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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
MICRO HEALTHSYSTEMS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
.............................................................................
2) Aggregate number of securities to which transaction applies:
.............................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
.............................................................................
4) Proposed maximum aggregate value of transaction:
.............................................................................
5) Total fee paid:
.............................................................................
[ X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
.............................................................................
2) Form, Schedule or Registration Statement No.:
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.............................................................................
3) Filing Party:
.............................................................................
4) Date Filed:
.............................................................................
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Preliminary
Proxy Material
MICRO HEALTHSYSTEMS, INC.
414 Eagle Rock Avenue
West Orange, New Jersey 07052
(201) 731-9252
NOTICE OF ANNUAL MEETING
OF STOCKHOLDER TO BE HELD
OCTOBER 3, 1995
To the Stockholders of MICRO Healthsystems, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of MICRO
Healthsystems, Inc., a Delaware corporation (the "Company"), which will be held
on Tuesday, October 3, 1995, at 10:00 a.m., local time, at 414 Eagle Rock
Avenue, West Orange, New Jersey, for the following purposes:
1. To approve the proposal to amend and restate the Company's Certificate of
Incorporation to increase the authorized common stock of the Company, $.01
par value per share, from 10,000,000 to 30,000,000 shares, and to authorize
10,000,000 shares of preferred stock of the Company, par value $.01 per
share;
2. To approve the issuance in a private sale of units consisting of (i)
1,500,000 shares of the Company's Series A Convertible Preferred Stock, (ii)
warrants to purchase 390,000 shares of the Company's Common Stock at $0.10
per share and (iii) warrants to purchase 198,000 shares of the Company's
Common Stock at $3.50 per share, for an aggregate consideration of
$6,000,000;
3. To elect eight directors to serve until the 1996 Annual Meeting of the
stockholders of the Company;
4. To approve a plan to restructure the Company into a holding company as
described herein; and
5. To consider such other matters as may properly come before the meeting or
any adjournment thereof.
Only stockholders of record at the close of business on August 15, 1995 will be
entitled to notice of and to vote at the meeting and at any adjournment
thereof.
Accompanying this notice is a Proxy Statement, a form of proxy and a copy of
our (i) Annual Report on Form 10-K, (ii) Amendment No. 1 to Annual Report on
Form 10-K/A, and (iii) Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1995, as filed with the Securities and Exchange Commission.
WE HOPE YOU ATTEND THE MEETING IN PERSON, BUT, IF YOU CANNOT, PLEASE SIGN, DATE
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED SO THAT YOUR
SHARES MAY BE VOTED AT THE MEETING.
By Order of the Board of Directors
MICHAEL B. LOSCALZO,
Vice President of Finance and Treasurer
West Orange, New Jersey
September __, 1995
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Preliminary
Proxy Material
MICRO HEALTHSYSTEMS, INC.
414 Eagle Rock Avenue
West Orange, NJ 07052
PROXY STATEMENT
The Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of MICRO Healthsystems, Inc., a Delaware corporation
(the "Company"), to be voted at the Annual Meeting of Stockholders of the
Company referred to in the foregoing Notice. All proxies received pursuant to
this solicitation will be voted in accordance with the instructions indicated
thereon. A majority of the shares having voting power (3,148,069 shares)
represented at the meeting in person or by proxy will constitute a quorum for
the transaction of business. Stockholders who execute proxies may revoke them
at any time before they are voted by submitting a later dated proxy or by
written notice delivered to the Secretary of the Company. Personal attendance
at the meeting without submitting a later dated proxy or a written notice of
revocation to the Secretary shall not serve to revoke any proxy, unless the
stockholder attends and votes at the meeting.
The Company has appointed Registrar and Transfer Company, the Company's
registrar and transfer agent, as inspector of elections for the annual meeting
for the purpose of calculating the number of votes present in person or by
proxy at the annual meeting and tabulating the vote for proposals submitted to
a vote of stockholders at the annual meeting. Shares owned by stockholders who
are present in person, or which are represented by proxy, at the annual meeting
will determine whether or not a quorum is present. The election inspectors
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum but as not voted for purposes
of determining the approval of any matter submitted to the stockholders for a
vote. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will be considered as present but not entitled to vote with respect to that
matter. The Company anticipates mailing of the proxy materials to stockholders
will commence on or about September __, 1995.
The expenses of this solicitation will be borne by the Company. Solicitation
will be primarily by use of the mails. Executive officers and other employees
of the Company may solicit proxies, without extra compensation, personally and
by telephone and other means of communication. The Company will also reimburse
brokers and other persons holding Common Stock in their names or in the names
of their nominees for their reasonable expenses in forwarding proxies and proxy
materials to beneficial owners.
RECORD DATE OF VOTING SECURITIES
Only holders of the Company's Common Stock of record at the close of business
on August 15, 1995 are entitled to notice of and to vote at the meeting. On
that date the Company had outstanding and entitled to vote 6,296,137 shares of
Common Stock. Each outstanding share of Common Stock entitles the record
holder to one vote on each matter to be acted upon at the meeting.
Directors are elected by a plurality of the votes cast in the election. The
affirmative vote of the holders of the majority of the shares of Common Stock
of the Company outstanding is required to approve the amendment and restatement
of the Company's
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Certificate of Incorporation and the plan of restructuring. The affirmative
vote of the holders of a majority of the shares voted with respect to any other
proposal presented at the meeting is required to approve such other proposal.
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PROPOSAL TO AMEND AND RESTATE
THE CERTIFICATE OF INCORPORATION
(ITEM 2 ON THE PROXY CARD)
The Board of Directors has voted to recommend to the stockholders that the
Company amend and restate the Company's Certificate of Incorporation to
increase the number of authorized shares to 40,000,000 shares from 10,000,000
shares, including an increase in the authorized shares of Common Stock, par
value $.01 per share ("Common Stock"), to 30,000,000 shares from 10,000,000
shares, and the establishment of a class of 10,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). The proposed Amended
and Restated Certificate of Incorporation is attached hereto as Exhibit A, and
the following discussion is qualified in its entirety by reference to Exhibit
A. In the event that this proposal is not approved by the stockholders of the
Company, the Board of Directors of the Company has no plans to issue shares
(including the contemplated issuance of shares of Series A Convertible
Preferred Stock) in excess of those presently authorized under the existing
Certificate of Incorporation of the Company.
INCREASING AUTHORIZED SHARES
The purpose of the proposed increase in authorized shares is to improve the
Company's ability to expand its capital base.
As of August 15, 1995, 6,296,137 shares of Common Stock were outstanding. Of
the authorized but unissued shares of Common Stock, (i) 1,400,000 shares were
reserved for issuance under the Company's Amended 1993 Stock Option Plan, (ii)
350,000 shares were reserved for issuance pursuant to the Company's Amended
1994 Stock Option Plan for Non-Employee Directors, (iii) 75,000 shares were
reserved for issuance to Stephen Sullivan pursuant to the terms of his
employment agreement with the Company, and (iv) 1,000,000 shares were reserved
for issuance to Graham O. King pursuant to his Option Agreement with the
Company entered into in connection with his Employment Agreement with the
Company.
Except for the reserved shares noted above and in connection with the proposed
issuance of the Series A Convertible Preferred Shares, Series A Warrants and
Series B Warrants (as hereinafter defined) (see "Proposal for Private Placement
of Series A Convertible Preferred Shares and Warrants"), the Company has no
specific agreements, commitments or plans for the sale or other issuance of
additional shares of Common Stock or Preferred Stock.
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DESCRIPTION OF CAPITAL STOCK
Common Stock
General. The express terms of the Common Stock are set forth in proposed
ARTICLE FOURTH of the Amended and Restated Certificate of Incorporation as set
forth in Exhibit A to this Proxy Statement. Although the following summary is
qualified in its entirety by reference to Exhibit A, the Company believes all
material terms of the Common Stock are discussed below.
Voting Power and Market Share. Under the proposed Amended and Restated
Certificate of Incorporation, each share of Common Stock has the right to one
vote per share on election of directors and on all other matters on which the
Common Stock is entitled to vote.
If the transactions described under "Proposal for Private Placement of Series A
Convertible Preferred Shares and Warrants" occur, each share of Common Stock
will continue to entitle the holder thereof to one vote per share on all
matters on which stockholders currently are entitled to vote, except that, so
long as 300,000 Series A Convertible Preferred Shares remain outstanding and so
long as Frontenac VI Limited Partnership owns a majority of such Series A
Convertible Preferred Shares, the holders of Series A Convertible Preferred
Shares would vote as a class to elect one director and the holders of Common
Stock (voting with the Series A Convertible Preferred Shares on an as-converted
basis) would vote to elect the remaining directors.
If the transactions described under "Proposal for Private Placement of Series A
Convertible Preferred Shares and Warrants" are approved, the Company will issue
the Series A Convertible Preferred Shares, the Series A Warrants and the Series
B Warrants, each of which will be convertible into or exercisable for shares of
Common Stock of the Company. Assuming full conversion and exercise of the
Series A Convertible Preferred Shares, the Series A Warrants and the Series B
Warrants and assuming no other issuance of shares of Common Stock or Preferred
Stock, there would be 8,384,137 shares of Common Stock outstanding immediately
following consummation of such transactions, of which the purchasers in the
private placement would own 2,088,000 shares (24.9%). The issuance would
accordingly cause the existing holders of the Common Stock of the Company to
experience a significant loss of relative voting power and economic interest in
the Company and, to the extent the Company has positive net income in the
future, could result in lower earnings per share.
Dividends and Other Distributions. Each share of Common Stock will have the
right to receive dividends and other distributions in cash, stock or property
when, as and if declared by the Board of Directors out of the assets of the
Company which are by law available therefor. The Common Stock will rank junior
in right of payment of dividends and other distributions to the Series A
Convertible Preferred Shares and any other series of Preferred Stock issued out
of authorized stock which so provides. The proposed Certificate of Designation
to be filed in connection with the issuance of the Series A Convertible
Preferred Shares provides that the Company cannot declare a dividend on its
Common Stock without the consent of holders representing a majority of the
Series A Convertible Preferred Shares, unless all accumulated dividends on the
Series A Convertible Preferred Shares have been declared and paid.
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The Company is not likely to pay any dividends on the Common Stock for the
foreseeable future.
Liquidation and Dissolution. The Common Stock will rank junior to the Series A
Convertible Preferred Shares, and any other series of Preferred Stock issued
out of authorized stock which so provides, in entitlement to the assets of the
Company upon dissolution, liquidation or winding up of the Company, and will
only be entitled to share ratably in the assets remaining after payment to
holders of the Series A Convertible Preferred Shares and any other series of
Preferred Stock issued out of authorized stock which so provides.
At present, the Board of Directors has no plans to issue any Preferred Stock
other than the Series A Convertible Preferred Shares.
Convertibility. The Common Stock is not convertible into another class of
Common Stock or any other security of the Company.
Preemptive Rights. The Common Stock does not carry any preemptive rights
enabling a holder to subscribe for or receive shares of any class, or any other
securities convertible into shares of any class, of the Company's stock.
Redemption. The Common Stock is not redeemable.
Stockholder Information. The Company will continue to deliver to the holders
of Common Stock the same proxy statements, annual reports, and other
information and reports as it has previously delivered to holders of Common
Stock. Pursuant to the Purchase Agreement for the Series A Convertible
Preferred Shares described herein, the Company may be required to deliver
additional information to holders of the Series A Convertible Preferred Shares.
BLANK CHECK PREFERRED STOCK
The proposed Amended and Restated Certificate of Incorporation provides that
the Company is authorized to issue 10,000,000 shares of Preferred Stock. The
proposed Amended and Restated Certificate of Incorporation authorizes the Board
of Directors to provide for the issuance of the Preferred Stock in series, to
establish the number of shares to be included in each such series and the
designations, preferences and relative, participating, optional, conversion or
other special rights, and qualifications, limitations or restrictions, of such
shares. Such authority of the Board of Directors includes, but is not limited
to, fixing the number of shares constituting any one series and the distinctive
designation thereof, the rate and nature (whether participating or cumulative)
of any dividends, the voting rights of such shares, the conversion or
redemption features, and the rights of such shares in the event of liquidation,
dissolution or winding up of the Company. At present, the Board of Directors
has no plans to issue any Preferred Stock other than the Series A Convertible
Preferred Shares. See "Proposal for Private Placement of Series A Convertible
Preferred Shares and Warrants."
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SERIES A CONVERTIBLE PREFERRED SHARES
See "Proposal for Private Placement of Series A Convertible Preferred Shares
and Warrants - Description of Series A Convertible Preferred Shares" for a
description of the Series A Convertible Preferred Shares.
ADVANTAGES OF INCREASING AUTHORIZED SHARES
The Board of Directors believes that the proposed authorization to issue more
shares of Common Stock and Preferred Stock may assist in achieving future
acquisitions and in meeting corporate needs to raise additional capital for
internal growth. If the issuance of shares is deemed advisable in connection
with raising additional capital, or consummating future acquisitions, having
the authority to issue the additional shares may avoid the time, delay and
expense of a special stockholder's meeting to authorize such an issuance. No
further action or authorization by the Company's stockholders would be
necessary prior to the issuance of such stock, except as may be required for a
particular transaction by applicable law or regulation, the rules of any
exchange or market on which the Company's securities may be listed, or the
Certificate of Incorporation or By-Laws of the Company as then in effect.
DISADVANTAGES OF INCREASING AUTHORIZED SHARES
Anti-Takeover Effects of Provisions of
Proposed Amended and Restated Certificate of Incorporation
Certain provisions of the proposed Amended and Restated Certificate of
Incorporation and the Series A Convertible Preferred Shares summarized herein
may have an anti-takeover effect and may delay or prevent a tender offer or
takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by such stockholder. These provisions may make it more
difficult to consummate a business combination involving the Company.
After the amendment and restatement of the Company's Certificate of
Incorporation and assuming the issuance of the Series A Convertible Preferred
Shares, Series A Warrants and Series B Warrants, and subject to the reservation
of Common Stock for issuance upon exercise or conversion of options, warrants
and Series A Convertible Preferred Shares, the Company would have authorized
18,775,163 shares of Common Stock and 8,500,000 shares of Preferred Stock
available for future issuance without approval of holders of Common Stock.
These additional shares could be utilized for a variety of corporate purposes,
including future public offerings to raise additional capital or to facilitate
corporate acquisitions. The Company does not currently have any plans to issue
additional shares of capital stock (other than shares of capital stock which
may be issued or reserved for issuance in connection with employee benefit
plans or arrangements, the conversion of the Series A Convertible Preferred
Shares or the exercise of the Series A Warrants or Series B Warrants).
Shares of Preferred Stock could be issued from time to time in one or more
series and the Board of Directors, without further approval of stockholders
(subject to applicable NASDAQ policy), would be authorized to fix the dividend
rights and terms, any conversion rights, any voting rights, any redemption
rights and terms, the liquidation
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preferences, and the other rights, preferences, privileges and restrictions
applicable to each such additional series of Preferred Stock. Additional
classes or series of shares of Preferred Stock could be given voting and
conversion rights which could dilute the voting power and equity of holders of
Common Stock and could have preference over the Common Stock with respect to
dividends and liquidation rights.
One of the effects of the existence of authorized but unissued and unreserved
shares of Common Stock and shares of Preferred Stock of the Company may be to
enable the Board of Directors to issue shares to third parties which could
render more difficult or discourage an attempt to obtain control of the Company
by means of a merger, tender offer, proxy contest or otherwise. The interests
of stockholders unaffiliated with the Company's management may be harmed by the
Company's ability to impede takeover or other attempts to change the control of
the Company, because potential acquirers might be willing to pay a price in
excess of the trading price for control of the Company, and in any event
takeover attempts are generally viewed as likely to increase the market price
of a target company's shares.
Ability to Issue Additional Securities
Without Stockholder Approval
If the proposed amended and restated Certificate of Incorporation is approved,
the Board of Directors could issue shares of the Company's authorized but
unissued and unreserved stock without approval of the Company's stockholders.
Because stockholder approval of such issuances would not be required, the
Company could issue shares upon terms that, if submitted to a stockholder vote,
would not be approved by the stockholders of the Company.
STOCKHOLDER DERIVATIVE LITIGATION
If the proposal to amend and restate the Company's Certificate of Incorporation
is approved, the Company would assert this approval as a defense to any
stockholder derivative suit alleging issues related to the increase in the
number of authorized shares of the Company, or the issuance of such shares in
accordance with the terms of the Company's Certificate of Incorporation.
BOARD OF DIRECTORS' RECOMMENDATION
Approval of the Amended and Restated Certificate of Incorporation requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock entitled to vote at the Company's annual meeting. The Board of
Directors recommends a vote FOR approval of Item 2 on the Proxy Card.
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PROPOSAL FOR PRIVATE PLACEMENT
OF SERIES A CONVERTIBLE PREFERRED SHARES AND WARRANTS
(ITEM 3 ON THE PROXY CARD)
Upon approval of the Company's stockholders at the Annual Meeting, the Company
intends, pursuant to the terms of a certain Series A Convertible Preferred
Stock and Warrant Purchase Agreement (the "Purchase Agreement"), by and among
Frontenac VI Limited Partnership ("Frontenac VI"), a trust established for the
benefit of Robert E. King and his descendants, and Morgan Holland Fund II, L.P.
(collectively, the "Purchasers") and the Company, to sell to the Purchasers,
through a private placement, (i) 1,500,000 shares of Series A Convertible
Preferred Stock, par value $0.01 per share (the "Series A Convertible Preferred
Shares"), warrants to purchase up to 390,000 shares of the Company's Common
Stock at an exercise price of $0.10 per share (the "Series A Warrants"), and
warrants to purchase up to 198,000 shares of the Common Stock at an exercise
price of $3.50 per share (the "Series B Warrants"), for an aggregate purchase
price of $6,000,000. In the event of any material change in the terms of the
Purchase Agreement, or the Series A Convertible Preferred Shares, Series A
Warrants or Series B Warrants, or any change in the consideration to be paid by
the Purchasers, the Company will submit the changed terms to the stockholders
of the Company for their approval. The Board of Directors of the Company will
abandon its plan to issue securities of the Company to the Purchasers if the
transactions contemplated by the Purchase Agreement are not approved by the
stockholders of the Company.
RELATIONSHIP OF PURCHASERS TO THE COMPANY
Frontenac VI has agreed to purchase securities of the Company issued pursuant
to the terms of the Purchase Agreement for a purchase price of $5,000,000 to be
paid to the Company by Frontenac VI. Mr. James E. Cowie, a nominee for
director of the Company, is a general partner of Frontenac Company, the general
partner of Frontenac VI. Mr. Stanford J. Goldblatt, a director of the Company,
is a member of the Advisory Committee of Frontenac Company and is the trustee
of a trust established for the benefit of members of Mr. Goldblatt's family,
which trust is a limited partner in Frontenac VI. Mr. Goldblatt is a partner
in the law firm of Hopkins & Sutter, which provides legal services to Frontenac
VI, Frontenac Company and Robert E. King on a regular basis, although it has
not provided legal services to Frontenac VI, Frontenac Company or Mr. King with
regard to any transactions with the Company.
A trust established for the benefit of Robert E. King and his descendants has
agreed to purchase securities of the Company issued pursuant to the terms of
the Purchase Agreement for a purchase price of $500,000 to be paid to the
Company by the trust. Mr. King is a director of the Company and the brother
of Graham O. King, Chairman and Chief Executive Officer of the Company. He is
also a member of the Advisory Committee of Frontenac Company (the general
partner of Frontenac VI), and is the general partner of a limited partner of
Frontenac VI.
Morgan Holland Fund II, L.P. has agreed to purchase securities of the Company
pursuant to the terms of the Purchase Agreement for a purchase price of
$500,000 to be paid to the Company by Morgan Holland Fund II, L.P. Morgan
Holland Fund II, L.P. is currently a stockholder of the Company, holding
approximately 4.66% of the Company's issued and outstanding Common Stock.
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The terms of the Purchase Agreement, the Series A Convertible Preferred Shares,
the Series A Warrants and the Series B Warrants were negotiated by
representatives of the Company and representatives of Frontenac VI in good
faith on an arm's length basis. Because of the relationships described above,
the Board of Directors of the Company appointed an Independent Committee of S.
M. Caravetta, Frederick R. Blume and James A. Pesce to review this
transaction. The Independent Committee concluded that the terms of the
Purchase Agreement, the Series A Convertible Preferred Shares, the Series A
Warrants and the Series B Warrants are as favorable to the Company as if
negotiated with a third party with no common affiliations with the Company.
REASONS FOR PRIVATE PLACEMENT; NEGOTIATION OF TERMS
The Board of Directors believes that the Company must increase the amount of
cash available to the Company for its working capital and possible strategic
acquisition needs, although the Company is not presently considering any
specific acquisition. The Company considered several alternatives to the
proposed private placement, including seeking financing from traditional
lending sources and a public offering of either debt or equity securities. The
Board of Directors did not seek conventional debt financing because the Company
does not have, at the present, either sufficient assets or a record of earnings
that would demonstrate the ability to make material loan repayments in the near
future. It rejected a public offering because of the current market price of
the Company's issued and outstanding Common Stock and after consideration of
current economic, industry and market conditions.
After determining that a private placement of equity securities was the
appropriate vehicle for increasing the amount of cash available to the Company,
Mr. Robert E. King requested that Frontenac Company, as general partner of
Frontenac VI, consider a $5,000,000 investment in the Company. After reviewing
financial and business information relating to the Company, and meeting with
members of the Company's management, Frontenac VI forwarded a draft letter of
intent to the Company proposing a private purchase of equity securities. In
view of the existing business and personal relationships that certain directors
have with Frontenac VI, Frontenac Company, and Robert E. King, the Board of
Directors, at a meeting held on June 14, 1995, appointed the Independent
Committee to consider the transactions contemplated with Frontenac VI.
Starting with the draft letter of intent, representatives of the Company and
Frontenac VI negotiated a final letter of intent and then proceeded to
negotiate the Purchase Agreement and other documentation relating to the
transactions contemplated thereby. There were extensive negotiations between
representatives of the Company (Messrs. Graham King and Michael Loscalzo) and
representatives of Frontenac VI that focused primarily on (a) the number of
Series A Convertible Preferred Shares to be issued and the conversion price
therefore, (b) the number and exercise price of the Series A Warrants and the
Series B Warrants, and (c) the standards for terminating the Series A Warrants.
A bargain was struck that balances the interest of Frontenac VI in having a
larger ownership position for its investment in the event the Company does not
prosper with the interest of the Company in reducing the ownership position of
Frontenac VI in the event that the Company does prosper. The primary mechanism
to achieve this balance is the Series A Warrants. The Series A Warrants are
exercisable between the fourth and fifth anniversary of issuance but are
cancelled, in whole or in part, if the share price of the Common Stock of the
Company rises to certain levels before exercise.
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After the substantive terms of the Purchase Agreement and the transactions
contemplated thereby were negotiated, Robert King and representatives of Morgan
Holland Fund II, L.P., requested that they be permitted to invest an additional
$1,000,000 in the Company upon the same terms and conditions as set forth in
the Purchase Agreement. The Company and Frontenac VI agreed to this additional
$1,000,000 investment.
The Independent Committee has unanimously approved the transactions
contemplated by the Purchase Agreement, and has recommended that the Board of
Directors submit the proposal to the Company's stockholders for their approval.
Based upon the recommendation of the Independent Committee, the Board of
Directors believes that the terms of the proposed private placement are
favorable to the Company and that the private placement is in the best
interests of the Company.
MARKET PRICE OF THE COMPANY'S COMMON STOCK
On June 26, 1995, the day before the date the transactions contemplated by the
Purchase Agreement were publicly disclosed, the closing price per share of the
Company's Common Stock was $3.375. On August 25, 1995, the closing price per
share of the Company's Common Stock was $3.875. The Company's management
believes this increase reflects both market support of the transactions
contemplated by the Purchase Agreement and recognition of improvements in the
Company's operations.
ACTUAL AND PRO FORMA CAPITALIZATION OF A COMPANY
The following chart reflects the actual and pro forma capitalization of the
Company as of June 30, 1995, assuming a closing of the transactions
contemplated by the Purchase Agreement as of such date.
<TABLE>
<S> <C>
June 30, 1995 (Actual)
Preferred Stock (none) $ 0
Stockholders' Equity
Common Stock, $0.01
par value per share,
10,000,000 shares
authorized, 6,257,000
shares outstanding
Capital in Excess 63,000
of par value 14,664,000
Unearned Compensation (579,000)
Retained Earnings (deficit) (3,500,000)
Subscription Receivable (140,000)
Note receivable - related party (1,225,000)
9,283,000
Less Treasury Stock at Cost (59,000)
Total Stockholders' Equity $9,224,000
==================================================
June 30, 1995 (Pro Forma)
Preferred Stock
Convertible Redeemable
Preferred Stock,
par value $0.01 per share
10,000,000 shares
authorized, 1,500,000
issued and outstanding $6,000,000
Total Preferred Stock $6,000,000
==================================================
Stockholders' Equity
Common Stock, $0.01 par value
per share, 30,000,000 shares
authorized, 6,257,000 shares
outstanding
Capital in excess 63,000
of par value 14,664,000
Unearned Compensation (579,000)
Retained Earnings (deficit) (3,500,000)
Subscription Receivable (140,000)
Note receivable - related party (1,225,000)
9,283,000
Less Treasury Stock at Cost (59,000)
Total Stockholders' Equity $9,224,000
==================================================
</TABLE>
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DESCRIPTION OF PURCHASE AGREEMENT
A copy of the Purchase Agreement together with certain of the exhibits thereto
is attached hereto as Exhibit B, and the following description of the Purchase
Agreement is qualified in its entirety by reference to such exhibit.
General. On the terms and subject to the conditions of the Purchase Agreement,
the Company will issue and sell to the Purchasers the Series A Convertible
Preferred Shares, the Series A Warrants and the Series B Warrants for an
aggregate purchase price of $6,000,000 in cash. The closing of the transactions
contemplated by the Purchase Agreement is contingent on approval of such
transactions by the Company's stockholders at the Annual Meeting.
Certain Covenants of the Company. The Company shall comply with certain
covenants in the Purchase Agreement:
Financial Statements and Other Information. Subject to certain conditions,
the Company will deliver to each holder of at least 100,000 Series A
Convertible Preferred Shares all filings under the Securities Act or the
Securities Exchange Act of 1934 (other than registration statements for
employee benefit or dividend reinvestment plans), an operating plan for each
fiscal year, including projected monthly cash flows and capital expenditure
budgets, and such other information and financial data concerning the Company
as such holder may reasonably request.
Inspection of Property. Subject to certain conditions, the Company will
permit a representative of any holder of at least 100,000 Series A
Convertible Preferred Shares to visit and inspect any of the properties of
the Company, examine the corporate and financial records of the Company and
its subsidiaries, and discuss the affairs, finances and accounts of the
Company and its subsidiaries with the principal officers of the Company.
Restrictions. As long as at least 300,000 Series A Convertible Preferred
Shares remain outstanding, without the consent of the holders of a majority
of the Series A Convertible Preferred Shares, the Company will not be
permitted to:
(a) alter or change the rights, preferences or privileges of the Series A
Convertible Preferred Shares or issue any stock superior or pari passu to the
Series A Convertible Preferred Shares with respect to payment of dividends or
the distribution of assets upon liquidation; or
(b) without the consent of the Board of Directors of the Company or the
consent of the director appointed by the holders of Series A Convertible
Preferred Shares, enter into any material transaction or arrangement
requiring the payment of money or transfer of property having a value of more
than $250,000 to an affiliate of the Company or an officer or director of
such affiliate (other than customary employment arrangements on reasonable
arm's-length terms).
Expenses. The Company is obligated to pay all reasonable expenses incurred by
Frontenac VI in connection with the negotiation, execution and delivery of the
Purchase
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<PAGE> 15
Agreement (including all reasonable fees and expenses of legal counsel to
Frontenac VI), up to an aggregate maximum amount of $50,000.
Restricted Securities. The shares and warrants issued pursuant to the terms of
the Purchase Agreement have not been registered under the Securities Act of
1933 (the "Securities Act"), and may not be sold or otherwise disposed of by
the holders thereof except in accordance with an effective registration
statement under the Securities Act or in a transaction exempt from such
registration. Other than as contemplated by the Registration Rights Agreement,
see "Description of Registration Rights Agreement" below, the Company has no
plans or obligation to register the securities issued pursuant to the terms of
the Purchase Agreement, or the securities into or for which these securities
may be converted or exercised.
DESCRIPTION AND TERMS OF SERIES A CONVERTIBLE PREFERRED SHARES
Under the terms of the Certificate of Designation as proposed to be filed with
respect to the Series A Convertible Preferred Shares, the Series A Convertible
Preferred Shares shall have the terms described below. A copy of the proposed
Certificate of Designation is attached hereto as Exhibit C, and this
description of terms is qualified in its entirety by reference to such exhibit.
Dividends. Dividends upon each Series A Share will accrue daily at a rate
equal to 8% per annum, compounded quarterly, of the sum of (x) the Liquidation
Value per share, plus (y) accumulated but unpaid dividends. The "Liquidation
Value" is initially $4.00 per share. When and as declared by the Board of
Directors and to the extent permitted under the General Corporation Law of the
State of Delaware, the Company will pay accrued dividends on March 31, June 30,
September 30 and December 31 of each year. To the extent not paid on any such
date, the accrued dividends shall be accumulated until paid. If not earlier
paid, dividends on each Series A Share shall be paid upon the earliest of, (i)
the date on which the Liquidation Value of such Series A Share plus any accrued
and unpaid dividends thereon is paid upon any liquidation, dissolution or
winding up of the Company, (ii) the date on which such Series A Share is
converted into Common Stock, or (iii) the date such Series A Share is redeemed.
Restriction on Other Dividends. So long as any Series A Convertible Preferred
Shares remain outstanding, without the consent of holders of a majority of the
Series A Convertible Preferred Shares then outstanding, the Company is not
permitted to redeem, purchase or otherwise acquire directly or indirectly any
junior securities, nor is the Company permitted to directly or indirectly pay
or declare any dividend or make any distribution upon any junior securities,
until all accumulated dividends on the Series A Convertible Preferred Shares
are paid.
Liquidation. Upon any liquidation, dissolution or winding up of the Company,
each holder of Series A Convertible Preferred Shares will be entitled to be
paid, before any distribution or payment is made upon any of the Company's
equity securities that rank junior to the Series A Convertible Preferred
Shares, an amount in cash equal to the aggregate Liquidation Value per share
plus all accrued and unpaid dividends. After payment of the full preferential
amount with respect to the Series A Convertible Preferred Shares, the holders
of Series A Convertible Preferred Shares shall not share in any remaining
assets of the Company. The shares of Common Stock are junior securities.
- 12 -
<PAGE> 16
Mandatory Redemption. The proposed Certificate of Designation provides for
mandatory redemption of all of the Series A Convertible Preferred Shares on the
fifth anniversary of the date of issuance, by payment to the holders of Series
A Convertible Preferred Shares of the Liquidation Value per share plus all
accrued but unpaid dividends per share (the "Redemption Price"), which
Redemption Price shall be payable in six equal semiannual installments
commencing on the date of redemption.
Voting Rights. The proposed Certificate of Designation provides that, so long
as at least 300,000 Series A Convertible Preferred Shares are outstanding and
so long as Frontenac VI holds a majority of such Series A Convertible Preferred
Shares, the holders of the Series A Convertible Preferred Shares, voting as a
single class, shall be entitled to elect one member of the Company's Board of
Directors, and that the director elected by the holders of Series A Convertible
Preferred Shares shall be designated a member of the Executive Committee or an
equivalent committee of the Board of Directors. The holders of Common Stock
and the Series A Convertible Preferred Shares voting on an as-converted basis,
voting together as a single class, shall elect the remaining members of the
Board of Directors. The holders of Series A Convertible Preferred Shares will
be entitled to vote with the holders of Common Stock on all other matters
submitted to a vote of the Company's stockholders as a single class, with each
Series A Share having the number of votes equal to the number of shares of
Common Stock into which such share is convertible as of the record date for
determination of stockholders entitled to vote on matters presented for a vote
of stockholders.
Limit on Size of Board. The proposed Certificate of Designation provides that
the Board of Directors shall not at any time consist of more than twelve (12)
members without the approval of the director elected by the Series A
Convertible Preferred Shares.
Conversion at Election of Holders. The proposed Certificate of Designation
provides that at any time any holder of Series A Convertible Preferred Shares
may convert all or any portion of such shares into the number of shares of the
Company's Common Stock computed by dividing (i) the product of (A) the number
of Series A Convertible Preferred Shares to be converted, times (B) $4.00, by
(ii) the Conversion Price. The initial Conversion Price is $4.00, subject to
adjustment as discussed below.
Conversion at Election of Company. If at any time after the second anniversary
of the date of issuance (the "Determination Date"), the sum of (a) the product
of (x) the market price of a share of Common Stock, and (y) the number of
shares of Common Stock that is then issuable upon conversion of one Series A
Share, plus (b) the amount of all dividends accrued (whether paid or unpaid) on
one Series A Share from the date of issuance to and including the Determination
Date, equals or exceeds $11.00, the Company may require the conversion of all
outstanding Series A Convertible Preferred Shares into Common Stock. The
shares of Common Stock issued upon such a conversion will be registered for
resale upon a registration statement filed with the Securities and Exchange
Commission.
Automatic Conversion. Upon the conversion of all of the Series A Convertible
Preferred Shares initially issued to Frontenac VI, all remaining Series A
Convertible Preferred Shares then outstanding shall be automatically converted
into shares of Common Stock at the Conversion Price then in effect.
Adjustments to Conversion Price. The Conversion Price will initially be $4.00,
and will be subject to adjustment from time to time under certain
circumstances. If after the
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<PAGE> 17
original date of issuance of Series A Convertible Preferred Shares the Company
issues or sells, or is deemed to have issued or sold, any shares of its Common
Stock for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then (except for the
issuance of Excluded Stock) upon such issuance or sale the Conversion Price
shall be reduced to the Conversion Price determined by dividing (i) the sum of
(A) the product derived by multiplying the Conversion Price in effect
immediately prior to such issue or sale times the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale, plus (B) the
consideration, if any, received by the Company upon such issue or sale, by (ii)
the number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale. For example, if, after the transactions contemplated by the
Purchase Agreement are approved, the Company were to issue 500,000 new or
treasury shares of Common Stock at $3.50 per share, the Conversion Price would
be reduced to $3.972, based on multiplying $4.00 by 8,384,137, plus $1,750,000,
divided by 8,884,137. No adjustment in the Conversion Price will take place
unless the Company were to issue new or treasury shares of Common Stock,
regardless of any changes in the market price for presently outstanding shares
of Common Stock. "Excluded Stock" means (i) the shares of Common Stock or
options therefore issued or issuable by the Company for incentive or
compensatory purposes to directors, officers and employees of, and consultants
to, the Company and its subsidiaries which are from time to time approved by
the Board of Directors of the Company, provided that the number of such shares
shall not exceed, at any time prior to the first anniversary of the issuance of
the Series A Convertible Preferred Shares or at any time thereafter unless
approved by the Board of Directors, 3,057,000 (net of any repurchases of such
shares or options), (ii) any split, subdivision or combination of Common Stock
into a different number of securities of the same class, (iii) issuances or
deemed issuances of Common Stock upon exercise or conversion, as the case may
be, of the Series A Convertible Preferred Shares, Series A Warrants and Series
B Warrants, and (iv) any distribution, granting or sale of purchase rights
issued to all holders of Common Stock. "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 exercise, conversion or exchange of all options or convertible securities
then outstanding, whether or not any options or convertible securities are
actually exercisable, convertible or exchangeable, as the case may be, at such
time.
If the Company 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 Company at any
time combines (by 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.
Any recapitalization, reorganization, reclassification, consolidation, merger,
exchange or sale of more than 80% of the Company's assets to another person
which is effected in such a manner that holders of Common Stock are entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock is referred to as a "Corporate Change." Prior to the consummation of any
Corporate Change, the Company is obligated to make appropriate provisions (in
form and substance reasonably satisfactory to the holders of a majority of the
Series A Convertible Preferred Shares then outstanding) to insure that each of
the holders of Series A Convertible Preferred Shares will thereafter have the
right to acquire and receive, in lieu of or in addition to (as the
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<PAGE> 18
case may be), the shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Series A Convertible Preferred
Shares, 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 Convertible Preferred Shares immediately prior to such Corporate
Change. The Company must also preserve the conversion and certain other
provisions applicable to the Series A Convertible Preferred Shares. The
Company will not effect any such consolidation, merger or sale unless prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger, or the entity purchasing such assets,
assumes by written instrument (in form reasonably satisfactory to the holders
of a majority of the Series A Convertible Preferred Shares then outstanding),
the obligation to deliver to each such holder such securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
Liquidating Dividends. The proposed Certificate of Designation provides that
if the Company declares or pays a dividend upon the Common Stock payable
otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock split or a stock dividend payable in shares of Common Stock,
then the Company will pay to the holders of Series A Convertible Preferred
Shares at the time of payment thereof the dividends which would have been paid
had such Series A Convertible Preferred Shares been converted immediately prior
to such dividends.
Preemptive Rights. The holders of Series A Convertible Preferred Shares shall
be entitled to the preemptive right to subscribe for and purchase their
respective pro rata portion of any issuance of Common Stock, other than
issuances of Excluded Stock (as defined in the Proposed Certificate of
Designation), issuances of Common Stock in a public offering and issuances of
Common Stock in connection with an acquisition.
DESCRIPTION OF SERIES A WARRANTS
Subject to stockholder approval and the terms and conditions of the Purchase
Agreement, the Company has agreed to issue the Series A Warrants to the
Purchasers. Under the terms of the Series A Warrants, the holders of the
Series A Warrants are entitled to purchase, in the aggregate, 390,000 shares of
the Common Stock. The form of Series A Warrant is attached as Exhibit B to the
Purchase Agreement, and the following description of the Series A Warrants is
qualified in its entirety by reference to such exhibit.
Term. The Series A Warrants may be exercised in whole or in part during the
period commencing on the fourth anniversary of the date of issuance of such
warrants and ending on the fifth anniversary of such date of issuance
("Exercise Period"). The Series A Warrants shall be void if not exercised by
the end of the Exercise Period.
Exercise Price. The Exercise Price of the Series A Warrants shall be $0.10 per
share.
Termination. If, at any time prior to or during the Exercise Period, the sum
of (a) the product of (x) the market price of a share of Common Stock and (y)
the number of shares of Common Stock issuable upon conversion of one Series A
Share, plus (b) the amount of all dividends accrued (whether paid or unpaid) on
one Series A Share from the date of issuance of such Series A Share to and
including the date of calculation,
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<PAGE> 19
equals or exceeds $10.00, Series A Warrants representing the right to purchase
195,000 shares of the Company's Common Stock (or such lesser amount of Series A
Warrants as shall then be outstanding) will be deemed terminated without
further action by the Company.
If, at any time prior to or during the Exercise Period, the sum of (a) the
product of (x) the market price of a share of Common Stock and (y) the number
of shares of Common Stock that are then issuable upon conversion of one Series
A Share, plus (b) the amount of all dividends accrued (whether paid or unpaid)
on one Series A Share from the date of issuance to and including the date of
calculation, equals or exceeds $11.00, all Series A Warrants then outstanding
shall be deemed terminated without further action by the Company. For example,
if the average closing price of the Common Stock is at least $8.875 for any ten
consecutive trading day period prior to September 30, 1999, all of the Series A
Warrants will be canceled.
The Company, shall in good faith, use its best efforts to give written notice
of termination to holders of Series A Warrants. Not later than ten (10) days
after receipt of such notice, each such holder shall surrender the Series A
Warrants held thereby to the Company.
Registration Rights. See "Description of Registration Rights Agreement" below
for a discussion of the Registration Rights covering shares of Common Stock
issued upon exercise of the Series A Warrants.
DESCRIPTION OF SERIES B WARRANTS
Subject to stockholder approval and the terms and conditions of the Purchase
Agreement, the Company has agreed to issue the Series B Warrants to the
Purchasers. Under the terms of the Series B Warrants, the holders of the
Series B Warrants are entitled to purchase, in the aggregate, 198,000 shares of
the Common Stock. The form of Series B Warrant is attached as Exhibit C to
the Purchase Agreement, and the following description of the Series B Warrants
is qualified in its entirety by reference to such exhibit.
Term. The Series B Warrants may be exercised in whole or in part during the
period commencing on the date of issuance and ending on the fifth anniversary
of the issuance of such Series B Warrants ("Exercise Period"). The Series B
Warrants shall be void if not exercised by the end of the Exercise Period.
Exercise Price. The Exercise Price of the Series B Warrants shall be $3.50 per
share, subject to adjustment as described below.
Anti-dilution Adjustments to Exercise Price. If after the original date of
issuance of Series B Warrants, the Company issues or sells, or 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 Exercise Price in effect
immediately prior to the time of such issue or sale, then upon such issuance or
sale the Exercise Price shall be reduced to the Exercise Price determined by
dividing (i) the sum of (A) the product derived by multiplying the Exercise
Price in effect immediately prior to such issue or sale times the number of
shares of Common Stock Deemed Outstanding immediately prior to such issue or
sale, plus (B) the consideration, if any, received by the Company upon such
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<PAGE> 20
issue or sale, by (ii) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale. For example, if, after the transactions
contemplated by the Purchase Agreement are approved, the Company were to issue
500,000 shares of Common Stock at $3.00 per share, the Exercise Price would be
reduced to $3.472, based on multiplying $3.50 by 8,384,137, plus $1,500,000,
divided by 8,884,137.
If the Company 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 Exercise Price in effect immediately prior to
such subdivision will be proportionately reduced, and if the Company at any
time combines (by reverse stock split or otherwise) its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination will be proportionately increased.
Prior to the consummation of certain reorganizations, mergers, consolidations,
or the sale of all or substantially all of the assets of the Company, the
Company is obligated to make appropriate provisions to insure that each of the
holders of Series B Warrants will thereafter have the right to acquire and
receive, upon the exercise of such holder's Series B Warrants, the stock, other
securities or property that such holders would have been entitled to receive
had such holders exercised the Series B Warrants immediately before such
reorganization, merger, consolidation or sale. In addition, appropriate
adjustments must be made in the application of the provisions of the Series B
Warrants to preserve the rights of the holders of the Series B Warrants.
Registration Rights. See "Description of Registration Rights Agreement" below
for a description of the Registration Rights covering the shares of Common
Stock issuable upon exercise of the Series B Warrants.
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
In connection with the transactions contemplated by the Purchase Agreement, the
Company will enter into a registration rights agreement (the "Registration
Rights Agreement"). A copy of the Registration Rights Agreement is attached as
Exhibit D to the Purchase Agreement, and this description is qualified in its
entirety by reference to such Exhibit.
The Registration Rights Agreement requires the Company to effect, on demand of
holders of at least 33% of the Registrable Securities at any time after the six
month anniversary of the date of execution of the Registration Rights
Agreement, registrations under the Securities Act. In addition, the holders of
Registrable Securities would generally have the right to include their shares
of Common Stock in any registration through which the Company sells shares of
Common Stock. The Company would pay all expenses in connection with up to two
demand underwritten offerings, an unlimited number of registrations that are
not underwritten offerings and an unlimited number of offering by the Company
in which holders of Registrable Securities sell shares. "Registrable
Securities" include shares of Common Stock issued upon conversion of the Series
A Convertible Preferred Shares and upon exercise of the Series A Warrants and
the Series B Warrants, and any additional shares of Common Stock issued as a
stock dividend or a stock split relating to these securities.
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<PAGE> 21
DISADVANTAGES OF PROPOSAL
The issuance of the Series A Convertible Preferred Shares, Series A Warrants
and Series B Warrants, and the issuance of the Common Stock into which such
securities are convertible or exchangeable, will cause the existing
stockholders of the Company a significant loss of voting power and could cause
the existing stockholders of the Company a significant loss of economic
interest in the Company. See "Proposal to Amend and Restate the Certificate of
Incorporation - Description of Capital Stock - Common Stock - Voting Power and
Market Share." The Company's contractual obligation to register the Common
Stock issuable upon conversion of the Series A Convertible Preferred Shares and
exercise of the Series A Warrants and Series B Warrants may depress the current
market price of outstanding shares of Common Stock. In addition, the anti-
dilution protections covering the Series A Convertible Preferred Shares and
Series B Warrants, and the sale of securities convertible into a significant
number of shares of Common Stock subject to registration rights, may limit the
Company's ability to raise additional capital in the private or public capital
markets, and may limit interest in the Company's securities in the public
capital markets. Under the terms of the proposed Certificate of Designations,
in a liquidation, the holders of Series A Convertible Preferred Shares would
receive the liquidation value for these shares, plus all accrued but unpaid
dividends, prior to any distributions to holders of shares of Common Stock of
the Company. To the extent the Company is liquidated, this would put the
holders of shares of Common Stock of the Company in a position subordinate to
the holders of Series A Convertible Preferred Shares. The Board of Directors
believes the benefits of raising the additional capital on the terms described
herein outweigh the disadvantages.
STOCKHOLDER DERIVATIVE LITIGATION
If the proposal to enter into the transactions contemplated by the Purchase
Agreement is approved, the Company would assert this approval as a defense to
any stockholder derivative suit alleging issues related to the Purchase
Agreement, the Series A Convertible Preferred Shares, the Series A Warrants and
the Series B Warrants.
RECOMMENDATION
The Independent Committee has unanimously approved the proposal and recommended
that the Board of Directors submit the proposal to the Company's stockholders
for their approval. Pursuant to such recommendation, the Board of Directors
has unanimously approved the Proposal for Issuance of Series A Convertible
Preferred Shares and Warrants (with Messrs. Robert E. King and Stanford J.
Goldblatt abstaining from such vote, and prior to Mr. Cowie's election as a
director). The Board of Directors recommends a vote FOR approval of Item 3 on
the Proxy Card.
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<PAGE> 22
ELECTION OF DIRECTORS
(ITEM #1 on the PROXY CARD)
A Board of Directors consisting of eight individuals is to be elected at the
Annual Meeting. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's eight nominees named below. With
respect to Mr. Cowie, if the Proposal for Private Placement of Series A
Convertible Preferred Shares and Warrants is not adopted by the stockholders,
Mr. Cowie will not be elected to the Board of Directors by the proxy holders.
In the event that any nominee of the Company is unable or declines to serve as
a director at the time of the Annual Meeting, the proxies will be voted for any
nominee who shall be designated by the present Board of Directors to fill the
directorship. The term of office of each person elected as a director will
continue until the next annual meeting of stockholders or until his or her
successor has been elected and qualified.
The names of the nominees and certain information about them are set forth
below.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------------------------------------------------------
<S> <C> <C>
Graham O. King 55 Chairman of the Board and Chief
Executive Officer
S.M. Caravetta 69 Vice Chairman of the Board
James A. Pesce 52 President and Director
Frederick R. Blume 53 Director
Stanford J. Goldblatt 56 Director
Robert E. King 59 Director
Robert C. Bowers 49 Director
James E. Cowie 40 Director
</TABLE>
GRAHAM O. KING joined the Company on October 12, 1994 as the Company's Chief
Executive Officer. He was appointed Chairman of the Board of Directors at a
Board of Directors meeting held on October 28, 1994. He was formerly with
Shared Medical Systems, Inc., a healthcare information service company, from
October 1, 1986 until October 31, 1993, where he served as its President from
April 1987. From October 31, 1993 until joining the Company, he was a partner
with Salt Creek Ventures, a private investment company. Mr. King and Mr.
Robert E. King, another director of the Company, are brothers.
S. M. CARAVETTA was the Chairman of the Board of Directors, and Chief Executive
Officer from its organization in 1976 through October 28, 1994. He became Vice
- 19 -
<PAGE> 23
Chairman of the Board of Directors on October 28, 1994. Mr. Caravetta has been
a director of the Company since 1976.
FREDERICK R. BLUME has been a director of the Company since 1993. He has been
a Managing Partner of Capital Health Venture Partners, a healthcare venture
capital firm, since June 1986. Prior to founding Capital Health, Mr. Blume was
a Managing Director of Paine Webber Group specializing in corporate healthcare
financing. He is presently a director of Cytyc Corporation, Oculon Corporation
and Washington National Corporation.
STANFORD J. GOLDBLATT has been a director of the Company since April 20, 1995.
He has been a partner in the law firm of Hopkins & Sutter, counsel to the
Company, since 1979.
ROBERT E. KING has been a director of the Company since April 20, 1995. For a
twelve year period prior to October 1994, Mr. King was a director and Chief
Executive Officer of CA Newtrend Inc., the general partner of Newtrend, L.P.
(and its partnership and corporate predecessors), a software, service and
outsourcing provider in the financial institutions market. Mr. King and Mr.
Graham O. King are brothers.
ROBERT C. BOWERS has been a director of the Company since April 20, 1995.
Since June 19, 1995, Mr. Bowers has been Vice President and Chief Financial
Officer of HTE, Inc., a software service company in the state and local
government market. From June 1985 through October 1994, Mr. Bowers was Senior
Vice President and Chief Financial Officer of CA Newtrend Inc., the general
partner of Newtrend, L.P. (and its partnership and corporate predecessors).
JAMES E. COWIE has been a director of the Company since July 18, 1995. Mr.
Cowie has been a general partner of Frontenac Company, a Delaware general
partnership that is the general partner of Frontenac VI and other venture
capital partnerships, since 1989. He also serves on the boards of directors of
PLATINUM technology, inc., U.S. Robotics, Inc. and Open Environment
Corporation.
CONCERNING THE BOARD OF DIRECTORS
Prior to October 1994, outside directors of the Company received up to $1,000
per meeting for their services to the Company in such capacity. During the
fiscal year ended March 31, 1995, Ambassador Maxwell Rabb and Mr. Blume (Mr.
Rabb is a current director of the Company who is not standing for re-election),
two of the outside directors of the Company, were each paid $2,000. Mr.
Stephen J. Feinberg, a current outside director who is not standing for
re-election, did not receive any fees. Effective October 1994, outside
directors of the Company were granted stock options under the Company's 1994
Non-Employee Director Stock Option Plan (the "1994 Plan") in lieu of cash
compensation. Under the 1994 Plan, the Board of Directors of the Company is
authorized to grant options to purchase up to 350,000 shares of Common Stock to
certain non-employee directors. Under the terms of the 1994 Plan, a
non-employee director is granted options to purchase 50,000 shares of Common
Stock at the market
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<PAGE> 24
price on the day he or she becomes a director or, in the case of outside
directors that were in office during October 1994, the date of adoption of the
1994 Plan. The options vest at the rate of 10,000 shares per year, expire if
not exercised within ten years from the date of grant, and are
non-transferrable by option holders during an option holder's lifetime. Under
circumstances set forth in the 1994 Plan, the options may be exercised within
six months following termination of service to the Company, or within one year
in the event of death or total disability. In January 1995, each of Mr. Bowers
and Mr. Robert King, as consideration for his agreement to serve as a
consultant to the Company, was issued options under the Company's Amended 1993
Stock Option Plan. Neither Mr. Bowers nor Mr. King received options under the
1994 Plan upon his appointment as a director of the Company. Neither Mr.
Goldblatt nor Mr. Cowie, upon being appointed as a director of the Company,
accepted any options. The option holdings of the directors are set forth under
"Voting Securities and Principal Holders Thereof" below. Directors are also
reimbursed for their reasonable travel expenses incurred in attending meetings.
The Board of Directors met or took action without a meeting eight times during
the fiscal year ended March 31, 1995. Other than directors elected during the
year, there is no present director nominated for election who attended fewer
than 75% of the aggregate of the total number of meetings of the Board of
Directors and the total number of meetings held by all committees of the Board
of Directors on which he served.
The Board of Directors maintains an Audit Committee, an Option Committee, a
Nominating Committee and a Compensation Committee.
The Audit Committee discusses matters of concern to the independent auditor
resulting from the audit; reviews changes in accounting principles in the
financial statements; and reviews non-auditing services performed for the
Company by the independent auditor. During the fiscal year ended March 31,
1995, the members of the Audit Committee were Mr. Feinberg and Ambassador Rabb.
The Audit Committee met once during fiscal 1995, and both members of the
Committee were present at the meeting. The Audit Committee will be
reconstituted after the Annual Meeting.
The Option Committee administers the 1993 Stock Option Plan. During the fiscal
year ended March 31, 1995, the members of the Option Committee were Mr.
Caravetta, Ambassador Rabb and Mr. Feinberg. The Option Committee met or took
action without a meeting three times during fiscal 1995, and all members of the
Option Committee were present at all meetings. The Option Committee will be
reconstituted to replace Messrs. Rabb and Feinberg after the Annual Meeting.
During the fiscal year ended March 31, 1995, the members of the Compensation
Committee were Mr. Feinberg and Ambassador Rabb. The Compensation Committee
did not meet during fiscal 1995. The Compensation Committee will be
reconstituted after the Annual Meeting.
During the fiscal year ended March 31, 1995, the members of the Nominating
Committee were Mr. Graham King, Mr. Caravetta and Mr. Blume. The Nominating
Committee did not meet during fiscal 1995. The Nominating Committee will
consider nominees submitted by the stockholders of the Company. Submissions
should be made in a writing addressed to the attention of the Nominating
Committee at the Company's principal executive offices.
- 21 -
<PAGE> 25
The Company has agreed with each director of the Company that the Company shall
indemnify the director against certain claims that may be asserted against him
by reason of serving on the Board of Directors.
Mr. Graham King is a party to an Employment Agreement with the Company that
extends through March 31, 1996. This agreement and certain other terms of Mr.
King's employment with the Company are discussed under "Discussion of 1995
Executive Officer Compensation and Employment Contracts" below.
Mr. Caravetta is a party to a Senior Consulting Agreement with the Company.
This agreement extends through April 1, 1998. This agreement and certain other
terms of Mr. Caravetta's arrangements with the Company are set forth under
"Discussion of 1995 Executive Officer Compensation and Employment Contracts"
below.
Mr. King and Mr. Caravetta have signed an agreement to the effect that each
will vote for the other as a director of the Company. Mr. Caravetta has also
agreed, among other things, to vote in favor of the slate of directors
nominated by the Nominating Committee.
Mr. Pesce is a party to an Employment Agreement with the Company. This
agreement extends through April 1, 1996. This agreement and certain other
terms of Mr. Pesce's employment with the Company are discussed under
"Discussion of 1995 Executive Officer Compensation and Employment Contracts"
below.
Mr. Goldblatt is a partner in the law firm of Hopkins & Sutter. Hopkins &
Sutter received legal fees and reimbursement for disbursements from the Company
for legal services provided to the Company by Hopkins & Sutter during the
fiscal year ended March 31, 1995, and received legal fees and reimbursement for
disbursements from the Company for legal services provided to Mr. Graham King
in connection with the negotiation and documentation of Mr. King's employment
arrangement with the Company during the fiscal year ended March 31, 1995. The
Company has continued to employ the services of Hopkins & Sutter; no estimate
of the legal fees for the 1996 fiscal year can be made at this time. Mr.
Goldblatt is also a member of the Advisory Committee of Frontenac Company, a
Delaware general partnership that is the general partner of Frontenac VI. As
discussed under "Proposal for Private Placement of Series A Convertible
Preferred Shares and Warrants," the Company is contemplating an issuance of
securities to Frontenac VI. Mr. Goldblatt is also the Trustee of a trust
established for the benefit of members of Mr. Goldblatt's family, which trust
is a limited partner in Frontenac VI. Hopkins & Sutter provides legal services
to Frontenac VI, Frontenac Company and Robert E. King on a regular basis,
although it has not provided legal services to Frontenac VI, Frontenac Company
or Mr. King with regard to any transactions with the Company.
Mr. Bowers and Mr. Robert E. King began serving as paid consultants to the
Company in January 1995, and may from time to time in the future act as paid
consultants to the Company. For their services as consultants during the
fiscal year ended March 31, 1995, each of Mr. King and Mr. Bowers was
compensated for consulting services provided, and each received options to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$3.50 per share under the Company's Amended 1993 Stock Option Plan.
- 22 -
<PAGE> 26
Mr. Robert E. King is a member of the Advisory Committee of Frontenac Company,
and is the general partner of a limited partner of Frontenac VI. As discussed
under "Proposal for Private Placement of Series A Convertible Preferred Shares
and Warrants," a trust established for the benefit of Mr. King and his
descendants has agreed to purchase securities of the Company for a purchase
price of $500,000 to be paid to the Company by such trust.
Mr. Cowie is a general partner of Frontenac Company, which is the general
partner of Frontenac VI. As discussed under "Proposal for Private Placement of
Series A Convertible Preferred Shares and Warrants," Frontenac VI has agreed to
purchase securities of the Company for a purchase price of $5,000,000 to be
paid to the Company by Frontenac VI. If the issuance of Series A Convertible
Preferred Shares, Series A Warrants and Series B Warrants is not approved by
the stockholders of the Company, the proxy holders will not vote to elect Mr.
Cowie to the Board of Directors, and if Mr. Cowie is re-elected to the Board of
Directors at the Annual Meeting but the transactions contemplated by the
Purchase Agreement are not consummated, Mr. Cowie has agreed to resign from the
Board of Directors.
The Company maintains a directors and officers liability insurance policy
covering all directors of the Company.
- 23 -
<PAGE> 27
EXECUTIVE COMPENSATION
The following table summarizes the annual and long-term compensation of certain
of the Company's executive officers for fiscal 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Long-Term Comp.
Options (Shares) All Other
Annual Compensation ------------------------ Comp.
Name/Position -------------------------------- Restricted Securities
Stock Underlying
Age Year Salary Bonus Awards(2) Options
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Graham O. King, 55 1995 $100,197 $26,427 $1,256,250 1,000,000 939(3)
Chairman and CEO(1)
S.M. Caravetta 69 1995 275,000 -- -- -- 3,223(4)
Vice Chairman of the 1994 274,423 -- -- -- 2,857(4)
Board and Senior 1993 225,000 183,728 -- -- 2,598(4)
Consultant(1)
James A. Pesce 52 1995 180,000 -- -- 133,000 None
President 1994 179,654 -- -- -- None(5)
1993 150,000 183,728 -- -- None
Thomas Schleck 50 1995 104,000 -- -- 10,000 None
Exec. V.P. and Secretary 1994 103,769 2,000 -- -- None
(since 1986) 1993 98,000 29,534 -- -- None
</TABLE>
____________________________________
(1) Mr. King joined the Company as its Chief Executive Officer on October 12,
1994. Mr. Caravetta was the Company's Chief Executive Officer prior to October
12, 1994.
(2) The amounts shown in the table represent the market price on the date of
grant of awards of restricted stock. On July 12, 1995, Mr. King held 300,000
restricted shares with a value of $1,162,500 (based on the closing price of the
Common Stock on August 25, 1995). Dividends are payable on the shares of
restricted stock at the same rate as paid to all stockholders. With respect to
Mr. King's restricted stock, if he voluntarily resigns without good reason, or
is terminated for cause prior to a change of control prior to the first or
second anniversary of his employment with the Company, he will return 200,000
or 100,000 shares, respectively, for cancellation.
(3) Represents the premium on term life insurance maintained for Mr. King by the
Company. This table does not include the cost of legal services provided to
Mr. King at the Company's expense in connection with the negotiation of his
employment arrangement.
(4) Represents the premium on term life insurance and the term insurance portion
of a split dollar life insurance policy maintained by the Company on Mr. and
Mrs. Caravetta's lives. See "Discussion of 1995 Executive Officer Compensation
and Employment Contracts."
(5) The Company has agreed that if Mr. Pesce dies while employed by the Company,
the Company shall pay to his irrevocably designated beneficiary $100,000 per
annum for a period of ten (10) years thereafter, payable in equal monthly
installments, commencing on the first day of the month following death. The
Company maintains a term life policy in the face amount of $500,000 on the life
of Mr. Pesce, which the Company believes when considering tax effects will be
sufficient to cover this plan.
- 24 -
<PAGE> 28
DISCUSSION OF 1995 EXECUTIVE OFFICER COMPENSATION
AND EMPLOYMENT CONTRACTS
Mr. Graham O. King joined the Company as Chief Executive Officer on October 12,
1994. He became Chairman of the Board of Directors effective October 28, 1994.
Mr. King has an Employment Agreement that extends through March 31, 1996.
Unless either party elects not to extend the agreement, it automatically
extends for one year terms thereafter. The agreement provides for a salary of
$239,000 per year with a performance bonus not to exceed fifty percent (50%) of
salary. Mr. King's salary can be increased at the discretion of the Board of
Directors. During the first year of the agreement, fifty percent (50%) of the
total bonus is guaranteed. The agreement provides for one year severance
unless there is termination for cause or a voluntary resignation without good
reason as defined in his Employment Agreement. Mr. King was issued 300,000
shares of Common Stock of the Company in lieu of a cash signing bonus. In the
event that prior to the first or second anniversary of his employment Mr. King
voluntarily resigns without good reason, or is terminated for cause, prior to a
change of control as defined in his Employment Agreement, he will return
200,000 or 100,000 shares, respectively, for cancellation. Mr. King has agreed
with the Company not to sell more than 33,333 of these shares plus any
shortfall from previous fiscal quarters in any fiscal quarter during Mr. King's
employment.
Mr. King was granted stock options to acquire 1,000,000 shares of Common Stock
of the Company at the market price ($3.50/share) on the date of the
commencement of his employment. These stock options vest whenever the stock has
traded at or above $5.00 on at least 30 of the 40 prior business days, or upon
a change of control. Alternatively, 400,000 shares vest on October 12, 1995
and 600,000 shares vest on October 12, 2002, unless they have previously become
exercisable. These options contain anti-dilution provisions authorizing
adjustments under certain circumstances. Mr. King's shares, including those
underlying options, are subject to a registration rights agreement. The
Company has also agreed to reimburse Mr. King for the cost of a term life
insurance policy for $1,000,000 on Mr. King's life for his benefit.
On June 14, 1995, the Company agreed to loan Mr. Graham King $157,800 in order
to allow Mr. King to pay the income taxes due in connection with a portion of
the restricted stock he received. The terms of the note evidencing the loan
provide that the loan is interest-free until 120 days after the Company
registers Mr. King's restricted stock for sale, that the loan bears interest at
a rate equal to the rate of return achieved by the Company on its cash reserves
plus 1% after such date, and that the Company may demand repayment at any time
after the note begins to accrue interest.
On October 12, 1994, the Company entered into a Senior Consulting Agreement
with Mr. Caravetta. This agreement was amended by letters dated November 11,
1994 and July 5, 1995. The Senior Consulting Agreement replaced and superceded
a prior employment agreement between Mr. Caravetta and the Company. The
agreement provides for a salary of $275,000 per annum. An agreement to provide
a split dollar life insurance policy on the lives of Mr. and Mrs. Caravetta in
the face amount of $2,000,000 through April 1, 1998 was terminated by letter
agreement dated July 5, 1995, and the split dollar policy (with a cash value of
approximately $60,000) was transferred to Mr. and Mrs. Caravetta. Pursuant to
the Senior Consulting Agreement, a stock option for 150,000 common shares
granted to Mr. Caravetta by the Company was canceled.
- 25 -
<PAGE> 29
Mr. Caravetta's Senior Consulting Agreement includes a change of control clause
that provides that, in the event of a change of control of the Company during
the term of Mr. Caravetta's agreement, the Company shall pay him an amount
equal to 2.9 times the average annual base compensation paid to him during the
five fiscal years of the Company immediately preceding the change of control,
provided such change of control takes place on or before March 31, 1996. If
such change of control takes place between April 1, 1996 and March 31, 1997,
the Company shall pay him an amount equal to two times such average annual
compensation; and, if such change of control takes place between April 1, 1997
and March 31, 1998, the Company shall pay him an amount equal to 1.5 times the
average annual base salary and incentive compensation. The aforesaid payment
shall be made to him in twelve or, at his election, in twenty-four, equal
monthly installments, commencing on the first day of the month following the
change of control. Other than the change of control payments, Mr. Caravetta
shall not be entitled to any other salary or consulting payments under the
Senior Consulting Agreement after a change of control. Mr. Caravetta has
agreed that a change of control in favor of Mr. King or persons affiliated with
Mr. King shall not be deemed a change in control for purposes of his Senior
Consulting Agreement.
The Company has agreed that if Mr. Caravetta dies prior to March 31, 1998, the
Company shall pay to his irrevocably designated beneficiary $100,000 per annum
for a period of ten (10) years thereafter, payable in equal monthly
installments, commencing on the first day of the month following death. The
Company maintains a term life policy in the face amount of $500,000 on the life
of Mr. Caravetta, which the Company believes when considering tax effects will
be sufficient to cover this plan.
Mr. Caravetta's agreement also contains clauses that provide for medical
insurance coverage for the remainder of his and his wife's life (at her expense
following his death). The Company also maintains a term life policy in the
face amount of $500,000 on the life of Mr. Caravetta, payable to Mr.
Caravetta's wife or her estate.
The Company has in effect an employment contract with Mr. Pesce that provides
for salary of $180,000 per annum, plus an incentive bonus of 2-1/2% of pretax
profits above $500,000. This agreement also contains a one year salary
continuation clause which provides that Mr. Pesce will receive one year's
salary if he is terminated for any reason other than cause.
Mr. Schleck has been employed by the Company for nineteen years.
- 26 -
<PAGE> 30
The following chart lists the executive officers of the Company other than the
named executive officers:
<TABLE>
<CAPTION>
Year of
Name Age Position Employment
---- --- -------- ----------
<S> <C> <C> <C>
Michael B. Loscalzo 50 Vice President, Finance, Planning and 1995
Administration
Stephen G. Sullivan 45 Vice President, Marketing and Business 1978
Development
James J. Aurelio 42 Vice President, Sales 1994
Derek A. Pickell 34 Vice President, Sales 1995
Robert E. Van Metre 54 Vice President, Accounting and Finance 1995
Sophia V. Bilinsky 29 Vice President, Physician Services 1995
</TABLE>
Michael B. Loscalzo: Mr. Loscalzo has more than 25 years experience in the
health care industry.
From 1993 to 1995, Mr. Loscalzo was a Senior Vice President of Cain Brothers &
Company, a New York based health care investment banking firm.
Mr. Loscalzo was a co-founder and, from 1988 to 1992, Managing Director of The
Hunter Group, a health care workout firm. As Managing Director, he served as a
member of the on site senior management team in a number of high profile health
care turnarounds. Between 1988 and 1991, he served as either CEO or CFO of
workout clients in Seattle, Washington; St. Paul, Minnesota; Miami, Florida;
and San Francisco, California.
Prior to the formation of The Hunter Group, Mr. Loscalzo served as Senior Vice
President of Finance for a Philadelphia teaching hospital. From 1978 to 1985,
he was a manager in Arthur Andersen & Co.'s Philadelphia health care audit
practice.
Stephen G. Sullivan: Mr. Sullivan has 27 years of experience in the health
care information systems industry.
Prior to its acquisition in 1991 by the Company, Mr. Sullivan served as
majority stockholder and Chief Executive Officer of Administration Information
Systems Corporation ("AISCorp."), a multi-million dollar annual revenue medical
services and information systems company. In this capacity, Mr. Sullivan
successfully negotiated systems contracts with major medical centers and
hospital based physician groups for the sale and installation of sophisticated
medical information systems and outsourced business management services.
- 27 -
<PAGE> 31
Prior to founding AISCorp. in 1978, Mr. Sullivan served as Corporate Director
of MIS for IPCO Hospital Supply Company and as director, MIS U.S. Operations
for Kempak Data Services(SWISSAIR).
James J. Aurelio: Mr. Aurelio has 17 years experience selling scientific
instrumentation used in the academic, biotechnology and diagnostic laboratory
markets.
Prior to joining the Company, Mr. Aurelio worked for Beckman Instruments, Inc.
from 1985 to 1988 as National Sales Manager for the Laboratory Automation
Software Systems Division. Mr. Aurelio was promoted to the position of Eastern
Area Field Operations Manager in 1988. In this position, he was responsible
for sales, service and local marketing. He managed 13 field sales and service
managers and 150 sales, service and customer service professionals.
Derek A. Pickell: Mr. Pickell has 15 years of experience in the health care
information systems industry.
Prior to joining the Company, Mr. Pickell served as Senior Vice President of
Sales and Service for Wellmark Incorporated from 1992 to 1995. In this
position, Mr. Pickell had national responsibility for supplying eligibility
verification, claims management, electronic remittance and fund transfer,
managed care management and receivables management software and services to the
health care industry.
Mr. Pickell served as National Sales Director for the Health Care Systems
Division of Ferranti International from 1989 to 1992. In this position, Mr.
Pickell created the account management program to handle the sales and support
for all company clients.
Robert E. Van Metre: Mr. Van Metre has over 20 years of experience in
financial management in the financial services industry.
From 1987 through 1994, Mr. Van Metre held several senior management positions
with Integrated Resources Life Companies, Inc. including, Senior Vice President
- - Chief Financial Officer, Executive Vice President, and President.
From 1982 through 1987, Mr. Van Metre was Executive Vice President-Chief
Financial Officer for the Daseke Group, Inc.
Mr. Van Metre held a variety of senior management positions with Household
International (HFC) from 1973-1982. Prior to joining HFC, he was Administrator
of Finance for the Illinois State Toll Highway Authority.
Sophia V. Bilinsky: Prior to joining the Company, Ms. Bilinsky was the
President and Chief Operating Officer of Healthnet, Inc., the largest primary
care group practice operating across Connecticut, New York, and New Jersey.
While at Healthnet, she was responsible for developing the infrastructure and
processes required by today's physician groups, MSOs and networks to
effectively compete in the changing health care environment. In 1994,
Healthnet was acquired by Coastal Healthcare Group, Inc.
From 1991-1992 Ms. Bilinsky was Director, Direct Investment Group for
Whitehead/Sterling. She was Associate, then Vice President, Medical Markets
Group for General Electric Corporation from 1989-1991. Ms. Bilinsky served as
Relationship
- 28 -
<PAGE> 32
Associate & Corporate Finance Associate, World Corporate Group for CitiBank,
N.A. from 1986-1989.
All officers hold office until their successors are duly elected or appointed
and qualified, or until their earlier resignation or removal.
- 29 -
<PAGE> 33
OPTION YEAR-END VALUE TABLE
The following table sets forth information concerning the value at March 31,
1995 of option grants during the year to each named executive officer. Options
vest as determined at the time of the grant and expire after ten years from the
date of grant. Vesting is contingent on continuing employment with the
Company.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
Potential Realizable Value
Individual Grants at Assumed Annual Rates
of Stock Price Appreciation
for Option Term(1)
--------------------------------------------------------------------- ---------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
------------------------------------------------------------------------------------------------------
Percent of Total
Options Granted Exercise
Options to Employees in or Base Expiration
Name Granted Fiscal Year Price Date 0% 5% 10%
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Graham O. 1,000,000 52% $3.50 10/12/2004 $687,500 $3,320,000 $7,361,297
King
S.M. 0 - - - - - -
Caravetta
James A. 133,000 7% $3.00 09/06/2004 - $250,930 $635,900
Pesce
Thomas 10,000 less than 1% $3.50 01/31/2005 - $20,900 $51,054
Schleck
</TABLE>
(1) Other than column (f), amounts reported in these columns represent amounts
that may be realized upon exercise of the options immediately prior to the
expiration of their term assuming the specified compounded rates of
appreciation (5% and 10%) of the Company's Common Stock over the term of the
options. These numbers are calculated based on rules promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate of
future stock price increases. Actual gains, if any, on stock option exercises
and Common Stock holdings are dependent on the timing of such exercise and the
future performance of the Company's Common Stock. There can be no assurance
that the rates of appreciation assumed in this table can be achieved or that
the amounts reflected will be received by the individuals.
The following table sets forth information with respect to options exercised
and held by the named executive officers as of March 31, 1995:
AGGREGATED OPTION EXERCISES IN FISCAL 1995
AND MARCH 31, 1995 OPTION VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
- -----------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Shares Unexercised In-The-Money
Acquired on Value Options at Options at
Name Exercise Realized March 31,1995 March 31, 1995(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Graham O. King 0 - 1,000,000 $500,000
S.M. Caravetta 0 - - -
James A. Pesce 0 - 133,000 $133,000
Thomas Schleck 0 - 10,000 $5,000
</TABLE>
(1) The value of options reflects the increase in market value of the Company's
Common Stock from the date of grant through March 31, 1995 (when the closing
price of Company Common Stock was $4.00 per share). The table includes
- 30 -
<PAGE> 34
both options that are vested and options that are not vested. Value actually
realized by the executive officers will depend on the value of the Company's
Common Stock at the time of exercise.
- 31 -
<PAGE> 35
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPANTS
Mr. Feinberg and Ambassador Rabb comprise the Compensation Committee. Mr.
Feinberg is a member of the law firm of Solon, Harrow & Dyckman, a firm that
provided legal services to the Company during the fiscal year ended March 31,
1995.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation policies adopted by the Company are designed to (i) attract
and retain valued employees capable of leading the Company to meet its business
objectives, (ii) motivate the Company's executives to enhance long-term
stockholder value and (iii) reward the Company's valued employees for prior
service to the Company. The executive compensation program has been
administered by the Compensation Committee without resort to particular
standards other than an overall review of the performance of the Company and
the individual officers. The annual compensation of the Company's executive
officers including the Company's Chief Executive Officer, consists of a
combination of cash salary, cash bonuses and stock options and grants. The
Compensation Committee reviews individual executive officer compensation in
light of various information, including Company performance, individual
performance and comparative market data. In general, the Company intends to set
base compensation for executive officers within a range which is believed to be
comparable to the range of compensation set by companies of comparable size in
similar industries.
In addition to the general standards set forth above, several of the executive
officers of the Company are compensated pursuant to existing compensation
agreements. These agreements, covering Messrs. Graham King, Caravetta and
Pesce, are discussed at "Discussion of 1995 Executive Officer Compensation and
Employment Contracts" above.
Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section
162(m)") limits to $1,000,000 the amount of compensation and benefits (other
than compensation and benefits that are performance based) that can be deducted
for federal income tax purposes in any fiscal year. The Company does not
expect to pay its executive officers compensation in excess of the Section
162(m) deductibility limit. The Committee intends to take such further steps
as it deems advisable to allow the Company to deduct future compensation
amounts paid to its executive officers to the extent it may do so without
compromising the Company's ability to motivate and reward excellent
performance. The Board of Directors and the Committee will retain discretion
to authorize the payment of compensation that does not qualify for income tax
deductibility under Section 162(m).
Respectfully submitted,
Stephen J. Feinberg Ambassador Maxwell M. Rabb
- 32 -
<PAGE> 36
PERFORMANCE GRAPH
The following chart shows the Company's cumulative total stockholder return for
the last five years compared to the Total Return Index for The Nasdaq Stock
Market (U.S. Companies) and the Nasdaq Computer and Data Processing Service
Stocks as prepared for Nasdaq by the Center for Research in Security Prices at
the University of Chicago.
<TABLE>
<CAPTION>
MARCH 31:
1990 1991 1992 1993 1994 1995
----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MICRO HEALTHSYSTEMS, INC. 100 512 389 295 123 89
NASDAQ STOCK MARKET (US) 100 114 146 167 180 201
NASDAQ COMP & DATA PROC. STOCKS 100 134 199 222 227 309
</TABLE>
[GRAPH]
- 33 -
<PAGE> 37
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth information, as provided by the holders to the
Company, concerning beneficial ownership of Common Stock as of August 15, 1995,
by (i) all persons known by the Company to be the beneficial owners of five
percent or more of the issued and outstanding Common Stock of the Company, (ii)
each of the directors and named executive officers and (iii) the directors and
executive officers of the Company as a group. Except as noted, all addresses
are 414 Eagle Rock Avenue, West Orange, New Jersey 07052.
<TABLE>
<CAPTION>
No. of Shares Percentage of
Name of Beneficial Owner Beneficially Owned Ownership
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
S.M. Caravetta(1) 1,098,128 17.5%
Frederick R. Blume. Blume(2), c/o American Healthcare Fund, 122 S. 345,812 5.5%
Michigan Ave., Chicago, IL 60603
Graham O. King(3) 300,000 4.8%
James A. Pesce(4) 173,333 2.8%
Thomas Schleck(5) 20,000 Less than 1%
Stanford J. Goldblatt 0 Less than 1%
Robert E. King(6),(7),(8) 33,500 Less than 1%
Robert C. Bowers(6) 0 Less than 1%
James E. Cowie(8) 0 Less than 1%
Stephen G. Sullivan(9) 388,116 6.2%
David K. Vanco(10), c/o Management Data Services, 655 W. Grand 525,000 8.3%
Ave., Elmhurst, IL 60126
All Officers and Directors(1-9) as a Group (16 persons)(11) 2,367,222 38%
</TABLE>
(1) Includes 116,000 shares of Common Stock owned by the children of Mr.
Caravetta. Mr. Caravetta disclaims beneficial ownership of such shares.
Includes 222,128 shares of Common Stock owned by trusts, of which the children
of Mr. Caravetta are the beneficiaries and Mr. Stephen J. Feinberg and the
wife of Mr. Caravetta are trustees. Mr. Caravetta disclaims beneficial
ownership of such shares. Mr. Caravetta may be deemed to be the promoter or
founder of the Company as such term is defined under the federal securities
laws.
(2) Shares which are owned by American Healthcare Fund, L.P., of which Mr. Blume
is an affiliate and as to which Mr. Blume disclaims beneficial ownership. Does
not include options to purchase 65,000 shares which might be issued upon
exercise of stock options which have not yet vested.
(3) Shares issued to Mr. King in lieu of a cash bonus upon acceptance of
employment with the Company, subject to certain cancellation provisions. Does
not include 1,000,000 shares issuable upon exercise of stock options which are
not currently exercisable. (See "Discussion of 1995 Executive Officer
Compensation and Employment Agreements.")
(4) Includes 83,333 shares that represent the vested portion of Mr. Pesce's
133,000 stock options.
(5) Does not include 10,000 shares which might be issued upon exercise of a
stock option which has not yet vested.
(6) Does not include 50,000 shares which might be issued upon exercise of a
stock option which has not yet vested.
(7) Includes 18,000 shares held in trust for the benefit of Mr. King's children.
Mr. King disclaims beneficial ownership of such shares.
(8) Does not include shares issuable upon conversion or exercise of the Series A
Convertible Preferred Shares, Series A Warrants and Series B Warrants to be
issued if the Proposal for Private Placement of Series A Convertible Preferred
Shares and Warrants is approved.
(9) Includes 60,000 shares that represent the vested portion of Mr. Sullivan's
options to purchase 75,000 shares, and 559 shares held by Mr. Sullivan's wife.
(10) Includes vested options to purchase 25,000 shares.
(11) Does not include 327,667 shares which might be issued upon exercise of
options held by executive officers other than the named executive officers of
the Company. Does not include holdings of Mr. Stephen J. Feinberg or
Ambassador Maxwell Rabb, current directors of the Company who are not standing
for election at the annual meeting.
- 34 -
<PAGE> 38
PLAN OF INTERNAL RESTRUCTURING
(Item #4 on the Proxy Card)
INTRODUCTION
The Company is incorporated under the laws of the State of Delaware. Its
corporate headquarters are in West Orange, New Jersey. The Company provides
business management services and information systems to physician and physician
delivery systems, and the ambulatory departments/centers of hospitals.
The Company operates both as an operating entity -- holding certain of its
assets directly and conducting operations through various divisions -- and as a
holding company for a number of wholly owned subsidiaries. The subsidiaries
are Administrative Information Systems Corporation, a New Jersey corporation
("AIS"), Management-Data Service, Inc., an Illinois corporation ("MDS"), and
MCHS, Inc., a Delaware corporation.
The Board of Directors has determined that it would be in the best interests of
the Company and its stockholders for the Board of Directors to have the
flexibility to transfer some or substantially all of the Company's operating
assets to direct or indirect wholly owned subsidiaries, with the result that
the Company would become solely a holding company. Toward this end, the Board
of Directors has approved a plan of restructuring providing for the transfer of
all of the Company's operating assets and liabilities to AIS. Although the
Company has no present plans with respect to the securities of the
subsidiaries, it is possible that at some point the subsidiaries of the Company
could issue securities to holders other than the Company, and thus would not be
wholly owned subsidiaries in the future.
The following charts sets forth the organizational structure of the Company and
its subsidiaries before and after the proposed restructuring:
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<PAGE> 39
CURRENT STRUCTURE
Micro Healthsystems, Inc., a
Delaware corporation (the
"Company") (54% of
Company's consolidated
operating revenues)
Administration Information MCHS, Inc.,
Systems Corporation, a Delaware corporation
a New Jersey corporation (wholly owned
(wholly owned subsidiary subsidiary of the
of the Company) Company)
(23% of the Company's (0% of the
consolidated operating Company's consolidated
revenues) operating revenues)
Management Data Service, Inc.,
an Illinois corporation
(wholly owned subsidiary
of the Company)
(23% of the Company's
consolidated operating
revenues)
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<PAGE> 40
PROPOSED STRUCTURE
Micro Healthsystems, Inc., a
Delaware corporation (the
"Company") (0% of
Company's consolidated
operating revenues)
Administration Information MCHS, Inc., a Delaware
Systems Corporation, corporation
a New Jersey corporation (wholly owned
(wholly owned subsidiary subsidiary of
of the Company) the Company)
(77% of Company's (0% of Company's
consolidated operating consolidated
revenues) operating revenues)
Management Data Service, Inc.
an Illinois corporation
(wholly owned subsidiary
of the Company)
(23% of Company's
consolidated operating
revenues)
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<PAGE> 41
The implementation of the restructuring plan will not have a material effect on
the consolidated financial statements of the Company, nor will it alter
stockholders' percentage ownership interests. Consummation of the
restructuring plan will not effect the voting rights and dividend and
liquidation rights of the stockholders. If the stockholders approve the
restructuring plan, the Board of Directors may choose to implement the entire
plan or a portion of the plan, or the Board of Directors may elect not to
implement the plan at all if it determines that the costs of implementing the
restructuring outweigh the benefits to be gained by such restructuring.
The submission of the restructuring plan to stockholders is not intended to
affect the Company's right under applicable Delaware law to dispose of less
than all or substantially all of its assets without stockholder approval, and,
even if the restructuring plan is not approved by the stockholders, the Company
may, from time to time in the future, transfer portions of its assets to AIS,
other subsidiaries, or to third parties on terms and for consideration approved
by the Board of Directors, subject to applicable Delaware law, without seeking
stockholder approval. Approval of the restructuring will not preclude any
stockholder's right to challenge any future dispositions by the Company of the
assets of the Company (including the stock of any subsidiaries) if such
dispositions are not made in compliance with applicable law.
REASONS FOR THE RESTRUCTURING
The new structure of the Company and its subsidiaries will permit greater
flexibility in the management and financing of new and existing business
operations. The holding company structure should facilitate the disposition of
existing businesses and the formation of joint ventures or other business
combinations between subsidiaries and third parties by establishing
subsidiaries responsible for specific lines of business or operations. The
Board of Directors also believes that the line-of-business restructuring could
further the objective of operating the Company's businesses on a more
self-sufficient, independent economic basis. In addition, the holding company
structure could permit improved delineation of administrative and other
responsibilities within the corporate structure because it will permit a
designated group of executive employees to concentrate their efforts on the
concerns of the consolidated enterprise as a whole, while allowing the
subsidiaries and subsidiary management to focus on subsidiary-specific
objectives. Finally, the transfer of assets accompanying the restructuring may
achieve certain other benefits, including the utilization of net operating loss
carry forwards available to AIS.
EFFECT ON STOCKHOLDERS' RIGHTS
The outstanding stock of the Company will not be effected by the proposed
internal restructuring. Consummation of the internal restructuring will not
effect the voting, dividend, liquidation rights or ownership interests of the
stockholders.
As is presently the case with the subsidiaries of the Company, the stockholders
of the Company do not directly elect (and will not directly elect) the
directors of the operating subsidiaries. Directors of these subsidiaries are
elected by the Board of Directors of the Company, with the Company being the
sole stockholder of the subsidiaries. The overall
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<PAGE> 42
management of the affairs and operations of the Company will continue to be
under the direction of the Board of Directors.
The Company has no present intention to cause any subsidiary to make a further
transfer of assets to any affiliate of the Company (other than other wholly
owned subsidiaries) or to any unrelated third party. The Company does not
intend to seek stockholder approval of any subsequent dispositions of assets by
a subsidiary or the stock of any subsidiary unless such assets or stock to be
transferred constitute all or substantially all of the assets of the Company
and its subsidiaries taken as a whole. In the event that the Company proposes
to make a disposition of the stock of any of its subsidiaries, or if any
subsidiary disposes of its assets, the Company will seek stockholder approval
for such transaction if the stock or assets involved constitute substantially
all the assets of the Company and its subsidiaries taken as a whole.
EFFECT ON COMPANY'S FINANCIAL STATEMENTS
The implementation of the restructuring plan will not have a material effect on
the consolidated financial statements of the Company. Notwithstanding the
modified structure, the Company will continue to report its financial
operations and conditions on a consolidated basis.
OTHER EFFECTS ON THE COMPANY AND ITS STOCKHOLDERS
Except for the structural changes, consummation of the proposed restructuring
is not expected to result in any material change in the overall operation of
the Company or location of its facilities. Similarly, the proposed
restructuring will not result in any changes in the current membership of the
Board of Directors of the Company, and many of the officers of the Company are
expected to remain in place after consummation of the restructuring. Some
persons who are currently serving as officers of the Company may become
officers or directors of one or more of the subsidiaries as well.
While the transactions presently contemplated under the restructuring plan do
not create a conflict of interest between the Company and any of its
stockholders, in the event that any of the subsidiaries, through public or
private sale, should be owned in part by persons other than the Company, such
conflicts could arise. The Company has no present intention to effect a public
or private sale of a part of the ownership of any of its subsidiaries.
If the restructuring plan is consummated, the Company will retain
administrative functions and related assets, as well as a core group of senior
management officers and employees.
TRANSFER OF ASSETS TO AIS
Approximately 54% of the Company's operations (as measured by revenues on a
consolidated basis) are conducted directly by the Company. If the
restructuring plan is implemented as contemplated, the assets and liabilities
attributable to this portion of the Company's business would be transferred to
AIS.
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<PAGE> 43
DISADVANTAGES OF RESTRUCTURING
Possible disadvantages of the restructuring proposal include a possible small
increase in accounting and administrative costs and possible duplication of
some administrative functions.
As noted above, stockholders of the Company will elect the directors of the
Company, who will have overall responsibility for the management of the Company
and the subsidiaries. The stockholders' statutory right to inspect the books
and records of the Company under applicable Delaware law may not extend to the
books and records of the operating subsidiaries.
The Board of Directors believes that the disadvantages are not significant or
material and will be offset by both the increased focus on asset utilization
and responsibility, and the more appropriate utilization of net operating loss
carry forwards that may be possible after the restructuring.
TAX CONSEQUENCES OF THE INTERNAL RESTRUCTURING
Any assets transferred pursuant to the restructuring plan will be conveyed to
the appropriate subsidiary on a tax-free basis pursuant to Section 351 of the
Internal Revenue Code of 1986, as amended. With respect to state taxes, the
Board of Directors believes that the restructuring may allow a more complete
utilization of net operating loss carry forwards currently available to AIS.
DISSENTING STOCKHOLDERS
If the proposed restructuring plan is consummated, stockholders objecting to
the terms or voting against the restructuring will not be entitled to any
appraisal or similar rights under Delaware law.
STOCKHOLDER DERIVATIVE LITIGATION
If the proposal to restructure the Company and its subsidiaries is approved,
the Company would assert this approval as a defense to any stockholder
derivative suit alleging issues related to and arising out of the
restructuring.
RECOMMENDATION
The Board of Directors believes that the advantages of the restructuring
proposal as described above outweigh the possible disadvantages, and for that
reason, the Board of Directors has adopted and recommends a vote FOR Item 4 on
the Proxy Card.
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<PAGE> 44
INDEPENDENT PUBLIC ACCOUNTANTS
No independent public accounting firm has yet been selected to report on the
Company's financial statements for the fiscal year ended March 31, 1996. Wiss
& Company completed the audits of the books and accounts of the Company for the
fiscal year ended March 31, 1995. Representatives of Wiss & Company are
expected to be present at the meeting and will have the opportunity to make a
statement (if they so desire) and to be available to respond to appropriate
questions.
The Audit Committee is considering independent public accounts (including Wiss
& Company) to conduct an audit for the fiscal year ended March 31, 1996, and
will make a recommendation to the Board of Directors when its deliberations are
completed.
Wiss & Company issued unqualified reports on the Company's financial statements
for the fiscal years ended March 31, 1994 and March 31, 1995, and to date the
Company has had no disagreements with Wiss & Company on any matters of
accounting principles or practices, financial statement disclosures, or
auditing scope or procedures.
SECTION 16 FILINGS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own beneficially more than ten
percent of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of such securities of the Company. Directors,
executive officers and greater than ten percent stockholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) reports
they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and representations that no other reports were
required, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than ten percent beneficial owners were complied
with during the 1994 fiscal year, except that Mr. Loscalzo did not make a Form
3 filing within the time period established by Section 16(a).
STOCKHOLDERS PROPOSALS
Any proposals by stockholders of the Company intended to be included in the
Company's 1996 Annual Meeting of the Stockholders must be in writing and
received at the Company, at its principal office, no later than May 1, 1996.
FINANCIAL AND OTHER INFORMATION
The Company's Audited Financial Statements for the fiscal years ended March 31,
1995 and March 31, 1994 are included in the Company's Annual Report on Form
10-K for the Fiscal Year ended March 31, 1995, and are incorporated herein by
reference.
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<PAGE> 45
Management's discussion and analysis of the financial condition and results of
operations of the Company is included in the Company's Annual Report on Form
10-K for the Fiscal Year ended March 31, 1995 under the heading "Management's
Discussion of Financial Results," and is incorporated herein by reference.
A copy of the Annual Report on Form 10-K, and a copy of the Company's Quarterly
Report of Form 10-Q for the fiscal quarter ended June 30, 1995, are being
delivered with this Proxy Statement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions is
included herein under the headings "Relationship of Purchasers to the Company,"
"Concerning the Board of Directors" and "Executive Compensation."
GENERAL
Management of the Company does not know of any matters other than the foregoing
that will be presented for consideration at the meeting. However, if other
matters properly come before the meeting it is the intention of the persons
named in the enclosed proxy to vote thereon in accordance with their judgment.
By Order of the Board of Directors,
Michael B. Loscalzo
September __, 1995 Vice President of Finance and Treasurer
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<PAGE> 46
FRONT
MICRO HEALTHSYSTEMS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Graham O. King, Michael B. Loscalzo and Peter Markalunas, or any two of them,
are hereby appointed attorneys and proxies of the undersigned, with the power
of substitution, to attend, vote and act for the undersigned at the annual
meeting of stockholders of Micro Healthsystems, Inc. (the "Company") to be
held on October 3, 1995 in West Orange, New Jersey, and at any adjournment
thereof, and in connection therewith to vote and present all of the shares of
Common Stock of the Company which the undersigned would be entitled to vote as
follows:
1 / / FOR all of the following nominees, except those whose names are
entered on the line below: Graham O. King, S.M. Caravetta, James A.
Pesce, Frederick R. Blume, Stanford J. Goldblatt, Robert E. King,
Robert C. Bowers and James E. Cowie.
_________________________________________________________________________
/ / Withhold authority to vote for all of the above nominees.
2 To approve the proposal to amend and restate the Company's Certificate of
Incorporation to increase the authorized Common Stock of the Company from
10,000,000 shares to 30,000,000 shares, and to authorize 10,000,000
shares of Preferred Stock, of the Company.
For / / Against / / Abstain / /
3 To approve the issuance in a private placement of 1,500,000 shares of
Series A Convertible Preferred Stock of the Company, warrants to
purchase up to 390,000 shares of Common Stock of the Company at an
exercise price of $.10 per share, and warrants to purchase up to 198,000
shares of Common Stock of the Company at an exercise price of $3.50 per
share.
For / / Against / / Abstain / /
4 To approve the plan to restructure the Company as a holding company by
transferring all of the Company's operating assets to Administrative
Information Systems Corporation, a New Jersey corporation that is an
existing wholly-owned subsidiary of the Company.
For / / Against / / Abstain / /
5 In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
IF THIS PROXY IS DULY EXECUTED AND RETURNED, THIS PROXY WILL BE VOTED, AND WILL
BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SPECIFIED ABOVE. IF NO
INSTRUCTION IS SPECIFIED THE PROXY WILL BE VOTED FOR ITEMS 1, 2, 3 AND 4.
<PAGE> 47
BACK
Account No. of Shares Proxy No.
The undersigned hereby revokes any other proxy or proxies heretofore given to
vote or act with respect to such Common Stock, and hereby ratifies and confirms
all action that said attorneys and proxies, their substitutes, or any of them,
may lawfully take by virtue hereof.
Dated:______________________________
____________________________________
____________________________________
Signature(s) of Stockholder
This proxy should be signed exactly
as your name appears. Joint owners
should both sign. If signed by an
attorney, executor, guardian of or
in some other capacity or as officer
of a corporation, please add title
as such.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE> 48
Exhibit A To
Proxy Statement
AMENDED AND
RESTATED CERTIFICATE
OF INCORPORATION
OF
MICRO HEALTHSYSTEMS, INC.
(ORIGINAL CERTIFICATE OF INCORPORATION
FILED DECEMBER 3, 1976)
MICRO HEALTHSYSTEMS, INC. (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 Healthsytems, 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").
<PAGE> 49
Exhibit A To
Proxy Statement
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 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
A-2
<PAGE> 50
Exhibit A To
Proxy Statement
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 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;
A-3
<PAGE> 51
Exhibit A To
Proxy Statement
(f) The terms and conditions, if any, upon which the
shares of such series shall be convertible into or
exchangeable for shares of 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
A-4
<PAGE> 52
Exhibit A To
Proxy Statement
such amendment unless the rights of such holders would be adversely
affected by such amendment or such vote shall 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
A-5
<PAGE> 53
Exhibit A To
Proxy Statement
in person or by proxy at such meeting and entitled to vote thereat
(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
A-6
<PAGE> 54
Exhibit A To
Proxy Statement
appointed for the 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.
A-7
<PAGE> 55
Exhibit A To
Proxy Statement
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 August ____, 1995.
MICRO HEALTHSYSTEMS, INC.
By:______________________________
Title:___________________________
A-8
<PAGE> 56
Exhibit B To
Proxy Statement
SERIES A CONVERTIBLE PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
AMONG
MICRO HEALTHSYSTEMS, INC.
AND
THE PURCHASERS NAMED ON SCHEDULE 1 HERETO
DATED AS OF JULY 18, 1995
<PAGE> 57
Exhibit B To
Proxy Statement
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. [INTENTIONALLY BLANK] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Authorization and Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Organization; Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Valid Issuance of Preferred and Common Stock and Warrants . . . . . . . . . . . . . . . . . . . . 2
3.4 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 Capitalization and Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.7 Contracts and Other Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.8 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.9 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.10 Compliance With Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.12 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.13 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.14 Holdings Company Act and Investment Company Act Status . . . . . . . . . . . . . . . . . . . . . . 6
3.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.17 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.19 Offering of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.20 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.21 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Acquire Entirely for Own Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4 Reliance Upon Investor's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.5 Sophisticated Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.6 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.7 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 58
Exhibit B To
Proxy Statement
<TABLE>
<S> <C>
5. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Inspection of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Lost, Stolen, Destroyed or Mutilated Stock Certificates . . . . . . . . . . . . . . . . . . . . . 13
5.4 No Superior Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7 Acquisition of Assets; Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Additional Rights and Limitations of Series A Preferred Stock . . . . . . . . . . . . . . . . . . 14
6. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.2 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 Opinion of Company Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1 Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.2 Restated Certificate and the Certificate of Designation . . . . . . . . . . . . . . . . . . . . . 15
7.3 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Indemnification by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.2 Expiration of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.6 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.8 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.9 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9.12 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
Schedules and Exhibits
Schedule 1 - Names and Addresses of Investors
ii
<PAGE> 59
Exhibit B To
Proxy Statement
Exhibit A-1 - Form of Amended and Restated Certificate of Incorporation
Exhibit A-2 - Form of Certificate of Designation of Series A Convertible
Preferred Stock
Exhibit B - Form of Series A Warrant
Exhibit C - Form of Series B Warrant
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Opinion of Company Counsel
iii
<PAGE> 60
Exhibit B To
Proxy Statement
MICRO HEALTHSYSTEMS, INC.
SERIES A CONVERTIBLE PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT (this "Agreement") is made as of July 18, 1995, among MICRO
Healthsystems, Inc., a Delaware corporation (the "Company"), and the purchasers
listed on Schedule 1 attached hereto (each, an "Investor" and collectively, the
"Investors").
The parties hereto agree as follows:
1. [INTENTIONALLY BLANK]
2. PURCHASE AND SALE OF SECURITIES
2.1 Authorization and Issuance of Securities.
(a) Prior to the Closing, the Company shall have adopted
resolutions and filed with the Secretary of State of the State of Delaware (i)
the Restated Certificate of Incorporation (the "Restated Certificate") in the
form attached hereto as Exhibit A-1 and (ii) the Certificate of Designation
Relating to the Series A Convertible Preferred Stock (the "Certificate of
Designation") in the form attached hereto as Exhibit A-2.
(b) Subject to the terms and conditions of this
Agreement, the Company agrees to issue and sell to the Investors, and the
Investors agree to purchase from the Company, individually and not jointly, in
the aggregate, (i) 1,500,000 shares of Series A Convertible Preferred Stock of
the Company (the "Series A Preferred Stock") for a purchase price of $4.00 per
share, (ii) Series A Warrants to initially purchase 390,000 shares of Common
Stock of the Company substantially in the form of Exhibit B attached hereto
(the "Series A Warrants") and (iii) Series B Warrants to initially purchase
198,000 shares of Common Stock of the Company substantially in the form of
Exhibit C attached hereto (the "Series B Warrants", and collectively with the
Series A Warrants, the "Warrants"). Each Investor agrees to purchase
securities of the type, and in the amounts, as set forth on Schedule 1 hereto.
The number of shares of Common Stock which may be purchased upon the exercise
of the Warrants and the price per share are subject to the terms and conditions
set forth in the Warrants. The Series A Preferred Stock, the Series A Warrants
and the Series B Warrants are sometimes hereafter collectively referred to as,
the "Securities".
2.2 Closing. The purchase, sale and delivery of the
Securities shall take place at the office of Winston & Strawn, 35 West Wacker
Drive, Chicago, Illinois 60601, at 10:00
<PAGE> 61
Exhibit B To
Proxy Statement
a.m. local time, on the second business day after the Company's annual meeting
held during its fiscal year ending in 1996, or at such other time, date or
place as the Company and the Investors may mutually agree upon in writing
(which time, date and place are designated as the "Closing"). At the Closing,
the Company shall deliver to each Investor, (i) a certificate representing the
number of shares of Series A Preferred Stock to be purchased hereunder, (ii) a
single registered Series A Warrant to purchase the number of shares of Common
Stock of the Company set forth next to such Investor's name in the appropriate
column on Schedule 1 hereto and (iii) a single registered Series B Warrant to
purchase the number of shares of Common Stock of the Company set forth next to
such Investor's name in the appropriate column on Schedule 1 hereto. The
Series A Preferred Stock, Series A Warrants and Series B Warrants shall be
delivered against payment of the purchase price therefor by wire transfer
payable to the Company to one or more accounts designated by the Company prior
to the Closing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Investor
that, except as set forth on the Disclosure Schedule delivered to the Investors
simultaneously with the execution of this Agreement (the "Disclosure
Schedule"):
3.1 Organization; Good Standing; Qualification. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and, assuming stockholder approval and the filing of
the Restated Certificate and the Certificate of Designation, to execute and
deliver this Agreement and the Registration Rights Agreement to issue and sell
the Series A Preferred Stock, the Series A Warrants and the Series B Warrants
pursuant to the terms hereof and the Common Stock issuable upon conversion or
exercise thereof, and to carry out the provisions of this Agreement, the
Registration Rights Agreement, the Restated Certificate and the Certificate of
Designation. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the condition (financial or other), results of
operations or assets or properties of the Company and the Subsidiaries taken as
a whole (a "Material Adverse Effect").
3.2 Authorization. All corporate action on the part of
the Company (other than stockholder approval and the filing of the Restated
Certificate and the Certificate of Designation) necessary for the
authorization, execution and delivery of this Agreement and the Registration
Rights Agreement, the performance of all obligations of the Company hereunder
and thereunder and the authorization, issuance (or reservation for issuance),
sale and delivery of the Series A Preferred Stock, the Series A Warrants and
the Series B Warrants pursuant to the terms hereof and the Common Stock
issuable upon conversion or exercise thereof has been taken, and this Agreement
and the Registration Rights Agreement have been, or at the Closing will have
been, duly executed and delivered by the Company and constitute, or at the
Closing will constitute,
B-2
<PAGE> 62
Exhibit B To
Proxy Statement
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms. Prior to the Closing, the Restated Certificate
and the Certificate of Designation will have been filed with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law
of Delaware ("Delaware Law").
3.3 Valid Issuance of Preferred and Common Stock and
Warrants. The Series A Preferred Stock, the Series A Warrants and the Series B
Warrants that are being acquired by the Investors hereunder, when issued and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free and clear of all liens, pledges, security
interests, options, rights of first refusal, encumbrances, claims, preemptive
rights and other third party rights ("Liens"), other than restrictions on
transfer under this Agreement, the Warrants, the Registration Rights Agreement
and applicable state and federal securities law.
The Common Stock issuable upon conversion of the Series A
Preferred Stock, and exercise of the Series A Warrants and the Series B
Warrants will be duly and validly reserved for issuance and, when issued in
compliance with the provisions of the Restated Certificate, the Certificate of
Designation and the Warrants, will be duly and validly issued, fully paid and
nonassessable and will be free and clear of all Liens other than restrictions
on transfer under this Agreement, the Warrants, the Registration Rights
Agreement and applicable state and federal securities laws.
3.4 Governmental Consents. No consents, approval,
qualification, order or authorization of, or declaration or filing with, any
local, state, or federal governmental authority ("Consents") is required on the
part of the Company in connection with the Company's valid execution, delivery
or performance of this Agreement, the Registration Rights Agreement (other than
Consents required in connection with the Company's performance of its
obligations under the Registration Rights Agreement), and the sale, issuance or
delivery of the Series A Preferred Stock, the Series A Warrants and the Series
B Warrants by the Company pursuant to the terms hereof or the Common Stock
issuable upon conversion or exercise thereof, except (i) the filing of (x) the
Restated Certificate and (y) the Certificate of Designation with the Secretary
of State of the State of Delaware, (ii) such Consents as will have been made or
obtained prior to the Closing, except that any notices required to be filed
with the Securities and Exchange Commission (the "Commission") under Regulation
D of the Securities Act of 1933, as amended (the "Securities Act"), or such
postclosing filings as may be required under applicable state securities laws
and (iii) other Consents, the failure which to obtain or make would not result
in a Material Adverse Effect.
3.5 Capitalization and Voting Rights. The authorized
capital stock of the Company will consist immediately prior to the Closing of:
B-3
<PAGE> 63
(i) Preferred Stock. 10,000,000 shares of Preferred
Stock, of which 1,500,000 shares shall be Series A Convertible Preferred Stock,
par value $0.01 per share. No shares of Series A Preferred Stock will be
issued and outstanding immediately prior to the Closing.
(ii) Common Stock. 30,000,000 shares of Common Stock, of
which 6,256,837 shares are issued and outstanding as of the date hereof.
(iii) Except for currently outstanding options to purchase
2,284,167 shares of Common Stock pursuant to the Company Option Plans (as
defined below), there are not outstanding any options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), or
agreements for the purchase or acquisition from the Company of any shares of
its capital stock. In addition to the aforementioned options, the Company has
reserved an additional 772,833 shares of its Common Stock for purchase upon
exercise of options to be granted in the future under the Company Option Plans
and, to the Company's knowledge, there is no agreement or understanding between
any persons that affects or relates to the voting or giving of written consents
with respect to any security or the voting by a director of the Company.
"Company Option Plans" shall mean, collectively, (i) the MICRO Healthsystems,
Inc. 1993 Stock Option Plan, as amended, (ii) the 1994 Non-Employee Director
Stock Option Plan, as amended and (iii) such other plans and agreements
pursuant to which the Company has heretofore granted options or other rights to
purchase capital stock of the Company.
3.6 Subsidiaries. The Disclosure Schedule contains a
list of each person in which the Company, directly or indirectly, owns a
majority of the securities having ordinary voting power for the election of
directors (the "Subsidiaries"). Each of the Subsidiaries is duly organized and
existing under the laws of the jurisdiction in which it is incorporated or
organized and is in good standing under such laws. Each Subsidiary is duly
qualified to transact business and is in good standing in every jurisdiction
(domestic or foreign) in which the nature of the respective business conducted
or property owned by it makes such a qualification necessary and where the
failure to so qualify would result in a Material Adverse Effect. All of the
outstanding shares of the capital stock of each of the Subsidiaries have been
duly and validly authorized and issued, are fully paid and nonassessable, and
are owned by the Company, free and clear of any Liens other than Liens securing
existing bank debt (disclosed on the Disclosure Schedule). There are not
outstanding any options, warrants, rights (including conversion or preemptive
rights and rights of first refusal) or agreements for the purchase or
acquisition from any Subsidiary of any shares of its capital stock. None of
the Subsidiaries is a party or subject to any agreement or understanding, and,
to the best of the Company's knowledge, there is no agreement or understanding
between any persons, that affect or relates to the voting or giving of written
consents with respect to any security or the voting by a director of any of the
Subsidiaries.
B-4
<PAGE> 64
Exhibit B To
Proxy Statement
3.7 Contracts and Other Commitments. All contracts,
agreements, indentures and instruments which are in effect as of the date of
this Agreement and are required to be disclosed under Regulation S-K or in the
Company's Annual Report on Form 10-K as of the date hereof (the "Material
Contracts") are set forth on the Disclosure Schedule. Neither the Company nor
any of the Subsidiaries is in default under any Material Contract other than
defaults which, individually or in the aggregate, do not result in a Material
Adverse Effect.
3.8 Registration Rights. Except as provided in the
Registration Rights Agreement, the Company is not obligated to register under
the Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued.
3.9 Permits. The Company and the Subsidiaries have all
franchises, permits, licenses, and any similar authority necessary for the
conduct of their respective businesses as now being conducted by each of them,
the lack of which could, individually or in the aggregate, result in a Material
Adverse Effect. Neither the Company nor any of the Subsidiaries is in default
of or in violation in any material respect of any of such franchises, permits,
licenses or other similar authority, except for defaults or violations which
would not result in a Material Adverse Effect.
3.10 Compliance With Other Instruments. Neither the
Company nor any of the Subsidiaries is in violation or default (i) of any
provision of its Charter or Bylaws or (ii) to the knowledge of the Company, of
any judgment, order, writ, decree, statute, rule, or regulation applicable to
the Company or the Subsidiaries. Neither the execution, delivery or
performance of this Agreement and the Registration Rights Agreement, nor the
execution and filing of the Restated Certificate or the Certificate of
Designation, nor the issuance of the Securities hereunder, nor fulfillment of
nor compliance with the terms and provisions hereof or thereof, nor the payment
of dividends on the Series A Preferred Stock as contemplated by the Certificate
of Designation out of funds legally available therefor, nor the redemption
thereof out of funds legally available therefor will conflict with or result in
a breach of the terms, conditions or provisions of, or give rise to a right of
termination under, or constitute a default under, or result in any violation
of, the Charter or Bylaws of the Company or any of the Subsidiaries, or any
mortgage, agreement, instrument, order, judgment, decree, statute, rule or
regulation to which the Company or any of the Subsidiaries or any of their
respective property is subject, other than conflicts, breaches, defaults,
terminations or violations which, individually or in the aggregate, do not
result in a Material Adverse Effect or materially adversely affect the ability
of the Company to perform its obligations under this Agreement, the
Registration Rights Agreement, the Restated Certificate or the Certificate of
Designation.
3.11 Litigation. There is no action, suit, proceeding, or
investigation pending or, to the Company's knowledge, currently threatened
against the Company, or any of the Subsidiaries or any of their respective
properties or assets, that questions the validity of this Agreement or the
Registration Rights Agreement or the right of the Company to enter into such
B-5
<PAGE> 65
Exhibit B To
Proxy Statement
agreements, or to consummate the transactions contemplated hereby or thereby,
or that is reasonably expected to result, either individually or in the
aggregate, in a Material Adverse Effect, or in any material change in the
current equity ownership of the Company or the Subsidiaries. Neither the
Company nor any of the Subsidiaries is a party to, or to the Company's
knowledge, named in any order, writ, injunction, judgment, or decree of any
court, government agency, or instrumentality.
3.12 Financial Statements.
(a) The Company has delivered to each Investor its
audited financial statements, including the consolidated balance sheets, as of
March 31, 1995 and the related consolidated statements of operations,
statements of stockholders' deficit and statements of cash flows for the fiscal
years then most recently ended, and the related notes thereto (such audited
financial statements are referred to as the "Financial Statements").
(b) The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated and with each other. The
Financial Statements fairly present the financial condition, operating results
and cash flows of the periods, indicated therein.
3.13 Changes.
Since March 31, 1995, there has not been:
(a) any change in the assets, liabilities, financial
condition, or operating results of the Company from that reflected in the
Financial Statements, except changes that have not resulted in, in the
aggregate, a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not
covered by insurance, that has resulted in a Material Adverse Effect;
(c) any waiver or compromise by the Company or any of the
Subsidiaries of a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any Lien or payment
of any material obligation by the Company or any of the Subsidiaries, except in
the ordinary course of business;
(e) any material adverse change to a Material Contract;
(f) any material change in any compensation arrangement
or agreement with any executive officer or director of the Company or any of
the Subsidiaries;
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Exhibit B To
Proxy Statement
(g) any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets, or other intangible assets, except for
licenses granted in the ordinary course of business;
(h) any resignation or termination of employment of any
officer or key employee of the Company or any of the Subsidiaries;
(i) any receipt of notice that there has been a loss of,
or material order cancellation by, any major customer of the Company or any of
the Subsidiaries;
(j) any mortgage, pledge, transfer of a security interest
in, or Lien, created by the Company or any of the Subsidiaries, with respect to
any of its material properties or assets, except liens for taxes not yet due or
payable;
(k) any loans or guarantees made by the Company or any of
its Subsidiaries to or for the benefit of its officers or directors, or any
members of their immediate families, other than travel advances and other
advances made in the ordinary course of its business or loans and advances of
less than $25,000 to any such person;
(l) any declaration, setting aside, or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(m) to the best of the Company's knowledge, any other
event or condition of any character that, individually or in the aggregate,
might reasonably be expected to result in a Material Adverse Effect; or
(n) any agreement or commitment by the Company or any of
the Subsidiaries to do any of the things described in this Section 3.13.
3.14 Holdings Company Act and Investment Company Act
Status. The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
3.15 Taxes. The Company and the Subsidiaries have filed
all required Tax returns and reports which are material and have paid, or
adequately provided for the payment of, all Taxes, assessments and other
governmental charges imposed upon them or upon any of their respective assets,
income or franchises, except where the failure to file or pay would not result
in a Material Adverse Effect. "Taxes" include all federal, state, local,
foreign and provincial income, capital gains, property transfer, payroll,
withholding, excise, sales, use, use
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Exhibit B To
Proxy Statement
and occupancy, mercantile, real estate, personal property, value added, capital
stock, franchise or other taxes, assessments or charges and estimated taxes
relating thereto.
3.16 Disclosure. Neither this Agreement nor the
Disclosure Schedule or exhibits hereto contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading, when taken as a whole.
There is no fact peculiar to the Company or any of the Subsidiaries of which
the Company is aware which the Company has not disclosed to the Investors in
writing which would result, or has resulted in, a Material Adverse Effect or,
so far as the Company can now reasonably foresee, will materially adversely
affect the ability of the Company to perform this Agreement, the Registration
Rights Agreement or its obligations in respect of the Securities.
3.17 ERISA.
(a) The Disclosure Schedule sets forth a true, correct,
and complete list of all Company Plans. The Company and the Subsidiaries have,
with respect to each Company Plan, delivered to the Investor true and complete
copies of (i) all Plan documents and agreements; (i) the most recent summary
Plan description for each Plan and material employee communications; (iii) the
most recent annual report (including all Schedules thereto, if any); and (iv)
if the Plan is intended to qualify under Section 401(a) or 403(a) of the Code,
the most recent determination letter received from the Internal Revenue Service
or opinion letter received from the sponsor of a prototype plan.
(b) With respect to each Plan, neither the Company nor
any of the Subsidiaries has direct or indirect, actual or contingent, liability
which would result in a Material Adverse Effect, other than to make payments
for contributions, premiums or benefits or other expenses related to such Plans
when due in the ordinary course, all of which payments that are due have been
made and no Plan is a "defined benefit plan" (as defined in Section 3(35) of
ERISA). No assets of the Company or any of the Subsidiaries are subject to any
lien under Sections 302(f), 306(a), 307(a), 412 or 4068 of ERISA or Sections
401(a)(29) or 312(n) of the Code.
(c) With respect to each Company Plan: (i) each such
Plan conforms to, and its administration is in compliance with, all applicable
laws and regulations, except where the failure to conform or comply would not
result in a Material Adverse Effect; (ii) the form of each such Plan intended
to qualify under Sections 401(a) or 403(a) of the Code so qualifies except for
the adoption of amendments for which the remedial amendment period under
Section 401(b) of the Code has not yet expired; (iii) no such Plan is subject
to Section 302 of ERISA or Section 412 of the Code; (iv) no such Plan is
subject to Title IV of ERISA; (v) there are no actions, suits or claims pending
or, to the knowledge of the Company, threatened (other than routine claims for
benefits) which would result in a Material Adverse Effect; and (vi) each such
Plan that is a group health plan has been operated in compliance with Section
4980B of the Code at all times, except to the extent that non-compliance would
not result in a Material Adverse Effect.
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Exhibit B To
Proxy Statement
(d) Except as specified on the Disclosure Schedule, there
are no Retiree Welfare Plans for former or current employees of the Company or
any of the Subsidiaries that are not fairly reflected by reserves shown in the
Financial Statements (to the extent such reserves are required in accordance
with generally accepted accounting principles). The consummation of the
transactions contemplated by this Agreement (without any further action) will
not (i) entitle any current or former employee, officer, director or agent of
or consultant to the Company or any of the Subsidiaries to severance pay,
unemployment compensation or any similar payment, (ii) accelerate the time of
payment or vesting of or increase the amount of compensation due to any current
or former employee, officer, director or agent of or consultant to the Company
or any of the Subsidiaries, or (iii) constitute a "prohibited transaction" (as
defined in Section 406 or 407 of ERISA or Section 4975 of the Code).
(e) No Company Plan is a "multiple employer plan" or a
"multiemployer plan" within the meaning of ERISA or the Code; and neither the
Company nor any of the Subsidiaries has direct or indirect, actual or
contingent, liability with respect to any partial or complete withdrawal (as
such terms are defined in Sections 4203 and 4205 of ERISA) from any
multiemployer plan which would result in a Material Adverse Effect.
(f) As these terms are used in this Section:
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Plan" means any Plan maintained by or contributed to
by the Company or any Subsidiary that provides benefits with respect to
employees or former employees of the Company or any of the Subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Plan" means any "employee benefit plan" within the meaning of
Section 3(3) of ERISA, including but not limited to any pension, retirement,
profit sharing, stock bonus incentive, stock option, restricted stock or other
equity based compensation plan, other plan of deferred compensation, medical,
dental or other health benefit plan, life insurance, disability insurance or
accident insurance plan, severance plan, policy, program or arrangement with
respect to which the Company or any of the Subsidiaries has any direct or
indirect, fixed or contingent, liability.
"Welfare Plan" means any Plan maintained by or contributed to
by the Company or a Subsidiary that is a welfare plan within the meaning of
Section 3(1) of ERISA and provides benefits with respect to employees or former
employees of the Company or any of the Subsidiaries.
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Exhibit B To
Proxy Statement
"Retiree Welfare Plan" means any Welfare Plan that provides
medical, dental or health benefits with respect to employees or former
employees of the Company or any of the Subsidiaries beyond the thirtieth day
following their retirement or other termination of service (other than coverage
mandated under Section 4980B of the Code).
3.18 Environmental Matters. Neither the Company nor any
of the Subsidiaries has disposed of or arranged for the disposal of any
hazardous substances, other than in conformity with applicable laws and
regulations, at any facility, location or site owned or leased by the Company
or any of the Subsidiaries except to the extent that such disposal does not,
individually or in the aggregate, result in a Material Adverse Effect and, to
the best of the Company's knowledge, neither the Company nor any of the
Subsidiaries has been designated a potentially liable party for remedial action
or response costs in connection with such facility, location or site under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Federal Resource Conservation and Recovery Act, as amended, the
Toxic Control Substance Act, the Clean Water Act, the Clean Air Act or
comparable state statutes, except to the extent that any such designation does
not result in a Material Adverse Effect. To the best of the Company's
knowledge, except for such use or storage of hazardous substances as is
incidental to the conduct of the Company's or any of the Subsidiaries'
operations, which use and storage is or has been in conformity with applicable
laws and regulations, except where the failure to conform wold not result in a
Material Adverse Effect, no property or asset owned or leased by the Company or
any of the Subsidiaries has been used for the storage, treatment, generation,
processing, production or disposal of any hazardous substances or as a landfill
or other waste disposal site in violation of applicable environmental laws,
except to the extent that such uses or storage do not, individually or in the
aggregate, result in a Material Adverse Effect. To the best of the Company's
knowledge, underground storage tanks are not and have not been located on or
under any property or assets owned or leased by the Company or any of the
Subsidiaries, except to the extent that such storage tanks do not, individually
or in the aggregate, result in a Material Adverse Effect. For the purpose of
this Section, "hazardous substances" shall mean those substances defined or
listed by the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, the Federal Resource Conservation and Recovery Act, the Clean
Air Act and regulations thereunder.
3.19 Offering of the Shares. To the knowledge of the
Company, neither the Company nor any person acting on its behalf has offered
the Securities or any similar securities of the Company for sale or exchange
to, solicited any offers to buy such securities of the Company from or
otherwise approached or negotiated with respect to such securities of the
Company with, any person other than the Investors and a limited number of other
Persons that it believed were "accredited investors" (as defined in Rule 501(a)
under the Securities Act). Based in part on the accuracy of the
representations and warranties of the Investors contained herein, neither the
Company nor any person acting on its behalf has taken or will take any action
(including, without limitation, any offering of any securities of the Company
under circumstances which would require the integration of such offering with
the offering of the
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Exhibit B To
Proxy Statement
Securities under the Securities Act and the rules and regulations of the
Commission thereunder) which might subject the offering, issuance or exchange
of the Securities to the registration requirements of Section 5 of the
Securities Act. The Company will offer and exchange the Securities in
compliance with all applicable state securities laws and will make all
necessary filings and qualifications required by such laws. "Person" shall
mean an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company or any other
entity or organization, including a governmental or political subdivision or
any agency or instrumentality thereof.
3.20 Intellectual Property.
(a) The Disclosure Schedule contains a listing of all
software and databases that are material to the conduct of the business of the
Company and the Subsidiaries, taken as a whole, in which the Company or any of
the Subsidiaries: (i) holds any ownership interest ("Owned Software"); or (ii)
holds written license to use (with said license agreement being also
identified), but excluding PC based software that is available pursuant to
"shrink wrap" agreements ("Third Party Software", Owned Software and Third
Party Software being referred to collectively as "Software"). To the knowledge
of the Company, the Company and the Subsidiaries do not use any software or
databases that are material to the business of the Company and the
Subsidiaries, taken as a whole, for which the user has neither ownership rights
nor a valid license.
(b) To the knowledge of the Company, the Company or one
of the Subsidiaries possesses legal rights in the Software that are sufficient
to conduct the business of the Company and the Subsidiaries as the same is
presently conducted.
(c) To the knowledge of the Company, there are no
outstanding options, licenses or agreements of any kind relating to the
Software to which the Company or the Subsidiaries is a party which, with
respect to the Company's or such Subsidiaries' ability to use the Software,
would result in a Material Adverse Effect.
3.21 Labor Relations. There is no pending or, to the
Company's knowledge, threatened strike, picketing, work stoppage or work
slowdown involving employees of the Company or any of the Subsidiaries. No
union is certified by the National Labor Relations Board as collective
bargaining agent for employees of the Company or any of the Subsidiaries. No
written demand is pending for recognition of such employees, no election for
certification is pending, and, to the Company's knowledge, no such demand is
scheduled.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor hereby represents and warrants that:
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Exhibit B To
Proxy Statement
4.1 Authorization. The Investor has full power and
authority to enter into this Agreement and perform its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement by the Investor have been duly
approved by all necessary proceedings on the part of the Investor. This
Agreement has been duly executed and delivered by the Investor. This Agreement
constitutes a valid and legally binding obligation of such Investor,
enforceable in accordance with its terms.
4.2 Governmental Consents. No Consent is required on the
part of the Investor in connection with the execution and delivery of this
Agreement or the performance by the Investor of the transactions contemplated
hereby, except for filings after the Closing under Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act").
4.3 Acquire Entirely for Own Account. This Agreement is
made with the Investor in reliance upon the Investor's representation to the
Company, which by its execution of this Agreement it hereby confirms, that the
Securities to be acquired by the Investor and the Common Stock issuable upon
conversion of the Warrants will be acquired for investment for the Investor's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, the Investor further represents that,
it does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the Securities or the Common Stock issuable upon
conversion of the Securities.
4.4 Reliance Upon Investor's Representations. The
Investor understands that the Securities are not, and any Common Stock acquired
upon conversion thereof at the time of issuance may not be, registered under
the Securities Act on the ground that the acquisition provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Section 4(2) thereof, and that the
Company's reliance on such exemption is predicated on the Investor's
representations set forth herein.
4.5 Sophisticated Investor. The Investor is an
"accredited investor" as defined in Rule 501(a) under the Securities Act. The
Investor is a sophisticated purchaser with respect to the Securities, has been
given the opportunity to access the records of the Company and its Subsidiaries
and has made its own independent analysis and investigation into the business,
operations, financial condition and general creditworthiness of the Company and
the Subsidiaries and has made its own independent decision to acquire the
Securities pursuant to the terms and conditions set forth in this Agreement,
except that the Investor has relied upon the representations, warranties and
covenants of the Company contained in this Agreement.
4.6 Restricted Securities. The Investor understands that
the Securities may not be sold, transferred, or otherwise disposed of without
registration under the Securities Act or
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Exhibit B To
Proxy Statement
an exemption therefrom, and that in the absence of an effective registration
statement covering the Securities or an available exemption from registration
under the Securities Act, the Securities must be held indefinitely to
redemption in accordance with their terms. In particular, the Investor is
aware that the Securities may not be sold pursuant to Rule 144 promulgated
under the Securities Act unless all of the conditions of that Rule are met.
4.7 Legend. Each certificate or other document
evidencing any of the Securities being acquired hereunder shall be endorsed
with the legend set forth below, and the Investor covenants that, except to the
extent such restrictions are waived by the Company, the Investor shall not
transfer the shares represented by any such certificate without complying with
the restrictions on transfer described in the legend endorsed on such
certificate,
with respect to the Series A Preferred Stock:
"THE SHARES REPRESENTED HEREBY 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 SUCH SHARES UNDER SUCH ACT
OR LAWS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
with respect to the Warrants:
"THIS 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."
5. COVENANTS OF THE COMPANY
5.1 Financial Statements and Other Reports. The Company
agrees that it will deliver to each holder of at least 100,000 shares of Series
A Preferred Stock:
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Exhibit B To
Proxy Statement
(i) promptly upon transmission thereof and in any event,
not later than the expiration of the applicable filing period pursuant to the
Securities Act and the Exchange Act, copies of all such financial statements,
proxy statements, notices and reports as the Company shall send to its
stockholders and copies of all such registration statements, other than
registration statements relating to employee benefit or dividend reinvestment
plans, and all such regular and periodic reports as it shall file with the
Commission;
(ii) promptly upon production thereof and in any event, no
later than sixty (60) days after the beginning of each fiscal year, an
operating plan (adopted by the Board of Directors of the Company) for such
fiscal year prepared for each month, including projected cash flow and capital
expenditure budgets for each month supported by a narrative describing the
assumptions upon which the plan is based; and
(iii) such other financial information as shall be
reasonably requested by a holder of the Securities promptly after such holder
provides a written request with respect thereto to the Company.
5.2 Inspection of Property. As long as any Investor or
any of such Investor's Affiliates shall hold at least 100,000 shares of the
Series A Preferred Stock, the Company will permit representatives of any such
Investor to visit and inspect, at such Investor's expense, any of the
properties of the Company and its Subsidiaries, to examine the corporate books
and make copies or extracts therefrom and to discuss the affairs, finances and
accounts of the Company and its Subsidiaries with the principal officers of the
Company, all at such reasonable times and as often as such Investor may
reasonably request. Such Investor agrees not to disclose to any Person any
information or data obtained by it pursuant to Section 5.1 or this Section 5.2
until such information or data otherwise becomes publicly available or except
pursuant to a valid subpoena, judicial process or its equivalent or as
otherwise required by applicable law; provided, however, such Investor shall
have used its best efforts to give the company advance notice of such subpoena
or judicial process so that the Company may seek an appropriate protective
order. Such Investor will take appropriate measures to limit the communication
of material non-public information concerning the Company and the Subsidiaries
to those of its agents, employees, partners and representatives who have a
genuine and bona fide need to know the same. Such Investor will advise its
agents, employees, partners and representatives who do receive such information
of the obligation of such Investor hereunder and of the obligations imposed
under the federal and state securities laws. "Affiliate" shall have the
meaning set forth under Rule 12b-2 of the Exchange Act.
5.3 Lost, Stolen, Destroyed or Mutilated Stock
Certificates. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of any certificate representing the
Securities, in the case of loss, theft or destruction, upon delivery of an
indemnity reasonably satisfactory to the Company, or, in the case of
mutilation, upon surrender and cancellation thereof, the Company will issue a
new certificate of like tenor for a
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Exhibit B To
Proxy Statement
number of shares of the Series A Preferred Stock, the Series A Warrants or the
Series B Warrants, as the case may be, equal to the number of shares of such
stock represented by the certificate lost, stolen, destroyed or mutilated.
5.4 No Superior Preferred. As long as not less than
300,000 shares of the Series A Preferred Stock remain outstanding, the Company
shall not (a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock, or (b) issue any preferred or common stock superior
or pari passu to the Series A Preferred Stock with respect to the payment of
dividends or the distribution of assets upon liquidation, without the written
consent of holders of not less than a majority of the shares of Series A
Preferred Stock then outstanding.
5.5 Reporting Requirements. As long as the Company is
subject to the periodic reporting requirements of the Exchange Act, the Company
will file all reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations adopted by the Commission
thereunder.
5.6 Affiliate Transactions. As long as not less than
300,000 shares of the Series A Preferred Stock remain outstanding, the Company
will not enter into, without the consent of the Company's Board of Directors,
any material transaction, arrangement or agreement with any Affiliate
(including, without limitation, any officer or director of any Affiliate)
involving, directly or indirectly, the payment of money or transfer of property
to such Affiliate or officer or director of such Affiliate, having an aggregate
value in excess of $250,000, except for (i) such transactions, arrangements or
agreements which the Preferred Director (as defined in the Certificate of
Designation) has consented to in writing or (ii) customary employment
arrangements and benefit programs on reasonable terms no less favorable to the
Company or any Subsidiary than would be obtained by the Company or any
Subsidiary in a comparable arm's-length transaction with a Person who is not an
Affiliate of the Company or any Subsidiary.
5.7 Acquisition of Assets; Investments. As long as not
less than 300,000 shares of the Series A Preferred Stock remain outstanding,
the Company shall not, other than in the ordinary course of business, purchase
or acquire a business of another Person (by means of acquisition of the assets
or shares of capital stock of any Person) for consideration in excess of
$1,000,000, unless such purchase or acquisition has been approved by a majority
of the Board of Directors of the Company.
5.8 Additional Rights and Limitations of Series A
Preferred Stock.
(a) So long as at least 300,000 shares of Series A Preferred
Stock are outstanding, the holders of Series A Preferred Stock shall be
entitled to the preemptive right to subscribe for and purchase their respective
pro rata portion of any issuance of Common Stock of the Company. The
preemptive right granted under this section shall not apply to the issuance
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Exhibit B To
Proxy Statement
of Excluded Stock (as defined in the Certificate of Designation), issuances or
deemed issuances of Common Stock pursuant to an underwritten registered
offering or issuances or deemed issuances of Common Stock in connection with
the acquisition of the assets or securities of any Person.
(b) If an issuance of Common Stock gives rise to a preemptive
right under this Section 5.8, the Company shall give all holders of Series A
Preferred Stock written notice of such issuance within thirty (30) days prior
to such issuance, which notice shall set forth the price and terms of such
issuance. A holder of Series A Preferred Stock may exercise the preemptive
right granted in this Section 5.8 only by giving written notice of exercise to
the Company within fifteen (15) days following the receipt of the Company's
notice to the holder. The holder's notice of exercise shall specify the number
of shares of Common Stock being purchased by such holder and shall be
accompanied by a cashier's check or certified check in the full amount of the
price for the shares being purchased.
(c) In determining a holder's pro rata portion of any
issuance of Common Stock for purpose of this Section 5.8, it shall be assumed
that all outstanding options or rights to purchase Common Stock have been
exercised and that all securities exchangeable for or convertible into Common
Stock have been so exchanged or converted. The rights contained in this
Section 5.8 may be waived or amended in accordance with the provisions of
Section 9.9 hereof.
6. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING
The obligations of each Investor under Section 2.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of
the following conditions, the waiver of which shall only be effective against
such Investor if it consents in writing thereto:
6.1 Stockholder Approval. The adoption of the Restated
Certificate and the Certificate of Designation and the issuance and sale of the
Securities shall have been duly authorized and approved by the stockholders of
the Company in accordance with Delaware Law.
6.2 Qualifications. All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body that are
required to be obtained prior to the Closing in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
6.3 Opinion of Company Counsel. The Investors shall have
received from Hopkins & Sutter, special counsel for the Company, an opinion,
dated the date of the Closing, in the form attached hereto as Exhibit E.
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Exhibit B To
Proxy Statement
6.4 Registration Rights Agreement. The Company shall
have executed and delivered to the Investors that certain Registration Rights
Agreement dated as of the date hereof (the "Registration Rights Agreement")
attached hereto as Exhibit D, setting forth certain rights, privileges and
obligations of the Company and the Investors with respect to the Securities.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to the Investors under this
Agreement are subject to the fulfillment on or before the Closing of each of
the following conditions:
7.1 Stockholder Approval. The adoption of the Restated
Certificate and the Certificate of Designation and the issuance and sale of the
Securities shall have been duly authorized and approved by the stockholders of
the Company in accordance with Delaware Law.
7.2 Restated Certificate and the Certificate of
Designation. The Restated Certificate and the Certificate of Designation shall
have been accepted for filing by the Secretary of State of Delaware.
7.3 Qualifications. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body that are
required to be obtained prior to the Closing in connection with the lawful
issuance and sale of the Securities pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
8. INDEMNIFICATION
8.1 Indemnification by the Company.
(a) The Company hereby agrees to indemnify and hold
harmless each Investor (including its partners and employees) and its
Affiliates against any and all losses, damages, liabilities, claims, demands,
judgments, settlements, costs and expenses of any nature whatsoever (including
reasonable attorneys' fees) (collectively, "Losses") (i) resulting from or
arising out of the inaccuracy of any representation or warranty or the breach
or non-performance of any covenant or agreement of the Company contained in
this Agreement, or (ii) in connection with any threatened or pending litigation
involving such Investor with respect to the transaction contemplated by this
Agreement, unless such Losses arise principally out of the gross negligence,
malfeasance, or bad faith of such Investor.
(b) If any action, proceeding or claim shall be brought
or asserted against any Investor (including its employees) or its Affiliates
(each, a "Investor Indemnified Party") by any third party, which action,
proceeding or claim, if determined adversely to the interest of the Investor
Indemnified Party, would entitle the Investor Indemnified Party to indemnity
pursuant to this Section 8.1, the Investor Indemnified Party shall promptly but
in no event later than
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Exhibit B To
Proxy Statement
fifteen (15) days from the date that such action, proceeding or claim was
commenced, notify the Company of the same in writing specifying in detail the
basis of such claim and the facts pertaining thereto, and the Company shall be
entitled to assume the defense thereof and have the sole control of the defense
and settlement thereof, including the employment of counsel and the payment of
all expenses; provided, however, that the Investor Indemnified Party shall have
the right to employ counsel separate from counsel employed by the Company in
any such action and to participate in the defense thereof, and the fees and
expenses of such counsel shall be at the expense of the Investor Indemnified
Party unless (i) (1) the employment thereof has been specifically authorized by
the Company in writing or (2) the use of counsel chosen by the Company to
represent the Investor Indemnified Party would present such counsel with a
conflict of interest or (ii) the Company has failed to assume the defense and
to employ counsel. The Company shall not be liable for any settlement of any
such action or proceeding effected without the written consent of the Company
(unless such consent is unreasonably withheld by the Company), but if settled
with the written consent of the Company, or if there shall be a final judgment
for plaintiff in any such action, the Company agrees to indemnify and hold
harmless the Investor Indemnified Party from and against any and all Losses by
reason of such settlement or judgment. Notwithstanding the foregoing, without
the written consent of the Investor Indemnified Party, the Company shall not be
entitled to settle any nonmonetary claim involving the business, operations or
assets of the Investor Indemnified Party if such settlement would impose on it
any obligation which cannot be satisfied by the payment of money.
8.2 Contribution. If the indemnification provided in
this Section 8 were to be unavailable to the parties hereto for any reason, the
Company and the Investors will contribute to the Losses in the proportion that
the Company's interest bears to each Investor's interest (on a pro rata basis)
in the matters contemplated by this Agreement.
9. MISCELLANEOUS
9.1 Entire Agreement. This Agreement and the documents
referred to herein (together with the letter agreement dated June 26, 1995
which the parties hereto agree shall terminate at the Closing) constitute the
entire agreement among the parties and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants
except as specifically set forth herein or therein. Matters disclosed in any
paragraph of the Disclosure Schedule shall be deemed to be disclosed with
respect to all paragraphs of the Disclosure Schedule. The Company's Form 10-K
filed June 29, 1995 (and delivered to the Investors prior to the date hereof),
the exhibits thereto, including all information and exhibits incorporated
therein shall be deemed incorporated in the Disclosure Schedule.
9.2 Expiration of Warranties. The warranties and
representations of the Company and the Investor contained in or made pursuant
to this Agreement shall in no way be affected by an investigation of the
subject matter thereof made by or on behalf of the Company or the Investor and
shall survive the Closing. Notwithstanding the foregoing, the representations
B-18
<PAGE> 78
Exhibit B To
Proxy Statement
and warranties contained in Sections 3.7, 3.9, 3.11, 3.12, 3.13 3.14, 3.15,
3.16, 3.17, 3.18, 3.19, 3.20 and 3.21 shall survive only until March 31, 1997.
9.3 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reasons of this
Agreement, except as expressly provided in this Agreement.
9.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED UNDER THE LAWS OF THE STATE OF ILLINOIS WITHOUT
REFERENCE TO THE PRINCIPLES OF THE CONFLICTS OF LAWS THEREOF.
9.5 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.6 Titles and Subtitles. The title and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.7 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
by hand or professional courier service, upon confirmation of telex or
telecopy, five (5) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid or upon the next day following
deposit with a nationally recognized overnight air courier, addressed as
follows:
(a) if to an Investor, to its address set forth on
Schedule 1 hereto.
(b) If to the Company, to:
MICRO Healthsystems, Inc.
414 Eagle Rock Avenue
West Orange, NJ 07052
Attention: Graham O. King
Facsimile: 201-731-1295
B-19
<PAGE> 79
Exhibit B To
Proxy Statement
With a copy to:
Stanford Goldblatt, Esq.
Hopkins & Sutter
Three First National Plaza
Chicago, IL 60602
Facsimile: 312-558-4276
Any party may by notice given in accordance with this Section 9.7 to the other
party to this Agreement designate another address or person for receipt of
notice hereunder.
9.8 Finder's Fees. Each party represents that it neither
is nor will it be obligated for any finder's fee or commission in connection
with this transaction.
9.9 Amendments and Waivers. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors
holding, or prior to the Closing obligated to purchase, a majority of the
Series A Preferred Stock.
9.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
9.11 Expenses. Irrespective of whether the Closing is
effected, the Company shall pay all reasonable fees, costs and expenses
(including, without limitation, the reasonable legal fees, costs and expenses
of special legal counsel to Frontenac VI Limited Partnership ("Frontenac"))
that Frontenac incurs from June 1, 1995 to the date of determination with
respect to the negotiation, execution and delivery of this Agreement up to a
maximum aggregate amount of $50,000.
9.12 Termination. This Agreement and all rights and
obligations of the parties hereto may be terminated at any time on or after
September 15, 1995 (so long as the Closing has not occurred) by the written
consent of the Company or the Investors obligated to purchase, in the
aggregate, a majority of the Series A Preferred Stock pursuant hereto.
B-20
<PAGE> 80
Exhibit B To
Proxy Statement
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MICRO HEALTHSYSTEMS, INC.
By: _____________________________
Name: Graham O. King
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. Hutchinson, 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
<PAGE> 81
Exhibit B To
Proxy Statement
SCHEDULE 1
<TABLE>
<CAPTION>
INVESTOR SERIES A SERIES B SERIES A
NAME AND ADDRESS WARRANTS(1) WARRANTS(1) PREFERRED STOCK(2)
---------------- -------- --------- ---------------
<S> <C> <C> <C>
Frontenac VI Limited Partnership 325,000 165,000 1,250,000
c/o Frontenac Company
135 South LaSalle Street
Suite 3800
Chicago, IL 60603
Attention: James E. Cowie
Facsimile: 312-368-9520
Robert E. King Income Trust 32,500 16,500 125,000
15 Salt Creek Lane
Suite 411
Hinsdale, IL 60521
Attention: David A. Hutchison,
Trustee
Morgan Holland Fund II, L.P. 32,500 16,500 125,000
One Liberty Square
Boston, MA 02109
Attention: James F. Morgan
</TABLE>
____________________
(1)Number of shares of Common Stock issuable upon exercise
(2)Number of shares of Series A Convertible Preferred Stock
<PAGE> 82
Exhibit B To
Purchase Agreement
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 ___, 1995 (the "Warrant Purchase Agreement"),
providing for the issuance and sale of the Series A Warrants, the Series B
Warrants (as defined therein) and the Series A Convertible Preferred Stock (the
<PAGE> 83
Exhibit B To
Purchase Agreement
"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.
1. Term of Series A Warrant. Subject to the terms and conditions set forth
herein including, without limitation, Section 12 hereof, this Series A Warrant
shall be exercisable, in whole or in part, during the term commencing on August
___, 1999 and ending at 5:00 p.m., Central standard time, on August ___, 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.
Series A Warrant
2
<PAGE> 84
Exhibit B To
Purchase Agreement
(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 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
Series A Warrant
3
<PAGE> 85
Exhibit B To
Purchase Agreement
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 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
Series A Warrant
4
<PAGE> 86
Exhibit B To
Purchase Agreement
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.
(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
Series A Warrant
5
<PAGE> 87
Exhibit B To
Purchase Agreement
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 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
Series A Warrant
6
<PAGE> 88
Exhibit B To
Purchase Agreement
(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.
(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.
Series A Warrant
7
<PAGE> 89
Exhibit B To
Purchase Agreement
(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 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
August ___, 1995 to and including the Determination Date (or if no share of
Series A Preferred Stock is then outstanding, the amount of all dividends
Series A Warrant
8
<PAGE> 90
Exhibit B To
Purchase Agreement
(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) 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
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 August ___, 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) 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.
Series A Warrant
9
<PAGE> 91
Exhibit B To
Purchase Agreement
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 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.
Series A Warrant
10
<PAGE> 92
Exhibit B To
Purchase Agreement
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.
Series A Warrant
11
<PAGE> 93
Exhibit B To
Purchase Agreement
IN WITNESS WHEREOF, MICRO HEALTHSYSTEMS, INC. has caused this Series A
Warrant to be executed by its officers thereunto duly authorized.
Dated: August ___, 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: _________________________________
<PAGE> 94
Exhibit B To
Purchase Agreement
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)
______________________________ ______________________________________________
(Date) (Name)
<PAGE> 95
Exhibit B To
Purchase Agreement
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
<PAGE> 96
Exhibit C To
Purchase Agreement
FORM OF SERIES B WARRANT
THIS SERIES B 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-B_ Series B Warrant
to Purchase ________ Shares of
Common Stock (subject to adjustment)
SERIES B 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 B Warrant" as used herein shall
include this Series B Warrant and any warrants delivered in substitution or
exchange thereafter as provided herein.
This Series B Warrant is issued in connection with the transactions
entered into pursuant to that certain Series A Convertible Preferred Stock and
Warrant Purchase Agreement between the Company, the Holder and the other
investors named therein, dated as of July 18, 1995 (the "Warrant Purchase
Agreement"). This Series B Warrant is one of the Series B Warrants referred to
as the "Series B Warrants" in the Warrant Purchase Agreement.
<PAGE> 97
Exhibit C To
Purchase Agreement
1. Term of Series B Warrant. Subject to the terms and conditions
set forth herein, this Series B Warrant shall be exercisable, in whole or in
part, during the term commencing on the date hereof and ending at 5:00 p.m.,
Central standard time, on August ___, 2000 (the "Exercise Period"), and shall
be void thereafter.
2. Exercise Price. The Exercise Price at which this Series B
Warrant may be exercised shall be $3.50 per share of Common Stock, as adjusted
from time to time pursuant to Section 11 hereof.
3. Exercise of Series B Warrant.
(a) Mechanics. The purchase rights represented by this
Series B Warrant are exercisable by the Holder in whole or in part, but not for
less than 10,000 shares at a time (or such lesser number of shares which may
then constitute the maximum number purchasable; such number being subject to
adjustment as provided in Section 11 below), at any time, or from time to time,
during the term hereof as described in Section 1 above, by the surrender of
this Series B 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 in cash or by check acceptable to the
Company.
(b) Certificates. This Series B 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 B Warrant is exercised in part, the
Company at its expense will execute and deliver a new Series B Warrant of like
tenor exercisable for the number of shares for which this Series B Warrant may
then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Series
B Warrant. In lieu of any fractional share to which the Holder would otherwise
be entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
Series B Warrant
- 2 -
<PAGE> 98
Exhibit C To
Purchase Agreement
5. Replacement of Series B Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Series B 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 B Warrant, the Company at its expense shall
execute and deliver, in lieu of this Series B Warrant, a new warrant of like
tenor and amount.
6. Rights of Stockholders. Subject to Sections 9 and 11 of this
Series B 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 B
Warrant shall have been exercised as provided herein.
7. Transfer of Series B Warrant.
(a) Series B Warrant Register. The Company will maintain
a register (the "Series B Warrant Register") containing the names and addresses
of the Holder or other holders. Any holder of this Series B Warrant or any
portion thereof may change his address as shown on the Series B 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 B Warrant
Register and at the address shown on the Series B Warrant Register. Until this
Series B Warrant is transferred on the Series B Warrant Register of the
Company, the Company may treat the Holder as shown on the Series B Warrant
Register as the absolute owner of this Series B Warrant for all purposes,
notwithstanding any notice to the contrary.
(b) Series B Warrant Agent. The Company may, by written
notice to the Holder, appoint an agent for the purpose of maintaining the
Series B Warrant Register referred to in Section 7(a) above, issuing the Common
Stock or other securities then issuable upon the exercise of this Series B
Warrant, exchanging this Series B Warrant, replacing this Series B 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.
Series B Warrant
- 3 -
<PAGE> 99
Exhibit C To
Purchase Agreement
(c) Transferability and Nonnegotiability of Series B
Warrant. This Series B 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 B Warrant with respect to compliance with the Securities Act of
1933, as amended (the "Act"), title to this Series B Warrant may be transferred
by endorsement (by the Holder executing the Assignment Form annexed hereto) and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.
(d) Exchange of Series B Warrant Upon a Transfer. On
surrender of this Series B Warrant for exchange, properly endorsed on the
Notice of Assignment attached hereto and subject to the provisions of this
Series B 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 B 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 B 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 B 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 B 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 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
Series B Warrant
- 4 -
<PAGE> 100
Exhibit C To
Purchase Agreement
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 and unissued
Common Stock a sufficient number of shares to provide for the issuance of
Common Stock upon the exercise of this Series B 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 B Warrant. The Company further covenants that all shares that may be
issued upon the exercise of rights represented by this Series B 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 B 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 B Warrant.
9. Notices.
(a) Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed
(via overnight courier) to the holder of this Series B Warrant.
(b) 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 B 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
Series B Warrant
- 5 -
<PAGE> 101
Exhibit C To
Purchase Agreement
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 B 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 B
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.
(c) 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 B Warrant may be amended with
the written consent of the Company and the holders of warrants representing a
majority of the shares of Common Stock issuable upon exercise of the Series B
Warrants. Any amendment effected in accordance with this Section 10 shall be
binding upon each holder of the Series B Warrants, each future holder of all
such Series B 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 B Warrants. The Company
shall promptly give notice to all holders of Series B 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 B 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.
Series B Warrant
- 6 -
<PAGE> 102
Exhibit C To
Purchase Agreement
11. Adjustments. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
11.1 Exercise Price.
(a) In order to prevent dilution of the exercise rights
granted hereunder, the Exercise Price will be subject to adjustment from time
to time pursuant to this Section 11; provided, however, there will be no
adjustment of the Exercise 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 Company or its Subsidiaries
which are from time to time approved by the Company's 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, at any time prior to August __, 1996 (or any time thereafter unless
approved by the Board of Directors (or the Compensation Committee thereof) of
the Company), 3,057,000 shares of Common Stock (net of any repurchases of such
shares or options), subject to adjustment for all subdivisions and
combinations, (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 conversion or exercise, as the case may be, of the Series A Preferred
Stock, the Series A Warrants or the Series B Warrants (each as defined in the
Warrant Purchase Agreement) ("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 among the Company, Vanco
Business Management, Inc. and David K. Vanco, as amended (subject to adjustment
for all subdivisions and combinations) ("Vanco Stock") or (v) any distribution
or granting of stock or other securities or property (other than cash) of the
Company, by way of dividend, in accordance with Section 11.6 hereof ("Purchase
Stock", and together with Converted Stock, Compensatory Stock, Vanco Stock and
Split Stock, the "Excluded Stock").
Anything herein to the contrary notwithstanding, no
adjustment in the Exercise 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 hereof, the
Company issues or sells, or in accordance with Section 11.2 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 Exercise Price in effect immediately
prior to the time of such issuance or sale, then forthwith upon such issuance
Series B Warrant
- 7 -
<PAGE> 103
Exhibit C To
Purchase Agreement
or sale the Exercise Price will be reduced to the exercise price determined by
dividing (i) the sum of (1) the product derived by multiplying the Exercise
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
Company upon such issuance or sale, by (ii) 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 11. "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).
11.2. Effect on Exercise Prices of Certain Events.
For purposes of determining the adjusted Exercise Price under
Section 11.1(ii), the following will be applicable:
(a) Issuance of Rights or Options. If the Company
anner 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 Exercise 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 Company 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 Company as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Company 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 Company 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
Series B Warrant
- 8 -
<PAGE> 104
Exhibit C To
Purchase Agreement
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
Exercise 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
Company 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
Exercise 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
Company 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 Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company 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
Exercise 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 Exercise Price
had been or are to be made pursuant to other provisions of this
Section 11, no further adjustment of the Exercise 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 11, the Exercise Price in effect at the time of such change
shall be readjusted to the Exercise 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.
Series B Warrant
- 9 -
<PAGE> 105
Exhibit C To
Purchase Agreement
(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
Exercise Price then in effect hereunder will be adjusted to the
Exercise 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 Company 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 Company
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 Company will be the Current 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 Company is the surviving Company, 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
Company 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 Company and the holders of a majority of the
outstanding Series B Warrants. 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 Company and the holders of a majority of the
outstanding Series B Warrants; 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 Company and the holders of a
majority of the Series B Warrants 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 (2) 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
Series B Warrant
- 10 -
<PAGE> 106
Exhibit C To
Purchase Agreement
average of the two (2) appraisals which are nearest to each other.
The expenses of the appraisers will be paid one-half by the Company
and one-half by the holders of the Series B Warrants (pro rata based
on the number of shares of Common Stock which would be issuable upon
exercise by the holders of the Series B Warrants).
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 B 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 B Warrants.
The expenses of the appraisers will be paid one-half by the Company
and one-half by the holders of the Series B Warrants (pro rata
based on the number of shares of Common Stock issuable upon exercise
of the Series B Warrants).
(f) Integrated Transactions. In case any Option
is issued in connection with the issue or sale of other securities of
the Company, 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 Company or any Subsidiary,
and the disposition of any shares so owned or held will be considered
an issue or sale of Common Stock.
Series B Warrant
- 11 -
<PAGE> 107
Exhibit C To
Purchase Agreement
(h) Record Date. If the Company 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.
11.3 Merger, Sale of Assets, etc. If at any time while this
Series B Warrant or any portion thereof, is outstanding and unexpired there
shall be (i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity but the shares of the Company's capital
stock outstanding immediately prior to the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Series B Warrant shall thereafter be
entitled to receive upon exercise of this Series B Warrant, during the period
specified herein and upon payment of the Exercise Price then in effect, the
number of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation, sale or
transfer that a holder of the shares deliverable upon exercise of this Series B
Warrant would have been entitled to receive in such reorganization,
consolidation, merger, sale or transfer if this Series B Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale
or transfer. The foregoing provisions of this Section 11.3 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Series B Warrant. If the
per-share consideration payable to the holder hereof for shares in connection
with any such transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be determined pursuant
to the provisions of Section 11.2(ii)(e). In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Series B Warrant
with respect to the rights and interests of the Holder after the transaction,
to the end that the provisions of this Series B Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Series B
Warrant.
11.4 Reclassification, etc. If the Company, at any time while this
Series B Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or
Series B Warrant
- 12 -
<PAGE> 108
Exhibit C To
Purchase Agreement
otherwise, shall change any of the securities as to which purchase rights under
this Series B Warrant exist into the same or a different number of securities
of any other class or classes, this Series B Warrant shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities that were
subject to the purchase rights under this Series B Warrant immediately prior to
such reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.4.
11.5 Split, Subdivision or Combination of Shares. If the Company
at any time while this Series B Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the securities as
to which purchase rights under this Series B Warrant exist, into a different
number of securities of the same class, the Exercise Price for such securities
shall be proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
11.6. Adjustments for Dividends in Stock or Other Securities or
Property. If while this Series B Warrant, or any portion hereof, remains
outstanding and unexpired the holders of the securities as to which purchase
rights under this Series B Warrant exist at the time shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company, by way of dividend, then and in each case, this Series B Warrant
shall represent the right to acquire, in addition to the number of shares of
the security receivable upon exercise of this Series B Warrant, and without
payment of any additional consideration therefor, the amount of such other or
additional stock or other securities or property (other than cash) of the
Company, by way of dividend, that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Series B Warrant on the date thereof and had thereafter,
during the period from the date thereof to and including the date of such
exercise, retained such shares and/or all other additional stock available by
it as aforesaid during such period, giving effect to all adjustments called for
during such period by the provisions of this Section 11.
11.7 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of the Series B Warrants a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.
11.8 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed
Series B Warrant
- 13 -
<PAGE> 109
Exhibit C To
Purchase Agreement
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 11 and in the taking of all
such action as may be necessary or appropriate in order to protect the rights
of the Holders of this Series B Warrant against impairment.
12. Registration Rights. Upon exercise of this Series B 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 B Warrant, the Holder agrees to be bound and is subject to the
rights, limitations and preferences set forth in the Registration Rights
Agreement.
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 B 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 B
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 B 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 B 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 B 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.
Exhibit C to Purchase Agreement
- 14 -
<PAGE> 110
Exhibit C To
Purchase Agreement
13.5 Successors and Assigns. This Series B 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 B 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 B Warrant are for the convenience of reference only and shall not, for
any purpose, be deemed a part of this Series B Warrant.
13.9 GOVERNING LAW. THIS SERIES B WARRANT SHALL BE GOVERNED BY THE
INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF
ILLINOIS.
Series B Warrant
- 15 -
<PAGE> 111
Exhibit C To
Purchase Agreement
IN WITNESS WHEREOF, MICRO HEALTHSYSTEMS, INC. has caused this Series B
Warrant to be executed by its officers thereunto duly authorized.
Dated: August ___, 1995
MICRO HEALTHSYSTEMS, INC.
By: _______________________________
Name:
Title:
The undersigned, by accepting this Series B Warrant, agrees to be bound by the
terms and conditions hereof.
[HOLDER]
By: ______________________________
Its: ______________________________
<PAGE> 112
Exhibit C To
Purchase Agreement
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 B Warrant, and tenders herewith payment of the purchase price
for such shares in full.
(2) In exercising this Series B 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 B Warrant for the unexercised portion
of the attached Series B Warrant in the name of the undersigned or in such
other name as is specified below:
_______________________________________
(Name)
_______________ _______________________________________
(Date) (Name)
<PAGE> 113
EXHIBIT B
NOTICE OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered owner of this Series B
Warrant hereby sells, assigns and transfers unto the Assignee named below all
of the rights of the undersigned under the within Series B 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 B 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 B 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
B 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
<PAGE> 114
Exhibit D To
Purchase Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
as of August ___, 1995, between MICRO Healthsystems, Inc., a Delaware
corporation (the "Company"), and the entities listed on Schedule 1 hereto
(each, a "Purchaser", and collectively, the "Purchasers"). Certain capitalized
terms used in this Agreement are defined in Section 1 of this Agreement.
WHEREAS, the Company and the Purchasers have entered into that
certain Series A Convertible Preferred Stock and Warrant Purchase Agreement
(the "Stock and Warrant Purchase Agreement") dated as of July 18, 1995,
providing for the issuance and sale of the Securities (as defined herein) by
the Company to the Purchasers. The execution and delivery of this Agreement is
a condition precedent to the closing of the transactions contemplated by the
Stock and Warrant Purchase Agreement.
The parties hereto agree as follows:
1. Definitions. As used herein, the following terms
have the following respective meanings:
"Amended Certificate of Incorporation" means the Certificate
of Incorporation of the Company, as amended and restated as of the date hereof.
"Certificate of Designation" means the Certificate of
Designation Relating to the Series A Convertible Preferred Stock of the
Company.
"Commission" means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act or the
Exchange Act.
"Common Stock" means the common stock, par value $0.01 per
share, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include a reference to the comparable section, if any, of any
such similar Federal statute.
"Initiating Holder" is defined in Section 2.1.
<PAGE> 115
Exhibit D To
Purchase Agreement
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company or any other entity or organization, including a governmental or
political subdivision or any agency or instrumentality thereof.
"Preferred Stock" means the Series A Convertible Preferred
Stock of the Company issued and sold pursuant to the Stock and Warrant Purchase
Agreement.
"Registrable Securities" means (i) shares of Common Stock
issued or issuable pursuant to the conversion or exercise, as the case may be,
of the Securities and (ii) any Common Stock issued or issuable upon any stock
split, stock dividend, recapitalization, or similar transaction relating to the
Securities; provided, that Registrable Securities shall not include any shares
sold to the public pursuant to Rule 144 promulgated by the Commission under the
Securities Act or pursuant to an effective registration statement under the
Securities Act. For purposes of this Agreement, a Person will be deemed to be
a holder of Registrable Securities whenever such Person holds a security
exercisable for or convertible into such Registrable Securities, whether or not
such exercise or conversion has actually been effected.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Section 2, including, without
limitation, all registration, filing and NASD fees, all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery expenses, the fees and
disbursement of counsel for the Company and of its independent public
accountants, including the expenses of "cold comfort" letters required by or
incident to such performance and compliance, any disbursement of underwriters
customarily paid by issuers or sellers of securities, and the reasonable fees
and expenses of one counsel to all of the Selling Holders (selected by the
Selling Holders holding not less than a majority of the Registrable Securities
covered by such registration).
"Requesting Holder" is defined in Section 2.2.
"Securities" means, collectively, the Preferred Stock, the
Series A Warrants and the Series B Warrants.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of such similar Federal statute.
Registration Rights Agreement
2
<PAGE> 116
Exhibit D To
Purchase Agreement
"Selling Holder" is defined in Section 2.1.
"Series A Warrants" means those certain Series A Warrants of
the Company issued and sold pursuant to the Stock and Warrant Purchase
Agreement.
"Series B Warrants" means those certain Series B Warrants of
the Company issued and sold pursuant to the Stock and Warrant Purchase
Agreement.
2. Registration Under Securities Act.
2.1. Registration on Request. (a) Request. At any time
on or after the six-month anniversary of the date hereof and upon the written
request of one (1) or more holders (the "Initiating Holders") of Registrable
Securities holding not less than 33% of the Registrable Securities then held by
the holders of Registrable Securities that the Company effect the registration
under the Securities Act of all or part of such Initiating Holders' Registrable
Securities, the Company will promptly give written notice of such requested
registration to all registered holders of Registrable Securities, and thereupon
the Company will use its best efforts to effect the registration under the
Securities Act, including by means of a shelf registration pursuant to Rule 415
under the Securities Act if so requested in such request and if the Company is
then eligible to use such a registration (a "Shelf Registration"), of
(i) the Registrable Securities which the Company has been
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities which the Company
has been requested to register by the holders thereof (such holders together
with the Initiating Holders are hereinafter referred to as the "Selling
Holders") by written request given to the Company within fifteen (15) days
after the giving of such written notice by the Company,
all to the extent required to permit the disposition of the Registrable
Securities so as to be registered; provided, however, the Company shall not be
required to file a registration statement under this Section 2.1 if (i) less
than $1,000,000 of Registrable Securities are to be included in such
registration, (ii) any registration statement (other than on Form S-4 or S-8 or
any successor or similar forms are filed in connection with an exchange offer
or any offering of securities solely to the Company's existing stockholders)
covering securities to be sold by the Company has been filed and not withdrawn
or has been declared effective within the preceding one hundred eighty (180)
days if the preceding registration was on Form S-3 or two hundred seventy (270)
days if the preceding registration was on Form S-1 or S-2 or (iii) the Company
shall furnish to the Selling Holders a certificate signed by the Chief
Executive Officer of the Company
Registration Rights Agreement
3
<PAGE> 117
Exhibit D To
Purchase Agreement
stating that in the good faith judgment of the Board of Directors it would be
materially detrimental to the Company or its stockholders for a registration
statement to be filed in the near future, in which event, with respect to (iii)
above, the Company's obligation to use its best efforts to register, qualify or
comply under this Section 2.1 shall be deferred for a period not to exceed
ninety (90) days, such right to delay a request not to be exercised by the
Company more than once in any twelve-month period.
(b) Registration Statement Form. Registrations under
this Section 2.1 shall be on such appropriate registration form of the
Commission as shall be selected by the Company. The Company agrees to include
in any such registration statement all information which, in the opinion of
counsel to the Company, is required to be included.
(c) Expenses. The Company will pay the Registration
Expenses in connection with any registration requested pursuant to this Section
2.1, provided, the Company shall not be required to pay the Registration
Expenses of (i) any registration proceeding begun pursuant to this Section 2.1,
the request of which has been subsequently withdrawn by the Selling Holders,
unless the holders of a majority of the Registrable Securities agree that such
request will constitute a demand registration pursuant to Section 2.1 or (ii)
any registration in connection with which the Selling Holders assumed
responsibility for payment of the Registration Expenses.
(d) Effective Registration Statement. A registration
requested pursuant to this Section 2.1 shall not be deemed to have been
effected (i) unless a registration statement with respect thereto has become
effective, (ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason not
attributable to the Selling Holders and has not promptly thereafter become
effective, or (iii) if the conditions to closing specified in the underwriting
agreement, if any, entered into in connection with such registration are not
satisfied or waived, other than by reason of a failure on the part of the
Selling Holders.
(e) Selection of Underwriters. The underwriter or
underwriters of each underwritten offering of the Registrable Securities so to
be registered shall be selected by the Company.
(f) Priority in Requested Registration. If the managing
underwriter of any underwritten offering shall advise the Company in writing
(with a copy to each Selling Holder) that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering within a price range acceptable to the
Selling Holders holding not less than a majority of the Registrable Securities
requested to be included in such registration, the Company will include in such
registration, to the extent of the number
Registration Rights Agreement
4
<PAGE> 118
Exhibit D To
Purchase Agreement
which the Company is so advised can be sold in such offering, Registrable
Securities requested to be included in such registration and other securities
requested to be included in such registration pursuant to registration rights
contained in agreements existing as of the date hereof and registration rights
granted after the date hereof in accordance with Section 5 ("Pari Passu
Rights"), pro rata among the Selling Holders and other holders requesting such
registration according to the total number of Registrable Securities and other
securities requested to be registered by each Selling Holder or other holder,
as the case may be.
(g) Limitations on Registration on Request.
Notwithstanding anything in this Section 2.1 to the contrary, in no event will
the Company be required to effect, in the aggregate, without regard to the
holder of Registrable Securities making such request, more than two (2)
registrations with respect to an underwritten public offering (a "Requested
Underwritten Offering") pursuant to this Section 2.1; provided, however, in the
event (i) the Selling Holders assume in writing responsibility for payment of
the Registration Expenses, whether or not such registration is ultimately
effected, (ii) the registration occurs in connection with a Triggering Event
(as defined in the Certificate of Designation) or (iii) the Company exercises
its pre-emptive right pursuant to Section 2.2(h), any such registration shall
not be treated as a Requested Underwritten Offering for purposes of the
limitations set forth in this Section 2.1(g).
(h) Pre-emption. The Company will have the right to
pre-empt one (1) (but no more than one) Requested Underwritten Offering
pursuant to this Section 2.1 with a primary registration by delivering written
notice of such intention to the Initiating Holders within five (5) business
days after the Company has received a request for such Requested Underwritten
Offering; provided, (i) the Company shall deliver to the Initiating Holders a
plan of the Board of Directors of the Company with respect to such primary
registration no later than thirty (30) days after the Company has received a
request for such Requested Underwritten Offering and (ii) such primary
registration shall take effect no later than one hundred and eighty (180) days
after such Requested Underwritten Offering has occurred. In the ensuing
primary registration, the holders of Registrable Securities will have such
piggyback rights as are set forth in Section 2.2.
2.2. Incidental Registration. (a) Right to Include
Registrable Securities. If the Company at any time proposes to register any of
its securities under the Securities Act by registration on Forms S-1, S-2 or
S-3 or any successor or similar form(s), whether or not for sale or for its own
account, it will each such time give prompt written notice to all registered
holders of Registrable Securities of its intention to do so and of such
holders' rights under this Section 2.2. Upon the written request of any such
holder (a "Requesting Holder") made as promptly as practicable and in any event
within fifteen (15) days after the receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Registration Rights Agreement
5
<PAGE> 119
Exhibit D To
Purchase Agreement
Requesting Holder), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the Requesting Holders thereof;
provided, however, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Requesting Holder of Registrable Securities and (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from any obligation of the Company to pay the
Registration Expenses in connection therewith), without prejudice, however, to
the rights of any holder or holders of Registrable Securities entitled to do so
to request that such registration be effected as a registration under Section
2.1, subject to Section 2.1(g), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities, for the same period as the delay in registering such other
securities. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect any registration upon request under Section
2.1. Subject to Section 2.1(g), the Company will pay all Registration Expenses
in connection with registration of Registrable Securities requested pursuant to
this Section 2.2.
(b) Priority in Incidental Registrations. If the
managing underwriter of any underwritten offering shall inform the Company by
letter with a copy to the holder or holders of Registrable Securities of its
belief that the number or type of Registrable Securities requested to be
included in such registration would materially adversely affect such offering,
then the Company will include in such registration, to the extent of the number
and type which the Company is so advised can be sold in (or during the time of)
such offering, first, all securities proposed by the Company to be sold for its
own account in a primary offering or by the holder requesting such
registration in a secondary offering, and second, such Registrable Securities
and other securities with Pari Passu Rights requested to be included in such
registration, such Registrable Securities and other securities to be included
in such registration pro rata among the Requesting Holders and other holders
according to the total number of Registrable Securities requested to be
included in such registration by each such Requesting Holder or other holder,
as the case may be, and third, all other securities requested to be included in
such registration.
(c) Selection of Underwriters. If a registration
pursuant to this Section 2.2 involves an underwritten offering, the underwriter
or underwriters thereof shall be selected by the Company. Each Requesting
Holder agrees that it will sell all of its Registrable Securities to be
included in such registration to the underwriter or underwriters selected by
the Company pursuant to this Section 2.2(c) on the same terms and conditions as
are applicable to the
Registration Rights Agreement
6
<PAGE> 120
Exhibit D To
Purchase Agreement
Company or other sellers of the same securities thereunder, and at the same
price as any Registrable Securities to be sold by the Company or any such other
sellers thereunder.
2.3. Registration Procedures. If and whenever the Company
is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Sections 2.1 and
2.2, the Company will as expeditiously as practicable:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use its best
efforts to cause such registration statement to become effective; provided,
however, that the Company may discontinue any registration of its securities
which are not Registrable Securities (and, under the circumstances specified in
Section 2.2(a), its securities which are Registrable Securities), at any time
prior to the effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such registration
statement for such period as shall be required for the disposition of all of
such Registrable Securities; provided, however, that, such period need not
exceed twelve (12) months with respect to any Shelf Registration and ninety
(90) days with respect to any other registration statement;
(iii) furnish to each seller of Registrable Securities
covered by such registration statement, such number of conformed copies of such
registration statement and of each amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus contained
in such registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act, and
such other documents as such seller may reasonably request;
(iv) use its best efforts (A) to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such States of the
United State of America where an exemption is not available and as the sellers
of Registrable Securities covered by such registration statement shall
reasonably request, (B) to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and (C) to take
any other action which may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the securities
to be sold by such sellers, except that the Company shall not for any such
purpose be
Registration Rights Agreement
7
<PAGE> 121
Exhibit D To
Purchase Agreement
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this subdivision
(iv) be obligated to be so qualified, to consent to general service of process
in any such jurisdiction or subject itself to taxation in any such
jurisdiction;
(v) use its best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other Federal or state governmental agencies or authorities as
may be necessary in the opinion of counsel to the Company to enable the sellers
thereof to consummate the disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a
signed counterpart, addressed to each such seller, of:
(A) an opinion of counsel for the Company, and
(B) a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included or
incorporated by reference in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to the date of
such financial statements as are customarily covered in opinions of issuer's
counsel and in accountants' comfort letters delivered to the underwriters in
underwritten public offerings of securities (and dated the dates such opinions
and comfort letters are customarily dated);
(vii) notify each seller of Registrable Securities covered
by such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus included
in such registration statement, as then in effect, includes a statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in the light of the
circumstances under which they were made, and at the request of any such seller
promptly prepare and furnish to it a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made;
Registration Rights Agreement
8
<PAGE> 122
Exhibit D To
Purchase Agreement
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act, and promptly furnish to each
such seller of Registrable Securities a copy of any amendment or supplement to
such registration statement or prospectus;
(ix) provide and cause to be maintained a transfer agent
and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration; and
(x) use its best efforts to list all Registrable
Securities covered by such registration statement on any national securities
exchange (including the NASDAQ National Market) on which Registrable Securities
covered by such registration statement are then listed.
The Company may require each seller of Registrable Securities as to which any
registration is being affected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition
of Registrable Securities pursuant to the registration statement relating to
such Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.3 and, if so directly by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4. Underwritten Offerings. (a) Requested Underwritten
Offerings. If requested by the underwriters for any underwritten offering by
holders of Registrable Securities pursuant to a registration requested under
Section 2.1, the Company will use reasonable efforts to enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, the holders
of not less than a majority of the Registrable Securities to be included in
such registration and the underwriters and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.5. The holders of the
Registration Rights Agreement
9
<PAGE> 123
Exhibit D To
Purchase Agreement
Registrable Securities proposed to be distributed by such underwriters will
cooperate with the Company in the negotiation of the underwriting agreement.
Such holders of Registrable Securities shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all
of the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities.
(b) Incidental Underwritten Offerings. If the Company
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, subject to Section 2.2, the Company will if
requested by any Requesting Holder of Registrable Securities use its best
efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such Requesting Holder among the
securities of the Company to be distributed by such underwriters. The holders
of Registrable Securities to be distributed by such underwriters shall be
parties to the underwriting agreement between the Company and such underwriters
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of such holders of
Registrable Securities.
(c) No Person may participate in any registration
hereunder which is underwritten unless such Person (A) agrees to sell such
Person's securities on the basis provided in any underwriting arrangements
approved by the Person or Persons entitled hereunder to approve such
arrangements and (B) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
2.5. Indemnification. (a) Indemnification by the Company.
In the event of any registration of any securities of the Company under the
Securities Act, the Company will, and hereby does, indemnify and hold harmless,
in the case of any registration statement filed pursuant to Section 2.1 or 2.2,
each seller of any Registrable Securities covered by such registration
statement, each such seller's stockholders, directors, officers, partners,
agents and affiliates and each other person who participates as an underwriter
in the offering or sale of such securities and each other person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint and
Registration Rights Agreement
10
<PAGE> 124
Exhibit D To
Purchase Agreement
several, to which such seller or any such stockholder, director, officer,
partner, agent or affiliate or underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company will
reimburse such seller and each such stockholder, director, officer, partner,
agent or affiliate, underwriter and controlling person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such
seller or underwriter, as the case may be, specifically for use in the
preparation thereof and provided further that the Company shall not be liable
to any person who participates as an underwriter in the offering or sale of
Registrable Securities or any other person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or
amended, to the person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person if such
statement or omission was corrected in such final prospectus. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of such seller or any such stockholder, director, officer,
partner, agent or affiliate or controlling person or underwriter and shall
survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a condition to
including any Registrable Securities in any registration statement, the Company
shall have received an undertaking reasonably satisfactory to it from the
prospective seller of such Registrable Securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in subdivision
(a) of this Section 2.5) the Company and each director of the Company, each
officer of the Company and each other person, if any, who controls the Company
within the meaning of the Securities Act, with respect to any statement or
alleged statement in or omission or
Registration Rights Agreement
11
<PAGE> 125
Exhibit D To
Purchase Agreement
alleged omission from such registration statement, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company specifically for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling person and shall survive the
transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section
2.5, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 2.5, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. If any such action is brought
against an indemnified party, the indemnifying party shall be entitled to
participate in and, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof. No indemnifying party shall
be liable for any settlement of any action or proceeding effected without its
written consent (which consent shall not be unreasonably withheld).
(d) Contribution. If the indemnification provided for in
this Section 2.5 shall for any reason be held by a court to be unavailable to
an indemnified party under subdivision (a) or (b) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof, then, in
lieu of the amount paid or payable under subdivision (a) or (b) hereof, the
indemnified party and the indemnifying party under subdivision (a) or (b)
hereof shall contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses as they are reasonably incurred
in connection with investigating or defending the same), (i) in such proportion
as is appropriate to reflect the relative fault of the Company and the
prospective sellers of Registrable Securities covered by the registration
statement which resulted in such loss, claims, damage or liability, or action
in respect thereof, with respect to the statements or omissions which resulted
in such loss, claims, damage or liability, or action in respect thereof,
Registration Rights Agreement
12
<PAGE> 126
Exhibit D To
Purchase Agreement
as well as any other relevant equitable considerations or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and such prospective sellers from the offering of the
securities covered by such registration statement. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this subdivision (d) are several in
such proportion as is appropriate to reflect the relative fault of each of the
prospective sellers, as well as any other relevant equitable consideration, and
not joint; provided, however, that if such allocation is not permitted by
applicable law, the prospective sellers' obligations to contribute shall be in
proportion to the relative value of their respective registrable securities
covered by such registration statement. In addition, no person shall be
obligated to contribute hereunder any amounts in payment for any settlement of
any action or claim effected without such person's consent, which consent shall
not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution
similar to that specified in the preceding subdivisions of this Section 2.5
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any Federal or state law or regulation of any governmental authority other than
the Securities Act.
(f) Indemnification Payments. The indemnification and
contribution required by this Section 2.5 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred,
provided the indemnified party agrees to repay such payments if it is
ultimately determined that the indemnified party was not entitled to
indemnification.
2.6. Adjustments Affecting Registrable Securities. The
Company will not effect or permit to incur any combination or subdivision of
Registrable Securities which would materially adversely affect the ability of
the holders of Registrable Securities to include such Registrable Securities in
any registration of its securities contemplated by this Section 2 or the
marketability of such Registrable Securities under any such registration.
2.7. Certain Rights of Holders If Named in a Registration
Statement. If any statement contained in a registration statement under the
Securities Act refers to any holder of Registrable Securities by name or
otherwise as the holder of any securities of the Company and such reference to
such holder by name or otherwise is not required by the Securities Act or any
of the rules and regulations promulgated thereunder, then such holder shall
have the right to require the deletion of the reference to such holder.
Registration Rights Agreement
13
<PAGE> 127
Exhibit D To
Purchase Agreement
2.8. Rule 144. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder (or, if the Company is not required to
file such reports, will, upon the request of any holder, make publicly
available other information) and will take further action as any holder may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by any rule or regulation
now in effect or hereafter adopted by the Commission. Upon the request of any
holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
2.9. Conversion of Exercise of Securities. The Securities
must be converted into, or exercised for, Common Stock prior to the sale of
such Securities pursuant to a registration under this Agreement.
3. Holdback Agreements. Each holder of Registrable
Securities agrees not to effect any public sale of equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
such securities, including a sale to the public pursuant to Rule 144 of the
Commission, during the period commencing fifteen (15) days prior to and ending
ninety (90) days after the effective date of any underwritten registration of
the Company's securities (except as part of such underwritten registration), if
and to the extent requested by the underwriter or underwriters managing the
registered public offering, unless such underwriter or underwriters otherwise
agree.
4. Restrictions on Dispositions. In connection with the
disposition of the Registrable Securities under a registration statement
pursuant to this Agreement, in order for any holder of Registrable Securities
to dispose of Registrable Securities pursuant to a prospectus that is a part of
such registration statement (other than an underwritten offering), such holder
must give the Company written notice of its intention to sell any of the
Registrable Securities at least two (2), but not more than twenty (20),
business days prior to the date of the proposed sale(s), which notice shall
include the number of shares proposed to be disposed, and the time period
during which the shares may be disposed (the "Sale Period"), and the holder
agrees that, during the Sale Period, it shall not deliver any prospectus that
is a part of such registration statement in connection with any disposition of
the Registrable Securities during any period of time when, but only so long as,
the Company, after receipt of the notice set forth above, notifies such holder
that the Company is in possession of material non-public information that
would be required to be disclosed in the registration statement (or any
amendment, or post-effective amendment
Registration Rights Agreement
14
<PAGE> 128
Exhibit D To
Purchase Agreement
thereto); provided that the Company shall advise such holder in writing as soon
as any such delay is no longer applicable.
5. Limitations on Subsequent Registration Rights. From
and after the date of this Agreement, the Company shall not, without the prior
consent of the Executive Committee of the Board of Directors of the Company,
enter into any agreement with any holder or prospective holder of any
securities of the Company giving such holder or prospective holder any
registration rights the terms of which are pari passu with or more favorable
than the registration rights granted hereunder.
6. Transfer or Assignment of Registration Rights. The
rights to cause the Company to register securities granted to a holder of
Registrable Securities by the Company in this Agreement may be transferred or
assigned by such a holder in connection with the transfer of the Registrable
Securities; provided, the Company is given written notice at the time of or
within a reasonable time after said transfer or assignment, stating the name
and address of the transferee or assignee and identifying the Securities with
respect to which such registration rights are being transferred or assigned,
and, provided further, that the transferee or assignee of such rights assumes
in writing the obligations of such holder under this Agreement.
7. Amendment and Waivers. This Agreement may be amended
with the consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holders of not less than a majority of the
Registrable Securities. Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 7, whether or not such Registrable Securities shall have been marked to
indicate such consent.
8. Nominees for Beneficial Owners. In the event that
any Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election in writing delivered
to the Company, be treated as the holder of such Registrable Securities for
purposes of any request or other action by any holder or holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities contemplated by this Agreement.
If the beneficial owner of any Registrable Securities so elects, the Company
may require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
9. Notices. All communications provided for hereunder
shall be sent via overnight courier, shall be deemed to be received two (2)
days after being sent, or, if earlier, the date of actual receipt, and shall be
addressed as follows:
Registration Rights Agreement
15
<PAGE> 129
Exhibit D To
Purchase Agreement
(a) if to the Purchasers, addressed to the Purchasers in
the manner set forth in the Stock and Warrant Purchase Agreement, or at such
other address as any Purchaser shall have furnished to the Company in writing;
(b) if to any other holder of Registrable Securities, at
the address that such holder shall have furnished to the Company in writing,
or, until any such other holder so furnishes to the Company an address, then to
and at the address of the last holder of such Registrable Securities who has
furnished an address to the Company; or
(c) if to the Company, addressed to it in the manner set
forth in the Stock and Warrant Purchase Agreement, or at such other address as
the Company shall have furnished to each holder of Registrable Securities at
the time outstanding.
10. Assignment; Calculation of Percentage Interests in
Registrable Securities. (a) This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and, with respect to
the Company, its respective successors and assigns.
(b) For purposes of this Agreement, all references to a
percentage of the Registrable Securities shall be calculated based upon the
number of shares of Registrable Securities outstanding at the time such
calculation is made.
11. Descriptive Headings. The descriptive headings of
the several sections and paragraphs of this Agreement are inserted for
reference only and shall not limit or otherwise affect the meaning hereof.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAWS OF THE STATE OF ILLINOIS.
13. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.
14. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
Registration Rights Agreement
16
<PAGE> 130
Exhibit D To
Purchase Agreement
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
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
<PAGE> 131
Exhibit D To
Purchase Agreement
SCHEDULE 1
Names and Addresses of Purchasers
Frontenac VI Limited Partnership
c/o Frontenac Company
135 South LaSalle Street
Suite 3800
Chicago, IL 60603
Attn: James E. Cowie
Robert E. King Income Trust
15 Salt Creek Lane
Suite 411
Hinsdale, IL 60521
Attn: David A. Hutchison, Trustee
Morgan Holland Fund II, L.P.
One Liberty Square
Boston, MA 02109
Attn: James F. Morgan
<PAGE> 132
Exhibit C To
Proxy Statement
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
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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
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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 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
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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 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 August ___, 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.t
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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 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
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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.
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;
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(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 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 August __, 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
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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 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 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
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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 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
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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 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
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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 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.
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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 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.
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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 August __, 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 August __, 1995 to and including the
Determination Date, 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
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Registration Rights Agreement dated as of August ___, 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 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
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Exhibit C To
Proxy Statement
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 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.
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Exhibit C To
Proxy Statement
"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 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.
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Exhibit C To
Proxy Statement
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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Exhibit C To
Proxy Statement
IN WITNESS WHEREOF, MICRO Healthsystems, Inc. has caused this
Certificate of Designation to be duly executed this ____ day of August, 1995.
MICRO Healthsystems, Inc.
____________________________________
By:
Its:
<PAGE> 149
Exhibit C To
Proxy Statement
Schedule 3A
Amortization Schedule
<TABLE>
<CAPTION>
Amount of Redemption Price Payment Date
- -------------------------- ------------
<S> <C>
16.67% August __, 2000
16.67% February __, 2001
16.67% August __, 2001
16.67% February __, 2002
16.67% August __, 2002
16.67% February __, 2003
</TABLE>
