERIES B PRICE
-------- ---------- --------
<S> <C> <C>
Argentum Capital Partners, L.P. 782,500 $626,000
Daniel Raynor 31,250 25,000
Arnold and Sandra Raynor 31,250 25,000
EVEREN Clearing Corp. 50,000 40,000
Custodian
FBO Walter Barandiaran, IRA
EVEREN Clearing Corp. 50,000 40,000
Custodian
FBO Jocelyn Barandiaran, IRA
EVEREN Clearing Corp. 5,625 4,500
Custodian
FBO Benjamin M. Fishman, IRA
Benjamin M. Fishman 6,875 5,500
EVEREN Clearing Corp. 5,625 4,500
Custodian
FBO Robert Grossman
Robert Grossman 6,875 5,500
Advisors Trust 93,750 75,000
Don Aron 62,500 50,000
Robert Goldstein 93,750 75,000
Mathers Associates, L.P. 62,500 50,000
Joseph Cooper 62,500 50,000
Edward M. Sellian 62,500 50,000
Richard Fields 30,000 24,000
Environmental Private Equity Fund II, L.P. 937,500 750,000
The Productivity Fund III, L.P. 937,500 750,000
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
TOTAL
SHARES OF PURCHASE
INVESTOR SERIES B PRICE
-------- ----------- ------------
<S> <C> <C>
Robert L. Frome 43,750 35,000
Steven Wolosky 18,750 15,000
--------- ---------
TOTAL 3,375,000 $2,700,000
========= ==========
</TABLE>
<PAGE> 35
EXHIBIT A
Certificate of Designation
<PAGE> 36
EXHIBIT B
Schedule of Exceptions
<PAGE> 37
EXHIBIT C-1
Form of Opinion of Cohen, Berke, Bernstein, Brodie, Kondell, Laszlo, PA
<PAGE> 38
EXHIBIT C-2
Form of Opinion of Nebraska Counsel to the Company
<PAGE> 39
EXHIBIT D
Form of Lock-Up Agreement
<PAGE> 40
EXHIBIT E
Form of Proxy
<PAGE> 41
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page
----
1. Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------------------
1.1 Sale and Issuance of Series B Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------------------------------
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------
2. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------------------------------
2.1 Organization, Good Standing, Qualification and Corporate Power . . . . . . . . . . . . . . . . . . . 2
--------------------------------------------------------------
2.2 Capitalization and Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--------------------------------
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------------
2.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
-------------
2.5 Valid Issuance of Preferred and Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--------------------------------------------
2.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--------------------
2.7 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------
2.8 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------------
2.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------
2.10 Patents and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------------------
2.11 Compliance with Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------------------------------
2.12 Agreements; Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------------------
2.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------
2.14 Title to Property and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------------------------
2.15 Labor Agreements and Actions; Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------------------------------------------
2.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------
2.17 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------
2.18 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------
2.19 U.S. Real Property Holding Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------------------------
2.20 Foreign Corrupt Practices Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------------------------
2.21 Compliance with FDA Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------------------------------
2.22 Regulations G, T and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------------------
2.23 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------------
2.24 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------------
2.25 Existing Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------
2.26 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------
3. Representations and Warranties of the Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-----------------------------------------------
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------
3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------------------------------
3.3 Investor Address, Access to Information, Experience, Etc. . . . . . . . . . . . . . . . . . . . . 11
---------------------------------------------------------
3.4 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------------------
3.5 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-------
4. Conditions of each Investor's Obligations at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
----------------------------------------------------
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C>
4.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
------------------------------
4.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------
4.3 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------------------
4.4 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------------
4.5 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------
4.6 Opinion of Company Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------------------
4.7 Consents and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------------
4.8 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----
4.9 Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
------------------
4.10 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------
4.11 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
--------------
4.12 Bank Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------
4.13 Lock-Up Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------------
4.14 No Material and Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------
4.15 Other Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------------------
4.16 Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
--------
4.17 Indemnity Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------------------
4.18 Bridge Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------
4.19 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------
4.20 SBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---
4.21 All Proceedings to be Satisfactory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
----------------------------------
5. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------------
5.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------------
5.2 Legal Existence of the Company and its Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 16
---------------------------------------------------
5.3 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------------------
5.4 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
------------
5.5 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
---------------
5.6 Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------------
5.7 Additional Agreements of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------------------------
5.8 Transfer Pursuant to Rule 144A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------------------
5.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------
6. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------
6.1 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
----------------------------
6.2 Amendment of Charter Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------------------
6.3 Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------
6.4 Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
------------------
7. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------
8. Stock Option Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
------------------
9. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------
10.1 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C>
10.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------------------
10.3 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
---------------------------
10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
------------
10.5 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
--------------------
10.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-------
10.7 Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
------------
10.8 Consent to Additional Stock Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
------------------------------------
10.9 Entire Agreement; Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
----------------------------------------
10.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
------------
10.11 Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
------------------
10.12 Waiver of Trial By Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-----------------------
10.13 Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
-------------------------
10.14 Exchanges; Lost, Stolen or Mutilated Certificates . . . . . . . . . . . . . . . . . . . . . . . . 30
-------------------------------------------------
</TABLE>
SCHEDULES AND EXHIBITS
SCHEDULE A Schedule of Investors
EXHIBIT A Certificate of Designation
EXHIBIT B Schedule of Exceptions
EXHIBIT C-1 Form of Opinion of Cohen, Berke, Bernstein, Brodie,
Kondell & Laszlo, P.A.
EXHIBIT C-2 Form of Opinion of Nebraska Counsel to the Company
EXHIBIT D Form of Lock Up Agreement
EXHIBIT E Form of Proxy
<PAGE> 44
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
ARGENTUM CAPITAL PARTNERS, L.P.
By: /s/ Daniel Raynor
-------------------------------------
Name: Daniel Raynor
Title: Chairman of BR Associates, Inc.,
the General Partner
Address: 405 Lexington Avenue,
54th Floor
New York, NY 10174
Attention: Daniel Raynor
<PAGE> 45
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ DANIEL RAYNOR
------------------------------------------
DANIEL RAYNOR
Address: c/o The Argentum Group
405 Lexington Avenue
54th Floor
New York, New York 10174
<PAGE> 46
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ ARNOLD RAYNOR
------------------------------------------
ARNOLD RAYNOR
/s/ SANDRA RAYNOR
------------------------------------------
SANDRA RAYNOR
Address: c/o Shapiro & Lobel
111 West 40th Street
New York, New York 10018
<PAGE> 47
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
EVEREN CLEARING CORP.
Custodian
FBO: Walter Barandiaran, IRA
By: /s/ Walter Barandiaran
-------------------------------------
Name: Walter Barandiaran
Title:
Address: 245 East 93rd Street
Apt. 26D
New York, NY 10128
<PAGE> 48
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
EVEREN CLEARING CORP.
Custodian
FBO: Jocelyn Barandiaran, IRA
By: /s/ Jocelyn Barandiaran
-------------------------------------
Name: Jocelyn Barandiaran
Title:
Address: 245 East 93rd Street
Apt. 26D
New York, NY 10128
<PAGE> 49
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
EVEREN CLEARING CORP.
Custodian
FBO: Benjamin Fishman, IRA
By: /s/ Benjamin M. Fishman
-------------------------------------
Name: Benjamin M. Fishman
Title:
Address: c/o The Argentum Group
405 Lexington Avenue
54th Floor
New York, NY 10175
<PAGE> 50
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ BENJAMIN M. FISHMAN
------------------------------------------
BENJAMIN M. FISHMAN
Address: c/o The Argentum Group
405 Lexington Avenue
54th Floor
New York, New York 10175
<PAGE> 51
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
EVEREN CLEARING CORP.
Custodian
FBO: Robert Grossman
By: /s/ Robert L. Grossman
-------------------------------------
Name: Robert L. Grossman
Title:
Address: 420 East 70th Street
Apt. 8Q New York, New York 10021
<PAGE> 52
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ ROBERT L. GROSSMAN
------------------------------------------
ROBERT L. GROSSMAN
Address: 420 East 70th Street
Apt. 8Q
New York, New York 10021
<PAGE> 53
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
ADVISORS TRUST
By: /s/ Daniel Tessler
-------------------------------------
Name: Daniel Tessler
Title: Trustee
Address: 4521 PGA Boulevard
Apt. 330
Palm Beach Gardens, FL 33418
Attention: Daniel Tessler
<PAGE> 54
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ DONALD ARON
------------------------------------------
DONALD ARON
Address: c/o The Aron Companies
1400 Post Oak Blvd.
Suite 500
Houston, Texas 77056
<PAGE> 55
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ ROBERT D. GOLDSTEIN
------------------------------------------
ROBERT D. GOLDSTEIN
Address: c/o Equity Group Profit
Sharing Plan & Trust
919 Third Avenue, 18th Fl.
New York, NY 10022
<PAGE> 56
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
MATHERS ASSOCIATES, L.P.
By: /s/ NORBERT J. ZEELANDER
------------------------------
NORBERT J. ZEELANDER
Address: 160 East 65th Street
Apt. 23F
New York, New York 10021
<PAGE> 57
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ JOSEPH COOPER
------------------------------------------
JOSEPH COOPER
Address: c/o Cooper, Selvin
& Strassberg
415 Northern Boulevard
Great Neck, New York 10021
<PAGE> 58
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ EDWARD SELLIAN
------------------------------------------
EDWARD SELLIAN
Address: 6794 S.E. Isle Way
Stuart, FL 34996
<PAGE> 59
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ RICHARD FIELDS
------------------------------------------
RICHARD FIELDS
Address: c/o Allen & Company
711 Fifth Avenue
9th Floor
New York, NY 10022
<PAGE> 60
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
ENVIRONMENTAL PRIVATE EQUITY ENVIRONMENTAL PRIVATE EQUITY
FUND II, L.P. FUND II, L.P.
By: Environmental Private Equity
Management II, L.P., Gen. Ptr. By: /s/ Bret R. Maxwell
-------------------------------------
By: First Analysis EPEF Management Name: Bret R. Maxwell
Co. II, Gen. Ptr. Title:
By: /s/ Bret R. Maxwell Address: 233 South Wacker Drive
------------------------------- Suite 9500
Bret R. Maxwell, Gen. Ptr. Chicago, IL 60606
Attention: Bret Maxwell
<PAGE> 61
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
PRODUCTIVITY FUND III, L.P.
By: First Analysis Management Company, III, L.L.C.
its: General Partner
By: /s/ Bret R. Maxwell
-------------------------------------
Name: Bret R. Maxwell
Title: Managing Member
Address: 233 South Wacker Drive
Suite 9500
Chicago, IL 60606
Attention: Bret Maxwell
<PAGE> 62
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ ROBERT L. FROME
------------------------------------------
ROBERT L. FROME
Address: c/o Olshan Grundman Frome
& Rosenzweig LLP
505 Park Avenue
New York, NY 10022-1170
<PAGE> 63
STOCK PURCHASE AGREEMENT SIGNATURE PAGE
Acknowledged and Agreed to
as of the Date First Above Written:
/s/ STEVEN WOLOSKY
------------------------------------------
STEVEN WOLOSKY
Address: c/o Olshan Grundman Frome
& Rosenzweig LLP
505 Park Avenue
New York, NY 10022-1170
<PAGE> 1
EXHIBIT 4.09
DYNAMIC
HEALTHCARE TECHNOLOGIES
June 17, 1996
David M. Pomerance Gary Krosin
2421 SE Bahia Way 3622 Mashie Court
Stuart, Florida 34996 Palm City, Florida 34990
David Moore Charles Farrow
2814 SE Dune Drive #2211 47 North Riner Road
Stuart, Florida 34996 Stuart, Florida 34996
Dear Sirs:
The purpose of this letter is to advise you that Dynamic Healthcare
Technologies, Inc. (the "Company") agrees to include in a registration
statement filed with the U.S. Securities and Exchange Commission (the "SEC")
pursuant to the Securities Act of 1933, as amended (the "Act") and use its best
efforts to cause such registration statement to become effective no later than
November 1, 1996 the following shares of common stock:
<TABLE>
<CAPTION>
SHAREHOLDER SHARES OF COMMON STOCK(1)
----------- ----------------------
<S> <C>
David M. Pomerance 475,500
David Moore 72,500
Gary Krosin 145,000
Charles Farrow 72,500
</TABLE>
The Company agrees that in the event the Company proposes to file a
registration statement under the Act with respect to any class of securities
which registration statement it reasonably anticipates will be effective prior
to November 1, 1996 (the "Registration Statement"), then the Company shall
include in the Registration Statement the securities listed above in lieu of
filing a separate registration statement ("Separate Registration Statement")
for such securities. In the event the Company has not filed such Registration
Statement by September 1, 1996, the Company covenants that it shall in good
faith use its best efforts to immediately file with the SEC a Separate
Registration Statement including the above-listed securities and take all
actions to cause such Separate Registration Statement to become effective no
later than November 1, 1996.
101 SOUTHHALL LANE, SUITE 210 - MAITLAND, FLORIDA 32751
TEL (407) 875-9991 - (800) 832-3020 - FAX (407) 875-9915
<PAGE> 2
Messrs. Pomerance, Moore, Krosin & Farrow
June ___, 1996
Page 2
By signing the enclosed copy of this letter you agree to furnish to
the Company such information regarding the securities you hold and the intended
method of disposition thereof as the Company may reasonably request.
Very truly yours,
DYNAMIC HEALTHCARE TECHNOLOGIES, INC.
/s/ MITCHEL J. LASKEY
---------------------------------------
Mitchel J. Laskey, President
AGREED AND ACKNOWLEDGED:
/s/ DAVID M. POMERANCE /s/ GARY KROSIN
- ----------------------------- -------------------------------
David M. Pomerance Gary Krosin
/s/ DAVID MOORE /s/ CHARLES FARROW
- ----------------------------- -------------------------------
David Moore Charles Farrow
<PAGE> 1
Exhibit 5.01
LAW OFFICES
COHEN, BERKE, BERNSTEIN, BRODIE & KONDELL
A PROFESSIONAL ASSOCIATION
TERREMARK CENTRE
19TH FLOOR
2601 SOUTH BAYSHORE DRIVE BOCA RATON OFFICE
MIAMI, FLORIDA 33133-5460 TELEPHONE (407) 395-0407
TELECOPIER (407) 394-0571
-----------
TELEPHONE (305) 854-5900
TELECOPIER (305) 857-0857
September 3, 1996
Board of Directors
Dynamic Healthcare Technologies, Inc.
101 Southhall Lane, Suite 210
Maitland, Florida 32751
Re: Registration Statement on Form S-3
Shares of Common Stock
Gentlemen:
We have acted as counsel for Dynamic Healthcare Technologies, Inc. (the
"Company") in connection with the proposed public offering of the shares of its
Common Stock covered by the above-described Registration Statement.
In connection therewith, we have examined the following:
1. The Articles of Incorporation of the Company, certified by the
Secretary of State of the State of Florida;
2. The Bylaws of the Company, certified as complete and correct by the
Secretary of the Company;
3. The minute book of the Company, certified as correct and complete by
the Secretary of the Company; and
4. Certificate of Good Standing with respect to the Company, issued by
the Florida Secretary of State.
Based upon such examination and upon examination of such other
instruments and records as we have deemed necessary, we are of the opinion
that:
<PAGE> 2
Board of Directors
September 3, 1996
Page 2
A. The Company has been duly incorporated under the laws of the State
of Florida and is validly existing and in good standing under the
laws of that state.
B. The 6,278,746 shares of Common Stock covered by the Registration
Statement when issued and sold in accordance with the terms
described in said Registration Statement, will be validly issued,
fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus. In giving this consent, we do not admit that
we come within the category of persons whose consent is required under Section
7 of the Securities Act of 1933, or the rules and regulations of the Securities
and Exchange Commission thereunder.
Sincerely,
/s/ COHEN, BERKE, BERNSTEIN,
BRODIE & KONDELL, P.A.
COHEN, BERKE, BERNSTEIN, BRODIE & KONDELL, P.A.
<PAGE> 1
Exhibit 23.02
KPMG Peat Marwick LLP
111 North Orange Avenue, Suite 1600
P.O. Box 3031
Orlando, FL 32802
Dynamic Healthcare Technologies, Inc.
Maitland, Florida
Ladies and Gentlemen:
Re: Registration Statement on Form S-3
With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our report dated July 30, 1996 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG Peat Marwick LLP
Orlando, Florida
September 3, 1996
<PAGE> 2
Exhibit 23.02
KPMG Peat Marwick LLP
111 North Orange Avenue, Suite 1600
P.O. Box 3031
Orlando, FL 32802
Board of Directors
Dynamic Healthcare Technologies, Inc.
We consent to the use of our audit report dated March 6, 1996 on the financial
statements of Dynamic Healthcare Technologies, Inc. as of December 31, 1994 and
1995 and for each of the years then ended included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Orlando, Florida
September 3, 1996
<PAGE> 1
Exhibit 23.03
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Dynamic Healthcare
Technologies, Inc. on Form S-3 of our report on Terrano Corporation dated March
16, 1994 (January 11, 1995 as to the 1993 restated financial statements),
appearing in the Prospectus, which is part of this Registration Statement, and
of our report dated March 16, 1994 (January 11, 1995 as to the restated
Allowance for Doubtful Accounts Receivable Information) relating to the
financial statement schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
August 29, 1996
Orlando, Florida
<PAGE> 1
Exhibit 23.04
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 24, 1996 in the Registration Statement (Form S-3
No. 333-00000) and related Prospectus of Dynamic Healthcare Technologies, Inc.
dated August 29, 1996.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
August 28, 1996
