SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) September 30, 1996
US Servis, Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-15352 22-2467332
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
Incorporation)
414 Eagle Rock Avenue, West Orange, N.J. 07052
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 731-9252
--------------
(MICRO Healthsystems, Inc.)
(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events.
On September 30, 1996, US Servis, Inc., a Delaware corporation (the
"Company"), Frontenac VI Limited Partnership, and American Healthcare Fund II
Limited Partnership (collectively, the "Purchasers"), executed and consummated
the transactions contemplated by a certain Series B Convertible Preferred Stock
Purchase Agreement (the "Purchase Agreement"). A copy of the Purchase Agreement
and certain exhibits thereto are attached hereto as Exhibits 2, 3 and 4, and are
hereby incorporated by reference.
As contemplated in the Purchase Agreement, the Company, in
consideration of $4,000,000 paid to the Company by the Purchasers, issued to the
Purchasers in the aggregate 1,000,000 shares of Series B Convertible Preferred
Stock of the Company (the "Convertible Shares"). The Convertible Shares are
entitled to an 8% annual dividend, compounded quarterly and paid when the
Convertible Shares are converted or redeemed. Each Convertible Share is
convertible into one share of Common Stock of the Company (subject to certain
anti-dilution protection).
On September 27, 1996, the Company filed an amendment to the
Certificate of Designation creating the rights and preferences of the Company's
Series A Convertible Preferred Stock (the "Series A Shares"), which amendment
terminated the optional redemption rights of holders of such Series A Shares. A
copy of the Amendment to the Certificate of Designation relating to the Series A
Convertible Preferred Stock is attached hereto as Exhibit 5. In connection with
the amendment to the Certificate of Designation, the Company and the holders of
the Company's Series A Shares also amended warrants to purchase 118,500 shares
of the Company's Common Stock at an exercise price of $0.10 per share presently
held by the holders of the Series A Shares to delete certain forfeiture
provisions. The deletion of the forfeiture provisions vests these warrants in
the holders thereof.
Item 7. Financial Statements and Exhibits.
(b) Financial information
1. Historical unaudited balance sheet as of August 31, 1996 and
historical unaudited statement of operations for the five month period then
ended, and pro forma balance sheet as of August 31, 1996 for the five month
period then ended, prepared as if the transactions contemplated above had
occurred prior thereto.
(c) Exhibits
2. Series B Convertible Preferred Stock Purchase Agreement among US
Servis, Inc., and the Purchasers named on Schedule 1 thereto, dated as of
September 30, 1996.
3. Certificate of Designation Relating to the Series B Convertible
Preferred Stock With a Par Value of $.01 Per Share of US Servis,Inc.
4. First Amendment to Registration Rights Agreement among
US Servis, Inc. and the Purchasers signatory thereto, dated September 30, 1996.
5. Amendment to Certificate of Designation Relating to the Series A
Convertible Preferred Stock With a Par Value of $.01 Per Share of
US Servis, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
US SERVIS, INC.
/s/ Graham O. King
Graham O. King
Chief Executive Officer
Dated: September 30, 1996
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit 1
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<S> <C> <C> <C>
August 31, Pro Forma August 31,
1996 Adjustments 1996
---------- ----------- -----------
ASSETS (Historical (Note2) (Pro Forma)
CURRENT ASSETS
Cash and equivalents 4,743,000 3,950,000 8,693,000
Certificate of deposit 300,000 300,000
Accounts receivable, less allowance for doubtful accounts
of $464,000 5,263,000 5,263,000
Current maturities of notes receivable 65,000 65,000
Prepaid and refundable income taxes 77,000 77,000
Inventories, prepaid expenses and other current assets 496,000 496,000
---------- --------- ----------
Total Current Assets 10,944,000 3,950,000 14,894,000
---------- --------- ----------
PROPERTY AND EQUIPMENT 1,348,000 1,348,000
---------- --------- ----------
OTHER ASSETS:
Software technology, less accumulated amortization
of $365,000 317,000 317,000
Goodwill, less accumulated amortization of $364,000 3,581,000 3,581,000
Other 250,000 250,000
---------- --------- ----------
Total Other Assets 4,148,000 4,148,000
---------- --------- ----------
16,440,000 3,950,000 20,390,000
========== ========= ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 412,000 412,000
Accrued payroll & benefits 800,000 800,000
Accrued restructuring charges 963,000 963,000
Accrued expenses for use of trade name 14,000 14,000
Other accrued expenses 1,293,000 1,293,000
Current portion of capital lease obligation 230,000 230,000
Deferred income 323,000 323,000
Customers' deposits and other current liabilities 386,000 386,000
---------- --------- ----------
Total Current Liabilities 4,421,000 4,421,000
---------- --------- ----------
LONG-TERM LIABILITIES:
Accrued restructuring charges - net of current portion 562,000 562,000
Long-term capital lease obligation - net of current portion 150,000 150,000
---------- --------- ----------
Total Long-term Liabilities 712,000 712,000
---------- --------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Convertible redeemable preferred stock, par value $.01 per share,
1,500,000 shares authorized, issued and outstanding
(liquidation preference $6,439,000 and $0) 6,332,000 (6,332,000) -
---------- ----------- ----------
SHAREHOLDERS' EQUITY:
Convertible preferred stock, par value $.01 per share
10,0000,000 shares authorized, 2,500,000 issued
and outstanding (liquidation preference $0 and $10,439,000) - 9,843,000 9,843,000
Common stock $.01 par value; 30,000,000 shares authorized;
6,312,000 shares issued 63,000 63,000
Capital in excess of par value 14,864,000 14,864,000
Retained earnings (deficit) (8,528,000) 439,000 (8,089,000)
Subscription receivable (140,000) (140,000)
Note receivable - related party (1,225,000) (1,225,000)
---------- ---------- -----------
5,034,000 10,282,000 15,316,000
Less Treasury Stock at cost: 15,700 shares 59,000 59,000
---------- ---------- ----------
Total Shareholders' Equity 4,975,000 10,282,000 15,257,000
---------- ---------- ----------
16,440,000 3,950,000 20,390,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FIVE MONTHS
ENDED
AUGUST 31, 1996
----------------
REVENUES:
Service fees $7,813,000
Sales of equipment 110,000
Software license fees 60,000
Interest and other 101,000
----------
8,084,000
----------
EXPENSES:
Cost of services 5,723,000
Cost of equipment sales 55,000
Research and development 825,000
Selling, general and administrative 2,927,000
Interest expense 52,000
----------
9,582,000
----------
LOSS BEFORE INCOME TAXES (1,498,000)
BENEFIT FOR FEDERAL AND STATE INCOME TAXES -
NET LOSS ($1,498,000)
============
NET LOSS PER COMMON SHARE ($0.27)
============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,296,000
============
See accompanying notes to consolidated financial statements.
2
<PAGE>
US SERVIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996
(UNAUDITED)
Note 1 The accompanying consolidated financial statements presume that
users have read the audited consolidated financial statements for
the fiscal year ended March 31, 1996 and the quarter ended June
30, 1996. Accordingly, footnotes which would have substantially
duplicated such disclosures have been omitted.
The interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary
for a fair statement of the results for interim period presented.
Such interim adjustments consist solely of normal recurring
adjustments. The results of operations for interim period are not
necessarily indicative of the results to be expected for a full
year.
Note 2 The pro forma balance sheet at August 31, 1996 has been prepared
as if:
(a) 1,000,000 shares of the Series B Convertible Preferred
Stock described in Exhibit 7(c)(2) had been issued at $4
per share on August 31, 1996 and the company had paid
issue costs of $50,000.
(b) The holders of Series A Convertible Preferred Stock had
agreed to terminate such holders' optional redemption
rights with respect to the Series A Shares as of August
31, 1996.
(c) Accretion equal to accrued dividends to the Series A
Convertible Preferred Stock in the amount of $439,000 has
been reversed. Such accretion was recorded solely because
of the redemption feature that has been eliminated.
3
<PAGE>
EXHIBIT 2
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
AMONG
US SERVIS, INC.
AND
THE PURCHASERS NAMED ON SCHEDULE 1 HERETO
DATED AS OF SEPTEMBER 30, 1996
<PAGE>
US SERVIS, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of September 30, 1996, among US SerVis, 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 the
Certificate of Designation Relating to the Series B Convertible Preferred Stock
(the "Certificate of Designation") in the form attached hereto as Exhibit A.
(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,
1,000,000 shares of Series B Convertible Preferred Stock of the Company (the
"Series B Preferred Stock") for a purchase price of $4.00 per share. Each
Investor agrees to purchase the number of shares of Series B Preferred Stock set
forth on Schedule 1 hereto.
2.2 Closing. The purchase, sale and delivery of the Series B
Preferred Stock shall take place at the office of Winston & Strawn, 35 West
Wacker Drive, Chicago, Illinois 60601, at 10:00 a.m. local time, on September
30, 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 a
certificate representing the number of shares of Series B Preferred Stock to be
purchased hereunder as set forth next to such Investor's name in the appropriate
column on Schedule 1 hereto. The Series B Preferred Stock 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"):
<PAGE>
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 Certificate
of Designation, to execute and deliver this Agreement and the Registration
Rights Agreement (as defined herein) and to issue and sell the Series B
Preferred Stock pursuant to the terms hereof and the Common Stock issuable upon
conversion thereof, and to carry out the provisions of this Agreement, the
Registration Rights Agreement 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 the filing of 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 B Preferred Stock pursuant to the terms hereof
and the Common Stock issuable upon conversion 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, valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms. Prior to the
Closing, 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. The Series B
Preferred Stock that is 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 Registration Rights Agreement and applicable
state and federal securities law.
The Common Stock issuable upon conversion of the Series B
Preferred Stock will be duly and validly reserved for issuance and, when issued
in compliance with the provisions of the Certificate of Designation, 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
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 B Preferred Stock by the Company pursuant to the terms
hereof or the Common Stock issuable upon conversion thereof, except (i) the
filing of the Certificate of Designation with the Secretary of
2
<PAGE>
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:
(i) Preferred Stock. 10,000,000 shares of Preferred
Stock, of which (i) 1,500,000 shares of Series A Convertible Preferred Stock,
par value $0.01 per share, are issued and outstanding, and (ii) 1,000,000 shares
shall be the Series B Convertible Preferred Stock, par value $0.01 per
share. No shares of the Series B Preferred Stock will be issued and outstanding
immediately prior to the Closing.
(ii) Common Stock. 30,000,000 shares of Common Stock, of
which 6,296,137 shares are issued and outstanding as of the date hereof.
(iii) Except for (x) currently outstanding options to purchase
2,319,500 shares of Common Stock pursuant to the Company Option Plans (as
defined below), and (y) warrants to purchase 588,000 shares (the "Outstanding
Warrants") of the Company's Common Stock issued to the holders of the Company's
Series A Convertible Preferred Stock, par value $.01 (the "Series A Preferred
Stock") there are no outstanding 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
(w) 737,500 shares of its Common Stock for purchase upon exercise of options to
be granted in the future under the Company Option Plans, (x) 1,500,000 shares of
Common Stock for issuance upon conversion of the Series A Preferred Stock, (y)
1,500,000 shares of Common Stock for issuance upon conversion of the Series B
Preferred Stock, and (z) 588,000 shares of Common Stock for issuance upon
exercise of the Outstanding Warrants. 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,
(x) the MICRO Healthsystems, Inc. 1993 Stock Option Plan, as amended, (y) the
1994 Non-Employee Director Stock Option Plan, as amended, and (z) 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
3
<PAGE>
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.
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 (as defined herein), 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 Certificate of Incorporation 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 Certificate of Designation, nor the issuance of the
Series B Preferred Stock hereunder, nor fulfillment of nor compliance with the
terms and provisions hereof or thereof, nor the payment of dividends on the
Series B Preferred Stock as contemplated by the Certificate of Designation 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
Certificate of Incorporation 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 or the Certificate of Designation.
4
<PAGE>
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
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 June 30,
1996 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 June 30, 1996, 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;
5
<PAGE>
(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 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
6
<PAGE>
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 Series B Preferred Stock.
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 Investors 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.
(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
7
<PAGE>
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.
"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,
8
<PAGE>
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 Series B
Preferred Stock 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
Series B Preferred Stock under the Securities Act and the rules and regulations
of the Commission thereunder) which might subject the offering, issuance or
exchange of the Series B Preferred Stock to the registration requirements of
Section 5 of the Securities Act. The Company will offer and exchange the Series
B Preferred Stock 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
9
<PAGE>
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:
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 Series B
Preferred Stock to be acquired by the Investor 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; provided, however, Frontenac VI Limited Partnership
("Frontenac") may sell or transfer up to 125,000 shares of Series B Preferred
Stock purchased hereunder to Volpe, Welty & Company or its affiliates
(collectively, "Volpe, Welty") no later than October 8, 1996. 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
Series B Preferred Stock or the
10
<PAGE>
Common Stock issuable upon conversion of the Series B Preferred Stock (other
than as referenced in this Section 4.3).
4.4 Reliance Upon Investor's Representations. The Investor
understands that the Series B Preferred Stock is 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 Series B Preferred Stock, 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 Series
B Preferred Stock 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
Series B Preferred Stock may not be sold, transferred, or otherwise disposed of
without registration under the Securities Act or an exemption therefrom, and
that in the absence of an effective registration statement covering the Series B
Preferred Stock or an available exemption from registration under the Securities
Act, the Series B Preferred Stock must be held indefinitely. In particular, the
Investor is aware that the Series B Preferred Stock may not be sold pursuant to
Rule 144 promulgated under the Securities Act unless all of the conditions of
such Rule 144 are met.
4.7 Legend. Each certificate or other document evidencing any
of the Series B Preferred Stock 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:
"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."
11
<PAGE>
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 B Preferred Stock:
(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 Series B Preferred Stock 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 B
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 Series B Preferred
Stock, 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
12
<PAGE>
of like tenor for a number of shares of the Series B Preferred Stock, 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 200,000
shares of the Series B Preferred Stock remain outstanding, the Company shall not
(a) alter or change the rights, preferences or privileges of the Series B
Preferred Stock, or (b) issue any preferred or common stock superior or pari
passu to the Series B 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 B 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 200,000
shares of the Series B 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
relating to the Series A Convertible Preferred Stock) 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 200,000 shares of the Series B 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 B
Preferred Stock.
(a) So long as at least 200,000 shares of the Series B
Preferred Stock are outstanding, the holders of Series B 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 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 B
Preferred Stock written notice of
13
<PAGE>
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 B 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.
5.9 Transfer by Frontenac. No later than three (3) business
days following consummation of the sale or transfer by Frontenac to Volpe, Welty
of not more than 125,000 shares of Series B Preferred Stock, the Company shall
cause to be prepared and delivered to Volpe, Welty a certificate representing
such number of shares sold or transferred as instructed by Frontenac.
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 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 Series B Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
6.2 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 C.
6.3 Registration Rights Agreement. The Company shall have
executed and delivered to the Investors that certain Registration Rights
Agreement dated as of the date hereof (as amended, the "Registration Rights
Agreement") attached hereto as Exhibit B, setting forth, among other things,
certain rights, privileges and obligations of the Company and the Investors with
respect to the Series B Preferred Stock.
14
<PAGE>
6.4 Amendment of Series A Certificate of Designation. That
certain First Amendment to the Certificate of Designation establishing the terms
and preferences of the Company's Series A Convertible Preferred Stock (in the
form attached hereto as Exhibit D), shall have been accepted for filing by the
Secretary of State of Delaware.
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 Certificate of Designation. The Certificate of
Designation shall have been accepted for filing by the Secretary of State of
Delaware.
7.2 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 Series B Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
7.3 Amendment of Series A Certificate of Designation. That
certain First Amendment to the Certificate of Designation establishing the terms
and preferences of the Company's Series A Convertible Preferred Stock (in the
form attached hereto as Exhibit D), shall have been accepted for filing by the
Secretary of State of Delaware.
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 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
15
<PAGE>
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 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, 1996 (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 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, 1998.
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.
16
<PAGE>
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:
US SerVis, Inc.
414 Eagle Rock Avenue
West Orange, NJ 07052
Attention: Graham O. King
Facsimile: 201-731-1295
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
B Preferred Stock.
17
<PAGE>
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.
9.12 Termination. This Agreement and all rights and
obligations of the parties hereto may be terminated at any time on or after
October 1, 1996 (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 B Preferred Stock pursuant hereto.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
US SERVIS, INC.
/s/ Graham O. King
By: _____________________________
Name: Graham O. King
Title: Chief Executive Officer
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company
Its: General Partner
/s/ James E. Cowie
By: _____________________________
Name: James E. Cowie
Its: General Partner
AMERICAN HEALTHCARE FUND II
LIMITED PARTNERSHIP
By: Capital Health Venture Partners
Its: General Partner
By: ______________________________
Name: ____________________________
Its: ______________________________
<PAGE>
SCHEDULE 1
Investor Shares of
Name and Address Series B
Preferred
Stock
Frontenac VI Limited Partnership 875,000
c/o Frontenac Company
135 South LaSalle Street
Suite 3800
Chicago, IL 60603
Attention: James E. Cowie
Facsimile: (312) 368-9520
Phone: (312) 368-0044
Capital Health Venture Partners 125,000
4 Village Common Court
Amherst, New Hampshire 03031
Attention: Frederick R. Blume
Facsimile: (603) 672-6253
Phone: (603) 672-3539
<PAGE>
EXHIBIT 3
US SERVIS, INC.
CERTIFICATE OF DESIGNATION RELATING
TO THE SERIES B CONVERTIBLE PREFERRED STOCK WITH A PAR VALUE
OF $.01 PER SHARE OF US SERVIS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
US SerVis, 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 B Convertible
Preferred Stock":
RESOLVED, that there is hereby created a series of the Preferred Stock
of the Corporation designated Series B Convertible Preferred Stock, par value
$.01 per share ("Series B Preferred Stock"), consisting of 1,000,000 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 B Preferred Stock as provided in this Section
1. Except as otherwise provided herein, dividends on each share of Series B
Preferred Stock will accrue on a daily basis at the rate of 8% compounded
quarterly on each Dividend Reference Date (as defined herein) per annum of the
Liquidation Value (as defined herein) thereof plus accumulated and unpaid
dividends thereon from and including the date of issuance of such share of
Series B Preferred Stock to and including the earlier of (i) the date on which
the Liquidation Value of such share of Series B Preferred Stock plus any accrued
and unpaid dividends thereon is paid upon any liquidation, dissolution or
winding up of the Corporation, or (ii) the date on which such share of Series B
Preferred Stock is converted into
<PAGE>
Common Stock. 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 B Preferred Stock will be
deemed to be its "date of issuance" regardless of the number of times transfer
of such share of Series B 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 B 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 B 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 B 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 B Preferred Stock, such payment will be distributed ratably
among the holders of Series B Preferred Stock on the basis of the amount of
accrued and unpaid dividends with respect to the shares of Series B Preferred
Stock owned by each such holder.
1D. Preference. The holders of Series B Preferred Stock shall
be entitled to dividends and distributions in preference and priority to holders
of Junior Securities (as defined herein). The Corporation shall not, without the
prior written consent of the holders of not less than a majority of the shares
of Series B 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 B Preferred Stock
have not been paid in full. The Series B Preferred Stock shall be pari passu to
the Series A Preferred Stock (as defined herein).
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation (a "Liquidation"), each holder of Series B 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 B Preferred Stock plus all accrued but unpaid
dividends thereon. If upon a Liquidation, the Corporation's assets available for
distribution to its stockholders after payments on Senior Securities (as defined
herein) are insufficient to permit payment to the holders of Series B Preferred
Stock of the aggregate Liquidation Value of Series B 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
-2-
<PAGE>
holder thereof, among the holders of (i) Series B Preferred Stock (pro rata
based upon the aggregate Liquidation Value of Series B 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 B Preferred Stock of the aggregate Liquidation Value of Series B
Preferred Stock plus all accrued but unpaid dividends thereon, the holders of
the Series B 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 B 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. [Intentionally Blank].
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 B 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 B
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 B
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 B 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 (i) at least 200,000 shares of Series B
Preferred Stock are then outstanding and Frontenac VI Limited Partnership owns
not less than a majority of such shares, and (ii) Frontenac VI Limited
Partnership is not eligible to elect the Preferred Director pursuant to the
Certificate of Designation Relating to the Series A Convertible Preferred Stock,
the holders of Series B 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 "Series B Preferred Director"). Except as otherwise
required by the Restated Certificate of Incorporation of the Corporation, as
amended, or any certificate of designation, the holders of Common Stock and the
holders of Preferred Stock, voting as a single class, shall be entitled to elect
the remaining members of the Board of Directors.
-3-
<PAGE>
(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
Series B Preferred Director (if in existence).
Section 5. Conversion.
5A. Conversion Procedure.
(i) At any time and from time to time, any
holder of shares of Series B 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 B 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 B 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 B 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 B Preferred Stock as such holder will cease and the
Person or Persons in whose name or names any certificate or certificates for
shares of Common Stock are to be issued upon such conversion will be deemed
to have become the holder or holders of record of the shares of Common Stock
represented thereby.
(iii) As soon as possible after a conversion has
been effected and in no event later than ten (10) business days after
delivery of the certificate representing the shares converted, the
Corporation will deliver to the converting holder:
(a) a certificate or certificates
representing the number of shares
of Common Stock issuable by reason of such conversion in such name or
names and such denomination or denominations as the converting holder
has specified;
(b) the amount payable under
Section 5A(vi) below with respect to such conversion;
(c) a certificate representing any
shares of Series B 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 B Preferred Stock so converted to the extent funds
are legally available to pay such dividends.
-4-
<PAGE>
(iv) The issuance of certificates for shares of
Common Stock upon conversion of Series B Preferred Stock will be made
without charge to the holders of such Series B 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 B 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 B Preferred Stock or of Common Stock issued or
issuable upon conversion of Series B Preferred Stock in any manner which
interferes with the timely conversion of Series B 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 B 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
(unless approved by the Board of Directors of the Corporation) 3,057,000 shares
of Common Stock (net of any repurchases of such shares or options), subject to
adjustment for all subdivisions and combinations of Common Stock, (ii) any
split, subdivision or combination of Common Stock into a different number of
securities of the same class (subject to Section 11.5 hereof) ("Split Stock"),
(iii) issuances or deemed issuances of Common Stock upon exercise or conversion,
as the case may be, of the Series A Warrants (as defined herein), the Series B
Warrants (as defined herein), the Series A Preferred Stock or the Series B
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
-5-
<PAGE>
adjustment in the Conversion Price shall be required unless such adjustment,
either by itself or with other adjustments not previously made, would require a
change of at least $.10 in such price; provided, however, that any adjustment
which by reason of this sentence is not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(b) If and whenever, after the date of issuance, the
Corporation issues or sells, or in accordance with Section 5C is deemed to have
issued or sold, any shares of its Common Stock (other than Excluded Stock) for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such issuance or sale, then forthwith upon such issuance or
sale the Conversion Price will be reduced to the conversion price determined by
dividing (a) the sum of (1) the product derived by multiplying the Conversion
Price in effect immediately prior to such issuance or sale times the number of
shares of Common Stock Deemed Outstanding immediately prior to such issuance or
sale, plus (2) the consideration, if any, received or deemed received by the
Corporation upon such issuance or sale, by (b) the number of shares of Common
Stock Deemed Outstanding immediately prior to such issuance or sale plus the
number of shares of Common Stock issued or deemed to have been issued in such
sale pursuant to this Section 5.
5C. Effect on Conversion Prices of Certain Events.
(i) For purposes of determining the adjusted
Conversion Price under Section 5B(ii), the following will be applicable.
(a) Issuance of Rights or Options. If the Corporation
in any manner grants, issues or sells any right, warrant or option to
subscribe for or to purchase Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock (such
rights, warrants or options being herein called "Options," and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") (other than Excluded Stock) and the price per
share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of any such Convertible
Securities is less than the Conversion Price in effect immediately
prior to the time of the granting, issuance or sale of such Options,
then the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to be outstanding 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
-6-
<PAGE>
Convertible Securities and the conversion or exchange thereof, by (B)
the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No
further adjustment of the Conversion Price shall be made when
Convertible Securities are actually issued upon the exercise of such
Options or when Common Stock is actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities.
(b) Issuance of Convertible Securities. If the
Corporation in any manner issues or sells any Convertible Securities
(other than Excluded Stock) and the price per share for which Common
Stock is issuable upon conversion or exchange thereof is less than the
Conversion Price in effect immediately prior to the time of such issue
or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this Section,
the "price per share for which Common Stock is issuable" shall be
determined by dividing (A) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion
or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment of the Conversion Price
shall be made when Common Stock is actually issued upon the conversion
or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Conversion Price had been or are
to be made pursuant to other provisions of this Section 5, no further
adjustment of the Conversion Price shall be made by reason of such
issue or sale.
(c) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Option, the additional consideration
(if any) payable upon the issue, conversion or 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,
-7-
<PAGE>
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 B
Preferred Stock. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be
determined by an independent appraiser jointly selected by the
Corporation and the holders of a majority of the outstanding Series B
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 B 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 B Preferred Stock (pro rata based on the number of
shares of Series B 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
-8-
<PAGE>
integrated transaction in which no specific consideration is allocated
to such Option by the parties thereto, the Option will be deemed to
have been issued for a consideration of $.01.
(g) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or
held by or for the account of the Corporation or any Subsidiary, and
the disposition of any shares so owned or held will be considered an
issue or sale of Common Stock.
(h) Record Date. If the Corporation takes a record of
the holders of Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock,
Options or Convertible Securities or (ii) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date
will be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or upon the making of such other distribution or the date
of the granting of such right of subscription or purchase, as the case
may be.
5D. Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced, and if the Corporation at any
time combines (by combination, reverse stock split or otherwise) its outstanding
shares of Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be proportionately increased.
5E. Reorganization, Reclassification, Consolidation, Merger or
Sale. Any capital reorganization, reclassification, consolidation, merger,
exchange of shares or sale or transfer or more than 80% of the Corporation's
assets to another Person which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common Stock is
referred to herein as a "Corporate Change." Prior to the consummation of any
Corporate Change, the Corporation will make appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of Series B
Preferred Stock then outstanding) to insure that each of the holders of Series B
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 B 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 B 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 B Preferred Stock then outstanding) to insure
that the provisions of this Section 5 and Sections 6 and 7 will thereafter be
applicable to Series B Preferred Stock (including, without limitation, in the
case of any such consolidation, merger or
-9-
<PAGE>
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 B
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 B Preferred Stock.
5G. Notices.
(i) Immediately upon any adjustment of the
Conversion Price of any class of Series B Preferred Stock, the Corporation
will give written notice thereof to all holders of such class of Series B
Preferred Stock.
(ii) The Corporation will give written notice to
all holders of Series B 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 B 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 B Preferred Stock at any time after
a Triggering Event. A "Triggering Event" shall be deemed to have occurred on any
date after September 30, 1998 (a "Determination Date") if, as of the
Determination Date, (I) 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 B
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 B Preferred Stock from September 30, 1996 to and including
the Determination Date divided by (II) 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 B Preferred Stock, equals or
exceeds $11.00 (the "Trigger Price");
-10-
<PAGE>
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 B Preferred Stock
without any further action by the holders of such shares or the Corporation.
Upon any such conversion subsequent to a Triggering Event, shares of Common
Stock issued upon such conversion shall be registered with the Securities
Exchange Commission in the manner prescribed, and subject to the terms and
conditions of, that certain Registration Rights Agreement dated as of October
12, 1995 among the Corporation and the investors named therein, as amended by
that certain Amendment No. 1 dated September 30, 1996.
(b) Upon the conversion of all of the shares of Series B
Preferred Stock initially issued to Frontenac VI Limited Partnership, all of the
remaining shares of Series B 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, the
rights of each holder of such Series B 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 B 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 B Preferred Stock that such a conversion has occurred,
each such holder shall deliver certificates representing the shares of Series B
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
B Preferred Stock at the time of payment thereof the Liquidating Dividends which
would have been paid on such Common Stock had such Series B 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.
-11-
<PAGE>
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 B 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 B Preferred Stock immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the distribution, issue or sale of such Purchase Rights.
Section 8. Registration of Transfer.
The Corporation will keep at its principal office a register
for the registration of Series B Preferred Stock. Upon the surrender of any
certificate representing Series B 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 B
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 B 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 B 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 B 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
-12-
<PAGE>
Securities then outstanding, whether or not they are actually exercisable,
convertible or exchangeable at such time (including, without limitation, the
Series B Preferred Stock, the Series A Preferred Stock, the Series A Warrants
and the Series B Warrants).
"Junior Securities" means the Corporation's equity securities
other than Series B Preferred Stock, Senior Securities or Pari Passu Securities.
"Liquidation Value" means $4.00 per share.
"Market Price" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of ten (10)
days consisting of the day as of which "Market Price" is being determined and
the nine (9) consecutive business days prior to such day. If at any time such
security is not listed on any securities exchange or quoted in the NASDAQ System
or the over-the-counter market, the "Market Price" will be the fair value
thereof determined jointly by the Corporation and the holders of a majority of
Series B 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 B Preferred Stock. The expenses of the appraisers will be paid one-half
by the Corporation and one-half by the holders of the Series B 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 B Preferred Stock).
"Pari Passu Securities" means the shares of Series A Preferred
Stock and any other securities of the Corporation that rank on a parity with the
Series B 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 B Preferred Stock with respect to dividends or
upon a Liquidation.
"Series A Preferred Stock" means the Series A Convertible
Preferred Stock, par value $.01 per share, of the Corporation.
-13-
<PAGE>
"Series A Warrants" means the Series A Warrants to purchase
390,000 shares of Common Stock of the Corporation.
"Series B Warrants" means the Series B Warrants to purchase
198,000 shares of Common Stock of the Corporation.
"Stock Purchase Agreement" means that certain Series B
Convertible Preferred Stock Purchase Agreement, dated as of September 30, 1996,
by and among the Corporation and the purchasers named on Schedule 1 thereto.
"Subsidiary" means any Corporation of which the shares of
stock having a majority of the general voting power in electing the board of
directors are, at the time as of which any determination is being made, owned by
the Corporation either directly or indirectly through Subsidiaries.
Section 11. Amendment and Waiver.
No amendment, modification or waiver will be binding or
effective with respect to any provision of this Part 2 without the prior written
consent of the holders of not less than a majority of the shares of Series B
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 B 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).
-14-
<PAGE>
IN WITNESS WHEREOS, US SerVis, Inc. has caused this
Certificate of Designation to be duly executed this 27th day of September, 1996.
US SerVis, Inc.
/s/ James Pesce
By:
James Pesce, President
<PAGE>
EXHIBIT 4
FIRST AMENDMENT
to
REGISTRATION RIGHTS AGREEMENT
AMONG
US SERVIS, INC.
and
THE PURCHASERS SIGNATORY HERETO
Dated as of September 30, 1996
<PAGE>
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT, dated as of September 30, 1996 (the "First
Amendment"), is entered into among US SERVIS, INC., a Delaware corporation (the
"Company"), and the Purchasers (the "Purchasers") listed on the signature page
hereto.
RECITALS:
A. The Company and certain of the Purchasers have entered into that
certain Series A Convertible Preferred Stock and Warrant Purchase Agreement
dated as of July 18, 1995, as amended (the "Series A Purchase Agreement").
B. In connection with the execution and delivery of the Series A
Purchase Agreement, the Company and the Purchasers signatory thereto entered
into that certain Registration Rights Agreement dated as of October 12, 1995,
providing for the granting of certain registration rights to the Purchasers
signatory thereto (as amended, the "Registration Agreement").
C. Concurrently herewith, the Company and certain of the Purchasers
have entered into and delivered that certain Series B Convertible Preferred
Stock Purchase Agreement dated September 30, 1996 (the "Series B Purchase
Agreement") providing for the purchase by such Purchasers of 1,000,000 shares of
Series B Convertible Preferred Stock, par value $.01, of the Company (the
"Series B Preferred Stock").
D. The Company and the Purchasers wish to amend the Registration
Agreement to (i) provide for the granting of certain registration rights to the
purchasers of the Series B Preferred Stock and (ii) include the purchasers of
the Series B Preferred Stock as parties to the Registration Agreement.
Therefore, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO THE REGISTRATION AGREEMENT.
1.1. Recitals. The Registration Agreement is hereby amended
by deleting the second full paragraph thereof and inserting the following in
lieu thereof:
"WHEREAS, the Company and certain of the Purchasers
have entered into (i) that certain Series A Convertible
Preferred Stock and Warrant Purchase Agreement (as amended the
"Series A Purchase Agreement") dated as of July 18, 1995,
providing for the sale and purchase of the Series A
Convertible Preferred Stock of the Company and the Series A
Warrants and the Series B Warrants (as hereinafter defined)
and (ii) that certain Series B Convertible Preferred Stock
Purchase Agreement (the "Series B Purchase Agreement", and
together with the Series A Purchase Agreement, the "Purchase
Agreements"), providing for
<PAGE>
the sale and purchase of the Series B Convertible Preferred
Stock of the Company."
1.2. Section 1.
1.2.1. Certificate of Designation. The definition of
"Certificate of Designation" is hereby amended by deleting it in its entirety
and inserting the following in lieu thereof:
"Certificate of Designation" means, collectively, (i)
the Certificate of Designation Relating to the Series A
Convertible Preferred Stock of the Company, as amended and
(ii) the Certificate of Designation Relating to the Series B
Convertible Preferred Stock of the Company.
1.2.2. Preferred Stock. The definition of "Preferred Stock"
is hereby amended by deleting it in its entirety and inserting the following in
lieu thereof:
"Preferred Stock" means, collectively, (i) the Series
A Convertible Preferred Stock of the Company and (ii) the
Series B Convertible Preferred Stock of the Company, issued
and sold pursuant to the respective Purchase Agreements.
1.2.3. Series A Warrants. The definition of "Series A
Warrants" is hereby amended by deleting it in its entirety and inserting the
following in lieu thereof:
"Series A Warrants" means those certain Series A
Warrants of the Company issued and sold pursuant to the Stock
and Warrant Purchase Agreement, as such warrants have been
amended.
1.3. Section 2.1(g). Section 2.1(g) of the Registration
Agreement is hereby amended by (a) deleting the reference to "two (2)" in the
fourth line thereof and inserting a reference to "three (3)" in lieu thereof and
(b) deleting the language set forth in subclause (ii) of the proviso thereof in
its entirety and inserting the following in lieu thereof:
"the registration occurs in connection with a
Triggering Event (as defined in either Certificate of Designation) or"
1.4. Section 2.1(h). Section 2.1(h) is hereby amended by
deleting the reference to "one (1) (but not more than one)" and inserting a
reference to "two (2) (but not more than two)" in lieu thereof.
1.5. Section 9. Section 9 of the Registration Agreement is
hereby amended by deleting the references to "Stock and Warrant Purchase
Agreement" therein and inserting "Purchase Agreements" in lieu thereof.
-2-
<PAGE>
1.6. Schedule 1. Schedule 1 of the Registration Agreement is
hereby amended by incorporating therein the names and addresses set forth on
Annex I hereto.
SECTION 2. WARRANTIES. To induce the Purchasers to enter into
this First Amendment, the Company warrants that:
2.1. Authorization. The Company is duly authorized to
execute and deliver this First Amendment and is duly authorized to perform its
obligations under the Registration Agreement, as amended hereby.
2.2. Validity and Binding Effect. The Registration Agreement,
as amended hereby, is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
SECTION 3. GENERAL.
3.1 Expenses. The Company agrees to pay upon demand all
reasonable fees, costs and expenses of Frontenac VI Limited Partnership
("Frontenac"), including reasonable fees, costs and expenses of attorneys,
incurred by Frontenac in connection with the preparation, negotiation and
execution of this First Amendment, and any document required to be furnished
herewith.
3.2. Law. This First Amendment shall be governed by and
construed and enforced under the internal laws of the State of Illinois without
further reference to the principals of the conflicts of laws thereof.
3.3. Successors. This First Amendment shall be binding upon
the Company and the Purchasers and their respective successors and assigns, and
shall inure to the benefit of the successors and assigns of the Company and the
Purchasers.
3.4. Confirmation of the Registration Agreement. Except as
amended hereby, the Registration Agreement shall remain in full force and effect
and is hereby ratified and confirmed in all respects.
3.5. References to the Registration Agreement. Each reference
in the Registration Agreement to "this Agreement," "hereunder," or words of like
import, and each reference to the Registration Agreement in any and all
instruments or documents provided for in the Registration Agreement or delivered
or to be delivered thereunder or in connection therewith, shall, except where
the context otherwise requires, be deemed a reference to the Registration
Agreement, as amended hereby.
3.6 Effectiveness. This First Amendment shall be effective
upon (ii) execution by the Company and Frontenac and (ii) consummation of the
transactions contemplated under the Series B Purchase Agreement.
-3-
<PAGE>
3.7 Incorporation. Upon effectiveness of this First Amendment,
each of the Purchasers signatory hereto shall have all rights, privileges and
preferences and be bound by all obligations under the Registration Agreement as
if it were an original signatory thereto.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed at Chicago, Illinois as of the date first written above.
US SERVIS, INC.
By:
Name:
Title:
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company
Its: General Partner
By: /s/ James E. Cowie
Name: James E. Cowie
Its: General Partner
ROBERT E. KING INCOME TRUST
By: /s/ David A. Hutchison
David A. Hutchison, as Trustee of the
Robert E. King Income Trust,
dated December 18, 1986
MORGAN HOLLAND FUND II, L.P.
By: /s/ James F. Morgan
Name: James F. Morgan,
a General Partner
<PAGE>
AMERICAN HEALTHCARE FUND II
LIMITED PARTNERSHIP
By: Capital Health Venture Partners
Its: General Partner
By:
Name:
Title:
Document Number: 0127137.03
9-27-96/:19PM
<PAGE>
EXHIBIT 5
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATION RELATING TO
THE SERIES A CONVERTIBLE PREFERRED STOCK WITH A PAR
VALUE OF $.01 PER SHARE OF US SERVIS, INC.
(Certificate of Designation filed October 11, 1995)
US Servis, Inc., a corporation organized and existing under and by
virtue of the laws of the State of Delaware (the "Corporation"), does hereby
certify:
I. The Board of Directors of the Corporation, acting at a meeting of
the Board of Directors pursuant to the General Corporation Law of the State of
Delaware (the "Law"), adopted resolutions setting forth the amendments to the
Certificate of Designation set forth below, declaring them advisable and
submitting them to the stockholders of the Corporation entitled to vote on such
amendments for their consideration.
II. That by written consent executed in accordance with Section 2.28 of
the Law, the stockholders of the Corporation entitled to vote on such amendments
voted in favor of the adoption of such amendments to the Certificate of
Designation set forth below.
RESOLVED: That proviso (iii) of Section 1A of the Certificate
of Designation is hereby deleted.
FURTHER RESOLVED: That Section 3 of the Certificate of
Designation is hereby amended by deleting it in its entirety and
inserting the following in lieu thereof:
Section 3. [intentionally blank]
FURTHER RESOLVED: That Schedule 3A of the Certificate of
Designation is hereby deleted.
FURTHER RESOLVED: That Section 5B(a)(iii) is hereby amended
by deleting it in its entirety and inserting the following in lieu
thereof:
(iii) issuances or deemed issuances of Common Stock upon
exercise or conversion, as the case may be, of the Series A
Warrants or the Series B Warrants (each as defined in the
Stock and Warrant Purchase Agreement) or the Series A
Preferred Stock or the Series B Preferred Stock ("Converted
Stock"),
FURTHER RESOLVED: That Section 5H(c) of the Certificate of
Designation is hereby amended by deleting the reference to "or
Section 3C" in the first sentence thereof.
<PAGE>
FURTHER RESOLVED: The definition of "Pari Passu Securities" in
Section 10 of the Certificate of Designation is hereby amended by
deleting it in its entirety and inserting the following in lieu
thereof:
"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. The
Corporation's Series B Convertible Preferred Stock, par value
$.01 per share, shall be deemed Pari Passu Securities.
III. That the foregoing amendments to the Certificate of
Designation were duly adopted in accordance with the provisions of Section 242
of the Law.
WITNESS WHEREOF, the Corporation has caused its President to execute
this Certificate of Amendment to the Certificate of Designation on its behalf
this 27th day of September, 1996.
US SERVIS, INC.
/s/ James Pesce
By:
James Pesce,
President
- 2 -
