UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission File Number: 0-15352
US SERVIS, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2467332
(Sate or other jurisdiction of (I.R.S. Employer or Identification Number)
incorporation of organization
414 Eagle Rock Avenue, West Orange, NJ 07052
(Address of Principal Executive Office) (Zip Code)
(201) 731-9252
(Registrant's telephone number, including area code)
(MICRO Healthsystems, Inc.)
(Registrant's Former Name)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
APPLICABLE ONLY TO ISSUERS INVOLVED In BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15Id) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes _______ No _______
APPLICABLE ONLY TO CORPORATE ISSUERS
At November 10, 1995, the registrant had outstanding 6,296,137 outstanding
shares of Common Stock, $0.01 par value.
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I - FINANCIAL INFORMATION 1
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1995 AND
MARCH 31 1995 2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX AND
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 3
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 1995 AND 1994 5,6
NOTES TO CONSOLIDATED FINANCIAL STATEMENT 7-9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10-13
PART II - OTHER INFORMATION 14
SIGNATURES 15
EXHIBIT INDEX 16-19
<PAGE>
PART I
FINANCIAL INFORMATION
1. Consolidated Financial Statements as at September 30, 1995
The consolidated balance sheet as of March 31, 1995 has been derived
from the audited Consolidated Balance Sheet contained in the Company's
Form 10-K and is presented for comparative purposes. Certain items have
been reclassified to conform to the current presentation. The
accompanying consolidated financial statements presume that users have
read the audited consolidated financial statements of the preceding
fiscal year. Accordingly, footnotes which would have substantially
duplicated such disclosures have been omitted.
The interim consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement
of the results for interim periods presented. Such interim adjustments
consist solely of normal recurring adjustments. The results of
operations for interim periods are not necessarily indicative of the
results to be expected for a full year.
1
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31,
1995 1995
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $2,658,000 $4,121,000
Accounts receivable, less allowance for
doubtful accounts of $480,000 and $206,000 2,918,000 2,867,000
Current maturities of notes receivable 171,000 324,000
Inventories 20,000 18,000
Prepaid and refundable income taxes 1,468,000 2,000,000
Deferred income taxes 514,000 1,014,000
Prepaid expenses and other current assets 744,000 448,000
8,493,000 10,792,000
PROPERTY AND EQUIPMENT 1,040,000 1,235,000
OTHER ASSETS:
Long-term maturities of notes receivable 49,000 143,000
Software technology:
Purchased, less accumulated amortization of
$20,000 at September 30, 1995 143,000 50,000
Developed, less accumulated amortization of
$210,000 and $163,000 192,000 239,000
Goodwill, less accumulated amortization of
$240,000 and $193,000 3,705,000 3,552,000
Deferred income taxes 72,000 72,000
Other 339,000 29,000
4,500,000 4,085,000
$14,033,000 $16,112,000
CURRENT LIABILITIES:
Accounts payable $672,000 $530,000
Accrued payroll 227,000 567,000
Accrued restructuring charges 1,589,000 1,664,000
Other accrued expenses 992,000 852,000
Deferred income 479,000 651,000
Customers' deposits 105,000 121,000
Other current liabilities 273,000 50,000
4,337,000 4,435,000
ACCRUED RESTRUCTURING CHARGES 687,000 1,770,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $.01 par value; 10,000,000 shares
authorized; 6,312,000 and 6,257,000 shares issued 63,000 63,000
Capital in excess of par value 14,847,000 14,664,000
Unearned compensation (416,000) (742,000)
Retained earnings (deficit) (4,180,000) (2,654,000)
Subscription receivable (140,000) (140,000)
Note receivable - related party (1,106,000) (1,225,000)
9,068,000 9,966,000
Less Treasury Stock at cost: 15,700 shares (59,000) (59,000)
9,009,000 9,907,000
$14,033,000 $16,112,000
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
1995 1994
<S> <C> <C>
REVENUES $7,916,000 $8,277,000
EXPENSES:
Salaries, wages and benefits 6,084,000 5,947,000
Other selling, general and administrative 4,443,000 3,540,000
Depreciation and amortization 315,000 615,000
Restructuring charges (gains) (589,000) -
Interest expense 36,000 -
Total expenses 10,289,000 10,102,000
LOSS BEFORE INCOME TAXES (2,373,000) (1,825,000)
PROVISION (BENEFIT) FOR FEDERAL AND STATE INCOME TAXES (847,000) (793,000)
NET LOSS ($1,526,000) ($1,032,000)
NET LOSS PER SHARE: ($0.24) ($0.18)
WEIGHTED AVERAGE NUMBER OF SHARES
AND EQUIVALENTS OUTSTANDING 6,269,000 5,877,000
THREE MONTHS ENDED
SEPTEMBER 30,
1995 1994
REVENUES $4,026,000 $4,170,000
EXPENSES:
Salaries, wages and benefits 3,070,000 3,112,000
Other selling, general and administrative 2,521,000 1,863,000
Depreciation and amortization 166,000 299,000
Restructuring charges (gains) (589,000) -
Interest expense 18,000 -
Total expenses 5,186,000 5,274,000
LOSS BEFORE INCOME TAXES (1,160,000) (1,104,000)
PROVISION (BENEFIT) FOR FEDERAL AND STATE INCOME TAXES (480,000) (487,000)
NET LOSS ($680,000) ($617,000)
NET LOSS PER SHARE: ($0.11) ($0.11)
WEIGHTED AVERAGE NUMBER OF SHARES
AND EQUIVALENTS OUTSTANDING 6,296,000 5,868,000
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995
CAPITAL IN NOTE
COMMON STOCK EXCESS OF UNEARNED RETAINED SUBSCRIPTION RECEIVABLE - TREASURY
SHARES PAR VALUE PAR VALUE COMPENSATION EARNINGS RECEIVABLE RELATED PARTY STOCK
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 6,257,000 $63,000 $14,664,000 ($742,000) $2,654,000) ($140,000) ($1,225,000) $59,000
SIX MONTHS ENDED
SEPTEMBER 30, 1995:
Amortization of officer stock
compensation 326,000
Shares issued in accordance with
amended plan of merger 55,000 200,000
Cost of issuing additional shares (17,000)
Allowance for loan collateral
impairment 119,000
Net Loss (1,526,000)
BALANCE, SEPTEMBER 30, 1995 6,312,000 $63,000 $14,847,000 ($416,000) ($4,180,000)($140,000) ($1,106,000) $59,000
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,526,000) ($1,032,000)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization of property
and equipment 218,000 195,000
Amortization of software technology 50,000 373,000
Amortization of goodwill 47,000 46,000
Property, plant and equipment sold - 25,000
Provision for losses on accounts receivable 445,000 -
Deferred income taxes - (129,000)
Amortization of officer stock compensation 326,000 -
Allowance for impairment of related party note 119,000
Changes in operating assets and liabilities
net of acquisitions-
Accounts receivable (640,000) 659,000
Note and installment receivables 247,000 248,000
Inventories (2,000) (19,000)
Prepaid and refundable income taxes 1,032,000 (355,000)
Prepaid expenses and other current assets (58,000) (41,000)
Other assets (310,000) 17,000
Accounts payable 142,000 133,000
Accrued payroll (340,000) (15,000)
Other accrued expenses 140,000 (175,000)
Accrued restructuring (1,158,000) -
Deferred income (152,000) 86,000
Income taxes payable 90,000
Customer deposits and other current
liabilities 321,000 -
Net cash flows from operating activities: (1,099,000) 106,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of treasury stock (59,000)
Increase in software technology (113,000) (134,000)
Sale of equipment 293,000 -
Purchase of property and equipment (275,000) (177,000)
Net cash flows from investing activities (95,000) (370,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt (14,000) (106,000)
Cost of listing additional shares (17,000)
Loans to officers (238,000) -
Net cash flows from financing activities (269,000) (106,000)
NET CHANGE IN CASH AND EQUIVALENTS (1,463,000) (370,000)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 4,121,000 4,483,000
CASH AND EQUIVALENTS, END OF PERIOD $2,658,000 $4,113,000
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(concluded)
SIX MONTHS ENDED
SEPTEMBER 30,
1995 1994
<S> <C> <C>
SUPPLEMENTAL INFORMATION:
Interest paid $2,000 $2,000
Income taxes paid (refunded) ($1,879,000) -
Deferred gain on sale-leaseback $41,000 -
Purchase of treasury stock $59,000
Value assigned to goodwill relating to shares
of common stock issued for prior year
business acquisition $200,000 -
Transferred from deferred income taxes to
prepaid and refundable income taxes $500,000 -
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
Note A - Basis of Presentation:
The consolidated financial statements include all the accounts of
US SERVIS, Inc. (f/k/a MICRO Healthsystems, Inc.) and its wholly-owned
subsidiaries (collectively, the "Company"). All significant intercompany
transactions have been eliminated.
Note B - Nature of Business:
The Company provides business management services and information systems to two
principal markets: physicians and physician delivery systems, and the ambulatory
departments/centers of hospitals. As part of its business management services,
the Company has traditionally provided on-site and off-site personnel, billing
and accounts receivable management services together with information systems
and systems integration services related to these business activities. The
Company is currently strengthening these areas and expanding its services and
information systems to include: financial and administrative management,
clinical information, systems support and management and strategic consulting
services in critical areas such as at risk contracting and physician network
formation and development; the Company, through strategic alliances, has
expanded its information systems offerings to include managed care and
electronic medical records systems. The Company has also historically been a
provider of clinical information systems products and services for various
hospital inpatient departments. The Company will be phasing out of this
activity.
(See Note C below)
Note C - Restructuring Charges
During fiscal 1995, the Company, under the direction of a new Chairman and CEO,
undertook a substantial restructuring of its business operations in an effort
to: refocus and redirect resources away from clinical, inpatient information
systems products and towards contract management, physician practice management,
ambulatory care and software integration business services; consolidate
operations; negotiate a termination of the employment agreement of the former
chairman; downsize, and sell underperforming assets. These actions resulted in a
$6.8 million, pre-tax, restructuring charge in fiscal 1995 and contributed
significantly to the Company's $8.1 million after tax net loss.
As the result of revised cost estimates for certain items included in the
original restructuring charge, the Company recorded a restructuring gain of
$589,000 for the six months ended September 30, 1995. The components of the
restructuring gain were as follows:
7
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------- -----------------------------------
Three Months Ended Six Months Ended
September 30, 1995 September 30, 1995
<S> <C> <C>
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Decrease in termination costs related to
former chairman $ - $148,000
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Decrease in estimated facilities close
down costs 755,000 755,000
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Increase in severance costs (166,000) (314,000)
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Net restructuring gain $589,000 $589,000
- ---------------------------------------------------- -------------------------------------- -----------------------------------
The changes to the liabilities for accrued restructuring charges during the six
months ended September 30, 1995, were as follows:
-------------------------------------- -----------------------------------
Current Long-Term
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Balance, March 31, 1995 $1,664,000 $1,770,000
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Payments (402,000) -
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Transferred to allowance for doubtful
accounts and other current liabilities (200,000) -
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Net restructuring gain - (589,000)
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Interest on deferred charges 12,000 21,000
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Transferred to current from long-term 515,000 (515,000)
- ---------------------------------------------------- -------------------------------------- -----------------------------------
Balance, September 30, 1995 $1,589,000 $687,000
- ---------------------------------------------------- -------------------------------------- -----------------------------------
</TABLE>
The Company expects the restructuring to be completed during the fiscal year
ending March 31, 1996, although payments of certain items - principally,
termination costs related to the former chairman and facility close down costs
will continue for several years.
Note D - New Equity Capital for Growth
On July 18, 1995, the Company entered into a Series A Convertible Preferred
Stock and Warrant Purchase Agreement (the "Purchase Agreement"), by and among
the Company, Frontenac VI Limited Partnership, a trust established for the
benefit of Robert E. King and his descendants and Morgan Holland Fund II, L.P.
(collectively the "Purchaser"). Pursuant to the Purchase Agreement, the Company
agreed (subject to approval of the Company's stockholders and certain other
conditions) to sell to the Purchasers, through a private placement, (i)
1,500,000 shares of Series A Convertible Preferred Stock of the Company, par
value $0.01 per share, (ii) warrants to purchase up to 390,000 shares of the
Company's Common Stock at an exercise price of $0.10 per share, and (iii)
warrants to purchase up to 198,000 shares of the Company's Common Stock at an
exercise price of $3.50 per share, for an aggregate purchase price of
$6,000,000. All of the $0.10 warrants are subject to cancellation by the Company
under certain circumstances.
The transactions outlined in the Purchase Agreement were approved by the
Company's shareholders on October 10, 1995 at the Company's 1995 Annual Meeting
of Shareholders. The transactions subsequently closed on October 12, 1995. A
complete description of the transactions was included in the Company's
definitive Proxy Statement for the 1995 Annual Meeting of Shareholders.
8
<PAGE>
Note E - Subsequent Event - Significant Contract
On September 28, 1995 the Board of Directors of the New York City Health and
Hospitals Corporation ("Health and Hospitals Corporation") approved the
selection of the Company as the provider of Third Party Administrator ("TPA")
services to MetroPlus Health Plan ("Metro Plus"). MetroPlus is an HMO, wholly
owned by the Health and Hospitals Corporation organized to provide comprehensive
managed care services to members including Medicaid recipients and Health and
Hospitals Corporation employees and their families. The Company anticipates that
the revenues generated under the MetroPlus contract will exceed $16 million over
its three year term.
The Company began providing services to MetroPlus in anticipation of the
execution of a contract during the third quarter of fiscal 1996. TPA services
revenues are anticipated to begin during the fourth quarter of this fiscal year.
The MetroPlus contract is anticipated to have a favorable impact on the
Company's fiscal 1996, 1997 and 1998 revenues and profitability.
9
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
During October of 1994, the Company hired Mr. Graham O. King as its
Chairman and Chief Executive Officer. Mr. King was previously President
of Shared Medical Systems Corporation, the largest healthcare information
services company in the United States. Under Mr. King's leadership, the
Company developed a plan to:
Refocus on its expertise in business management services, proprietary
software, and proven ability to improve operating efficiency and cash flow
through performance based management agreements.
Recapitalize the Company in order to provide resources to expand through
internal growth and selected acquisitions.
Recruit new, experienced individuals to the Board of Directors and the
senior management team.
Expand and upgrade the Company's sales, marketing and customer service
departments and instill a "Commitment to Customer Service" mentality.
Develop a strategy with specific programs to strengthen employee morale
through education, better communications and the introduction of Total
Quality Management principles.
Downsize and divest under-performing assets.
During the first half of fiscal 1996, the Company has made progress in the
implementation of several elements of this plan.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
------------------------------- --------------------------------
September 30, 1995 March 31, 1995
------------------------------- --------------------------------
<S> <C> <C>
--------------------------------------------
Total Current Assets $8,493,000 $10,792,000
-------------------------------------------- ------------------------------- --------------------------------
Total Current Liabilities 4,337,000 4,435,000
-------------------------------------------- ------------------------------- --------------------------------
Working Capital $4,156,000 $6,357,000
-------------------------------------------- ------------------------------- --------------------------------
Working Capital Ratio to 1 2.0 2.4
-------------------------------------------- ------------------------------- --------------------------------
</TABLE>
Working Capital decreased $2,201,000 primarily due to the loss sustained during
the first six months, an increase in current accrued restructuring charges and a
decrease in refundable and deferred income taxes.
Cash and equivalents decreased by approximately $1.5 million primarily due to
the use of funds to support operating losses, the purchase of capital assets and
payments made under the Company's restructuring plan offset by an income tax
refund.
The Company expects that its cash position will increase during the remainder of
the fiscal year as a result of the sale of $6 million of convertible preferred
stock and warrants to private equity capital groups. (See Note D - New Equity
Capital for Growth). This increase will be partially offset by continued
operating losses, modest investments in capital assets and possibly by a
strategic acquisition.
10
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
REVENUES
---------------------------------------------------------------------------------
Six Months Ended September 30,
---------------------------------------------------------------------------------
1995 1994
---------------------------------------- ----------------------------------------
<S> <C> <C>
- ------------------------------------------
Hospital Services $3,951,000 $3,991,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Physician Services 3,130,000 3,186,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Clinical Systems 778,000 993,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Interest and Other 57,000 107,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
$7,916,000 $8,277,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
For the six months ended September 30, 1995 the Company's revenues decreased
$361,000 when compared to the same period in the prior fiscal year. The majority
of this decline relates to a $215,000 decline in clinical information systems
activities which, as discussed in the Company's annual report on Form 10-K,
(Item 1 - Business - Company Overview) is a business activity that is being
phased out so that the Company can focus more intensely on providing practice
management services to physicians and contract management services to hospitals.
---------------------------------------------------------------------------------
Three Months Ended September 30,
---------------------------------------------------------------------------------
---------------------------------------- ----------------------------------------
1995 1994
---------------------------------------- ----------------------------------------
- ------------------------------------------
Hospital Services $1,966,000 $2,066,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Physician Services 1,628,000 1,664,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Clinical Systems 407,000 374,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
Interest and Other 25,000 66,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
$4,026,000 $4,170,000
- ------------------------------------------ ---------------------------------------- ----------------------------------------
</TABLE>
The Company's revenues decreased $144,000 during the quarter ended September 30,
1995 as compared to the same quarter in the prior year. A majority of this
decline results from a $100,000 decline in revenues from hospital services. All
of this decline can be attributed to revenue losses associated with hospital
contracts that were not renewed prior to the hiring of the new Chief Executive
Officer.
11
<PAGE>
<TABLE>
<CAPTION>
EXPENSES
----------------------------------------------------------------------
Six Months Ended September 30,
----------------------------------------------------------------------
----------------------------------- ----------------------------------
1995 1994
----------------------------------- ----------------------------------
<S> <C> <C>
- -----------------------------------------------------
Salaries, wages and benefits $6,084,000 $5,947,000
Other selling, general and administrative 4,443,000 3,540,000
Depreciation and amortization 315,000 615,000
Restructuring charges (gain) (589,000) -
Interest expense 36,000 -
- ----------------------------------------------------- ----------------------------------- ----------------------------------
$10,289,000 $10,102,000
- ----------------------------------------------------- ----------------------------------- ----------------------------------
</TABLE>
Excluding the $589,000 restructuring gain (See Note D), expenses for the six
months ended September 30, 1995, increased $776,000 as compared to the same
period in the prior fiscal year. The components of this increase were salaries,
wages and benefits ($137,000), other selling, general and administrative
expenses ($903,000) and interest expense ($36,000) offset by a $300,000 decrease
in depreciation and amortization. The $903,000 increase in other selling,
general and administrative expenses primarily resulted from increased marketing
and sales costs; recruiting expenses associated with several additions to the
senior management team; higher legal, accounting and consulting fees; and a
$445,000 provision for losses on accounts receivable. The decrease in
depreciation and amortization resulted from the write-offs of assets included in
the restructuring charge during fiscal 1995.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Three Months Ended September 30,
----------------------------------------------------------------------
----------------------------------- ----------------------------------
1995 1994
----------------------------------- ----------------------------------
<S> <C> <C>
- -----------------------------------------------------
Salaries, wages and benefits $3,070,000 $3,112,000
Other selling, general and administrative 2,521,000 1,863,000
Depreciation and amortization 166,000 299,000
Restructuring charges (gain) (589,000) -
Interest expense 18,000 -
- ----------------------------------------------------- ----------------------------------- ----------------------------------
$5,186,000 $5,274,000
- ----------------------------------------------------- ----------------------------------- ----------------------------------
</TABLE>
Excluding the $589,000 restructuring gain (See Note D), expenses for the three
months ended September 30, 1995, increased $501,000 as compared to the same
period in the prior fiscal year. The components of this increase were other
selling, general and administrative expenses ($658,000) and interest expense
($18,000) offset by a $133,000 decrease in depreciation and amortization and a
$42,000 decrease in salaries, wages and benefits. The $658,000 increase in other
selling, general and administrative expenses primarily resulted from increased
marketing and sales costs; recruiting expenses associated with several additions
to the senior management team; higher legal, accounting and consulting fees; and
a $385,000 provision for losses on accounts receivable. The decrease in
depreciation and amortization resulted from the write-offs of assets included in
the restructuring charge during fiscal 1995.
12
<PAGE>
NET LOSS
For the six months ended September 30, 1995, the Company reported a net loss of
$1,526,000 or $.24 per share compared to a net loss of $1,032,000 or $.18 per
share during the same period last year.
For the quarter ended September 30, 1995, the Company reported a net loss of
$680,000 or $.11 per share compared to a net loss of $617,000 or $.11 per share
during the same quarter last year.
13
<PAGE>
PART II
OTHER INFORMATION
Item 1 - Litigation
The Company has no material litigation pending.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: the exhibits required by Item 601 of
Regulation S-K and filed herewith are listed in the
Exhibit Index that follows the signature page and
immediately precedes the exhibits filed.
(b) Reports on Form 8-K; No report on Form 8-K was filed
during the first six months of the fiscal year ending
March 31, 1996.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
US SERVIS, INC.
(Registrant)
<S> <C>
Date: November 10, 1995 By: __________________________________ (L.S.)
Graham O. King
Chairman of the Board and
Chief Executive Officer
Date: November 10, 1995 By: ___________________________________ (L.S.)
Michael B. Loscalzo
Principal Accounting Officer and
Chief Financial Officer
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------------- ----------------------------------------------------------------------------------- ----------------
Exhibit No. Description Page
-------------------- ----------------------------------------------------------------------------------- ----------------
<S> <C> <C>
3(1) By-Laws. (I) *
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
3(2) Amended and Restated Certificate of Incorporation of the Registrant. 20
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
3(3) Certificate of Designation Relating to the Series A Convertible Preferred Stock 28
of the Registrant.
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(1) Lease date March 31, 1986, between Skyline Associates, Inc. And Digital Equipment *
Corporation relating to the premises located at 414 Eagle Rock Avenue, West
Orange, New Jersey. (I)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(2) 1986 Stock Option Agreement. (I) *
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(3) Service Agreement between the Registrant and Digital Equipment Corporation. (I) *
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(4) Non-qualified Stock Option Agreement between the Registrant and S.M. Caravetta, *
dated February 10, 1990 and expiring February, 1995. (III)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(5) License Agreement between the Registrant and North County Computer Services, Inc. *
(III)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(6) Distribution/Sales Representation Agreement by and between Baxter Healthcare *
Corporation and MedTake Corp., dated as of October 1, 1990. (IV)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(7) Letter Agreement by and among MedTake Corp., the Registrant, Salvatore M. *
Caravetta and Baxter Healthcare Corporation, dated as of October 1, 1990. (IV)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(8) Guaranty of the Registrant in favor of Baxter Healthcare Corporation, dated as of *
October 1, 1990. (IV)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(9) Complimentary Marketing Agreement between International Business Machines *
Corporation and the Registrant. (V)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(10) Service Agreements between Digital Equipment Corporation and the Registrant. (V) *
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(11) Asset Purchase Agreement and Plan of Reorganization by and among Administrative *
Information Systems Corporation, the Registrant and Receivables Management Corp.,
dated as of June 14, 1991. (VI)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(12) Registration Rights Agreement by and between the Registrant and Administrative *
Information Systems, Inc. (Misnamed in said document as "Administrative
Information Services Corporation"), dated June 14, 1991. (VI)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(13) Employment Agreement among Receivables Management Corp. (Renamed AISCorp.), the *
Registrant and Stephen G. Sullivan, dated as of June 14, 1991. (VI)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(14) Option Registration Rights Agreement by and Between the Registrant and Stephen G. *
Sullivan, dated June 14, 1991. (IV)
-------------------- ----------------------------------------------------------------------------------- ----------------
-------------------- ----------------------------------------------------------------------------------- ----------------
10(15) Employment Contract between the Registrant and S.M. Caravetta. (VII) *
-------------------- ----------------------------------------------------------------------------------- ----------------
16
<PAGE>
EXHIBIT INDEX
---------------- -------------------------------------------------------------------------------------- -----------------
Exhibit No. Description Page
---------------- -------------------------------------------------------------------------------------- -----------------
10(16) Employment Contract between the Registrant and James A. Pesce. (VII) *
---------------- -------------------------------------------------------------------------------------- -----------------
10(17) Agreement and Plan of Merger with Exhibits by and among the Registrant, Vanco *
Business Management, Inc. And David K. Vanco, dated as of December 31, 1992. (VIII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(18) Employment Agreement, dated as of January 1, 1993, between Management-Data Service, *
Inc., the Registrant and David K. Vanco. (VIII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(19) Registration Rights Agreement between David K. Vanco and the Registrant, dated as of *
December 31, 1992. (VIII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(20) Guaranty dated March 5, 1993, given by the Registrant to Harris Bank Roselle *
relating to loans to David K. Vanco. (VIII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(21) Letter agreement between David K. Vanco and the Registrant, dated March 5, 1993, *
relating to the guaranty of notes, from David K. Vanco to Harris Bank Roselle. (VIII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(22) Agreement of Merger with ACT/PC, dated September 15, 1993, amended November 12, *
1993. (X)
---------------- -------------------------------------------------------------------------------------- -----------------
10(23) Term Loan Agreement, dated as of December 13, 1993, between Stephen G. Sullivan and *
Registrant. (X)
---------------- -------------------------------------------------------------------------------------- -----------------
10(24) Guarantee Modification Agreement, dated as of December 13, 1993, between Stephen G. *
Sullivan and the Registrant. (X)
---------------- -------------------------------------------------------------------------------------- -----------------
10(25) Escrow Agreement, dated as of December 13, 1993, between Stephen G. Sullivan, *
Registrant and Crummy Del Deo Dolan Griffinger & Vecchione. (X)
---------------- -------------------------------------------------------------------------------------- -----------------
10(26) Termination Agreement relating to the Baxter Distribution/Sales Representation *
Agreement, dated December 17, 1993. (X)
---------------- -------------------------------------------------------------------------------------- -----------------
10(27) Amendment to Agreement and Plan of Merger between the Registrant and Management-Data *
Services, Inc., dated April 8, 1994. (XI)
---------------- -------------------------------------------------------------------------------------- -----------------
10(28) Amendment to Employment Agreement between David K. Vanco and the Registrant, dated *
April 8, 1994. (XI)
---------------- -------------------------------------------------------------------------------------- -----------------
10(29) Employment Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(30) Option Agreement, dated as of October 12, 1994, between the Registrant and Graham O. *
King. (XII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(31) Registration Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(32) Stockholder Agreement, dated as of October 12, 1994, between the Registrant and *
Graham O. King. (XII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(33) S.M. Caravetta Termination Agreement between S.M. Caravetta and the Registrant, *
dated as of October 12, 1994, as amended. (XII)
---------------- -------------------------------------------------------------------------------------- -----------------
10(34) Letter of Intent, dated June 26, 1995, between the Registrant and Frontenac VI *
Limited Partnership. (XIV)
---------------- -------------------------------------------------------------------------------------- -----------------
10(35) Registrant's Amended 1993 Stock Option Plan. (XIV) *
---------------- -------------------------------------------------------------------------------------- -----------------
17
<PAGE>
EXHIBIT INDEX
---------------- -------------------------------------------------------------------------------------- -----------------
Exhibit No. Description Page
---------------- -------------------------------------------------------------------------------------- -----------------
10(36) Registrant's Amended 1994 Stock Option Plan for Non-Employee Directors. (XIV) *
---------------- -------------------------------------------------------------------------------------- -----------------
---------------- -------------------------------------------------------------------------------------- -----------------
10(37) Series A Convertible Preferred Stock and Warrant Purchase Agreement, dated July 18, *
1995, by and among the Registrant, Robert E. King, Frontenac VI Limited Partnership
and Morgan Hollan Fund II, L.P. (XV)
---------------- -------------------------------------------------------------------------------------- -----------------
---------------- -------------------------------------------------------------------------------------- -----------------
10(38) Promissory Note of Graham O. King, dated June 14, 1995, payable to the Company. (XVI) *
---------------- -------------------------------------------------------------------------------------- -----------------
---------------- -------------------------------------------------------------------------------------- -----------------
10(39) First and Second Amendments to Series A Convertible Preferred Stock and Warrant 45
Purchase Agreements dated July 31, 1995 and October 10, 1995, respectively.
---------------- -------------------------------------------------------------------------------------- -----------------
18
<PAGE>
NOTES TO EXHIBIT INDEX
---------------- ----------------------------------------------------------------------------------------------------------
Note No. Description
---------------- ----------------------------------------------------------------------------------------------------------
(I) Incorporated by reference from the Form S-18 Registration Statement of the Registrant, dated June 10,
1986.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(II) Incorporated by reference from Amendment No. 1, dated September 6, 1986, to the Form S-18 Registration
Statement of the Registration
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(IV) Incorporated by reference from the Registrant's Form 8-K, dated October 1, 1990.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(V) Incorporated by reference from the Registrant's Form S-3, Registration No. 33-39062, dated April 11,
1991.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(VI) Incorporated by reference from the Registrant's form 8-K, dated June 18, 1991.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(VII) Incorporated by reference from the Registrant's Form 10-K, dated June 28, 1991.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(VIII) Incorporated by reference from the Registrant's Form 8-K, dated March 9, 1993.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(IX) Incorporated by reference from the Registrant's Form 8-K, dated September 15, 1993.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(X) Incorporated by reference from the Registrant's Form 8-K, dated December 28, 1993.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(XI) Incorporated by reference from the Registrant's Form 8-K, dated April 15, 1994.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(XII) Incorporated by reference from the Registrant's Form 8-K, dated November 1, 1994.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(XIII) Incorporated by reference from the Registrant's Form 10-Q, dated November 11, 1994.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(XIV) Incorporated by reference from the Registrant's Form 10-K, dated June 26, 1995.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(XV) Incorporated by reference from the Registrant's Form 10-K/A, dated July 24, 1995.
---------------- ----------------------------------------------------------------------------------------------------------
---------------- ----------------------------------------------------------------------------------------------------------
(XVI) Incorporated by reference from the Registrant's Form 10-Q, dated August 10, 1995.
---------------- ----------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
AMENDED AND
RESTATED CERTIFICATE
OF INCORPORATION
OF
MICRO HEALTHSYSTEMS, INC.
(Original Certificate of Incorporation
filed December 3, 1976)
MICRO HEALTHSYSTEMS, INC. (originally incorporated as "CPC
Corporation", the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the
State of Delaware (the "Law"), does hereby certify:
I. That the Board of Directors of the Corporation adopted a
resolution setting forth the Amended and Restated Certificate of Incorporation
set forth below, declaring it advisable and submitting it to the stockholders
entitled to vote in respect thereof for their consideration of such Amended and
Restated Certificate of Incorporation at the annual meeting of stockholders of
the Corporation.
II. That at such annual meeting of the stockholders, the holders of a
majority of the outstanding stock entitled to vote thereon has voted in favor of
the adoption of the Amended and Restated Certificate of Incorporation set forth
below.
III. That the Amended and Restated Certificate of
Incorporation set forth below has been duly adopted in accordance
with Sections 242 and 245 of the Law:
FIRST: The name of the Corporation is Micro
Healthsystems, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, in
the County of Kent. The name of the registered agent of the Corporation at such
address is the United States Corporation Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized
under the General Corporation Law of the State of Delaware, as
amended from time to time (the "Law").
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is Forty
Million (40,000,000), of which Thirty Million (30,000,000) shares
shall be of a class designated "Common Stock", having a par value
20
<PAGE>
of $.01 per share, and Ten Million (10,000,000) shares shall be of a class
designated "Preferred Stock", having a par value of $.01 per share.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class shall be
as follows:
(1) Common Stock Provisions
1.1 Dividend rights. Subject to provisions of law and the
preferences and other rights of the Preferred Stock, or any series
thereof, and of any other stock ranking prior to the Common Stock as to
dividends, the holders of the Common Stock shall be entitled to receive
dividends at such time and in such amounts as may be determined by the
Board of Directors of the Corporation.
1.2 Voting rights. Except as provided by law and in or this
Restated Certificate of Incorporation and subject to the rights of the
Preferred Stock, or any series thereof, each share of the Common Stock
shall entitle the holder thereof to one vote on each matter submitted
to a vote of the stockholders of the Corporation.
1.3 Liquidation rights. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary (a "Liquidation"), after payment or provision for payment
of the debts and other liabilities of the Corporation and the
preferential amounts to which the holders of any stock ranking prior to
the Common Stock in the distribution of assets shall be entitled upon
such Liquidation, and subject to participation rights, if any, of the
Preferred Stock, or any series thereof, the holders of the Common Stock
and the holders of any other stock ranking on a parity with the Common
Stock in the distribution of assets upon such Liquidation shall be
entitled to share in the remaining assets of the Corporation according
to their respective interests.
(2) Preferred Stock Provisions
2.1 The Preferred Stock may be issued from time to time by the
Board of Directors of the Corporation in one or more series. All shares
of any one series of Preferred Stock shall be identical except as to
the dates of issue and the dates from which dividends on shares of the
series issued on different dates shall accumulate (if cumulative).
Subject to the Law, authority is expressly granted to the Board of
Directors of the Corporation to authorize the issuance of one or more
series of Preferred Stock, and to fix by resolution or resolutions
providing
21
<PAGE>
for the issuance of each such series the voting powers, designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions, of such
series, to the full extent now or hereafter permitted by law,
including, but not limited to, the following:
(a) The number of shares of such series, which may
subsequently be increased (except as otherwise provided by the
resolution or resolutions of the Board of Directors of the
Corporation providing for the issuance of such series) or
decreased (to a number not less than the number of such shares
then outstanding) by resolution or resolutions of the Board of
Directors of the Corporation, and the distinctive designation
thereof;
(b) The dividend rights of such series, the preferences, if
any, over any other class or series of stock, or of any other
class or series of stock over such series, as to dividends,
the extent, if any, to which shares of such series shall be
entitled to participate in dividends with shares of any other
series or class of stock, whether dividends on shares of such
series shall be fully, partially or conditionally cumulative,
or a combination thereof, and any limitations, restrictions or
conditions on the payment of such dividends;
(c) The rights of such series, and the preferences, if any,
over any other class or series of stock, or of any other class
or series of stock over such series, in the event of any
voluntary or involuntary Liquidation of the Corporation and
the extent, if any, to which shares of any such series shall
be entitled to participate in such event with any other series
or class of stock;
(d) The time or times during which, the price
or prices at which, and the terms and
conditions on which, the shares of such series
may be redeemed;
(e) The terms of any purchase, retirement or
sinking fund which may be provided for the
shares of such series;
(f) The terms and conditions, if any, upon
which the shares of such series shall be
convertible into or exchangeable for shares of
22
<PAGE>
any other series, class or classes, or any
other securities, to the full extent now or
hereafter permitted by law;
(g) The voting powers or rights, if any, of
such series in addition to the voting powers
provided by law;
(h) The limitations or restrictions, if any, applicable, while
shares of such series are outstanding, to the payment of
dividends or making of distributions on, or the acquisition
of, or the use of monies for purchase or redemption of, any
other class or series of stock of the Corporation, or upon any
other action of the Corporation, and the terms and conditions
thereof; and
(i) Any other preference, rights, powers, limitations and
restrictions, including without limitation restrictions on
transferability, and qualifications of shares of such series,
not inconsistent with law and this Restated Certificate of
Incorporation.
2.2 Any shares of any series of Preferred Stock which shall at
any time be acquired by the Corporation by reasons of redemption or
otherwise shall become part of the authorized but undesignated
Preferred Stock and be subject to designation as provided in Section
2.1.
2.3 The amendment of the terms of any certificate of
designation of any series of the Preferred Stock of which shares are
outstanding shall require only (i) that the Board of Directors of the
Corporation adopt a resolution setting forth the amendment proposed,
declaring its advisability, and either calling a special meeting of the
holders of such series of Preferred Stock for consideration of such
amendment or directing that the amendment proposed be considered at the
next annual meeting of stockholders by the holders of such series of
Preferred Stock (in either event, subject to the ability of such
holders to act by written consent in lieu of a meeting), and (ii) that
the holders of a majority (or such greater number as may be required by
the certificate of designation of such series) of the outstanding
shares of such series of Preferred Stock have voted in favor of the
amendment. Except for holders of a series of Preferred Stock the terms
of which are being amended, no holder of Common Stock and no holder of
any series of Preferred Stock shall be entitled to vote upon such
amendment unless the rights of such holders would be adversely affected
by such amendment or such vote shall
23
<PAGE>
otherwise be required by law or by any certificate of
designation of any series of Preferred Stock.
FIFTH: The following provisions are inserted for the regulation and
conduct of the affairs of the Corporation, and it is expressly provided that
they are intended to be in furtherance, and not in limitation or exclusion, of
the powers elsewhere conferred herein or in the by-laws of the Corporation or
conferred by law:
(1) Subject to any limitations set forth in the Certificate of
Designation with respect to any series of Preferred Stock, the number
of directors of the Corporation shall be such as from time to time
shall be fixed by, or in the manner provided in, the by-laws of the
Corporation. Election of directors need not be by written ballot unless
the by-laws of the Corporation so provide.
(2) The Board of Directors of the Corporation shall
have the power without the assent or vote of the
stockholders:
(a) To make, alter, amend, change, add to or repeal the
by-laws of the Corporation; to fix and vary the amount to be
reserved for any proper purpose; to authorize and cause to be
executed mortgages and liens upon all or any part of the
property of the Corporation; to determine the use and
disposition of any surplus or net profits; and to fix the
times for the declaration and payment of dividends.
(b) To determine from time to time whether, and to what
extent, and at what times and places, and under what
conditions and regulations, the accounts and books of the
Corporation (other than the stock ledger) or any of them,
shall be open to the inspection of the stockholders.
(3) The Board of Directors of the Corporation may, in its
discretion, submit any contract or act for approval or ratification at
any annual meeting of the stockholders or in any meeting of the
stockholders called for the purpose of considering any such act or
contract, and any contract or act that shall be approved or be ratified
by the vote of the holders of a majority of the stock of the
Corporation which is represented in person or by proxy at such meeting
and entitled to vote thereat
24
<PAGE>
(provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the
Corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of the Corporation, whether
or not the contract or act would otherwise be open to legal attack
because of directors' interest, or for any other reason.
(4) In addition to the powers and authorities set forth herein
or by statute expressly conferred upon it, the Board of Directors of
the Corporation is hereby empowered to exercise all such powers and do
all such acts and things as may be exercised or done by the
Corporation; subject to the provisions of the General Corporation Law
of the State of Delaware, as amended from time to time, this Amended
and Restated Certificate, and the by-laws of the Corporation from time
to time adopted by the stockholders; provided, however, that no by-law
of the Corporation so adopted shall invalidate any prior act of the
directors which would have been valid if such by-law of the Corporation
had not been adopted.
To the extent any committee of directors of the Corporation is lawfully entitled
to exercise the powers of the Board of Directors of the Corporation, such
committee may exercise any right or authority of the Board of Directors under
this Amended and Restated Certificate of Incorporation and references herein to
the Board of Directors of the Corporation shall include any committee thereof.
SIXTH: No holder of any of the shares of the stock of the Corporation,
whether now or hereafter authorized and issued, shall be entitled as of right to
purchase or subscribe for (1) any unissued stock of any class, or (2) any
additional shares of any class to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other securities convertible into
stock of the Corporation, or carrying any right to purchase stock of any class,
but any such unissued stock or such additional authorized issue of any stock or
of other securities convertible into stock, or carrying any right to purchase
stock, may be issued and disposed of pursuant to resolution of the Board of
Directors of the Corporation to such persons, firms, corporations or
associations and upon such terms as may be deemed advisable by the Board of
Directors of the Corporation in the exercise of its discretion.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the
25
<PAGE>
Corporation under the provisions of Section 291 of the Law, as amended from time
to time, or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
the Law, as amended from time to time, order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, said comprise or arrangement and said
reorganization shall, if sanctioned by the court to which said application has
been made, be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of the Corporation, as the case may
be, and also on the Corporation.
EIGHTH: The Corporation shall, to the full extent permitted by Section
145 of the Delaware General Corporation Law of the State of Delaware, as amended
from time to time, indemnify all persons whom it may indemnify pursuant thereto.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in the certificate of incorporation in the
manner now or hereafter prescribed by statute and all rights conferred on
officers, directors and stockholders herein are granted subject to this
reservation.
TENTH: No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breaches of
fiduciary duty as a director to the extent permitted by law, except that this
provision shall not eliminate or limit the liability of any director (1) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) under Section 174 of the Law, as
amended from time to time, or (4) for any transaction from which the director
derived an improper personal benefit.
ELEVENTH: The certificate of incorporation of the Corporation,
as herein amended, shall constitute a restatement of and shall
supersede the certificate of incorporation of the Corporation, as
previously amended.
[Balance of Page Intentionally Left Blank]
26
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its Chairman of the Board,
President or one of its Vice Presidents on October 10, 1995.
MICRO HEALTHSYSTEMS, INC.
By:
Title:
27
<PAGE>
<TABLE>
<CAPTION>
US SERVIS, INC. (f/k/a MICRO HEALTHSYSTEMS, INC.)
CERTIFICATE OF DESIGNATION RELATING
TO THE SERIES A CONVERTIBLE PREFERRED STOCK WITH A PAR VALUE OF
$.01 PER SHARE OF US SERVIS, INC. (f/k/a MICRO HEALTHSYSTEMS, INC.)
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
<S> <C>
US SERVIS, INC. (f/k/a MICRO Healthsystems, Inc.), a Delaware
corporation (the "Corporation"), hereby certifies that pursuant to
the authority contained in Article Fourth of the Corporation's
Amended and Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation"), and in accordance with the
provisions of Section 151 of the General Corporation Law of the
State of Delaware, the following resolution was duly adopted by the
Board of Directors of the Corporation, creating a series of its
Preferred Stock designated as "Series A Convertible Preferred
Stock":
RESOLVED, that there is hereby created a series of the
Preferred Stock of the Corporation designated Series A Convertible
Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), consisting of 1,500,000 shares and having the voting
powers, preferences and relative, participating, optional,
conversion and other special rights, and the qualifications,
limitations or restrictions, hereinafter set forth:
Section 1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's Board of Directors and to the extent permitted under
the General Corporation Law of Delaware, the Corporation will pay
preferential cumulative dividends to the holders of Series A
Preferred Stock as provided in this Section 1. Except as otherwise
provided herein, dividends on each share of Series A Preferred
Stock will accrue on a daily basis at the rate of 8% compounded
quarterly on each Dividend Reference Date (defined below) per annum
of the Liquidation Value thereof plus accumulated and unpaid
dividends thereon from and including the date of issuance of such
share of Series A Preferred Stock to and including the earlier of
(i) the date on which the Liquidation Value of such share of Series
A Preferred Stock plus any accrued and unpaid dividends thereon is
paid upon any liquidation, dissolution or winding up of the
Corporation, (ii) the date on which such share of Series A
Preferred Stock is converted into Common Stock or (iii) the date on
which such share of Series A Preferred Stock is redeemed in
accordance with Section 3 hereof. Such dividends will accrue
whether or not they have been declared and whether or not there are
28
<PAGE>
profits, surplus or other funds of the Corporation legally
available for the payment of dividends. The date on which the
Corporation initially issues any share of Series A Preferred Stock
will be deemed to be its "date of issuance" regardless of the
number of times transfer of such share of Series A Preferred Stock
is made on the stock records maintained by or for the Corporation
and regardless of the number of certificates which may be issued to
evidence such share of Series A Preferred Stock.
1B. Dividend Reference Dates. To the extent not paid on
March 31, June 30, September 30 and December 31 of each year (the
"Dividend Reference Dates"), all dividends which have accrued on
each share of Series A Preferred Stock outstanding during the
three-month period (or other period in the case of the initial
Dividend Reference Date) shall be accumulated and shall remain
accumulated dividends with respect to each such share of Series A
Preferred Stock until paid.
1C. Distribution of Partial Dividend Payments. If at
any time the Corporation pays less than the total amount of
dividends then accrued with respect to Series A Preferred Stock,
such payment will be distributed ratably among the holders of
Series A Preferred Stock on the basis of the amount of accrued and
unpaid dividends with respect to the shares of Series A Preferred
Stock owned by each such holder.
1D. Preference. The holders of Series A Preferred Stock
shall be entitled to dividends and distributions in preference and
priority to holders of Junior Securities. The Corporation shall
not, without the prior written consent of the holders of not less
than a majority of the shares of Series A Preferred Stock then
outstanding pay any dividend or distribution (other than dividends
payable solely in Junior Securities) on any Junior Securities at
any time when accumulated dividends on Series A Preferred Stock
have not been paid in full.
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation (a "Liquidation"), each holder of Series A Preferred
Stock will be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal
to the aggregate Liquidation Value of all of such holder's shares
of Series A Preferred Stock plus all accrued but unpaid dividends
thereon. If upon a Liquidation, the Corporation's assets available
for distribution to its stockholders after payments on Senior
Securities (as defined herein) are insufficient to permit payment
to the holders of Series A Preferred Stock of the aggregate
Liquidation Value of Series A Preferred Stock plus all accrued but
unpaid dividends thereon and to the holders of Pari Passu
Securities (as defined herein) the entire preferential amount
payable with respect to any Pari Passu Securities, then the entire
assets available for distribution will be distributed, pro rata
based upon the aggregate liquidation value of the securities held
29
<PAGE>
by each holder thereof, among the holders of (i) Series A Preferred
Stock (pro rata based upon the aggregate Liquidation Value of
Series A Preferred Stock held by each such holder plus all accrued
but unpaid dividends thereon) and (ii) Pari Passu Securities.
After payment in full shall have been made to the holders of
Series A Preferred Stock of the aggregate Liquidation Value of
Series A Preferred Stock plus all accrued but unpaid dividends
thereon, the holders of the Series A Preferred Stock shall not
share in any remaining assets of the Corporation available for
distribution. The Corporation will mail written notice of a
Liquidation to each record holder of Series A Preferred Stock not
less than thirty (30) days prior to the effective date thereof.
Neither the consolidation or merger of the Corporation into or with
any other corporation or corporations, nor the sale or transfer by
the Corporation of all or any part of its assets, nor the reduction
of the capital stock of the Corporation, will be deemed to be a
Liquidation within the meaning of this Section 2.
Section 3. Redemptions.
3A. Mandatory Redemption. On October 12, 2000, the
Corporation shall redeem all (but, subject to Section 3C, not less
than all) of Series A Preferred Stock then outstanding in
accordance with this Section 3 at a price per share of Series A
Preferred Stock equal to the Redemption Price (as defined below),
which Redemption Price shall be payable in accordance with the
Amortization Schedule attached hereto as Schedule 3A.
3B. Redemption Price. For each share of Series A
Preferred Stock which is to be redeemed, the Corporation shall be
obligated to pay to the holder thereof an amount in immediately
available funds (the "Redemption Price") equal to the Liquidation
Value thereof plus all accrued but unpaid dividends thereon in
accordance with the Amortization Schedule attached hereto as
Schedule 3A. The first installment of the Redemption Price shall
be paid to each holder of Series A Preferred Stock upon surrender
by such holder at the Corporation's principal office of the
certificate representing such share of Series A Preferred Stock.
Unless the Corporation fails to pay the portion of Redemption Price
owed to the holder of a share of Series A Preferred Stock upon
presentation of the certificate representing such share on or after
the date on which such share is to be redeemed, all rights of the
holder of such share (other than the right to receive payment of
the Redemption Price as set forth herein) shall cease on such date,
and such share shall not be deemed to be outstanding thereafter.
3C. Insufficient Funds. If the funds of the Corporation
legally available for redemption of Series A Preferred Stock are
insufficient to redeem the total number of shares of Series A
Preferred Stock to be redeemed, those funds which are legally
available will be used to redeem the maximum possible number of
shares of Series A Preferred Stock ratably among the holders of
such shares to be redeemed based upon the Redemption Price of the
Series A Preferred Stock held by each such holder. Thereafter,
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when additional funds of the Corporation are legally available for
the redemption of Series A Preferred Stock, such funds will be used
to redeem the balance of the shares of Series A Preferred Stock
which the Corporation became obligated to redeem but which it has
not redeemed (such redemptions to be made on a monthly basis). In
case fewer than the total number of shares of Series A Preferred
Stock represented by any certificate are redeemed in any
installment, a new certificate representing the number of
unredeemed shares of such Series A Preferred Stock will be issued
to the holder promptly without cost to such holder promptly after
surrender of the certificate representing the redeemed shares of
Series A Preferred Stock.
3D. Redeemed or Otherwise Acquired Shares. Any shares
of Series A Preferred Stock which are redeemed or otherwise
acquired by the Corporation will be canceled and will not be
reissued, sold or otherwise transferred.
Section 4. Voting Rights.
(a) Except as otherwise required by law, the Restated
Certificate of Incorporation of the Corporation, as amended, or any
certificate of designation, the holders of Series A Preferred Stock
will be entitled to vote with the holders of Common Stock on each
matter submitted to a vote of the Corporation's stockholders as a
single class, with each share of Series A Preferred Stock having a
number of votes equal to the number of votes possessed by the
number of shares of Common Stock into which such share of Series A
Preferred Stock is convertible as of the record date for the
determination of stockholders entitled to vote on such matter and
shall be entitled to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation. Fractional votes
shall not be permitted and any fractional voting rights resulting
from the above formula (after aggregating all shares into which
shares of Series A Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-
half being rounded upward).
(b) So long as at least 300,000 shares of Series A
Preferred Stock are then outstanding and Frontenac VI Limited
Partnership owns not less than a majority of such shares, the
holders of Series A Preferred Stock, voting as a single class,
shall be entitled to elect one (1) member of the Board of Directors
who shall also be a member of the Executive Committee of the Board
of Directors (or an equivalent committee, if any) (the "Preferred
Director"). Except as otherwise required by the Restated
Certificate of Incorporation of the Corporation, as amended, or any
certificate of designation, the holders of Common Stock and the
holders of Preferred Stock, voting as a single class, shall be
entitled to elect the remaining members of the Board of Directors.
(c) Notwithstanding any other provision in the Restated
Certificate of Incorporation, as amended, any certificate of
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designation, or the Bylaws of the Corporation, the Board of
Directors shall not at any time consist of more than twelve (12)
members without the prior written approval of the Preferred
Director.
Section 5. Conversion.
5A. Conversion Procedure.
(i) At any time and from time to time, any holder
of shares of Series A Preferred Stock may convert all or any
portion of such shares (including any fraction of a share) into the
number of shares of Common Stock computed by dividing (a) the
number of shares of Series A Preferred Stock to be converted times
$4.00 per share, by (b) the Conversion Price (as defined in Section
5B below).
(ii) Each conversion of Series A Preferred Stock
will be deemed to have been effected as of the close of business on
the date on which the certificate or certificates representing
Series A Preferred Stock to be converted have been surrendered at
the principal office of the Corporation. At such time as such
conversion has been effected, the rights of the holder of such
Series A Preferred Stock as such holder will cease and the Person
or Persons in whose name or names any certificate or certificates
for shares of Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record of
the shares of Common Stock represented thereby.
(iii) As soon as possible after a conversion has been
effected and in no event later than ten (10) business days after
delivery of the certificate representing the shares converted, the
Corporation will deliver to the converting holder:
(a) a certificate or certificates representing
the number of shares of Common Stock issuable by reason of
such conversion in such name or names and such denomination or
denominations as the converting holder has specified;
(b) the amount payable under Section 5A(vi)
below with respect to such conversion;
(c) a certificate representing any shares of
Series A Preferred Stock which were represented by the
certificate or certificates delivered to the Corporation in
connection with such conversion but which were not converted;
and
(d) the amount of accrued but unpaid dividends
payable under Section 1A(ii) above with respect to each share
of Series A Preferred Stock so converted to the extent funds
are legally available to pay such dividends.
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(iv) The issuance of certificates for shares of
Common Stock upon conversion of Series A Preferred Stock will be
made without charge to the holders of such Series A Preferred Stock
for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and the related
issuance of shares of Common Stock. Upon conversion of any share
of Series A Preferred Stock, the Corporation will take all such
actions as are necessary in order to insure that the Common Stock
issued as a result of such conversion is validly issued, fully paid
and nonassessable.
(v) The Corporation will not close its books
against the transfer of Series A Preferred Stock or of Common Stock
issued or issuable upon conversion of Series A Preferred Stock in
any manner which interferes with the timely conversion of Series A
Preferred Stock.
(vi) If any fractional interest in a share of Common
Stock would, except for the provisions of this Section 5A(vi), be
deliverable upon any conversion of Series A Preferred Stock, the
Corporation, in lieu of delivering the fractional share therefor,
shall pay an amount to the holder thereof equal to the market price
of such fractional interest as of the date of conversion, as
determined in good faith by the Board of Directors of the
Corporation.
5B. Conversion Price.
(a) The initial "Conversion Price" will be $4.00 per
share. In order to prevent dilution of the conversion rights
granted under this subdivision, the Conversion Price will be
subject to adjustment from time to time pursuant to this Section
5B; provided, however, that there will be no adjustment of the
Conversion Price as a result of (i) issuances or deemed issuances
of Common Stock for incentive or compensatory purposes to
directors, officers and employees of, and consultants to, the
Corporation and its Subsidiaries which are from time to time
approved by the Board of Directors, including, without limitation,
grants of stock options and the issuance of Common Stock upon the
exercise thereof ("Compensatory Stock"), but not exceeding any time
prior to October 12, 1996 (or any time thereafter unless approved
by the Board of Directors of the Corporation), 3,057,000 shares of
Common Stock (net of any repurchases of such shares or options),
subject to adjustment for all subdivisions and combinations of
Common Stock, (ii) any split, subdivision or combination of Common
Stock into a different number of securities of the same class
(subject to Section 11.5 hereof) ("Split Stock"), (iii) issuances
or deemed issuances of Common Stock upon exercise or conversion, as
the case may be, of the Series A Warrants or the Series B Warrants
(each as defined in the Stock and Warrant Purchase Agreement) or
the Series A Preferred Stock ("Converted Stock"), (iv) issuances or
deemed issuances of not more than 55,000 shares of Common Stock to
David K. Vanco pursuant to that certain Agreement and Plan of
Merger between the Corporation, Vanco Business Management, Inc. and
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David K. Vanco, as amended (subject to adjustment for all
subdivisions and combinations) ("Vanco Stock") or (v) any
distribution, granting or sale of any Purchase Rights in accordance
with Section 7 hereof ("Purchase Stock", and together with
Compensatory Stock, Split Stock, Converted Stock and Vanco Stock,
the "Excluded Stock"). Anything herein to the contrary
notwithstanding, no adjustment in the Conversion Price shall be
required unless such adjustment, either by itself or with other
adjustments not previously made, would require a change of at least
$.10 in such price; provided, however, that any adjustment which by
reason of this sentence is not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(b) If and whenever, after the date of issuance, the
Corporation issues or sells, or in accordance with Section 5C is
deemed to have issued or sold, any shares of its Common Stock
(other than Excluded Stock) for a consideration per share less than
the Conversion Price in effect immediately prior to the time of
such issuance or sale, then forthwith upon such issuance or sale
the Conversion Price will be reduced to the conversion price
determined by dividing (a) the sum of (1) the product derived by
multiplying the Conversion Price in effect immediately prior to
such issuance or sale times the number of shares of Common Stock
Deemed Outstanding immediately prior to such issuance or sale, plus
(2) the consideration, if any, received or deemed received by the
Corporation upon such issuance or sale, by (b) the number of shares
of Common Stock Deemed Outstanding immediately prior to such
issuance or sale plus the number of shares of Common Stock issued
or deemed to have been issued in such sale pursuant to this Section
5.
5C. Effect on Conversion Prices of Certain Events.
(i) For purposes of determining the adjusted
Conversion Price under Section 5B(ii), the following will be
applicable.
(a) Issuance of Rights or Options. If the
Corporation in any manner grants, issues or sells any right,
warrant or option to subscribe for or to purchase Common Stock
or any stock or other securities convertible into or
exchangeable for Common Stock (such rights, warrants or
options being herein called "Options," and such convertible or
exchangeable stock or securities being herein called
"Convertible Securities") (other than Excluded Stock) and the
price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of any
such Convertible Securities is less than the Conversion Price
in effect immediately prior to the time of the granting,
issuance or sale of such Options, then the total maximum
number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
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and to have been issued and sold by the Corporation at the
time of the granting of such Options for such price per share.
For purposes of this Section, the "price per share for which
Common Stock is issuable" shall be determined by dividing (A)
the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration
payable to the Corporation upon exercise of all such Options,
plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the
conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the exercise of
such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No further adjustment of the Conversion Price shall
be made when Convertible Securities are actually issued upon
the exercise of such Options or when Common Stock is actually
issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible
Securities (other than Excluded Stock) and the price per share
for which Common Stock is issuable upon conversion or exchange
thereof is less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the
maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by
the Corporation at the time of the issuance or sale of such
Convertible Securities for such price per share. For the
purposes of this Section, the "price per share for which
Common Stock is issuable" shall be determined by dividing (A)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further
adjustment of the Conversion Price shall be made when Common
Stock is actually issued upon the conversion or exchange of
such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any
Options for which adjustments of the Conversion Price had been
or are to be made pursuant to other provisions of this Section
5, no further adjustment of the Conversion Price shall be made
by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If
the purchase price provided for in any Option, the additional
consideration (if any) payable upon the issue, conversion or
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exchange of any Convertible Security, or the rate at which any
Convertible Security is convertible into or exchangeable for
Common Stock change at any time, and such change is not due
solely to the operation of anti-dilution provisions similar in
nature to those set forth in this Section 5, the Conversion
Price in effect at the time of such change shall be readjusted
to the Conversion Price which would have been in effect at
such time had such Option or Convertible Security originally
provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(d) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or
the termination of any right to convert or exchange any
Convertible Security without the exercise of any such Option
or right, the Conversion Price then in effect hereunder will
be adjusted to the Conversion Price which would have been in
effect at the time of such expiration or termination had such
Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never
been issued.
(e) Calculation of Consideration Received. If any
Common Stock, Option or Convertible Security is issued or sold
or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the gross
amount received by the Corporation therefor. If any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount
of consideration received by the Corporation will be the
Market Price thereof as of the date of receipt. If any Common
Stock, Option or Convertible Security is issued in connection
with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets
and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash and securities will be
determined jointly by the Corporation and the holders of a
majority of the outstanding Series A Preferred Stock. If such
parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will
be determined by an independent appraiser jointly selected by
the Corporation and the holders of a majority of the
outstanding Series A Preferred Stock; provided if such parties
are unable to reach agreement upon the selection of an
independent appraiser within fifteen (15) days after the
Valuation Event, within twenty-five (25) days after the
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Valuation Event, the Corporation and the holders of a majority
of Series A Preferred Stock then outstanding will each choose
a qualified independent appraiser reasonably acceptable to the
other party and each such appraiser will deliver in writing
its determination of the fair value of such consideration. If
the difference between the two appraisals is 10% or less of
the lower amount, the fair value will be the average of such
two appraisals. If the difference between the two appraisals
is greater than 10% of the lower amount, the two appraisers
will, within thirty-five (35) days after the Valuation Event,
jointly choose a third qualified independent appraiser.
Within forty-five (45) days after the Valuation Event, the
third appraiser will deliver its determination of fair value
and the final determination of the fair value of such
consideration will be equal to the average of the two (2)
appraisals which are nearest to each other. The expenses of
the appraisers will be paid one-half by the Corporation and
one-half by the holders of Series A Preferred Stock (pro rata
based on the number of shares of Series A Preferred Stock
held).
(f) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Corporation, together comprising one
integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, the Option
will be deemed to have been issued for a consideration of
$.01.
(g) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include
shares owned or held by or for the account of the Corporation
or any Subsidiary, and the disposition of any shares so owned
or held will be considered an issue or sale of Common Stock.
(h) Record Date. If the Corporation takes a record
of the holders of Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable
in Common Stock, Options or Convertible Securities or (ii) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the
date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such
dividend or upon the making of such other distribution or the
date of the granting of such right of subscription or
purchase, as the case may be.
5D. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price
in effect immediately prior to such subdivision will be
proportionately reduced, and if the Corporation at any time
combines (by combination, reverse stock split or otherwise) its
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outstanding shares of Common Stock into a smaller number of shares,
the Conversion Price in effect immediately prior to such
combination will be proportionately increased.
5E. Reorganization, Reclassification, Consolidation,
Merger or Sale. Any capital reorganization, reclassification,
consolidation, merger, exchange of shares or sale or transfer or
more than 80% of the Corporation's assets to another Person which
is effected in such a way that holders of Common Stock are entitled
to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common
Stock is referred to herein as a "Corporate Change." Prior to the
consummation of any Corporate Change, the Corporation will make
appropriate provisions (in form and substance reasonably
satisfactory to the holders of a majority of Series A Preferred
Stock then outstanding) to insure that each of the holders of
Series A Preferred Stock will thereafter have the right to acquire
and receive, in lieu of or (if additional consideration is
received) in addition to the shares of Common Stock immediate
theretofore acquirable and receivable upon the conversion of such
holder's Series A Preferred Stock, such shares of stock, securities
or assets as such holder would have received in connection with
such Corporate Change if such holder had converted its Series A
Preferred Stock immediately prior to such Corporate Change. In any
such case, the Corporation will make appropriate provisions (in
form and substance reasonably satisfactory to the holders of a
majority of Series A Preferred Stock then outstanding) to insure
that the provisions of this Section 5 and Sections 6 and 7 will
thereafter be applicable to Series A Preferred Stock (including,
without limitation, in the case of any such consolidation, merger
or sale in which the successor corporation or purchasing
corporation is other than the Corporation, an immediate adjustment
of the Conversion Price to the value for the Common Stock reflected
by the terms of such consolidation, merger or sale). The
Corporation will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor corporation
(if other than the Corporation) resulting from such consolidation
or merger or the corporation purchasing such assets assumes by
written instrument (in form and substance reasonably satisfactory
to the holders of a majority of Series A Preferred Stock then
outstanding), the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
5F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 5 but not expressly
provided for by such provisions, then the Board of Directors will
make an appropriate adjustment in each Conversion Price so as to
protect the rights of the holders of Series A Preferred Stock.
5G. Notices.
(i) Immediately upon any adjustment of the
Conversion Price of any class of Series A Preferred Stock, the
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Corporation will give written notice thereof to all holders of such
class of Series A Preferred Stock.
(ii) The Corporation will give written notice to all
holders of Series A Preferred Stock at least twenty (20) days prior
to the date on which the Corporation closes its books or takes a
record (a) with respect to any dividend or distribution upon Common
Stock, (b) with respect to any pro rata subscription offer to
holders of Common Stock or (c) for determining rights to vote with
respect to any Corporate Change, dissolution or liquidation.
(iii) The Corporation will also give written notice
to the holders of Series A Preferred Stock at least twenty (20)
days prior to the date on which any Corporate Change will take
place.
5H. Mandatory Conversion. (a) The Corporation may
require the conversion of all of the outstanding Series A Preferred
Stock at any time after a Triggering Event. A "Triggering Event"
shall be deemed to have occurred on any date after October 12, 1997
(a "Determination Date") if, as of the Determination Date, the sum
of (a) the product of (x) the Market Price of a share of the Common
Stock as of the Determination Date, and (y) the number of shares of
Common Stock (including for purposes of this calculation fractional
shares) that is then issuable upon conversion of one (1) share of
Series A Preferred Stock, plus (b) the amount of all dividends
(whether in the form of cash, securities or other properties) that
accrued (whether paid or unpaid) on each share of Class A Preferred
Stock from October 12, 1995 to and including the Determination
Date, plus (c) fifty percent (50%) of the product of (I) the
difference between (x) the Market Price of a share of Common Stock
as of the Determination Date and (y) the Exercise Price per share
of Common Stock of the Series B Warrants (as defined in the Stock
and Warrant Purchase Agreement) (the "Series B Warrants") in effect
on the Determination Date (or, if no Series B Warrants are then
outstanding, the Exercise Price per share of Common Stock that
would then be in effect on the Determination Date with respect to
the Series B Warrants had the Series B Warrants remained
outstanding through the Determination Date), (II) .132, and (III)
a fraction, the numerator of which is the aggregate number of
shares of Common Stock (including for purposes of this calculation
fractional shares) that would be issuable on the Determination Date
upon exercise of all of the Series B Warrants issued pursuant to
the Stock and Warrant Purchase Agreement had all such Series B
Warrants remained outstanding through the Determination Date
without being exercised, in whole or in part, on or prior to the
Determination Date, and the denominator of which is 198,000, equals
or exceeds $11.00 (the "Trigger Price"); provided, such Trigger
Price shall be proportionately decreased in the event of a split or
subdivision, or proportionately increased in the event of a
combination, of the Common Stock into a different number of
securities of the same class.
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Any such mandatory conversion shall be effected at the
time of and subject to the occurrence of such a Triggering Event
and upon the giving notice of such mandatory conversion to all
holders of Series A Preferred Stock without any further action by
the holders of such shares or the Corporation. Upon any such
conversion subsequent to a Triggering Event, shares of Common Stock
issued upon such conversion shall be registered with the Securities
Exchange Commission in the manner prescribed, and subject to the
terms and conditions of, that certain Registration Rights Agreement
dated as of October 12, 1995 among the Corporation and the
investors named therein.
(b) Upon the conversion of all of the shares of Series
A Preferred Stock initially issued to Frontenac VI Limited
Partnership, all of the remaining shares of Series A Preferred
Stock then outstanding shall be automatically converted into shares
of Common Stock at the Conversion Price then in effect, without any
further action by the holders of such shares or the Corporation.
(c) Upon any such conversion pursuant to this Section or
Section 3C, the rights of each holder of such Series A Preferred
Stock as such holder shall cease and the Person or Persons in whose
name or names any certificate or certificates for shares of Series
A Preferred Stock shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented
thereby. Promptly following delivery of written notice from the
Corporation to each holder of Series A Preferred Stock that such a
conversion has occurred, each such holder shall deliver
certificates representing the shares of Series A Preferred Stock
held by such holder to the Corporation for cancellation.
Section 6. Liquidating Dividends.
If the Corporation pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus
(in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares
of Common Stock or a stock split (a "Liquidating Dividend"), then
the Corporation shall pay to the holders of Series A Preferred
Stock at the time of payment thereof the Liquidating Dividends
which would have been paid on such Common Stock had such Series A
Preferred Stock been converted into Common Stock immediately prior
to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the
record holders of Common Stock entitled to such dividends are to be
determined.
Section 7. Purchase Rights.
If at any time the Corporation distributes, grants or
sells any Options, Convertible Securities or rights to stock,
warrants, securities or other property to all record holders of any
class of Common Stock (the "Purchase Rights"), then each holder of
Series A Preferred Stock will be entitled to acquire, upon the
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terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had
held the number of shares of Common Stock acquirable upon
conversion of such holder's Series A Preferred Stock immediately
before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be
determined for the distribution, issue or sale of such Purchase
Rights.
Section 8. Registration of Transfer.
The Corporation will keep at its principal office a
register for the registration of Series A Preferred Stock. Upon
the surrender of any certificate representing Series A Preferred
Stock at such place, the Corporation will, at the request of the
record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of
shares of Series A Preferred Stock represented by the surrendered
certificate. Each such new certificate will be registered in such
name and will represent such number of shares of Series A Preferred
Stock as is requested by the holder of the surrendered certificate
and will be substantially identical in form to the surrendered
certificate; provided, however, that any transfer shall be subject
to any applicable restrictions on the transfer of such shares and
the payment of any applicable transfer taxes, if any, by the holder
thereof.
Section 9. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing shares of Series A
Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to
the Corporation, or, in the case of any such mutilation, upon
surrender of such certificate, the Corporation will (at its
expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of
Series A Preferred Stock represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
Section 10. Definitions.
"Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at
such time, plus, the number of shares of Common Stock issuable upon
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the exercise, conversion or exchange of all Options or Convertible
Securities then outstanding, whether or not they are actually
exercisable, convertible or exchangeable at such time (including,
without limitation, the Series A Preferred Stock).
"Junior Securities" means the Corporation's equity
securities other than Series A Preferred Stock, Senior Securities
or Pari Passu Securities.
"Liquidation Value" means $4.00 per share.
"Market Price" of any security means the average of the
closing prices of such security's sales on all securities exchanges
on which such security may at the time be listed, or, if there has
been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day such security is not so listed,
the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day
such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in
each such case averaged over a period of ten (10) days consisting
of the day as of which "Market Price" is being determined and the
nine (9) consecutive business days prior to such day. If at any
time such security is not listed on any securities exchange or
quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" will be the fair value thereof determined jointly by
the Corporation and the holders of a majority of Series A Preferred
Stock. If such parties are unable to reach agreement within a
reasonable period of time, such fair value will be determined by an
independent appraiser jointly selected by the Corporation and the
holders of a majority of Series A Preferred Stock. The expenses of
the appraisers will be paid one-half by the Corporation and one-
half by the holders of the Series A Preferred Stock (pro rata based
on the number of shares of Common Stock which would be issuable
upon conversion by the holders of the Series A Preferred Stock).
"Pari Passu Securities" means any securities of the
Corporation that rank on a parity with the Series A Preferred Stock
with respect to dividends or upon a Liquidation.
"Person" means an individual, a partnership, a
Corporation, an association, a joint stock company, a joint
venture, an unincorporated organization or a governmental entity or
any department, agency or political subdivision thereof.
"Senior Securities" means any securities of the
Corporation that rank senior to the Series A Preferred Stock with
respect to dividends or upon a Liquidation.
"Stock and Warrant Purchase Agreement" means that certain
Series A Convertible Stock and Warrant Purchase Agreement, dated as
42
<PAGE>
of July 18, 1995, by and among the Corporation and the purchasers
named on Schedule 1 thereto.
"Subsidiary" means any Corporation of which the shares of
stock having a majority of the general voting power in electing the
board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or
indirectly through Subsidiaries.
Section 11. Amendment and Waiver.
No amendment, modification or waiver will be binding or
effective with respect to any provision of this Part 2 without the
prior written consent of the holders of not less than a majority of
the shares of Series A Preferred Stock outstanding at the time such
action is taken. No change in the terms hereof may be accomplished
by merger or consolidation of the Corporation with another
Corporation unless the Corporation has obtained the prior
affirmative vote or written consent of the holders of not less than
a majority of the shares of Series A Preferred Stock then
outstanding.
Section 12. Notices.
Except as otherwise expressly provided, all notices
referred to herein shall be in writing and shall be delivered by
via overnight courier, return receipt requested, postage prepaid
and shall be deemed to have been delivered when so mailed (i) to
the Corporation, at its principal executive offices and (ii) to any
stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated in writing
by any such holder).
IN WITNESS WHEREOF, US SERVIS, INC. (f/k/a MICRO
Healthsystems, Inc.) has caused this Certificate of Designation to
be duly executed this 10th day of October, 1995.
US SERVIS, INC. (f/k/a MICRO
Healthsystems, Inc.)
By:
Its:
43
<PAGE>
Schedule 3A
Amortization Schedule
Amount of Redemption Price Payment Date
16.67% October 12, 2000
16.67% April 12, 2001
16.67% October 12, 2001
16.67% April 12, 2002
16.67% October 12, 2002
16.67% April 12, 2003
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
FIRST AMENDMENT
to
SERIES A CONVERTIBLE PREFERRED STOCK
AND
WARRANT PURCHASE AGREEMENT
AMONG
MICRO HEALTHSYSTEMS, INC.
and
THE PURCHASERS DEFINED HEREIN
Dated as of July 31, 1995
<S> <C>
45
<PAGE>
FIRST AMENDMENT
TO SERIES A CONVERTIBLE
PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
THIS FIRST AMENDMENT, dated as of July 31, 1995 (the "First
Amendment"), is entered into among MICRO HEALTHSYSTEMS, INC., a Delaware
corporation (the "Company"), and the Purchasers (the "Purchasers") named on
Schedule 1 to the Purchase Agreement (as defined below) that execute this First
Amendment.
RECITALS:
A. The Company and the Purchasers have entered into that
certain Series A Convertible Preferred Stock and Warrant Purchase
Agreement dated as of July 18, 1995 (the "Purchase Agreement").
Terms used herein and not otherwise defined shall have the same
meanings as specified in the Purchase Agreement.
B. The Company and certain or all of the Purchasers wish to
amend the Purchase Agreement in the manner set forth herein.
Therefore, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO THE PURCHASE AGREEMENT.
1.1. Section 9.12. Section 9.12 of the Purchase
Agreement is hereby amended by deleting the reference to "September
15, 1995" and inserting "October 15, 1995" in lieu thereof.
SECTION 2. WARRANTIES. To induce the Purchasers to enter
into this First Amendment, the Company warrants that:
2.1. Authorization. The Company is duly authorized to
execute and deliver this First Amendment and is duly authorized to
perform its obligations under the Purchase Agreement, as amended
hereby.
2.2. Validity and Binding Effect. The Purchase Agreement, as
amended hereby, is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
SECTION 3. GENERAL.
3.1 Expenses. Notwithstanding Section 9.11 of the Purchase
Agreement, the Company agrees to pay upon demand all reasonable expenses of
Frontenac VI Limited Partnership ("Frontenac"), including reasonable fees of
attorneys incurred by
46
<PAGE>
Frontenac in connection with the preparation, negotiation and execution of this
First Amendment, and any document required to be furnished herewith.
3.2. Law. This First Amendment shall be governed by and
construed and enforced under the internal laws of the State of
Illinois without further reference to the principals of the
conflicts of laws thereof.
3.3. Successors. This First Amendment shall be binding
upon the Company and the Purchasers and their respective successors
and assigns, and shall inure to the benefit of the successors and
assigns of the Company and the Purchasers.
3.4. Confirmation of the Purchase Agreement. Except as
amended hereby, the Purchase Agreement shall remain in full force
and effect and is hereby ratified and confirmed in all respects.
3.5. References to the Purchase Agreement. Each reference in
the Purchase Agreement to "this Agreement," "hereunder," or words of like
import, and each reference to the Purchase Agreement in any and all instruments
or documents provided for in the Purchase Agreement or delivered or to be
delivered thereunder or in connection therewith, shall, except where the context
otherwise requires, be deemed a reference to the Purchase Agreement as amended
hereby.
3.6 Effectiveness. This First Amendment shall be effective
upon execution by the Company and Purchasers obligated to purchase a majority of
the Series A Preferred Stock.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed at Chicago, Illinois by their respective officers thereunto duly
authorized as of the date first written above.
MICRO HEALTHSYSTEMS, INC.
By:
Name:
Title:
47
<PAGE>
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company
Its: General Partner
By:
Name: James E. Cowie
Its: General Partner
ROBERT E. KING INCOME TRUST
By:
David A. Hutchison, as Trustee
of the
Robert E. King Income Trust,
dated December 18, 1986
MORGAN HOLLAND FUND II, L.P.
By:
Name: James F. Morgan,
a General Partner
48
<PAGE>
SECOND AMENDMENT
to
SERIES A CONVERTIBLE PREFERRED STOCK
AND
WARRANT PURCHASE AGREEMENT
AMONG
MICRO HEALTHSYSTEMS, INC.
and
THE PURCHASERS SIGNATORY HERETO
Dated as of October 10, 1995
49
<PAGE>
SECOND AMENDMENT
TO SERIES A CONVERTIBLE
PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
THIS SECOND AMENDMENT, dated as of October 10, 1995 (the "Second
Amendment"), is entered into among MICRO HEALTHSYSTEMS, INC., a Delaware
corporation (the "Company"), and the Purchasers (the "Purchasers") named on
Schedule 1 to the Purchase Agreement (as defined below) which are signatory to
this Second Amendment.
RECITALS:
A. The Company and the Purchasers have entered into that certain Series
A Convertible Preferred Stock and Warrant Purchase Agreement dated as of July
18, 1995, as amended by that certain First Amendment dated as of July 31, 1995
(as amended, restated, supplemented or otherwise modified from time to time, the
"Purchase Agreement"). Terms used herein and not otherwise defined shall have
the same meanings as specified in the Purchase Agreement.
B. The Company and certain or all of the Purchasers wish to
amend the Purchase Agreement in the manner set forth herein.
Therefore, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE PURCHASE AGREEMENT.
1.1. Exhibit A-2. Exhibit A-2 to the Purchase Agreement is
hereby amended by deleting it in its entirety and inserting in lieu thereof a
new Exhibit A-2 in the form of Annex A attached hereto.
1.2. Exhibit B. Exhibit B to the Purchase Agreement is hereby
amended by deleting it in its entirety and inserting in lieu thereof a new
Exhibit B in the form of Annex B attached hereto.
1.3 Exhibit Dates. Each reference to "August ___," in Exhibits
A-1, C and D to the Purchase Agreement is hereby deleted in its entirety and a
reference to "October ___," is hereby inserted in lieu thereof.
1.4 Sections 6.1 and 7.1. Sections 6.1 and 7.1 of the Purchase
Agreement are hereby amended by deleting each in its entirety and inserting in
lieu thereof the following:
"Stockholder Approval. The issuance and
sale of the Securities shall have been duly
authorized and approved by the stockholders of
the Company."
1.5 Change of Name. If the name of the Company is
changed to US SerVis, Inc. prior to the Closing, each reference to
"MICRO Healthsystems, Inc." in the Purchase Agreement and each
Exhibit attached thereto is hereby deleted in its entirety and a
50
<PAGE>
reference to "US SerVis, Inc. (f/k/a MICRO Healthsystems, Inc.)" is
hereby inserted in lieu thereof.
1.6 Section 9.12. Section 9.12 of the Purchase Agreement is
hereby amended by deleting the reference to "October 15, 1995" therein and
inserting "October 31, 1995" in lieu thereof.
SECTION 2. WARRANTIES. To induce the Purchasers to enter
into this Second Amendment, the Company warrants that:
2.1. Authorization. The Company is duly authorized to
execute and deliver this Second Amendment and is duly authorized to
perform its obligations under the Purchase Agreement, as amended
hereby.
2.2. Validity and Binding Effect. The Purchase Agreement, as
amended hereby, is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
SECTION 3. GENERAL.
3.1 Expenses. Subject to the limitations set forth in Section
9.11 of the Purchase Agreement, the Company agrees to pay upon demand all
reasonable expenses of Frontenac VI Limited Partnership ("Frontenac"), including
reasonable fees of attorneys incurred by Frontenac in connection with the
preparation, negotiation and execution of this Second Amendment, and any
document required to be furnished herewith.
3.2. Law. This Second Amendment shall be governed by
and construed and enforced under the internal laws of the State of
Illinois without further reference to the principals of the
conflicts of laws thereof.
3.3. Successors. This Second Amendment shall be binding
upon the Company and the Purchasers and their respective successors
and assigns, and shall inure to the benefit of the successors and
assigns of the Company and the Purchasers.
3.4. Confirmation of the Purchase Agreement. Except as
amended hereby, the Purchase Agreement shall remain in full force
and effect and is hereby ratified and confirmed in all respects.
3.5. References to the Purchase Agreement. Each reference in
the Purchase Agreement to "this Agreement," "hereunder," or words of like
import, and each reference to the Purchase Agreement in any and all instruments
or documents provided for in the Purchase Agreement or delivered or to be
delivered thereunder or in connection therewith, shall, except where the context
otherwise requires, be deemed a reference to the Purchase Agreement as amended
hereby.
51
<PAGE>
3.6 Effectiveness. This Second Amendment shall be effective
upon execution by the Company and the Purchasers obligated to purchase a
majority of the Series A Preferred Stock pursuant to the Purchase Agreement.
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed at Chicago, Illinois by their respective officers
thereunto duly authorized as of the date first written above.
MICRO HEALTHSYSTEMS, INC.
By:
Name:
Title:
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company
Its: General Partner
By:
Name: James E. Cowie
Its: General Partner
ROBERT E. KING INCOME TRUST
By:
David A. Hutchison, as Trustee
of the
Robert E. King Income Trust,
dated December 18, 1986
MORGAN HOLLAND FUND II, L.P.
By:
Name: James F. Morgan,
a General Partner
53
<PAGE>
ANNEX A TO SECOND AMENDMENT
Exhibit A-2
MICRO HEALTHSYSTEMS, INC.
CERTIFICATE OF DESIGNATION RELATING
TO THE SERIES A CONVERTIBLE PREFERRED STOCK
WITH A PAR VALUE OF $.01 PER SHARE OF MICRO
HEALTHSYSTEMS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
MICRO Healthsystems, Inc., a Delaware corporation (the "Corporation),
hereby certifies that pursuant to the authority contained in Article Fourth of
the Corporation's Amended and Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation"), and in accordance with the provisions
of Section 151 of the General Corporation Law of the State of Delaware, the
following resolution was duly adopted by the Board of Directors of the
Corporation, creating a series of its Preferred Stock designated as "Series A
Convertible Preferred Stock":
RESOLVED, that there is hereby created a series of the Preferred Stock
of the Corporation designated Series A Convertible Preferred Stock, par value
$.01 per share (the "Series A Preferred Stock"), consisting of 1,500,000 shares
and having the voting powers, preferences and relative, participating, optional,
conversion and other special rights, and the qualifications, limitations or
restrictions, hereinafter set forth:
Section 1. Dividends.
1A. General Obligation. When and as declared by the
Corporation's Board of Directors and to the extent permitted under the General
Corporation Law of Delaware, the Corporation will pay preferential cumulative
dividends to the holders of Series A Preferred Stock as provided in this Section
1. Except as otherwise provided herein, dividends on each share of Series A
Preferred Stock will accrue on a daily basis at the rate of 8% compounded
quarterly on each Dividend Reference Date (defined below) per annum of the
Liquidation Value thereof plus accumulated and unpaid dividends thereon from and
including the date of issuance of such share of Series A Preferred Stock to and
including the earlier of (i) the date on which the Liquidation Value of such
share of Series A Preferred Stock plus any accrued and unpaid dividends thereon
is paid upon any liquidation, dissolution or winding up of the Corporation, (ii)
the date on which such share of Series A Preferred Stock is converted into
Common Stock or (iii) the date on
54
<PAGE>
which such share of Series A Preferred Stock is redeemed in accordance with
Section 3 hereof. Such dividends will accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. The date on which
the Corporation initially issues any share of Series A Preferred Stock will be
deemed to be its "date of issuance" regardless of the number of times transfer
of such share of Series A Preferred Stock is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such share of Series A Preferred
Stock.
1B. Dividend Reference Dates. To the extent not paid on March
31, June 30, September 30 and December 31 of each year (the "Dividend Reference
Dates"), all dividends which have accrued on each share of Series A Preferred
Stock outstanding during the three-month period (or other period in the case of
the initial Dividend Reference Date) shall be accumulated and shall remain
accumulated dividends with respect to each such share of Series A Preferred
Stock until paid.
1C. Distribution of Partial Dividend Payments. If at any time
the Corporation pays less than the total amount of dividends then accrued with
respect to Series A Preferred Stock, such payment will be distributed ratably
among the holders of Series A Preferred Stock on the basis of the amount of
accrued and unpaid dividends with respect to the shares of Series A Preferred
Stock owned by each such holder.
1D. Preference. The holders of Series A Preferred Stock shall
be entitled to dividends and distributions in preference and priority to holders
of Junior Securities. The Corporation shall not, without the prior written
consent of the holders of not less than a majority of the shares of Series A
Preferred Stock then outstanding pay any dividend or distribution (other than
dividends payable solely in Junior Securities) on any Junior Securities at any
time when accumulated dividends on Series A Preferred Stock have not been paid
in full.
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation (a "Liquidation"), each holder of Series A Preferred Stock will be
entitled to be paid, before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the aggregate Liquidation Value of all of
such holder's shares of Series A Preferred Stock plus all accrued but unpaid
dividends thereon. If upon a Liquidation, the Corporation's assets available for
distribution to its stockholders after payments on Senior Securities (as defined
herein) are insufficient to permit payment to the holders of Series A Preferred
Stock of the aggregate Liquidation Value of Series A Preferred Stock plus all
accrued but unpaid dividends thereon and to the holders of Pari Passu Securities
(as defined herein) the entire preferential amount payable with respect to any
Pari Passu Securities, then the entire assets available for distribution will be
distributed, pro rata based upon the aggregate liquidation value of the
securities held
55
<PAGE>
by each holder thereof, among the holders of (i) Series A Preferred Stock (pro
rata based upon the aggregate Liquidation Value of Series A Preferred Stock held
by each such holder plus all accrued but unpaid dividends thereon) and (ii) Pari
Passu Securities. After payment in full shall have been made to the holders of
Series A Preferred Stock of the aggregate Liquidation Value of Series A
Preferred Stock plus all accrued but unpaid dividends thereon, the holders of
the Series A Preferred Stock shall not share in any remaining assets of the
Corporation available for distribution. The Corporation will mail written notice
of a Liquidation to each record holder of Series A Preferred Stock not less than
thirty (30) days prior to the effective date thereof. Neither the consolidation
or merger of the Corporation into or with any other corporation or corporations,
nor the sale or transfer by the Corporation of all or any part of its assets,
nor the reduction of the capital stock of the Corporation, will be deemed to be
a Liquidation within the meaning of this Section 2.
Section 3. Redemptions.
3A. Mandatory Redemption. On October ___, 2000, the
Corporation shall redeem all (but, subject to Section 3C, not less than all) of
Series A Preferred Stock then outstanding in accordance with this Section 3 at a
price per share of Series A Preferred Stock equal to the Redemption Price (as
defined below), which Redemption Price shall be payable in accordance with the
Amortization Schedule attached hereto as Schedule 3A.
3B. Redemption Price. For each share of Series A Preferred
Stock which is to be redeemed, the Corporation shall be obligated to pay to the
holder thereof an amount in immediately available funds (the "Redemption Price")
equal to the Liquidation Value thereof plus all accrued but unpaid dividends
thereon in accordance with the Amortization Schedule attached hereto as Schedule
3A. The first installment of the Redemption Price shall be paid to each holder
of Series A Preferred Stock upon surrender by such holder at the Corporation's
principal office of the certificate representing such share of Series A
Preferred Stock. Unless the Corporation fails to pay the portion of Redemption
Price owed to the holder of a share of Series A Preferred Stock upon
presentation of the certificate representing such share on or after the date on
which such share is to be redeemed, all rights of the holder of such share
(other than the right to receive payment of the Redemption Price as set forth
herein) shall cease on such date, and such share shall not be deemed to be
outstanding thereafter.
3C. Insufficient Funds. If the funds of the Corporation
legally available for redemption of Series A Preferred Stock are insufficient to
redeem the total number of shares of Series A Preferred Stock to be redeemed,
those funds which are legally available will be used to redeem the maximum
possible number of shares of Series A Preferred Stock ratably among the holders
of such shares to be redeemed based upon the Redemption Price of the Series A
Preferred Stock held by each such holder. Thereafter, when additional funds of
the Corporation are legally available for the redemption of Series A Preferred
Stock, such funds will be used to redeem the balance of the shares of Series A
Preferred Stock
56
<PAGE>
which the Corporation became obligated to redeem but which it has not redeemed
(such redemptions to be made on a monthly basis). In case fewer than the total
number of shares of Series A Preferred Stock represented by any certificate are
redeemed in any installment, a new certificate representing the number of
unredeemed shares of such Series A Preferred Stock will be issued to the holder
promptly without cost to such holder promptly after surrender of the certificate
representing the redeemed shares of Series A Preferred Stock.
3D. Redeemed or Otherwise Acquired Shares. Any shares
of Series A Preferred Stock which are redeemed or otherwise
acquired by the Corporation will be canceled and will not be
reissued, sold or otherwise transferred.
Section 4. Voting Rights.
(a) Except as otherwise required by law, the Restated
Certificate of Incorporation of the Corporation, as amended, or any certificate
of designation, the holders of Series A Preferred Stock will be entitled to vote
with the holders of Common Stock on each matter submitted to a vote of the
Corporation's stockholders as a single class, with each share of Series A
Preferred Stock having a number of votes equal to the number of votes possessed
by the number of shares of Common Stock into which such share of Series A
Preferred Stock is convertible as of the record date for the determination of
stockholders entitled to vote on such matter and shall be entitled to notice of
any stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into which shares
of Series A Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
(b) So long as at least 300,000 shares of Series A Preferred
Stock are then outstanding and Frontenac VI Limited Partnership owns not less
than a majority of such shares, the holders of Series A Preferred Stock, voting
as a single class, shall be entitled to elect one (1) member of the Board of
Directors who shall also be a member of the Executive Committee of the Board of
Directors (or an equivalent committee, if any) (the "Preferred Director").
Except as otherwise required by the Restated Certificate of Incorporation of the
Corporation, as amended, or any certificate of designation, the holders of
Common Stock and the holders of Preferred Stock, voting as a single class, shall
be entitled to elect the remaining members of the Board of Directors.
(c) Notwithstanding any other provision in the Restated
Certificate of Incorporation, as amended, any certificate of designation, or the
Bylaws of the Corporation, the Board of Directors shall not at any time consist
of more than twelve (12) members without the prior written approval of the
Preferred Director.
57
<PAGE>
Section 5. Conversion.
5A. Conversion Procedure.
(i) At any time and from time to time, any holder
of shares of Series A Preferred Stock may convert all or any portion of such
shares (including any fraction of a share) into the number of shares of Common
Stock computed by dividing (a) the number of shares of Series A Preferred Stock
to be converted times $4.00 per share, by (b) the Conversion Price (as defined
in Section 5B below).
(ii) Each conversion of Series A Preferred Stock
will be deemed to have been effected as of the close of business on the date on
which the certificate or certificates representing Series A Preferred Stock to
be converted have been surrendered at the principal office of the Corporation.
At such time as such conversion has been effected, the rights of the holder of
such Series A Preferred Stock as such holder will cease and the Person or
Persons in whose name or names any certificate or certificates for shares of
Common Stock are to be issued upon such conversion will be deemed to have become
the holder or holders of record of the shares of Common Stock represented
thereby.
(iii) As soon as possible after a conversion has been
effected and in no event later than ten (10) business days after delivery of the
certificate representing the shares converted, the Corporation will deliver to
the converting holder:
(a) a certificate or certificates representing
the number of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or denominations
as the converting holder has specified;
(b) the amount payable under Section 5A(vi)
below with respect to such conversion;
(c) a certificate representing any shares of
Series A Preferred Stock which were represented by the certificate or
certificates delivered to the Corporation in connection with such
conversion but which were not converted; and
(d) the amount of accrued but unpaid dividends
payable under Section 1A(ii) above with respect to each share of Series
A Preferred Stock so converted to the extent funds are legally
available to pay such dividends.
(iv) The issuance of certificates for shares of
Common Stock upon conversion of Series A Preferred Stock will be made without
charge to the holders of such Series A Preferred Stock for any issuance tax in
respect thereof or other cost incurred by the Corporation in connection with
such conversion and the related issuance of shares of Common Stock. Upon
conversion of any share of Series A Preferred Stock, the Corporation will take
all such actions as are necessary in order to insure that the Common Stock
58
<PAGE>
issued as a result of such conversion is validly issued, fully paid
and nonassessable.
(v) The Corporation will not close its books
against the transfer of Series A Preferred Stock or of Common Stock issued or
issuable upon conversion of Series A Preferred Stock in any manner which
interferes with the timely conversion of Series A Preferred Stock.
(vi) If any fractional interest in a share of Common
Stock would, except for the provisions of this Section 5A(vi), be deliverable
upon any conversion of Series A Preferred Stock, the Corporation, in lieu of
delivering the fractional share therefor, shall pay an amount to the holder
thereof equal to the market price of such fractional interest as of the date of
conversion, as determined in good faith by the Board of Directors of the
Corporation.
5B. Conversion Price.
(a) The initial "Conversion Price" will be $4.00 per share. In
order to prevent dilution of the conversion rights granted under this
subdivision, the Conversion Price will be subject to adjustment from time to
time pursuant to this Section 5B; provided, however, that there will be no
adjustment of the Conversion Price as a result of (i) issuances or deemed
issuances of Common Stock for incentive or compensatory purposes to directors,
officers and employees of, and consultants to, the Corporation and its
Subsidiaries which are from time to time approved by the Board of Directors,
including, without limitation, grants of stock options and the issuance of
Common Stock upon the exercise thereof ("Compensatory Stock"), but not exceeding
any time prior to October ___, 1996 (or any time thereafter unless approved by
the Board of Directors of the Corporation), 3,057,000 shares of Common Stock
(net of any repurchases of such shares or options), subject to adjustment for
all subdivisions and combinations of Common Stock, (ii) any split, subdivision
or combination of Common Stock into a different number of securities of the same
class (subject to Section 11.5 hereof) ("Split Stock"), (iii) issuances or
deemed issuances of Common Stock upon exercise or conversion, as the case may
be, of the Series A Warrants or the Series B Warrants (each as defined in the
Stock and Warrant Purchase Agreement) or the Series A Preferred Stock
("Converted Stock"), (iv) issuances or deemed issuances of not more than 55,000
shares of Common Stock to David K. Vanco pursuant to that certain Agreement and
Plan of Merger between the Corporation, Vanco Business Management, Inc. and
David K. Vanco, as amended (subject to adjustment for all subdivisions and
combinations) ("Vanco Stock") or (v) any distribution, granting or sale of any
Purchase Rights in accordance with Section 7 hereof ("Purchase Stock", and
together with Compensatory Stock, Split Stock, Converted Stock and Vanco Stock,
the "Excluded Stock"). Anything herein to the contrary notwithstanding, no
adjustment in the Conversion Price shall be required unless such adjustment,
either by itself or with other adjustments not previously made, would require a
change of at least $.10 in such price; provided, however, that any adjustment
which by
59
<PAGE>
reason of this sentence is not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(b) If and whenever, after the date of issuance, the
Corporation issues or sells, or in accordance with Section 5C is deemed to have
issued or sold, any shares of its Common Stock (other than Excluded Stock) for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such issuance or sale, then forthwith upon such issuance or
sale the Conversion Price will be reduced to the conversion price determined by
dividing (a) the sum of (1) the product derived by multiplying the Conversion
Price in effect immediately prior to such issuance or sale times the number of
shares of Common Stock Deemed Outstanding immediately prior to such issuance or
sale, plus (2) the consideration, if any, received or deemed received by the
Corporation upon such issuance or sale, by (b) the number of shares of Common
Stock Deemed Outstanding immediately prior to such issuance or sale plus the
number of shares of Common Stock issued or deemed to have been issued in such
sale pursuant to this Section 5.
5C. Effect on Conversion Prices of Certain Events.
(i) For purposes of determining the adjusted
Conversion Price under Section 5B(ii), the following will be applicable.
(a) Issuance of Rights or Options. If the Corporation
in any manner grants, issues or sells any right, warrant or option to
subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (such
rights, warrants or options being herein called "Options," and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") (other than Excluded Stock) and the price per
share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of any such Convertible
Securities is less than the Conversion Price in effect immediately
prior to the time of the granting, issuance or sale of such Options,
then the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to be outstanding and to have
been issued and sold by the Corporation at the time of the granting of
such Options for such price per share. For purposes of this Section,
the "price per share for which Common Stock is issuable" shall be
determined by dividing (A) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon exercise of all such Options, plus in
the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable
to the Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (B) the total
maximum
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number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or
when Common Stock is actually issued upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. If the
----------------------------------
Corporation in any manner issues or sells any Convertible
Securities (other than Excluded Stock) and the price per share
for which Common Stock is issuable upon conversion or exchange
thereof is less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the
maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by
the Corporation at the time of the issuance or sale of such
Convertible Securities for such price per share. For the
purposes of this Section, the "price per share for which
-------------------------
Common Stock is issuable" shall be determined by dividing (A)
------------------------
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
----
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further
adjustment of the Conversion Price shall be made when Common
Stock is actually issued upon the conversion or exchange of
such Convertible Securities, and if any such issue or sale of
such Convertible Securities is made upon exercise of any
Options for which adjustments of the Conversion Price had been
or are to be made pursuant to other provisions of this Section
-------
5, no further adjustment of the Conversion Price shall be made
-
by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If
-----------------------------------------
the purchase price provided for in any Option, the additional
consideration (if any) payable upon the issue, conversion or
exchange of any Convertible Security, or the rate at which any
Convertible Security is convertible into or exchangeable for
Common Stock change at any time, and such change is not due
solely to the operation of anti-dilution provisions similar in
nature to those set forth in this Section 5, the Conversion
---------
Price in effect at the time of such change shall be readjusted
to the Conversion Price which would have been in effect at
such time had such Option or Convertible Security originally
provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(d) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or
the termination of any right to convert or exchange any
Convertible Security without the exercise of any such Option
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<PAGE>
or right, the Conversion Price then in effect hereunder will be
adjusted to the Conversion Price which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(e) Calculation of Consideration Received. If any
-------------------------------------
Common Stock, Option or Convertible Security is issued or sold
or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the gross
amount received by the Corporation therefor. If any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount
of consideration received by the Corporation will be the
Market Price thereof as of the date of receipt. If any Common
Stock, Option or Convertible Security is issued in connection
with any merger in which the Corporation is the surviving
corporation, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets
and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash and securities will be
determined jointly by the Corporation and the holders of a
majority of the outstanding Series A Preferred Stock. If such
parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will
---------------
be determined by an independent appraiser jointly selected by
the Corporation and the holders of a majority of the
outstanding Series A Preferred Stock; provided if such parties
--------
are unable to reach agreement upon the selection of an
independent appraiser within fifteen (15) days after the
Valuation Event, within twenty-five (25) days after the
Valuation Event, the Corporation and the holders of a majority
of Series A Preferred Stock then outstanding will each choose
a qualified independent appraiser reasonably acceptable to the
other party and each such appraiser will deliver in writing
its determination of the fair value of such consideration. If
the difference between the two appraisals is 10% or less of
the lower amount, the fair value will be the average of such
two appraisals. If the difference between the two appraisals
is greater than 10% of the lower amount, the two appraisers
will, within thirty-five (35) days after the Valuation Event,
jointly choose a third qualified independent appraiser.
Within forty-five (45) days after the Valuation Event, the
third appraiser will deliver its determination of fair value
and the final determination of the fair value of such
consideration will be equal to the average of the two (2)
appraisals which are nearest to each other. The expenses of
the appraisers will be paid one-half by the Corporation and
one-half by the holders of Series A Preferred Stock (pro rata
--- ----
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<PAGE>
based on the number of shares of Series A Preferred Stock
held).
(f) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the
Corporation, together comprising one integrated transaction in which no
specific consideration is allocated to such Option by the parties
thereto, the Option will be deemed to have been issued for a
consideration of $.01.
(g) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or
held by or for the account of the Corporation or any Subsidiary, and
the disposition of any shares so owned or held will be considered an
issue or sale of Common Stock.
(h) Record Date. If the Corporation takes a record of
the holders of Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock,
Options or Convertible Securities or (ii) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date
will be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or upon the making of such other distribution or the date
of the granting of such right of subscription or purchase, as the case
may be.
5D. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced, and if the Corporation at any
time combines (by combination, reverse stock split or otherwise) its outstanding
shares of Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be proportionately increased.
5E. Reorganization, Reclassification, Consolidation, Merger or
Sale. Any capital reorganization, reclassification, consolidation, merger,
exchange of shares or sale or transfer or more than 80% of the Corporation's
assets to another Person which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common Stock is
referred to herein as a "Corporate Change." Prior to the consummation of any
Corporate Change, the Corporation will make appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of Series A
Preferred Stock then outstanding) to insure that each of the holders of Series A
Preferred Stock will thereafter have the right to acquire and receive, in lieu
of or (if additional consideration is received) in addition to the shares of
Common Stock immediate theretofore acquirable and receivable upon the conversion
of such holder's Series A Preferred Stock, such shares of stock, securities
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<PAGE>
or assets as such holder would have received in connection with such Corporate
Change if such holder had converted its Series A Preferred Stock immediately
prior to such Corporate Change. In any such case, the Corporation will make
appropriate provisions (in form and substance reasonably satisfactory to the
holders of a majority of Series A Preferred Stock then outstanding) to insure
that the provisions of this Section 5 and Sections 6 and 7 will thereafter be
applicable to Series A Preferred Stock (including, without limitation, in the
case of any such consolidation, merger or sale in which the successor
corporation or purchasing corporation is other than the Corporation, an
immediate adjustment of the Conversion Price to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale). The Corporation
will not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor corporation (if other than the Corporation)
resulting from such consolidation or merger or the corporation purchasing such
assets assumes by written instrument (in form and substance reasonably
satisfactory to the holders of a majority of Series A Preferred Stock then
outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
5F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 5 but not expressly provided for
by such provisions, then the Board of Directors will make an appropriate
adjustment in each Conversion Price so as to protect the rights of the holders
of Series A Preferred Stock.
5G. Notices.
(i) Immediately upon any adjustment of the
Conversion Price of any class of Series A Preferred Stock, the Corporation will
give written notice thereof to all holders of such class of Series A Preferred
Stock.
(ii) The Corporation will give written notice to all
holders of Series A Preferred Stock at least twenty (20) days prior to the date
on which the Corporation closes its books or takes a record (a) with respect to
any dividend or distribution upon Common Stock, (b) with respect to any pro rata
subscription offer to holders of Common Stock or (c) for determining rights to
vote with respect to any Corporate Change, dissolution or liquidation.
(iii) The Corporation will also give written notice
to the holders of Series A Preferred Stock at least twenty (20) days prior to
the date on which any Corporate Change will take place.
5H. Mandatory Conversion. (a) The Corporation may
require the conversion of all of the outstanding Series A Preferred
Stock at any time after a Triggering Event. A "Triggering Event"
shall be deemed to have occurred on any date after October ___,
1997 (a "Determination Date") if, as of the Determination Date, the
sum of (a) the product of (x) the Market Price of a share of the
Common Stock as of the Determination Date, and (y) the number of
shares of Common Stock (including for purposes of this calculation
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<PAGE>
fractional shares) that is then issuable upon conversion of one (1) share of
Series A Preferred Stock, plus (b) the amount of all dividends (whether in the
form of cash, securities or other properties) that accrued (whether paid or
unpaid) on each share of Class A Preferred Stock from October ___, 1995 to and
including the Determination Date, plus (c) fifty percent (50%) of the product of
(I) the difference between (x) the Market Price of a share of Common Stock as of
the Determination Date and (y) the Exercise Price per share of Common Stock of
the Series B Warrants (as defined in the Stock and Warrant Purchase Agreement)
(the "Series B Warrants") in effect on the Determination Date (or, if no Series
B Warrants are then outstanding, the Exercise Price per share of Common Stock
that would then be in effect on the Determination Date with respect to the
Series B Warrants had the Series B Warrants remained outstanding through the
Determination Date), (II) .132, and (III) a fraction, the numerator of which is
the aggregate number of shares of Common Stock (including for purposes of this
calculation fractional shares) that would be issuable on the Determination Date
upon exercise of all of the Series B Warrants issued pursuant to the Stock and
Warrant Purchase Agreement had all such Series B Warrants remained outstanding
through the Determination Date without being exercised, in whole or in part, on
or prior to the Determination Date, and the denominator of which is 198,000,
equals or exceeds $11.00 (the "Trigger Price"); provided, such Trigger Price
shall be proportionately decreased in the event of a split or subdivision, or
proportionately increased in the event of a combination, of the Common Stock
into a different number of securities of the same class.
Any such mandatory conversion shall be effected at the time of
and subject to the occurrence of such a Triggering Event and upon the giving
notice of such mandatory conversion to all holders of Series A Preferred Stock
without any further action by the holders of such shares or the Corporation.
Upon any such conversion subsequent to a Triggering Event, shares of Common
Stock issued upon such conversion shall be registered with the Securities
Exchange Commission in the manner prescribed, and subject to the terms and
conditions of, that certain Registration Rights Agreement dated as of October
___, 1995 among the Corporation and the investors named therein.
(b) Upon the conversion of all of the shares of Series A
Preferred Stock initially issued to Frontenac VI Limited Partnership, all of the
remaining shares of Series A Preferred Stock then outstanding shall be
automatically converted into shares of Common Stock at the Conversion Price then
in effect, without any further action by the holders of such shares or the
Corporation.
(c) Upon any such conversion pursuant to this Section or
Section 3C, the rights of each holder of such Series A Preferred Stock as such
holder shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Series A Preferred Stock shall be
deemed to have become the holder or holders of record of the shares of Common
Stock represented thereby. Promptly following delivery of written notice from
the Corporation to each holder of Series A Preferred Stock that such a
conversion has occurred, each such holder shall deliver
65
<PAGE>
certificates representing the shares of Series A Preferred Stock held by such
holder to the Corporation for cancellation.
Section 6. Liquidating Dividends.
If the Corporation pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (in accordance
with generally accepted accounting principles, consistently applied) except for
a stock dividend payable in shares of Common Stock or a stock split (a
"Liquidating Dividend"), then the Corporation shall pay to the holders of Series
A Preferred Stock at the time of payment thereof the Liquidating Dividends which
would have been paid on such Common Stock had such Series A Preferred Stock been
converted into Common Stock immediately prior to the date on which a record is
taken for such Liquidating Dividend, or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends are to be
determined.
Section 7. Purchase Rights.
If at any time the Corporation distributes, grants or sells
any Options, Convertible Securities or rights to stock, warrants, securities or
other property to all record holders of any class of Common Stock (the "Purchase
Rights"), then each holder of Series A Preferred Stock will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon conversion of such holder's
Series A Preferred Stock immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the distribution, issue or sale of such Purchase Rights.
Section 8. Registration of Transfer.
The Corporation will keep at its principal office a register
for the registration of Series A Preferred Stock. Upon the surrender of any
certificate representing Series A Preferred Stock at such place, the Corporation
will, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of Series A
Preferred Stock represented by the surrendered certificate. Each such new
certificate will be registered in such name and will represent such number of
shares of Series A Preferred Stock as is requested by the holder of the
surrendered certificate and will be substantially identical in form to the
surrendered certificate; provided, however, that any transfer shall be subject
to any applicable restrictions on the transfer of such shares and the payment of
any applicable transfer taxes, if any, by the holder thereof.
Section 9. Replacement.
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<PAGE>
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder will be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series A Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation, upon surrender of such
certificate, the Corporation will (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Series A Preferred Stock represented by such lost, stolen, destroyed
or mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate.
Section 10. Definitions.
"Common Stock Deemed Outstanding" means, at any given time,
the number of shares of Common Stock actually outstanding at such time, plus,
the number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all Options or Convertible Securities then outstanding, whether or
not they are actually exercisable, convertible or exchangeable at such time
(including, without limitation, the Series A Preferred Stock).
"Junior Securities" means the Corporation's equity
securities other than Series A Preferred Stock, Senior Securities
or Pari Passu Securities.
"Liquidation Value" means $4.00 per share.
"Market Price" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of ten (10)
days consisting of the day as of which "Market Price" is being determined and
the nine (9) consecutive business days prior to such day. If at any time such
security is not listed on any securities exchange or quoted in the NASDAQ System
or the over-the-counter market, the "Market Price" will be the fair value
thereof determined jointly by the Corporation and the holders of a majority of
Series A Preferred Stock. If such parties are unable to reach agreement within a
reasonable period of time, such fair value will be determined by an independent
appraiser jointly selected by the Corporation and the holders of a majority of
Series A Preferred Stock. The expenses of the appraisers will be paid one-half
by the Corporation and one-half by the holders of the Series A Preferred Stock
(pro rata based on the number of shares of Common Stock which would be issuable
upon conversion by the holders of the Series A Preferred Stock).
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"Pari Passu Securities" means any securities of the
Corporation that rank on a parity with the Series A Preferred Stock with respect
to dividends or upon a Liquidation.
"Person" means an individual, a partnership, a Corporation, an
association, a joint stock company, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Senior Securities" means any securities of the Corporation
that rank senior to the Series A Preferred Stock with respect to dividends or
upon a Liquidation.
"Stock and Warrant Purchase Agreement" means that certain
Series A Convertible Stock and Warrant Purchase Agreement, dated as of July 18,
1995, by and among the Corporation and the purchasers named on Schedule 1
thereto.
"Subsidiary" means any Corporation of which the shares of
stock having a majority of the general voting power in electing the board of
directors are, at the time as of which any determination is being made, owned by
the Corporation either directly or indirectly through Subsidiaries.
Section 11. Amendment and Waiver.
No amendment, modification or waiver will be binding or
effective with respect to any provision of this Part 2 without the prior written
consent of the holders of not less than a majority of the shares of Series A
Preferred Stock outstanding at the time such action is taken. No change in the
terms hereof may be accomplished by merger or consolidation of the Corporation
with another Corporation unless the Corporation has obtained the prior
affirmative vote or written consent of the holders of not less than a majority
of the shares of Series A Preferred Stock then outstanding.
Section 12. Notices.
Except as otherwise expressly provided, all notices referred
to herein shall be in writing and shall be delivered by via overnight courier,
return receipt requested, postage prepaid and shall be deemed to have been
delivered when so mailed (i) to the Corporation, at its principal executive
offices and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated in writing by
any such holder).
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IN WITNESS WHEREOF, MICRO Healthsystems, Inc. has caused
this Certificate of Designation to be duly executed this ____ day
of October, 1995.
MICRO HEALTHSYSTEMS, INC.
By:
Name:
Title:
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Schedule 3A
Amortization Schedule
Amount of Redemption Price Payment Date
16.67% October __, 2000
16.67% April __, 2001
16.67% October __, 2001
16.67% April __, 2002
16.67% October __, 2002
16.67% April __, 2003
70
<PAGE>
ANNEX B TO SECOND AMENDMENT
EXHIBIT B
FORM OF SERIES A WARRANT
THIS SERIES A WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR SUCH LAWS OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
No. WR-A__ Series A Warrant
to Purchase ________ Shares of
Common Stock
SERIES A WARRANT TO PURCHASE COMMON STOCK
of
MICRO HEALTHSYSTEMS, INC.,
a Delaware corporation
This certifies that, for value received,
________________________________________, or registered assigns (the "Holder")
is entitled, subject to the terms set forth below, to purchase from MICRO
HEALTHSYSTEMS, INC. (the "Company"), a Delaware corporation, _______ shares of
the Common Stock of the Company, during the Exercise Period (as defined herein),
upon surrender hereof, at the principal office of the Company referred to below,
with the Notice of Exercise attached hereto as Exhibit A duly executed, and
simultaneous payment therefor in lawful money of the United States or otherwise
as hereinafter provided, at the Exercise Price per share as set forth in Section
2 below. The number, character and Exercise Price of such shares of Common Stock
are subject to adjustment as provided below. The term "Series A Warrant" as used
herein shall include this Series A Warrant and any warrants delivered in
substitution or exchange thereafter as provided herein.
This Series A Warrant is issued in connection with the transactions
entered into pursuant to that certain Series A Convertible Preferred Stock and
Warrant Purchase Agreement among the Company, the Holder and the other investors
named therein, dated as of July 18, 1995 (the "Warrant Purchase Agreement"),
providing for the issuance and sale of the Series A Warrants, the Series B
Warrants (as defined therein) (the "Series B Warrants") and the Series A
Convertible Preferred Stock (the "Series A Preferred Stock"). This Series A
Warrant is one of the Series A Warrants referred to as the "Series A Warrants"
in the Warrant Purchase Agreement and herein.
1. Term of Series A Warrant. Subject to the terms and
conditions set forth herein including, without limitation, Section
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12 hereof, this Series A Warrant shall be exercisable, in whole or in part,
during the term commencing on October ___, 1999 and ending at 5:00 p.m., Central
standard time, on October ___, 2000 (the "Exercise Period"), and shall be void
thereafter.
2. Exercise Price. The Exercise Price at which this Series
A Warrant may be exercised shall be $0.10 per share of Common
Stock.
3. Exercise of Series A Warrant.
(a) Mechanics. The purchase rights represented by this Series
A Warrant are exercisable by the Holder in whole or in part, but not for less
than 25,000 shares at a time (or such lesser number of shares which may then
constitute the maximum number purchasable), at any time, or from time to time,
during the term hereof as described in Section 1 above, by the surrender of this
Series A Warrant and the Notice of Exercise attached hereto as Exhibit A duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company), upon payment (i) in cash or by check acceptable to the Company, (ii)
by deduction from the number of shares delivered upon exercise of the Series A
Warrant of a number of shares which has an aggregate Current Market Price (as
defined herein) on the date of exercise equal to the aggregate Exercise Price
for all shares to be purchased pursuant to this Series A Warrant, or (iii) by a
combination of (i) and (ii), of the purchase price of the shares to be
purchased.
(b) Certificates. This Series A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the date of
its surrender for exercise as provided above, and the person entitled to receive
the shares of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As promptly as practicable on or after such date and in any event
within ten (10) days thereafter, the Company at its expense shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Series A Warrant is exercised in part, the Company at its expense will
execute and deliver a new Series A Warrant of like tenor exercisable for the
number of shares for which this Series A Warrant may then be exercised.
(c) Net Issue Exercise. Notwithstanding any provisions herein
to the contrary, if the fair market value of one (1) share of Common Stock is
greater than the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Series A Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Series A Warrant
(or the portion being exercised) by surrender of this Series A Warrant at the
principal office of the Company together with the properly endorsed Notice of
Exercise and notice of such election in which
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event the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
X = Y(A-B)
A
Where X = the number of shares of Common Stock to be
issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Series A Warrant or,
if only a portion of the Series A Warrant is
being exercised, the portion of the Series A
Warrant being exercised (at the date of such
calculation)
A = the Current Market Price of one (1) share of
the Company's Common Stock (at the date of
such calculation)
B = Exercise Price (as adjusted to the date of
such calculation)
For purposes of this Agreement, "Current Market Price" of any security means the
average of the closing prices of such security's sales on all securities
exchanges on which such security may at the time be listed, or, if there has
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if on
any day such security is not so listed, the average of the representative bid
and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or,
if on any day such security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of ten (10) days consisting of the day as of which "Current Market
Price" is being determined and the nine (9) consecutive business days prior to
such day. If at any time such security is not listed on any securities exchange
or quoted in the NASDAQ System or the over-the-counter market, the "Current
Market Price" will be the fair value thereof determined jointly by the
corporation and the holders of a majority of the Series A Warrants. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value will be determined by an independent appraiser jointly selected by
the corporation and the holders of a majority of the Series A Warrants. The
expenses of the appraisers will be paid one-half by the Company and one-half by
the holders of the Series A Warrants (pro rata based on the number of shares of
Common Stock issuable upon exercise of the Series A Warrants).
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the
exercise of this Series A Warrant. In lieu of any fractional share
to which the Holder would otherwise be entitled, the Company shall
73
<PAGE>
make a cash payment equal to the Exercise Price multiplied by such
fraction.
5. Replacement of Series A Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Series A Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and substance
to the Company or, in the case of mutilation, on surrender and cancellation of
this Series A Warrant, the Company at its expense shall execute and deliver, in
lieu of this Series A Warrant, a new warrant of like tenor and amount.
6. Rights of Stockholders. Subject to Section 9 of this Series A
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable upon the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Series A Warrant shall
have been exercised as provided herein.
7. Transfer of Series A Warrant.
(a) Series A Warrant Register. The Company will maintain a
register (the "Series A Warrant Register") containing the names and addresses of
the Holder or other holders. Any holder of this Series A Warrant or any portion
thereof may change its address as shown on the Series A Warrant Register by
written notice to the Company requesting such change. Any notice or written
communication required or permitted to be given to the Holder may be delivered
or given by mail to the Holder as shown on the Series A Warrant Register and at
the address shown on the Series A Warrant Register. Until this Series A Warrant
is transferred on the Series A Warrant Register of the Company, the Company may
treat the Holder as shown on the Series A Warrant Register as the absolute owner
of this Series A Warrant for all purposes, notwithstanding any notice to the
contrary.
(b) Series A Warrant Agent. The Company may, by written notice
to the Holder, appoint an agent for the purpose of maintaining the Series A
Warrant Register referred to in Section 7(a) above, issuing the Common Stock or
other securities then issuable upon the exercise of this Series A Warrant,
exchanging this Series A Warrant, replacing this Series A Warrant, or any or all
of the foregoing. Thereafter, any such registration, issuance, exchange, or
replacement, as the case may be, shall be made at the office of such agent.
74
<PAGE>
(c) Transferability and Nonnegotiability of Series A Warrant.
This Series A Warrant may not be transferred or assigned in whole or in part
without compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Series A Warrant with respect to compliance with the Securities Act of
1933, as amended (the "Act"), title to this Series A Warrant may be transferred
by endorsement (by the Holder executing the Notice of Assignment attached
hereto) and delivery in the same manner as a negotiable instrument transferable
by endorsement and delivery.
(d) Exchange of Series A Warrant Upon a Transfer. On surrender
of this Series A Warrant for exchange, properly endorsed on the Notice of
Assignment attached hereto and subject to the provisions of this Series A
Warrant with respect to compliance with the Act and with the limitations on
assignments and transfers contained in this Section 7, the Company at its
expense shall issue to or on the order of the Holder a new warrant or warrants
of like tenor, in the name of the Holder or as the Holder (on payment by the
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder, by acceptance hereof, acknowledges
that this Series A Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Series A Warrant or any shares of
Common Stock to be issued upon exercise hereof except under circumstances that
will not result in a violation of the Act or any state securities laws. Upon
exercise of this Series A Warrant, the Holder shall, if requested by the
Company, confirm in writing, in a form satisfactory to the Company, that the
shares of Common Stock so purchased are being acquired solely for the Holder's
own account, and not as a nominee for any other party, for investment, and not
with a view toward distribution or resale.
(ii) This Series A Warrant and all shares of Common
Stock issued upon exercise hereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR SUCH LAWS OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
8. Reservation of Stock. The Company covenants that during
the Exercise Period, the Company will reserve from its authorized
75
<PAGE>
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Series A Warrant and, from
time to time, will take all steps necessary to amend its Certificate of
Incorporation to provide sufficient reserves of Common Stock issuable upon
exercise of this Series A Warrant. The Company further covenants that all shares
that may be issued upon the exercise of rights represented by this Series A
Warrant, upon exercise of the rights and payment of the Exercise Price, all as
set forth herein, and will be free from all taxes, liens and charges in respect
of the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein). The Company agrees that its
issuance of this Series A Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Series A Warrant.
9. Notices.
(a) In the event:
(i) the Company shall take a record of the
holders of its Common Stock (or other stock or securities at the time receivable
upon the exercise of this Series A Warrant) for the purpose of entitling them to
receive any dividend or other distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right, or
(ii) of any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to another
corporation, or
(iii) of any voluntary dissolution, liquidation
or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed (via
overnight courier) to each holder of the Series A Warrants a notice specifying,
as the case may be, (A) the date on which a 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, or (B) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
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 (or such stock or
securities at the time receivable upon the exercise of this Series A Warrant)
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
fifteen (15) days prior to the date therein specified.
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<PAGE>
(b) All such notices, advices and communications shall be
deemed to have been received (i) in the case of personal delivery, on the date
of such delivery and (ii) in the case of mailing (via overnight courier), on the
second business day following the date of such mailing (or such earlier date if
received thereon).
10. Amendments.
(a) Any term of this Series A Warrant may be amended with the
written consent of the Company and the holders of warrants representing not less
than a majority of the shares of Common Stock issuable upon exercise of the
Series A Warrants. Any amendment effected in accordance with this Section 10
shall be binding upon each holder of the Series A Warrants, each future holder
of all such Series A Warrants, and the Company; provided, however, no special
consideration or inducement may be given to any such holder in connection with
such consent that is not given ratably to all such holders equally and ratably
in accordance with the number of shares of Series A Warrants. The Company shall
promptly give notice to all holders of the Series A Warrants of any amendment
effected in accordance with this Section 10.
(b) No waivers of, or exceptions to, any terms, condition or
provision of this Series A Warrant, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
11. Registration Rights. Upon exercise of this Series A Warrant, the
Holder shall have and be entitled to exercise, together with all other holders
of securities possessing registration rights under that certain Registration
Rights Agreement, of even date herewith, between the Company and the parties who
have executed the counterpart signature pages thereto or are otherwise bound
thereby (the "Registration Rights Agreement"), the rights of registration
granted under the Registration Rights Agreement to Registrable Securities (as
defined in the Registration Rights Agreement). By its receipt of this Series A
Warrant, Holder agrees to be bound and is subject to the rights, limitations and
preferences set forth in the Registration Rights Agreement.
12. Cancellation.
(i) Upon the occurrence of an Initial Cancellation Event (as
defined herein), the purchase rights represented by 195,000 Series A Warrants
(or all of the outstanding Series A Warrants if less than 195,000 Series A
Warrants are then outstanding) shall be deemed terminated in whole, but not in
part, without any further action by the Company; provided, the Company shall, in
good faith, use its best efforts to give notice of such termination of such
aggregate amount of Series A Warrants by giving written notice to each of the
holders thereof. Not later than ten (10) days after receipt of any such notice,
each such holder shall surrender the Series A Warrants held thereby (pro rata
based on the number of shares of Common Stock which would be issuable upon
exercise by the holders of the Series A Warrants as calculated by the Company)
to
77
<PAGE>
the Company without any representation or warranty (other than that such holder
has good and valid title thereto free and clear of liens, claims, encumbrances
and restrictions of any kind). An "Initial Cancellation Event" shall have been
deemed to have occurred as of any date after the date hereof (the "Determination
Date") if the sum of (a) the product of (x) the Current Market Price of a share
of Common Stock as of the Determination Date and (y) the number of shares of
Common Stock (including for purposes of this calculation fractional shares) that
are then issuable upon conversion of one (1) share of Series A Preferred Stock
(or, if no shares of Series A Preferred Stock are then outstanding, the number
of shares of Common Stock (including for purposes of this calculation fractional
shares) that would then be issuable upon conversion of one (1) share of Series A
Preferred Stock if shares of Series A Preferred Stock were then outstanding),
plus (b) the amount of all dividends (whether in the form of cash, securities or
other properties) that accrued (whether paid or unpaid) on one (1) share of
Series A Preferred Stock from October ___, 1995 to and including the
Determination Date (or if no share of Series A Preferred Stock is then
outstanding, the amount of all dividends (whether in the form of cash,
securities or other properties) that would have accrued (whether paid or unpaid)
if one (1) share of Series A Preferred Stock had remained outstanding through
the Determination Date), plus (c) fifty percent (50%) of the product of (I) the
difference between (x) the Current Market Price of a share of Common Stock as of
the Determination Date and (y) the Exercise Price per share of Common Stock of
the Series B Warrants in effect as of the Determination Date (or, if no Series B
Warrants are then outstanding, the Exercise Price per share of Common Stock that
would then be in effect on the Determination Date with respect to the Series B
Warrants had the Series B Warrants remained outstanding through the
Determination Date), (II) .132, and (III) a fraction, the numerator of which is
the aggregate number of shares of Common Stock (including for purposes of this
calculation fractional shares) that would be issuable on the Determination Date
upon exercise of all of the Series B Warrants issued pursuant to the Warrant
Purchase Agreement had all such Series B Warrants remained outstanding through
the Determination Date without being exercised, in whole or in part, on or prior
to the Determination Date, and the denominator of which is 198,000, shall equal
or exceed $10.00 (the "Initial Cancellation Price"); provided, such Initial
Cancellation Price shall be proportionately decreased in the event of a split or
subdivision, or proportionately increased in the event of a combination, of the
Common Stock into a different number of securities of the same class.
(ii) Upon the occurrence of a Second Cancellation Event (as
defined herein), the purchase rights represented by the outstanding Series A
Warrants shall be deemed terminated in whole, but not in part, without any
further action by the Company; provided, the Company shall, in good faith, use
its best efforts to give notice of such termination of such outstanding Series A
Warrants by giving written notice to each of the holders thereof. Not later than
ten (10) days after receipt of any such notice, each such holder shall surrender
the Series A Warrants held thereby to the Company without any representation or
warranty (other than that such holder has good and valid title thereto free and
clear of
78
<PAGE>
liens, claims, encumbrances and restrictions of any kind). A "Second
Cancellation Event" shall have deemed to have occurred as of the Determination
Date if the sum of (a) the product of (x) the Current Market Price of a share of
Common Stock as of the Determination Date and (y) the number of shares of Common
Stock (including for purposes of this calculation fractional shares) that are
then issuable upon conversion of one (1) share of Series A Preferred Stock (or,
if no shares of Series A Preferred Stock are then outstanding the number of
shares of Common Stock (including for purposes of this calculation fractional
shares), that would then be issuable upon conversion of one (1) share of Series
A Preferred Stock if shares of Series A Preferred Stock were then outstanding),
plus (b) the amount of all dividends (whether in the form of cash, securities or
other properties) that accrued (whether paid or unpaid) on one (1) share of
Series A Preferred Stock from October ___, 1995 to and including the
Determination Date (or if no share of Series A Preferred Stock is then
outstanding, the amount of all dividends (whether in the form of cash,
securities or other properties) that would have accrued (whether paid or unpaid)
if one (1) share of Series A Preferred Stock had remained outstanding through
the Determination Date) plus (c) fifty percent (50%) of the product of (I) the
difference between (x) the Current Market Price of a share of Common Stock as of
the Determination Date and (y) the Exercise Price per share of Common Stock of
the Series B Warrants in effect as of the Determination Date (or, if no Series B
Warrants are then outstanding, the Exercise Price per share of Common Stock that
would then be in effect on the Determination Date with respect to the Series B
Warrants had the Series B Warrants remained outstanding through the
Determination Date), (II) .132, and (III) a fraction, the numerator of which is
the aggregate number of shares of Common Stock (including for purposes of this
calculation fractional shares) that would be issuable on the Determination Date
upon exercise of all of the Series B Warrants issued pursuant to the Warrant
Purchase Agreement had all such Series B Warrants remained outstanding through
the Determination Date without being exercised, in whole or in part, on or prior
to the Determination Date, and the denominator of which is 198,000, shall equal
or exceed $11.00 (the "Second Cancellation Price"); provided, such Second
Cancellation Price shall be proportionately decreased in the event of a split or
subdivision, or proportionately increased in the event of a combination, of the
Common Stock into a different number of securities of the same class.
13. Miscellaneous.
13.1 Nonwaiver. No course of dealing or any delay or failure to
exercise any right, power or remedy hereunder on the part of the holder hereof
shall operate as a waiver of or otherwise prejudice such holder's rights, powers
or remedies.
13.2 Notices. Any notice, demand or delivery to be made
pursuant to the provisions of this Series A Warrant shall be
sufficiently given or made if sent via overnight courier, addressed
to (a) the Holder at its last known address appearing on the books
of the Company maintained for such purpose or (b) the Company at
its principal office at 414 Eagle Rock Avenue, West Orange, New
Jersey 07834, Attention: Graham O. King. The holder of this Series
79
<PAGE>
A Warrant and the Company may each designate a different address by notice to
the other pursuant to this Section 13.2.
13.3 Like Tenor. All Series A Warrants shall at all times be
identical, except as to the Preamble.
13.4 Remedies. The Company stipulates that the remedies at law of the
holder of this Series A Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Series A Warrant are not and will not be adequate and that, to the
fullest extent permitted by law, such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
13.5 Successors and Assigns. This Series A Warrant and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Company, the holder hereof, and shall be
enforceable by any such holder.
13.6 Modification and Severability. If, in any action before any court
or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Agreement, but this Agreement shall be construed as if such
unenforceable provision had never been contained herein.
13.7 Integration. This Series A Warrant replaces all prior agreements,
supersedes all prior negotiations and (together with the Warrant Purchase
Agreement) constitutes the entire agreement of the parties with respect to the
transactions contemplated herein.
13.8 Headings. The headings of the Articles and Sections of this Series
A Warrant are for the convenience of reference only and shall not, for any
purpose, be deemed a part of this Series A Warrant.
13.9 GOVERNING LAW. THIS SERIES A WARRANT SHALL BE GOVERNED
BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS)
OF THE STATE OF ILLINOIS.
80
<PAGE>
IN WITNESS WHEREOF, MICRO HEALTHSYSTEMS, INC. has caused this
Series A Warrant to be executed by its officers thereunto duly
authorized.
Dated: October ___, 1995
MICRO HEALTHSYSTEMS, INC.
By:
Name:
Title:
The undersigned, by accepting this Series A Warrant, agrees to be bound by the
terms and conditions hereof.
[HOLDER]
By:
Its:
81
<PAGE>
Exhibit A
NOTICE OF EXERCISE
MICRO HEALTHSYSTEMS, INC.
414 Eagle Rock Avenue
West Orange, New Jersey 07834
(1) The undersigned hereby elects to purchase shares of Common Stock of
MICRO HEALTHSYSTEMS, INC., pursuant to the terms of the attached Series A
Warrant, and tenders herewith payment of the purchase price for such shares in
full.
(2) In exercising this Series A Warrant, the undersigned hereby
confirms and acknowledges that the shares of Common Stock to be issued upon
conversion thereof are being acquired solely for the account of the undersigned
and not as a nominee for any other party, and for investment, and that the
undersigned will not offer, sell or otherwise dispose of any such shares of
Common Stock except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name is
specified below:
(Name)
(Name)
(4) Please issue a new Series A Warrant for the unexercised portion of
the attached Series A Warrant in the name of the undersigned or in such other
name as is specified below:
(Name)
(Name)
82
<PAGE>
Exhibit B
NOTICE OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered owner of this Series A
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under the within Series A Warrant, with respect to
the number of shares of Common Stock set forth below:
Name of Assignee Address No. of
Shares
and does hereby irrevocably constitute and appoint Attorney
to make such transfer on
the books of MICRO HEALTHSYSTEMS, INC., maintained for the purpose, with full
power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Series A Warrant and the shares of stock to be
issued upon exercise hereof for conversion thereof are being acquired for
investment and that the Assignee will not offer, sell or otherwise dispose of
this Series A Warrant or any shares of stock to be issued upon exercise hereof
or conversion thereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended, or any state securities
laws. Further, the Assignee has acknowledged that upon exercise of this Series A
Warrant, the Assignee shall, if requested by the Company, confirm in writing, in
a form satisfactory to the Company, that the shares of stock so purchased are
being acquired for investment and not with a view toward distribution or resale.
Dated:
Signature of
Holder
</TABLE>
83
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000795965
<NAME> US SERVIS, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,658,000
<SECURITIES> 0
<RECEIVABLES> 3,398,000
<ALLOWANCES> 480,000
<INVENTORY> 20,000
<CURRENT-ASSETS> 8,493,000
<PP&E> 3,340,000
<DEPRECIATION> 2,300,000
<TOTAL-ASSETS> 14,033,000
<CURRENT-LIABILITIES> 4,337,000
<BONDS> 0
<COMMON> 63,000
0
0
<OTHER-SE> 8,946,000
<TOTAL-LIABILITY-AND-EQUITY> 14,033,000
<SALES> 0
<TOTAL-REVENUES> 4,026,000
<CGS> 0
<TOTAL-COSTS> 5,186,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 18,000
<INCOME-PRETAX> (1,160,000)
<INCOME-TAX> (480,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (680,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
