<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MEDIQUAL SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7373 36-3112859
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1900 WEST PARK DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
(508) 366-6365
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERIC A. KRISS, PRESIDENT
MEDIQUAL SYSTEMS, INC.
1900 WEST PARK DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
(508) 366-6365
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
VICTOR J. PACI, ESQ. PHILIP P. ROSSETTI, ESQ.
BINGHAM, DANA & GOULD LLP HALE AND DORR
150 FEDERAL STREET 60 STATE STREET
BOSTON, MASSACHUSETTS 02110 BOSTON, MASSACHUSETTS 02109
(617) 951-8000 (617) 526-6000
</TABLE>
------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check this box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ----------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share.... 2,530,000 $11.00 $27,830,000 $9,597
- ----------------------------------------------------------------------------------------------------
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<FN>
(1) Includes 330,000 shares which the Underwriters of the offering contemplated
by this Registration Statement have the option to purchase solely to cover
over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(a).
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MEDIQUAL SYSTEMS, INC.
<TABLE>
REGISTRATION STATEMENT ON FORM S-1
(CROSS REFERENCE SHEET FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ------------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages
of Prospectus; Additional Information
3. Summary Information, Risk Factors, and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; The Company; Risk
Factors; Selected Financial Data
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution.................................. Risk Factors; Dilution
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered................................ Description of Capital Stock; Underwriting
10. Interests of Named Experts and Counsel.... Legal Matters
11. Information with Respect to the
Registrant................................ Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description of
Capital Stock; Shares Eligible for Future
Sale; Financial Statements; Additional
Information
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 31, 1996
PROSPECTUS
2,200,000 SHARES
[LOGO]
COMMON STOCK
All of the 2,200,000 shares of Common Stock offered hereby are being sold
by the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $9.00 and $11.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. Application has been made to have the Company's Common
Stock approved for quotation on the Nasdaq National Market under the symbol
MDQL.
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON
PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------
Per Share.................................... $ $ $
- ------------------------------------------------------------------------------------------------------------
Total(3)..................................... $ $ $
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<FN>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 330,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public set
forth above. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
</TABLE>
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, receipt and acceptance by them, and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1996, at the offices of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST VOLPE, WELTY & COMPANY
, 1996
<PAGE> 4
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock offered hereby. This Prospectus, which
constitutes part of the Registration Statement, omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto
on file with the Commission pursuant to the Securities Act and the rules and
regulations of the Commission thereunder. The Registration Statement, including
exhibits and schedules thereto, may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained
at prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete
and in each instance reference is made to the copy of such contract or other
document, if any, filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Commission. The Company intends to
furnish to its stockholders annual reports containing financial statements
audited by its independent auditors and will make available copies of quarterly
reports for the first three quarters of each fiscal year containing unaudited
information.
------------------------------
MediQual(R) is a registered trademark of the Company. Atlas Outcomes(TM),
Atlas Market View(TM) and Atlas Resources(TM) are trademarks of the Company. All
other trademarks and trade names referred to in this Prospectus are the property
of their respective owners.
------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
MediQual Systems, Inc. ("MediQual" or the "Company") is a leading supplier
of clinical information management ("CIM") systems and services to the health
care industry. The Company's systems and services combine proprietary clinical
knowledge with raw patient encounter data to create valuable information that
providers, payors and suppliers use to monitor and enhance the effectiveness,
efficiency and appropriateness of care.
Health care industry participants are under continuing pressure to reduce
costs without jeopardizing quality of care. Increasingly, cost reductions beyond
those achieved through administrative efficiencies are being sought at the
clinical level, and must be supported by a measurable, quantifiable relationship
between services rendered and patient outcomes. This relationship between
services rendered and patient outcomes is imperative to maintaining the
confidence and cooperation of clinicians, and can only be established through
the analysis of patient encounter data, which resides in
individual paper files and is captured, in part, by transaction processing
systems. Historically, health care data analysts have depended upon batch
reports produced by large mainframe computers that required custom programming
and long lead times. To remain competitive, providers, payors and suppliers must
develop timely and actionable information either by installing CIM systems
in-house, or by engaging third-party consultants and analysts.
MediQual has addressed the growing demand for this information by
developing its Atlas System, a comprehensive, desktop CIM system. The Atlas
System is comprised of five major components: (i) a standardized retrospective
data repository; (ii) proprietary benchmarking databases; (iii) embedded
clinical knowledge; (iv) comprehensive provider databases and (v) on-line
analytical processing. The Atlas System enables users to perform sophisticated,
quantitative analyses which may be used for a variety of applications including:
benchmarking internal performance, competitively assessing cost and quality
positions in local markets, quantifying the impact of managed care and capitated
contracts, developing local integrated delivery networks, evaluating the
efficacy of new pharmaceuticals and medical devices, credentialing physicians
and reporting to third parties for regulatory and contract compliance. The
modular design of the Atlas System enables MediQual to integrate additional
applications quickly and easily in order to be responsive to evolving customer
needs.
The Company's CIM systems and services are supported by its proprietary
master database which contains complete clinical and administrative detail on
more than 20 million patient encounters. This master database is continually
expanding as additional patient encounters and new types of data, including
pharmaceuticals and outpatient services, are transmitted to the Company by its
customers. MediQual has developed for substantially all acute diseases more than
200 statistical regression models which are embedded in the Atlas System and
support the Company's analytical services for disease management applications.
MediQual serves approximately 400 customers, including leading hospitals,
community care networks, medical device manufacturers and pharmaceutical firms.
The Company licenses the Atlas System pursuant to annual agreements, and since
1993, has experienced customer renewal rates of 90% or higher.
3
<PAGE> 6
<TABLE>
THE OFFERING
<S> <C>
Common Stock offered by the Company..................... 2,200,000 shares
Common Stock to be outstanding after the Offering....... 8,255,927 shares(1)
Use of proceeds......................................... For redemption of Class A Preferred
Stock, redemption of warrants,
retirement of debt, working capital
and other corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.................. MDQL
</TABLE>
------------------------------------
<TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
MedisGroups.......................................... $14,866 $14,700 $13,097 $ 8,459 $ 4,674 $1,166 $ 683
Atlas System......................................... -- -- -- 3,150 5,131 1,259 1,590
CIM Services......................................... -- -- -- 475 1,169 216 466
------- ------- ------- ------- ------- ------ ------
Total revenues................................... 14,866 14,700 13,097 12,084 10,974 2,641 2,739
Research and development............................... 2,647 4,204 4,152 3,626 4,013 1,155 628
Operating income (loss)................................ (1,199) (225) (233) 132 (1,392) (525) 689
Net income (loss)...................................... $(1,414) $ (274) $ (186) $ 282 $(1,462) $ (538) $ 585
Pro forma:(2)
Net income (loss) per share.......................... $ (.21) $ .09
Weighted average shares outstanding.................. 6,522 6,982
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED(3)
-------- ---------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $ 1,620 $ 1,749 $ 17,146
Working capital......................................................... (873) (491) 15,562
Total assets............................................................ 3,878 4,008 19,405
Long-term debt, including current portion............................... 1,050 798 --
Redeemable preferred stock.............................................. 11,395 3,569 --
Stockholders' equity (deficit).......................................... (11,453) (3,245) 16,568
<FN>
- ---------------
(1) Excludes (i) 1,813,012 shares of Common Stock reserved for issuance under
the Company's 1987 Nonqualified Stock Option Plan, as amended, and 1996
Stock Incentive Plan, of which 313,012 shares are subject to options at an
exercise price of $1.00 per share, (ii) 26,729 shares of Common Stock
subject to warrants that will be redeemed upon the closing of the Offering
for $196,725, and (iii) 156,918 shares of Common Stock issuable upon the
exercise of other warrants at an exercise price of $.80 per share, all
outstanding as of March 31, 1996. See "Capitalization," "Management -- Stock
Option Plans" and Notes 6 and 9 of Notes to Financial Statements.
(2) Computed on the basis described in Note 2 of Notes to Financial Statements.
(3) Adjusted to give effect to the sale of the Common Stock offered hereby at an
assumed initial public offering price of $10.00 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
</TABLE>
----------------------------------------
Except as otherwise noted, all information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, (ii) the redemption of
the outstanding Class A Preferred Stock and conversion of the outstanding Class
B and Class C Convertible Preferred Stock into Common Stock on the closing of
the Offering contemplated hereby and (iii) a one-for-four reverse stock split of
Common Stock to be effected prior to the closing of the Offering. See
"Capitalization," "Description of Capital Stock," "Underwriting" and Notes 6 and
9 of Notes to Financial Statements.
4
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered by this Prospectus.
Limited History of Profitability. In recent years, the Company's revenue
growth has been relatively flat and, as of March 31, 1996, the Company had an
accumulated deficit of approximately $11.5 million. Although the Company has
experienced periods of limited profitability, its profit in the first quarter of
1996 was primarily due to a change in revenue mix as a result of the transition
from the MedisGroups to the Atlas System. As part of the transition to the Atlas
System, the Company was able to reduce its workforce by approximately 30%,
resulting in cost savings of approximately $1.1 million, and contributing to a
net profit of approximately $585,000 in the first quarter of 1996. Despite the
Company's profitable first quarter of 1996, there can be no assurance that
revenue growth or profitability can be achieved or sustained in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Selected Financial Data."
Dependence on Atlas System. The Company currently derives the majority of
its revenues from licensing of the Atlas System and its related databases and
expects that proportion to increase in the future. Between 1993 and 1995, the
Company made significant investments in the development of the Atlas System. The
Company's future success is contingent upon, among other things, increased
market acceptance of the Atlas System, continued adoption of the system by new
users, and broader distribution of the system through third-party arrangements.
The Company believes that a number of factors will determine whether the Company
will be able to achieve increased market penetration. These factors include
system performance, accuracy of results, ease of implementation and use, user
sophistication and training, reliability and scope of application. Failure to
achieve increased market penetration in the health care industry could reduce
the future growth prospects of the Company and materially adversely affect the
Company's business, results of operations and financial condition. In addition,
the Company believes that as the market for CIM systems matures, heightened
competition will require the successful introduction of new applications,
enhancements and databases for the Atlas System. There can be no assurance that
any of the foregoing will occur.
Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results have varied in the past and may vary significantly in the
future depending on factors such as success of the Atlas System, amount, timing
and recognition of revenue from significant orders, increased competition, the
proportion of revenues derived from third-party distribution arrangements and
other sources, changes in the Company's pricing policies or those of its
competitors, new system introductions or enhancements by competitors, delays in
the introduction of systems or system enhancements by the Company, market
acceptance of new systems, timing and nature of sales and marketing expenses,
other changes in operating expenses, personnel changes (including the addition
of sales personnel), and general economic conditions. Because the Company
delivers its systems shortly after receipt of an order, the Company typically
does not have a material backlog of unfilled orders, and revenues in any quarter
are substantially dependent on orders booked in the quarter. The Company's
expense levels are based in part on its expectations of future revenues, and the
Company may be unable to reduce spending in a timely manner to compensate for
any shortfall in revenues. If revenues are below expectations, operating results
are likely to be materially adversely affected. Net income may be
disproportionately affected by a reduction in revenues because a significant
portion of the Company's expenses are fixed and correspondingly do not vary with
revenues. The Company may also choose to reduce prices or increase spending in
response to competition or to pursue new market opportunities. In particular, if
new competitors, technological advances by existing competitors or other
competitive factors require the Company to invest significantly greater
resources in research and development efforts, the Company's operating margins
in the future may be materially adversely affected. In addition, the Company has
realized higher revenues in the third quarter of each fiscal year as a result of
the timing of customer renewals and expects this trend to continue. Although the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and
5
<PAGE> 8
should not be relied upon as indications of future performance, it is likely
that future quarterly operating results could be below expectations of public
market analysts and investors. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence on Pennsylvania Mandate. The Commonwealth of Pennsylvania
currently mandates the use of the Atlas Outcomes module by acute care hospitals
under its jurisdiction. Pursuant to state law, Pennsylvania acute care hospitals
must report to the state a clinical severity and complication rate score
calculated by Atlas Outcomes. During 1995, approximately 200 hospitals in
Pennsylvania licensed Atlas Outcomes, generating revenues for the Company of
approximately $4.5 million, or 41% of the Company's total revenues for such
year. This Pennsylvania mandate is due to expire in 2003, unless reenacted prior
to that date. Should this state law expire without being reenacted or be
modified or repealed, the Company could lose a substantial number of customers
in Pennsylvania who, in the absence of a legal requirement, might cease to
license Atlas Outcomes from the Company. There can be no assurance that the
mandate will be reenacted or that the mandate will not be modified or repealed
at any time in the future.
Dependence on Annual License Renewals. The Company's systems are licensed
on an annual basis. While the Company has realized historic renewal rates of
over 90% (including customers in the Commonwealth of Pennsylvania), and over 85%
(excluding customers in the Commonwealth of Pennsylvania), there can be no
assurance that future renewal rates will be maintained at these levels. A
significant reduction in the number of customers who choose to renew their
licenses with the Company could materially adversely affect the Company's
business, results of operations and financial condition. See
"Business -- Marketing and Distribution."
Dependence on Access to Data Sources. The Company believes that the market
acceptance of the Atlas System will be dependent to a significant extent on its
ability to maintain and continue to expand its proprietary Atlas databases. The
Company believes that its success is also largely dependent on the timeliness
and integrity of the data that it receives from data providers, as well as on
continued access to high quality data provided by federal and state agencies. In
addition, in the event that new sources of data are created or made available,
there can be no assurance that the Company will be able to access such sources.
In the event that federal or state agencies were to cease providing, or prohibit
access to, the data of such federal or state sources or to any newly created
data sources, the Company's business, results of operations and financial
condition could be materially adversely affected.
High Degree Of Competition. The market for health care information systems
and services is intensely competitive. Most of the Company's competitors and
potential competitors have significantly greater financial, technical, system
development and marketing resources than the Company. The Company competes
directly with other vendors of health care systems and consultants who provide
related services as well as the MIS departments of large hospital networks, some
of which have developed, or plan to develop, their own CIM capabilities. Many of
these competitors and potential competitors have substantial installed customer
bases in the health care industry and the ability to fund significant system
development and acquisition efforts. The Company believes that the principal
competitive factors in its market are system functionality and features, price,
training and support, customer references and firm reputation. There can be no
assurance that the Company will be able to compete successfully in the future or
that competition will not materially adversely affect the Company's business,
results of operations and financial condition. See "Business -- Competition."
Dependence Upon Continued Development, Acceptance and Enhancement. The
market for health care information systems for data analysis is characterized by
continual change and improvement in computer hardware and software technology.
The introduction of systems embodying new technologies or the emergence of new
industry standards could render the Company's existing systems and services
obsolete and unmarketable. The Company's future success will depend on its
ability to enhance its current systems, to introduce new software that keeps
pace with technological developments and to continue to address the complex
needs of its clients. There can be no assurance that the
6
<PAGE> 9
Company will be successful in developing and marketing enhancements or new
system application add-ons, or that its systems will continue to address
adequately the needs of the marketplace. If the Company's systems do not perform
substantially as expected or are not accepted in the marketplace, the Company's
business, results of operations and financial condition could be materially
adversely affected. See "Business -- Systems and Services."
System and Data Defects. The Company's systems are complex and
sophisticated and could from time to time contain design defects or errors that
could be difficult to detect and correct. Software bugs or viruses may result in
loss of or delay in market acceptance or loss of data. Although the Company has
not to date experienced material adverse effects resulting from any software or
database defects or errors, there can be no assurance that, despite testing by
the Company and its customers, errors will not be found in new systems. Any
software or database defects or errors in new systems could result in a delay
in, or inability to achieve, market acceptance. The Company also depends upon
the accuracy of the data that it provides to customers, and the Company believes
that it takes adequate precautions to safeguard the validity of the information
entered into its databases. However, if a statistically significant number of
medical records were found to have been altered or entered incorrectly, the
Company's business, results of operations and financial condition could be
materially adversely affected.
Dependence on Third-Party Distribution Arrangements. A component of the
Company's strategy is to use third-party distribution arrangements to reach
certain markets. Revenues generated by such third parties will depend on their
ability to provide the Company's systems to end users, and there can be no
assurance that these third parties will be successful in such efforts. These
third parties generally offer several products, with an increasing number of
vendors competing for access to them. There can be no assurance that these third
parties will continue their current relationships with the Company or that they
will not give higher priority to the sale of other products, which could include
products of competitors. While the Company believes that its current agreement
with SpaceLabs Medical, Inc. and other contemplated alliances will generate
additional revenues, there can be no assurance that the Company's efforts to
expand its distribution arrangements will be successful. See "Business --
Strategy" and "-- Marketing and Distribution."
Dependence on Proprietary Technology. The Company's success is heavily
dependent upon its ability to obtain and enforce intellectual property
protection for its technology, including its Atlas System, related databases,
disease models and statistical methodologies. The Company relies on a
combination of copyright, trade secret and trademark laws, license agreements
and software security measures to protect its proprietary technology and
systems. Additionally, the Company enters into nondisclosure agreements with its
employees and license and confidentiality agreements with its customers and
development partners. The Company also takes precautions to limit access to and
distribution of its systems, documentation and other proprietary information.
However, there can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to deter misappropriation of its
technology or independent development by others of technologies that are
substantially equivalent or superior to the Company's technology. Moreover, the
Company could incur substantial costs in protecting and enforcing its
intellectual property rights. From time to time, third parties may assert
patent, copyright and other intellectual property rights to technologies that
are important to the Company. In such an event, the Company may be required to
incur significant costs to resolve any such asserted claims or may be required
to obtain a license to intellectual property rights of such third parties. There
can be no assurance that any such licenses will be available on reasonable
terms, if at all, which could have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Intellectual Property."
Changes in the Health Care Industry. The health care industry is subject
to changing political, economic and regulatory influences that may affect the
procurement practices and operation of health care industry participants. During
the past several years, the U.S. health care industry has been subject to
changes in governmental regulation of, among other things, reimbursement rates
and certain capital expenditures. Health care industry participants may react to
changes and uncertainty in the health
7
<PAGE> 10
care system by curtailing or deferring investments, including those for the
Company's systems and services. Additionally, although the United States Food
and Drug Administration (the "FDA") does not currently regulate the Company's
systems or services, if authorized to extend its regulation of software, the FDA
could impose extensive requirements that might negatively impact the time and
expense necessary to develop new systems. The Company cannot predict what
impact, if any, such events might have on its business, results of operations
and financial condition. Further, many health care providers are consolidating
to create larger health care delivery enterprises with greater regional market
power. As a result, the remaining enterprises could have greater bargaining
power, which may lead to price erosion of the Company's systems and services.
The failure of the Company to maintain adequate price levels could materially
adversely affect the Company's business, results of operations and financial
condition. See "Business -- Industry Background."
Management of Growth. Due to the level of technical and management
expertise necessary to support growth, in order to expand, the Company must
recruit and retain highly qualified and well-trained personnel. The number of
available persons with the requisite skills to serve in these positions may be
limited, and it may become increasingly difficult for the Company to hire such
personnel over time. Additionally, in the event the Company is successful in
expanding its operations and business, the operational, management, financial
and other resources of the Company may be strained. To manage growth
effectively, the Company must continue to develop its financial and managerial
controls and successfully expand, train and manage its employees. There can be
no assurance that the Company will be able to manage expansion effectively, or
that the Company will be able to recruit, train and retain sufficient qualified
personnel. Any failure to manage the Company's future growth properly could
materially adversely affect the Company's business, results of operations and
financial condition. See "Business -- Marketing and Distribution" and
"-- Employees" and "Management -- Executive Officers and Directors."
Dependence on Certain Key Personnel. The Company depends to a significant
extent on certain key personnel. Eric A. Kriss, the Company's Chief Executive
Officer, and certain other executive officers have been primarily responsible
for the development and expansion of the Company's business. The loss of the
services of one or more of these individuals could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the Company believes that its future success will be dependent in
part on its continued ability to motivate and retain qualified personnel. There
can be no assurance that the Company will be successful in this regard. The
Company maintains a $1 million "key man" life insurance policy on Mr. Kriss. The
loss of key management team members could have a material adverse impact on the
Company's business, results of operations and financial condition. See
"Business -- Marketing and Distribution" and "-- Employees" and
"Management -- Executive Officers and Directors."
Broad Discretion Over Use of Proceeds; Possible Acquisitions. Management
will have broad discretion in allocating and applying the proceeds of this
Offering, a portion of which may be directed toward possible acquisitions, joint
ventures or licensing arrangements that have not yet been identified. The
Company's stockholders may not have an opportunity to review or vote upon the
terms of any such transaction or to review the financial statements of the other
party to any such transaction. The Company has no understandings, commitments or
agreements with respect to any acquisitions, joint ventures or licensing
agreements as of the date of this Prospectus. However, the Company intends to
pursue actively any such opportunities as may become available and the Company
may compete for acquisition and other strategic opportunities with other
companies that have significantly greater financial and management resources. No
assurance can be given that the Company will successfully complete any
acquisitions, joint ventures or licensing agreements or that if any such
transaction should occur it would not materially and adversely affect the
Company's business, results of operations and financial condition. Additionally,
acquisitions involve numerous risks, including difficulties in the assimilation
of operations and systems, the ability to manage geographically remote units,
the diversion of management's attention from other business concerns, the risks
of entering markets in which the Company has limited or no direct expertise and
the potential loss of key
8
<PAGE> 11
employees of the acquired companies. In addition, acquisitions may involve the
expenditure of significant funds and the incurrence of significant debt. There
can be no assurance that any acquisition will result in long-term benefits to
the Company or that management will be able to manage effectively the resulting
business. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Strategy."
No Prior Market; Determination of Public Offering Price; Possible
Volatility of Stock Price. Prior to the Offering, there has been no public
market for the Common Stock and there can be no assurance that an active public
market for the Common Stock will develop or continue after this Offering. The
initial public offering price will be determined by negotiation between the
Company and representatives of the Underwriters. Among the factors to be
considered in determining the initial public offering price will be prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to those of the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant, and may not be indicative of future market
prices. In addition, the stock markets in general, and the market prices for
high technology and health care companies in particular, have historically
experienced volatility that at times has been unrelated to the operating
performance of such companies. The trading price of the Common Stock could also
be subject to significant fluctuations in response to variations in quarterly
results of operations, changes in earnings estimates by analysts, announcements
of new systems by the Company or its competitors, governmental regulatory
action, developments or disputes with respect to proprietary rights, general
trends in the industry and overall market conditions, and other factors. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations, which have particularly affected the market price for many
high technology and health care companies and which often have been unrelated to
the operating performance of these companies. These broad market fluctuations
may materially adversely affect the market price of the Company's Common Stock
regardless of the Company's operating performance.
Control by Officers and Directors. Following the Offering, and assuming no
exercise of the Underwriters' over-allotment option, officers and directors of
the Company and their affiliates, as a group, will beneficially own
approximately 40% of the outstanding Common Stock. As a result, officers and
directors of the Company and their affiliates, if acting together, would be able
to exert substantial influence over the Company and may effectively control most
matters requiring approval of the stockholders of the Company, including the
election of directors. The voting power of these stockholders under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company and could limit the price that certain investors may be
willing to pay in the future for shares of the Common Stock. See
"Management -- Executive Officers and Directors" and "Principal Stockholders."
Shares Eligible for Future Sale. Sales of substantial amounts of the
Common Stock in the public market after this Offering could adversely affect
prevailing market prices for the Common Stock. In addition to the 2,200,000
shares of Common Stock offered hereby (assuming no exercise of the Underwriters'
over-allotment option or exercise of outstanding stock options or warrants),
approximately 196,663 shares of Common Stock, which are not subject to 180-day
lock-up agreements (the "Lock-up Agreements") between the representatives of the
Underwriters and certain stockholders of the Company, will be eligible for
immediate sale in the public market pursuant to Rule 144(k) under the Securities
Act of 1933, as amended (the "Securities Act"). Approximately 565,458 additional
shares of Common Stock, which are not subject to the Lock-up Agreements, will be
eligible for sale in the public market in accordance with Rule 144 or Rule 701
under the Securities Act beginning 90 days after the date of this Prospectus.
Upon expiration of the Lock-up Agreements, 180 days after the date of this
Prospectus, approximately 5,427,102 shares of Common Stock will be eligible for
sale in the public market, subject to the provisions of Rule 144 under the
Securities Act. In addition, holders of approximately 2,183,470 shares of Common
Stock will have certain rights to registration of these
9
<PAGE> 12
shares under the Securities Act. See "Shares Eligible for Future Sale,"
"Description of Capital Stock -- Outstanding Registration Rights" and
"Underwriting."
Effect of Anti-Takeover Provisions; Availability of Preferred Stock for
Issuance. Certain provisions of the Company's Amended and Restated Certificate
of Incorporation and Amended and Restated By-Laws could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Such provisions
could limit the price that investors might be willing to pay in the future for
shares of the Common Stock. Certain of these provisions eliminate the right of
stockholders to act by written consent and impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, these provisions allow the Board of
Directors of the Company to issue, without any further vote or action by the
stockholders, preferred stock with voting, conversion and other rights and
preferences that may be superior to those of the Common Stock. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock and could adversely affect the
rights and powers, including voting rights, of the holders of the Common Stock.
In certain circumstances, such an issuance could have the effect of decreasing
the market price of the Common Stock. See "Description of Capital Stock."
No Present Intention to Pay Dividends; Restrictions on Payment of
Dividends. The Company has never declared or paid any cash dividends on its
Common Stock. The Company currently intends to retain future earnings, if any,
to fund development and growth of its business and does not anticipate paying
any cash dividends on the Common Stock in the foreseeable future. In addition,
the Company's existing credit facilities prohibit the payment of cash dividends
without the consent of the lenders thereunder. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Dilution. Purchasers in this Offering will suffer immediate and
substantial dilution in the net tangible book value per share of Common Stock
from the initial public offering price, and may incur additional substantial
dilution upon the exercise of outstanding stock options and warrants by holders
thereof. See "Dilution."
10
<PAGE> 13
THE COMPANY
MediQual Systems, Inc. was originally incorporated in Illinois in 1980 and
reincorporated as a Delaware corporation in 1984. The Company's corporate
offices are located at 1900 West Park Drive, Westborough, Massachusetts 01581.
Its telephone number is (508) 366-6365.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered by the Company hereby are estimated to be $19,960,000
($23,029,000 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $10.00 per share. The Company
expects to use $3,569,083 of the net proceeds to redeem all of the outstanding
shares of the Class A Preferred Stock with accrued dividends (assuming
redemption as of June 30, 1996), redeem warrants to purchase 26,729 shares of
Common Stock for $196,725 and retire debt consisting of a term note with an
aggregate principal amount of $222,783, which accrues interest at an annual rate
of 9.75% and is payable monthly through July 5, 1997. The remainder of the net
proceeds will be used for working capital and general corporate purposes,
including research and development efforts to enhance the Company's existing
systems and to develop and introduce new systems in the future and possible
acquisitions of products, technologies and businesses. While the Company
continually evaluates potential acquisitions, the Company has no present
agreements or commitments with respect to any acquisition, nor are any
negotiations regarding any acquisition currently ongoing. Pending such uses, the
Company intends to invest the net proceeds from the Offering in deposits with
banks, short-term investment-grade, interest-bearing securities (including
government obligations), or other similar instruments.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain future earnings, if any, to fund
development and growth of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future.
11
<PAGE> 14
CAPITALIZATION
<TABLE>
The following table sets forth the capitalization of the Company as of
March 31, 1996, (i) on an actual basis, (ii) on a pro forma basis to reflect the
conversion of a convertible debenture of the Company into, and the exercise of a
corresponding option for, shares of Common Stock and the conversion of the
outstanding Class B and Class C Convertible Preferred Stock into Common Stock
upon the completion of this Offering and (iii) on a pro forma as adjusted basis
to reflect the application of the estimated net proceeds from the sale of
2,200,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $10.00 per share. This table should be read in conjunction
with the Financial Statements and the Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Prospectus.
<CAPTION>
MARCH 31, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED(1)
-------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt...................... $ 909 $ 657 --
======== ======== ========
Long-term debt, less current portion................... 141 141 $ --
-------- -------- --------
Class A Preferred Stock, nonvoting, no par value; 500
shares authorized; 229 shares issued and outstanding,
none as adjusted (at redemption value)............... 3,522 3,569 --
Class B Convertible Preferred Stock, $.01 par value;
6,500,000 shares authorized; 6,316,726 shares issued
and outstanding, none pro forma or as adjusted....... 5,205 -- --
Class C Convertible Preferred Stock, $.01 par value;
2,100 shares authorized; 2,022 shares issued and
outstanding, none pro forma or as adjusted........... 2,668 -- --
-------- -------- --------
Total redeemable preferred stock.................. 11,395 3,569 --
-------- -------- --------
Stockholders' equity (deficit):
Preferred Stock, $.01 par value; 7,000,000 shares
authorized, no shares issued...................... -- -- --
Common Stock; $.001 par value; 30,000,000 shares
authorized; 3,786,318 shares issued and
outstanding, 6,055,927 shares issued and
outstanding pro forma, 8,255,927 shares issued and
outstanding as adjusted(2)........................ 4 6 8
Additional paid-in capital........................... 1,745 10,065 29,826
Accumulated deficit.................................. (12,981) (13,095 ) (13,247)
Treasury stock; 6,987 shares......................... (19) (19 ) (19)
Subscription receivable.............................. (202) (202 ) --
-------- -------- --------
Total stockholders' equity (deficit).............. (11,453) (3,245 ) 16,568
-------- -------- --------
Total capitalization......................... $ 83 $ 465 $ 16,568
======== ======== ========
<FN>
- ---------------
(1) Pro forma as adjusted reflects the redemption of warrants to purchase 26,729
shares of Common Stock upon the closing of the Offering for $196,725 and the
forgiveness of a subscription receivable from an officer and director of the
Company. See "Certain Transactions."
(2) Excludes (i) 1,813,012 shares of Common Stock reserved for issuance under
the Company's 1987 Nonqualified Stock Option Plan, as amended, and 1996
Stock Incentive Plan, of which 313,012 shares were subject to options at an
exercise price of $1.00 per share, (ii) 26,729 shares of Common Stock
subject to warrants that will be redeemed upon the closing of the Offering
for $196,725, and (iii) 156,918 shares of Common Stock issuable upon the
exercise of other warrants, at an exercise price of $.80 per share, all
outstanding as of March 31, 1996. See "Capitalization," "Management -- Stock
Option Plans" and Notes 6 and 9 of Notes to Financial Statements.
</TABLE>
12
<PAGE> 15
DILUTION
<TABLE>
As of March 31, 1996, the Company had a pro forma net tangible book value
(deficit) of $(3,245,183), or $(.54) per share of Common Stock after giving
effect to the conversion into Common Stock of all outstanding shares of the
Class B and Class C Convertible Preferred Stock of the Company upon the closing
of the Offering. "Pro forma net tangible book value" represents the amount of
total tangible assets less total liabilities divided by the number of shares of
Common Stock outstanding. Without taking into account any other changes in net
tangible book value after March 31, 1996, other than to give effect to the
receipt by the Company of the net proceeds from the sale of 2,200,000 shares of
Common Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 per share, the pro forma net tangible book value, as of March
31, 1996, would have been approximately $16,568,092, or $2.01 per share. This
represents an immediate increase in pro forma net tangible book value of $2.55
per share to existing stockholders and an immediate dilution of $7.99 per share
to new investors. The following table illustrates this per share dilution:
<S> <C> <C>
Assumed initial public offering price............................... $10.00
Pro forma net tangible book value per share prior to the
Offering....................................................... $(.54)
Increase per share attributable to new investors.................. 2.55
-----
Pro forma net tangible book value per share after the Offering...... 2.01
------
Dilution per share to new investors................................. $ 7.99
======
</TABLE>
<TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the differences between existing stockholders and the purchasers of shares in
the Offering (at an assumed initial public offering price of $10.00 per share)
with respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid before
deduction of underwriting discounts and expenses relating to the Offering:
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 6,055,927 73.4% $10,479,471 32.3% $ 1.73
New investors................. 2,200,000 26.6 22,000,000 67.7 10.00
--------- ------ ------------ ------
Total....................... 8,255,927 100.0% $32,479,471 100.0%
========= ====== ============ ======
</TABLE>
The foregoing computations assume no exercise of the Underwriters'
over-allotment option or of outstanding stock options or warrants after March
31, 1996. As of March 31, 1996, there were outstanding (i) options to purchase
313,012 shares of Common Stock, with an exercise price of $1.00 per share, (ii)
warrants to purchase 156,918 shares of Common Stock, with an exercise price of
$.80 per share and (iii) warrants to purchase 26,729 shares of Common Stock that
will be redeemed upon the closing of the Offering for $196,725. To the extent
any of these options or warrants is exercised, there will be further dilution to
new investors. See Notes 6 and 9 of Notes to Financial Statements.
13
<PAGE> 16
SELECTED FINANCIAL DATA
<TABLE>
The selected financial data set forth below for each of the three years
ended December 31, 1993, 1994 and 1995, and at December 31, 1994 and 1995, are
derived from financial statements of the Company audited by Arthur Andersen LLP,
independent public accountants, which are included elsewhere in this Prospectus.
The selected financial data for the years ended December 31, 1991 and 1992 and
at December 31, 1991, 1992 and 1993 are derived from financial statements of the
Company audited by Arthur Andersen LLP, which are not included in the
Prospectus. The financial data for the three months ended March 31, 1995 and
1996 are derived from unaudited financial statements included elsewhere in this
Prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, which the Company considers
necessary for a fair presentation of its financial position and results of
operations for these periods. Operating results for the three months ended March
31, 1996 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1996. The selected financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Conditions and Results of Operations" and the Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
MedisGroups.............................. $14,866 $14,700 $13,097 $ 8,459 $ 4,674 $1,166 $ 683
Atlas System............................. -- -- -- 3,150 5,131 1,259 1,590
CIM Services............................. -- -- -- 475 1,169 216 466
------- ------- ------- ------- ------- ------ ------
Total revenues......................... 14,866 14,700 13,097 12,084 10,974 2,641 2,739
Operating expenses:
Marketing and distribution............... 4,613 3,997 2,505 1,927 1,970 492 256
Research and development................. 2,647 4,204 4,152 3,626 4,013 1,155 628
Customer support......................... 3,962 3,605 2,852 2,998 2,445 677 379
General and administrative............... 3,455 2,515 2,198 3,401 3,358 842 787
Restructuring charge..................... 1,388 604 1,623 -- 580 -- --
------- ------- ------- ------- ------- ------ ------
Total operating expenses............... 16,065 14,925 13,330 11,952 12,366 3,166 2,050
------- ------- ------- ------- ------- ------ ------
Operating income (loss).................... (1,199) (225) (233) 132 (1,392) (525) 689
Interest expense (income), net............. 264 31 (55) (173) 70 13 27
------- ------- ------- ------- ------- ------ ------
Income (loss) before income taxes.......... (1,463) (256) (178) 305 (1,462) (538) 662
Provision (benefit) for income taxes....... (49) 18 8 23 -- -- 77
------- ------- ------- ------- ------- ------ ------
Net income (loss).......................... $(1,414) $ (274) $ (186) $ 282 $(1,462) $ (538) $ 585
======= ======= ======= ======= ======= ====== ======
Pro forma:(1)
Net income (loss) per share.............. $ (0.21) $ 0.09
Weighted average shares outstanding...... 6,522 6,982
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 158 $ 394 $ 2,401 $ 1,226 $ 1,006 $ 1,620
Total assets................................. 5,688 4,760 6,483 4,865 3,231 3,878
Long-term debt, including current portion.... 1,319 786 399 750 1,019 1,050
Redeemable preferred stock................... 8,317 8,389 10,594 10,986 11,281 11,395
Stockholders' equity (deficit)............... (9,933) (10,184) (10,441) (10,485) (12,227) (11,453 )
<FN>
- ---------------
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
</TABLE>
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
MediQual is a leading supplier of clinical information management ("CIM")
systems and services to the health care industry. The Company's systems and
services combine proprietary clinical knowledge with raw patient encounter data
to create valuable information that providers, payors and suppliers used to
monitor and enhance the effectiveness, efficiency and appropriateness of care.
The initial version of the Company's CIM system, MedisGroups, was
introduced in 1987. Between April 1994 and April 1996, the Company introduced a
series of integrated modules marketed as the Atlas clinical information
management system. The Company has successfully converted substantially all of
its MedisGroups users to the Atlas System.
<TABLE>
Prior to 1994, substantially all of the Company's revenues were derived
from licensing the MedisGroups system. Since 1993, MedisGroups revenues have
significantly declined while revenues derived from licensing the Atlas System
and from CIM Services have significantly increased. The following table shows
the amounts and percentages of the Company's total revenues represented by
MedisGroups, the Atlas System and CIM Services for the periods presented:
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- --- ------- --- ------- --- ------ --- ------ ---
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
MedisGroups.......... $13,097 100% $ 8,459 70% $ 4,674 43% $1,166 44% $ 683 25%
Atlas System......... -- -- 3,150 26 5,131 47 1,259 48 1,590 58
CIM Services......... -- -- 475 4 1,169 10 216 8 466 17
------- --- ------- --- ------- --- ------- --- ------- ---
Total revenues..... $13,097 100% $12,084 100% $10,974 100% $2,641 100% $2,739 100%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
The Company believes that as the market for Atlas Systems and CIM services
matures, the continued growth of the Company will require the successful
introduction, development or acquisition of new applications and further
enhancements to its existing systems and services.
The Company licenses its systems pursuant to annual agreements that provide
for the payment of license fees at the beginning of the term. Customer renewal
rates were 97%, 90% and 92% in 1993, 1994 and 1995, respectively. Annual license
fee revenues are recognized upon shipment of the systems or on the annual
renewal date. A small portion of the annual fee is attributable to customer
support, which is recognized ratably over the term of the agreement. Revenues
from CIM services are recognized when services are rendered.
The Company's operating expenses consist primarily of personnel costs,
including compensation, sales commissions and employee benefits. Between 1993
and 1995, the Company invested approximately $11 million in the development of
the Atlas System while maintaining the MedisGroups system. As of March 31, 1996,
the Company had substantially completed development of the Atlas System, but
intends to continue to develop enhancements and new applications. As a result,
the Company believes the aggregate amount of research and development expenses
for the Atlas System in the future will be
15
<PAGE> 18
<TABLE>
substantially lower than that incurred in 1995. The following table shows the
research and development expenses attributable to each of the Company's systems
for the periods presented:
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ---------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
RESEARCH & DEVELOPMENT
MedisGroups........................... $1,246 $ 725 $ 401 $ 116 $ --
Atlas System.......................... 2,906 2,901 3,612 1,039 628
------ ------ ------ ------ ----
$4,152 $3,626 $4,013 $1,155 $628
====== ====== ====== ====== ====
</TABLE>
<TABLE>
MedisGroups required a significant amount of installation, custom
programming and other support costs. The Atlas System eliminated the need for a
substantial portion of these expenses through technological improvements.
However, because the conversion of the Company's customers to the Atlas System
occurred gradually since April 1994, the Company was required to maintain
significant levels of support for both MedisGroups and the Atlas System during
that period. As a result, the Company incurred substantially higher expenses
during this two-year period than the Company expects to incur in the future in
connection with supporting the Atlas System alone. In addition, the Company
consolidated customer support into a central location between late 1993 and
early 1994. The following table shows the customer support expenses attributable
to each of the Company's systems for the periods presented:
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ---------------
1993 1994 1995 1995 1996
------ ------ ------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CUSTOMER SUPPORT
MedisGroups.......................... $2,852 $1,800 $ 978 $375 $ 28
Atlas System......................... -- 1,198 1,467 302 351
------ ------ ------ ---- ----
$2,852 $2,998 $2,445 $677 $379
====== ====== ====== ==== ====
</TABLE>
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth, for the periods indicated, certain items
from the statement of operations of the Company as a percentage of total
revenues:
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
1993 1994 1995 1995 1996
----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Total revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Marketing and distribution.............. 19.1 16.0 18.0 18.6 9.3
Research and development................ 31.7 30.0 36.6 43.7 22.9
Customer support........................ 21.8 24.8 22.3 25.6 13.8
General and administrative.............. 16.8 28.1 30.6 32.0 28.8
Restructuring charge.................... 12.4 0.0 5.2 0.0 0.0
---- ---- ---- ---- ----
Total operating expenses............. 101.8 98.9 112.7 119.9 74.8
---- ---- ---- ---- ----
Operating income (loss)................... (1.8) 1.1 (12.7) (19.9) 25.2
Interest expense (income), net............ (0.4) (1.4) 0.6 0.5 1.0
---- ---- ---- ---- ----
Income (loss) before income taxes......... (1.4) 2.5 (13.3) (20.4) 24.2
Provision for income taxes................ 0.1 1.2 0.0 0.0 2.8
---- ---- ---- ---- ----
Net income (loss)......................... (1.5)% 1.3% (13.3)% (20.4)% 21.4%
==== ==== ==== ==== ====
</TABLE>
16
<PAGE> 19
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenues. Total revenues for the three-month period ended March 31, 1996
increased by 4% to $2,739,000 from $2,641,000 for the same period of the prior
year. The overall growth is attributable to a combination of a 26% increase in
Atlas System license fees and a 116% increase in CIM services revenue offset by
a 41% decline in MedisGroups license fees.
Marketing and Distribution. Marketing and distribution expenses for the
three-month period ended March 31, 1996 decreased by 48% to $256,000 from
$492,000 for the same period of the prior year. Beginning in the first quarter
of 1995, the Company began its transition from relying solely on field sales
representatives to a combination of telemarketing and direct field sales to
reduce the costs of its direct sales force and improve operating margins.
Research and Development. Research and development expenses for the
three-month period ended March 31, 1996 decreased by 46% to $628,000 from
$1,155,000 for the same period of the prior year. The overall decrease is the
combination of a decline in support required to maintain MedisGroups and the
planned development enhancements relating to the Atlas System. In December 1995,
the Company significantly reduced its research and development staff in
anticipation of the completion of the Atlas System during the first quarter of
1996. The Company also incurred lower expenses in 1996 attributable to the
operation of its data center.
Customer Support. Customer support expenses for the three-month period
ended March 31, 1996 decreased by 44% to $379,000 from $677,000 for the same
period of the prior year. The overall decrease is a combination of the phase-out
of MedisGroups support and a 16% increase in Atlas System support. The Company
has made significant enhancements to the Atlas System, including on-line help
and desktop tutorials, which reduce support demands. During 1995, the Company
also initiated an electronic bulletin board and the use of remote-access support
via modem. In addition, a simplified 1995 redesign of the Atlas Glossary has
reduced training and support needs for data collection activities.
General and Administrative. General and administrative expenses for the
three-month period ended March 31, 1996 decreased by 6% to $787,000 from
$842,000 for the same period of the prior year. The Company attributes the
decrease to general efficiencies derived from improved office automation, the
consolidation of field offices and reduced depreciation.
Interest Expense (Income), Net. Interest expense (income), net for the
three-month period ended March 31, 1996 increased to $27,000 from $13,000 for
the same period of the prior year. The increase was primarily due to additional
interest incurred on the Company's bank borrowing during 1995.
Income Taxes. The provision for income taxes for the three month period
ended March 31, 1996 of $77,000 represents minimum federal and state income
taxes. The Company has available net operating loss and tax credit carryforwards
to be used to minimize income taxes payable to the federal government and
certain states.
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenues. Total revenues decreased by 8% from $13,097,000 in 1993 to
$12,084,000 in 1994, and decreased by 9% to $10,974,000 in 1995. The overall
decrease is a combination of a 64% decline in MedisGroups license fees between
1993 and 1995 which was not entirely offset by an approximately $10 million
increase in revenues derived from the introduction of the Atlas System and
related CIM services during 1994 and 1995. The Company attributes the decline in
MedisGroups license fees to the expiration of state mandates in several markets,
the absence of new MedisGroups applications which could be cross-marketed to
existing customers and the conversion of MedisGroups customers to the Atlas
System. A mandate in Iowa for MedisGroups expired in 1994, resulting in a
decline of approximately $310,000 in MedisGroups Iowa renewals in 1995. A
similar mandate in Colorado for MedisGroups expired in 1995; however, all
Colorado customers were subsequently converted to the Atlas System during 1995.
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<PAGE> 20
Marketing and Distribution. Marketing and distribution expenses decreased
23% from $2,505,000 in 1993 to $1,927,000 in 1994, and increased by 2% to
$1,970,000 in 1995. The Company consolidated its field sales offices during 1994
and increased the use of telemarketing, resulting in reduced field sales
compensation, travel and office expenses. The Company attributes the increase in
marketing and distribution expenses in 1995 to increased telemarketing activity
related to the Atlas System.
Research and Development. Research and development expenses decreased by
13% from $4,152,000 in 1993 to $3,626,000 in 1994, and increased by 11% to
$4,013,000 in 1995. The overall decrease is a combination of the decline in
research and development required to maintain MedisGroups and the planned
development cycle relating to the Atlas System. In late 1994, the Company also
made capital improvements in its data center to begin the conversion from a VMS
to a UNIX operating environment. In 1995, the overall increase in research and
development expenses can be attributed to expenses for software license fees,
employee training and consultants relating to these capital investments.
Customer Support. Customer support expenses increased by 5% from
$2,852,000 in 1993 to $2,998,000 in 1994, and decreased by 18% to $2,445,000 in
1995. In 1993, the Company merged 8 customer support field offices into its
headquarters in Massachusetts. This resulted in higher costs in 1994 to replace
staff choosing not to relocate and certain redundant salary costs for a portion
of the year. The decrease in 1995 is a combination of the phase-out of support
required by MedisGroups and a 22% increase in support related to the Atlas
System.
General and Administrative. General and administrative expenses increased
by 55% from $2,198,000 in 1993 to $3,401,000 in 1994, and decreased by 1% to
$3,358,000 in 1995. The Company attributes the increase in general and
administrative expenses in 1994 to additional office expense for the Company's
data warehousing operations, increased expense for leasehold improvements made
to the Company's headquarters and additional depreciation expense for capital
investments made in 1994. General and administrative expenses decreased in 1995
as a result of the termination of the Company's Pennsylvania office lease and
lower consulting and travel expenses.
Restructuring Charge. In 1993, the Company recorded a $1,623,000 charge to
consolidate all of the Company's field operations and to write off all remaining
capitalized software costs related to discontinued systems and obsolete
equipment. The provision included severance payments, extended benefits, asset
write-offs and reserves in connection with the restructuring. In 1995, the
Company recorded a $580,000 charge to reflect a staff reduction and office space
consolidation. The provision includes severance payments, rent payments for idle
office space and asset write-offs in connection with the staff reduction.
Interest Expense (Income), Net. Interest expense (income), net increased
from income of ($55,000) in 1993 to income of ($173,000) in 1994, and decreased
to an expense of $70,000 in 1995. The increase in 1994 was primarily due to a
favorable settlement of a lawsuit with a former employee regarding repayment of
a loan to the employee. The receivable from the employee was written off in
1993. The decrease in 1995 was due to additional interest expense incurred on
the Company's bank borrowings during 1994 and 1995.
Income Taxes. The provision for income taxes in 1993 and 1994 primarily
represents minimum taxes in certain states. The Company has available net
operating loss and tax credit carryforwards of $10,342,000 and $204,000 at
December 31, 1995. The Company has not benefited from such carryforwards due to
the uncertainty relating to the utilization of the carryforwards.
SELECTED QUARTERLY FINANCIAL RESULTS
The Company's quarterly operating results have been and likely will
continue to be subject to significant fluctuations. The Company has experienced
a fluctuating pattern in its operating results with the third quarter typically
having the highest revenue and net income compared to the
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<PAGE> 21
immediately preceding and following quarters. The Company believes this
fluctuation can be attributable to the timing of renewals under annual license
agreements with its customers.
<TABLE>
The following tables present quarterly unaudited financial information for
each of the five quarters for the period ended March 31, 1996. This unaudited
financial information includes all adjustments, consisting only of normal
recurring adjustments, which the Company considers necessary for a fair
presentation of its financial position and results of operations for these
periods. The operating results for any quarter are not necessarily indicative of
the results that may be expected for any future quarter.
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1995 1995 1995 1995 1996
--------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
MedisGroups......................... $ 1,166 $1,007 $ 1,300 $1,201 $ 683
Atlas System........................ 1,259 1,355 1,333 1,184 1,590
CIM Services........................ 216 284 321 348 466
------ ------ ------ ------ ------
Total revenues.................... 2,641 2,646 2,954 2,733 2,739
Operating expenses:
Marketing and distribution.......... 492 622 459 398 256
Research and development............ 1,155 1,034 1,010 814 628
Customer support.................... 677 652 525 592 379
General and administrative.......... 842 885 816 815 787
Restructuring charge................ -- -- -- 580 --
------ ------ ------ ------ ------
Total operating expenses.......... 3,166 3,193 2,810 3,199 2,050
------ ------ ------ ------ ------
Operating income (loss)................ (525) (547) 144 (466) 689
Interest expense, net.................. 13 8 25 24 27
------ ------ ------ ------ ------
Income (loss) before income taxes...... (538) (555) 119 (490) 662
Provision for income taxes............. -- -- -- -- 77
------ ------ ------ ------ ------
Net income (loss)...................... $ (538) $ (555) $ 119 $ (490) $ 585
====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and met its capital requirements
through approximately $10 million generated by private placements of securities,
the utilization of bank lines of credit and capital leases. At March 31, 1996,
the Company's principal sources of liquidity consisted of cash and cash
equivalents and trade accounts receivables. The Company has a line of credit
with a bank under which it may borrow up to $1,500,000, subject to 75% of
eligible accounts receivable. At March 31, 1996, the Company had borrowed
$500,000 of the total available under this line of credit. This amount was
repaid in May 1996. The working capital line of credit is secured by all the
Company's assets and requires the Company to maintain certain financial ratios
and adhere to certain covenants.
The Company's profitability for the three months ended March 31, 1996 has
resulted in an increase in net cash of approximately $273,000. In addition, the
Company has received approximately $300,000 from the exercise of stock options
and the sale of treasury stock.
As of December 31, 1995, the Company had, for tax purposes, net operating
loss carryforwards of approximately $10,342,000 and federal tax credit
carryforwards of approximately $204,000, which can be used to offset future
taxable income and tax liabilities. The Internal Revenue Code includes
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<PAGE> 22
provisions that may limit the Company's ability to utilize such carryforwards in
connection with a change in ownership (as defined therein).
The Company does not currently have any significant capital commitments.
The Company believes that the net proceeds of the Offering, together with
existing cash balances, funds available under the Company's credit lines and
funds expected to be generated from future operations, will be sufficient to
fund its operations and satisfy its working capital needs for the foreseeable
future.
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<PAGE> 23
BUSINESS
OVERVIEW
MediQual Systems, Inc. is a leading supplier of clinical information
management ("CIM") systems and services to the health care industry. The
Company's systems and services combine proprietary clinical knowledge with raw
patient encounter data to create valuable information that providers, payors and
suppliers use to monitor and enhance the effectiveness, efficiency and
appropriateness of care.
MediQual has addressed the growing demand for this information by
developing its Atlas System, a comprehensive, desktop CIM system. The Atlas
System is comprised of five major components: (i) a standardized retrospective
data repository; (ii) proprietary benchmarking databases; (iii) embedded
clinical knowledge; (iv) comprehensive provider databases and (v) on-line
analytical processing. The Atlas System enables users to perform sophisticated,
quantitative analyses which may be used for a variety of applications including:
benchmarking internal performance, competitively assessing cost and quality
positions in local markets, quantifying the impact of managed care and capitated
contracts, developing local integrated delivery networks, evaluating the
efficacy of new pharmaceuticals and medical devices, credentialing physicians
and reporting to third parties for regulatory and contract compliance. The
modular design of the Atlas System enables MediQual to integrate additional
applications quickly and easily, in order to be responsive to evolving customer
needs.
INDUSTRY BACKGROUND
The health care industry, which exceeded $1 trillion in 1995, continues to
experience cost escalation. Health care providers, payors and suppliers remain
under pressure to reduce costs without jeopardizing quality of care. The health
care industry initially responded to this pressure primarily by reducing
administrative costs, such as those associated with non-clinical staff, and
through the negotiation of supply discounts. Further cost reductions will
require intervention at the clinical level where resource use may directly
impact patient care. Implementing changes at the clinical level must be
supported by a measurable, quantifiable relationship between services rendered
and patient outcomes to maintain the confidence and cooperation of clinicians.
As a result, providers, payors and suppliers are seeking more sophisticated
clinical information to enable them to compare performance to quality and cost
benchmarks, and to monitor or enhance clinical outcomes.
Clinical information is derived from patient encounter data, the majority
of which resides in individual paper files with limited analytical usefulness.
Some patient encounter data is captured by on-line transaction processing
("OLTP") systems. Many hospitals, for example, have automated administrative
functions such as patient admission and billing. As a by-product of this
automation, certain OLTP systems save ICD-9 diagnostic and procedure codes,
treatment charges and patient demographics, collectively known as UB-92 data
(based on the administrative billing standard designed by Health Care Financing
Administration). Other OLTP systems involved in concurrent patient treatment,
such as laboratory, radiology and pharmacy systems, can digitally store certain
clinical data, but do so without the benefit of a federal coding standard. Thus,
administrative OLTP data, which does not contain clinical elements, can be
aggregated based on its UB-92 standardization, while clinical OLTP data cannot
be aggregated without additional preparation.
The refinement of patient data for analytical use requires several
processing steps, which are as follows: (i) integrating patient encounter data
from sources such as paper files and administrative and clinical OLTP systems;
(ii) mapping clinical data elements into proprietary classifications and (iii)
aggregating data into a retrospective repository. Specifically, clinical OLTP
data must first be mapped to standardized definitions, filtered to remove
extraneous material, such as free-form text, and integrated with UB-92 data. The
combined clinical OLTP and UB-92 data must then be translated into discrete time
frames and enhanced, as required by the intended applications, by the
abstraction of paper-based data. OLTP systems cannot perform these processing
steps.
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<PAGE> 24
Health care data analysts increasingly require a solution that processes
internal patient encounter data into an analytic repository and that also
enables comparisons against a variety of external benchmarks, both proprietary
and public (the federal government and approximately 20 states release UB-92
data). The increasing level of payor sophistication requires that encounter data
be adjusted for differing patient severity so that meaningful comparisons and
statistically significant conclusions can be made.
Until recently, providers, payors and suppliers were dependent upon batch
reports produced by MIS personnel using large mainframe computers. Modification
of such reports generally requires custom programming and long lead times, and
such a process is not easily adaptable to ad hoc queries. Rapid technological
advancements in personal computing creates an opportunity for desktop clinical
information management systems that support an iterative approach known as
on-line analytical processing. Such an approach involves rapid changes in
perspective, from summary to detail level, as well as techniques, such as the
addition or deletion of selection criteria, that continuously refine the topic
under study. To remain competitive, providers, payors and suppliers must develop
timely and actionable information either by installing CIM systems in-house, or
by engaging third-party consultants and analysts.
THE MEDIQUAL SOLUTION
MediQual has addressed the need for sophisticated health care information
by developing a comprehensive, low-cost desktop CIM system for providers, payors
and suppliers. The Company also provides comprehensive CIM services, including
data analysis and abstraction, for those clients who wish to enhance their
access to and use of such information. MediQual's systems and services
systematically analyze effectiveness (whether a particular treatment helped the
patient); efficiency (whether the proper resources were used to provide care);
and appropriateness (whether the chosen treatment was the best option). The
resulting analyses assist customers in delivering high quality, low cost care.
STRATEGY
MediQual's objective is to strengthen its position as a leading supplier of
CIM systems and services to health care providers, payors and suppliers. Key
elements of the Company's strategy to achieve this objective include:
Leverage Proprietary Master Database. The Company has developed a
proprietary database comprised of integrated clinical and administrative data
derived from more than 20 million patient encounters. The Company's master
database is continually expanded as additional patient encounters, as well as
new types of data, including pharmaceuticals and outpatient services, are
transmitted to the Company by its customers. The Company believes this expanded
master database will allow it to develop new databases and applications.
Cross-Marketing to Existing Customer Base. The modular design of the Atlas
System enables the Company to license additional databases and applications to
existing customers. For example, Mortality BenchMark, a new database covering 16
high risk topics (e.g., pneumonia, stroke and congestive heart failure), permits
users to compare internal results to those of the top performers in MediQual's
master database, and has been licensed to a significant number of existing
customers.
Extend Analytical Services. MediQual believes that there is a significant
opportunity to extend its analytical services into disease management
applications. For example, in conjunction with Ethicon Endo-Surgery, Inc., a
subsidiary of Johnson & Johnson, the Company provides analytical services for
the management of hysterectomies. These services involve linking claims data to
clinical records and include a comparison of different hysterectomy surgical
techniques, which allow providers and payors to evaluate relative
cost-effectiveness. The Company intends to enter into similar arrangements for
other disease management applications.
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<PAGE> 25
Expand System Application Offerings. The Company plans to expand its
system application offerings to leverage its existing investment in the Atlas
System and to be responsive to evolving customer needs. The modular design of
the Atlas System enables rapid integration of additional applications through
both internal research and development and acquisitions of new technologies and
businesses. The Company plans to release three enhancements to the Atlas System
by early 1997.
Form Alliances to Broaden Distribution. The Company seeks to form
alliances with third parties to reach market segments not currently employing
the Atlas System and to take advantage of their sales forces. The Company has
entered into a non-exclusive distribution agreement with SpaceLabs Medical, Inc.
and is also developing customized cardiac and obstetric versions of the Atlas
System, which will be distributed exclusively by Marquette Electronics, Inc. The
Company intends to pursue other alliances in order to broaden the distribution
of its systems.
SYSTEMS AND SERVICES
The initial version of the Company's CIM system, MedisGroups, was
introduced in 1987. MedisGroups acquired data largely through manual input from
paper medical records and produced standard reports primarily designed for
quality assurance and regulatory compliance. MedisGroups did not support OLTP
interface standards, external benchmark databases or on-line analytical
processing. Between April 1994 and April 1996, the Company introduced a series
of integrated modules, marketed as the Atlas System. The Company has
successfully converted substantially all MedisGroups users to the Atlas System.
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<PAGE> 26
Atlas System Components
The Atlas System is a modular CIM system designed to enhance health care
value by performing quantitative analysis of patient data. The Atlas System
provides a comprehensive, cost-effective desktop solution to the problem of
generating sophisticated information from disparate raw data sources. The Atlas
System software is written in Microsoft FoxPro for Windows, Visual C++ and
Visual Basic. The Atlas System supports multiple, concurrent users in most
network environments with personal computers running Microsoft Windows and uses
Microsoft Excel to display results. The Atlas System is comprised of the major
components shown in the shaded area of the following diagram:
[Graphic consists of a box depicting the various features of the Atlas
System: Atlas benchmarking databases, Atlas Glossary, Atlas Repository, Atlas
provider databases, Embedded clinical knowledge and On-line analytical
processing. Depicted above the box are sources of data: MediQual master
databases, Paper medical record, Legacy transaction system and Federal and
state agencies.]
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<PAGE> 27
Atlas Repository and Atlas Glossary. The Atlas Repository electronically
interfaces with OLTP systems, enables the electronic capture of data from paper
medical records and selects relevant data for analysis from Atlas provider and
benchmarking databases. MediQual has developed the Atlas Glossary, a
comprehensive data dictionary and coding system that covers all aspects of
patient treatment, including lab tests, pharmaceuticals, vital signs, patient
history, radiology and clinician notes. The Atlas Glossary defines appropriate
time frames, ensures uniform collection and definition of terms, and excludes
irrelevant data. The Company believes that the Atlas Glossary is a significant
proprietary asset that is essential for the creation and standardization of
health care data for analysis. The Atlas Repository also includes Table
Maintenance, a tool for mapping provider-specific codes to Atlas Glossary codes,
thereby allowing benchmarking data to be cost-effectively developed from a wide
range of providers in geographically diverse locations.
Atlas Benchmarking Databases. Atlas users can access more than 40
specially formatted CD-ROM databases derived principally from the Company's
master database. These CD-ROM databases enable customers to benchmark by
provider location, size and specialty or by disease. MediQual's master database
is comprised of integrated clinical and administrative data derived from more
than 20 million patient encounters. MediQual routinely receives, as part of its
license agreements, a copy of provider-specific data which is standardized using
the Atlas Glossary and Table Maintenance in the Atlas Repository. This data
includes provider-specific UB-92 data, clinical OLTP data and data manually
abstracted from paper medical records.
Embedded Clinical Knowledge. The Atlas System contains clinical knowledge
that enables statistically valid conclusions to be reached from a comparison of
different patient populations. The breadth and depth of the Company's clinical
knowledge is largely attributable to the size and quality of the Company's
master database. More than 200 disease models, covering substantially all acute
conditions such as heart failure, stroke and pneumonia, were developed using
this master database and are embedded in the Atlas System in the form of
software algorithms. Disease models typically contain between 10 and 30
independent variables such as history of prior medical conditions, laboratory
test results, vital signs and physical exam findings. For example, the model
that predicts the probability of death for patients diagnosed with heart failure
contains thirty independent variables, including prior history of cancer,
presence of lethargy, use of mechanical vent, respiration rate, blood pressure
and creatinine level.
Atlas Provider Databases. The Company creates Atlas provider databases
specially formatted on CD-ROM by validating, classifying and scoring UB-92 data
from the federal government and approximately 20 states and from private data
sharing consortiums comprised of providers and payors. In addition, the Company
adds embedded clinical knowledge that is based on statistical models derived
from UB-92 data elements. This clinical knowledge enables the user to adjust for
the expected cost of treating differing combinations of diagnoses and
procedures. The Company has developed more than 125 Atlas provider databases.
On-Line Analytical Processing. The Atlas System provides on-line
analytical processing that enables real-time, drill-down and multi-dimensional
viewing of data contained in the Atlas Repository. The ability to change
perspective from summary to detail level and to add or delete selection criteria
is essential to the iterative analytical power of the Atlas System. The Atlas
System also offers advanced features such as filters, thresholds and built-in
statistics, which provide users with an ability to conduct customized data
analysis using more than 400 variables. These variables can be manipulated based
upon the analysis to be conducted and the particular database in use. For
example, the overall mortality rate for pneumonia patients can be (i) segmented
by age, gender and history of heart failure, (ii) filtered for specific
infecting organisms and (iii) refined with a minimum threshold to eliminate rare
occurrences. In this manner, users can test various hypotheses quickly using a
comprehensive iterative methodology.
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Atlas System Modules
The Atlas System is comprised of three modules: Atlas Market View, Atlas
Resources and Atlas Outcomes. These modules are defined primarily by the type of
data they are designed to analyze. Atlas Market View analyzes Atlas provider
databases to enable competitive assessments of physicians and hospitals by name.
Atlas Resources and Atlas Outcomes analyze provider-specific patient encounter
data together with benchmarking databases derived from the Company's proprietary
master database. Atlas Outcomes encompasses all the functionality of Atlas
Resources, and adds certain clinical applications that address effectiveness,
efficiency and appropriateness. Atlas Outcomes includes optional disease and
peer group benchmarking databases and adds the ability to collect clinical data
from paper medical records. Clients may upgrade from Atlas Resources to Atlas
Outcomes at any time. Each module is packaged with at least one of the more than
150 different CD-ROM databases that the Company has developed. Each module (and
optional CD-ROM databases) contains application frameworks, called MQ Analyses
and also includes standard reports, called MQ Templates, which may be modified
by the user to build a custom library of reports and applications.
Atlas Market View provides competitive assessments of physicians and
hospitals by name on their relative efficiency, effectiveness and
appropriateness of care. These assessments include profiles of charges, lengths
of treatment, mortality and admission criteria. Atlas Market View analyzes
federal, state and private UB-92 data that has been specially prepared and
formatted on CD-ROM. This module contains embedded clinical knowledge, based on
statistical models derived from UB-92 data, that enables the user to adjust for
diverse patient populations under study, including differing combinations of
diagnoses and procedures. Atlas Market View also contains a benchmark for
overnight admission appropriateness, based on norms derived from MediQual's
master database.
Atlas Resources provides management assessments of the efficiency and
resource utilization of clinical processes and physicians. These assessments
include individual physician profiles, summaries of various patient populations
and extensive ad hoc analysis of the related underlying costs. Atlas Resources
analyzes downloaded OLTP data that has been specially prepared for the Atlas
Repository with a national benchmark derived from MediQual's master database.
This module shares the same embedded clinical knowledge that is contained in
Atlas Market View.
Atlas Outcomes, which expands the functionality of Atlas Resources by
incorporating additional databases and applications, is designed to provide
comprehensive internal assessments of clinical processes and providers. These
assessments include profiles of specific procedures, clinical summaries of
various patient populations and extensive ad hoc analysis of efficiency,
effectiveness and appropriateness. Atlas Outcomes combines provider data
downloaded from OLTP systems with data obtained directly from paper medical
records that has been specially prepared for the Atlas Repository and analyzes
such data against multiple disease and peer benchmarks derived from MediQual's
master database. This module contains additional embedded clinical knowledge,
based on statistical models derived from both UB-92 and clinical data elements,
that enables the user to adjust for differing combinations of diagnoses,
procedures, on-admission severity, length of stay, complications and other
factors.
Atlas System Enhancements and Customizations Under Development
Patient ROI. The Company is developing tools called rapid object
integrators to assist clients in integrating the Atlas System with their legacy
OLTP systems. Patient ROI, the first such tool, is designed to extend the
existing Atlas UB-92 interface for acute care patients to other patient
treatment sites, such as emergency rooms, ambulatory surgery centers,
rehabilitation facilities, psychiatric units and clinics. The Company plans to
release Patient ROI in the third quarter of 1996.
Physician BenchMark. Increasing pressure for lower costs has prompted
providers to develop more efficient practice patterns that reflect appropriate
levels of care and improved clinical performance. Physician BenchMark is a new
application for Atlas Outcomes that will enable providers to compare high volume
efficient physicians to other physicians, identify and prioritize areas for cost
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<PAGE> 29
reduction and develop internal benchmarks. The Company plans to release
Physician BenchMark in early 1997.
Physician Report Card. To remain competitive, providers increasingly need
to be differentiated based on cost and quality parameters. Physician Report Card
is a new application for Atlas Outcomes and Atlas Resources that will provide a
statistical basis for making credentialing and managed care decisions. The
Company plans to release Physician Report Card in early 1997.
Atlas Customizations. The Company is developing customized versions of
Atlas modules and CD-ROM databases for use in cardiology and obstetrics. These
versions will be exclusively distributed by Marquette Electronics, Inc. in early
1997. The Company is also customizing Atlas modules for various regional data
sharing consortiums comprised of providers and payors who desire additional
analytical or reporting features. The Company will release the first of these
additional customized versions in early 1997.
CIM Services
For providers, payors and suppliers who prefer a service solution to
address their information needs, MediQual provides complete analytic services,
including data abstraction from paper medical records and custom databases. The
Company has entered into an agreement with Ethicon Endo-Surgery, Inc., a
subsidiary of Johnson & Johnson, to provide analytical services for the
management of hysterectomies. These services involve linking claims data to
clinical records and include a comparison of different hysterectomy surgical
techniques, which allow providers and payors to evaluate relative
cost-effectiveness. Also, pursuant to an agreement with Merck & Co., Inc., the
Company has developed analytical services for the management of congestive heart
failure. The Company intends to enter into similar arrangements for other
disease management applications. The Company also conducts custom research for
Pfizer Inc., Amgen Inc. and Roche BioScience.
CUSTOMERS
The Company's customers include licensees of the Atlas System and
purchasers of CIM services. As of March 31, 1996, MediQual had licensed
approximately 450 Atlas modules, used by approximately 2,700 users. The Company
has relationships with approximately 400 customers. Approximately 84% of the
Company's customers have licensed only one module. The Company's customers
include:
ATLAS SYSTEM
Borgess Medical Center
Community Hospital of Central California
Florida Hospital Medical Center
Greater Cincinnati Community Health
Foundation
Hamot Medical Center
Iroquois Health Care Consortium
Sarah Bush Lincoln Health Center
Sisters of Charity Health Care Systems
Touro Infirmary
University of Massachusetts Medical
Center
University of Pittsburgh Medical Center
Washington Hospital
CIM SERVICES
Amgen Inc.
Ethicon Endo-Surgery, Inc., a Johnson &
Johnson company
Merck & Co., Inc.
Pfizer Inc.
Roche BioScience
TRAINING AND SUPPORT
The Company believes that training and support are integral to the success
of its customers' use of the Atlas System. MediQual provides training at
customer sites, in regional seminars and at the
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<PAGE> 30
Company's computer-based training center. The Atlas System incorporates several
training and support features, including software tutorials, on-line help and
self-testing to certify that customers have reached acceptable levels of
proficiency. Dial-in support is available on the Company's electronic bulletin
board as well as World Wide Web site and telephone support is provided during
regular business hours. In addition, the Company produces an annual CIMposium
for Atlas users and prospective customers that offers a wide range of
educational sessions, research presentations, demonstration labs and workshops.
MARKETING AND DISTRIBUTION
MediQual markets its systems and services through a direct sales force of
10 people operating out of Massachusetts, Colorado, Pennsylvania and New Jersey.
Because the decision to license the Company's systems frequently involves
clinicians, administrators and executives, the Company's senior management and
clinical support staff take an active role in marketing and sales activity.
Corporate marketing activities include seminars that showcase the Atlas System,
trade show exhibits and on-going support for the Company's World Wide Web site
(http://www.mediqual.com). The Company also markets its systems and services
through third party distribution arrangements.
The Company has entered into an agreement with Ethicon Endo-Surgery, Inc.,
a subsidiary of Johnson & Johnson, to provide analytical services for the
management of hysterectomies. These services involve linking claims data to
clinical records and include a comparison of different hysterectomy surgical
techniques, which allow providers and payors to evaluate relative cost-
effectiveness. Also, pursuant to an agreement with Merck & Co., Inc., the
Company has developed Atlas Services for the management of congestive heart
failure. The Company has entered into a non-exclusive distribution agreement
with SpaceLabs Medical, Inc. for the Atlas System and is also developing
customized cardiac and obstetric versions of the Atlas System for exclusive
distribution by Marquette Electronics, Inc.
RESEARCH AND DEVELOPMENT
Since 1993, the Company has invested approximately $11 million to develop
the Atlas System. In April 1996, the Company shifted its research and
development focus to enhancements and customized versions of the Atlas System.
Approximately 21 employees are involved in research and development.
COMPETITION
The market for health care information systems and services is intensely
competitive. Most of the Company's competitors and potential competitors have
significantly greater financial, technical, system development and marketing
resources than the Company. The Company competes directly with other vendors of
health care information and consultants who provide related services. MediQual
also competes with MIS departments of large hospital networks, some of which
have developed, or plan to develop, their own CIM capabilities. In addition,
potential competitors include OLTP vendors who may wish to build, rather than
buy, CIM technology. Many of these competitors and potential competitors have
substantial installed customer bases in the health care industry and the ability
to fund significant system development and acquisition efforts. The Company
believes that the principal competitive factors in its market are system
functionality and features, price, training and support, customer references and
firm reputation. The Company believes it competes favorably with respect to
these factors.
GOVERNMENT REGULATION
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
health care industry participants. During the past several years, the U.S.
health care industry has been subject to changes in governmental regulation of,
among other things, reimbursement rates and certain capital expenditures. Health
care
28
<PAGE> 31
industry participants may react to these proposals and the uncertainty
surrounding such proposals by curtailing or deferring investments, including
those for the Company's systems and services. Additionally, although the FDA
does not currently regulate the Company's systems or services, if authorized to
extend its regulation of software, the FDA could impose extensive requirements
that might negatively impact the time and expense necessary to develop new
systems. The Company cannot predict what impact, if any, such events might have
on its business, results of operations and financial condition. Further, many
health care providers are consolidating to create larger health care delivery
enterprises with greater regional market power. As a result, the remaining
enterprises could have greater bargaining power, which may lead to price erosion
of the Company's systems and services.
INTELLECTUAL PROPERTY
MediQual considers its software, databases, disease models and
methodologies to be proprietary. The Company seeks to protect its intellectual
property through confidentiality agreements with its employees and consultants,
and through nondisclosure agreements with its strategic partners. The Company
also relies on a combination of physical security, trade secrets, technical
measures, copyright law and contractual provisions to protect its rights in
various methodologies, systems, databases and documentation. The Company has not
filed any patent applications or copyrights covering its software technology.
There can be no assurance that the legal protections afforded to the Company or
the precautions taken will be adequate to prevent misappropriation of the
Company's intellectual property in the future. Any infringement or
misappropriation of the Company's proprietary software and databases would
disadvantage the Company in efforts to retain and attract customers and could
cause the Company to incur revenue losses or substantial litigation expenses.
Due to the evolving nature of its systems and services, the Company believes
that the protective measures described above are less significant than the
Company's ability to continually develop, modify and enhance its intellectual
property. Although the Company believes that its current systems do not infringe
on the intellectual property rights of others, there can be no assurance that
such a claim will not be asserted against the Company in the future.
EMPLOYEES
As of March 31, 1996, the Company had 60 employees, including 51 full-time
and nine part-time employees. None of these employees is represented by a union
or other collective bargaining group. The Company believes that its relationship
with its employees is good. The Company engages independent contractors for
certain development and data warehousing projects.
FACILITIES
The Company's corporate offices are located in a 24,500 square foot office
facility at 1900 West Park Drive, Westborough, Massachusetts 01581 under a lease
that expires on March 31, 1999. The Company believes that its facilities are
adequate for its current operations.
LEGAL PROCEEDINGS
The Company is not a party to any pending litigation.
29
<PAGE> 32
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
The executive officers and directors of the Company are as follows:
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Eric A. Kriss........................... 46 President, Chief Executive Officer and Director
William C. Price........................ 36 Vice President and Chief Financial Officer
Elizabeth A. Endyke..................... 34 Vice President of Marketing and Distribution
Diane M. Throop......................... 34 Vice President of Research and Development
James Corum............................. 55 Vice President of Information Systems
William D. Ryan(1)(2)................... 70 Chairman of the Board of Directors
Alan C. Brewster, MD.................... 57 Director
David Dominik(1)(2)..................... 39 Director
Charles M. Jacobs....................... 63 Director
<FN>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
</TABLE>
Mr. Kriss has served as President, Chief Executive Officer and Director of
the Company since March 1993. From January 1991 until joining MediQual, Mr.
Kriss served as Assistant Secretary for Administration & Finance under Governor
William Weld of Massachusetts. In January 1984, Mr. Kriss founded MediVision,
Inc., an ambulatory surgery center network, where he served as CEO until
December 1989. Previously, Mr. Kriss was a partner at Bain & Company, a
strategic consulting firm and, subsequently, a partner at Bain Capital, Inc., an
investment partnership. Mr. Kriss also serves as a director of Physician
Reliance Network, Inc., a physician practice management company specializing in
oncology. Mr. Kriss holds an MBA from the University of Chicago and a BA from
Amherst College.
Mr. Price joined the Company in December 1991 and has served as Chief
Financial Officer since November 1992. From 1982 to December 1991, Mr. Price was
employed by the independent public accounting firm of Arthur Andersen LLP where
he served as a manager in both the firm's commercial and small business
divisions. Previously, he managed financial matters for Codex Corporation, a
subsidiary of Motorola, Inc., and Children's Hospital of Boston. Mr. Price is a
Certified Public Accountant and holds a BS from Northeastern University.
Ms. Endyke, Vice President of Marketing and Distribution of the Company,
joined the Company in September 1993. Prior to joining the Company, Ms. Endyke
was Director of Marketing at Elan Pharma, Inc, a manufacturer and distributor of
pharmaceutical products. From 1986 to 1991, she was Director of Marketing at
MediVision, Inc. Ms. Endyke holds an MBA from Babson College and a BA from
Assumption College.
Ms. Throop, Vice President of Research and Development of the Company,
joined the Company in 1987 as Chief Statistician, and assumed responsibility for
research and development in 1994. Previously, Ms. Throop was employed by Data
General Corporation. She holds a MS in statistics from Colorado State University
and a BS from the Massachusetts Institute of Technology.
Mr. Corum, Vice President of Information Systems of the Company, joined the
Company in June 1993. Prior to joining MediQual, Mr. Corum held various
positions with the Commonwealth of Massachusetts Office of Management
Information Systems, most recently serving as its director. Previously, he was
the Assistant Commissioner for Administration and Finance for the Massachusetts
Department of Public Health. Mr. Corum holds masters degrees in linguistics and
philosophy from the Massachusetts Institute of Technology and a BA from Harvard
University.
30
<PAGE> 33
Mr. Ryan has served as Chairman of the Board, and as a Director of the
Company, since its inception. Mr. Ryan, a retired executive and a private
investor, is currently a Trustee of the University of Rochester and serves as a
director of several non-profit organizations.
Dr. Brewster, a co-founder of the Company, has been a Director since its
inception. Dr. Brewster is an independent health care consultant.
Mr. Dominik has been a Director of the Company since April 1993. He has
been a General Partner of Information Partners, L.P., a venture capital
investment firm headquartered in Boston, since January 1990 and Managing
Director of Information Partners, Inc. since June 1993. In addition, he has been
Managing Director of Bain Capital, an investment partnership, since June 1993.
Mr. Dominik also serves as a director of Oacis Healthcare Holdings Corp.,
Dataware Technologies, Inc. and several privately held companies.
Mr. Jacobs, a co-founder of the Company, has been a Director since 1982.
Mr. Jacobs has been the Chairman and Chief Executive Officer of InterQual, Inc.,
a developer of health care utilization criteria and systems since 1976. Mr.
Jacobs is also a practicing attorney.
Executive officers of the Company are appointed by the Board of Directors
on an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive officers
or Directors of the Company. Each Director is elected by the stockholders of the
Company on an annual basis and holds office for a one-year term and until that
Director's successor has been duly elected and qualified. Directors who are not
employed by the Company are reimbursed for expenses actually incurred in
connection with their attendance at such meetings.
EMPLOYMENT AGREEMENTS
In March 1993, the Company entered into an Executive Employment Agreement
with Mr. Kriss pursuant to which, as such agreement has been amended to date,
Mr. Kriss will receive a base salary of $202,600 for 1996 and will be eligible
to earn a cash bonus upon the achievement of certain objectives negotiated
annually. The agreement further provides that the Company will nominate Mr.
Kriss for election as a director on each occasion during the term of the
agreement when directors are to be elected. The agreement is terminable by the
Company's Board of Directors or by Mr. Kriss at any time. In the event that Mr.
Kriss' employment is terminated by the Company without cause or by Mr. Kriss for
good reason, Mr. Kriss will continue to receive all compensation and benefits
provided under the agreement for six months and any stock options and restricted
stock in the Company held by Mr. Kriss will become immediately exercisable and
vest.
In 1995, the Board of Directors of the Company concluded that it would be
in the best interests of the Company to encourage the executive officers of the
Company to remain with the Company in order to ensure the successful completion
of the development and commercialization of the Atlas System. Accordingly, in
July 1995, the Company entered into a Stay Agreement with each of Mr. Price, Ms.
Endyke, Mr. Corum and Ms. Throop. Under the Stay Agreements, the Company
guaranteed each officer a severance payment in an amount equal to such officer's
twelve-month base salary in the event that the officer's employment is
terminated other than at such officer's volition. Pursuant to the Stay
Agreements, all stock options granted prior to the execution of the Stay
Agreements to the officers under the Company's 1987 Nonqualified Stock Option
Plan immediately vested on January 3, 1996.
In January 1996, the Company entered into an agreement with Mr. Kriss,
which provided for the issuance of a promissory note for $75,000, in lieu of the
payment of Mr. Kriss' 1995 bonus in cash, which accrues interest at a rate of
10% per year and is payable by January 2, 1998. Under the agreement, Mr. Kriss
is eligible to receive a cash bonus of up to $200,000 and was granted an option
to purchase up to 225,000 shares of Common Stock at a price of $1.00 per share,
the then fair market value of the Common Stock. Any shares of Common Stock
purchased upon exercise of the option are subject to a right of repurchase by
the Company, which right lapses on the fifth anniversary of the date of grant. A
portion of the cash bonus will become payable, and some or all of the shares
covered by the option will no longer be subject to repurchase by the Company, in
the event of a sale of at least 50% of the
31
<PAGE> 34
Company or the closing of an initial public offering, in each case depending on
a valuation of the Company in excess of certain predetermined amounts. In the
event that the Offering results in a valuation of the Company, determined by
multiplying the number of shares outstanding after the Offering by the initial
public offering price per share, in excess of $25,000,000, Mr. Kriss will be
eligible to receive the entire bonus and none of the shares of Common Stock
underlying the option shall be subject to repurchase by the Company. Mr. Kriss
exercised this option in full on March 29, 1996. In addition, under the
agreement, upon the closing of a transaction based upon a valuation of the
Company in excess of $16,000,000, a note receivable for $201,523 from Mr. Kriss
payable to the Company shall also be canceled. See "Certain Transactions."
EXECUTIVE COMPENSATION
Compensation Summary
<TABLE>
The following table sets forth certain information regarding the Company's
Chief Executive Officer and each of the other four most highly compensated
executive officers during the calendar year ended December 31, 1995 (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS(1)($) OPTIONS (#)
- ------------------------------------------------ ---------- ----------- -------------------
<S> <C> <C> <C>
Eric A. Kriss................................... 202,600 75,000(2) 0
President and Chief Executive Officer
William C. Price................................ 98,000 14,357(3) 7,200
Vice President and Chief Financial Officer
Elizabeth A. Endyke............................. 87,000 22,886(3) 12,500
Vice President of Marketing
Diane M. Throop................................. 87,000 24,750(3) 5,000
Vice President of Research and Development
James Corum..................................... 85,500 19,271(3) 12,500
Vice President of Information Systems
<FN>
- ---------------
(1) Includes bonuses earned in 1995 but paid in 1996, and excludes bonuses paid
in 1995 for services rendered in 1994.
(2) Mr. Kriss agreed to accept his 1995 bonus in the form of a promissory note
in the principal amount of $75,000 (accruing interest at an annual interest
rate of 10%), in lieu of payment in cash.
(3) Includes the value of 8,357, 1,785, 750 and 3,571 shares of Common Stock
issued in March 1996 to Mr. Price, Ms. Endyke, Ms. Throop and Mr. Corum,
respectively, having a fair market of $1.00 per share.
</TABLE>
Other than cash compensation and compensation pursuant to employee benefit
plans, no executive officer received other compensation in excess of the lesser
of $25,000 or 10% of such officer's cash compensation, nor did all executive
officers as a group receive additional compensation in excess of the lesser of
$100,000 or 10% of such officers' aggregate cash compensation.
32
<PAGE> 35
Option Grants in 1995
<TABLE>
The following table contains information concerning the grant of stock
options under the Company's 1987 Nonqualified Stock Option Plan to the Named
Executive Officers during the year ended December 31, 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SHARES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------
NAME (#) FISCAL 1995 ($/SHARE)(1) DATE 5% 10%
- ---------------------- ---------- --------------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Kriss......... -- -- -- -- -- --
William C. Price...... 7,200 9% $ 1.00 7/12/05 $4,528 $11,475
Elizabeth A. Endyke... 12,500 16% $ 1.00 7/12/05 $7,861 $19,922
Diane M. Throop....... 5,000 6% $ 1.00 7/12/05 $3,145 $ 7,969
James Corum........... 12,500 16% $ 1.00 7/12/05 $7,861 $19,922
<FN>
- ---------------
(1) All options were granted at fair market value as determined by the Board of
Directors of the Company on the date of the grant. Options become
exercisable ratably over a 50-month period.
(2) This column shows the hypothetical gains or "option spreads" of the options
granted based on both the fair market value of the Common Stock for
financial reporting purposes and assumed annual compound stock appreciation
rates of 5% and 10% over the term of the options. The 5% and 10% assumed
rates of appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of future Common Stock prices. The gains shown are net of the
option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise of the option or the sale of the
underlying shares. The actual gains, if any, on the exercises of stock
options will depend on the future performance of the Common Stock. The
assumed annual rates of stock price appreciation result in a value per share
that is significantly below the proposed public offering price range, due to
the recent significant increase in the value of the Common Stock. The
potential realizable value of the options, at an initial public offering
price of $10.00 per share and annual rates of stock price appreciation of 5%
and 10% from the date of grant through the expiration date of the options,
would be as follows: Mr. Price, $110,080 and $179,549, respectively, Ms.
Endyke, $191,112 and $311,718, respectively, Ms. Throop, $76,445 and
$121,687, respectively, and Mr. Corum, $191,112 and $311,718, respectively.
</TABLE>
The above table does not include an option to purchase 225,000 shares of
Common Stock at an exercise price of $1.00 per share granted to Mr. Kriss on
January 2, 1996, which option was exercisable in full on the grant date. Shares
of Common Stock issued upon exercise of the option are subject to repurchase by
the Company, at $1.00 per share prior to January 2, 1998 or the closing of the
earlier of either a sale of the Company or a public offering above certain
minimum thresholds. In January 1996, the Company granted options to purchase
18,750, 6,250, 18,750 and 3,750 shares of Common Stock to Mr. Price. Ms. Endyke,
Ms. Throop and Mr. Corum, respectively, at the option exercise price of $1.00
per share.
33
<PAGE> 36
Option Exercises and Year-End Values
<TABLE>
Stock options exercised by the Named Executive Officers during the year
ended December 31, 1995 are set forth in the following table. The following
table also sets forth certain information regarding unexercised options held by
each of the Named Executive Officers as of December 31, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<CAPTION>
AGGREGATE FISCAL YEAR-END OPTION VALUES
---------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END($)(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Kriss.......... -- -- -- -- -- --
William C. Price....... -- -- 5,025 3,425 45,225 30,825
Elizabeth A. Endyke.... -- -- 6,150 6,350 55,350 57,150
Diane M. Throop........ -- -- 9,850 2,650 88,650 23,850
James Corum............ -- -- 6,550 5,950 58,950 53,550
<FN>
- ---------------
(1) The exercise price per share of each option is $1.00, the fair market value
per share of the Common Stock at December 31, 1995. In order to present
meaningful information, these values have been calculated based on the
assumed initial public offering price of $10.00 per share, less the exercise
price per share.
</TABLE>
On March 29, 1996, the Company issued 225,000 shares of Common Stock to Mr.
Kriss upon the exercise of an option granted pursuant to an incentive
arrangement at an exercise price of $1.00 per share.
EMPLOYEE BONUS PROGRAM
The Company has an incentive compensation program that provides for the
annual award of cash bonuses to employees based on individual and Company
performances.
STOCK OPTION PLANS
1987 Nonqualified Stock Option Plan
In May 1987, the shareholders of the Company approved the Company's 1987
Nonqualified Stock Option Plan (the "1987 Plan"), which provides for the grant
of stock options to employees, consultants and directors of the Company
(including officers and employee directors). In May 1996, the Company's Board of
Directors adopted a resolution to terminate the 1987 Plan with respect to the
grant of new options thereunder. Outstanding options granted under the 1987 Plan
continue to be governed by the terms of the 1987 Plan, as amended, and remain
exercisable in accordance with their respective terms.
The 1987 Plan, as amended, is administered by the Compensation Committee of
the Board of Directors, which has the authority to determine the time, manner
and form of payment upon exercise of an option. Options that have been granted
under the 1987 Plan become exercisable at such time or times as were determined
by the Compensation Committee or the Board of Directors at the time they were
granted and expire after a specified period that may not exceed ten years from
the date of grant. The 1987 Plan provides that options must be exercised no more
than three months following termination of employment or service as a consultant
or director, except in the event that termination is due to death or disability,
in which case the option is exercisable for a maximum of twelve months after
such termination.
34
<PAGE> 37
In the event the Company is acquired by merger, consolidation or purchase
of assets or if the Company dissolves or becomes liquidated, (i) all unexercised
options granted under the 1987 Plan that by their terms would become exercisable
on or before the ninetieth day after the earlier of the date on which the
Company enters into an agreement for, or the closing of, such a merger,
consolidation or sale or the Company's adoption of a plan of dissolution or
liquidation, and (ii) fifty percent of all remaining options granted under the
1987 Plan that would otherwise become exercisable after such ninetieth day, will
become immediately exercisable.
As of March 31, 1996, 477,875 shares of Common Stock had been issued upon
the exercise of options granted under the 1987 Plan, and options to purchase an
additional 313,012 shares were outstanding (of which 156,050 were exercisable
within 60 days of March 31, 1996). Options were granted pursuant to the 1987
Plan at exercise prices ranging from $1.00 to $4.60, all of which were repriced
to $1.00.
1996 Stock Incentive Plan
In May 1996, the Company's Board of Directors and stockholders approved the
Company's 1996 Stock Incentive Plan (the "1996 Plan"), which provides for the
grant of incentive stock options, nonqualified stock options and restricted
stock awards to employees of the Company (including officers and employee
directors). A maximum of 1,500,000 shares are currently reserved for issuance
pursuant to the 1996 Plan. This maximum number of shares will increase,
effective as of January 1, 1998 and each January 1 thereafter during the term of
the plan, by an additional number of shares of Common Stock equal to ten percent
of the excess, if any, of (i) the total number of shares of Common Stock and
Common Stock equivalents issued and outstanding as of the close of business on
December 31 of the preceding year over (ii) the total number of shares of Common
Stock and Common Stock equivalents issued and outstanding as of the close of
business on December 31 of the year prior to such preceding year. No participant
in the 1996 Plan may in any year be granted stock options or awards with respect
to more than 500,000 shares of Common Stock, and no more than an aggregate of
3,000,000 shares of Common Stock may be issued pursuant to the exercise of
incentive stock options granted under the 1996 Plan. As of March 31, 1996, no
options had been granted and no shares had been issued under the 1996 Plan.
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors, which has the authority to determine which eligible individuals are
to receive options or restricted stock awards, the terms of such options or
awards, including the number of shares, exercise or purchase prices and times at
which the options become and remain exercisable or restricted stock vests, the
time, manner and form of payment upon exercise of an option and the status of
options as incentive or nonqualified stock options under federal income tax
laws. The exercise price of options granted under the 1996 Plan may not be less
than 85% of the fair market value of a share of Common Stock on the date of
grant (100% in the case of incentive stock options). The options become
exercisable at such time or times as are determined by the Compensation
Committee and expire after a specified period that may not exceed ten years.
Options must be exercised no more than three months following termination of
employment, except in the event that termination is due to death or disability,
in which case the option is exercisable for a maximum of twelve months after
such termination.
Each option granted to an officer of the Company, subject to the
short-swing profit restrictions of the Federal securities laws, may provide, and
each outstanding option to an officer as of the date of this Prospectus does
provide, that upon the acquisition of 50% or more of the outstanding Common
Stock pursuant to a hostile tender offer, such option, if outstanding for at
least six months, will automatically be canceled in exchange for a cash
distribution to the officer based upon the difference between the tender offer
price and the exercise price of the option.
In the event the Company is acquired by merger, consolidation or purchase
of assets, all outstanding options granted under the 1996 Plan will accelerate
to the extent not assumed by the acquiring entity. The Compensation Committee
also has discretion to provide for the acceleration of
35
<PAGE> 38
one or more outstanding options under the 1996 Plan and the vesting of unvested
shares held as restricted stock awards upon the occurrence of certain changes in
control. Such accelerated vesting may be conditioned upon subsequent termination
of the affected optionee's service.
The Compensation Committee has the authority to effect, from time to time,
the cancellation of outstanding options under the 1996 Plan in return for the
grant of new options for the same or a different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock on
the new grant date.
The Board may amend or modify the 1996 Plan at any time subject to the
rights of holders of outstanding options on the date of amendment or
modification. Stockholder approval is required for any amendment that would
change the eligibility requirements of the 1996 Plan, extend the term of the
1996 Plan or increase the number of shares subject to grant as options or
restricted stock awards under the 1996 Plan. The 1996 Plan will terminate on May
28, 2006.
1996 Employee Stock Purchase Plan
In May 1996, the Company's Board of Directors and stockholders approved the
1996 Employee Stock Purchase Plan (the "Stock Purchase Plan"), which enables
eligible employees to acquire shares of the Company's Common Stock through
payroll deductions. The Stock Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended. Offerings under the Stock Purchase Plan are planned to
commence on February 1 and August 1 of each year and to end on July 31 and
January 31 of each year. The initial offering period is intended to commence on
the date of this Prospectus and to end on January 31, 1997, unless otherwise
determined by the Board. During this offering period, an eligible employee may
select a rate of payroll deduction of up to 15% of his or her compensation up to
an aggregate total payroll deduction not to exceed $12,500 in any offering
period. The purchase price for the Common Stock purchased under the Stock
Purchase Plan is 85% of the lesser of the fair market value of the shares on the
first day or the last day of the offering period. A total of 300,000 shares of
Common Stock have been reserved for issuance under the Stock Purchase Plan.
36
<PAGE> 39
CERTAIN TRANSACTIONS
CERTAIN TRANSACTIONS
At the closing of this offering, William D. Ryan, a director of the
Company, and an entity related to Mr. Ryan will receive cash proceeds of
$3,569,083 from the mandatory redemption by the Company of all of the
outstanding shares of its Class A Preferred Stock.
The Company has entered into certain employment and other agreements with
Eric A. Kriss, the President and Chief Executive Officer of the Company,
providing for the payment of salary and bonuses, the grant of stock options and
related matters. See "Management -- Employment Agreements."
In March 1993, Mr. Kriss issued a promissory note to the Company in the
aggregate principal amount of $201,523 (the "Note"). The Note bears interest of
an annual rate of 3.92% and became payable on March 29, 1996, however the
Company has not chosen to collect such amount to date. In accordance with the
terms of a letter agreement between the Company and Mr. Kriss entered into in
January 1996, the Note will be cancelled upon the closing of a public offering
of the Company's Common Stock based on a valuation of the Company equal to or in
excess of $16,000,000. See "Management -- Employment Agreements."
OTHER RELATIONSHIPS
David Dominik, a director of the Company, is a general partner of
Information Partners Capital Fund, L.P. and entities related thereto, which
collectively own greater than 5% of the Common Stock.
The Company has adopted a policy that all future transactions between the
Company and its officers, directors and affiliates must be on terms no less
favorable than those that could be obtained from unrelated third parties, and
must be approved by a majority of the disinterested members of the Company's
Board of Directors.
37
<PAGE> 40
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth the beneficial ownership of the Common Stock
as of March 31, 1996, and as adjusted to reflect the sale of 2,200,000 shares of
Common Stock offered hereby, by (i) each person or entity known to the Company
to beneficially own 5% or more of the outstanding shares of Common Stock, (ii)
each of the Company's directors, (iii) each of the Company's Named Executive
Officers and (iv) all directors and executive officers of the Company as a
group.
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------------------------
PRIOR TO OFFERING(1) AFTER OFFERING(1)
--------------------- -----------------
NUMBER PERCENT PERCENT
--------- ------- -----------------
<S> <C> <C> <C>
5% Stockholders
TA Associates(2)....................................... 1,139,934 18.5% 13.7%
125 High Street
Boston, MA 02110
David Dominik(3)....................................... 1,046,435 17.3% 12.7%
Information Partners, L.P.(4).......................... 1,046,435 17.3% 12.7%
2 Copley Place
Boston, MA 02116
William Ryan(5)........................................ 855,833 14.2% 10.4%
2 Woodbury Place
Rochester, NY 14618
Eric A. Kriss(6)....................................... 551,904 9.1% 6.7%
c/o MediQual Systems, Inc.
1900 West Park Drive
Westborough, MA 01581
Charles M. Jacobs(7)................................... 543,152 9.0% 6.6%
c/o InterQual, Inc.
293 Boston Post Road
Marlborough, MA 01752
Other Directors and Named Executive Officers
Alan C. Brewster, M.D.(8).............................. 112,500 1.9% 1.4%
William C. Price(9).................................... 22,896 * *
James Corum(10)........................................ 16,372 * *
Elizabeth A. Endyke(11)................................ 15,325 * *
Diane M. Throop(12).................................... 14,750 * *
All Directors and executive officers as a group
(9 persons)(13)...................................... 4,319,102 52.9% 38.7%
<FN>
- ---------------
* Denotes less than one percent (1%)
(1) The number of shares of Common Stock deemed outstanding prior to this
offering includes (i) 3,786,318 shares of Common Stock outstanding as of
March 31, 1996 and (ii) an aggregate of 2,269,609 shares of Common Stock
issuable upon the conversion of the Class B and Class C Convertible
Preferred Stock and the conversion of a convertible debenture of the
Company into, and the exercise of a corresponding option for, shares of
Common Stock. The number of shares outstanding after this offering includes
the 2,200,000 shares of Common Stock offered hereby.
(2) Consists of an aggregate of 1,036,552 shares of Common Stock and
immediately exercisable warrants to acquire 103,382 shares of Common Stock
held by the following persons related to TA Associates (shares/warrants):
Advent V Limited Partnership (609,664/60,806); Advent Atlantic & Pacific
Limited Partnership (291,775/29,101); Advent Industrial Limited Partnership
(97,258/9,700); TA Associates V Limited Partnership (23,402/2,334); and TA
Venture Investors (14,453/1,441).
(3) Consists of an aggregate of 961,778 shares of Common Stock held by
Information Partners Capital Fund, L.P. and certain related persons. Mr.
Dominik is a general partner of Information Partners
38
<PAGE> 41
Capital Fund, L.P. and, as such, may be deemed to beneficially own all such
shares. Mr. Dominik disclaims beneficial ownership of such shares, except
to the extent of his proportionate pecuniary interest therein. The address
of Mr. Dominik is c/o Information Partners, L.P., 2 Copley Place, Boston,
Massachusetts 02116.
(4) Includes an aggregate of 962,947 shares of Common Stock held by the
following persons related to Information Partners, L.P.; Information
Partners Capital Fund, L.P. (890,662); BCIP Trust Associates, L.P. (37,285)
and BCIP Associates (35,000). Does not include options of Information
Partners Capital Fund, L.P. to purchase 50,000 and 75,027 shares of Common
Stock held by Dr. Brewster and Mr. Jacobs, respectively, pursuant to option
agreements between Information Partners Capital Fund, L.P. and each of Dr.
Brewster and Mr. Jacobs.
(5) Includes 557,500 shares of Common Stock held by NAYR Enterprises, a limited
partnership of which Mr. Ryan is a general partner. Mr. Ryan disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(6) Includes 12,500 shares of Common Stock held in trust for Mr. Kriss' minor
children. Mr. Kriss disclaims beneficial ownership of such shares.
(7) Includes 61,875 shares of Common Stock held by Mr. Jacob's wife, 65,000
shares held in trust for Mr. Jacobs' children and 75,027 shares of Common
Stock held by InterQual, Inc., a corporation of which Mr. Jacobs is the
majority shareholder. Also includes 75,027 shares of Common Stock subject
to transfer to Information Partners Capital Fund, L.P. pursuant to an
option agreement between the parties. Mr. Jacobs disclaims beneficial
ownership of the shares held by his wife and held in trust for his
children. Mr. Jacobs also disclaims beneficial ownership of the shares held
by InterQual, Inc., except to the extent of his pecuniary interest therein.
(8) Includes 50,000 shares of Common Stock subject to transfer to Information
Partners Capital Fund, L.P. pursuant to an option agreement between the
parties.
(9) Includes 9,950 shares issuable pursuant to options exercisable within 60
days after March 31, 1996.
(10) Includes 12,800 shares issuable pursuant to options exercisable within 60
days after March 31, 1996.
(11) Includes 13,000 shares issuable pursuant to options exercisable within 60
days after March 31, 1996.
(12) Includes 14,000 shares issuable pursuant to options exercisable within 60
days after March 31, 1996.
(13) Includes 49,750 shares issuable pursuant to options exercisable within 60
days after March 31, 1996.
</TABLE>
39
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $.001 per share, and 7,000,000 shares of Preferred
Stock, par value $.01 per share.
COMMON STOCK
As of March 31, 1996, there were 6,055,927 shares of Common Stock
outstanding and held of record by 143 stockholders, after giving effect to the
conversion of all outstanding shares of Series B Preferred Stock and Series C
Preferred Stock upon the closing of the Offering. Based upon the number of
shares of Common Stock outstanding as of that date and giving effect to the
issuance of the 2,200,000 shares of Common Stock offered hereby (assuming no
exercise of the underwriters' over-allotment option), there will be 8,255,927
shares of Common Stock outstanding upon the closing of the Offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities, subject to the prior rights of any outstanding Preferred Stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future. Upon the closing of the Offering, there will
be no shares of Preferred Stock outstanding.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, from time to time to
issue up to an aggregate of 7,000,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences and rights, and any
qualifications, limitations or restrictions thereof, of the shares of each such
series, including the number of shares constituting any such series and the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices and
liquidation preferences thereof. The issuance of any such Preferred Stock may
have the effect of delaying, deferring or preventing a change of control of the
Company. The Company has no present plans to issue any such shares of Preferred
Stock.
OUTSTANDING REGISTRATION RIGHTS
The Company is party to a Registration Rights Agreement, dated as of April
27, 1993 (the "Registration Agreement"), with certain of its stockholders,
including certain affiliates of directors of the Company (the "Registration
Stockholders"), who collectively hold approximately 2,183,470 shares of Common
Stock and warrants to purchase an additional 156,918 shares of Common Stock
(collectively, the "Registrable Shares") as of March 31, 1996. Pursuant to the
Registration Agreement, the Company has agreed, in the event the Company
proposes to register any of its securities under the Securities Act in
connection with a public offering of such securities for cash, whether for its
own account or otherwise at any time, to provide such Registration Stockholders
or their permitted transferees with notice of such registration and an
opportunity to include the Registrable Shares therein, subject to certain
conditions and limitations. In addition, the holders of fifty percent or more of
one of two classes of Registrable Shares may on up to two occasions, subject to
certain conditions
40
<PAGE> 43
and limitations, require the Company, whether or not the Company proposes to
register its Common Stock for sale, to register all or part of their Registrable
Shares for sale to the public under the Securities Act. The Registration
Stockholders may also require the Company to register all or part of their
Registrable Shares on Form S-3 under the Securities Act, or any similar form, if
the Company then qualifies for use of such form, subject to certain conditions
and limitations. The Company is obligated to pay all the expenses (other than
underwriting discounts) for each registration of Common Stock undertaken
pursuant to the Registration Agreement. Holders of a majority of each class of
the Registrable Shares required to effect a waiver of their rights to have their
Registrable Shares included in the registration statement of which this
Prospectus is a part have waived such rights to participate in this Offering. An
aggregate of 2,340,388 Registrable Shares will remain outstanding after this
Offering.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or unless the business combination is
approved in a prescribed manner. A "business combination" includes certain
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns, or owned within three years prior, 15% or more of the
corporation's voting stock.
Pursuant to the Company's Amended and Restated By-laws (the "By-laws"), a
director may be removed only for cause by the vote of a majority of the shares
entitled to vote for the election of directors.
The By-Laws provide that for nominations for the Board of Directors or for
other business to be properly brought by a stockholder before a meeting of
stockholders, the stockholder must first have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a notice of nominations
or other business to be brought before an annual meeting must be delivered not
less than 120 days nor more than 150 days prior to the first anniversary of the
date of the proxy statement delivered to stockholders in connection with the
preceding year's annual meeting or, if the date of the annual meeting is more
than 30 days before or more than 60 days after such anniversary, or if no proxy
statement was delivered to stockholders in connection with the preceding year's
annual meeting, such notice must be delivered not earlier than 90 days prior to
such annual meeting and not later than the later of (i) 60 days prior to the
annual meeting or (ii) 10 days following the date on which public announcement
of the date of such annual meeting is first made by the Company. With respect to
special meetings, notice must generally be delivered not more than 90 days prior
to such meeting and not later than the later of 60 days prior to such meeting or
10 days following the day on which public announcement of such meeting is first
made by the Company. The notice must contain, among other things, certain
information about the stockholder delivering the notice and, as applicable,
background information about each nominee or a description of the proposed
business to be brought before the meeting.
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") empowers the Board of Directors, when considering a tender offer or
merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. Such factors may include (i)
comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the Company's capital stock, (ii)
the estimated current value of the Company in a freely negotiated transaction
and the estimated future value of the Company as an independent entity, and
(iii) the impact of such a transaction on the employees, suppliers and customers
of the Company and its effect on the communities in which the Company operates.
41
<PAGE> 44
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company.
The Charter provides that any action required or permitted to be taken by
the stockholders of the Company may be taken only at duly called annual or
special meeting of the stockholders, and that special meetings may be called
only by the Chairman of the Board of Directors, a majority of the Board of
Directors or the President of the Company. These provisions could have the
effect of delaying until the next annual stockholders meeting stockholder
actions that are favored by the holders of a majority of the outstanding voting
securities of the Company. These provisions may also discourage another person
or entity from making a tender offer for the Common Stock because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.
The DGCL provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's certificate
of incorporation or by-laws, unless the corporation's certificate of
incorporation or by-laws, as the case may be, requires a greater percentage. The
Charter requires the affirmative vote of the holders of at least 67% of the
outstanding voting stock of the Company to amend or repeal any of the foregoing
Charter provisions, or to reduce the number of authorized shares of Common Stock
and Preferred Stock. Such 67% vote is also required to amend or repeal any of
the foregoing By-Law provisions. The By-Laws may also be amended or repealed by
a majority vote of the Board of Directors. Such 67% stockholder vote would be in
addition to any separate class vote that might in the future be required
pursuant to the terms of any Preferred Stock that might be outstanding at the
time any such amendments are submitted to stockholders.
See "Risk Factors -- Effect of Anti-Takeover Provisions; Availability of
Preferred Stock for Issuance."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Charter contains certain provisions permitted under the DGCL relating
to the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as the breach of
a director's duty of loyalty or acts or omissions that involve intentional
misconduct or a knowing violation of law. These provisions do not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief, such as an injunction or rescission, in the event of a breach of a
director's fiduciary duty. These provisions will not alter a director's
liability under federal securities laws. The Company's Charter and By-Laws also
contain provisions indemnifying the directors and officers of the Company to the
fullest extent permitted by the DGCL. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.
42
<PAGE> 45
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have a total of 8,255,927
shares of Common Stock outstanding. Of these shares, the 2,200,000 shares of
Common Stock offered hereby will be freely tradable without restriction or
registration under the Securities Act by persons other than "affiliates" of the
Company, as defined under the Securities Act. The remaining 6,055,927 shares of
Common Stock outstanding will be "restricted securities" as that term is defined
by Rule 144 as promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the number of shares
of Common Stock then outstanding (approximately 82,559 shares upon completion of
the Offering) or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements, and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, would be entitled to sell such shares under Rule 144(k) without regard to
the requirements described above.
Under Rule 144 (and subject to the conditions thereof), approximately
2,881,599 restricted securities will become eligible for sale upon completion of
the Offering, of which 2,684,936 are subject to lockup restrictions as described
below, and an additional approximately 3,307,624 restricted shares will become
eligible for sale 90 days after the Offering, of which 2,742,166 shares are
subject to lockup restrictions as described below. The Company's executive
officers and directors and certain other stockholders of the Company (who in the
aggregate will hold 5,295,501 shares of Common Stock that constitute restricted
securities upon completion of the Offering) have agreed that they will not
directly or indirectly, offer, sell, offer to sell, grant any option to purchase
or otherwise sell or dispose (or announce any offer, sale, offer of sale, grant
of any options to purchase or sale or disposition) of any shares of Common Stock
or other capital stock of the Company, or any securities convertible into, or
exercisable, or exchangeable for, any shares of Common Stock or other capital
stock of the Company without the prior written consent of Hambrecht and Quist
LLC, on behalf of the Underwriters, for a period of 180 days from the date of
this Prospectus.
The Company has granted certain warrants to purchase shares of Common
Stock. As of March 31, 1996, warrants to purchase 156,918 shares of Common Stock
at an exercise price of $.80 per share, and warrants to purchase 26,729 shares
of Common Stock at an exercise price of $2.64 per share, were outstanding. The
warrants to purchase 26,729 shares of Common Stock will be redeemed by the
Company upon the closing of the Offering for $196,725.
As of March 31, 1996, options to purchase a total of 313,012 shares of
Common Stock pursuant to the Company's 1987 Nonqualified Stock Option Plan and
several stock option agreements were outstanding with an exercise price of $1.00
per share, of which options to purchase 156,050 shares of Common Stock were
exercisable within 60 days of March 31, 1996. As of the date of this Prospectus,
an additional 1,800,000 shares of Common Stock were available for future option
grants under the 1996 Plan and the Stock Purchase Plan. See "Management -- Stock
Option Plans" and Note 7 to Financial Statements. A total of 258,956 shares of
Common Stock subject to options and warrants held by officers, directors and
certain stockholders are subject to lockup agreements in connection with the
Offering. See "Underwriting. "
Certain of the Company's stockholders holding in the aggregate 2,183,470
shares of Common Stock and warrants to purchase an additional 156,918 shares of
Common Stock have demand and "piggyback" registration rights to require the
Company to file one or more registration statements to effect the registration
under the Securities Act of such shares, which would permit such holders to
43
<PAGE> 46
resell such shares without complying with Rule 144. Registration and sale of
such shares could have an adverse effect on the trading price of the Common
Stock. The holders of such shares of Common Stock and warrants to purchase
Common Stock have waived their rights to have such shares included in the
registration statement of which this Prospectus is a part.
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by affiliates, beginning
90 days after the date of this Prospectus, subject to all provisions of Rule 144
except its two-year minimum holding period. The Company intends to file one or
more registration statements on Form S-8 under the Securities Act to register
shares of Common Stock subject to stock options.
Prior to the Offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities. See "Risk Factors -- Shares Eligible for Future Sale."
44
<PAGE> 47
UNDERWRITING
<TABLE>
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and Volpe, Welty & Company, have severally agreed to purchase from the Company
the following respective numbers of shares of Common Stock:
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
Volpe, Welty & Company......................................
Total..................................................... 2,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and its
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. The Representatives of the Underwriters have informed the Company that
the Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority. After the initial public offering of the
shares, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 330,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The Offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
45
<PAGE> 48
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain existing stockholders of the Company, including the Company's
executive officers and directors, who will own in the aggregate 5,295,501 shares
of Common Stock after the Offering, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, directly or indirectly offer,
sell, contact to sell, make any short sale of, pledge, grant any option to
purchase or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock owned by them during the 180-day period following
the date of this Prospectus. The Company has agreed that it will not, without
the prior written consent of Hambrecht & Quist LLC, directly or indirectly
offer, sell, contract to sell, make any short sale, pledge or otherwise dispose
of any shares of Common Stock or any securities exchangeable for or convertible
into shares of Common Stock during the 180-day period, following the date of
this Prospectus, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its stock option and employee stock
purchase plans and under currently outstanding options and warrants. Sales of
such shares in the future could adversely affect the market price of the Common
Stock. Hambrecht & Quist LLC may, in its sole discretion, release any of the
shares subject to the lock-up at any time without notice.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price will be
prevailing market and economic conditions, revenues and earnings of the Company,
market valuations of other companies engaged in activities similar to those of
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's management
and other factors deemed relevant.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Bingham, Dana & Gould LLP. Victor J. Paci, a partner of
Bingham, Dana & Gould LLP, is Assistant Secretary of the Company. Certain legal
matters in connection with this Offering will be passed upon for the
Underwriters by Hale and Dorr, Boston, Massachusetts.
EXPERTS
The audited financial statements of the Company included in this Prospectus
and elsewhere in the Registration Statement have been audited by Arthur Anderson
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
46
<PAGE> 49
MEDIQUAL SYSTEMS, INC.
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................. F-2
Balance Sheets at December 31, 1994 and 1995 and March 31, 1996 (unaudited).......... F-3
Statements of Operations for the three years ended December 31, 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited)............................. F-4
Statement of Redeemable Preferred Stock and Stockholders' Equity (Deficit) for the
three years ended December 31, 1995 and for the three months ended March 31, 1996
(unaudited)........................................................................ F-5
Statements of Cash Flows for the three years ended December 31, 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited)............................. F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 50
After the recapitalization discussed in Note 9 to MediQual Systems, Inc.'s
financial statements is effected, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
Boston, MA
May 30, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MediQual Systems, Inc.:
We have audited the accompanying balance sheets of MediQual Systems, Inc.
(a Delaware corporation) as of December 31, 1994 and 1995, and the related
statements of operations, redeemable preferred stock and stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MediQual Systems, Inc. as of
December 31, 1994 and 1995, and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Boston, Massachusetts
April 26, 1996 (except for the
matters discussed in Note 9 as
to which the date is , 1996)
F-2
<PAGE> 51
MEDIQUAL SYSTEMS, INC.
<TABLE>
BALANCE SHEETS
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 1,225,692 $ 1,006,477 $ 1,619,622
Accounts receivable, less reserve for doubtful
accounts of $175,000 in 1994, $200,000 in 1995
and $245,000 in 1996........................... 1,146,917 1,025,358 1,182,928
Refundable income taxes.......................... 211,000 -- --
Prepaid expenses................................. 397,877 115,725 119,403
------------ ------------ ------------
Total current assets................... 2,981,486 2,147,560 2,921,953
------------ ------------ ------------
Property and equipment, net...................... 1,687,611 950,402 830,402
Other assets..................................... 195,560 132,753 125,797
------------ ------------ ------------
$ 4,864,657 $ 3,230,715 $ 3,878,152
============ ============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable................................. $ 372,446 $ 389,231 $ 200,473
Accrued employee compensation and benefits....... 1,198,028 1,121,963 922,451
Accrued expenses................................. 710,364 588,014 589,527
Deferred revenue................................. 1,332,913 1,058,606 1,174,000
Current portion of long-term debt................ 482,829 414,172 908,765
------------ ------------ ------------
Total current liabilities.............. 4,096,580 3,571,986 3,795,216
------------ ------------ ------------
Long-term debt, less current portion............. 267,377 605,223 141,036
------------ ------------ ------------
Class A Redeemable preferred stock, nonvoting, no
par value -- 500 shares authorized, 229 shares
issued and outstanding (at redemption value)... 3,423,096 3,473,190 3,521,853
Class B Redeemable convertible preferred stock,
$.01 par value -- 6,500,000 shares authorized,
6,316,726 shares issued and outstanding (at
redemption value).............................. 5,204,880 5,204,880 5,204,880
Class C Redeemable convertible preferred stock,
$.01 par value -- 2,100 shares authorized,
2,022 shares issued and outstanding (at
redemption value).............................. 2,358,043 2,602,839 2,667,910
------------ ------------ ------------
Total redeemable preferred stock....... 10,986,019 11,280,909 11,394,643
------------ ------------ ------------
Commitments (Notes 4 and 8)
Stockholders' Equity (Deficit):
Preferred stock, $.01 par value -- 7,000,000
shares authorized, no shares issued......... -- -- --
Common stock, $.001 par value -- 30,000,000
shares authorized, 3,508,568, 3,523,662 shares
and 3,786,318 shares issued at December 31,
1994 and 1995 and March 31, 1996............... 3,508 3,523 3,786
Additional paid-in capital....................... 1,468,115 1,483,194 1,745,587
Accumulated deficit.............................. (11,695,705) (13,452,883) (12,981,380)
Treasury stock, at cost, 21,451 shares at
December 31, 1994 and 1995 and 6,987 shares at
March 31, 1996................................. (59,714) (59,714) (19,213)
Subscription receivable.......................... (201,523) (201,523) (201,523)
------------ ------------ ------------
Total stockholders' equity (deficit)... (10,485,319) (12,227,403) (11,452,743)
------------ ------------ ------------
$ 4,864,657 $ 3,230,715 $ 3,878,152
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 52
MEDIQUAL SYSTEMS, INC.
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues...................... $13,096,573 $12,084,371 $10,973,839 $2,640,925 $2,738,859
Operating expenses:
Marketing and
distribution............. 2,504,999 1,927,657 1,970,522 492,107 256,180
Research and development.... 4,152,334 3,625,785 4,012,870 1,155,110 628,110
Customer support............ 2,851,634 2,997,535 2,444,884 676,721 378,040
General and
administrative........... 2,197,516 3,401,164 3,357,912 841,575 787,085
Restructuring charges....... 1,623,157 -- 580,000 -- --
---------- ---------- ---------- --------- ---------
Total operating
expenses.......... 13,329,640 11,952,141 12,366,188 3,165,513 2,049,415
---------- ---------- ---------- --------- ---------
Operating income (loss)....... (233,067) 132,230 (1,392,349) (524,588) 689,444
Interest expense.............. 39,095 46,535 89,161 16,490 24,716
Interest (income) and other
(income) expense, net....... (94,462) (219,685) (19,222) (3,556) 2,282
---------- ---------- ---------- --------- ---------
Income (loss) before income
taxes....................... (177,700) 305,380 (1,462,288) (537,522) 662,446
Provision for income taxes.... 8,000 22,500 -- -- 77,209
---------- ---------- ---------- --------- ---------
Net income (loss)............. $ (185,700) $ 282,880 $(1,462,288) $ (537,522) $ 585,237
========== ========== ========== ========= =========
Accretion of preferred stock
dividends................... 204,971 392,091 294,890 58,951 113,734
---------- ---------- ---------- --------- ---------
Net income (loss) applicable
to common stockholders...... $ (390,671) $ (109,211) $(1,757,178) $ (596,473) $ 471,503
========== ========== ========== ========= =========
Pro forma net income (loss)
per share (unaudited)....... $ (0.21) $ 0.09
Pro forma weighted average
shares outstanding
(unaudited)................. 6,522,822 6,981,940
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 53
MEDIQUAL SYSTEMS, INC.
<TABLE>
STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
REDEEMABLE --------------------------------
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ---------- ------------ ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992....... 229 $3,184,077 6,316,726 $5,204,880 2,851,150 $2,851 $1,008,918
Sale of Class C preferred
stock, net of issuance costs
of $137,237.................. -- -- 2,022 2,000,000 -- -- (137,237)
Sale of common stock........... -- -- -- -- 333,229 333 270,045
Exercise of stock options...... -- -- -- -- 202,151 202 201,948
Net loss....................... -- -- -- -- -- -- --
Accretion of preferred stock
dividends.................... -- 68,700 -- 136,271 -- -- --
--- ---------- --------- ---------- ---------- ------ ----------
BALANCE, DECEMBER 31, 1993....... 229 3,252,777 6,318,748 7,341,151 3,386,530 3,386 1,343,674
Exercise of stock options and
warrants..................... -- -- 122,038 122 124,441
Purchase of treasury stock..... -- -- -- -- --
Net income..................... -- -- -- -- --
Accretion of preferred stock
dividends.................... -- 170,319 -- 221,772 -- -- --
--- ---------- --------- ---------- ---------- ------ ----------
BALANCE, DECEMBER 31, 1994....... 229 3,423,096 6,318,748 7,562,923 3,508,568 3,508 1,468,115
Exercise of stock options...... -- -- 15,094 15 15,079
Net loss....................... -- -- -- -- --
Accretion of preferred stock
dividends.................... -- 50,094 -- 244,796 -- -- --
--- ---------- --------- ---------- ---------- ------ ----------
BALANCE, DECEMBER 31, 1995....... 229 3,473,190 6,318,748 7,807,719 3,523,662 3,523 1,483,194
Exercise of stock options...... -- -- 262,656 263 262,393
Sale of treasury stock......... -- -- -- -- --
Net income..................... -- -- -- -- --
Accretion of preferred stock
dividends.................... -- 48,663 -- 65,071 -- -- --
--- ---------- --------- ---------- ---------- ------ ----------
BALANCE, MARCH 31, 1996
(unaudited).................... 229 $3,521,853 6,318,748 $7,872,790 3,786,318 $3,786 $1,745,587
=== ========== ========= ========== ========== ====== ==========
<CAPTION>
TREASURY STOCK
ACCUMULATED ------------------- SUBSCRIPTION
DEFICIT SHARES AMOUNT RECEIVABLE TOTAL
------------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992....... $(11,195,823) -- $ -- $ -- $(10,184,054)
Sale of Class C preferred
stock, net of issuance costs
of $137,237.................. -- -- -- -- (137,237)
Sale of common stock........... -- -- -- (201,523) 68,855
Exercise of stock options...... -- -- -- -- 202,150
Net loss....................... (185,700) -- -- -- (185,700)
Accretion of preferred stock
dividends.................... (204,971) -- -- -- (204,971)
--------
--
------------ -------- --------- ------------
BALANCE, DECEMBER 31, 1993....... (11,586,494) -- -- (201,523) (10,440,957)
Exercise of stock options and
warrants..................... -- -- (59,714) -- 124,563
Purchase of treasury stock..... -- (21,451) -- -- (59,714)
Net income..................... 282,880 -- -- -- 282,880
Accretion of preferred stock
dividends.................... (392,091) -- -- -- (392,091)
--------
--
------------ -------- --------- ------------
BALANCE, DECEMBER 31, 1994....... (11,695,705) (21,451) (59,714) (201,523) (10,485,319)
Exercise of stock options...... -- -- -- -- 15,094
Net loss....................... (1,462,288) -- -- -- (1,462,288)
Accretion of preferred stock
dividends.................... (294,890) -- -- -- (294,890)
--------
--
------------ -------- --------- ------------
BALANCE, DECEMBER 31, 1995....... (13,452,883) (21,451) (59,714) (201,523) (12,227,403)
Exercise of stock options...... -- -- -- -- 262,656
Sale of treasury stock......... -- 14,464 40,501 -- 40,501
Net income..................... 585,237 -- -- -- 585,237
Accretion of preferred stock
dividends.................... (113,734) -- -- -- (113,734)
--------
--
------------ -------- --------- ------------
BALANCE, MARCH 31, 1996
(unaudited).................... $(12,981,380) (6,987) $(19,213) $(201,523) $(11,452,743)
============ ======== ======== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 54
MEDIQUAL SYSTEMS, INC.
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ (185,700) $ 282,880 $(1,462,288) $ (537,522) $ 585,237
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation................................... 324,564 700,074 786,022 196,506 119,554
Non-cash portion of restructuring charges
(Note 7)..................................... 1,106,533 -- 132,485 -- --
Changes in current assets and liabilities:
Accounts receivable.......................... 652,848 753,539 121,559 315,651 (157,570)
Prepaid expenses and refundable income
taxes..................................... 3,593 (49,366) 493,151 139,479 (3,678)
Accounts payable............................. 55,311 (172,897) 16,785 87,167 (188,758)
Accrued employee compensation and benefits... 226,478 132,829 (76,065) (804,270) (199,512)
Accrued expenses............................. (632,992) (383,917) (122,350) (97,235) 1,959
Deferred revenue............................. 513,389 (1,893,954) (274,307) (118,894) 115,394
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities.............................. 2,064,024 (630,812) (385,008) (819,118) 272,626
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............. (1,545,798) (909,548) (181,297) (38,085) --
(Increase) decrease in other assets.............. (53,868) (51,624) 62,807 19,559 6,956
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) investing
activities.............................. (1,599,666) (961,172) (118,490) (18,526) 6,956
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt.................. -- 470,246 500,000 -- 75,000
Repayments of long-term debt..................... (591,056) (118,832) (230,811) (57,043) (44,594)
Proceeds from exercise of stock options.......... 202,150 124,563 15,094 750 262,656
Proceeds (payments) from sale (purchase) of
treasury stock................................. -- (59,714) -- -- 40,501
Proceeds from sale of common and preferred
stock.......................................... 1,931,618 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities.............................. 1,542,712 416,263 284,283 (56,293) 333,563
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents...................................... 2,007,070 (1,175,721) (219,215) (893,937) 613,145
Cash and cash equivalents, beginning of period..... 394,343 2,401,413 1,225,692 1,225,692 1,006,477
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period........... $2,401,413 $1,225,692 $ 1,006,477 $ 331,755 $1,619,622
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest....................................... $ 19,423 $ 41,564 $ 59,445 $ 12,119 $ 19,745
========== ========== ========== ========== ==========
Income taxes, net of refunds received.......... $ 5,640 $ 174,425 $ (209,250) $ 1,750 $ 1,150
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 55
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) DESCRIPTION OF BUSINESS
MediQual Systems, Inc. (the Company) is a leading supplier of clinical
information management systems and services to the health care industry. The
Company's systems and services combine proprietary clinical knowledge with raw
patient encounter data to create valuable information that providers, payors and
suppliers use to monitor and enhance the effectiveness, efficiency and
appropriateness of care.
The Company is subject to risks common to companies in its industry,
including but not limited to a limited history of profitability, competition,
system development introduction and enhancements and dependence on key
personnel. (See "Risk Factors" on pages 5 through 10 of this Prospectus for a
description of these and additional risks relating to the Company).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
significant accounting policies described below and elsewhere in these notes to
financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
In the opinion of the Company's management, the March 31, 1995 and 1996
unaudited interim financial statements include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of results for
this interim period. The results of operations for the three months ended March
31, 1995 and 1996 are not necessarily indicative of the results to be expected
for the full year or for any future period.
Cash and Cash Equivalents
The Company considers all highly liquid investments, if any, with an
original maturity of less than three months to be cash equivalents. Cash
equivalents consist mainly of money market funds.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and cash equivalents, and trade
accounts receivable. The Company places its temporary cash investments in highly
rated financial institutions. The Company has not experienced any losses on
these investments to date. The Company has not experienced significant losses
related to receivables from individual customers or groups of customers in the
health care industry or by geographic area. Due to these factors, no additional
credit risk beyond amounts provided for collection losses is believed by
management to be inherent in the Company's accounts receivable.
Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable and long-term obligations.
The carrying amounts of the Company's cash
F-7
<PAGE> 56
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
and cash equivalents, accounts receivable and accounts payables approximate fair
value due to the short-term nature of these instruments. The Company's long-term
obligations, which bear interest at a variable market rate, have a carrying
amount that approximates fair value. These long-term obligations, which carry a
fixed rate of interest, also approximate fair value, based on rates available to
the Company for debt with similar terms and remaining maturities.
Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation on a straight line basis over a three-to-five year estimated useful
life. Repairs and maintenance costs are charged to expense as incurred.
<TABLE>
Property and equipment consist of the following:
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Computer equipment.......................... $2,103,962 $2,051,921 $2,051,921
Furniture and fixtures...................... 385,624 270,369 270,369
Equipment under capital lease............... 204,149 204,149 204,149
Leasehold improvements...................... 19,253 19,253 19,253
---------- ---------- ----------
2,712,988 2,545,692 2,545,692
Less accumulated depreciation............... 1,025,377 1,595,290 1,715,290
---------- ---------- ----------
$1,687,611 $ 950,402 $ 830,402
========== ========== ==========
</TABLE>
Software Development Costs
Software development costs are considered for capitalization when
technological feasibility is established in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. The Company sells
software in a market that is subject to rapid technological change, new product
introductions and changing customer needs. Accordingly, the Company has not
capitalized software development costs due to its inability to estimate the
useful life of software under development.
Other Assets
Other assets at December 31, 1994, December 31, 1995 and March 31, 1996
include restricted cash of approximately $117,000, $120,000 and $121,000,
respectively, held in escrow in connection with an operating lease.
Revenue Recognition
The Company licenses its systems pursuant to annual agreements that provide
for the payment of license fees at the beginning of the term. Renewal of these
Agreements is subject to annual price increases. Revenues from system licenses
are recognized upon shipment of the system or the anniversary of the original
shipment. The portion of license fees relating to system maintenance is deferred
and recognized over the annual maintenance period. Revenues from training,
analytical and data collection services are recognized as the services are
performed. Unrecognized amounts are recorded as deferred revenue in the
accompanying balance sheets.
F-8
<PAGE> 57
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Income Taxes
<TABLE>
The Company follows SFAS No. 109, Accounting for Income Taxes, by providing
for federal and state income taxes under the liability method. Deferred taxes
are determined based on the difference between the financial statement and tax
bases of assets and liabilities, as measured by the current statutory tax rates.
The Company's deferred income taxes as of December 31, were as follows:
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Tax assets:
Net operating loss carryforwards.......... $ 3,812,000 $ 4,137,000
Reserves not yet deductible for tax
purposes............................... 198,000 359,000
Deferred revenue.......................... 396,000 194,000
Federal tax credits....................... 204,000 204,000
----------- -----------
Total tax assets....................... 4,610,000 4,894,000
Tax liabilities:
Property basis differences................ (20,000) (88,000)
Other..................................... (34,000) (6,000)
------------ ------------
Total tax liabilities.................. (54,000) (94,000)
------------ ------------
Net tax asset.......................... 4,556,000 4,800,000
Less valuation allowance............... (4,556,000) (4,800,000)
------------ ------------
Amount recorded in financial
statements........................... $ -- $ --
============ ============
</TABLE>
The provision for income taxes in 1993 and 1994 represent minimum state
income taxes currently payable. At December 31, 1995, the Company had net
operating loss carryforwards for federal income tax purposes of $10,342,000
expiring through the year 2009. The Company also has available federal tax
credits of $204,000 expiring through the year 2003. The Company has recorded a
full valuation allowance against its otherwise recognizable net deferred tax
asset due to the uncertainty of realizing the future benefit from net deferred
tax assets.
Section 382 of the Internal Revenue Code relates to the use of corporate
tax attributes following a change in ownership. Under this Section, a defined
ownership change can result from the issuance of new equity securities. The
Company's net operating loss and tax credit carryforwards available to be used
in any given year may be limited in the event of such ownership changes.
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is computed for each period based on
the weighted average number of common shares outstanding and dilutive common
stock equivalents. For purposes of this calculation, dilutive stock options are
considered common stock equivalents using the treasury stock method. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common and
common equivalent shares issued during the 12 month period prior to the date of
the initial filing of the Company's Registration Statement have been included in
the calculation, using the treasury stock method, as if they were outstanding
for all periods presented. Fair market value for the purpose of this calculation
was assumed to be $10.00, which is the mid point of the assumed initial public
offering price range. Also, all outstanding shares of Class B and C Convertible
Redeemable Preferred Stock, which will automatically convert into common stock
upon the closing of the Company's proposed initial public offering, are assumed
to be converted to common stock at the time of issuance.
F-9
<PAGE> 58
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Pro forma net income (loss) per share also assumes the elimination of
preferred stock accretion and interest expense relating to the assumed preferred
stock redemption and debt repayment with the proceeds from the Company's
proposed public offering. Pro forma weighted average shares outstanding includes
the additional number of shares required to be issued in the proposed public
offering to generate enough net proceeds to redeem the Class A preferred stock
and repay all outstanding debt. Historical net income per share data have not
been presented as such information is not considered to be relevant or material.
(3) DEBT
<TABLE>
Long-term debt consisted of the following:
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Line of credit........................ $ -- $ 500,000 $ 500,000
Equipment term note................... 418,717 261,970 222,783
Obligations under capital lease....... 79,471 5,407 --
Convertible debenture................. 252,018 252,018 252,018
Note payable to officer (Note 8)...... -- -- 75,000
-------- ---------- ----------
750,206 1,019,395 1,049,801
Less current portion.................. 482,829 414,172 908,765
-------- ---------- ----------
$267,377 $ 605,223 $ 141,036
======== ========== ==========
</TABLE>
Line of Credit
The Company has a working capital line-of-credit agreement with a bank
expiring on January 5, 1997, unless renewed. Borrowings under the line of credit
are collateralized by substantially all of the Company's assets and may not
exceed the lesser of $500,000 or eligible accounts receivable. Interest is
payable monthly at the bank's prime rate (8.5% at December 31, 1994 and 8.25% at
December 31, 1995 and March 31, 1996) plus .5%, 2% and 2% at December 31, 1994,
December 31, 1995 and March 31, 1996, respectively.
On May 17, 1996, the bank expanded the line of credit facility to
$1,500,000, subject to eligible accounts receivable, at an interest rate of
prime plus 1%, reducing to prime upon the completion of a public offering,
maturing on January 5, 1997.
Equipment Term Note
Borrowings through June 30, 1994 under a previous equipment line of credit
converted to a term note, payable in 36 equal monthly installments of principal
beginning on July 5, 1994. Interest is payable monthly at the bank's prime rate
(8.5% at December 31, 1994 and 8.25% at December 31, 1995 and March 31, 1996)
plus 1.5%. Borrowings are secured by substantially all assets of the Company.
The line of credit and the equipment term note both have restrictive
covenants that require the Company to achieve certain levels of profitability
and tangible net worth and to meet certain financial ratios. At December 31,
1995, the Company was not in compliance with the profitability and tangible net
worth covenants, which were waived by the bank on April 25, 1996 for all past
failures.
Obligations Under Capital Lease
In connection with a capital lease obligation, the Company issued warrants
to the lessor to purchase 105,661 shares of the Company's Series 1987 Class B
convertible preferred stock, subject to certain antidilution provisions. The
warrants are exercisable at $.66 per share and expire in December
F-10
<PAGE> 59
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1996. As of March 31, 1996, the cost of the equipment under capital lease of
$204,149 had been fully depreciated.
Convertible Debenture
In 1992, in connection with the settlement of certain royalty obligations
with a former product development partner, the Company issued an 8% convertible
debenture with interest due quarterly, commencing on December 31, 1991. The
principal balance, plus any accrued interest, was due on November 20, 1995. In
May 1996, the note was converted into 52,070 shares of common stock and the
Company issued an option to purchase 25,000 shares of common stock at an
exercise price of $4.84 per share to the holder of the convertible debenture.
<TABLE>
Required principal payments of debt as of December 31, 1995 for each of the
next two years are as follows:
<CAPTION>
YEAR AMOUNT
---- ---------
<S> <C>
1996....................................................... $ 414,172
1997....................................................... 605,223
----------
$1,019,395
==========
</TABLE>
(4) COMMITMENTS
Operating Leases
<TABLE>
The Company leases its facilities and certain equipment under operating
leases that expire through March 1999. A multi-year facility lease has favorable
lease payments in the initial and early years of the lease. Total lease payments
are recognized on a straight-line basis over the lives of the leases with the
difference between payment amount and expense recognized as accrued rent in the
accompanying balance sheets. The future minimum annual lease payments at
December 31, 1995 are as follows:
<CAPTION>
YEAR AMOUNT
---- ---------
<S> <C>
1996....................................................... $ 648,000
1997....................................................... 417,000
1998....................................................... 396,000
1999....................................................... 99,000
----------
$1,560,000
==========
</TABLE>
Total rent expense included in the accompanying statements of operations is
$656,000, $584,000 and $674,000 for the years ended December 31, 1993, 1994 and
1995, respectively, and $165,600 and $173,300 for the three months ended March
31, 1995 and 1996, respectively.
F-11
<PAGE> 60
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) REDEEMABLE PREFERRED STOCK
Class A Redeemable Preferred Stock
The following summarizes the relative powers, designations and rights of
the Class A preferred stock:
LIQUIDATION
Holders of Class A preferred stock are entitled to be paid $10,000 per
share plus accrued but unpaid dividends in the event of a liquidation or
dissolution of the Company before any amount is paid to common stockholders, but
after any distribution to Class B and Class C preferred stockholders.
DIVIDENDS
Holders of Class A preferred stock are entitled to receive quarterly
dividends from net profits, as defined, if any. Dividends are cumulative. At
December 31, 1995 and March 31, 1996, the Company had cumulative dividends in
arrears of $1,183,189 and $1,231,851, respectively, on the Class A preferred
stock.
REDEMPTION
The Class A preferred stock is redeemable on or after April 1, 1995 at the
option of the holder for $10,000 per share plus accrued dividends. Class A
preferred stock redemptions and dividends are payable only from one-third of
legally available funds of the Company, only after all Class C convertible
preferred stock redemptions have been paid. The holders of the Class A preferred
stock have agreed not to demand redemption prior to January 1, 1997. The Company
will redeem the Class A preferred stock upon completion of this Offering.
VOTING RIGHTS
Class A preferred stock is nonvoting.
Class B Redeemable Convertible Preferred Stock
The following summarizes the relative powers, designations and rights of
the Series 1986 and 1987 Class B convertible preferred stock:
LIQUIDATION
In the event of any liquidation or dissolution of the Company, the holders
of the Series 1986 and 1987 Class B convertible preferred stock shall be
entitled to receive $.70 and $2.00 per share, respectively, prior to any
distributions to the holders of Class A preferred stock or common stock but
after any distribution to the holders of the Class C convertible preferred
stock.
CONVERSION
Each share of Class B convertible preferred stock is convertible at the
option of the holder, or automatically in the event of a public stock offering,
as defined, into approximately one-fourth of a share of common stock, based on
original issue price. This conversion rate is adjusted upon the occurrence of
certain dilutive events.
F-12
<PAGE> 61
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
REDEMPTION
The Class B convertible preferred stock is redeemable in whole or in part
on or after April 1, 1995 at the option of the holders. The redemption price for
Series 1986 and 1987 convertible preferred stock is $.70 and $2.00 per share,
respectively, plus any accrued and unpaid dividends. Class B convertible
preferred stock redemptions and dividends are payable only from two-thirds of
legally available funds of the Company only after all Class C convertible
preferred stock redemptions have been paid. The holders of the Class B
convertible preferred stock have agreed not to demand redemption prior to
January 1, 1997.
DIVIDENDS
The Class B convertible preferred stockholders are entitled to any
dividends that may be declared on the common stock. The amount of the dividend
is equal to the dividend per common share multiplied by the number of common
shares that each preferred stockholder would receive upon conversion.
VOTING RIGHTS
Holders of Class B convertible preferred stock vote together with common
stockholders as one class, with special provisions for electing members to the
Board of Directors. Class B convertible preferred stockholders are entitled to
the number of votes that they would receive if they converted their Class B
convertible preferred stock into common stock at the applicable conversion rate.
Also, provided that at least 1,263,345 shares of the Class B convertible
preferred stock remain outstanding, the Company is restricted from taking
certain actions without the vote or written consent of the holders of a majority
of the Class B convertible preferred stock.
Class C Redeemable Convertible Preferred Stock
The following summarizes the relative powers, designations and rights of
the Class C convertible preferred stock:
LIQUIDATION
In the event of any liquidation or dissolution of the Company, the holders
of the Class C convertible preferred stock shall be entitled to receive
approximately $990.00 per share plus all accrued but unpaid dividends prior to
any distribution to the holders of Class A preferred stock, Class B convertible
preferred stock or common stock.
CONVERSION
Each share of Class C convertible preferred stock is convertible at the
option of the holder, or automatically in the event of a public offering, as
defined, into approximately 250 shares of common stock plus 50% of accrued and
unpaid dividends per share of Class C convertible preferred stock. This
conversion rate is adjusted upon the occurrence of certain dilutive events.
REDEMPTION
The Class C convertible preferred stock is redeemable in whole or in part
on or after April 1, 1995 at the option of the holders. The redemption price for
the Class C convertible preferred stock is $1,000 per share plus any accrued and
unpaid dividends. Class C convertible preferred stock redemptions and dividends
are payable from legally available funds of the Company prior to any redemption
of Class A
F-13
<PAGE> 62
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
and Class B preferred stock. The holders of the Class C convertible preferred
stock have agreed not to demand redemption prior to January 1, 1997.
DIVIDENDS
The Class C convertible preferred stockholders are entitled to receive
quarterly dividends. Dividends are cumulative at 2.5% per quarter of the Class C
convertible preferred stock liquidation value. At December 31, 1995 and March
31, 1996, the Company had cumulative dividends in arrears of $602,839 and
$667,910, respectively, on the Class C convertible preferred stock. Dividends on
the Class C convertible preferred stock shall be paid before any dividends for
any other class of stock.
VOTING RIGHTS
Holders of Class C convertible preferred stock vote together with common
stockholders as one class, with special provisions for electing members to the
Board of Directors. Class C convertible preferred stockholders are entitled to
the number of votes that they would receive if they converted their stock to
common stock. The Company is restricted from taking certain action without the
vote or written consent of the holders of a majority of the outstanding Class C
convertible preferred stock.
(6) STOCKHOLDERS' EQUITY
Common Stock
The Company has reserved 856,656 shares of common stock for issuance to
employees, directors and others pursuant to the granting of nonqualified stock
options under the Company's stock option plan (see below). The Company is also
required to reserve a sufficient number of shares to effect the conversion of
the Class B convertible preferred stock, Class C convertible preferred stock,
warrants and convertible debenture (2,444,916 shares at March 31, 1996).
Subscription Receivable
Subscriptions receivable represents a note receivable from an officer for
$201,523 that was issued in connection with his purchase of 314,403 shares of
common stock in 1993. The note bears interest at 3.92% per year. In connection
with the employment agreement and incentive arrangement discussed in Note 8, the
note receivable will be forgiven upon completion of the Company's proposed
public offering at a minimum valuation, as defined,
Nonqualified Stock Option Plan
The Company maintains a 1987 Nonqualified Stock Option Plan (the "1987
Plan"). Options granted, prices and vesting periods are determined by the Board
of Directors. The majority of the grants vest ratably over 50 months. At March
31, 1996, 65,768 shares remained available for grants of options under the 1987
Plan. In May 1996, the Board of Directors of the Company terminated the 1987
Plan with respect to the granting of any further options thereunder.
F-14
<PAGE> 63
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
The following table summarizes all stock option activity:
<CAPTION>
NUMBER OF OPTION PRICE RANGE
SHARES PER SHARE
--------- ------------------
<S> <C> <C>
Outstanding at December 31, 1993...................... 500,547 $1.00-1.40
Granted............................................. 21,250 2.80
Exercised........................................... (120,888) 1.00-2.80
Canceled............................................ (42,459) 1.00-2.80
--------
Outstanding at December 31, 1994...................... 358,450 1.00-2.80
Granted............................................. 97,200 1.00-2.80
Exercised........................................... (15,094) 1.00-2.80
Canceled............................................ (213,825) 1.00-2.80
--------
Outstanding at December 31, 1995...................... 226,731 1.00
Granted............................................. 395,187 1.00
Exercised........................................... (262,656) 1.00
Canceled............................................ (46,250) 1.00
--------
Outstanding at March 31, 1996......................... 313,012 1.00
--------
Exercisable at March 31, 1996......................... 107,158 $ 1.00
========
</TABLE>
Warrants
On April 29, 1993, the Company issued one warrant for each 10 shares of
Class B convertible preferred stock held by existing Class B convertible
preferred stockholders, or an aggregate of warrants to purchase 158,069 shares
of common stock. Each warrant has an exercise price of $.80 per share, the fair
market value of the common stock on the date of grant, as determined by the
Board of Directors. The exercise price is adjusted upon the occurrence of
certain dilutive events. The warrants are exercisable at the option of the
holder through April 29, 2003. Warrants to purchase 1,150 shares of common stock
were exercised in 1994.
(7) RESTRUCTURING CHARGES
In 1993, the Company recorded a $1,623,157 charge to consolidate all of the
Company's field operations and to write off all remaining capitalized software
costs related to discontinued products and obsolete equipment. In 1995, the
Company recorded a $580,000 charge to reflect a staff reduction and office space
consolidation which occurred on December 13, 1995.
<TABLE>
The components of the restructuring charges are as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1995
---------- --------
<S> <C> <C>
Severance and benefits....................................... $ 376,267 $294,839
Obsolete fixed asset disposals and write-offs................ 800,656 112,986
Excess facility rent and office closings..................... 198,234 172,175
Unrealizable software development costs...................... 248,000 --
---------- --------
$1,623,157 $580,000
========== ========
</TABLE>
At December 31, 1995, $292,600 and $153,000 was included in accrued
compensation and benefits and accrued expenses, respectively, related to
restructuring costs. Included in the 1993 and 1995
F-15
<PAGE> 64
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
statements of cash flows as an adjustment to reconcile net loss to net cash
provided by (used in) operating activities is $1,106,533 and $132,485 related to
the asset write-offs and rent reserves, respectively.
(8) EMPLOYEE BENEFITS
401(k) Plan
The Company maintains a defined contribution plan under Section 401(k) of
the Internal Revenue Code. This plan allows employees to contribute up to 15% of
their compensation to the plan. Under the plan, the Company may, but is not
obligated to, match a portion of the employees' contributions up to a defined
maximum. There were no matching contributions in 1993, 1994 or 1995.
Employment Agreements
In January 1996, the Company and its chief executive officer entered into
an employment agreement and incentive arrangement. Pursuant to the agreement,
the officer received a note payable for $75,000 representing his 1995 incentive
pay. The note bears interest at 10% per year and is payable upon the earlier of
January 2, 1998, the officer's voluntary termination, or the sale of the
Company. The note, along with accrued but unpaid interest, is included in
long-term debt at March 31, 1996.
Under the incentive arrangement, the chief executive officer received an
option to purchase up to 225,000 shares of common stock and a cash bonus of up
to $200,000. The cash bonus is contingent on completion of an initial public
offering at a minimum valuation. The option is exercisable at a price of $1.00
per share, the then fair market value of the common stock and is exercisable
immediately, subject to a right of the Company to repurchase such shares until
the earlier of five years of the date of grant or the closing of an initial
public offering or sale of the Company based on a specified valuation. The
officer exercised the option for 225,000 shares of common stock in full on March
29, 1996. The shares are subject to repurchase in accordance with the terms
noted above. The Company has accrued approximately $250,000 as of March 31, 1996
in connection with the employment and incentive plan.
The Company entered into stay agreements with certain key officers under
which the Company guarantees the officer who is a party thereto a severance
payment in an amount equal to such officer's twelve-month base salary in the
event that the officer's employment is terminated other than at such officer's
volition.
(9) SUBSEQUENT EVENTS
Recapitalization
On , 1996, the stockholders of the Company approved a 1-for-4
reverse stock split of the Company's common stock. Accordingly, all share and
per share amounts have been adjusted to reflect the reverse stock split as
though it had occurred at the beginning of the initial period presented.
1996 Stock Incentive Plan
In May 1996, the Company's Board of Directors and stockholders approved the
Company's 1996 Stock Incentive Plan (the "1996 Plan"), which provides for the
grant of incentive stock options, nonqualified stock options and restricted
stock awards to employees of the Company (including officers and employee
directors). A maximum of 1,500,000 shares are currently reserved for issuance
pursuant to the 1996 Plan. This maximum number of shares will increase,
effective as of January 1, 1998 and each January 1 thereafter during the term of
the plan, by an additional number of shares of Common Stock equal to ten percent
of the excess, if any, of (i) the total number of shares of Common Stock and
Common Stock equivalents issued and outstanding as of the close of business on
December 31 of the preceding year over (ii) the total number of shares of Common
Stock and Common Stock
F-16
<PAGE> 65
MEDIQUAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
equivalents issued and outstanding as of the close of business on December 31 of
the year prior to such preceding year. No participant in the 1996 Plan may in
any year be granted stock options or awards with respect to more than 500,000
shares of Common Stock, and no more than an aggregate of 3,000,000 shares of
Common Stock may be issued pursuant to the exercise of incentive stock options
granted under the 1996 Plan. As of March 31, 1996, no options had been granted
and no shares had been issued under the 1996 Plan.
1996 Employee Stock Purchase Plan
In May 1996, the Company's Board of Directors approved the 1996 Employee
Stock Purchase Plan (the "Stock Purchase Plan"), which enables eligible
employees to acquire shares of the Company's Common Stock through payroll
deductions. The Stock Purchase Plan is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. Offerings under the Stock Purchase Plan are planned to commence on
February 1 and August 1 of each year and to end on July 31 and January 31 of
each year. The initial offering period is intended to commence on the date of
this Prospectus and to end on January 31, 1997, unless otherwise determined by
the Board. During this offering period, an eligible employee may select a rate
of payroll deduction of up to 15% of his or her compensation up to an aggregate
total payroll deduction not to exceed $12,500 in any offering period. The
purchase price for the Company's Common Stock purchased under the Stock Purchase
Plan is 85% of the lesser of the fair market value of the shares on the first
day or the last day of the offering period. A total of 300,000 shares of Common
Stock have been reserved for issuance under the Stock Purchase Plan.
F-17
<PAGE> 66
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH A SOLICITATION OR OFFER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Additional Information....................... 2
Prospectus Summary........................... 3
Risk Factors................................. 5
The Company.................................. 11
Use of Proceeds.............................. 11
Dividend Policy.............................. 11
Capitalization............................... 12
Dilution..................................... 13
Selected Financial Data...................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 15
Business..................................... 21
Management................................... 30
Certain Transactions......................... 37
Principal Stockholders....................... 38
Description of Capital Stock................. 40
Shares Eligible for Future Sale.............. 43
Underwriting................................. 45
Legal Matters................................ 46
Experts...................................... 46
Index to Financial Statements................ F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,200,000 SHARES
LOGO
COMMON STOCK
--------------------
PROSPECTUS
--------------------
HAMBRECHT & QUIST
VOLPE, WELTY& COMPANY
, 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee, the NASD Filing Fee, and the Nasdaq National Market
Listing Fee) of the fees and expenses all of which are payable by the
Registrant, other than underwriting discounts and commissions, in connection
with the registration and sale of the Common Stock being registered:
<S> <C>
Securities and Exchange Commission Registration Fee..................... $ 9,597
NASD Fees............................................................... 3,283
Nasdaq National Market Listing Fee...................................... 25,640
Fees of Registrar and Transfer Agent.................................... *
Printing and Engraving.................................................. *
Blue Sky Fees and Expenses.............................................. *
Legal Fees and Expenses................................................. *
Accounting Fees and Expenses............................................ *
Miscellaneous........................................................... *
--------
Total................................................................. $500,000
========
<FN>
- ---------------
*To be supplied by amendment.
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons to
the extent and under the circumstances set forth therein.
Article Seventh of the Amended and Restated Certificate of Incorporation of
the Company (the "Charter"), a copy of which is filed herein as Exhibit 3.1,
provides that no director shall be liable to the Company or to its stockholders
for breach of fiduciary duty as a director, other than (i) for breach of the
director's duty of loyalty, (ii) for acts or omissions not in good faith, (iii)
for any transaction from which the director derived an improper personal benefit
and (iv) under Section 174 of Title 8 of the Delaware General Corporation Law.
Article Ninth of the Charter provides for indemnification of all persons whom
the Company has the power to indemnify under law to the fullest extent permitted
by the Delaware General Corporation Law.
Article VIII of the Amended and Restated By-laws of the Company, a copy of
which is filed herein as Exhibit 3.2, provides for indemnification of officers
and directors of the Company and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under certain
stated conditions.
Section 7(a) of the Underwriting Agreement between the Company and the
Underwriters, a copy of which is filed herein as Exhibit 1, provides for
indemnification by the Company of the Underwriters and each person, if any, who
controls any Underwriter, against certain liabilities and expenses, as stated
therein, which may include liabilities under the Securities Act of 1933. The
Underwriting Agreement also provides that the Underwriters shall similarly
indemnify the Company, its directors, officers, and controlling persons, as set
forth therein.
The Company intends to maintain insurance for the benefit of its directors
and officers insuring such persons against certain liabilities, including
liabilities under the securities laws.
II-1
<PAGE> 68
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Registrant has issued and sold the following unregistered securities, all share
numbers and per share prices of which have been adjusted (for purposes of this
Item 15) to reflect the proposed four-for-one reverse split of the Common Stock
which is expected to occur in June 1996.
On August 30, 1994, the Registrant issued an aggregate of 1,150 shares of
Common Stock to Robert J. Strasenburgh and Betty Strasenburgh for an aggregate
consideration of $920 upon exercise of outstanding warrants.
On March 29, 1996, the Registrant issued 8,357, 3,571, 1,785, and 750
shares of Common Stock valued at $1.00 per share to William C. Price, James
Corum, Elizabeth A. Endyke, and Diane M. Throop, respectively, in partial
payment of certain bonus payments owed by the Registrant to such persons, and
issued 225,000 shares of Common Stock to Eric A. Kriss upon the exercise of an
option granted pursuant to an incentive arrangement between the Registrant and
Mr. Kriss at a purchase price of $1.00 per share.
During the period from July 14, 1993 through March 29, 1996, the Registrant
issued an aggregate of 236,250 shares of Common Stock to directors, officers and
employees of the Registrant pursuant to the Company's 1987 Nonqualified Stock
Option Plan (the "1987 Plan") upon the exercise of options at prices ranging
from $1.00 to $1.40 per share for an aggregate consideration of $239,035. During
that period, the Registrant also granted options to directors, officers and
employees of the Registrant to purchase an aggregate of 302,150 shares of its
Common Stock pursuant to the 1987 Plan at exercise prices ranging from $1.00 to
$2.80 per share, all of which have been repriced at $1.00. On January 20, 1996,
the Registrant granted an option to the Fallon Foundation to purchase 9,068
shares of Common Stock at an exercise price of $1.00 per share in connection
with a Settlement Agreement dated November 20, 1991.
No underwriters were involved in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from the
registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"), set forth in Section 4(2) thereof relative to sales by an
issuer not including any public offering. All of the foregoing securities are
deemed to be restrictive securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
(A) EXHIBITS:
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <S>
1 Proposed Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of the Registrant.
*3.2 Amended and Restated By-Laws of the Registrant.
*4 Specimen Certificate for shares of the Company's Common Stock.
*5 Opinion of Bingham, Dana & Gould, LLP counsel to the Registrant, regarding the
legality of the shares of Common Stock.
*10.1 1987 Nonqualified Stock Option Plan of the Registrant, as amended.
10.2 Form of 1996 Stock Incentive Plan of the Registrant.
10.3 Form of 1996 Employee Stock Purchase Plan of the Registrant.
10.4 Lease of Westborough Office Park Building Two, dated as of July 21, 1986, between
WRC Properties, Inc. and the Registrant (the "Lease").
10.5 First Amendment to the Lease, dated as of September 22, 1987, between WRC
Properties, Inc. and the Registrant.
</TABLE>
II-2
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <S>
10.6 Second Amendment to Amended and Restated Lease, dated as of July 1989, between WRC
Properties, Inc. and the Registrant.
10.7 Third Amendment to Amended and Restated Lease, dated as of December 31, 1990,
between WRC Properties, Inc. and the Registrant.
10.8 Fourth Amendment to Amended and Restated Lease, dated as of September 22, 1993,
between WRC Properties, Inc. and the Registrant.
10.9 Fifth Amendment to Amended and Restated Lease, dated as of December 1993, between
WRC Properties, Inc. and the Registrant.
10.10 Sixth Amendment to Amended and Restated Lease, dated as of April 30, 1996, between
WRC Properties, Inc. and the Registrant.
10.11 Stock Purchase Agreement, dated March 31, 1984, between William D. Ryan and the
Registrant.
10.12 Form of Stock Purchase Agreement, dated as of August 4, 1986, among the Registrant
and the purchasers named therein, relating to the sale by the Registrant of shares
of Class B Convertible Preferred Stock.
10.13 Form of Stock Purchase Agreement, dated as of October 1987, among the Registrant
and the purchasers named therein, relating to the sale by the Registrant of shares
of Series 1987 Class B Convertible Preferred Stock.
10.14 Stock Purchase Agreement, dated as of April 1, 1993, among the Registrant and the
purchasers named therein (the "Purchasers"), relating to the sale by the
Registrant of shares of Class C Convertible Preferred Stock.
10.15 Form of letter agreement, dated as of April 27, 1993, among the Registrant and the
Purchasers relating to possible issuance by the Registrant of additional shares of
Class C Convertible Preferred Stock.
10.16 Registration Rights Agreement, dated as of April 27, 1993, among the Registrant,
the Purchasers and the Investors named therein.
10.17 Agreement of Shareholders, dated as of April 27, 1995, among the Registrant,
William D. Ryan, Charles M. Jacobs, Alan C. Brewster, and the Purchasers and the
Investors named therein.
10.18 Executive Employment Agreement, dated as of March 29, 1993, between the Registrant
to Mr. Kriss, as amended.
10.19 Promissory note in the principal amount of $201,523, dated March 29, 1993, made by
the Registrant to Mr. Kriss.
10.20 Stock Purchase Agreement, dated as of March 29, 1993, between the Registrant and
Mr. Kriss, relating to the sale by the Registrant of shares of Common Stock.
10.21 Letter agreement, dated April 3, 1995, between the Registrant and Mr. Kriss.
10.22 Promissory note in the principal amount of $75,000, dated January 2, 1996, made by
the Registrant to Mr. Kriss.
10.23 Letter agreement, dated as of January 20, 1996, between the Registrant and Mr.
Kriss.
10.24 Common Stock Purchase Option, dated as of January 20, 1996, between the Registrant
and Mr. Kriss.
10.25 Letter agreement, dated April 29, 1996, between the Registrant and Mr. Kriss.
10.26 Form of Stay Agreement, dated July 14, 1995, between the Registrant and each of
Mr. Corum, Ms. Endyke, Mr. Price and Ms. Throop.
</TABLE>
II-3
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------
<C> <S>
*10.27 Letter agreement, dated November 16, 1993, between the Registrant and Silicon
Valley Bank, relating to a $1,000,000 line of credit.
*10.28 Letter agreement, dated November 16, 1993, between the Registrant and Silicon
Valley Bank, relating to a $1,500,000 line of credit.
*10.29 Loan Modification Agreement, dated as of June 30, 1994, between the Registrant and
Silicon Valley Bank, relating to the Registrant's $1,000,000 of credit.
*10.30 Loan Modification Agreement, dated as of May 5, 1995, between the Registrant and
Silicon Valley Bank, relating to the Registrant's $1,000,000 of credit.
*10.31 Loan Modification Agreement, dated as of May 5, 1995, between the Registrant and
Silicon Valley Bank, relating to the Registrant's $1,500,000 of credit.
*10.32 Loan Modification Agreement, dated as of January 5, 1996, between the Registrant
and Silicon Valley Bank, relating to the Registrant's lines of credit.
+10.33 Letter agreement, dated February 28, 1996, between the Registrant and Ethicon
Endo-Surgery, Inc.
+10.34 Marketing and License Agreement, dated March 22, 1996, between the Registrant and
SpaceLabs Medical, Inc.
+10.35 Letter agreement, dated February 6, 1996, between the Registrant and Marquette
Electronics, Inc.
10.36 Form of standard Software License of the Registrant.
11 Computation of income (loss) per common share.
23.1 Consent and opinion on consolidated financial statement schedules of Arthur
Andersen LLP, Independent Accountants.
*23.2 Consent of Bingham, Dana & Gould LLP, counsel to the Registrant (included in
Exhibit 5.1).
24 Power of Attorney (included in signature page to Registration Statement).
27 Financial Data Schedule.
<FN>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested.
</TABLE>
<TABLE>
(B) FINANCIAL STATEMENT SCHEDULE:
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants on Supplementary Schedule.................... S-1
Schedule II -- Valuation and Qualifying Accounts...................................... S-2
</TABLE>
All other schedules are omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling the Registrant
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer, or controlling person of the Company in the successful
defense of any action, suit, or proceeding) is asserted by such director,
II-4
<PAGE> 71
officer, or controlling person, in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of competent
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424 (b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) It will provide to the Underwriters at the closing specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-5
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned thereunto duly authorized, in the Town of Westborough
and the Commonwealth of Massachusetts, on the thirty-first day of May 1996:
MediQual Systems, Inc.
/s/ ERIC A. KRISS
By
Eric A. Kriss
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Eric A. Kriss and
William C. Price and each of them individually, acting alone and without one
another, his true and lawful attorney-in-fact with the authority to execute in
the name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective amendments)
to this Registration Statement on Form S-1 necessary or advisable to enable the
Registrant to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, which amendments may make such other changes in the
Registration Statement as the aforesaid attorney-in-fact executing the same
deems appropriate.
<TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------- ----------------------------------------- -------------
<C> <S> <C>
/s/ ERIC A. KRISS President, Chief Executive Officer and May 31, 1996
- ------------------------------------- Director (Principal Executive Officer)
Eric A. Kriss
/s/ WILLIAM C. PRICE Vice President and Chief Financial May 31, 1996
- ------------------------------------- Officer (Principal Financial Officer and
William C. Price Principal Accounting Officer)
/s/ ALAN C. BREWSTER Director May 31, 1996
- -------------------------------------
Alan C. Brewster
/s/ DAVID DOMINIK Director May 31, 1996
- -------------------------------------
David Dominik
/s/ CHARLES M. JACOBS Director May 31, 1996
- -------------------------------------
Charles M. Jacobs
/s/ WILLIAM D. RYAN Director May 31, 1996
- -------------------------------------
William D. Ryan
</TABLE>
II-6
<PAGE> 73
After the recapitalization discussed in Note 9 to MediQual Systems, Inc.'s
financial statements is effected, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 30, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY SCHEDULE
To MediQual Systems, Inc.
We have audited, in accordance with generally accepted auditing standards,
the financial statements of MediQual Systems, Inc. as of December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995,
included in the Registration Statement, and have issued our report thereon dated
April 26, 1996 (except with respect to the matter discussed in Note 9, as to
which the date is , 1996). Our audit was made for the purpose of
forming an opinion on those financial statements taken as a whole. The schedule
listed in Item 16(b) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein, in
relation to the basic financial statements taken as a whole.
Boston, Massachusetts
April 26, 1996 (except with respect
to the matter discussed in Note 9, as
to which the date is , 1996)
S-1
<PAGE> 74
SCHEDULE II
MEDEQUAL SYSTEMS, INC.
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
BALANCE AT ACCOUNTS BALANCE AT
BEGINNING OFFSET TO WRITTEN ACCOUNTS END OF
OF YEAR REVENUE OFF RECOVERED YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for Doubtful
Accounts................... $ 275,000 $ 29,809 $ 139,209 $ 34,400 $ 200,000
Year Ended December 31, 1994
Allowance for Doubtful
Accounts................... $ 200,000 $ 89,984 $ 138,472 $ 23,488 $ 175,000
Year Ended December 31, 1995
Allowance for Doubtful
Accounts................... $ 175,000 $ 257,364 $ 375,420 $ 143,056 $ 200,000
</TABLE>
S-2
<PAGE> 75
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1 Proposed Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of the Registrant.
*3.2 Amended and Restated By-Laws of the Registrant.
*4 Specimen Certificate for shares of the Company's Common Stock.
*5 Opinion of Bingham, Dana & Gould, LLP counsel to the Registrant,
regarding the legality of the shares of Common Stock.
*10.1 1987 Nonqualified Stock Option Plan of the Registrant, as amended.
10.2 1996 Stock Incentive Plan of the Registrant.
10.3 1996 Employee Stock Purchase Plan of the Registrant.
10.4 Lease of Westborough Office Park Building Two, dated as of July 21,
1986, between WRC Properties, Inc. and the Registrant (the "Lease").
10.5 First Amendment to the Lease, dated as of September 22, 1987, between
WRC Properties, Inc. and the Registrant.
10.6 Second Amendment to Amended and Restated Lease, dated as of July 1989,
between WRC Properties, Inc. and the Registrant.
10.7 Third Amendment to Amended and Restated Lease, dated as of December 31,
1990, between WRC Properties, Inc. and the Registrant.
10.8 Fourth Amendment to Amended and Restated Lease, dated as of September
22, 1993, between WRC Properties, Inc. and the Registrant.
10.9 Fifth Amendment to Amended and Restated Lease, dated as of December
1993, between WRC Properties, Inc. and the Registrant.
10.10 Sixth Amendment to Amended and Restated Lease, dated as of April 30,
1996, between WRC Properties, Inc. and the Registrant.
10.11 Stock Purchase Agreement, dated March 31, 1984, between William D. Ryan
and the Registrant.
10.12 Form of Stock Purchase Agreement, dated as of August 4, 1986, among the
Registrant and the purchasers named therein, relating to the sale by
the Registrant of shares of Class B Convertible Preferred Stock.
10.13 Form of Stock Purchase Agreement, dated as of October 1987, among the
Registrant and the purchasers named therein, relating to the sale by
the Registrant of shares of Series 1987 Class B Convertible Preferred
Stock.
10.14 Stock Purchase Agreement, dated as of April 1, 1993, among the
Registrant and the purchasers named therein (the "Purchasers"),
relating to the sale by the Registrant of shares of Class C Convertible
Preferred Stock.
10.15 Form of letter agreement, dated as of April 27, 1993, among the
Registrant and the Purchasers relating to possible issuance by the
Registrant of additional shares of Class C Convertible Preferred Stock.
10.16 Registration Rights Agreement, dated as of April 27, 1993, among the
Registrant, the Purchasers and the Investors named therein.
10.17 Agreement of Shareholders, dated as of April 27, 1995, among the
Registrant, William D. Ryan, Charles M. Jacobs, Alan C. Brewster, and
the Purchasers and the Investors named therein.
10.18 Executive Employment Agreement, dated as of March 29, 1993, between the
Registrant to Mr. Kriss, as amended.
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
10.19 Promissory note in the principal amount of $201,523, dated March 29,
1993, made by the Registrant to Mr. Kriss.
10.20 Stock Purchase Agreement, dated as of March 29, 1993, between the
Registrant and Mr. Kriss, relating to the sale by the Registrant of
shares of Common Stock.
10.21 Letter agreement, dated April 3, 1995, between the Registrant and Mr.
Kriss.
10.22 Promissory note in the principal amount of $75,000, dated January 2,
1996, made by the Registrant to Mr. Kriss.
10.23 Letter agreement, dated as of January 20, 1996, between the Registrant
and Mr. Kriss.
10.24 Common Stock Purchase Option, dated as of January 20, 1996, between the
Registrant and Mr. Kriss.
10.25 Letter agreement, dated April 29, 1996, between the Registrant and Mr.
Kriss.
10.26 Form of Stay Agreement, dated July 14, 1995, between the Registrant and
each of Mr. Corum, Ms. Endyke, Mr. Price and Ms. Throop.
*10.27 Letter agreement, dated November 16, 1993, between the Registrant and
Silicon Valley Bank, relating to a $1,000,000 line of credit.
*10.28 Letter agreement, dated November 16, 1993, between the Registrant and
Silicon Valley Bank, relating to a $1,500,000 line of credit.
*10.29 Loan Modification Agreement, dated as of June 30, 1994, between the
Registrant and Silicon Valley Bank, relating to the Registrant's
$1,000,000 of credit.
*10.30 Loan Modification Agreement, dated as of May 5, 1995, between the
Registrant and Silicon Valley Bank, relating to the Registrant's
$1,000,000 of credit.
*10.31 Loan Modification Agreement, dated as of May 5, 1995, between the
Registrant and Silicon Valley Bank, relating to the Registrant's
$1,500,000 of credit.
*10.32 Loan Modification Agreement, dated as of January 5, 1996, between the
Registrant and Silicon Valley Bank, relating to the Registrant's lines
of credit.
+10.33 Letter agreement, dated February 28, 1996, between the Registrant and
Ethicon Endo-Surgery, Inc.
+10.34 Marketing and License Agreement, dated March 22, 1996, between the
Registrant and SpaceLabs Medical, Inc.
+10.35 Letter agreement, dated February 6, 1996, between the Registrant and
Marquette Electronics, Inc.
10.36 Form of standard Software License of the Registrant.
11 Computation of income (loss) per common share.
23.1 Consent and opinion on consolidated financial statement schedules of
Arthur Andersen LLP, Independent Accountants.
*23.2 Consent of Bingham, Dana & Gould LLP, counsel to the Registrant
(included in Exhibit 5.1).
24 Power of Attorney (included in signature page to Registration
Statement).
27 Financial Data Schedule.
<FN>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested.
</TABLE>
<PAGE> 1
EXHIBIT 1
MEDIQUAL SYSTEMS, INC.
2,200,000 Shares*
Common Stock
UNDERWRITING AGREEMENT
_________ __, 1996
HAMBRECHT & QUIST LLC
VOLPE, WELTY & COMPANY
as Representatives of the Several Underwriters
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
MediQual Systems, Inc., a Delaware corporation (herein called the Company),
proposes to issue and sell 2,200,000 shares of its authorized but unissued
Common Stock, $.001 par value per share (herein called the Common Stock) (said
330,000 shares of Common Stock being herein called the Underwritten Stock). The
Company proposes to grant to the Underwriters (as hereinafter defined) an option
to purchase up to 330,000 additional shares of Common Stock (herein called the
Option Stock and with the Underwritten Stock herein collectively called the
Stock). The Common Stock is more fully described in the Registration Statement
and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the purchase
of the Stock by the several underwriters, for whom you are acting, named in
Schedule I hereto (herein collectively called the Underwriters, which term shall
also include any underwriter purchasing Stock pursuant to Section 3(b) hereof).
You represent and warrant that you have been authorized by each of the other
Underwriters to enter into this Agreement on its behalf and to act for it in the
manner herein provided.
- ----------------------
* Plus an option to purchase from the Company up to 330,000 additional shares to
cover over-allotments.
<PAGE> 2
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-______), including the related Preliminary Prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act), of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related Preliminary Prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this Agreement shall mean such
registration statement, including all exhibits and financial statements and all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective and, in
the event of any amendment thereto after the effective date of such registration
statement (herein called the Effective Date), shall also mean (from and after
the effectiveness of such amendment) such registration statement as so amended.
The term Prospectus as used in this Agreement shall mean the prospectus relating
to the Stock first filed with the Commission pursuant to Rule 424(b) and Rule
430A or (if no such filing is required) as included in the Registration
Statement, and, in the event of any supplement or amendment to such prospectus
after the Effective Date, shall also mean (from and after the filing with the
Commission of such supplement or of the effectiveness of such amendment) such
prospectus as so supplemented or amended. The term Preliminary Prospectus as
used in this Agreement shall mean each preliminary prospectus included in such
registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
(a) Each of the Company and its subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority to own
or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus and as currently being conducted, and
is duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the
-2-
<PAGE> 3
property owned or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified would not
have a material adverse effect on the business, operations, financial condition,
income or business prospects of the Company and its subsidiaries, taken as a
whole). The outstanding shares of capital stock of each such subsidiary have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned by the Company free and clear of all liens, encumbrances and security
interests; and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in any such subsidiary are
outstanding.
(b) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change in the business, operations, financial condition, income or
business prospects of the Company and its subsidiaries taken as a whole, whether
or not arising from transactions in the ordinary course of business, other than
as set forth in the Registration Statement and the Prospectus, and since such
dates, except in the ordinary course of business, neither the Company nor any of
its subsidiaries has entered into any material transaction not referred to in
the Registration Statement and the Prospectus.
(c) The Commission has not issued any order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus, nor instituted proceedings for
that purpose. The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option Stock
is to be purchased, the Prospectus will comply in all material respects with the
provisions of the Securities Act and the rules and regulations of the Commission
thereunder; on the Effective Date and on the Closing Date and any later date on
which Option Stock may be purchased, neither the Registration Statement nor any
amendment thereto, and neither the Prospectus nor any supplements thereto,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or necessary
in order to make the statements therein (in the cases of the Prospectus and any
supplements thereto, in light of the circumstances under which such statements
were made) not misleading; provided, however, that none of the representations
and warranties in this subparagraph (c) shall apply to statements in, or
omissions from, the Registration Statement or the Prospectus or any supplements
to the Registration Statement and the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus. There are no
-3-
<PAGE> 4
contracts or documents of the Company which would be required by the Securities
Act or by the rules and regulations of the Commission to be filed as exhibits to
the Registration Statement which have not been so filed.
(d) The Stock is duly and validly authorized, is (or, in the case of shares
of the Stock to be sold by the Company, will be, when issued and sold to the
Underwriters as provided herein) duly and validly issued, fully paid,
nonassessable, free of pre-emptive rights and conforms to the description
thereof in the Prospectus. There are no outstanding options, warrants or other
rights granted to or by the Company to purchase shares of Common Stock or other
securities of the Company other than as described in the Prospectus; and no such
option, warrant or other right has been granted to any person, the exercise of
which would cause such person to own more than five percent of the Common Stock
outstanding immediately after the offering other than as described in the
Prospectus. No person or entity holds a right to require or participate in the
registration under the Securities Act of shares of Common Stock of the Company
which right has not been waived by the holder thereof as of the date hereof with
respect to the registration of shares pursuant to the Registration Statement,
and except as described in the Prospectus, no person holds a right to require
registration under the Securities Act of shares of Common Stock of the Company
at any other time. No person or entity has a right of participation with respect
to the sale of shares of the Stock by the Company. No further approval or
authority of the stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Stock as contemplated herein.
(e) The Company and its subsidiaries now hold, and at the Closing Date (as
defined in Section 5(a) hereof) will hold, all material licenses, certificates
and permits from state, federal and other regulatory authorities which are
necessary for the conduct of the business of the Company and its subsidiaries
taken as a whole; neither the Company nor any of its subsidiaries is in
violation of its corporate charter or by-laws, or in default in the performance
or observance of any provision of any obligation, agreement, covenant or
condition contained in any bond, debenture or material contract, indenture,
mortgage, loan agreement, joint venture or other agreement or instrument to
which the Company or such subsidiary is a party or by which it or any of its
properties is bound or, to the best of the Company's knowledge, is in violation
of any law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality or court, domestic or foreign.
-4-
<PAGE> 5
(f) Except as disclosed in or specifically contemplated by the Prospectus,
the Company and its subsidiaries have all necessary trademarks, trade names,
patent rights, mask works, copyrights, licenses, approvals and governmental
authorizations to conduct their businesses as now conducted; and the Company has
no knowledge of any material infringement by the Company or its subsidiaries of
trademark, trade name rights, patent rights, mask works, copyrights, licenses,
trade secret or other similar rights of others, and there is no litigation or
other proceedings pending or threatened against the Company or its subsidiaries
regarding trademark, trade name, patent, mask work, copyright, license, trade
secret or other infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries, nor, to the best of the Company's
knowledge, is there any basis therefor.
(g) This Agreement has been duly authorized, executed and delivered by the
Company; the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, (i) any
indenture, mortgage, deed of trust, loan agreement or other material agreement
or instrument to which the Company or any of its subsidiaries is a party or by
which the property of the Company or any of the subsidiaries is bound, (ii) the
corporate charter or by-laws of the Company or any of the subsidiaries or (iii)
(assuming the making of all filings required under Rule 424(b) or Rule 430A and
the due qualification of the Stock for public offering by the Underwriters under
state and foreign securities laws) any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the Company
or any of the subsidiaries or over the properties of the Company.
(h) Except as set forth in the Prospectus, there is not any action, suit or
proceeding, at law or in equity, pending against the Company or any subsidiary
before any court or administrative agency, which, if determined adversely to the
Company or any subsidiary, would materially adversely affect the business,
operations, financial condition, income or business prospects of the Company and
the subsidiaries taken as a whole, or prevent consummation of the transactions
contemplated hereby.
(i) The consolidated financial statements of the Company and its
subsidiaries, together with the related notes and schedules as set forth in the
Registration Statement, present fairly the consolidated financial position and
the results of operations of the Company and its subsidiaries, at the indicated
dates and for the indicated periods. Such financial statements have been
prepared in accordance with generally accepted accounting
-5-
<PAGE> 6
principles consistently applied throughout the periods involved, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein.
(j) The Company and its subsidiaries have filed all federal, state and
foreign income tax returns which have been required to be filed (or have filed
extensions therefor or obtained any required extensions in connection
therewith), and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such taxes have
become due and are not being contested in good faith.
(k) Each approval, consent, order, authorization, designation, declaration
or filing by or with any United States regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation by the Company of the
transactions herein contemplated (except (i) such additional steps as may be
required by the National Association of Securities Dealers, Inc. (the "NASD"),
(ii) as may be necessary to make the Registration Statement effective (and to
maintain such effectiveness) and to qualify the Stock for public offering by the
Underwriters under state and foreign securities laws or (iii) filings required
under Rule 424(b) or Rule 430(A)) has been obtained or made and is in full force
and effect.
(l) Arthur Andersen LLP, who have certified the financial statements filed
with the Commission as part of the Registration Statement, are independent
public accountants as required by the Securities Act and the rules and
regulations thereunder.
(m) The Company and the subsidiaries have good and marketable title or
leasehold title, as the case may be, to all of the properties and assets
reflected in the financial statements (or as described in the Registration
Statement) hereinabove described, subject to no lien, mortgage, pledge, charge
or encumbrance of any kind except those reflected in such financial statements
(or as described in the Registration Statement) or which are not material in
amount.
(n) Neither the Company nor any of its subsidiaries is involved in any
material labor dispute nor, to the knowledge of the Company, is any such dispute
threatened.
(o) The Company has filed a registration statement pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended (hereinafter the Exchange
Act), to register the Common
-6-
<PAGE> 7
Stock under the Exchange Act, has filed an application to list the Stock on the
Nasdaq National Market, and has received notification that the listing has been
approved, subject to notice of issuance of the Stock.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
2,200,000 shares of the Underwritten Stock to the several Underwriters and each
of the Underwriters agrees to purchase from the Company the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at which such shares of Underwritten Stock shall be sold by the
Company and purchased by the several Underwriters shall be $_____ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the non-defaulting Underwriters shall have the right within
twenty-four (24) hours after such default to purchase, or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within twenty-four (24) hours next succeeding the
24-hour period above
-7-
<PAGE> 8
referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, you or the Company shall have the right to postpone
the Closing Date determined as provided in Section 5 hereof for not more than
seven business days after the date originally fixed as the Closing Date pursuant
to said Section 5 in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
neither the non-defaulting Underwriters nor the Company shall make arrangements
within the 24-hour periods stated above for the purchase of all the shares of
the Stock which the defaulting Underwriter or Underwriters agreed to purchase
hereunder, this Agreement shall be terminated without further act or deed and
without any liability on the part of the Company to any Underwriter and without
any liability on the part of any non-defaulting Underwriter to the Company.
Nothing in this paragraph (b), and no action taken hereunder, shall relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase, severally and not
jointly, up to 330,000 shares in the aggregate, of the Option Stock from the
Company at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said options may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the 30th
day after the date of this Agreement upon written or telegraphic notice by you
to the Company setting forth the aggregate number of shares of the Option Stock
as to which the several Underwriters are exercising the option. Delivery of
certificates for the shares of Option Stock, and payment therefor, shall be made
as provided in Section 5 hereof. The number of shares of the Option Stock to be
purchased by each Underwriter shall be the same percentage of the total number
of shares of the Option Stock to be purchased by the several Underwriters as
such Underwriter is purchasing of the Underwritten Stock, as adjusted by you in
such manner as you deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
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(b) The information set forth in the last paragraph on the front cover page
and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock (insofar as such information
relates to the Underwriters) constitutes the only information furnished by the
Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 a.m., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of Bingham, Dana & Gould LLP, 150 Federal Street Boston, Massachusetts
02110 at 7:00 a.m., San Francisco time, on the third business day after the date
of this Agreement, or at such time on such other day, not later than seven full
business days after such third business day, as shall be agreed upon in writing
by the Company and you. The date and hour of such delivery and payment (which
may be postponed as provided in Section 3(b) hereof) are herein called the
Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, and on or before the 30th day after the date of this Agreement,
delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made at the office of Bingham, Dana & Gould LLP, 150 Federal Street,
Boston, Massachusetts 02110 at 7:00 a.m., San Francisco time, on the third
business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order by one or more certified or official bank check or checks
in next day funds. Such payment shall be made upon delivery of certificates for
the Stock to you for the respective accounts of the several Underwriters against
receipt therefor signed by you. Certificates for the Stock to be delivered to
you shall be registered in such name or names and shall be in such denominations
as you may request at least two business days before the Closing Date, in the
case of Underwritten Stock, and at least two business days prior to the purchase
thereof, in the case of the Option Stock. Such certificates will be made
available to the Underwriters for inspection, checking and
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<PAGE> 10
packaging at the offices of Lewco Securities Corporation, 2 Broadway, New York,
New York 10004 not less than one full business day prior to the Closing Date or,
in the case of the Option Stock, by 3:00 p.m., New York time, on the business
day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall not
relieve such Underwriter from any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance in all material respects with the Securities Act or the
rules and regulations of the Commission.
(b) The Company will promptly notify you in the event of (i) the request by
the Commission for amendment of the Registration Statement or for supplement to
the Prospectus or for any additional information, (ii) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, (iii) the institution or notice of intended institution of any action
or proceeding for that purpose, (iv) the receipt by the Company of any
notification with respect to the suspension of the qualification of the Stock
for sale in any jurisdiction, or (v) the receipt by the Company of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to
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<PAGE> 11
you) and will also deliver to you, for distribution to the Underwriters, a
sufficient number of additional conformed copies of each of the foregoing (but
without exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to the several
Underwriters, at such office or offices as you may designate, as many copies of
the Prospectus as you may reasonably request, and (iii) thereafter from time to
time during the period in which a prospectus is required by law to be delivered
by an Underwriter or dealer, likewise send to the Underwriters as many
additional copies of the Prospectus and as many copies of any supplement to the
Prospectus and of any amended prospectus, filed by the Company with the
Commission, as you may reasonably request for the purposes contemplated by the
Securities Act.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the reasonable opinion
of counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
Stock, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the initial
public offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the reasonable opinion either
of counsel for the Company or of counsel for the Underwriters such proposed
variation requires that the Prospectus be supplemented or amended, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the Stock may be sold
by the several Underwriters to use the Prospectus, as from time to time amended
or supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
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<PAGE> 12
(e) Prior to the filing thereof with the Commission, the Company will submit
to you, for your information, a copy of any post-effective amendment to the
Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation or
to submit to taxation in any jurisdiction in which it is not so qualified. The
Company will, from time to time, prepare and file such statements, reports, and
other documents as are or may be required to continue such qualifications in
effect for so long a period as you may reasonably request for distribution of
the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act).
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its securityholders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of their obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the NASD of the Registration Statement, any Preliminary
Prospectus and the Prospectus, (ii) the furnishing to the Underwriters of copies
of any Preliminary Prospectus and of the several documents required by paragraph
(c) of this Section 6 to be so furnished, (iii) the printing of this Agreement
and related documents delivered to the Underwriters, (iv) the preparation,
printing and filing of all supplements and amendments to the Prospectus referred
to in paragraph (d) of this Section 6, (v) the furnishing to you and the
Underwriters of the reports and information referred to in paragraph (g) of this
Section 6 and (vi) the printing and issuance of stock certificates, including
the transfer agent's fees.
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<PAGE> 13
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including counsel
fees and disbursements and cost of printing memoranda for the Underwriters) paid
by or for the account of the Underwriters or their counsel in qualifying the
Stock under state securities or blue sky laws and for filing fees incident to
the review of the offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are intended to
relieve the Underwriters from the payment of the expenses and costs which the
Company hereby agrees to pay.
(l) The Company agrees that, without your prior written consent, the Company
will not, directly or indirectly, sell, offer, contract to sell, make any short
sale, pledge or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any rights to
purchase or acquire Common Stock for a period of 180 days following the
Effective Date, other than (i) the Stock to be sold to the Underwriters pursuant
to this Agreement, (ii) shares of Common Stock issued upon the exercise of
options granted under the stock option and purchase plans of the Company (the
"Option Plans"), all as described in the Prospectus, (iii) options to purchase
Common Stock granted under the Option Plans and (iv) shares of Common Stock
issuable upon conversion of shares of convertible preferred stock of the Company
outstanding on the date hereof or issuable upon the exercise of warrants
outstanding on the date hereof, in each case as described in the Prospectus. For
purposes of this paragraph (l), a sale, offer, or other disposition shall be
deemed to include any sale to an institution which can, following such sale,
sell Common Stock to the public in reliance on Rule 144A.
(m) If at any time during the 25-day period after the Registration Statement
becomes effective any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your reasonable opinion the market
price for the Stock has been or is likely to be materially affected (regardless
of whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from you
advising the Company to the effect set forth above, forthwith prepare, consult
with you concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
(n) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment
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<PAGE> 14
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or the common law or otherwise, and the
Company agrees to reimburse each such Underwriter and controlling person for any
legal or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof) or any
post-effective amendment thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreements of
the Company contained in this paragraph (a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission was made
in reliance upon and in conformity with information furnished as herein stated
or otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto, and (2)
the indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented)
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<PAGE> 15
was not sent or delivered to such person and the untrue statement or omission of
a material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented) unless the failure is
the result of noncompliance by the Company with paragraph (c) of Section 6
hereof. The indemnity agreements of the Company contained in this paragraph (a)
and the representations and warranties of the Company contained in Section 2
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of any payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, or the common law
or otherwise and to reimburse each of them for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof) or any post-effective amendment
thereto or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise furnished in
writing to the Company by or on behalf of such indemnifying Underwriter for use
in the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
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<PAGE> 16
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against it, in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided, however,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within
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<PAGE> 17
a reasonable time after receipt of the Notice, an indemnifying party gives a
Notice of Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding, except that (A) the indemnifying party or
parties shall bear the legal and other expenses incurred in connection with the
conduct of the defense as referred to in clause (i) of the proviso to the
preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities referred to in
paragraph (a) or (b) of this Section 7 (i) in such proportion as is appropriate
to reflect the relative benefits received by each indemnifying party from the
offering of the Stock or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received by
the Company and the total underwriting discount received by the Underwriters, as
set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by each indemnifying party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission.
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<PAGE> 18
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparation to defend or defense against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
8. TERMINATION. This Agreement may be terminated by you at any time prior to
the Closing Date by giving written notice to the Company if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major
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<PAGE> 19
hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets of
the United States would, in the Underwriters' reasonable judgment, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading in
securities generally or a material adverse decline in the value of securities
generally on the New York Stock Exchange, the American Stock Exchange, the NASD
Automated Quotation System or the Nasdaq National Market, or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company to the Underwriters
and no liability of the Underwriters to the Company; provided, however, that in
the event of any such termination the Company agrees to indemnify and hold
harmless the Underwriters from all costs or expenses incident to the performance
of the obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all its obligations to be performed hereunder at
or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
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<PAGE> 20
(b) The legality and sufficiency of the sale of the Stock hereunder and
the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to
the financial statements contained therein), shall have been approved at or
prior to the Closing Date by Hale and Dorr, counsel for the Underwriters.
(c) You shall have received from Bingham, Dana & Gould LLP, counsel for
the Company, an opinion letter, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A hereto. If Option
Stock is purchased at any date after the Closing Date, you shall receive an
additional opinion letter from the aforementioned counsel, addressed to the
Underwriters and dated such later date, confirming that the opinions
expressed as of the Closing Date in each such opinion letter remain valid as
of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct in all material respects and neither the Registration Statement
nor the Prospectus omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, respectively
(in the case of the Prospectus, in light of the circumstances under which
such statements were made), not misleading, (ii) since the Effective Date,
no event has occurred which should have been set forth in a supplement or
amendment to the Prospectus which has not been set forth in such a
supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has
not been any material adverse change or any development involving a
prospective material adverse change in or affecting the business,
properties, financial condition or earnings of the Company and its
subsidiaries as a whole, whether or not arising from transactions in the
ordinary course of business, and, since such dates, except in the ordinary
course of business, neither the Company nor any of its subsidiaries has
entered into any material transaction not referred to in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, (iv) neither the Company nor any of its
subsidiaries has any material contingent obligations which are required to
be, but are not, disclosed in the Registration Statement and the Prospectus,
(v) there are not any pending or known threatened legal proceedings to which
the Company or any of its
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<PAGE> 21
subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed as
required, (vii) the representations and warranties of the Company herein are
true and correct in all material respects as of the Closing Date or any
later date on which Option Stock is to be purchased, as the case may be, and
(viii) there has not occurred any circumstance described in clauses (i),
(ii), (iii), (iv), (v) or (vi) of Section 8 hereof.
(e) You shall have received on the Closing Date and on any later date on
which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the Chief Executive
Officer, the Chairman of the Board and the Chief Financial Officer of the
Company, stating that the respective signers of said certificate have
carefully examined the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein and any
supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received from Arthur Andersen LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in its letter
delivered to you concurrently with the execution of this Agreement (herein
called the Original Letter), but carried out to a date not more than five
business days prior to the Closing Date or such later date on which Option
Stock is purchased (i) confirming, to the extent true, that the statements
and conclusions set forth in the Original Letter are accurate as of the
Closing Date or such later date, as the case may be, and (ii) setting forth
any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties
of the Company or any of
-21-
<PAGE> 22
its subsidiaries which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the purchase
of the Option Stock as contemplated by the Prospectus.
(g) You shall have received from Arthur Andersen LLP a letter stating
that their review of the Company's system of internal accounting controls,
to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as of and as at June 30,
1996, did not disclose any weakness in internal controls that they
considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several states, or
other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for inclusion on the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from
all directors, executive officers, beneficial holders of more than
[ ] shares of the outstanding Common Stock, stockholders agreements
stating that without your prior written consent, each of such holders will
not, directly or indirectly, sell, offer, contract to sell, make any short
sale, pledge, grant any option to purchase or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for or any right to purchase or acquire Common Stock held by
such holder for a period of 180 days after the Effective Date
Notwithstanding the foregoing, such holder may transfer any shares of Common
Stock or securities convertible into or exchangeable or exercisable for
Common Stock either during his or her lifetime or on death (i) by gift, will
or intestacy or (ii) to his or her immediate family or to a trust the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his or her immediate family; provided, however, that prior to any
such transfer each transferee shall execute an agreement, reasonably
satisfactory to Hambrecht & Quist LLC, pursuant to which each transferee
shall agree to receive and hold such shares of Common Stock, or securities
exercisable or convertible into or exchangeable for Common Stock, subject to
identical restrictions on transfer, and there shall be no further transfer
except in accordance with such agreement.
-22-
<PAGE> 23
For the purposes of this paragraph, "immediate family" shall mean spouse,
lineal descendant, father, mother, brother, sister, niece or nephew of the
transferor.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Hale and Dorr, counsel for the Underwriters, shall be
reasonably satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with transactions
contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company jointly and
severally agree to indemnify and hold harmless the Underwriters from all costs
or expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 6 hereof.
-23-
<PAGE> 24
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement, the Company hereby jointly and
severally agree to reimburse on a quarterly basis the Underwriters for all
reasonable legal and other expenses incurred in connection with investigating or
defending any claim, action, investigation, inquiry or other proceeding arising
out of or based upon any statement or omission, or any alleged statement or
omission, described in paragraph (a) of Section 7 of this Agreement,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the obligations under this Section 11 and the possibility that
such payments might later be held to be improper; provided, however, that (i) to
the extent any such payment is ultimately held to be improper, the persons
receiving such payments shall promptly refund them and (ii) such persons shall
provide to the Company, upon request, reasonable assurances of their ability to
effect any refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company and the several Underwriters and, with respect to the
provisions of Section 7 hereof, the several parties (in addition to the Company
and the several Underwriters) indemnified under the provisions of said Section
7, and their respective personal representatives, successors and assigns.
Nothing in this Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or claim under or in
respect of this Agreement or any provision herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as such
purchaser, of any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 1900 West Park Drive, Suite 250,
Westborough, MA 01581, Attention: Chief Executive Officer. All notices given by
telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
Agreement is terminated prior to
-24-
<PAGE> 25
the Closing Date, the provisions of Section 6 hereof (other than paragraphs (i)
and (j) thereof) shall be of no further force or effect.
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.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
-25-
<PAGE> 26
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
MEDIQUAL SYSTEMS, INC.
By:________________________________
Eric Kriss
President and Chief Executive
Officer
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
HAMBRECHT & QUIST LLC
VOLPE, WELTY & COMPANY
By Hambrecht & Quist LLC
By: ____________________________________
Managing Director
Acting on behalf of the several
Underwriters, including themselves,
named in Schedule I hereto.
-26-
<PAGE> 27
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
------------ ---------
<S> <C>
Hambrecht & Quist LLC..............................
Volpe, Welty & Company.............................
Total.............................................. 2,200,000
=========
</TABLE>
-27-
<PAGE> 28
ANNEX A
Matters to be Covered in the Opinion of
Bingham, Dana & Gould LLP
Counsel for the Company
(i) Each of the Company and the subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign corporation
and in good standing in each jurisdiction in which its ownership or leasing of
property requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on the business, operations,
financial condition, income or business prospects of the Company and its
subsidiaries taken as a whole), and has full corporate power and authority to
own or lease its properties and to conduct its business as described in the
Registration Statement; all the issued and outstanding capital stock of each of
the subsidiaries has been duly authorized and validly issued and is fully paid
and nonassessable, and is held of record by the Company and, to the best of such
counsel's knowledge, free and clear of all liens, encumbrances and security
interests, and to the best of such counsel's knowledge, no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in such subsidiaries are outstanding;
(ii) Immediately after the Closing Date (A) the duly authorized capital
stock of the Company will consist of __________ shares of Preferred Stock, $.01
par value, of which no shares will be outstanding, and [___________] shares of
Common Stock, $.001 par value, of which [___________] shares will be outstanding
(including the Underwritten Stock and the Option Stock); (B) all of the
outstanding shares of such capital stock (including the Underwritten Stock and
the shares of Option Stock) will be duly and validly issued and fully paid and
nonassessable; and (C) no preemptive rights of, or rights of refusal in favor
of, stockholders will exist with respect to the Stock, or the issuance and sale
thereof, pursuant to the Certificate of Incorporation or By-Laws of the Company
and, to the best of such counsel's knowledge, there will be no contractual
preemptive rights with respect to the issuance and sale of the Stock that have
not been waived or rights of first refusal or rights of co-sale which exist with
respect to the issuance and sale of the Stock;
A-1
<PAGE> 29
(iii) the Registration Statement has become effective under the Securities
Act and, to the best of such counsel's knowledge, (A) no stop order suspending
the effectiveness of the Registration Statement or suspending or preventing the
use of the Prospectus is in effect and (B) no proceedings for that purpose have
been instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
(v) the information required to be set forth in the Registration Statement
in answer to Item 9, Item 10 (insofar as it relates to such counsel) and Item
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or no response is required
with respect to such Items; and, to the best of such counsel's knowledge the
description of the Company's stock option plans and the options granted and
which may be granted thereunder and the options granted otherwise than under
such plans set forth in the Prospectus accurately and fairly presents in all
material respects the information required to be shown with respect to said
plans and options to the extent required by the Securities Act and the rules and
regulations of the Commission thereunder;
(vi) such counsel does not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(vii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the issuance and sale by the Company of the shares of Stock sold by
the Company as contemplated by the Underwriting Agreement will not conflict
with, or result in a breach of, the Certificate of Incorporation or By-Laws of
the Company or any agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or any applicable Federal or
Massachusetts law or regulation (other than state securities or blue sky laws),
or so far as is known to such counsel, any order, writ, injunction or decree, of
any jurisdiction, court or governmental instrumentality;
A-2
<PAGE> 30
(ix) to the best of such counsel's knowledge no holder of securities of the
Company has rights to require the Company to register shares of Common Stock, or
other securities, held by such holder because of the filing of the Registration
Statement by the Company;
(x) no consent, approval, authorization or order of any Federal or
Massachusetts court or Federal or Massachusetts governmental agency or body is
required for the consummation of the transactions contemplated in the
Underwriting Agreement, except such as have been obtained under the Securities
Act and such as may be required under state securities or blue sky laws in
connection with the purchase and distribution of the Stock by the Underwriters.
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that (it being understood
that such counsel will not have independently verified the accuracy or
completeness of the information contained in the Registration Statement or the
Prospectus, and except as otherwise expressly set forth in such counsel's
opinion letter, is not responsible for, and need not pass upon, the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus) nothing has come to the attention of such counsel
that leads them to believe that the Registration Statement (except as to the
financial statements and schedules and other financial data contained or
incorporated by reference therein, as to which such counsel need not express any
opinion or belief) at the Effective Date contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial data contained or incorporated by reference therein as to which such
counsel need not express any opinion or belief) as of its date or at the Closing
Date (or any later date on which Option Stock is purchased), contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
---------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States, the State of Delaware or of the
Commonwealth of Massachusetts, upon opinions of local counsel satisfactory in
form and scope to counsel for the Underwriters. Copies of any opinions so relied
A-3
<PAGE> 31
upon shall be delivered to the Representatives and to counsel for the
Underwriters and the foregoing opinion shall also state that counsel knows of no
reason the Underwriters are not entitled to rely upon the opinions of such local
counsel.
A-4
<PAGE> 1
Exhibit 10.2
MEDIQUAL SYSTEMS, INC.
1996 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN.
The purposes of this 1996 Stock Incentive Plan of MediQual Systems,
Inc. (the "Company") are to promote the interests of the Company and its
stockholders by strengthening the Company's ability to attract, motivate, and
retain employees and consultants of exceptional ability and to provide a means
to encourage stock ownership and a proprietary interest in the Company to
selected employees and consultants of the Company upon whose judgment,
initiative, and efforts the financial success and growth of the business of the
Company largely depend.
2. DEFINITIONS.
(a) "Accelerate," "Accelerated," and "Acceleration," when used
with respect to an Option, mean that as of the relevant time of reference, such
Option shall become fully exercisable with respect to the total number of shares
of Common Stock subject to such Option and may be exercised for all or any
portion of such shares.
(b) "Acquisition" means
(i) a merger or consolidation in which
securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons
who held those securities immediately prior to such
transaction, or
(ii) the sale, transfer, or other disposition of
all or substantially all of the Company's assets to one or
more persons (other than any wholly owned subsidiary of the
Company) in a single transaction or series of related
transactions.
(c) "Beneficial Ownership" means beneficial ownership determined
pursuant to Securities and Exchange Commission Rule 13d-3 promulgated under the
Exchange Act.
(d) "Board" means the Board of Directors of the Company.
<PAGE> 2
-2-
(e) "Committee" means the Compensation Committee of the Board;
provided, that the Board by resolution duly adopted may at any time or from time
to time determine to assume any or all of the functions of the Committee under
the Plan, and during the period of effectiveness of any such resolution,
references herein to the "Committee" shall mean the Board acting in such
capacity.
(f) "Change in Control" means a change in ownership or control of
the Company effected through either of the following transactions:
(i) any person or related group of persons
(other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common
control with the Company) directly or indirectly acquires
Beneficial Ownership of securities possessing more than 50% of
the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made
directly to the Company's stockholders that the Board does not
recommend such stockholders to accept, or
(ii) over a period of 36 consecutive months or
less, there is a change in the composition of the Board such
that a majority of the Board members (rounded up to the next
whole number, if a fraction) ceases, by reason of one or more
proxy contests for the election of Board members, to be
composed of individuals who either (A) have been Board members
continuously since the beginning of such period, or (B) have
been elected or nominated for election as Board members during
such period by at least a majority of the Board members
described in the preceding clause (A) who were still in office
at the time such election or nomination was approved by the
Board.
(g) "Common Stock" means the authorized common stock of the
Company.
(h) "Company" means MediQual Systems, Inc.
(i) "Eligible Employee" means any person who is, at the time of
the grant of an Option or Restricted Stock Award, an employee (including
officers and employee directors) or consultant of the Company or any Subsidiary.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended and in effect from time to time.
<PAGE> 3
-3-
(k) "Fair Market Value" means the value of a share of Common Stock
as of the relevant time of reference, as determined as follows. If the Common
Stock is then publicly traded, Fair Market Value shall be (i) the last sale
price of a share of Common Stock on the principal national securities exchange
on which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last sale price of the Common Stock
reported in the NASDAQ National Market System, if the Common Stock is not then
traded on a national securities exchange; or (iii) the average of the closing
bid and asked prices for the Common Stock quoted by an established quotation
service for over-the-counter securities, if the Common Stock is not then traded
on a national securities exchange or reported in the NASDAQ National Market
System. If the Common Stock is not then publicly traded, Fair Market Value shall
be the fair value of a share of the Common Stock as determined by the Board or
the Committee, taking into consideration such factors as it deems appropriate,
which may include recent sale and offer prices of Common Stock in arms'-length
private transactions.
(l) "Hostile Takeover" means a change in ownership of the Company
effected through the following transaction:
(i) any person or related group of persons
(other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common
control with the Company) directly or indirectly acquires
Beneficial Ownership of securities possessing more than 50% of
the total combined voting power of the Company's outstanding
securities pursuant to a tender or exchange offer made
directly to the Company's stockholders that the Board does not
recommend such stockholders to accept, and
(ii) more than 50% of the securities so acquired
in such tender or exchange offer are accepted from holders
other than the officers and directors of the Company who are
subject to the short-swing profit restrictions of Section 16
of the Exchange Act.
(m) "Participant" means any Eligible Employee selected to receive
an Option or Restricted Stock Award pursuant to Section 5.
(n) "Restricted Stock Award" means a right to the grant or
purchase, at a price determined by the Committee, of Common Stock which is
nontransferable and subject to substantial risk of forfeiture until specific
conditions of continuing employment or performance are met.
(o) "Incentive Stock Option" means an Option intended to qualify
as an "incentive stock option" under Section 422A of the Internal Revenue Code
and regulations thereunder.
<PAGE> 4
-4-
(p) "Option" means an Incentive Stock Option or a nonqualified
stock option.
(q) "Plan" means this 1996 Stock Incentive Plan as set forth
herein and as amended and/or restated from time to time.
(r) "Subsidiary" means any subsidiary corporation (as defined in
Section 425 of the Internal Revenue Code) of the Company.
(s) "Takeover Price" means, with respect to any Incentive Stock
Option, the Fair Market Value per share of Common Stock on the date such Option
is surrendered to the Company in connection with a Hostile Takeover, or in the
case of a nonqualified Option, such Fair Market Value or, if greater, the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Takeover.
3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment in accordance with the provisions of
Section 3(c) and Section 8 of the Plan, the aggregate number of shares of Common
Stock that may be issued or transferred pursuant to Options or Restricted Stock
Awards under the Plan shall not exceed 1,500,000 shares, which aggregate number
of shares, automatically and without further action, shall increase, on January
1, 1998, and each January 1 thereafter during the term of the Plan, by an
additional number of shares of Common Stock equal to ten per cent (10%) of (i)
the difference between the total number of shares of Common Stock and Common
Stock equivalents issued and outstanding as of the close of business on December
31 of the preceding year and (ii) the total number of shares of Common Stock and
Common Stock equivalents issued and outstanding as of the close of business on
December 31 of the year prior to such preceding year.
(b) The shares of Common Stock to be delivered under the Plan will
be made available, at the discretion of the Committee, from authorized but
unissued shares of Common Stock and/or from previously issued shares of Common
Stock reacquired by the Company.
(c) If shares covered by any Option cease to be issuable for any
reason, and/or shares covered by Restricted Stock Awards are forfeited, such
number of shares will no longer be charged against the limitation provided in
Section 3(a) and may again be made subject to Options or Restricted Stock
Awards.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan will be governed by and interpreted and construed in
accordance with the internal laws of the State of Delaware (without reference to
principles of conflicts or choice of law). The captions of sections of the Plan
are
<PAGE> 5
-5-
for reference only and will not affect the interpretation or construction of the
Plan.
(b) The Plan will be administered by the Committee, which shall
consist of two or more persons. The Committee has and may exercise such powers
and authority of the Board as may be necessary or appropriate for the Committee
to carry out its functions as described in the Plan. The Committee shall
determine the Eligible Employees to whom, and the time or times at which,
Options or Restricted Stock Awards may be granted and the number of shares
subject to each Option or Restricted Stock Award. The Committee also has
authority (i) to interpret the Plan, (ii) to determine the terms and provisions
of the Option or Restricted Stock Award instruments, and (iii) to make all other
determinations necessary or advisable for Plan administration. The Committee has
authority to prescribe, amend, and rescind rules and regulations relating to the
Plan. All interpretations, determinations, and actions by the Committee will be
final, conclusive, and binding upon all parties.
(c) No member of the Committee will be liable for any action taken
or determination made in good faith by the Committee with respect to the Plan or
any Option or Restricted Stock Award under it.
5. GRANTS.
(a) The Committee shall determine and designate from time to time
those Eligible Employees who are to be granted Options or Restricted Stock
Awards, the type of each Option to be granted and the number of shares covered
thereby or issuable upon exercise thereof, and the number of shares covered by
each Restricted Stock Award. Each Option and Restricted Stock Award will be
evidenced by a written agreement or instrument and may include any other terms
and conditions consistent with the Plan, as the Committee may determine.
(b) No person will be eligible for the grant of an Incentive Stock
Option who owns or would own immediately before the grant of such Option,
directly or indirectly, stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of any parent
corporation or Subsidiary. This will not apply if, at the time such Incentive
Stock Option is granted, its exercise price is at least 110% of the Fair Market
Value of the Common Stock and by its terms, it is not exercisable after the
expiration of five years from the date of grant. Subject to adjustment in
accordance with the provisions of Section 8 of the Plan, (i) no person may in
any year be granted Options or Restricted Stock Awards with respect to more than
500,000 shares of Common Stock, and (ii) no more than an aggregate of 3,000,000
shares of Common Stock may be issued pursuant to the exercise of Incentive Stock
Options granted under the Plan.
<PAGE> 6
-6-
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
(a) The price at which Common Stock may be purchased by a
Participant under an Option shall be determined by the Committee; provided,
however, that the purchase price under a nonqualified Option shall not be less
than 85% of the Fair Market Value of the Common Stock on the date of grant of
such Option, and the purchase price under an Incentive Stock Option shall not be
less than 100% of the Fair Market Value of the Common Stock on the date of grant
of such Option.
(b) Each Option shall be exercisable at such time or time, during
such periods, and for such numbers of shares as shall be determined by the
Committee and set forth in the agreement or instrument evidencing the Option
grant (subject to Acceleration by the Committee, in its discretion). The Option
shall expire no later than three months following termination of the optionee's
employment or consulting relationship with the Company or a Subsidiary, except
in the event that such termination is due to death or disability, in which case
the Option may be exercisable for a maximum of twelve months after such
termination. In any event, the Option shall expire no later than the tenth
anniversary of the date of grant.
(c) Unless the Compensation Committee otherwise determines
(whether at the time the Option is granted or otherwise), upon the exercise of
an Option, the purchase price will be payable in full in cash.
(d) Incentive Stock Options may be granted under the Plan only to
employees of the Company or a Subsidiary, and the aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is granted) of the number
of shares with respect to which Incentive Stock Options are exercisable for the
first time by a Participant in any calendar year shall not exceed one hundred
thousand dollars ($100,000) or such other limit as may be required by the
Internal Revenue Code. Any Options that purport to be Incentive Stock Options
but which are granted to persons other than employees of the Company or a
Subsidiary shall be, and any Options that purport to be Incentive Stock Options
but are granted in amounts in excess of those specified in this Section 6(d),
shall to the extent of such excess be, nonqualified Options.
(e) No fractional shares will be issued pursuant to the exercise
of an Option, nor will any cash payment be made in lieu of fractional shares.
(f) Subject to the short-swing profit restrictions of the Federal
securities laws, each Option granted to any officer of the Company may provide
that upon the occurrence of a Hostile Takeover, such Option, if outstanding for
<PAGE> 7
-7-
at least six months, will automatically be canceled in exchange for a cash
distribution from the Company in an amount equal to the excess of (i) the
aggregate Takeover Price of the shares of Common Stock at the time subject to
the canceled Option (regardless of whether the Option is otherwise then
exercisable for such shares) over (ii) the aggregate Option price payable for
such shares. Such cash distribution shall be made within five days after the
consummation of the Hostile Takeover. Neither the approval of the Committee nor
the consent of the Board shall be required in connection with such Option
cancellation and cash distribution.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) All shares of Common Stock subject to Restricted Stock Awards
granted or sold pursuant to the Plan may be issued or transferred for such
consideration (which may consist wholly of services) as the Committee may
determine, and will be subject to the following conditions:
(i) The shares may not be sold, transferred, or otherwise
alienated or hypothecated until the restrictions are removed or expire,
unless the Committee determines otherwise.
(ii) The Committee shall provide in the agreement or
instrument evidencing the grant of the Restricted Stock Awards that the
certificates representing shares subject to Restricted Stock Awards
granted or sold pursuant to the Plan will be held in escrow by the
Company until the restrictions on the shares lapse in accordance with
the provisions of subsection (b) of this Section 7.
(iii) Each certificate representing shares subject to
Restricted Stock Awards granted or sold pursuant to the Plan will bear
a legend making appropriate reference to the restrictions imposed.
(iv) The Committee may impose other conditions on any
shares subject to Restricted Stock Awards granted or sold pursuant to
the Plan as it may deem advisable, including without limitation,
restrictions under the Securities Act of 1933, as amended, under the
requirements of any stock exchange or securities quotations system upon
which such shares or shares of the same class are then listed, and
under any blue sky or other securities laws applicable to such shares.
(b) The restrictions imposed under subparagraph (a) above upon
Restricted Stock Awards will lapse at such time or times, and/or upon the
achievement of such predetermined performance objectives, as shall be determined
by the Committee and set forth in the agreement or instrument
<PAGE> 8
-8-
evidencing the Option grant, provided, however, that the restrictions on
Restricted Stock Awards shall not fully lapse in less than [three] years from
the date of grant, or not less than [one] year from the date of grant if such
restrictions also require the achievement of one or more predetermined
performance objectives. In the event a holder of a Restricted Stock Award ceases
to be an employee or consultant of the Company, all shares under the Restricted
Stock Award that remain subject to restrictions at the time his or her
employment or consulting relationship terminates will be returned to or
repurchased by the Company unless the Committee determines otherwise.
(c) Subject to the provisions of subparagraphs (a) and (b) above,
the holder will have all rights of a shareholder with respect to the shares
covered by Restricted Stock Awards granted or sold, including the right to
receive all dividends and other distributions paid or made with respect thereto;
provided, however, that he or she shall execute an irrevocable proxy or enter
into a voting agreement with the Company as determined by the Committee for the
purpose of granting the Company or its nominee the right to vote all shares that
remain subject to restrictions under this Section 7 in the same proportions (for
and against) as the outstanding voting shares of the Company that are not
subject to such restrictions are voted by the other shareholders of the Company
on any matter, unless the Committee determines otherwise.
8. ADJUSTMENT PROVISIONS.
(a) All of the share numbers set forth in the Plan reflect the
capital structure of the Company at the time of the effectiveness of the
Company's first registration statement on Form S-1 filed under the Securities
Act of 1933, as amended. Subject to Section 8(b), if subsequent to such date the
outstanding shares of Common Stock of the Company are increased, decreased, or
exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are distributed
with respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all the property of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other distribution with respect to such shares of Common
Stock, or other securities, an appropriate and proportionate adjustment shall be
made in (i) the maximum numbers and kinds of shares provided in Sections 3 and
5, (ii) the numbers and kinds of shares or other securities subject to the then
outstanding Options and Restricted Stock Awards, and (iii) the price for each
share or other unit of any other securities subject to then outstanding Options
(without change in the aggregate purchase price as to which such Options remain
exercisable).
(b) The Committee shall have discretion to provide for the
Acceleration of one or more outstanding Options held by employees and the
vesting of
<PAGE> 9
-9-
unvested shares held by employees as Restricted Stock Awards upon the occurrence
of a Change in Control of the Company. Such Accelerated vesting may be
conditioned on the subsequent termination of the affected optionee's employment.
Any Options Accelerated in connection with a Change in Control shall remain
fully exercisable until the expiration or sooner termination of the Option Term.
(c) In the event of an Acquisition: The unvested shares of Common
Stock held by employees as Restricted Stock Awards shall immediately vest in
full, except to the extent that the Company's repurchase rights with respect to
those shares are to be assigned to the acquiring entity; and all outstanding
Options held by employees will Accelerate to the extent not assumed by the
acquiring entity or replaced by comparable options to purchase shares of the
capital stock of the successor or acquiring entity or parent thereof (the
determination of comparability to be made by the Committee, which determination
shall be final, binding, and conclusive). The Committee shall have discretion,
exercisable either in advance of an Acquisition or at the time thereof, to
provide (upon such terms as it may deem appropriate) for (i) the automatic
Acceleration of one or more outstanding Options held by employees that are
assumed or replaced and do not otherwise Accelerate by reason of the
Acquisition, and/or (ii) the subsequent termination of one or more of the
Company's repurchase rights with respect to shares held by employees as
Restricted Stock Awards that are assigned in connection with the Acquisition and
do not otherwise terminate at that time, in the event that the employment of the
respective grantees of such Options or Restricted Stock Awards should
subsequently terminate following such Acquisition.
(d) Each outstanding Option that is assumed in connection with an
Acquisition, or is otherwise to continue in effect subsequent to such
Acquisition, shall be appropriately adjusted, immediately after such
Acquisition, to apply to the number and class of securities that would have been
issued to the Option holder, in consummation of such Acquisition, had such
holder exercised such Option immediately prior to such Acquisition. Appropriate
adjustments shall also be made to the Option price payable per share, provided,
that the aggregate Option price payable for such securities shall remain the
same. The class and number of securities available for issuance under the Plan
following the consummation of such Acquisition shall be appropriately adjusted.
(e) Adjustments under this Section 8 will be made by the Committee
in accordance with the terms of such sections, whose determination as to what
adjustments will be made and the extent thereof so as to effectuate the intent
of such sections will be final, binding, and conclusive. No fractional shares
will be issued under the Plan on account of any such adjustments.
<PAGE> 10
-10-
9. GENERAL PROVISIONS.
(a) Nothing in the Plan or in any instrument executed pursuant to
the Plan will confer upon any Participant any right to continue in the employ of
or as a consultant to the Company or any of its Subsidiaries or affect the right
of the Company or any Subsidiary to terminate the employment or consulting
relationship of any Participant at any time, with or without cause.
(b) No shares of Common Stock will be issued or transferred
pursuant to an Option or Restricted Stock Award unless and until all then
applicable requirements imposed by Federal and state securities and other laws,
rules and regulations and by any regulatory agencies having jurisdiction, and by
any stock exchanges or securities quotations systems upon which the Common Stock
may be listed, have been fully met. As a condition precedent to the issuance of
shares pursuant to the grant or exercise of an Option or Restricted Stock Award,
the Company may require the Participant to take any reasonable action to meet
such requirements.
(c) No Participant and no beneficiary or other person claiming
under or through such Participant will have any right, title, or interest in or
to any shares of Common Stock allocated or reserved under the Plan or subject to
any Option, except as to such shares of Common Stock, if any, that have been
issued or transferred to such Participant.
(d) The Committee shall adopt rules regarding the withholding of
federal, state, or local taxes of any kind required by law to be withheld with
respect to payments and delivery of shares to Participants under the Plan. With
respect to any nonqualified stock option, the Committee, in its discretion, may
permit the Participant to satisfy, in whole or in part, any tax withholding
obligation that may arise in connection with the exercise of the nonqualified
stock option by electing to have the Company withhold shares of Common Stock
having a Fair Market Value equal to the amount of the tax withholding.
(e) No Option and no right under the Plan, contingent or
otherwise, will be transferable or assignable or subject to any encumbrance,
pledge, or charge of any nature except that, under such rules and regulations as
the Committee may establish pursuant to the terms of the Plan, a beneficiary may
be designated with respect to an Option in the event of death of a Participant.
If such beneficiary is the executor or administrator of the estate of the
Participant, any rights with respect to such Option may be transferred to the
person or persons or entity (including a trust) entitled thereto under the will
of the holder of such Option.
(f) The Committee may cancel, with the consent of the Participant,
all or a portion of any Option granted under the Plan to be conditioned upon the
<PAGE> 11
-11-
granting to the Participant of a new Option for the same or a different number
of shares as the Option surrendered, or may require such voluntary surrender as
a condition to a grant of a new Option to such Participant; in each case, such
new Options to have an exercise price per share based upon the Fair Market Value
of the Common Stock as of the new grant date (i.e., the purchase price under a
new nonqualified Option shall not be less than 85% of the Fair Market Value of
the Common Stock on the date of grant of such new nonqualified Option, and the
purchase price under a new Incentive Stock Option shall not be less than 100% of
the Fair Market Value of the Common Stock on the date of grant of such new
Incentive Stock Option (110%, if the grantee of such new Incentive Stock Option
is a greater-than-10% stockholder of the Company, as set forth in Section 5(b)
above)). Subject to the provisions of Section 6(d), such new Option shall be
exercisable at such time or time, during such periods, and for such numbers of
shares, and in accordance with any other terms or conditions, as are specified
by the Committee at the time the new Option is granted, all determined in
accordance with the provisions of the Plan without regard to the price, period
of exercise, or any other terms or conditions of the Option surrendered.
(g) The written agreements or instruments evidencing Restricted
Stock Awards or Options granted under the Plan may contain such other provisions
as the Committee may deem advisable. Without limiting the foregoing, and if so
authorized by the Committee, the Company may, with the consent of the
Participant and at any time or from time to time, cancel all or a portion of any
Option granted under the Plan then subject to exercise and discharge its
obligation with respect to the Option either by payment to the Participant of an
amount of cash equal to the excess, if any, of the Fair Market Value, at such
time, of the shares subject to the portion of the Option so canceled over the
aggregate purchase price specified in the Option covering such shares, or by
issuance or transfer to the Participant of shares of Common Stock with a Fair
Market Value at such time, equal to any such excess, or by a combination of cash
and shares. Upon any such payment of cash or issuance of shares, (i) there shall
be charged against the aggregate limitations set forth in Section 3(a) a number
of shares equal to the number of shares so issued plus the number of shares
purchasable with the amount of any cash paid to the Participant on the basis of
the Fair Market Value as of the date of payment, and (ii) the number of shares
subject to the portion of the Option so canceled, less the number of shares so
charged against such limitations, shall thereafter be available for other
grants.
10. AMENDMENT AND TERMINATION.
(a) The Board shall have the power, in its discretion, to amend,
modify, suspend, or terminate the Plan at any time, subject to the rights of
holders of
<PAGE> 12
-12-
outstanding Options and Restricted Stock Awards on the date of such action, and
to the approval of the stockholders of the Company if an amendment or
modification would change the eligibility requirements of the Plan, extend the
term of the Plan, or increase the number of shares of Common Stock subject to
grant as Options or Restricted Stock Awards under the Plan.
(b) The Committee may, with the consent of a Participant, make
such modifications in the terms and conditions of an Option or Restricted Stock
Award held by such Participant as it deems advisable.
(c) No amendment, suspension or termination of the Plan will,
without the consent of the Participant, alter, terminate, impair, or adversely
affect any right or obligation under any Option or Restricted Stock Award
previously granted to such Participant under the Plan.
11. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.
The Plan became effective upon its adoption by the Board on
May 28, 1996, subject to subsequent approval by the Company's stockholders.
Unless previously terminated, the Plan will terminate on May 28, 2006.
<PAGE> 13
MEDIQUAL SYSTEMS, INC.
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE 1996 STOCK INCENTIVE PLAN
MediQual Systems, Inc. (the "Company"), a Delaware corporation, hereby
grants, effective as of ____________, 199__ (the "Effective Date"), to
_____________ (the "Optionee") the right and option (the "Option") to purchase
up to ____________ shares of its Common Stock, $0.01 par value, at a price of
$_________ per share [Note: must be at least 100% of fair market value as of the
date of grant (110%, in the case of a greater-than-10% stockholder)], subject to
the following terms and conditions.
1. RELATIONSHIP TO PLAN. The Option is granted pursuant to the
Company's 1996 Stock Incentive Plan (the "Plan"), and is in all respects subject
to the terms and conditions of the Plan, a copy of which has been provided to
the Optionee (the receipt of which the Optionee hereby acknowledges).
Capitalized terms used and not otherwise defined in this Agreement are used as
defined in the Plan. The Optionee hereby accepts the Option subject to all the
terms and provisions of the Plan (including without limitation provisions
relating to expiration and termination of the Option and adjustment of the
number of shares subject to the Option and the exercise price therefor). The
Optionee further agrees that all decisions under and interpretations of the Plan
by the Company shall be final, binding, and conclusive upon the Optionee and his
or her successors, permitted assigns, heirs, and legal representatives.
2. VESTING. The Option shall vest and become exercisable only as
follows, provided, in each case, that the Optionee continues to be employed by
the Company or a Subsidiary (as defined in the Plan) of the Company on each
applicable vesting date:
<TABLE>
<CAPTION>
Number (or Percentage) of Shares
Date for which Option Exercisable
---- ----------------------------
<S> <C>
- ------------------------- --------------
- ------------------------- --------------
- ------------------------- --------------
- ------------------------- --------------
</TABLE>
<PAGE> 14
-2-
3. TERMINATION OF OPTION. The Option shall terminate on the
earlier of (a) ________________, 20___ [Note: cannot be later than the tenth
anniversary of the date of grant (fifth anniversary, in the case of a
greater-than-10% stockholder)], and (b) if the Optionee's employment with the
Company terminates for any reason, the applicable date determined from the
following table:
<TABLE>
<CAPTION>
Reason for Termination
of Employment Option Termination Date
------------- -----------------------
<S> <C> <C>
(i) death of employee Twelve months thereafter
(ii) total and permanent Twelve months thereafter
disability of employee
(as defined in Section
22(e)(3) of the Internal
Revenue Code of 1986,
as amended)
(iii) termination of employment Three months thereafter
for any other reason
</TABLE>
Military or sick leave shall not be deemed a termination of employment provided
that it does not exceed the longer of 90 days or the period during which the
absent employee's reemployment rights are guaranteed by statute or by contract.
4. "LOCK-UP" AGREEMENT. The Optionee agrees that upon the
Company's request at any time, whether before or after the exercise of the
Option, the Optionee shall enter into an agreement pursuant to which, if the
Company deems it necessary or desirable to make any public offering of shares of
Common Stock, then without the prior written consent of the Company or the
managing underwriter, if any, of any such offering, the Optionee shall not sell,
make any short sale of, loan, grant any option for the purchase of, pledge, or
<PAGE> 15
-3-
otherwise encumber or otherwise dispose of any shares of Common Stock issued or
issuable pursuant to the Option, during such period (not to exceed 210 days)
commencing on the effective date of the registration statement relating to such
offering as the Company may request.
5. METHODS OF EXERCISE. Except as may otherwise be agreed by the
Optionee and the Company, the Option shall be exercisable only by a written
notice in form and substance acceptable to the Company, specifying the number of
shares to be purchased and accompanied by payment in cash of the aggregate
purchase price for the shares for which the Option is being exercised.
6. CHARACTERIZATION OF OPTION FOR TAX PURPOSES. Although the
Option is intended to qualify as an "incentive stock option" under the Internal
Revenue Code of 1986, as amended, the Company makes no representation or
warranty as to the tax treatment to the Optionee upon receipt or exercise of the
Option or sale or other disposition of the shares covered by the Option. In
addition, options granted to the Optionee under the Plan and any and all other
plans of the Company and its affiliates shall not be treated as incentive stock
options for tax purposes to the extent that options covering in excess of
$100,000 of stock (based upon fair market value of the stock as of the
respective dates of grant of such options) become exercisable in any calendar
year; and such options shall be subject to different tax treatment (including
the possibility of income tax withholding in accordance with the Plan).
7. COMPLIANCE WITH LAWS. The obligations of the Company to sell
and deliver Shares upon exercise of the Option are subject to all applicable
laws, rules, and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by government agencies
as may be deemed necessary or appropriate by the Board or the relevant committee
of the Board. If so required by the Board or such committee, no shares shall be
delivered upon the exercise of the Option until the Optionee has given the
Company a satisfactory written statement that he is purchasing such shares for
investment, and not with a view to the sale or distribution of any such shares,
and with respect to such other matters as the Board may deem advisable in order
to assure compliance with applicable securities laws. All shares issued upon
exercise of the Option shall bear appropriate restrictive legends.
8. GENERAL. The Optionee may not transfer, assign, or encumber
any of his or her rights under this Agreement without the prior written consent
of the Company, and any attempt to do so shall be void. This Agreement shall be
governed by and interpreted and construed in accordance with the internal laws
of the State of Delaware (without reference to principles of conflicts or choice
of law). The captions of the sections of this Agreement are for reference only
and shall not affect the interpretation or construction of this Agreement. This
<PAGE> 16
-4-
Agreement shall bind and inure to the benefit of the parties and their
respective successors, permitted assigns, heirs, devisees, and legal
representatives.
IN WITNESS WHEREOF, the Company and the Optionee have executed and
delivered this Agreement as an agreement under seal as of the Effective Date.
MEDIQUAL SYSTEMS, INC.
By
------------------------
Name:
Title:
--------------------------
Optionee
<PAGE> 17
MEDIQUAL SYSTEMS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
UNDER THE 1996 STOCK INCENTIVE PLAN
MediQual Systems, Inc. (the "Company"), a Delaware corporation, hereby
grants, effective as of ____________, 199__ (the "Effective Date"), to
_____________ (the "Optionee") the right and option (the "Option") to purchase
up to ____________ shares of its Common Stock, $0.01 par value, at a price of
$_________ per share, subject to the following terms and conditions.
1. RELATIONSHIP TO PLAN. The Option is granted pursuant to the
Company's 1996 Stock Incentive Plan (the "Plan"), and is in all respects subject
to the terms and conditions of the Plan, a copy of which has been provided to
the Optionee (the receipt of which the Optionee hereby acknowledges).
Capitalized terms used and not otherwise defined in this Agreement are used as
defined in the Plan. The Optionee hereby accepts the Option subject to all the
terms and provisions of the Plan (including without limitation provisions
relating to expiration and termination of the Option and adjustment of the
number of shares subject to the Option and the exercise price therefor). The
Optionee further agrees that all decisions under and interpretations of the Plan
by the Company shall be final, binding, and conclusive upon the Optionee and his
or her successors, permitted assigns, heirs, and legal representatives.
2. VESTING. The Option shall vest and become exercisable only as
follows, provided, in each case, that the Optionee continues to be employed by
the Company or a Subsidiary (as defined in the Plan) of the Company on each
applicable vesting date:
<TABLE>
<CAPTION>
Number (or Percentage) of Shares
Date for which Option Exercisable
---- ----------------------------
<S> <C>
- ------------------------- --------------
- ------------------------- --------------
- ------------------------- --------------
- ------------------------- --------------
</TABLE>
<PAGE> 18
-2-
3. TERMINATION OF OPTION. The Option shall terminate on the
earlier of (a) ________________, 20___, and (b) if the Optionee's employment
with the Company terminates for any reason, the applicable date determined from
the following table:
<TABLE>
<CAPTION>
Reason for Termination
of Employment Option Termination Date
------------- -----------------------
<S> <C> <C>
(i) death of employee Twelve months thereafter
(ii) total and permanent Twelve months thereafter
disability of employee
(as defined in Section
22(e)(3) of the Internal
Revenue Code of 1986,
as amended)
(iii) termination of employment Three months thereafter
for any other reason
</TABLE>
Military or sick leave shall not be deemed a termination of employment provided
that it does not exceed the longer of 90 days or the period during which the
absent employee's reemployment rights are guaranteed by statute or by contract.
4. "LOCK-UP" AGREEMENT. The Optionee agrees that upon the
Company's request at any time, whether before or after the exercise of the
Option, the Optionee shall enter into an agreement pursuant to which, if the
Company deems it necessary or desirable to make any public offering of shares of
Common Stock, then without the prior written consent of the Company or the
managing underwriter, if any, of any such offering, the Optionee shall not sell,
make any short sale of, loan, grant any option for the purchase of, pledge, or
otherwise encumber or otherwise dispose of any shares of Common Stock issued
<PAGE> 19
-3-
or issuable pursuant to the Option, during such period (not to exceed 210 days)
commencing on the effective date of the registration statement relating to such
offering as the Company may request.
5. METHODS OF EXERCISE. Except as may otherwise be agreed by the
Optionee and the Company, the Option shall be exercisable only by a written
notice in form and substance acceptable to the Company, specifying the number of
shares to be purchased and accompanied by payment in cash of the aggregate
purchase price for the shares for which the Option is being exercised.
6. CHARACTERIZATION OF OPTION FOR TAX PURPOSES. The Option is
intended not to qualify as an "incentive stock option" under the Internal
Revenue Code of 1986, as amended, and shall be subject to different tax
treatment than that accorded incentive stock options (including the possibility
of income tax withholding in accordance with the Plan).
7. COMPLIANCE WITH LAWS. The obligations of the Company to sell
and deliver Shares upon exercise of the Option are subject to all applicable
laws, rules, and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by government agencies
as may be deemed necessary or appropriate by the Board or the relevant committee
of the Board. If so required by the Board or such committee, no shares shall be
delivered upon the exercise of the Option until the Optionee has given the
Company a satisfactory written statement that he is purchasing such shares for
investment, and not with a view to the sale or distribution of any such shares,
and with respect to such other matters as the Board may deem advisable in order
to assure compliance with applicable securities laws. All shares issued upon
exercise of the Option shall bear appropriate restrictive legends.
8. GENERAL. The Optionee may not transfer, assign, or encumber
any of his or her rights under this Agreement without the prior written consent
of the Company, and any attempt to do so shall be void. This Agreement shall be
governed by and interpreted and construed in accordance with the internal laws
of the State of Delaware (without reference to principles of conflicts or choice
of law). The captions of the sections of this Agreement are for reference only
and shall not affect the interpretation or construction of this Agreement. This
Agreement shall bind and inure to the benefit of the parties and their
respective successors, permitted assigns, heirs, devisees, and legal
representatives.
<PAGE> 20
-4-
IN WITNESS WHEREOF, the Company and the Optionee have executed and
delivered this Agreement as an agreement under seal as of the Effective Date.
MEDIQUAL SYSTEMS, INC.
By
--------------------------
Name:
Title:
----------------------------
Optionee
<PAGE> 1
Exhibit 10.3
MEDIQUAL SYSTEMS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. Definitions. As used in this 1996 Employee Stock Purchase Plan
of MediQual Systems, Inc., the following terms have the respective meanings
ascribed to them below:
(a) Base Compensation means annual or annualized base
compensation, exclusive of overtime, bonuses, contributions to employee benefit
plans, and other fringe benefits.
(b) Beneficiary means, with respect to any Participating Employee,
the person designated as beneficiary on such Participating Employee's Membership
Agreement or other form provided by the Company for such purpose, or if no such
beneficiary is named, the person to whom the Option is transferred by will or
under the applicable laws of descent and distribution.
(c) Board means the board of directors of the Company, except that
if and for so long as the board of directors of the Company has delegated its
authority with respect to the Plan to the Committee pursuant to Section 4, then
all references in this Plan to the Board will be deemed to refer to the
Committee acting in such capacity.
(d) Code means the Internal Revenue Code of 1986, as amended.
(e) Company means MediQual Systems, Inc., a Delaware corporation.
(f) Committee means the Compensation Committee of the Board.
(g) Effective Date means the effective date of the Company's
first registration statement on Form S-1, filed under the Securities Act of
1933, as amended.
(h) Eligible Employee means a person who is eligible under the
provisions of Section 7 to receive an Option as of a particular Offering
Commencement Date.
(i) Employer means, as to any particular Offering Period, the
Company and any Related Corporation that is designated by the Board as a
corporation whose Eligible Employees are to receive Options as of that Period's
Offering Commencement Date.
<PAGE> 2
-2-
(j) Market Value means, as of the Offering Commencement Date of
the first Offering Period under this Plan, the initial public offering price at
which shares of Stock are offered to the public, as specified in the Company's
registration statement on Form S-1 referred to above, and as of any other
particular date, (i) if the Stock is listed on a national securities exchange,
the closing price of the Stock on such exchange on such date, (ii) if the Stock
is not listed on a national securities exchange but is quoted through the
National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
National Market System or any successor thereto, the last sale price of the
Stock so quoted on such date, and (iii) if the Stock is not listed on a national
securities exchange or quoted through the NASDAQ National Market System or any
successor thereto, but is quoted through NASDAQ other than through the National
Market System, or is otherwise publicly traded, the average of the closing bid
and asked prices of the Stock so quoted or otherwise reported on such date.
(k) Membership Agreement means an agreement whereby a
Participating Employee authorizes an Employer to withhold payroll deductions
from his or her Base Compensation.
(l) Offering Commencement Date means the first business day of an
Offering Period on which Options are granted to Eligible Employees.
(m) Offering Period means (i) in the case of the initial Offering
Period hereunder, the period running from the Effective Date to January 31,
1997, and (ii) in the case of each subsequent Offering Period, a semi-annual
period running from February 1 to the next following July 31 or from August 1 to
the next following January 31; during which options will be offered under the
Plan pursuant to a determination by the Board.
(n) Offering Termination Date means the last business day of an
Offering Period, on which Options must, if ever, be exercised.
(o) Option means an option to purchase shares of Stock granted
under the Plan.
(p) Option Shares means shares of Stock purchasable under an
Option.
(q) Participating Employee means an Eligible Employee to whom an
Option is granted.
(r) Plan means this 1996 Employee Stock Purchase Plan of the
Company, as amended from time to time.
<PAGE> 3
-3-
(s) Related Corporation means any corporation that is or during
the term of the Plan becomes a parent corporation of the Company, as defined in
Section 424(e) of the Code, or a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
(t) Stock means the common stock, $0.01 par value per share, of
the Company.
2. Purpose of the Plan. The Plan is intended to encourage
ownership of Stock by employees of the Company and any Related Corporations and
to provide an additional incentive for the employees to promote the success of
the business of the Company and any Related Corporations. It is intended that
the Plan qualify as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
3. Term of the Plan. The Plan will become effective on the
Effective Date. No Option may be granted under the Plan after the tenth
anniversary of the Effective Date.
4. Administration of the Plan. The Plan will be administered by
the Board. The Board will determine which semi-periods will be Offering Periods
in accordance with Section 8, and which (if any) Related Corporations will be
Employers as to each Offering Period. The Board will have authority to interpret
the Plan, to prescribe, amend, and rescind rules and regulations relating to the
Plan, to determine the terms of Options granted under the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan.
All determinations of the Board under the Plan will be final and binding as to
all persons having or claiming any interest in or arising out of the Plan. The
Board may delegate all or any portion of its authority with respect to the Plan
to the Committee, and thereafter until such delegation is revoked by the Board
all powers under the Plan delegated to the Committee will be exercised by the
Committee.
5. Termination and Amendment of Plan. The Board may terminate or
amend the Plan at any time; provided, however, that the Board may not, without
approval by the holders of a majority of the outstanding shares of Stock,
increase the maximum number of shares of Stock purchasable under the Plan or
change the description of employees or classes of employees eligible to receive
Options. Without limiting the generality of the foregoing, but subject to the
foregoing proviso, the Board may amend the Plan from time to time to increase or
decrease the length of any future Offering Periods and to make all required
conforming changes to the Plan. No termination or amendment of the Plan may
adversely affect the rights of a Participating Employee with respect to any
Option held by the Participating Employee prior to such termination or
amendment.
<PAGE> 4
-4-
6. Shares of Stock Subject to the Plan. No more than an aggregate
of 300,000 shares of Stock may be issued or delivered pursuant to the
exercise of Options granted under the Plan (such number of shares subject to
automatic proportionate adjustment in the event of any stock dividend, stock
split, reverse stock split stock combination or division, recapitalization, or
other similar event affecting the Common Stock, and to adjustments made in
accordance with Section 9.7). Shares to be delivered upon exercise of Options
may be either shares of Stock that are authorized but unissued or shares of
Stock held by the Company in its treasury. If an Option expires or terminates
for any reason without having been exercised in full, the unpurchased shares
subject to the Option will become available for other Options granted under
the Plan. At all times during which Options are outstanding, the Company will
reserve and keep available sufficient shares of Stock to cover the exercise in
full of such Options, and will pay all fees and expenses incurred by the
Company in connection therewith.
7. Persons Eligible to Receive Options. Each employee of an
Employer will be granted an Option on each Offering Commencement Date on which
such employee meets all of the following requirements:
(a) The employee is customarily employed by an Employer for more
than twenty hours per week and for more than five months per calendar year.
(b) The employee will not, after grant of the Option, own Stock
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company or of any Related Corporation. For purposes
of this paragraph (b), the rules of Section 424(d) of the Code will apply in
determining the Stock ownership of the employee, and Stock that the employee may
purchase under outstanding options will be treated as Stock owned by the
employee.
(c) Upon grant of the Option, the employee's rights to purchase
Stock under all employee stock purchase plans (as defined in Section 423(b) of
the Code) of the Company and its Related Corporations will not accrue at a rate
exceeding $25,000 of Market Value of Stock (determined as of the grant date) for
each calendar year in which such Option is outstanding at any time. The accrual
of rights to purchase Stock will be determined in accordance with Section
423(b)(8) of the Code.
8. Offering Commencement Dates. Options will be granted on the
first business day of the period running from the Effective Date to January 31,
1997, and of each semi-annual period running from February 1 to the next
following July 31 or from August 1 to the next following January 31, that is
designated by
<PAGE> 5
-5-
the Board as an Offering Period. Following the initial Offering
Period under the Plan (i.e., the period running from the Effective Date to
January 31, 1997), all succeeding semi-annual periods described above will be
deemed Offering Periods without need of further Board action unless and until
contrary action will have been taken by the Board prior to the beginning of what
would otherwise be an Offering Period.
9. Terms and Conditions of Options.
9.1 General. All Options granted on a particular Offering
Commencement Date will comply with the terms and conditions set forth in
Sections 9.2 through 9.11. Subject to Sections 7(c) and 9.9, each Option granted
on a particular Offering Commencement Date will entitle the Participating
Employee to purchase that number of shares of Stock equal to the result of
$12,500 (or such lesser amount as is selected by the Board, prior to the
applicable Offering Commencement Date, and applied uniformly during the Offering
Period then beginning) divided by the Market Value of one such share on the
Offering Commencement Date and then rounded down, if necessary, to the nearest
whole number.
9.2 Purchase Price. The purchase price of each Option Share will
be 85% of the lesser of (a) the Market Value of a share of Stock as of the
Offering Commencement Date or (b) the Market Value of a share of Stock as of the
Offering Termination Date.
9.3 Restrictions on Transfer.
(a) Options may not be transferred otherwise than by will or
pursuant to applicable laws of descent and distribution. During the lifetime of
a Participating Employee, such Participating Employee's Options may not be
exercised by anyone other than such Participating Employee.
(b) The Optionee will agree in the Membership Agreement to notify
the Company of any transfer of Option Shares within two years of the Offering
Commencement Date for such Option Shares. The Company will have the right to
place a legend on all stock certificates representing Option Shares instructing
the transfer agent to notify the Company of any transfer of such Option Shares.
The Company will also have the right to place a legend on all stock certificates
representing Option Shares setting forth or referring to the restriction on
transferability of such Option Shares.
9.4 Expiration. Each Option will expire at the close of business
on the Offering Termination Date or on such earlier date as may result from the
operation of Sections 9.5 or 9.6.
<PAGE> 6
-6-
9.5 Termination of Employment of Optionee. If a Participating
Employee ceases for any reason (other than death) to be continuously employed by
an Employer, whether due to voluntary severance, involuntary severance,
transfer, or disaffiliation of a Related Corporation with the Company, his or
her Option will immediately expire, and the Participating Employee's accumulated
payroll deductions will be returned by the Company. For purposes of this Section
9.5, a Participating Employee will be deemed to be employed throughout any leave
of absence for military service, illness, or other bona fide purpose that does
not exceed the longer of ninety days or the period during which the
Participating Employee's reemployment rights are guaranteed by statute
(including without limitation the Veterans Reemployment Rights Act or similar
statute relating to military service) or by contract. If the Participating
Employee does not return to active employment prior to the termination of such
period, his or her employment will be deemed to have ended on the ninety-first
day of such leave of absence (or such longer period guaranteed by statute or by
contract as provided above).
9.6 Death of Optionee. If a Participating Employee dies, his or
her Beneficiary will be entitled to withdraw the Participating Employee's
accumulated payroll deductions, or to purchase shares on the Offering
Termination Date to the extent that the Participating Employee would be so
entitled had he or she continued to be employed by an Employer. The number of
shares purchasable will be limited by the amount of the Participating Employee's
accumulated payroll deductions as of the date of his or her death. Accumulated
payroll deductions will be applied by the Company toward the purchase of shares
only if the Participating Employee's Beneficiary submits to the Employer not
later than the Offering Termination Date a written request that the deductions
be so applied. Accumulated payroll deductions not withdrawn or applied to the
purchase of shares will be delivered by the Company to the Participating
Employee's Beneficiary within a reasonable time after the Offering Termination
Date.
9.7 Capital Changes Affecting the Stock. In the event that,
between the Offering Commencement Date and the Offering Termination Date with
respect to an Option, a stock dividend is paid or becomes payable in respect of
the Stock, or there occurs a split-up or contraction in the number of shares of
Stock, the number of shares of Stock for which the Option may thereafter be
exercised and the price to be paid for each such share will both be
proportionately adjusted. In the event that, after the Offering Commencement
Date, there occurs a reclassification or change of outstanding shares of Stock
or a consolidation or merger of the Company with or into another corporation or
a sale or conveyance, substantially as a whole, of the property of the Company,
the Participating Employee will be entitled on the Offering Termination Date to
receive shares of Stock or other securities equivalent in kind and value to the
<PAGE> 7
-7-
shares of Stock he or she would have held if he or she had exercised the Option
in full immediately prior to such reclassification, change, consolidation,
merger, sale, or conveyance and had continued to hold such shares (together with
all other shares and securities thereafter issued in respect thereof) until the
Offering Termination Date. In the event that there is to occur a
recapitalization involving an increase in the par value of the Stock that would
result in a par value exceeding the exercise price under an outstanding Option,
the Company will notify the affected Participating Employee of such proposed
recapitalization immediately upon its being recommended by the Board to the
Company's shareholders, after which the Participating Employee will have the
right to exercise his or her Option prior to such recapitalization; if the
Participating Employee fails to exercise the Option prior to recapitalization,
the exercise price under the Option will be appropriately adjusted. In the event
that, after the Offering Commencement Date, there occurs a dissolution or
liquidation of the Company, except pursuant to a transaction to which Section
424(a) of the Code applies, each Option will terminate, but the Participating
Employee will have the right to exercise his or her Option prior to such
dissolution or liquidation.
9.8 Payroll Deductions. A Participating Employee may purchase
shares under his or her Option during any particular Offering Period by
completing and returning to the Company at least 15 days prior to the beginning
of such Offering Period a Membership Agreement indicating a percentage (which
will be a full integer between two and fifteen, inclusive) of his or her Base
Compensation that is to be withheld each pay period (not to exceed an aggregate
of $12,500 in any Offering Period). No Participating Employee will be permitted
to change the percentage of Base Compensation withheld during an Offering
Period. However, not more than once per Offering Period the Participating
Employee may cancel his or her Agreement, and withdraw all (but not less than
all) of his or her accumulated payroll deductions, by submitting a written
request therefor to the Company not later than the close of business on the
Offering Termination Date. The percentage of Base Compensation withheld may be
changed from one Offering Period to another.
9.9 Exercise of Options. On the Offering Termination Date the
Participating Employee may purchase the number of shares purchasable by his or
her accumulated payroll deductions, or if less, the maximum number of shares
subject to the Option as provided in Section 9.1, provided that:
(a) If the total number of shares that all Optionees elect to
purchase, together with any shares already purchased under the Plan, exceeds the
total number of shares that may be purchased under the Plan pursuant to Section
6, the number of shares that each Optionee is permitted to purchase will be
decreased pro rata based on the Participating Employee's accumulated payroll
<PAGE> 8
-8-
deductions in relation to all accumulated payroll deductions currently being
withheld under the Plan.
(b) If the number of shares purchasable includes a fraction, such
number will be adjusted to the next smaller whole number and the purchase price
will be adjusted accordingly.
Accumulated payroll deductions not withdrawn prior to the Offering Termination
Date will be automatically applied by the Company toward the purchase of Option
Shares, or to the extent in excess of the aggregate purchase price of the shares
then purchasable by the Participating Employee, refunded to the Participating
Employee, except that where such excess is less than the purchase price for a
single share of Stock on the Offering Termination Date, such excess will not be
refunded but instead will be carried over and applied to the purchase of shares
in the first following Offering Period (subject to the possibility of withdrawal
by the Participating Employee during such Offering Period in accordance with the
terms of the Plan).
9.10 Delivery of Stock. Except as provided below, within a
reasonable time after the Offering Termination Date, the Company will deliver or
cause to be delivered to the Participating Employee a certificate or
certificates for the number of shares purchased by the Participating Employee. A
stock certificate representing the number of Shares purchased will be issued in
the participant's name only, or if his or her Membership Agreement so specifies,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship. If any law or applicable regulation of the
Securities and Exchange Commission or other body having jurisdiction in the
premises will require that the Company or the Participating Employee take any
action in connection with the shares being purchased under the Option, delivery
of the certificate or certificates for such shares will be postponed until the
necessary action will have been completed, which action will be taken by the
Company at its own expense, without unreasonable delay. The Optionee will have
no rights as a shareholder in respect of shares for which he or she has not
received a certificate.
9.11 Return of Accumulated Payroll Deductions. In the event that
the Participating Employee or the Beneficiary is entitled to the return of
accumulated payroll deductions, whether by reason of voluntary withdrawal,
termination of employment, or death, or in the event that accumulated payroll
deductions exceed the price of shares purchased, such amount will be returned by
the Company to the Participating Employee or the Beneficiary, as the case may
be, not later than within a reasonable time following the Offering Termination
Date applicable to the Option Period in which such deductions were taken.
Accumulated payroll deductions held by the Company will not bear
<PAGE> 9
-9-
interest nor will the Company be obligated to segregate the same from any of its
other assets.
<PAGE> 1
Exhibit 10.4
Mediqual Systems, Inc.
LEASE OF
WESTBOROUGH OFFICE PARK
BUILDING TWO
19UO West Park Drive
Westborough, Massachusetts
TABLE OF CONTENTS
ARTICLE
NUMBER TITLE PAGE
------ ----- ----
I. BASIC LEASE PROVISIONS 4
II. PREMISES AND APPURTENANT RTC
III. BASIC RENT 6
IV. COMMENCEMENT AND CONDITION
V. USE OF PREMISES 8
VI. ASSIGNMENT AND SUBLETTING 10
VII. RESPONSIBILITY FOR REPAIRS AND CONDITION OF 12
PREMISES; SERVICES TO BE FURNISHED BY LANDLORD
VIII. REAL ESTATE TAXES 14
IX. OPERATING EXPENSES 16
X. INDEMNITY AND PUBLIC LIABILITY INSURANCE 17
XI. LANDLORDIS ACCESS TO PREMISES 18
XII. FIRE, EMINENT DOMAIN, ETC. 18
XIII. DEFAULT 20
XIV. MISCELLANEOUS PROVISIONS 24
14.1 Extra Hazardous Use 24
14.2 Waiver 24
14.3 Covenant of Quiet Enjoyment 24
14.4 Landlord's Liability 25
14.5 Transfer of Title 25
<PAGE> 2
14.6 Rules & Regulations 25
14.7 Additional Charges 26
14.8 Ilidity of Particular Provisions 26
14.9 Provisions Binding, Etc. 26
14.10 Notices 26
14.11 When Lease Becomes Binding 27
14.12 Paragraph Headings 27
14.13 Rights of Mortgagee or Ground Lessor 27
14.14 Unilateral Amendment 27
14.15 Status Report 28
14.16 Remedying Defaults 28
14.17 Holding Over 28
14.18 Waiver of Subrogation 28
14.19 Surrender of Premises 29
14.20 Brokerage 29
14.21 Governing Law 29
(Building Services)
(Landlord's Work Allowances)
(Floor Plan) Second Floor
(Floor Plan) Partial First Floor
<PAGE> 3
L E A S E
THIS INSTRUMENT IS A LEASE, dated as of July 21,1986 which the Landlord
and the Tenant are the parties hereinafter named, and which relates to space in
the building (the "Building") known as Building Two in the Westborough Office
Park located at 1900 West Park Drive, Westborough, Massachusetts. The parties to
this instrument hereby agree with each other as follows:
ARTICLE I
BASIC LEASE PROVISIONS
1.1 INTRODUCTION. The following set forth basic data and,where appropriate,
constitute definitions of the terms hereinafter listed.
1.2 BASIC DATA. Landlord: WRC Properties, Inc., a Delaware Corporation.
Landlord's Original Address: 730 Third Avenue, New York , New York 10017
Tenant: Mediqual Systems, Inc.
Tenant's Original Address: 1900 West Park Drive,
Westborough, Massachusetts 01581
Basic Rent: Lease Years 1-3: $263,942
Lease Years 4,5: S279,468
($17-Years 1-3, $18-Years 4,5 per square foot
of Premises Rentable Area) per annum, as be
adjusted and/or abated pursuant to the same
may Sections 3.2 and 12.1.
Premises Rentable Area: Agreed to be 15,526 feet, consisting of:
Existing Space on Floor 1 Space A
- 6,973 s.f.
First Expansion Space Floor 2 Space B
- 6,973 s.f.
Second Expansion Floor 1 Space C - 1,580 s.f.
Permitted Uses: General Office
Escalation Factor: 0.178, as computed with the Escalation Factor
ComPutation.
Construction Completion Date: Six (6) weeks from approval of Layout Plan
Tenant's Layout Plan: A plan dated July 9, 1986 prepared by Earl R.
Flansburgh & Associates.
<PAGE> 4
Initial term: five (5) years commencing on the Commencement date and
expiring at the close of the day immediately preceding the fifth (anniversary
of the Commencement Date, except that if the Commencement Date shall be other
than the first day of a calendar month, the expiration of the Initial Term
shall be at the close of the day on the last day of the calendar month in which
such anniversary shall fall.
Base Operating Expenses: $238,586
Base Taxes. 6110,457
Broker: Leggat; McCall & Werner, Inc.
1.3 ADDITIONAL DEFINITIONS.
Agent: Leggat, McCall & Werner Management Company, Inc., P. O. Box 1088,
Boston, MA 02103-1088.
Building Rentable Area: Agreed to be 93,016 s.f.
Business Days: All days except Saturday, Sunday, New Year's Day,
Washington's Birthday, Patriot's Day, Memorial Day, Independence-Day, Labor
Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day (and the
following day when any such day occurs on Sunday) and such other days that
Tenant presently or in the future recognizes as holidays for Tenant's general
office staff.
Commencement Date: As defined in Section 4.1.
Default of Tenant: As defined in Section 13.1.
Escalation Charges: The amounts prescribed -in Aontions a.1 and 9.2.
Escalation Factor Computation: Premises Rentable Area divided by 95% of
Building Rentable Area.
Force Majeure: Collectively and individually, strike or other labor
trouble, fire and other casualty, governmental pre-emption of priorities or
other controls in connection with a national or other public emergency or
shortages of fuel, supplies or labor resulting therefrom, or any other cause,
whether similar or dissimilar, beyond Landlord's reasonable control.
Initial Public Tiability Insurance: S3,000,000 per occurrence (combined
single limit) for property damage, bodily injury or death.
2
<PAGE> 5
Teachers Insurance and Annuity Association of America, prepared by Guerard
Survey Co. Associates, 11 Summer Street, Westborough, Mass."
Landlord's Work: As defined in Section 4.2.
Office Park: The entire development known as Westborough Office Park in
which the Building is located and situated on approximately 137.9 acres of land
located at West Park Drive and Streets, Westborough, Massachusetts.
Operating Expenses: As determined in accordance with Section 9.1.
Operating Year: As defined in Section 9.1.
Premises: A portion of the Building as shown on Exhibit FP annexed
hereto.
Premises Usable Area: The carpetable area within the Premises.
Property: The Building and the Land Parcel (including all driveways,
parking areas and sidewalks).
Substantial Completion Date: As defined in Section 4.2(b).
Tax Year: As defined in Section 8.1.
Taxes: As determined in accordance with Section 8.1
Tenant's Delay: As defined in Section 4.4.
Tenant's Removable Property: As defined in Section 5.2.
Term of this Lease: The Initial Term and any extension thereof in
accordance with the provisions hereof.
ARTICLE II
PREMISES AND APPURTENANT RIGHTS
2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant for the
Term of this Lease and upon the terms and conditions hereinafter set forth,
and Tenant hereby accepts from Landlord, the Premises.
3
<PAGE> 6
as a tenant to the premises non-exclusive richt to use and permit its
invitee to use in common with others, the common entrances, exits, roads
and walkways of the Office Park, the parking areas and walkways on the Land
Parcel, public or common lobbies, hallways, stairways and elevators and
common walkways necessary for access to the Building, and if the portion of
the Premises on any floor includes less than the entire floor, the common
toilets, corridors and elevator lobby of such floor; but such rights shall
always be subject to reasonable rules and regulations from time to time
established by Landlord pursuant to Section 14.6 and to the right of
Landlord to designate and change from time-to time areas and facilities so
to be used.
(b) Excepted and excluded from the Premises are the ceiling, floor,
perimeter walls ana exterior windows, except the inner surfaces of each
thereof, and any space in the Premises used for shafts, stacks, conduits,
fan rooms, ducts, electric or other utilities, sinks or other Building
facilities, but the entry doors (and related glass and finish work) to the
Premises are a part thereof. Tenant agrees that Landlord shall have the
right to place in the Premises (but in such manner as to reduce to a
minimum interference with Tenant's use of the Premises) interior storm
windows, sub control devices, utility lines, equipment, stacks, pipes,
conduits, ducts and the like. Tenant shall install and maintain, as
Landlord may require, proper access panels in any hung ceilinas or walls as
may be installed by Tenant in the Premises to afford access to any
facilities above the ceiling or within or behind the walls.
ARTICLE III
BASIC RENT
3.1 PAYMENT. (a) Tenant agrees to pay to Landlord, or as directed by Landlord,
commencing on the Commencement Date without offset, abatement (except as
provided in Section 12.1), deduction or demand, the Basic Rent. Such Basic
Rent shall be payable in equal monthly installments, in advance, on the
first day of each and every calendar month during the Term of this Lease,
at Landlord's Original Address, or at such other place as Landlord shall
from time to time designate by notice, in lawful money of the United
States. Until notice of some other desisnation is given, Basic Rent and all
other charges for which provision is herein made shall be paid by
remittance payable to the Agent, and all remittance so received as
aforesaid, or by any subsequently designated recipient, shall be treated as
a payment to Landlord. In
4
<PAGE> 7
within five days of the date when the, Tenant shall pay, in addition to any
Escalation charges or other additional charges due under this Lease, at
Landlord's request an administrative fee equal to 1% of the overdue
payment.
(b) Basic Rent for any partial month shall be prorated on a daily basis,
and if the first day on which Tenant must pay Basic Rent shall be other
than the first day of a calendar month, the first payment which Tenant
shall make to Landlord shall be equal to a proportionate part of the
monthly installment of Basic Rent for the partial month from the first day
on which Tenant must pay Basic Rent to the last day of the month in which
such date occurs plus the installment of Basic Rent for the succeeding
calendar month.
3.2 ADJUSTMENT. Effective as of the first day of the thirteenth full calendar
month following the Commencement Date, and as of each anniversary of such
day during the Term of this Lease, the. Basic Rent shall be adjusted by
adding to the Basic Rent specified in Section 1.2 an amount determined by
multiplying such Basic Rent by 20% of the percentage increase in the United
States Department of oLabor Consumer Price Index, Boston, for Urban
Consumers (CPI-U), all items (1967 = 100) between the point at which such
Index stood when last published prior to the Commencement Date -and the
point at which such Index stood when last published prior to the day as of
when such adjustment is being made. If such Index is discontinued, its
successor shall be used and if there is no successor, a reasonably
comparable index mutually agreed to by Landlord and Tenant shall be used.
3.3 RENT ABATEMENT: Notwithstanding any other provision of this lease, the Base
Rent will be abated for the leased premises in accordance with the
following schedule:
Space A - 6973 s.f Floor 1 - No abatement
Space B - 6973 s.f Floor 2
66-2/3% of rent abated from 9/1/86 to 11/1/86 33-1/3% of rent abated
from 11/1/86 to 1/1/87 provided, however, that full rent will be due
at a date earlier than January 1, 1987 if Tenant is fully utilizing
the space.
Space C - 1580 s.f. Floor 1
100% of rent abated until 1/1/87
5
<PAGE> 8
ARTICLE IV
COMMENCEMENT AND CONDITION
4.1 COMMENCEMENT DATE. The Commencement Date shall be August 1, 1986.
4.2 PREPARATION OF THE PREMISES. (a) Landlord shall exercise all reasonable
efforts to complete the work (Landlord's Work) necessary to prepare the
Premises for Tenant's occupancy pursuant to Tenant's Layout Plan and in
accordance with Landlord's building standard, but Tenant shall have no
ciaim against Landlord for failure so to complete such Work except the
right to terminate this Lease in accordance with Section 4.2(c). To the
extent that the requirements of Landlord's Work exceed the allowances set
forth in Exhibit LW annexed hereto, Tenant shall pay the cost of such
excess requirements to Landlord, 50% thereof to be paid on the execution
hereof and 50% on the Commencement Date (or, in either case, at such later
time as Landlord advises Tenant of the amount of such excess). Tenant
shall, if requested by Landlord, execute a work letter confirming such
excess costs prior to the time Landlord shall be required to commence work.
(b) The Premises shall be deemed ready for occupancy on the first day
(the "Substantial Completion Date") as of which Landlord's Work has
been completed except for items of work (and, if applicable,
adjustment of equipment and fixtures) which can be completed after
occupancy has been taken without causing undue interference with
Tenant's use of the Premises (i.e., so-called "punch list" items) and
Tenant has been given notice thereof. Landlord shall complete as soon
as conditions permit all "punch list" items and Tenant shall afford
Landlord access to the Premises for such purposes.
(c) If the Substantial Completion Date has not occurred by the
Construction Completion Date (as it may be extended pursuant to
Section 4.4) Tenant shall have the right to terminate this Lease by
giving notice to i Landlord, not later than thirty (30) days after
the Construction Completion Date (as so extended), of Tenant's desire
so to do; and this Lease shall cease and come to an end without
further liability or obligation on the part of either party thirty
(30) days after the giving of such notice, unless, within such 30-day
period, Landlord substantially completes Landlord's Work which
completion shall void Tenant's election to terminate; and such right
of termination shall be Tenant's sole and exclusive remedy at law or
in equity for Landlord's failure so to complete such Work within such
time.
6
<PAGE> 9
4.3 Except to the extent to which Tenant shall have given and landlord notice,
not later then the end of the second calendar month next beginning after
the Commencement Date, of respects in which Landlord has not performed
Landlord's Work, Tenant shall have no claim that Landlord has failed to
perform any of Landlord's Work. Except for Landlord's Work, the Premises
are being leased in their condition as is without representation or
warranty by Landlord. Tenant acknowledges that it has inspected the
Premises and common areas of the Building and, except for Landlord's Work,
have found the same satisfactory. Landlord shall be obligated to correct
any latent defect in the Premises or in the Building.
4.4 TENANT'S DELAYS. (a) If a delay shall occur in the Substantial Completion
Date as the result of:
(i) any request by Tenant that Landlord delay in the commencement or
completion of Landlord's Work for any reason;
(ii) any change by Tenant in any of Tenant's Layout Plan;
(iii) any special requirement of Tenant's Layout Plan not in
conformity with Landlord's building standards;
(iv) any other act or omission of Tenant or its officers, agents,
servants or contractors; or
(v) any reasonably necessary displacement of any of Landlord's Work
from its place in Landlord's construction schedule resulting from any
of the causes for delay referred to in clauses (i), (ii), (iii) and
(iv) of this paragraph and the fitting of such Work back into such
schedule;
then Tenant shall, from time to time and within ten (10) days after demand
therefor, pay to Landlord for each day of such delay the amount of Basic
Rent, Escalation Charges and other charges that would have been payable
hereunder had the Commencement Date occurred immediately prior to such
delay.
(b) If a delay in the Substantial Completion Date, or if any substantial
portion of such delay, is the result of Force Majeure, and such delay would
not have occurred but for a delay described in paragraph (a), such delay
shall be deemed added to the delay described in that paragraph.
(c) The delays referred to in paragraphs (a) and (b) are herein referred to
collectively and individually as "Tenant's Delay".
7
<PAGE> 10
Substantial completion date is delayed in the aggregate for more than sixty
(60) days, Landlord may (but shall not be required to) at any time
thereafter terminate this Lease by giving written notice of such
termination to Tenant and thereupon this Lease shall terminate without
further liability or obligation on the part of either party, except-that
Tenant shall pay to Landlord the cost theretofore incurred by Landlord in
performing Landlord's Work, plus an amount equal to Landlord's
out-of-pocket expenses incurred in connection with this Lease, including,
without limitation, brokerage and legal fees, together with any amount
required to be paid pursuant to paragraph (a) through the effective
termination date.
(e) The Construction Completion Date shall automatically be extended for
the period of any delays caused by Tenant's Delay(s) or Force Majeure.
4.5 OPTION TO RENEW. If Tenant is not in default in any provision of this
Lease, Tenant shall have the option to renew this Lease for one (1)
additional term of five (5) years upon the same terms and conditions as
stated in this lease.
Rental rate during the renewal period shall be at the then current fair
market rate.
ARTICLE V
USE OF PREMISES
5.1 PERMITTED USE. (a) Tenant agrees that the Premises shall be used and
occupied by Tenant only for Permitted Uses, specifically excluding, without
limitation, utility company or employment agency offices.
(b) Tenant agrees to conform to the following provisions during the Term of
this Lease:
(i) Tenant shall cause all freight to be delivered to or removed from
the Building and the premises in accordance with reasonable rules and
regulations established by Landlord therefor:
(ii) Tenant will not place on the exterior of the Premises (including
both interior and exterior surfaces of doors and interior surfaces of
windows) or on any part of the Building outside the Premises or at
any location in the Office Park, any signs, symbol, advertisement or
the like visible to public view outside of the Premises. Landlord
will not unreasonably withhold consent for signs or lettering on the
entry doors to the Premises
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adopted by landlord and tenant and submitted to Landlord a plan or
sketch of the sign to be placed on such entry doors. Landlord agrees,
however, to maintain a tenant directory in the lobby of the Building in
which Tenant shall be entitled to have one (1) insertion identifying
Tenant's name and the location-of the Premises in the Building. If
space is available on the tenant directory, Tenant may request that
Landlord place additional insertions naming Tenant's personnel on such
tenant directory, provided that Tenant shall pay a fee assessed by
Landlord for each such additional insertion.
(iii) Tenant shall not perform any act or carry on any practice which
may injure the Premises, or any other part of the Building or Office
Park, or cause any offensive odors or loud noises or constitute a
nuisance or a menace to any other tenant or tenants or other persons in
the Building or Office Park;
(iv) Tenant shall, in its use of the Premises, comply with the
requirements of all applicable governmental laws, rules-and
regulations;
(v) Tenant shall continuously throughout the Term of this Lease occupy
the Premises for Permitted Uses.
5.2 INSTALLATIONS AND ALTERATIONS BY TENANT. (a) Tenant shall make no
alterations, additions (including, for the purposes hereof, wall-to-wall
carpeting), or improvements in or to the Premises without Landlord's prior
written consent. Any such alterations, additions or improvements shall (i)
be in accordance with complete plans and specifications approved by
Landlord, (ii) be performed in a good and workmanlike manner and in
compliance with all applicable laws, (iii) be made only by contractors or
mechanics approved by Landlord, (iv) be made at Tenants' sole expense and
at such times and in such manner as Landlord may from time to time
designate, and (v) become part of the Premises and the property of
Landlord.
(b) All articles of personal property and all business fixtures, machinery
and equipment and furniture owned or installed by Tenant solely at its
expense in the Premises ("Tenant's Removable Property") shall remain the
Property of Tenant and may be removed by Tenant at any time prior to the
expiration of this Lease, provided that Tenant, at its expense, shall
repair and damage to the Building caused by such removal.
(c) Notice is hereby given that Landlord shall not be liable for any labor
or materials furnished or to be furnished to Tenant upon credit, and that
no mechanic's
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other estate or interest of Landlord in and to the premises. Whenever and
as often as any mechanic's lien shall have been filed against the Property
or the Office Park based upon any act or interest of Tenant or of anyone
claiming through Tenant, Tenant shall forthwith take such action by
bonding, deposit or payment as will remove or satisfy the lien.
(d) In the course of any work being performed by Tenant, including without
limitation the "field installation" of any Tenant's Removable Property,
Tenant agrees to use labor compatible with that being employed by Landlord
for work in or to the Building or other buildings owned by Landlord or its
affiliates, and not to employ or permit the use of any labor or otherwise
take any action which micht result in a labor dispute involving personnel
providing services in the Building pursuant to arrangements made by
Landlord.
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.1 PROHIBITION. (a) Tenant covenants and agrees that whether voluntarily,
involuntarily, by operation of law or otherwise, except as expressly
permitted by paragraphs (b) and (c) of this Section, neither this Lease nor
the term and estate hereby granted, nor any interest herein or therein,
will be assigned, mortgagec, pledged, encumbered or otherwise transferred
and that neither the Premises nor any part thereof will be encumbered in
any manner by reason of any act or omission on the part of Tenant, or used
or occupied or permitted to be used or occupied, by anyone other than
Tenant, or for any use or purpose other than a Permitted Use, or be subject
(which term, without limitation, shall include granting of concessions,
licenses and the like) in whole or in part, or be offered or advertised for
assignment or subletting.
(b) Tenant shall be allowed to sublet during the Term of this Lease any
portion of the Premises provided Landlord consents in writing in advance to
such subletting. Landlord agrees not to withhold its consent to any
subletting during the Term, provided that Tenant requests such consent in a
writing which shall include the particular terms of the proposed sublet,
and provided that (i) during the term of the sublet Tenant shall continue
to occupy a portion of the Premises; (ii) at the time of Tenant's request
Tenant is not in default under this Lease; (iii) Landlord, in its sole
discretion reasonably exercised, determines that the reputation, business,
proposed use of the Premises by, and financial
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to Landlord iv) such sublease shall in writing and its form (Shall.be
subject to the reasonable approval of the Landlord; (v) such sublease shall be
subject and subordinate to this Lease, any ground lease of the Land Parcel or
Building or both, and any first mortgage of the Land Parcel or Building or both;
(vi) rental under such sublease shall not be based in whole or in part on the
net income or profits derived by any person or entity from the sublet premises;
(vii) no right shall exist on the part of the sublessee to sublet further the
sublet premises; (viii) such sublessee shall expressly assume all the
obligations of this Lease on Tenant's part to be performed as to the sublet
space; (ix) such consent, if given, shall not release Tenant of any of its
obligations (including, without limitation, its obligations to pay rent) under
this Lease and Tenant's liability after any such subletting shall be as to the
sublet space joint and several with the sublessee; and (x) Tenant shall
reimburse Landlord promptly as additional rent for reasonable legal and other
expenses incurred by Landlord in connection with any request by Tenant for
consent to any such sublet. A consent to one subletting to any person or entity
shall not be deemed to be a consent to any subsequent subletting.
In the event that Tenant shall durlng the Term desire to sublet all or any
portion of the Premises such that after the commencement of such sublet Tenant
shall no longer be occupying any portion of the Premises,: Tenant shall by
advance notice to Landlord disclose all of the material terms of such proposed
sublet and in ;such notice also offer the entire Premises back to Landlord,
subject to any sublets previously in effect and approved by Landlord as provided
in this paragraph (b). If Landlord elects to accept such offer, Landlord shall
so notify Tenant within thirty (30) days of the date of the aforesaid notice by
Tenant, and this Lease shall end on that date selected by Landlord which shall
be not less than thirty (30) nor more than ninety (90) days after the date of
said notice by Landlord to Tenant. On or prior to such termination date Tenant
shall pay to Landlord the Basic Rent and all other charges accrued under this
Lease through such termination date. In the event that Landlord does not
exercise such election within the time period above provided for, Tenant shall
be permitted to enter into the proposed sublease provided that Tenant is not
then in default under this Lease and provided that the conditions set forth in
clauses (iii) through (x) of the next preceding paragraph are satisfied.
(c) The provisions of paragraph (a) of this Section shall apply to a transfer
(by one or more transfers) of a majority of the stock or partnership interests
or other evidences of ownership of Tenant as if such transfer were
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which Tenant, merged or consolidate) to which all of Tenant's assets are
transferred or to any entity which controls or is controlled by Tenant or is
under common control with Tenant, provided that in any of such events (i) the
successor to Tenant has a net worth computed in accordance with generally
accepted accounting principals at least equal to the greater of (1) the net
worth of Tenant immediately prior to such merger, consolidation or transfer, or
(2) the net worth of Tenant herein named on the date of this Lease, (ii) proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least ten (10) days prior to the effective date of any such transaction,
(iii) the assignee entity, and, in the event of a transfer of partnership
interest(s), each assignee partner, agrees directly with Landlord, by written
instrument in form satisfactory to Landlord, to be bound by all the obligations
of Tenant hereunder including, without limitation, the covenant against further
assignment and subletting except as expressly permitted hereunder, and (iv) no
such transfer shall relieve Tenant or in the event of a transfer of partnership
interests, any of the transferring partners from its or their obligations
hereunder and Tenant shall remain fully and primarily liable to Landlord
therefor.
(d) If this Lease be assigned, or if the Premises or any part thereof be sublet
or occupied by anyone other than Tenant, Landlord may, at any time and from time
to time, collect rent and other charges from the assignee, subtenant, or
occupant, and apply the net amount collected to the rent and other charges
herein reserved, but no such assignment, subletting, occupancy, collection or
modification of any provisions of this Lease shall be deemed a waiver of this
covenant, or the acceptance of the assignee, subtenant or occupant, as a tenant
or a release of the original named Tenant from the further performance by the
original named Tenant hereunder. No assignment or subletting, or occupancy shall
affect Permitted Uses. No assignment or subletting hereunder shall relieve
Tenant from its obligations hereunder and Tenant shall remain fully and
primarily liable therefor.
ARTICLE VII
RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES;
SERVICES TO BE FURNISHED BY LANDLORD
7.1 LANDLORD REPAIRS. (a) Except as otherwise provided in this Lease, Landlord
agrees to keep in good order, condition and repair the roof, public areas,
exterior walls (including interior glass) and structure of the Building
(including all plumbing, mechanical and
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electrical systems installed by Landlord they affect the Premises, except that
Landlord shall in no event be responsible to Tenant for repair of glass in the
Premises, the doors (or related glass and finish work) leading to the Premises,
or any condition in the Premises or the Building caused by any act or neglect of
Tenant, its invitees or contractors. The fact that Landlord is responsible for
the foregoing repairs shall not be construed so as to prohibit the cost thereof
from being included in Operating Expenses. No capital expenditures may be
included in Operating Expenses. Landlord shall not be responsible to make any
improvements or repairs to the Building other than as expressed in this Section
7.1 provided, unless expressly provided otherwise in this Lease.
(b) Landlord shall never be liable for any failure to make repairs which
Landlord has undertaken to make under the provisions of this Section 7.1 or
elsewhere in this Lease, unless Tenant has given notice to Landlord of the need
to make such repairs, and Landlord has failed to commence to make such repairs
within a reasonable time after receipt of such notice, or fails to proceed with
reasonable diligence to complete such repairs.
7.2 TENANT'S AGREEMENT. Tenant will keep neat and clean and maintain in good
order, condition and repair the Premises and every part thereof, excepting only
those repairs for which Landlord is responsible under the terms of this Lease,
reasonable wear and tear of the Premises, and damage by fire or other casualty
and as a consequence of the exercise of the power of eminent domain.'
Notwithstanding the foregoing or the provisions of Article XII, Tenant shall be
responsible for the cost of repairs which may be made necessary by reason of
damage to the Property or the Office Park caused by any act or neglect of
Tenant, or its contractors or invitees (including any damage by fire or any
other casualty arising therefrom).
7.3 FLOOR LOAD - HEAVY MACHINERY. (a) Tenant shall not place a load upon any
floor in the Premises exceeding a live load of eighty (80) pounds per square
foot of floor area, provided that if applicable law allows a maximum live load
of less than 80 pounds per square foot of floor area, Tenant shall not exceed
such limit allowed by law. Landlord reserves the right to prescribe the weight
and position of all business machines and mechanical equipment, including safes,
which shall be placed so as to distribute the weight Business machines and
mechanical equipment shall be placed and maintained by Tenant at Tenant's
expense in settings sufficient, in Landlord's judgment, to absorb and prevent
vibration,
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heavy equipment, freight, bulky matter, fixtures into or out of the
Building with Landlord's prior consent, which consent may include a requirement
to provide insurance, naming Landlord as an insured, in such amounts as Landlord
may deem reasonable.
,) If any such safe, machinery, equipment, freight, bulky matter or fixtures
requires special handling, Tenant agrees to employ only persons holding a
Master, Digger's License to do such work, and that all work in Connection
therewith shall comply with applicable laws and regulations. Any such moving
shall be at the sole risk and hazard of Tenant, and Tenant will exonerate, and
save Landlord harmless against and from any Liability, loss, injury, claim or
sult resulting directly or indirectly from such moving.
7.4 BUILDING SERVICES. Landlord shall provide the building services set forth in
Exhibit BS.
ARTICLE VIII
REAL ESTATE TAXES
8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES. (a) For the purposes of this
Article, the term "Tax Year" shall mean the twelve-month period commencing on
the July 1 immediately preceding the Commencement Date and each twelve-month
period thereafter commencing during the Term of this Lease; and the term "Taxes"
shall mean real estate taxes assessed with respect to the Property for any Tax
Year.
(b) In the event that for any reason, Taxes during any Tax Year shall exceed
Base Taxes, Tenant shall pay to Landlord, as an Escalation Charge, an amount
equal to (i) the excess of Taxes over Base Taxes for such year, multiplied by
(ii) the Escalation Factor, such amount to be apportioned for any fraction of a
Tax Year in which the Commencement Date falls or the Term of this Lease ends.
(c) Estimated payments by Tenant on account of Taxes shall be made monthly and
at the time and in the fashion herein provided for the payment of Basic Rent.
The monthly amount so to be paid to Landlord shall be sufficient to provide
Landlord by the time real estate tax payments are due a sum equal to Tenant's
required payments, as estimated by Landlord from time to time, on account of
Taxes for the then current Tax Year. Promptly after receipt by Landlord of bills
for such Taxes, Landlord shall advise Tenant of the amount thereof and the
computation of Tenant's payment on account thereof.
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ARTICLE IX
OPERATING EXPENSES
9.1 DEFINITIONS. For the purpose of this Article, the following terms shall have
the following respective meanings:
Operating Year: Each calendar year in which any part of the Term of this
Lease shall fall.
Operating Expenses: The aggregate costs or expenses reasonably incurred by
Landlord with respect to the operation, administration, cleaning, repair,
maintenance and management of the Property (including a proportionate share of
any common area expenses of the Office Park) including, without limitation,
those items enumerated in Exhibit OC annexed hereto, provided that, if during
any portion of the Operating Year for which Operating Expenses are being
computed, the Building was not operated, or less than all of Building Rentable
Area was occupied by tenants or if Landlord is not supplying all tenants with
the services being supplied hereunder, actual Operating Expenses incurred.shall
be reasonably extrapolated by Landlord on an item by item basis to the estimated
Operating Expenses that would have been incurred if the Building were 958
occupied for such Year and such services were being supplied to all tenants, and
such extrapolated amount shall, for the purposes hereof, be deemed to be the
Operating Expenses for such Year.
9.2 TENANT'S PAYMENTS. (a) In the event that Operating Expenses for any
Operating Year shall exceed Base Operating Expenses, Tenant shall pay.to
Landlord, as an Escalation Charge, an amount equal to (i) the excess of the
Operating Expenses for such Year over and above Base Operating Expenses,
multiplied by (ii) the Escalation Factor, such amount to be apportioned for any
Operating Year in which the Commencement Date falls or the Term of this Lease
ends.
(b) Estimated payments by Tenant on account of Operating Expenses shall be made
monthly and at the time and in the fashion herein provided for the payment of
Basic Rent. The monthly amount so to be paid to Landlord shall be sufficient to
provide Landlord by the end of each Operating Year a sum equal to Tenant's
required payments, as estimated by Landlord from time to time during each
Operating Year, on account of Operating Expenses for such Operating Year.
Promptly after the end of each Operating Year, Landlord shall submit to Tenant a
reasonably detailed accounting of Operating Expenses for such Year, and Landlord
shall certify to the accuracy thereof. If estimated payments theretofor made for
such Year by Tenant exceed Tenant's required payment on account
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Landlord shall refund such overpayment to Tenant; but, if the required payments
on account for such Year are greater than the estimated payments (if any)
theretofor made on account thereof for such Year, Tenant shall make payment to
Landlord within thirty (30) days after being so advised by Landlord.
(c) Any such accounting by Landlord shall be binding and conclusive upon Tenant
unless within thirty (30) days after the giving by Landlord of such accounting
Tenant shall notify Landlord that Tenant disputes the correctness of such
accounting, specifying the particular respects in which the accounting is
claimed to be incorrect. If such dispute has not been settled by agreement,
either party may submit the dispute to arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association within
ninety (90) days after giving of such accounting. The decision of the
arbitrators shall be final and binding on Landlord and Tenant and judgment
thereon may be entered in any court of competent jurisdiction. Pending
resolution by agreement or arbitrators, Tenant shall make any payment shown to
be due by such accounting without prejudice to Tenant's position. If the dispute
shall be resolved in Tenants favor, Landlord shall forthwith pay to Tenant the
amount of Tenant's overpayment.
ARTICLE X
INDEMNITY AND PUBLIC LIABILITY INSURANCE
10.1 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force from
the date upon which Tenant first enters the Premises for any reason, throughout
the Term of this Lease, and thereafter so long as Tenant is in occupancy of any
part of the Premises, a policy of general liability and property damage
insurance (including broad form contractual liability, independent contractor's
hazard and completed operations coverage) under which Landlord, Agent (and such
other persons as are in privity of estate with Landlord as may be set out in a
notice from time to time) and Tenant are named as insureds, and under which the
insurer agrees to indemnify and hold Landlord, Agent, and those in privity of
estate with Landlord, harmless from and against all cost, expense and/or
liability arising out of or based upon any and all claims, accidents, injuries
and damages set forth in Section 1O.1. Each such policy shall be non-cancellable
and non-amendable with respect to Landlord, Agent, and
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Landlord' said designees without thirty (30) days prior notice to Landlord and
shall be in at past the amounts of the Initial Public Liability Insurance
specified in Section 1.3 or such greater amounts as Landlord shall from time to
time request, and a duplicate original or certificate thereof shall be delivered
to Landlord.
10.2 TENANT'S RISK. To the maximum extent this agreement may be made effective
according to law, Tenant agrees to use and occupy the Premises and to use such
other portions of the Property and the Office Park as Tenant is herein given the
right to use at Tenant's own risk; and Landlord shall have no responsibility or
liability for any loss of or damage to tenant's Removable Property or for any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is permitted by this
Lease, or required by law, to make in or to any portion of the Premises or other
sections of the Property, or the Office Park, or in or to the fixtures,
equipment or appurtenances thereof. The provisions of this Section shall be
applicable from and after the execution of this Lease and until the end of the
Term of this Lease, and during such further period as Tenant may use or be in
occupancy of any part of the Premises or of the Building.
ARTICLE XI
LANDLORD'S ACCESS TO PREMISES
11.1 LANDLORD'S RIGHTS. Landlord shall have the right to enter the Premises at
all reasonable hours for the purpose of inspections or making repairs to the
same, and Landlord shall also have the right to make access available at all
reasonable hours to prospective or existing mortgagees, purchasers or tenants of
any part of the Property.
ARTICLE XII
FIRE, EMINENT DOMAIN, ETC.
12.1 ABATEMENT OF RENT. If the Premises shall be damaged by fire or casualty,
Basic Rent and Escalation Charges payable by Tenant shall abate proportionately
for the period in which, by reason of such damage, there is substantial
interference with Tenant's use of the Premises, having regard to the extent to
which Tenant may be required to discontinue Tenant's use of all or a portion of
the Premisest but such abatement or reduction shall end if and when Landlord
shall have substantially restored the Premises (excluding any alterations,
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additions or improvements made by Tenant pursuant to Section 5.2) to the
condition in which they were prior to such damage. If the Premises shall be
affected by any exercise of the power of eminent domain, Basic Rent and
Escalation Charges payable by Tenant shall be justly and equitably abated and
reduced according to the nature and extent of the loss of use thereof suffered
by Tenant.
12.2 RIGHTS OF TERMINATION. If the Premises or the. Building are substantially
damaged by fire or casualty (the term "substantially damaged" meaning damage of
such a character that the same cannot, in ordinary course, reasonably be
expected to be repaired within sixty (60) days from the time that repair work
would commence), or if any part of the Property or of the access thereto is
taken by any exercise of the right of eminent domain, then Landlord shall have
the right to terminate this Lease (even if Landlord's entire interest in the
Premises may have been divested) by giving notice to Landlord's election so to
do within ninety (90) days after the occurrence of such casualty or the
effective date of such taking, whereupon this Lease shall terminate thirty (30)
days after the date of such notice with the same force and effect as if such
date were the date originally established as the expiration date hereof. In the
event that a portion of Tenant's premises are taken by eminent domain and such
taking substantially impairs Tenant's ability to carry on its business, Tenant
may terminate by giving sixty (60) days notice to Landlord.
12.3 RESTORATION. If this Lease shall not be terminated pursuant to Section
12.2, Landlord shall thereafter use due diligence to restore the Premises
(excluding any alterations, additions or improvements made by Tenant) to prior
condition for Tenant's use and occupation, provided that Landlord's obligation
shall be limited to the amount of insurance proceeds available therefor. If, for
any reason, such restoration shall not be substantially completed within six
months after the occurrence of the casualty, Tenant shall have the right to
terminate this Lease by giving notice to Landlord thereof within thirty (30)
days after the expiration of such period. Upon the giving of such notice, this
Lease shall cease and come to an end without further liability or obligation on
the part of either party unless, with such 30-day period, Landlord substantially
completes such restoration. Such right of termination shall be Tenant's sole and
exclusive remedy at law or in equity for Landlord's failure so to complete such
restoration. Landlord covenants to pursue restoration work with diligence and
continuity.
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and Tenant hereby grants and asigns to Landlord all rights to recover for
damages to Property and the leasehold interest hereby created, and to
compensation accrued or hereafter to accrue by reason of such taking, damage or
destruction, and by way of confirming the foregoing, Tenant hereby grants and
assigns, and covenants with Landlord, to grant and assign to Landlord, all
rights to such damages or compensation, and covenants to deliver such further
assignments and assurances thereof as Landlord may from time to time request,
and Tenant hereby irrevocably appoints Landlord its attorney-in-fact to execute
and deliver in Tenant's name all such assignments and assurances. Nothing
contained herein shall be construed to prevent Tenant from prosecuting in any
condemnation proceedings a claim for the value of any of Tenant's Removable
Property installed in the Premises by Tenant at Tenant's expense and for
relocation expenses, provided that such action shall not affect the amount of
compensation otherwise recoverable by Landlord from the taking authority.
ARTICLE XIII
DEFAULT
13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this Lease
any one or more of the following events (herein referred to as a "Default of
Tenant") shall happen:
(i) Tenant shall fail to pay the Basic Rent, Escalation Charges or other
charaes hereunder when due and such failure shall continue for five (5)
full Business Days after notice to Tenant from Landlord; or
(ii) Tenant shall neglect or fail to perform or observe any other covenant
herein contained on Tenant's part to be performed or observed and Tenant
shall fail to remedy the same within thirty (30) days after notice to
Tenant satisfying such neglect or failure, or if such failure is of such a
nature that Tenant cannot reasonably remedy the same within such thirty
(30) day period, Tenant shall fail to commence promptly to remedy the same
and to prosecute such remedy to completion with diliqence and continuity;
or
(iii) Tenantis leasehold interest in the Premlses shall be taken on
execution of by other process of law directed against Tenant; or
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petition in bankruptcy or shall be adjudicated bankrupt or insolvent, or
shall any petition or answer seeking any reorganization, arrangement.
composition, readjustment, liquidation, dissolution or similar relief for
itself under any present or future Federal, State or other statute, law or
regulation for the relief of debtors, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of
Tenant or of all or any substantial part of its properties, or shall admit
in writing its inability to pay its debts generally as they become due; or
(v) A petition shall be filed against Tenant in bankruptcy or under any
other law seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present
or future Federal, State or other statute, law or regulation and shall
remain undismissed or unstayed for an aggregate of sixty (60) days (whether
or not consecutive), or if any debtor in possession (whether or not Tenant)
trustee, receiver or liquidator of Tenant or of all or any substantial part
of its properties or of the Premises shall be appointed without the consent
or acquiescence of Tenant and such appointment shall remain unvacated or
unstayed for an aggregate of sixty (60) days (whether or not consecutive);
then in any such case (1) if such Default of Tenant shall occur prior to the
Commencement Date, this Lease shall inso facto, and without further act on the
part of Landlord, terminate, and (2) if such Default of Tenant shall occur after
the Commencement Date, Landlord may terminate this' Lease by notice to Tenant,
specifying a date not less than ten (10) days after the giving of such notice on
which this Lease shall terminate and this Lease shall come to an end on the date
specified therein as fully and completely as if such date were the date herein
originally fixed for the expiration of the Term of this Lease (Tenant hereby
waiving any rights of redemption under M.G.L.A. c. 186, S11), and Tenant will
then quit and surrender the Premises to Landlord, but Tenant shall remain liable
as hereinafter provided.
(b) If this Lease shall have been terminated as provided in this Article, or if
any execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the Premises shall be taken or occupied by someone other than
Tenant, than Landlord may, without notice, re-enter the Premises, either by
force, summary proceedings, ejectment or otherwise, and remove and
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made, Tenant hereby waives the advice of Notice of Intention to re-enter or to
institute legal proceedings to that end.
(c) In the event of any termination, Tenant shall pay the Basic Rent,
Escalation Charges and other sums payable hereunder up to the time of such
termination, and thereafter Tenant, until the end of what would have been the
Term of this Lease in the absence of such termination. and whether or not the
Premises shall have been relet, shall be liable to Landlord for, and shall pay
to Landlord, as liquidated current damages, the Basic Rent, Escalation Charges
and other sums which would be payable hereunder if such termination had not
occurred, less the net proceeds, if any, of any reletting of the Premises,
after deducting all expenses in connection with such reletting, including,
without limitation, all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, advertising, expenses of employees, alteration costs
and expenses of preparation for such reletting. Tenant shall pay such current
damages to Landlord monthly on the days which the Basic Rent would have been
payable hereunder if this Lease had not been terminated.
(d) In lieu of any other damages or indemnity and in lieu of full recovery by
Landlord of all sums payable under all the foregoing provisions of this Section
13.1, Landlord may by written notice to Tenant, at any time after this Lease is
terminated under any of the provisions contained in this Section 13.1 or is
otherwise terminated for breach of any obligation of Tenant and before such full
recovery, elect to recover, and Tenant shall thereupon pay, as liquidated
damages, an amount equal to the aggregate of the Basic Rent and Escalation
Charges accrued under this Lease in the twelve (12) months ended next prior to
such termination plus the amount of Basic Rent, Escalation Charges and other
charges of any kond accrued and unpaid at the time of termination and less the
amount of any recovery by Landlord under the foregoing provisions of this
Section 13.1 up to the time of payment of such liquidated damaqes.
(e) In case of any Default by Tenant, re-entry, expiration and dispossession by
summary proceedings or otherwise, Landlord may (i) relet the Premises or any
part or parts thereof, either in the name of Landlord or otherwise, for a term
or terms which may at Landlord's option be equal to or less than or exceed the
period which would otherwise have constituted the balance of the Term of this
Lease and may grant concessions or free rent to the extent that Landlord
considers advisable and
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<PAGE> 24
necessary to relet the same and (ii) may make such reasonable alterations,
repairs and decorations in the Premises Landlord in its sole judgment considers
advisable and necessary for the purpose of reletting the Premises; and the
making of such alterations, repairs and decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Landlord
shall in no event be liable in any way whatsoever for failure to relet the
Premises, or, in the event that the Premises are relet, for failure to collect
the rent under such reletting. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Tenant being evicted or dispossessed, or in the event of Landlord obtaining
possession of the Premises, by reason of the violation by Tenant of any of the
covenants and conditions of this Lease.
(f) If a Guarantor of this Lease is named in Section 1.2, the happening of any
of the events described in paragraphs (a)(iv) or (a)(v) of this Section 13.1
with respect to the Guarantor shall constitute a Default of Tenant hereunder.
(g) The specified remedies to which Landlord may resort hereunder are. not
intended to be exclusive of any remedies or means of redress to which Landlord
may at any time be entitled lawfully, and Landlord may invoke any remedy
(including the remedy of specific performance) allowed at law or in equity as if
specific remedies were not herein provided for.
(h) All costs and expenses incurred by or on behalf of Landlord (including,
without limitation, attorneys' fees and expenses) in enforcing its rights
hereunder or occasioned by any Default of Tenant shall be paid by Tenant.
13.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default in the
performance of any of Landlord's obligations hereunder unless and until Landlord
shall have failed to perform such obligations within thirty (30) days, or such
additional time as is reasonably required to correct any such default, after
notice by Tenant to Landlord specifying wherein Landlord has failed to perform
any such obligations. Landlord must exercise diligence and continuity in
performance of Landlordis obligations.
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<PAGE> 25
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will not do or
permit anything to be done in or upon the Premises, or bring in anything or keep
anything therein, which shall increase the rate of property or liability
insurance on the Premises, the Property or the Office Park above the standard
rate applicable to Premises being occupied for Permitted Uses; and Tenant
further agrees that, in the event that Tenant shall do any of the foregoing,
Tenant will promptly pay to Landlord, on demand, any such increase resulting
therefrom, which shall be due and payable as an additional charge hereunder.
14.2 WAIVER. (a) Failure on the part of Landlord or Tenant to complain of any
action or non-action on the part of the other, no matter how long the same may
continue, shall never be a waiver by Tenant or Landlord, respectively, of any of
the other's rights hereunder. Further, no waiver at any time of any of the
provisions hereof by Landlord or Tenant shall be construed as a waiver of any of
the other provisions hereof, and a waiver at any time of any of the provisions
hereof shall not be construed as a waiver at any subsequent time of the same
provisions. The consent or approval of Landlord or Tenant to or of any action by
the other requiring such consent or approval shall not be construed to waive or
render unnecessary Landlord's or Tenant's consent or approval to or of anY
subsequent similar act by the other.
(b) No payment by Tenant, or acceptance by Landlord, of a lesser amount than
shall be due from Tenant to Landlord shall be treated otherwise than as a
payment on account of the earliest installment of any payment due from Tenant
under the provisions hereof. The acceptance by Landlord of a check for a lesser
amount with an endorsement or statement thereon, or upon any letter accompanying
such check, that such lesser amount is payment in full, shall be given no
effect, and Landlord may accept such check without prejudice to any other rights
or remedies which Landlord may have against Tenant.
14.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and provisions of
this Lease, on payment of the basic Rent and Escalation Charges and observing,
keeping and performing all of the other terms and provisions of this Lease on
Tenant's part to be observed, kept and performed, shall lawfully, peaceably and
quietly have, hold, occupy and enjoy the Premises during the term hereof,
without hindrance or ejection by any persons lawfully claiming under Landlord to
have title to the
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<PAGE> 26
quiet enjoyment is in lieu of any other covenant, express or implied.
14.4 LANDLORD'S LIABILITY. (a) With respect to any services or utilities to be
furnished by Landlord to Tenant, Landlord shall in no event be liable for
failure to furnish the same when prevented-from doing so by strike, lockout,
breakdown, accident, order or regulation of or by any governmental authority, or
failure of supply, or failure whenever and for so long as may be necessary by
reason of the making of repairs or changes which Landlord is required or is
permitted by this Lease or by law to make or in good faith deems necessary, or
inability by the exercise of reasonable diligence to obtain supplies, parts or
employees necessary to furnish such services, or because of war or other
emergency, or for any other cause beyond Landlord's reasonable control, or for
any cause due to any act or neglect of Tenant or Tenant's servants, agents,
employees, licensees or any person claiming by, through or under Tenant, nor
shall any such failure give rise to any claim in Tenant's favor that Tenant has
been evicted, either constructively or actually, partially or wholly.
(b) In no event shall Landlord ever be liable to Tenant for any loss of business
or any other indirect or consequential damages suffered by Tenant from whatever
cause.
(c) With respect to any repairs, installations, or restoration which are
required or permitted to be made by Landlord, the same may be made during normal
business hours and Landlord shall have no liability for damages to Tenant for
inconvenience, annoyance, interruption, or loss or damage to Tenant's business
arising therefrom.
14.5 TRANSFER OF TITLE. In the event of any transfer of title to the property by
Landlord, Landlord shall thereafter be entirely freed and relieved from the
performance and observance of all covenants and obligations hereunder.
14.6 RULES AND REGULATIONS. Tenant shall abide by rules and regulations from
time to time established by Landlord, it being agreed that such rules and
regulations will be established and applied by Landlord in a non-discriminatory
fashion, such that 211 rules and regulations shall be generally applicable to
other tenants, of similar nature to the Tenant named herein, of the Building.
Landlord agrees to use reasonable efforts to insure that any such rules and
regulations are uniformly enforced, but Landlord shall not be liable to Tenant
for violation of the same by any other tenant or occupant of the Building, or of
the Office Park, or persons having business with them. In the event that
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<PAGE> 27
provisions in this Lease shall control.
14.7 ADDITIONAL CHARGES If Tenant shall fail to pay when due any sums under this
Lease designated as an Escalation Charge or additional charge, Landlord shall
have the same rights and remedies as Landlord has hereunder for failure to pay
Basic Rent.
14.8 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this
Lease, or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each term and provision of this Lease shall be valid and be enforced
to the fullest extent permitted by law.
14.9 PROVISIONS BINDING, ETC.. Except as herein otherwise provided, the terms
hereof shall be binding upon and shall inure to the benefit of the successors
and assigns, respectively, of Landlord and Tenant and, if Tenant shall be an
individual, upon and to his heirs, executors, administrators, successors and
assigns. Each term and each provision of this Lease to be performed by Tenant
shall be construed to be both a covenant and a condition. The reference
contained to successors and assigns of Tenant is not intended to constitute a
consent to assignment by Tenant, but has reference only to those instances in
which Landlord may later give consent to a particular assignment as required by
those provisions of Article VI hereof.
14.10 NOTICES. Whenever, by the terms of this Lease, notices shall or may be
given either to Landlord or to Tenant, such notice shall be in writing and shall
be sent by registered or certified mail, postage prepaid:
If intended for Landlord, addressed to Landlord at Landlord's Original Address
(or to such other address or addresses as may from time to time hereafter be
designated by Landlord by like notice).
If intended for Tenant, addressed to Tenant at Tenant's Griginal Address until
the Commencement Date and thereafter to the Premises (or to such other address
or addresses as may from time to time hereafter be designated by Tenant by like
notice).
All such notices shall be effective when deposited in the United States Mail
within the continental United States, provided that the same are received in
ordinary course at the address to which the same were sent.
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<PAGE> 28
14.11 WHEN LEASE PREMISES BINDING. The submission of this document for
examination and negotiation does not constitute (an offer to lease, or at
reservation of, or option for, the Premises, and this document shall become
effective and binding only upon the execution and delivery hereof by both
Landlord and Tenant. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein and this
Lease expressly supercedes any proposals or other written documents relating
hereto. This Lease may be modified or altered only by written agreement between
Landlord and Tenant, and no act or omission of any employee or agent of Landlord
shall alter, change or modify any of the provisions hereof.
14.12 PARAGRAPH HEADINGS. The paragraph headings throughout this instrument are
for convenience and reference only, and the words contained therein shall in no
way be held to explain, modify, amplify or aid in the interpretation,
construction or meanings of the provisions of this Lease.
14.13 RIGHTS OF MORTGAGEE OR GROUND LESSOR. This Lease shall be subordinate to
any mortgage or ground lease from time to time encumbering the Premises, whether
executed and delivered prior to or subsequent to the date of this Lease, if the
holder of such mortgage or ground lease shall so elect. If this Lease is
subordinate to any mortgage or ground lease and the holder thereof (or
successor) shall succeed to the interest of Landlord, at the election of such
holder (or successor) Tenant shall attorn to such holder and this Lease shall
continue in full force and effect between such holder (or successor) and Tenant.
Tenant agrees to execute such instruments of subordination or attornment in
confirmation of the foregoing agreement as such holder may request, and Tenant
hereby appoints such holder as Tenant's attorney-in-fact to execute such
subordination or attornment agreement upon default of Tenant in complying with
such holder's request. Upon request, Landlord will provide a non-disturbance
agreement to Tenant.
14.14 UNILATERAL AMENDMENT. Landlord shall have the right at any time, and from
time to time, during the Term of this Lease, to unilaterally amend the
provisions of this Lease if Landlord is advised by its counsel that all or any
portion of the monies paid by Tenant to Landlord hereunder are, or may be deemed
to be, unrelated business income within the meaning of the United States
Internal Revenue Code or regulations issued thereunder, and Tenant agrees that
it will execute all documents or instruments necessary to effect such amendment
or amendments provided that no such amendment shall result in Tenant having to
pay in the aggregate a larger sum of money on account of its occupancy of the
Permises under the terms of this lease as so amended, and provided further that
no
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<PAGE> 29
Under the provisions of this Lease less services than it is entitled
to receive nor services of a lesser quality. Under no circumstance will Tenant
be required to execute any amendment that has any adverse effect on Tenant.
14.15 STATUS REPORT. Recognizing that both parties may find it necessary to
establish to third parties, such as accountants, banks, mortgagees, ground
lessors, or the like, the then current status of performance hereunder, either
party, on the request of the other made from time to time, will within ten (10)
days furnish to Landlord, or the holder of any mortgage or ground lease
encumbering the Premises, or to Tenant, as the case may be, z statement of the
status of any matter pertaining to this Lease, including, without limitation,
acknowledgements that tor the extent to which) each party is in compliance with
its obligations under the terms of this Lease.
14.16 REMEDYING DEFAULTS. Landlord shall have the right, but shall not be
required, to pay such sums or do any act which reguires the expenditure of
monies which may be necessary or appropriate by reason of the failure or neglect
of Tenant to perform any. of the provisions of this Lease, and in the event of
the exercise of such right by Landlord, Tenant agrees to pay to Landlord
forthwith upon demand all such sums, together with interest thereon at a rate
equal to 3% over the prime rate in effect from time to time at the First
National Bank of Boston (but in no event less than 18% per annum), as an
additional charge. Any payment of Basic Rent, Escalation Charges or other sums
payable hereunder not paid when due shall, at the opticn of Landlord, bear
interest at a rate equal to 3% over the prime rate in effect at the First
National Bank of Boston (but in no event less than 18% per annum) from the due
date thereof and shall be payable forthwith on demand by Landlord, as an
additional charqe.
14.17 HOLDING OVER. Any holding over by Tenant after the expiration of the Term
of this Lease shall be treated as a daily tenancy at sufferance at a rate equal
to 2 times the Basic Rent in effect at the expiration of the Term of this Lease
plus Escalation Charges and other charges herein provided (prorated on a daily
basis). Tenant shall also pay to Landlord all damages, direct and/or indirect,
sustained by reason of any such holding over. Otherwise, such holding over shall
be on the terms and conditions set forth in this Lease as far as applicable.
14.18 WAIVER OF SUBROGATION. Insofar as, and to the extent that, the following
provision may be effective without invalidating or making it impossible to
secure insurance coverage obtainable from responsible insurance companies
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<PAGE> 30
may result therefrom) Landlord and Tenant mutually agree that any property
damage insurance carried by either shall provide for the waiver by the insurance
carrier of any right of subrogation against the other, and they further mutually
agree that, with respect to any damage to property, the loss from which is
covered by insurance then being carried by them, respectively, the one carrying
such insurance and suffering such loss releases the other of and from any and
all claims with respect to such loss to the extent of the insurance proceeds
paid with respect thereto.
14.19 SURRENDER OF PREMISES. Upon the expiration or earlier termination of the
Term of this Lease, Tenant shall peaceably quit and surrender to Landlord the
Premises in neat and clean condition and in good order, condition and repair,
together with all alterations, additions and improvements which may have been
made or installed in, on or to the Premises prior to or during the Term of this
Lease, excepting only ordinary wear and use and damage by fire or other casualty
for which, under other provisions of this Lease, Tenant has no responsibility of
repair or restoration. Tenant shall remove all of Tenant's Removable Property
and, to the extent specified by Landlord, all alterations and additions made by
Tenant and all partitions wholly within the Premises unless installed initially
by Landlord in preparing the Premises for Tenant's occupancy; and shall repair
any damages to the Premises or the Building caused by such removal. Any Tenant's
Removable Property which shall remain in the Building or on the Premises after
the expiration or termination of the Term of this Lease shall be deemed
conclusively to have been abandoned, and either may be retained by Landlord as
its property or may be disposed of in such manner as Landlord may see fit, at
Tenant's sole cost and expense.
14.20 BROKERAGE. Tenant warrants and represents that Tenant has dealt with no
broker in connection with the consummation of this Lease other than Broker, and,
in the event of any brokerage claims against Landlord predicated upon prior
dealings with Tenant, Tenant agrees to defend same and indemnify Landlord
against any such claim (except--any claim by Broker).
14.21 GOVERNING LAW. This Lease shall be governed exclusively by the provisions
hereof and by the laws of the Commonwealth of Massachusetts, as the same may
from time to time exist.
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<PAGE> 31
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
fully, executed, under seal, by persons hereunto duly authorized, in multiple
copies, each to be considered an original hereof, as of the date first set forth
above.
LANDLORD: WRC Properties, Inc.
By: /s/Richard J. Ases
---------------------------
Assistant Secretary
TENANT: MediQual Systems, Inc.
By: /s/ William Danahy
---------------------------
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<PAGE> 1
Exhibit 10.5
Westborough Office Park
1900 West Park Drive
Westborough, Massachusetts
("the Building")
FIRST AMENDMENT
September 22, 1987
AMENDMENT REFERENCE DATA EXHIBIT
LANDLORD: WRC Properties Inc.
TENANT: MediQual Systems Inc.
PREMISES: Approximately 15,526 square feet of
Premises Rentable Area located on the
first and second floors of the Building:
LEASE TERM
COMMENCEMENT
DATE: August 1, 1986
ORIGINAL LEASE TERM
LEASE DATA EXPIRATION
DATE: July 31, 1991
PREVIOUS
LEASE
AMENDMENTS: None
EXTENDED
TERMINATION
DATE: August 31, 1991
EXTENDED
TERM BASIC
RENT: Same as the basic rent amount
to be paid for the month of July, 1991.
WHEREAS, Tenant desires to extend the Term of the above referenced
lease (the "Lease"); and
WHEREAS, Landlord is willing to permit Tenant to extend the Term of the
Lease upon the terms hereinafter set forth;
NOW THEREFORE, the Lease is hereby amended as follows:
<PAGE> 2
1. EXTENSION OF TERM OF LEASE The Term of the Lease is extended
hereby for a period commencing August 1, 1991 (the day following
the expiration of the initial Term of the Lease) and terminating
on August 31, 1991. The said extended Term shall be upon the
Extended Term Basic Rent and upon all of the other terms and
conditions of the Lease.
The Lease, as amended, is hereby ratified, confirmed and approved in
all respects.
WHEREFORE, the parties have hereunto set their hands and seals as of
the date first written above.
TENANT
TENANT:
MEDIQUAL SYSTEMS INC.
LANDLORD: BY: /s/ W. Denahy
--------------------
NAME: W. DENAHY
TITLE:
WRC PROPERTIES, INC.
730 Third Ave.
New York, New York 10017
BY: /s/ Richard J. Usas
-----------------------
Richard J. Usas
TITLE: Assistant Secretary DATE SIGNED 9/29/87
Dated: 10/2 1987
<PAGE> 1
Exhibit 10.6
WESTBOROUGH OFFICE PARK
Building Two
1900 WEST PARK DRIVE
WESTBOROUGH, MA
SECOND AMENDMENT TO AMENDED
AND RESTATED LEASE
July , 1989
LANDLORD: WRC Properties, Inc., a Delaware
corporation
TENANT: MediQual Systems, Inc.
PREMISES
RENTABLE
AREA: Approximately 4,305 square feet located
on the first floor of the Building
ORIGINAL
LEASE
DATA
LEASE TERM
COMMENCEMENT
DATE: On or about March 1, 1984
LEASE
TERM EXPIRATION
DATE: On or about February 28, 1989
AMENDMENTS TO
ORIGINAL LEASE: First Amendment dated April 4 of 1989
adding to the Premises Rentable Area
"New Space" consisting of 2,668 square
feet of Premises Rentable Area.
The terms of the original Lease and of
the First Amendment were incorporated
in the Amended and Restated Lease dated
July 21, 1986.
<PAGE> 2
LANDLORD: WRC Properties, Inc., a Delaware
Corporation
TENANT: MediQual Systems, Inc.
PREMISES
RENTABLE
AREA: Approximately 15,526 square feet located
on the first and second floors of the
Building
AMENDED
AND RESTATED
LEASE DATA
LEASE TERM
COMMENCEMENT
DATE: August 1, 1986
LEASE
TERM EXPIRATION
DATE: July 31, 1991
PREVIOUS
AMENDMENT TO
AMENDED AND
RESTATED LEASE: First Amendment dated September
22, 1987 extending the Term of the Lease
for a one month period terminating on
August 31, 1991
SECOND
AMENDMENT: This Second Amendment to Lease (the
"Second Amendment"), adding approximately
4,315 square feet of Premises Rentable
Area located on the second floor of the
Building and 848 square feet of Premises
Rentable Area located on the first floor
of the Building (the "Second Amendment
Premises Rentable Area"), as shown on
Exhibit FP.
ENTIRE
PREMISES
RENTABLE
AREA: Approximately 20,689 square feet of
Premises Rentable Area located on the
first and second floors of the Building,
as shown on Exhibit FP.
<PAGE> 3
Amend 2
COMMENCEMENT DATE IN
RESPECT OF
SECOND AMENDMENT
PREMISES
RENTABLE AREA: August 1, 1989, or upon substantial
completion of Tenant Work the "Second
Amendment Commencement Date"); date to be
confirmed by Memorandum issued subsequent
to Second Amendment Commencement Date,
which Memorandum shall be incorporated
herein and become a part hereof
EXPIRATION
DATE IN
RESPECT OF
ENTIRE
PREMISES
RENTABLE
AREA: August 31, 1992 (the "Second Amendment
Expiration Date")
WHEREAS, Tenant desires to lease from Landlord the Second Amendment
Premises Rentable Area;
WHEREAS, Tenant desires to extend the Term of the Lease so that the
Expiration Date in respect of the Amended and Restated Premises Rentable Area
will be the Second Amendment Expiration Date; and
WHEREAS, Landlord is willing to lease the Second Amendment Premises
Rentable Area to Tenant and to extend the Term of the Lease upon the terms and
conditions set forth in this Second Amendment;
NOW THEREFORE, the Lease is amended as provided herein, and this Second
Amendment supersedes and replaces all provisions of the Lease modified hereby.
1. Contingency to Third Amendment.
Landlord and Tenant acknowledge that this Third Amendment is contingent
upon Landlord's securing the surrender by Allstate Insurance Co. of 4,315
square feet of Premises Rentable Area located on the second floor of the
Building.
2. Demise of Premises Rentable Area.
Landlord hereby demises and leases to Tenant, and Tenant hereby hires
and takes from Landlord, the Second Amendment Premises Rentable Area for a Term
commencing on the Second
<PAGE> 4
Amendment Commencement Date and terminating on the Second Amendment Expiration
Date (the "Second Amendment Term"). The demise of the Second Amendment Premises
Rentable Area for the Second Amendment Term shall be upon all of the same terms
and conditions of the Lease (including, without limitation, Tax Base and
Operating Expense Base) except:
A. Basic Rent in respect of the Second Amendment Premises Rentable Area
for the Second Amendment Term shall be Eighty Nine Thousand Seven
Hundred Thirty Two and 94/100 ($89,732.94) Dollars per year (i.e,
Seventeen and 38/100 ($17.38) Dollars per square foot of the Second
Amendment Premises Rentable Area per year). Basic Rent is subject to
adjustment as provided in Section 3.2 of the Lease.
Basic Rent in respect of the Second Amendment Premises Rentable Area
for the partial months at the beginning or end of the Second
Amendment Term shall be pro-rated, and the Basic Rent for a partial
year shall be pro-rated on a monthly basis.
B. Monthly Payments in respect of the Second Amendment Premises Rentable
Area for the Second Amendment Term shall be Seven Thousand Four
Hundred Seventy Seven and 75/100 ($7,477.75) Dollars per month.
Monthly Payments shall be adjusted in accordance with adjustments to
Basic Rent made pursuant to Section 3.2 of the Lease.
3. Escalation Factor.
5.84%, as computed in accordance with the Escalation Factor
Computation, namely: Premises Rentable Area divided by 95% of
Building Rentable Area.
4. Tenant Improvements
Landlord, at its sole cost and expense, shall make the following
improvements:
A. Office Area
(i) construct fifteen (15) offices in the Second Amendment
Premises Rentable Area, as shown on Exhibit FP;
(ii) paint all walls in the Second Amendment Premises Rentable
Area to match the Amended and Restated Lease Premises
Rentable Area;
(iii) construct a passageway from the Amended and Restated
Premises Rentable Area into the Second Amendment Premises
Rentable Area, as shown on Exhibit FP (the passageway will
be constructed
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<PAGE> 5
through an existing conference room; Landlord shall use dry
wall to reconstruct said conference room, which is shown on
Exhibit FP);
(iv) install interior glass which is similar to that in the
Amended and Restated Premises Rentable Area in twelve (12)
of the offices located in the Second Amendment Premises
Rentable Area.
B. Computer Room Area
(i) expand the computer room space into the Second Amendment
Premises Rentable Area, increasing its area by
approximately 100 - 120 square feet, as shown on Exhibit
FP;
(ii) install VT tile flooring throughout the computer room;
(iii) construct two (2) additional offices as shown on Exhibit
FP;
(iv) if the air conditioning supplied to the computer room prior
to its expansion is determined after the expansion to be
insufficient to adequately cool the expanded computer room
space, Landlord shall supply the necessary increase in air
conditioning at the sole cost and expense of Tenant;
(v) Tenant shall be responsible for payment of all costs
associated with Landlord's providing fire protection (i.e,
Halon System) to the Second Amendment Premises Rentable
Area;
(vi) Tenant shall be responsible for payment of all costs
associated with the relocation of Tenant's computer
transformer.
WHEREFORE, the parties have hereunto set their hands and seals as
of the date first written above
LANDLORD: TENANT:
WRC PROPERTIES, INC. MEDIQUAL SYSTEMS, INC.
By: /s/ R. Usas By: /s/ W. Denahy, VP
---------------------------- ------------------------------
(Name) R. Usas (Name) W. Denahy
(Title) Assistant Secretary (Title) Vice President
Hereunto Duly Authorized Hereunto Duly Authorized
Date Signed: 7/24/89 Date Signed: 7/9/89
<PAGE> 1
Exhibit 10.7
WESTBOROUGH OFFICE PARK
BUILDING TWO
1900 WEST PARK DRIVE
WESTBOROUGH, MA
THIRD AMENDMENT TO AMENDED
AND RESTATED LEASE
DECEMBER 31, 1990
LANDLORD: WRC PROPERTIES, INC., a Delaware
corporation
TENANT: MediQual Systems, Inc.
PREMISES RENTABLE AREA: Approximately 4,305 square feet
located on the first floor of the
Building
ORIGINAL
LEASE DATA
LEASE TERM
COMMENCEMENT
DATE: On or about March 1, 1984
LEASE TERM
EXPIRATION
DATE: On or about February 28, 1989
AMENDMENTS TO
ORIGINAL LEASE: First Amendment dated in April of 1989
adding to the Premises Rentable Area
"New Space" consisting of 2,668 square
feet of Premises Rentable Area.
The terms of the original Lease and
of the First Amendment were
incorporated in the Amended and
Restated Lease dated July 21, 1986.
<PAGE> 2
LANDLORD: WRC PROPERTIES, INC., a Delaware
corporation
TENANT: MediQual Systems, Inc.
PREMISES RENTABLE
AREA: Approximately 15,526 square feet
located on the first and second floors
of the Building
AMENDED AND
RESTATED
LEASE DATA
LEASE TERM
COMMENCEMENT DATE: August 1, 1986
LEASE TERM
EXPIRATION DATE: July 31, 1991
PREVIOUS AMENDMENTS
TO AMENDED AND
RESTATED LEASE: First Amendment dated September 22,
1987 extending the Term of the Lease
for a one month period terminating on
August 31, 1991.
Second Amendment dated July, 1989,
adding approximately 4,315 square feet
of Premises Rentable Area located on
the second floor of the Building and
848 square feet of Premises Rentable
Area located on the first floor of the
Building (the "Second Amendment
Premises Rentable Area"), and amending
the Term of the Lease in respect of all
20,689 square feet of Premises Rentable
Area (the "Entire Premises") by
extending the Expiration Date to August
31, 1992.
THIRD AMENDMENT: This Third Amendment to Amended and
Restated Lease (the "Third Amendment"),
amending and extending the Term of the
Lease in respect of the Entire Premises
for a six (6) year term commencing
October 1, 1990, and terminating
September 30, 1996, (the "Third
Amendment Term").
<PAGE> 3
LEASE: The Amended and Restated Lease,
together with all amendments thereto
WHEREAS, Tenant desires to amend the Term of the Lease by extending same
for the Third Amendment Term; and
WHEREAS, Landlord is willing to so amend the Term of the Lease upon the
terms and conditions set forth in this Third Amendment
NOW, THEREFORE, the Lease is amended as provided herein and this Third
amendment supersedes and replaces all provisions of the Lease modified hereby.
(1) Demise of Entire Premises. The demise of the Entire Premises for the
Third Amendment Term shall be upon all of the same terms and conditions of the
Lease except:
A. Tenant shall make no payment of Basic Rent for each of the first six
(6) months of the first year of the Third Amendment Term. Basic Rent
for the first year of the Third Amendment Term shall be One Hundred
Twenty-Four thousand One Hundred Thirty-Four and 00/100
($124,134.00) Dollars (i.e., Twelve and 00/100 ($12.00) Dollars per
square foot Premises Rentable Area per annum)
Tenant shall make monthly payments of half the monthly payment of
Basic Rent for each of the first ten (10) months of the second year
of the Third Amendment Term. Basic Rent for the second year of the
Third Amendment Term shall be One Hundred Sixty-Eight Thousand Nine
Hundred Sixty and 24/100 ($168,960.24) Dollars (i.e., Fourteen and
00/100 ($14.00) Dollars per square foot Premises Rentable Area Der
annum).
Basic Rent for the third year of the Third Amendment Term shall be
Three Hundred Seventy-Two Thousand Four Hundred Two and 00/100
($372,402.00) Dollars (i.e., Eighteen and 00/100 ($18.00) Dollars
per square foot Premises Rentable Area per annum).
Basic Rent for each of the fourth, fifth, and sixth years of the
Third Amendment Term shall be Four Hundred Thirteen Thousand Seven
Hundred Eighty and 00/100 ($413,780.00) Dollars (i.e., Twenty and
00/100 ($20.00) Dollars per square foot Premises Rentable Area per
annum) for each year.
B. Monthly Payments of Basic Rent for the first year of the Third
Amendment Term shall be Twenty Thousand Six Hundred Eighty-Nine and
00/100 ($20,689.00) Dollars per month, except that Tenant shall make
no monthly payments
<PAGE> 4
Basic Rent for the first six (6) months of the first year of the
Third Amendment Term.
Monthly payments of Basic Rent for each of the first ten (10) months
of the second year of the Third Amendment Term shall be Twelve
Thousand Sixty-Eight and 00/100 ($12,068.00) Dollars per month.
Monthly payments of Basic Rent for each of the last two (2) months
of the second year of the Third Amendment Term shall be Twenty-Four
Thousand One Hundred Thirty-Seven and 17/100 ($24,137.17) Dollars
per month.
Monthly payments of Basic Rent for the third year of the Third
Amendment Term shall be Thirty-One Thousand Thirty-Three and 50/100
($31,033.50) Dollars per month.
Monthly payments of Basic Rent for the fourth, fifth, and sixth
years of the Third Amendment Term shall be Thirty-Four Thousand Four
Hundred Eighty One and 67/100 ($34,481.67) Dollars per month.
<TABLE>
<CAPTION>
Basic Rent Monthly Payment
<S> <C> <C> <C>
Year 1 $124,134.00 Mos. 1-6 -0
Mos. 7-12 $20,689.00
Year 2 $168,960.24 Mos. 1-10 $12,068.59
Mos. 11-12 $24,137.17
Year 3 $372,402.00 $31,033.50
Year 4 $413,780.00 $34,481.67
Year 5 $413,780.00 $34,481.67
Year 6 $413,780.00 $34,481.67
</TABLE>
(2) Escalation Factor. 23.64%, as computed in accordance with the
Escalation Factor Computation, namely: Premises Rentable Area divided by 95% of
Building Rentable Area.
(3) Base Expenses. Base Real Estate Taxes: Real Estate Taxes for the
fiscal year ended June 30, 1990.
Base Operating Expenses: Operating Expenses for the calendar year ending
December 31, 1990.
(4) Free Rent. Tenant shall make no payments of Basic Rent for each of
the first six (6) months of the first year of the Third Amendment Term (the
"Free Rent Period"). However, Tenant shall pay all other costs and expenses
associated with its
<PAGE> 5
occupancy of the Entire Premises for the Free Rent Period. Tenants monthly
payments of half the monthly payment of basic Rent for the first ten months of
Year 2 reflect five months of Free Rent. Tenant shall pay in full all other
costs associated with its occupancy of the Entire Premises for said ten month
period.
(5) Option to Terminate the Lease. On the condition that at the time of
the exercise of the hereinafter defined option, Tenant is not in default of any
of its covenants or obligations under the Lease and that Tenant is itself then
occupying the Entire Premises, Tenant shall have the option to terminate the
Lease (the "Option") at any time after the fifth anniversary of the commencement
date of the Third Amendment Term. Such termination shall be effective twelve
months from the date of Tenant's written exercise of the Option. If Tenant
exercises the Option, Tenant shall pay to landlord a termination fee of Four
Hundred Thirteen Thousand Seven Hundred Eighty and 00/100 ($413,780.00) Dollars
(the "Termination Fee") plus all estimated Escalation Charges for the twelve
month period during which the termination is effective. Tenant shall pay the
Termination Fee upon Tenant's exercise of the Option.
(6) Letter of Credit.
(a) Tenant shall deposit with Landlord a letter of credit as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of the Lease. If Tenant defaults in respect of any of the terms,
provisions and conditions of the Lease beyond the expiration of any applicable
grace period, including, but not limited to, the payment of Basic Rent and
Additional Rent, Landlord may draw on the bank issuing such letter of credit at
sight for any or all of the balance remaining under such letter of credit and
use, apply or retain the whole or any part thereof to the payment of any Basic
Rent, Additional Rent or any other sum as to which Tenant is in default or for
any sum which Landlord may expend or may be required to expend by reason of
Tenant's default in respect of any of the terms, covenants and conditions of the
Lease, including, but not limited to, any damage or deficiency accrued before or
after summary proceedings or other re-entry by Landlord. In the event of a sale
of the Land and/or the Building or the leasing of the building, Landlord shall
have the right to transfer the letter of credit to the transferee, assignee or
lessee and Landlord shall thereupon be released by Tenant from all liability for
the return of such security; and Tenant shall look solely to the new landlord
for the return of said security; the provisions hereof shall apply to every
transfer or assignment made of the security to a new landlord. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. if the event Landlord applies or
retains any portion or all of the security deposited, Tenant shall forthwith
restore the amount so applied or retained.
<PAGE> 6
(b) The letter of credit required shall be an irrevocable commercial
letter of credit in the aggregate amount of $360,000 in form and substance, and
issued by a member bank of The New York Clearinghouse Association or other bank
acceptable to Landlord, payable upon the presentation by Landlord to such bank
of a sight-draft, together with a certificate executed by an officer of
Landlord to the effect that Landlord is entitled to payment of Tenant's
commercial letter of credit pursuant to this paragraph, which letter of credit
shall provide for its continuance for the period of at least thirty (30) months
from the date of its issue. The letter of credit shall be deposited and
maintained with Landlord and held by Landlord as security for the faithful
performance and observance by Tenant of the terms, provisions and conditions of
this Lease and in the event that (i) any default occurs under the terms of the
Lease which default continues beyond the applicable grace period, or (ii)
Landlord transfers its rights, title and interest under the Lease to a third
party and the bank issuing such letter of credit does not consent to the
transfer of such letter of credit to such third party, then Landlord may draw
on such letter of credit, and the proceeds of such letter of credit shall be
held and applied as security and be replenished, if necessary, as provided
above.
(c) The letter of credit shall be in the amount of Three Hundred Sixty
Thousand and 00/100 ($360,000.00) Dollars and shall automatically reduce by
Seventy-Two Thousand and 00/100 ($72,000.00) Dollars at the end of every six
(6) month period of the Term of the Lease. The letter of credit shall be
extinguished after the thirtieth (30th) month of the Term of the Lease. Tenant
shall pay all costs associated with obtaining and maintaining the letter of
credit in accordance with the terms of this Paragraph 6. landlord shall
reimburse Tenant for all such costs within 30 days of Landlord's receipt from
Tenant of a copy of an invoice for same which has been paid by Tenant.
(7) Condition of the Premises. The Entire Premises are being leased to
Tenant in their present condition, "as is" as of the execution of this Third
Amendment.
(8) Requirement of Written Notice. The notice required to be given to
Tenant pursuant to Section 13.1 (a) (i) and (ii) of the original lease shall be
in writing.
(9) Broker. Leggat McCall, Grubb & Ellis.
<PAGE> 7
(10) Agent. Leggat McCall Properties Management. Inc.
WHEREFORE, the parties have hereunto set their hands and date first
seals as of the date written above.
LANDLORD: TENANT:
WRC PROPERTIES, INC. MEDIQUAL SYSTEMS, INC.
By: /s/ Richard Usas
Richard Usas, Assistant Secretary By: /s/ John L. Kordash
Hereunto Duly Authorized John L. Kordash, President
Hereunto Duly Authorized
pursuant to Clerk's
Certificate attached hereto.
<PAGE> 1
EXHIBIT 10.8
FOURTH AMENDMENT TO AMENDED
AND RESTATED LEASE
This Fourth Amendment to Amended and Restated Lease Agreement (the
"Fourth Amendment") is made as of this 22nd day of September, 1993 by and
between WRC Properties, Inc. (the "Landlord") and MediQual Systems, Inc. (the
"Tenant").
WHEREAS, Landlord and Tenant have heretofore executed a certain Lease
Agreement dated July 21, 1986, which Lease Agreement has been amended by (i)
that certain First Amendment (the "First Amendment") dated September 22, 1987
(ii) that certain Second Amendment to Amended and Restated Lease (the "Second
Amendment") dated July, 1989 and (iii) that certain Third Amendment to Amended
and Restated Lease (the "Third Amendment") dated December 31, 1990 (said Lease
Agreement as amended by the First Amendment, the Second Amendment and the Third
Amendment is hereafter collectively the "Lease") pursuant to which the Tenant
has leased from Landlord the aggregate amount of 20,689 rentable square feet of
space in the building (the "Building") known as Building Two in the Westborough
Office Park located at 1900 West Park Drive, Westborough, MA;
WHEREAS, Landlord and Tenant have agreed that Tenant shall be permitted
to expand the Premises and to lease an additional 8,780 rentable square feet of
area shown on Exhibit A to this Fourth Amendment (the "4th Amendment Space")
beginning on the "4th Amendment Space Commencement Date" (as hereafter defined)
upon and subject to the terms, covenants and provisions of the Lease as amended
hereby for the balance of the Term of the Lease as it was extended pursuant to
the Third Amendment;
WHEREAS, Landlord and Tenant have agreed to enter into this Fourth
Amendment to reflect the foregoing and to otherwise modify and amend the Lease
reflecting the increase in the size of the Premises demised under the Lease as a
result of the addition of the 4th Amendment Space and to otherwise modify and
amend the Lease, as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and the Tenant hereby agree as follows:
1. Changes in Basic Lease Provisions. Effective as of the 4th Amendment
Space Commencement Date, the Lease shall be deemed amended in the following
respects:
(a) Basic Rent per annum payable under the Lease shall be increased
and adjusted by the annual amount of $127,310.00 payable in equal
monthly installments of $10,609.17 (the "4th Amendment Space
Rent"). The 4th Amendment Space Rent shall be prorated for any
partial calendar month in which the 4th Amendment Space
Commencement Date shall fall and be
<PAGE> 2
payable in advance and in addition to the Basic Rent applicable
to the balance of the Premises as provided in the Lease and shall
be payable on the dates and in the manner required by the Lease
as to all other payments of Basic Rent without offset, deduction,
abatement or demand;
(b) The definition of the term "Premises Rentable Area" shall be
deemed increased and adjusted by the 8,780 rentable square feet
contained in the 4th Amendment Space. From and after the 4th
Amendment Space Commencement Date the "Premises" demised under
the Lease as amended shall be 29,469 rentable square feet (which
excludes any other space presently leased to Tenant on a
tenancy-at-will basis);
(c) The definition of the term "Escalation Factor" shall be deemed
increased and adjusted to be 33.35% and accordingly, monthly
payments on account of Operating Expenses and Taxes shall be
increased;
(d) The definition of the term "Premises" shall be deemed amended by
adding the space described in Exhibit A to this Fourth Amendment
to the Premises for all purposed under the Lease;
(e) With the exception of Section 4.5, the provisions of Article IV
of the Lease shall not apply to the 4th Amendment Space and
Landlord's sole obligation with respect to improvements in and to
the 4th Amendment Space shall be as provided in paragraph 2 of
this Fourth Amendment. It is agreed that Section 4.5 shall apply
to the 4th Amendment Space;
(f) The provisions of paragraph (5) of the Third Amendment entitled
"Option to Terminate the Lease" shall be deleted from the Lease
in its entirety and shall no longer be of any force or effect and
Tenant shall have no right to terminate the Lease;
(g) Base Operating Expenses applicable to the 4th Amendment Space
shall be actual Operating Expenses for the 1994 Operating Year
(Base Operating Expenses as they apply to the balance of the
Premises shall not be affected;
(h) Base Taxes allocable to the 4th Amendment Space shall be Taxes
allocable to the Fiscal Fax Year ending June 30, 1994;
(i) Tenant shall commence paying the Tenant's Electrical Charge in
the amounts, time and manner required by paragraph 3 of this
Fourth Amendment.
2. Expansion Space Improvements. Annexed to this Fourth Amendment as
Exhibit B is a description of certain plans and specifications describing
improvements to be made by Landlord at its sole cost and expense in the 4th
Amendment Space, all as contemplated by the matters described in Exhibit B.
Landlord and Tenant each hereby approve the matters described in Exhibit B to
this Fourth Amendment.
<PAGE> 3
Upon execution and delivery of this Fourth Amendment by both Landlord
and Tenant, Landlord shall commence to perform the work and improvements
described in Exhibit B to this Fourth Amendment using building standard
materials and work ("Landlord's Work"). Tenant hereby acknowledges and agrees
that Landlord shall commence to perform Landlord's Work upon execution and
delivery of this Amendment and Tenant hereby grants Landlord the right of access
to, upon, over and through the Premises in order for Landlord to perform
Landlord's Work.
Tenant hereby acknowledges that it has inspected the 4th Amendment Space
and the common areas of the Building and, except for the Landlord's Work, has
found the same to be satisfactory. The Landlord's Work shall be deemed approved
by Tenant when Tenant commences occupancy of the 4th Amendment Space for the
Permitted Use, except for items which are then not completed or do not conform
to the plans and specifications described in Exhibit B to this Fourth Amendment
and as to which Tenant shall have given Landlord written notice prior to the
date which is 30 days after the date of such entry by Tenant.
As used in this Fourth Amendment, the term "4th Amendment Space
Commencement Date" shall mean that date upon which Landlord's Work has been
substantially completed as determined by Landlord and designated in a written
notice to Tenant from Landlord. Tenant agrees to execute a writing setting forth
the 4th Amendment Space Commencement Date upon the written request of Landlord.
3. Tenant's Electrical Charge. Beginning on the 4th Amendment Space
Commencement Date, in addition to payments of Basic Rent (as such payments have
been increased and adjusted by the provisions of the Fourth Amendment) Tenant
shall pay Landlord the Tenant's Electrical Charge (as said term is hereafter
defined). Tenant's Electrical Charge shall be payable in advance on the first
day of every calendar month (prorated for any partial calendar month in which
the 4th Amendment Space Commencement Date shall fall) in equal monthly
installments of $548.75 per month. Tenant's Electrical Charge shall be payable
as additional rent under the Lease and shall be in addition to and without
limitation of Landlord's rights to recapture costs and expenses incurred by
Landlord for electricity used and consumed throughout the Property (including
the Premises) but such amounts, to the extent actually paid by Tenant, shall be
taken into consideration when determining Operating Expense increases
attributable to electrical consumption on the Property. Landlord shall have the
same rights and remedies (including, without limitation, late charges, interest
charges payable upon failure to timely pay and all rights and remedies reserved
under Article XIII of the Lease at law or in equity) against Tenant for failure
to pay Tenant's Electrical Charge when due as Landlord has against Tenant for
failure to pay Basic Rent when due.
The Tenant's Electrical Charge is intended to reimburse Landlord for
electricity used and consumed in the 4th Amendment Space. If Landlord
determines, from time to time, that the cost to Landlord of electricity
allocable to Tenant's use, demand and/or consumption of electricity in the 4th
Amendment Space (or Tenant's future use, demand and/or consumption of
electricity in the 4th Amendment Space as reasonably projected by
<PAGE> 4
Landlord) exceeds, or is projected by Landlord to exceed, the Tenant's
Electrical Charge (any such use, demand or consumption of electricity by Tenant
being hereinafter referred to as "Excess Electricity Use"), Landlord may, at its
option, give written notice thereof to Tenant (any such notice being hereinafter
referred to as an "Excess Electricity Notice") which notice shall specify the
amount by which Landlord estimates that Landlord's cost of such Excess
Electricity Use exceeds the Tenant's Electrical Charge (any such excess cost
being hereinafter referred to as an "Excess Electricity Use Charge"). The Excess
Electricity Use Charges specified in such Excess Electricity Use Notice shall be
due and payable as additional rent as hereinafter provided. Excess Electricity
Use Charges allocable to any period after the date of giving an Excess
Electricity Notice shall be due and payable as additional rent monthly in
advance in equal monthly installments for the balance of the Term of this Lease
on the first day of each calendar month during the Term of this Lease with the
first such installment being due and payable on the first day of the first full
calendar month following the date of giving any such Excess Electricity Notice.
Landlord will determine Excess Electricity Use at Landlord's option, as follows:
(i) by installing submeter(s) and/or check meter(s) and related wiring and
equipment in the Premises, at Landlord's expense, and/or (ii) by estimating
Excess Electricity Use in the 4th Amendment Space, such estimates to be prepared
by an independent electrical engineer engaged by Landlord and/or (iii) by any
other reasonably reliable method selected by Landlord to estimate and/or
calculate Excess Electricity Use and/or (iv) by installing, at Landlord's
expense, a separate electrical meter to measure actual usage (and thereupon,
Tenant shall be responsible for obtaining electrical service directly from such
utility and paying charges for such services as indicated by such meter). Excess
Electricity Use Charges shall be established by Landlord based upon Excess
Electricity Use established as aforesaid and based upon Landlord's estimate of
the additional cost of such electricity to Landlord over and above the Tenant's
Electrical Charge and any then existing Excess Electricity Use Charges in
effect. Payments due Landlord from Tenant under the terms of this Section shall
be deemed to be included within the term "Escalation Charges". Landlord shall
have the right, at any time, during the Term of this Lease and as often as it
may elect, to determine whether Tenant is incurring Excess Electricity Use and
to assess Excess Electricity Use Charges as aforesaid. Once established, and so
long as they remain in effect (i.e. until further notice of a modified Excess
Electricity Use Charge from Landlord) Excess Electricity Use Charges shall be
unaffected by the actual extent of use of such service by Tenant and shall be
included under this Lease as additional rent.
4. Brokerage. Tenant hereby warrants and represents to Landlord that
Tenant has dealt with no Broker in connection with the consummation of this
Fourth Amendment other than Leggat McCall Properties Management, Inc. and in the
event of any brokerage claims against Landlord predicated upon prior dealings
with the Tenant, Tenant agrees to defend same and to indemnify Landlord against
any such claims except that Landlord shall be obligated to pay any brokerage
commissions payable to Leggat McCall Properties Management, Inc. pursuant to
separate arrangements with Leggat McCall Properties Management, Inc.
5. Except as modified herein, all of the terms, covenants, provisions
and conditions contained in the Lease remain in full force and effect and are
hereby ratified and affirmed.
<PAGE> 5
WITNESS our hands and seals on the day and year first above written.
LANDLORD: WRC Properties, Inc.
By: /s/ Richard Usas
------------------------------
Its: Director
TENANT:
MediQual Systems, Inc.
By: /s/ William C. Price
------------------------------
Its: Chief Financial Officer
<PAGE> 6
EXHIBIT B
Plans and Specifications prepared by D.W. Arthur Associates, Architects dated
9/10/93 as follows:
Cover Sheet/Permit Set
A1, A2, A3, A4
Also drawings prepared by Shepard Associates as follows:
E1, E2
<PAGE> 1
EXHIBIT 10.9
FIFTH AMENDMENT TO AMENDED
AND RESTATED LEASE
This Fifth Amendment to Amended and Restated Lease Agreement (the
"Fifth Amendment") is made as of this day of December, 1993 by and between WRC
Properties, Inc. (the "Landlord") and MediQual Systems, Inc. (the "Tenant").
WHEREAS, Landlord and Tenant have heretofore executed a certain Lease
Agreement dated July 21, 1986, which Lease Agreement has been amended by (i)
that certain First Amendment (the "First Amendment") dated September 22,1987
(ii) that certain Second Amendment to Amended and Restated Lease (the "Second
Amendment") dated July, 1989 (iii) that certain Third Amendment to Amended and
Restated Lease (the "Third Amendment") dated December 31, 1990 and (iv) that
certain Fourth Amendment to Amended and Restated Lease (the "Fourth Amendment")
dated September 22, 1993 (said Lease Agreement as amended by the First
Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment
is hereafter collectively the "Lease") pursuant to which the Tenant has leased
from Landlord the aggregate amount of 29,469 rentable square feet of space in
the building (the "Building") known as Building Two in the Westborough Office
Park located at 1900 West Park Drive, Westborough, MA;
WHEREAS, Landlord and Tenant have agreed that Tenant shall be
permitted to expand the Premises and to lease (i) an additional 1,793 rentable
square feet of area located on the first floor of the Building and marked on
Exhibit A to this Fifth Amendment as the "Conference Space" (the "Conference
Space") and (ii) an additional 734 rentable square feet of area also located on
the first floor of the Building and marked on Exhibit A to this Fifth Amendment
as the "Leggat Space" (the "Leggat Space") in each case beginning on the "5th
Amendment Space Commencement Date" (as hereafter defined) upon and subject to
the terms, covenants and provisions of the Lease as amended hereby, for the
balance of the Term of this Lease (the Conference Space and the Leggat Space
are sometimes hereafter collectively referred to as the "Fifth Amendment
Space");
WHEREAS, the Term of the Lease is scheduled to expire on September
30, 1996;
WHEREAS, Landlord has agreed to perform certain work and refurbishing
(the "Refurbishing") in that portion of the Premises (exclusive of the 4th
Amendment Space and the Fifth Amendment Space) comprised of 20,689 square feet
(the "Original Space");
WHEREAS, Landlord and Tenant have agreed to enter into this Fifth
Amendment to reflect the foregoing and to otherwise modify and amend the Lease
to reflect (i) the increase in the size of the Premises demised under the Lease
as a result of the addition of the 5th Amendment Space to the Premises
hereunder (ii) the Refurbishing and (iii) to otherwise modify and amend the
Lease, as hereinafter set forth;
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and the Tenant hereby agree as follows:
1. Changes in Basic Lease Provisions. Effective as of the 5th
Amendment Space Commencement Date, the Lease shall be deemed amended in the
following respects:
(a) Basic Rent per annum payable under the Lease (as
theretofore or thereafter increased or adjusted) shall be
increased and adjusted by the annual amount of $31,58750
($12.50 per rentable square foot per annum) payable in
equal monthly installments of $2,632.29 (the "5th Amendment
Space Rent"). The 5th Amendment Space Rent shall be
prorated for any partial calendar month in which the 5th
Amendment Space Commencement Date shall fall and be payable
in advance and in addition to the Basic Rent applicable to
the balance of the Premises as provided in the Lease (as
amended) and shall be payable on the dates and in the
manner required by the Lease as to all other payments of
Basic Rent without offset, deduction, abatement or demand;
(b) The definition of the term "Premises Rentable Area" shall
be deemed increased and adjusted by the 2,527 rentable
square feet contained in the 5th Amendment Space. From and
after the 5th Amendment Space Commencement Date the
"Premises" demised under the Lease as amended shall be
31,996 rentable square feet (which excludes any other space
presently leased to Tenant on a tenancy-at-will basis);
(c) The definition of the term "Escalation Factor" shall be
deemed increased and adjusted to be 36.20% and accordingly,
monthly payments on account of Operating Expenses and Taxes
shall be increased;
(d) The definition of the term "Premises" shall be deemed
amended by adding the 5th Amendment Space described in
Exhibit A to this Fifth Amendment to the Premises for all
purposes under the Lease;
(e) With the exception of Section 4.5, the provisions of
Article IV of the Lease shall not apply to the 5th
Amendment Space and Landlord's sole obligation with respect
to improvements in and to the 5th Amendment Space shall be
as provided in paragraph 2 of this Fifth Amendment. It is
agreed that Section 4.5 of the Lease shall apply to the 5th
Amendment Space;
(f) Intentionally Omitted;
(g) Base Operating Expenses applicable to the 5th Amendment
Space shall be actual Operating Expenses for the 1994
Operating Year (Base Operating
<PAGE> 3
Expenses as they apply to the balance of the Premises shall
not be affected);
(h) Base Taxes applicable to the 5th Amendment Space shall be
Taxes allocable to the Fiscal Tax Year ending June 30, 1994
(Base Taxes as they apply to the balance of the Premises
shall not be affected);
(i) Tenant shall commence paying the Tenant's Electrical
Charge in the amounts, time and manner required by
paragraph 3 of this Fifth Amendment.
2. Expansion Space Improvements. Annexed to this Fifth Amendment as
Exhibit B is a description of certain plans and specifications describing
improvements to be made by Landlord at its sole cost and expense in the 5th
Amendment Space, all as contemplated by the matters described in Exhibit B.
Landlord and Tenant each hereby approve the matters described in Exhibit B to
this Fifth Amendment.
Upon execution and delivery of this Fifth Amendment by both Landlord
and Tenant Landlord shall commence to perform the work and improvements
described in Exhibit B to this Fifth Amendment using building standard
materials and work ("Landlord's 5th Work"). Tenant hereby acknowledges and
agrees that Landlord shall commence to perform Landlord's 5th Work upon
execution and delivery of this Fifth Amendment by both Landlord and Tenant and
Tenant hereby grants Landlord the right of access to, upon, over and through
the Premises in order for Landlord to perform Landlord's Work
Tenant hereby acknowledges that it has inspected the 5th Amendment
Space and the common areas of the Building and, except for the Landlord's 5th
Work, has found the same to be satisfactory. The Landlord's 5th Work shall be
deemed approved by Tenant when Tenant commences occupancy of the 5th Amendment
Space for the Permitted Use, except for items which are then not completed or
do not conform to the plans and specifications described in Exhibit B to this
Fifth Amendment and as to which Tenant shall have given Landlord written notice
prior to the date which is 30 days after the date of such entry by Tenant.
As used in this Fifth Amendment, the term "5th Amendment Space
Commencement Date" shall mean that date upon which Landlord's 5th Work has been
substantially completed as determined by Landlord and designated in a written
notice to Tenant from Landlord. Tenant agrees to execute a writing setting
forth the 5th Amendment Space Commencement Date upon the written request of
Landlord.
3. Tenant's Electrical Charge. Beginning on the 5th Amendment Space
Commencement Date, in addition to payments of Basic Rent (as such payments
have been increased and adjusted by the provisions of this Fifth Amendment)
Tenant shall pay Landlord an increased Tenant's Electrical Charge which shall
be applicable to the 5th Amendment Space. Tenant's Electrical Charge applicable
to the 5th Amendment Space shall be payable in advance on the first day of
every calendar month (prorated for
<PAGE> 4
any partial calendar month in which the 5th Amendment Space Commencement Date
shall fall) in equal monthly installments of $157.94 per month. The Tenant's
Electrical Charge applicable to the 5th Amendment Space shall be paid in
addition to the Tenant's Electrical Charge payable with respect to the 4th
Amendment Space. Tenant's Electrical Charge applicable to the 5th Amendment
Space shall be payable as additional rent under the Lease and shall be in
addition to and without limitation of Landlord's rights to recapture costs and
expenses incurred by Landlord for electricity used and consumed throughout the
Property (including the Premises) but such amounts, to the extent actually paid
by Tenant, shall be taken into consideration when determining Operating
Expense increases attributable to electrical consumption on the Property.
Landlord shall have the same rights and remedies (including, without
limitation, late charges, interest charges payable upon failure to timely pay
and all rights and remedies reserved under Article XIII of the Lease at law or
in equity) against Tenant for failure to pay Tenant's Electrical Charge
applicable to the 5th Amendment Space when due as Landlord has against Tenant
for failure to pay Basic Rent when due.
The Tenant's Electrical Charge applicable to the 5th Amendment Space
is intended to reimburse Landlord for electricity used and consumed in the 5th
Amendment Space. If Landlord determines, from time to time, that the cost to
Landlord of electricity allocable to Tenant's use, demand and/or consumption of
electricity in the 5th Amendment Space (or Tenant's future use, demand and/or
consumption of electricity in the 5th Amendment Space as reasonably projected
by Landlord) exceeds, or is projected by Landlord to exceed, the Tenant's
Electrical Charge applicable to the 5th Amendment Space (any such use, demand
or consumption of electricity by Tenant being hereinafter referred to as
"Excess Electricity Use"), Landlord may, at its option, give written notice
thereof to Tenant (any such notice being hereinafter referred to as an "Excess
Electricity Notice") which notice shall specify the amount by which Landlord
estimates that Landlord's cost of such Excess Electricity Use exceeds the
Tenant's Electrical Charge applicable to the 5th Amendment Space (any such
excess cost being hereinafter referred to as an "Excess Electricity Use
Charge"). The Excess Electricity Use Charges specified in such Excess
Electricity Use Notice shall be due and payable as additional rent as
hereinafter provided. Excess Electricity Use Charges allocable to any period
after the date of giving an Excess Electricity Notice shall be due and payable
as additional rent monthly in advance in equal monthly installments for the
balance of the Term of this Lease on the first day of each calendar month
during the Term of this Lease with the first such installment being due and
payable on the first day of the first full calendar month following the date of
giving any such Excess Electricity Notice. Landlord will determine Excess
Electricity Use applicable to the 5th Amendment Space at Landlord's option, as
follows: (i) by installing submeter(s) and/or check meter(s) and related wiring
and equipment in the Premises, at Landlord's expense, and/or (ii) by estimating
Excess Electricity Use in the 5th Amendment Space, such estimates to be
prepared by an independent electrical engineer engaged by Landlord and/or (iii)
by any other reasonably reliable method selected by Landlord to estimate and/or
calculate Excess Electricity Use and/or (iv) by installing, at Landlord's
expense, a separate electrical meter to measure actual usage (and thereupon,
Tenant shall be responsible for obtaining electrical service directly from such
utility and paying charges for such services as indicated by such meter).
Excess Electricity Use Charges applicable to the 5th Amendment Space shall be
established by Landlord based upon Excess Electricity
<PAGE> 5
Use established as aforesaid and based upon Landlord's estimate of the
additional cost of such electricity to Landlord over and above the
Tenant's Electrical Charge applicable to the 5th Amendment Space and any
then existing Excess Electricity Use Charges in effect. Payments due
Landlord from Tenant under the terms of this Section shall be deemed to be
included within the term "Escalation Charges". Landlord shall have the
right, at any time, during the Term of this Lease and as often as it may
elect, to determine whether Tenant is incurring Excess Electricity Use and
to assess Excess Electricity Use Charges as aforesaid. Once established,
and so long as they remain in effect (i.e. until further notice of a
modified Excess Electricity Use Charge from Landlord) Excess Electricity
Use Charges shall be unaffected by the actual extent of use of such
service by Tenant and shall be included under this Lease as additional
rent.
4. Improvements to Original Space. (a) Annexed to this Fifth Amendment
as Exhibit C is a description of certain plans and specifications describing
improvements to be made by Landlord in the portion of the Premises designated
in this Fifth Amendment as the Original Space (specifically excluding the 4th
Amendment Space and the 5th Amendment Space) all as contemplated by the matters
described in Exhibit C. Landlord and Tenant each hereby approve the matters
described in Exhibit C to this Fifth Amendment.
Upon execution and delivery of this Fifth Amendment by both Landlord
and Tenant, Landlord shall commence to perform the work and improvements
described in Exhibit C to this Fifth Amendment using building standard
materials and work (the "Refurbishing"). Tenant hereby acknowledges and agrees
that Landlord shall commence to perform the Refurbishing upon execution and
delivery of this Fifth Amendment in accordance with a phased construction
schedule and Tenant hereby grants Landlord the right of access to, upon, over
and through the Premises in order for Landlord to perform the Refurbishing.
Tenant hereby acknowledges and agrees that Tenant shall have no claim of
constructive eviction, interruption of business or breach of this Lease by
Landlord due to the performance of the Refurbishing by Landlord and Landlord's
General Contractor in accordance with the provisions of this Fifth Amendment.
The date upon which Landlord shall complete the Refurbishing is hereafter the
"Completion Date".
(b) As used herein, the term "Total Cost of Refurbishing" shall mean,
without limitation, the aggregate cost of all labor, materials, work,
alterations, improvements design services, architectural fees, engineering
fees, construction management fees and general contractor's overhead and
general conditions sustained or incurred by Landlord in connection with
completing the Refurbishing in accordance with Exhibit C (including any such
costs received by Landlord arising from changes in Exhibit C after the date of
this Fifth Amendment). Annexed to this Lease as Exhibit D is a proposed budget
(the "Budget") for the Refurbishing. Landlord and Tenant each hereby approve
the Budget and acknowledge and agree that the Budget is merely a projection of
costs and is subject to revision due to increases or decreases in the actual
cost to Landlord of performing the Refurbishing.
In no event shall Landlord be required to expend more than $193,259.00
(the "Fixed Amount") in connection with the Refurbishment. As and to the
extent that the Total Cost
<PAGE> 6
of Refurbishing exceeds the Fixed Amount (such amount being hereafter the
"Excess Refurbishing Costs") Tenant shall pay such excess amounts to Landlord
within 15 days after Landlord shall invoice Tenant for such amounts
5. Brokerage. Tenant hereby warrants and represents to Landlord that
Tenant has dealt with no Broker in connection with the consummation of this
Fifth Amendment other than Leggat McCall Properties Management, L.P. and in the
event of any brokerage claims against Landlord predicated upon prior dealings
with the Tenant, Tenant agrees to defend same and to indemnify Landlord against
any such claims except that Landlord shall be obligated to pay any brokerage
commissions payable to Leggat McCall Properties Management, L.P. pursuant to
separate arrangements with Leggat McCall Properties Management, L.P.
6. As additional consideration for Landlord leasing the Fifth
Amendment space to Tenant and entering into this Fifth Amendment with Tenant,
Tenant has agreed to pay Landlord $57,437.43 as Additional Rent hereunder. Such
payment is to be made by Tenant to Landlord on or before the Completion Date.
Landlord shall have the same rights and remedies against Tenant for failure to
timely pay the amounts required to be paid under this paragraph 6 as Landlord
has against Tenant for any failure to pay Basic Rent when due.
7. Except as modified herein, all of the terms, covenants, provisions
and conditions contained in the Lease remain in full force and effect and are
hereby ratified and affirmed.
WITNESS our hands and seals on the day and year first above written.
LANDLORD:
WRC Properties, Inc.
By: /s/ Richard Usas
Its: Director
TENANT: MediQual Systems, Inc.
By: /s/ William C. Price
Its: Chief Financial Officer
<PAGE> 7
EXHIBIT B
Those matters shown on those certain plans dated December 30, 1993 and entitled
"Mediqual Phase V" by D.W. Arthur Associates, Architects designated SK-01 and
SK-02.
<PAGE> 8
EXHIBIT D
MEDIQUAL TENANT IMPROVEMENT
WORK COST SUMMARY
(INSERT OR DESCRIBE TABLE)
<PAGE> 1
Exhibit 10.10
SIXTH AMENDMENT TO
AMENDED AND RESTATED LEASE
This Sixth Amendment to Amended and Restated Lease Agreement (the "Sixth
Amendment") is made as of this 30th day of April, 1996 by and between WRC
Properties, Inc. (the "Landlord") and MediQual Systems, Inc. (the "Tenant").
WHEREAS, Landlord and Tenant have heretofore executed a certain Lease
Agreement dated July 21, 1986, which Lease Agreement has been amended by (I)
that certain First Amendment (the "First Amendment") dated September 22, 1987
(which had the effect of amending and restating the Lease Agreement dated July
21, 1996), (ii) that certain Second Amendment to Amended and Restated Lease
(the "Second Amendment") dated July, 1989 (adding 4,315 square feet on the
second floor and 848 square feet on the first floor), (iii) that certain Third
Amendment to amended and Restated Lease (the "Third Amendment") dated December
31, 1990 (amending and extending the term through September 30, 1996), (iv)
that certain Fourth Amendment to Amended and Restated Lease (the "Fourth
Amendment") dated September 22, 1993 (expanding the Premises by 8,780 rentable
square feet) and (v) that certain Fifth Amendment to Amended and Restated Lease
(the "Fifth Amendment") dated December, 1993 (expanding the premises by 2,527
square feet), said Lease Agreement as amended by the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment and the Fifth Amendment is
hereafter collectively called the "Lease") pursuant to which the Tenant has
leased from Landlord the aggregate amount of 31,996 rentable square feet of
space in the building (the "Building") known as Building Two in the Westborough
Office Park located at 1900 West Park Drive, Westborough, Massachusetts; and
WHEREAS, among other things, Landlord and Tenant have agreed to reduce
the number of rentable square feet contained in the Premises, effective as of
the date of this Sixth Amendment, by deleting from the Premises 9,360 rentable
square feet of area on the first floor of the Building comprised of (i) the
1,793 square feet contained in the so-called Training Center (the "Training
Center") and (ii) an additional 7,567 rentable square feet (the "First Floor
Reduction Space") also located on the First Floor (the Training Center and the
First Floor Reduction Space are hereafter collectively referred to as the
"Termination Space"); and
WHEREAS, the Term of the Lease is presently scheduled to expire on
September 30, 1996 and Landlord and Tenant have agreed to extend the term as
hereafter set forth: and
WHEREAS, Landlord and Tenant have agreed to enter into this Sixth
Amendment to reflect the foregoing and to otherwise modify and amend the Lease
to reflect (i) the reduction in the size of the Premises demised under the Lease
as a result of the deletion of the Termination Space from the Premises demised
under the Lease, (ii) to extend the Term of this Lease so that it shall expire
on March 31, 1999 and (iii) to otherwise modify and amend the Lease, as
hereinafter set forth;
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Landlord and the Tenant hereby agree as follows:
1. Changes in Basic Lease Provisions. Effective as of May 1, 1996, the
Lease shall be deemed amended in the following respects:
(a) Basic Rent per annum payable under the Lease shall be decreased
and reduced by the annual amount of (i) $22,412.50 ($12.50 per rentable
square foot) per annum due to the deletion of the Training Center from
the Premises and (ii) $151,340.00 ($20.00 per rentable square foot) per
annum due to the deletion of the First Floor Reduction Space from the
Premises. From and after the date of this Sixth Amendment through
September 30, 1996, The Basic Rent payable under the Lease shall be
$398,925.00 per annum, payable in equal monthly installments of
$33,243.75, reflecting a remaining Premises Rentable Area of 22,636
rentable square feet comprised of (i) 13,122 square feet at $20.00 per
square foot per annum (ii) 8,780 square feet at $14.50 per square foot
per annum and (iii) 734 square feet at $12.50 per square foot per annum;
(NOTE: BASIC RENT PAYABLE UNDER THE LEASE SHALL BE SUBJECT TO FURTHER
ADJUSTMENT AS OF OCTOBER 1, 1996 PURSUANT TO PARAGRAPH 3 HEREOF)
(b) The definition of the term "Premises Rentable Area" shall be
deemed to be decreased and reduced by the 9,360 rentable square feet
contained in the Termination Space. From and after the date of this
Sixth Amendment, the "Premises" demised under the Lease as amended shall
consist of a Premises Rentable Area of 22,636 rentable square feet. From
and after the date of this Sixth Amendment, the Premises shall be as
outlined on Exhibit A to this Sixth Amendment. landlord shall, at its
sole cost and expense, (i) create adequate demising walls separating the
resulting Premises from the Termination Space and (ii) relocate access
to and from the remaining Premises approximately in the manner and
location shown on Exhibit A;
(c) The definition of the term "Escalation Factor" shall be deemed
decreased and reduced to be 25.62% and monthly estimated payments on
account of Operating Expenses and Taxes shall be adjusted accordingly;
(d) The definition of the term "Premises" shall be deemed amended by
deleting the Termination Space from the Premises for all purposes under
the Lease;
(e) Notwithstanding that the Lease is terminated as to the
Termination Space as of May 1, 1996, Tenant may continue to store its
office furniture and equipment in the Termination Space through May 31,
1996 without charge and without being deemed as a holdover as to such
space but only to the extent (i) that Tenant does not use such space for
any purpose other than storage of such equipment and office furniture
and (ii) Tenant shall remove
<PAGE> 3
its removable property from the Termination Space no later than May 31,
1996, time being of the essence. Tenant shall surrender and deliver the
Termination Space to Landlord no later than May 1, 1996.
(f) Tenant's Electrical Charge applicable to the 5th Amendment Space
shall be reduced by $1,344.75 per annum to the annual amount of $550.50
payable in equal monthly installments of $45.S8 and Tenant shall
continue to pay Tenant's Electrical Charge applicable to the 4th
Amendment Space in the amounts and as required by the Fourth Amendment
(Tenant's Electrical Charge is subject to increase on October 1, 1996
pursuant to paragraph 3 of this Sixth Amendment).
2. Extension of Term of this Lease. Effective as of the date of this
Sixth Amendment, the "Term of this Lease" shall be extended to include the
period beginning on October 1, 1996 through and including March 31, 1999 (the
"Sixth Amendment Extension Period").
3. Further Amendments Effective as of October 1, 1996. Effective as of
October 1, 1996, the Lease shall be deemed amended in the following manner:
(a) Basic Rent: Basic Rent per annum as to the entire Premises
Rentable Area (22,636 rentable square feet) shall be $396,130.00 payable
in equal monthly installments of $33,010.83 without offset, deduction,
abatement or demand as and when required by the provisions of
Article III of the Lease;
(b) Base Operating Expenses: Base Operating Expenses applicable to
the entire Premises Rentable Area (22,636 rentable square feet) shall be
the actual Operating Expenses allocable to the Operating Year ending
December 31, 1996. Nothing contained herein shall relieve Tenant from
its obligations to pay Escalation Charges with respect to Operating
Expenses as to all other periods prior to and through September 30, 1996
pursuant to the Lease which shall be appropriately prorated and adjusted
through such date;
(c) Base Taxes: Base Taxes as to the entire Premises Rentable Area
(22,636 rentable square feet) shall be the actual Taxes allocable to the
Fiscal Tax year ending June 30, 1996. Nothing contained herein shall be
deemed or construed to relieve Tenant from its obligation to pay
Escalation Charges with respect to Taxes as to all other periods prior
to and through September 30,1996 pursuant to the Lease which shall be
appropriately prorated and adjusted through such date.
(d) Tenant's obligation to pay Tenant's Electrical Charge as to the
provisions of paragraph 3 of the Fourth Amendment and the Fifth
Amendment shall be amended to reflect that in lieu of such payments,
Tenant shall commence paying Tenant's Electrical Charge with respect to
the entire Premises Rentable Area (22,636 rentable square feet)
beginning on October 1, 1996, all as provided in Paragraph 4 of this
Sixth Amendment.
<PAGE> 4
4. Tenant's Electrical Charge. Beginning October 1, 1996, in addition to
payments of Basic Rent (as such payments have been adjusted by the provisions of
this Sixth Amendment), Tenant shall pay Landlord a Tenant's Electrical Charge
which shall be applicable to the entire Premises Rentable Area. Tenant's
Electrical Charge shall be in the annual amount of $16,977.00 ($.75 per rentable
square foot) and shall be payable at the Time Basic Rent is paid in advance on
the first day of every calendar month in equal monthly installments of $1,414.75
per month. The Tenant's Electrical Charge shall be payable as additional rent
under the Lease and shall be in addition to and without limitation of Landlord's
rights to recapture costs and expenses incurred by Landlord for electricity used
and consumed throughout the Property (including the Premises) such amounts, to
the extent actually paid by Tenant, shall be taken into consideration when
determining Operating Expense increases attributable to electrical consumption
on the Property. Landlord shall have the same rights and remedies (including,
without limitation, late charges, interest charges payable upon failure to
timely pay and all rights and remedies reserved under Article XIII of the Lease
at law or in equity) against Tenant for failure to pay Tenant's Electrical
Charge when due as Landlord has against Tenant for failure to pay Basic Rent
when due
The Tenant's Electrical Charge is intended to reimburse Landlord for
electricity used and consumed in the entire Premises Rentable Area (22,636
rentable square feet). If Landlord determines, from time to time, that the cost
to Landlord of electricity allocable to Tenant's use, demand and/or consumption
of electricity in the Premises (or Tenant's future use, demand and/or
consumption of electricity in the Premises reasonably projected by Landlord)
exceeds, or is projected by Landlord to exceed, the Tenant's Electrical Charge
(any such use, demand or consumption of electricity by Tenant being hereinafter
referred to as "Excess Electricity Use"), Landlord may, at its option, give
written notice thereof to Tenant (any such notice being hereinafter referred to
as an "Excess Electricity Notice") which notice shall specify the amount by
which Landlord estimates that Landlord's cost of such Excess Electricity Use
exceeds the Tenant's Electrical Charge (any such excess cost being hereinafter
referred to as an "Excess Electricity Use Charge"). The Excess Electricity Use
Charges specified in such Excess Electricity Use Notice shall be due and payable
as additional rent as hereinafter proved. Excess Electricity Use Charges
allocable to any period after the date of giving an Excess Electricity Notice
shall be due and payable as additional rent monthly in advance in equal monthly
installments for the balance of the Term of this Lease on the first day of each
calendar month during the Term of this Lease with the first such installment
being due and payable on the first day of the first full calendar month
following the date of giving any such Excess Electricity Notice. Landlord will
determine Excess Electricity Use, at Landlord's option, as follows: (i) by
installing submeter(s) and/or check meter(s) and related wiring and equipment in
the Premises, at Landlord's expense, and/or (ii) by estimating Excess
Electricity Use, such estimates to be prepared by an independent electrical
engineer engaged by Landlord and/or (iii) by any other reasonably reliable
method selected by Landlord to estimate and/or calculate Excess Electricity Use
and/or (iv) by installing, at Landlord's expense, a separate electrical meter to
measure actual usage (and, thereupon, Tenant shall be responsible for obtaining
electrical service directly from such utility and
<PAGE> 5
paying charges for such services as indicated by such meter). Excess Electricity
Use Charges shall be established by Landlord based upon Excess Electricity Use
established as aforesaid and based upon Landlord's estimate of the additional
cost of such electricity to Landlord over and above the Tenant's Electrical
Charge and any then existing Excess Electricity Use Charges in effect. Payments
due Landlord from Tenant under the terms of this Section shall be deemed to be
included within the term "Escalation Charges". Landlord shall have the right, at
any time, during the Term of this Lease and as often as it may elect, to
determine whether Tenant is incurring Excess Electricity Use and to assess
Excess Electricity Use Charges as aforesaid. Once established, and so long as
they remain in effect (i.e. until further notice of a modified excess
Electricity Use Charge from Landlord), Excess Electricity Use Charges shall be
unaffected by the actual extent of use of such service by Tenant and shall be
included under this Lease as addition rent.
5. Brokerage. Tenant hereby warrants and represents to Landlord that
Tenant has dealt with no Broker in connection with the consummation of this
Sixth Amendment other than Leggat McCall Properties Management, L.P., and in the
event of any brokerage daims against Landlord predicated upon prior dealings
with the Tenant, Tenant agrees to defend same and to indemnify Landlord against
any such daims except that Landlord shall be obligated to pay any brokerage
commissions payable to Leggat McCall Properties Management, L.P. pursuant to
separate arrangements with Leggat McCall Properties Management, L.P.
6. Except as modified herein, all of the terms, covenants, provisions
and conditions contained in the Lease remain in full force and effect and are
hereby ratified and affirmed.
WITNESS our hands and seals on the day and year first above written.
LANDLORD:
WRC Properties, Inc.
By: /s/ Richard Usas
------------------------
Its: Director
TENANT:
MediQual Systems, Inc.
By: /s/ William C. Price
------------------------
Its: Chief Financial Officer
<PAGE> 1
Exhibit 10.11
STOCK AGREEMENT
This Agreement entered into this 3rd day of March 1984, by and between
William D. Ryan; (the "Shareholder") and MEDIQUAL SYSTEMS, INC. (the
"Corporation") a Delaware corporation
W I T N E S S E T H:
WHEREAS, the Corporation is duly organized and existing under and
pursuant to the laws of its state of incorporation; and
WHEREAS, The shareholder is the holder of convertible notes of this
Corporation which may be converted into the common stock of the Corporation
pursuant to the provisions of the Loan-Equity Agreement dated March 3,1984 (the
"Loan-Equity Agreement" which is hereby incorporated by reference): and
WHEREAS; the parties hereto desire to secure continuity of ownership of
the stock of the Corporation in the event the Shareholder exercises the option
granted to him pursuant to the Loan-Equity Agreement and believe it to be in the
best interests of the Corporation and its shareholders to impose certain
restrictions and obligations upon the Shareholder with respect to the
disposition of his shares of stock, so that in the event the Shareholder desires
to dispose of his shares of stock of the Corporation or in the event of the
death of the Shareholder, the stock owned by the Shareholder or by any
transferee of the Shareholder shall not pass to persons unsuited or unqualified
to serve the best interests of the Corporation and the best interests of the
surviving or other shareholders.
NOW THEREFORE, in consideration of the premises, and the mutual
promises, covenants and conditions herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
ARTICLE 1
Preambles
The preambles and recitals hereinabove set forth are hereby incorporated
into and made a part of this Agreement.
<PAGE> 2
ARTICLE 2
Prior Agreements
Any and all prior agreements, whether written or oral, between the
parties hereto, pertaining to the subject matter contained herein, are hereby
declared to be canceled, null and void as between the parties hereto.
ARTICLE 3
Sale and Purchase of Stock of
3.1 Transfer of Shares. The Shareholder (unless the context otherwise
requires, the term "Shareholder" shall include for all purposes of this
Agreement the Shareholder, any transferee of the Shareholder and their heirs,
legal representatives, successors and assigns) shall not transfer, sell,
assign, distribute, pledge, mortgage, hypothecate, charge, give or otherwise
transfer, dispose of, or encumber in any manner or by any means whatsoever
("transfer") any interest in all or any part of his stock of the Corporation,
without first complying with the provisions of this Agreement as hereinafter
provided.
3.2 Offer to the Corporation. In the event the Shareholder shall desire
to transfer of allor any portion of his stock in the Corporation, such shares
shall first be offered to the Corporation in such a manner as hereinafter set
forth
3.2.1 In the event the Shareholder shall desire to transfer all or
any portion of his stock in the Corporation, he shall serve written
notice upon the Secretary of the Corporation (unless the Shareholder is
the Secretary of the Corporation, in which case such notice shall be
served on the President of the Corporation). Said notice shall contain
the following or a statement that the following is inapplicable and the
reason therefor:
3.2.1.1 An offer to sell all or a portion of the stock owned by
the Shareholder serving the notice under the terms of this
Agreement:
3.2.1.2 A statement as to the number of shares of stock offered
for sale to the Corporation
3.2.1.3 An indication that the Shareholder has or does not have
a written bona fide offer to purchase, and if the Shareholder has
received such an offer, a copy of such offer shall be attached
thereto:
- 2 INITIALS:
<PAGE> 3
3.2.1.4 An indication whether the Shareholder intends to
transfer such stock in the event that the Corporation does not
agree to purchase all of the stock being offered;
3.2.1.5 The names and addresses of the persons, if any, to whom
the stock is to be transferred in the event that the Corporation
does not agree to redeem all of the stock being offered;
3.2.1.6 The sales price per share of the stock and the terms of
payment of the purchase price with respect to the bona fide offer
made to the Shareholder, including the nature of all of the
consideration the Shareholder is to receive:
3.2.1.7 The reason for the transfer which the Shareholder
intends to make:
3.2.1.8 The sales price per share of the stock offered for sale
to the Corporation; PROVIDED HOWEVER, that in the event the
Shareholder has received a bona fide offer to purchase, the price
of such stock offered for sale to the Corporation shall be no
greater than the price in the bona fide offer to purchase;
PROVIDED, FURTHER, that in the event the Shareholder has not
received a bona fide offer to purchase, the price of such stock
offered for sale to the Corporation shall be no greater than the
price determined pursuant to ARTICLE 5 of this Agreement;
3.2.1.9 The terms of payment for the redemption of stock
PROVIDED, HOWEVER, that in the event the Shareholder has received a
bona fide offer to purchase, the terms of payment shall be no less
favorable than the terms of payment ill the bona fide offer to
purchase; PROVIDED, FURTHER, that in the event the shareholder has
not received a bona fide offer to purchase, the terms of payment
shall be no less favorable than the terns of payment provided for
in Section 3.4 of this ARTICLE.
3.2.2 For a period of thirty (30) days after (i) the effective date of
said notice or (ii) the determination of the redemption price in accordance
with ARTICLE 5 of this Agreement in the event the Shareholder has not received
a bona fide offer to purchase, whichever iB later, said period being
hereinafter referred to as the "Corporation's option period," the Corporation
shall have the option to redeem all or any portion of the stock so offered at
the price and on the terms prescribed in Sections 3.2.1.8 and 3.2.1.9 of this
ARTICLE. Action by the Corporation shall be authorized by the Board of
Directors, and such action shall require the concurrence of a majority of the
Initials:
<PAGE> 4
remaining Directors, in the event that the Shareholder of the corporation. The
Shareholder, if a Director, shall abstain from voting and shall be deemed
present for purposes of a quorum at any meeting of the Board of Directors for
purposes of voting upon the acceptance of an offer, whether or not said
Shareholder actually attends such meeting.
3.2.3 At any time from the date of the receipt of the notice from the
Shareholder, as hereinabove provided, until the termination of the Corporation's
option period, the Corporation may exercise its option to redeem by serving a
written notice upon the said Shareholder, indicating the following:
3.2.3.1 The fact that the Corporation is exercising its option to
redeem the Shareholder's stock, or a portion thereof, offered for sale
under this Agreement: and
3.2.3.2 The number of the shares of stock desired to be redeemed.
3.2.4 In the event the Corporation has served notice, wherein it has
agreed to redeem less than all of the shares of stock available to be redeemed,
the Corporation, prior to the termination of the Corporation's option period,
may increase the number of shares of stock agreed to be redeemed, by serving a
new written notice as hereinabove provided, mailed prior to the termination of
the Corporation's option Period.
3.2.5 In the event that the Corporation has exercised its option to
redeem less than all of the shares offered by the Shareholder, the Shareholder
shall be free to do the following:
3.2.5.1 The Shareholder may, for a period of sixty (60) days
subsequent to the termination of the corporation's option period, sell
the remaining stock not redeemed by the Corporation, to the named
prospective purchaser, if such be the case; PROVIDED, HOWEVER, if the
notice contains the name of a prospective purchaser, then the
Shareholder may only dispose of his stock to the said prospective
purchaser on the terms and conditions provided in said notice;
PROVIDED, FURTHER, if said notice contains the name of a prospective
purchaser, before the Shareholder may sell to any person other than the
named prospective purchaser, the Shareholder shall again comply with
the terms of this Agreement as heretofore provided:
3.2.5.2 Should no prospective purchaser be named in said notice,
then the Shareholder shall be free to sell to any person or entity on
the same terms and conditions as offered to the Corporation for a
period of sixty (60) days
~ 4 ~ INITIALS
<PAGE> 5
subsequent to the termination of the Corporation's option
period. If no such sale is consummated within said sixty
(60) day period, the shares of stock offered for sale shall
again be subject to the restrictions contained herein.
3.3 Insolvency of Shareholder. In the event that the insolvency or
financial condition of the Shareholder shall result in bankruptcy, levy upon
his shares, judicial sale or any other transfer by operation of law, the
restrictions contained herein shall apply, and the trustee, purchaser at a
judicial sale, or any other person who becomes a holder of the stock of the
Corporation shall offer said stock to the Corporation as heretofore provided.
3.4 Payment of Redemption Price. In the event the Shareholder has not
received a bono fide offer to purchase his shares, the payment of the
redemption price for the stock of the Shareholder, as herein provided, shall be
paid on terms no less favorable to the Corporation (as determined by the
Corporation) than the following:
3.4.1 Sixty (60) equal monthly installments of principal plus the
appropriate interest over a period of five (5) years, beginning on the
fifteenth (15th) day of the fourth (4th) month following the
termination of the Corporation's option period (the "initial payment")
and continuing on the fifteenth (15th) day of each month thereafter
until the full purchase price is paid, with interest at a fluctuating
rate equal to one percent (1%) in excess of the rate of interest
announced by Citibank, New York, N.Y. (the "Bank") as the Bank's prime
interest rate, determined for each month as of the first (1st) day of
such month or the first banking day thereafter, upon the balance of
principal remaining from time to time unpaid. The obligation for such
payments shall be evidenced by a promissory note ("the Note"), in form
and substance as set forth in Exhibit "A", attached hereto and made a
part hereof, delivered to the Shareholder at the time of the initial
payment.
3.4.2 The Corporation shall have the right to prepay, without
penalty, any portion or all of any outstanding balance of the
redemption price at any payment date, including the date of the initial
payment.
3.5 Surrender of Shares: Resignations. At the time of the initial
payment of the redemption price and receipt of the Note of the Corporation, the
Shareholder, or the Voting Trustee (as hereinafter defined) if he is then
holding the shares, shall surrender the certificates representing the
Shareholder's shares of stock of the Corporation to the Corporation, or other
purchaser or assignee, and said certificates shall be endorsed in such a manner
that they may be freely transferred on the books of the Corporation. In the
event the Shareholder is an officer or director of the Corporation or any
_ s _ INIIALS:
<PAGE> 6
of its subsidiaries or affiliates, or a Trustee on any corporate Pension or
Profit Sharing Plans or holds similar positions, he shall, at the time of the
initial payment execute resignations, corporate records, minutes and other
reasonable documents as may be requested by the Corporation.
3.6 Transferred or Additional Shares Subject to Agreement. In the event
any of the stock of the Corporation owned by the Shareholder is transferred by
the Shareholder pursuant to the terms of this Agreenent or in the event the
Corporation issues any additional shares of its stock to the Shareholder or a
transferee of the Shareholder, the transferee of said stock and the said shares
so transferred or issued shall be subject to all the terms and conditions of
this Agreement.
ARTICLE 4
Death of the Shareholder
In the event of the death of the Shareholder, the estate ("estate" being
defined for all purposes of this Agreenent as the executor, administrator or
personal representative of said deceased Shareholder), any Trustee holding the
Shareholder's stock or the Shareholder's heirs or assigns shall, by the first
(1st) day of the sixtieth (60th) month following the date of death of the
deceased Shareholder, offer pursuant to ARTICLE 3 hereof all of the shares
owned by the Shareholder to the Corporation at a price as provided in ARTICLE 5
hereof, to be paid as provided in Section 3.4 hereof. The Value Date for
purposes of ARTICLE 5 shall be the date of the offer by the estate to the
Corporation.
ARTICLE 5
Appraiser(s)
5.1 Appraiser(s). In the event the Corporation shall excercise its
option to redeem shares of stock of the Shareholder and in the event the
Shareholder has not received a bona fide offer to purchase his shares, the
redemption price of such shares shall be determined as follows :
5.1.1 The Corporation and the Shareholder shall mutually appoint an
appraiser: or
5.1.2 In the event the parties are unable to appoint an appraiser
within ten (10) days subsequent to the effective date of the notice of
the offer, the Corporation shall appoint an appraiser and the
Shareholder shall appoint an appraiser and the two appraisers so
appointed shall together appoint a third appraiser.
INITIALS
<PAGE> 7
5.2 Determination of Redemption Price. Upon completion the
Determination of Redemption Price. Upon completion of the appointment of the
appraiser(s) as provided in Section 5.1 of this ARTICLE, the appraiser(s) shall
determine the value of all of the issued and outstanding shares of stock of the
Corporation based upon the highest and best use of the Corporation and its
assets as a going business as of the effective date of the offer (the "Value
Date"). The determination of the appraiser(s) shall be conclusive and binding
upon the parties hereto. The value of the Corporation on the Value Date as so
determined shall then be divided by the number of shares of stock of the
Corporation issued and outstanding and multiplied by the number of shares owned
by the Shareholder.
ARTICLE 6
Life Insurance
6.1 Purchase of Life Insurance. In order to assure that the Corporation
shall be able to carry out the terms of this Agreement, insurance upon the life
of the Shareholder may be purchased by the Corporation.
6.2 Duties of Insurers. Notwithstanding the provisions of this
Agreement, the insurers issuing the policies of insurance herein mentioned are
hereby authorized to act in accordance with the terms of any such policies as
if this Agreement did not exist. Payment or other performances of the
obligations of such insurers in accordance with the terms of such policies
shall completely discharge such insurers from all claims, suits and demands of
all persons whomsoever.
ARTICLE 7
Non-Disclosure of Confidential Information
7.1 MEDISGRPS. The Shareholder acknowledges that the Corporation is the
owner of all right, title and interest in and to a computer-assisted, clinical
categorization procedure known as the Medical Illness Severity Grouping System
("MEDISGRPS"). The Shareholder further acknowledges that the computer software
programs, data, documentation and related materials used in the operation of
MEDISGRPS are: (i) proprietary items of the Corporation; (ii) trade secrets of
the Corporation; (iii) protected by civil and criminal law, and by the law of
copyright; and (iv) extremely valuable to the Corporation, and their use and
disclosure must be carefully and continuously controlled. (MEDISGRPS and all
other property of the Corporation, including but not limited to: trade secrets,
discoveries, ideas, concepts, software in various stages of development,
designs, drawings, specifications, techniques, models, data, source codes,
object codes, documentation, diagrams, flow-charts, research, development,
processes, procedures, "know-how, marketing techniques
INITIALS
<PAGE> 8
and materials, marketing and development plans, customer lists, lists of
prospective customers, customer information, sources of business, volume of
business, financial statements and other information related to customers ,
price lists, pricing policies, finances and similar financial information shall
be hereinafter referred to as the "Confidential Information").
7.2 Disclosure by the Corporation. As a result of the business
relationship established between the Corporation and the Shareholder pursuant
to this Agreement, it is necessary and desirable that the Corporation (or St.
Vincent Hospital, Worcester, Massachusetts or Inter-Qual Incorporated, a
Delaware corporation, together "Affiliates") disclose and permit the
Shareholder access to certain portions of the Confidential Information as it
pertains to current, future or proposed products.
7.3 Non-Disclosure by the Shareholder. The Shareholder shall hold the
Confidential Information disclosed by the Corporation or its Affiliates, in the
strictest confidence, as a fiduciary, and shall not, voluntarily or
involuntarily, sell, transfer, publish, disclose, display or otherwise make
available to others any portion of the Confidential Information or related
materials without the express written consent of the Corporation. The
Shareholder shall use his best efforts to protect the Confidential Information
consistent with the manner in which he protects his most confidential business
information, except for:
7.3.1 information in the public domain at the time of disclosure to
the Shareholder by the Corporation or its Affiliates; and
7.3.2 information which, after disclosure to the Shareholder,
becomes a part of the public domain by dissemination of a third party
and other than by an act or omission of the Shareholder and
7.3.3 information which the Shareholder can demonstrate by
documentaty evidence to have been in the Shareholder's possession at
the time of disclosure to the Shareholder, and not acquired directly or
indirectly from the Corporation, its Affiliates or clients; and
7.3.4 information which is subsequently disclosed or made available
to the Shareholder without an obligation of confidence by a third party
having a bona fide right to disclose or make available such
information.
7.4 Return of Material. All Confidential Information in the possession
of the Shareholder shall be promptly returned to the Corporation upon request
of the Corporation; PROVIDED HOWEVER, that
INITIALS
<PAGE> 9
the Shareholder shall not be required to return financial information
concerning the Corporation if he is a shareholder and/or creditor of the
Corporation.
ARTICLE 8
Voting Trust
8.1 Voting Trust. Upon execution of this Agreement, or as soon
thereafter as is practical, the Shareholder shall endorse his shares of stock
of the Corporation in blank and place them in a Voting Trust substantially
similar to the terms and provisions of the Voting Trust Agreement set forth in
Exhibit "E" attached to the Loan-Equity Agreement.
8.2 Voting Trustee. The Voting Trust Agreement of the Shareholder shall
provide that:
8.2.1 During the Shareholder's lifetime, the Shareholder shall
serve as Voting Trustee if the Shareholder remains legally competent; and
8.2.2 There shall be only one (1) Voting Trustee who shall be
required to be natural person.
8.3 Additional Shares. Any and all certificates for shares of stock of
the Corporation which may be hereafter issued to the Shareholder shall be
delivered to the Voting Trustee of the Shareholder's Voting Trust in the same
manner and form as is set forth in Section 8.1 of this ARTICLE.
ARTICLE 9
Redemption of Stock by the Corporation
In the event at the time of any redemption of stock by the Corporation
pursuant to this Agreement, the Corporation is prohibited by the then
prevailing law from redeeming such stock, the Corporation shall take whatever
acts, or execute whatever instruments permitted under the prevailing law that
may be necessary to permit the payment of the redemption price.
ARTICLE 10
Remedies
10.1 Injunctive Relief. It is understood and agreed that remedies at law
may be inadequate and that the parties shall be entitled to equitable relief,
including without limitation, injunctive relief, specific performance or other
equitable remedies in addition
<PAGE> 10
to all other remedies provided hereunder or available to the parties at law
or equity.
10.2 Remedies Cumulative. No remedy made available by any of the
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity
or by statute or otherwise.
10.3 Costs. In the event any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions
of this Agreement, the successful or prevailing party or parties shall be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may
be entitled.
10.4 Default. Except for payments due hereunder, in the event either
party fails to perform as provided herein, such party shall not be in default
until the non-defaulting party serves written notice, specifying any such
failure to perform. If the party upon whom the notice is served fails to cure
within fifteen (15) days then, after the expiration of said fifteen (15) day
period, such party shall be deemed to be in default.
ARTICLE 11
Endorsement of Stock Certificates
All certificates of stock of the Shareholder, now or hereafter issued,
shall be endorsed with the following legend:
"NOTICE IS HEREBY GIVEN that the shares of stock represented by this
Certificate are subject to the terms of the STOCK AGREEEMENT dated
March 4 , a copy of which is on file at the office of the Corporation,
and any transfer of the within shares shall be void, unless said
transfer or assignment is in compliance with said Agreement."
ARTICLE 12
Termination of Agreement
Notwithstanding anything herein to the contrary, this Agreement shall
terminate and all rights and obligations hereunder, except those which have
accrued as a result of the operation of this Agreement and those set forth in
ARTICLE 7 hereof, shall cease upon the happening of any of the following
events:
<PAGE> 11
12.1 Bankruptcy. The adjudicated bankruptcy or the receivership of the
Corporation.
12.2 Dissolution. The voluntary or involuntary dissolution of the
Corporation.
12.3 Public Sale of Corporation's Stock. The public offering of the
Corporation's stock.
12-4 Agreement by the parties. The voluntary joint agreement of all of
the parties to this Agreement.
ARTICLE 13
Notices
13.1 Sending of Notice. Unless otherwise specifically set forth in this
Agreement, all notices required to be sent under the terms of this Agreement
shall be sent certified mail, return receipt requested, to the Corporation at
its registered address and to the Shareholder at his address last indicated in
the records of the Corporation, or to such other addresses as the Shareholder
may designate from time to time.
13.2 Delivery. All notices shall be effective as of the date of
mailing. In the event that any notice is not delivered to any person entitled
thereto because such person has moved and his address is unknown, or because he
has refused to accept such notice, then such notice shall be deemed to be
effective as if delivered.
ARTICLE 14
Amendment of Agreement
This Agreement may be amended or altered in any of its provisions by
all of the parties hereto, and any such change shall become effective when
reduced to writing and signed by such parties or at such other time as such
amendment may provide.
ARTICLE 15
Counterparts
For the convenience of the parties hereto, this Agreement may be
executed simultaneously in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument, without necessity of production of the others.
<PAGE> 12
ARTICLE 16
Gender and Number
The use of the masculine, feminine or neuter gender and the use of the
singular and plural shall not be given the effect of any exclusion or
limitation herein; and the use of the word "person" or "party" shall mean and
include any individual, trust, corporation, partnership, or other entity.
ARTICLE 17
Headings
The article and section headings contained herein shall in no way limit,
extend, or interpret the scope or language of this Agreement or of any
particular article and are intended to be utilized only for convenient
reference.
ARTICLE 18
Benefits
This Agreement shall be binding upon, and shall inure to the benefit of
the parties hereto and their respective heirs, legal representatives,
successors, and assigns, and the parties hereto do covenant and agree that they
themselves, their heirs, legal representatives, successors, and assigns shall
vote their stock in the Corporation and will execute or provide any and all
instruments, releases, assignments, and consents as may be reasonably required
in order to carry out the provisions of this Agreement.
ARTICLE 19
Conflict of Laws
This Agreement shall be interpreted under the laws of the State
Delaware.
ARTICLE 20
Entire Agreement
This Agreement represents the entire agreement and understanding of the
parties hereto and all prior and concurrent agreements, understandings,
representations and warranties in regard to the subject matter hereof are and
have been merged herein.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by its President, to be attested to by its
- 12 - INITIALS
<PAGE> 13
Secretary, and its corporate seal to be affixed hereto, and the Shareholder
has hereunto set his hand the day and year first above written.
MEDIQUAL SYSTEMS, INC
ATTEST: By: /s/ Charles M. Jacobs
----------------------------
/s/ Susan Weagly Charles M. Jacobs, President
- ----------------
Susan Weagly,
Secretary
SHAREHOLDER:
/s/ William D. Ryan
-------------------------------
William D. Ryan
<PAGE> 14
EXHIBIT "A"
Promissory Note
For value received, MEDIQUAL SYSTEMS, INC., a Delaware corporation (the
"corporation"), hereby promises to pay to (payee) the sum of (amount) ($ ), with
interest at a fluctuating rate equal to one percent (1%) in excess of the rate
of interest announced by Citibank, New York, N.Y. (the "Bank") as the Bank's
prime interest rate, determined for each month as of the first (1st) day of such
month or the first banking day thereafter, on the declining balance of principal
remaining from time to time, in equal monthly installments of principal plus the
appropriate interest. The first installment of principal plus the appropriate
interest shall be paid on the
(day) of (month) , (year) , and each installment of . principal
and interest thereafter shall be due on the fifteenth (15th) day of each month
thereafter until this note is fully paid.
This Promissory Note shall be subject to the terms and conditions as
provided in the Stock Agreement by and between the maker and payee dated (date)
(the "STOCK AGREEMENT").
This Promissory Note shall become immediately due and payable upon the
happening of any of the following events: the Corporation shall fail to make any
payment (including the payment of interest) when due; the Corporation shall
default in the performance of the STOCK AGREEMENT or institution of bankruptcy
proceedings or other proceedings for the relief of debtors by or against the
Corporation. In such event the full amount of the remaining balance of this
Promissory Note shall be accelerated and become due and payable forthwith.
The Corporation reserves the privilege of prepaying, without penalty,
at any time and from time to time, any part or all of the within indebtedness.
Any and all prepayments shall be applied first to accrued and unpaid interest
and the remainder to principal.
If this Promissory Note is referred to an attorney for collection and
legal proceedings are commenced, the Corporation shall pay and reimburse the
holder of this Promissory Note for such reasonable attorneys' fees and other
costs of collection as the holder shall have paid or shall have become obligated
to pay.
INITIALS:
A J 4
<PAGE> 15
The Corporation hereby waives presentment for payment, notice of
dishonor, protest and notice of protest.
IN WITNESS WHEREOF, the Corporation has caused this Promissory Note
to be signed on the day and year first above written.
MEDIQUAL SYSTEMS,INC.
By:
President
- 2 - INITIALS:
(J
<PAGE> 16
AMENDMENT TO STOCK AGREEMENT
BY AND BETWEEN WILLIAM D. RYAN
AND MEDIQUAL SYSTEMS, INC.
<PAGE> 17
AMENDMENT TO STOCK AGREEMENT
BY AND BETWEEN WILLIAM D. RYAN
AND MEDIQUAL SYSTEMS, INC.
This Amendment, made and entered into effective the first day of March, 1985, by
and among WILLIAM D. RYAN ("Ryan"), NAYR Enterprises, a New York Limited
Partnership ("NAYR") and MediQual Systems, Inc., a Delaware corporation
(the "Corporation").
W I T N E S S E T H:
WHEREAS, RYAN and the Corporation are parties to the Stock Agreement
dated March 3, 1984 (the "Stock Agreement"); and
WHEREAS, the Stock Agreement made reference to certain notes of the
Corporation convertible into common stock of the Corporation pursuant to the
provisions of the Loan-Equity Agreement by and between RYAN and the
Corporation, dated March 3, 1984 (the "Loan-Equity Agreement"); and
WHEREAS, the Loan-Equity Agreement, as amended, has eliminated the
provisions relating to said convertible notes; and
WHEREAS, pursuant to the Loan-Equity Agreement, as amended, RYAN has
purchased and is the owner of THREE MILLION EIGHTY THOUSAND (3,080,000) shares
of the issued and outstanding common stock of the Corporation (the "Shares")
and NAYR has purchased and is the owner of FOUR HUNDRED TWENTY THOUSAND
(420,000) Shares; and
WHEREAS, the parties desire to amend the Stock Agreement to ensure that
the Shares are subject to the provisions of the Stock Agreement; and
WHEREAS, the parties desire to amend the Stock Agreement to add NAYR as a
party to the Stock Agreement; and
WHEREAS, Article 14 of the Stock Agreement provides that the Stock
Agreement say be amended by a writing signed by all of the parties to the Stock
Agreement.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
promises, covenants and conditions herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that the Stock Agreement shall be and is
hereby amended as follows:
ITEM I
The preambles and recitals hereinabove set forth are hereby incorporated
into and made a part of the Stock Agreement and this Amendment.
<PAGE> 18
-2-
ITEM II
NAYR is hereby added as a party to the Stock Agreement as if originally
a party thereto. The term "Shareholder" shall be deemed to include NAYR in all
respects and NAYR shall be subject to the terms, conditions, obligations and
prohibitions of the Stock Agreement inuring to and imposed upon the
"Shareholder".
ITEM III
Article 4 of the Stock Agreement is hereby deleted in its entirety and
the following new Article 4 is substituted in its complete place and stead:
"ARTICLE 4
Death of a Shareholder
In the event of the death of RYAN, the estate ("estate" being
defined for all purposes of this Agreement as the executor,
administrator or personal representative of RYAN), any Trustee holding
RYAN's Stock, RYAN's heirs or assigns and NAYR shall, by the first
(1st) day of the sixtieth (60th) month following the date of death of
RYAN, offer, pursuant to ARTICLE 3 hereof, all of the shares owned by
such parties to the Corporation at a price as provided in ARTICLE 5
hereof, to be paid as provided in Section 3.4 hereof. The Value Date
for purposes of ARTICLE 5 shall be the date of the offer to the
Corporation."
ITEM IV
Article 8 of the Stock Agreement is hereby deleted in its entirety and
the following new Article 8 is substituted in its complete place and stead:
"ARTICLE 8
Voting Trust
8.1 Voting Trust. Upon receipt of the Shares pursuant to
Section 2.2 of the Loan-Equity Agreement, as amended, or as soon
thereafter as is practical, the Shareholder shall endorse the shares of
stock of the Corporation in bland and shall place them in and become a
party to the Voting Trust Agreement by and among MediQual Systems, Inc.
and Charles N. Jacobs and Susan Weagly and Alan C. Brewster, M.D.,
dated April 9. 1984, as amended (the "Voting Trust").
8.2 Additional Shares. Any and all certificates for shares of
stock of the Corporation which may hereafter be issued to the
Shareholder shall be delivered to the Voting Trustees of the Voting
Trust in the same manner and form as is set forth in Section 8.1
hereof."
<PAGE> 19
-3-
ITEM IV
In all other respects, the Stock Agreement ls hereby affirmed.
IN WITNESS WHEREOF, the undersigned have executed this Amendment on the
day and year first above written.
MEDIQUAL SYSTEMS, INC.
By : /s/ Charles M. Jacobs
---------------------------
Charles M. Jacobs, President
SHAREHOLDERS:
/s/ William D. Ryan
---------------------------
William D. Ryan
/s/ Nayr Enterprises WD Ryan, Partner
-------------------
NAYR Enterprises
<PAGE> 1
Exhibit 10.12
MEDIQUAL SYSTEMS, INC.
5,714,286 Shares of
Class B Convertible Preferred Stock
-------------------------------
STOCK PURCHASE AGREEMENT
-------------------------------
August 4, 1986
<PAGE> 2
MEDIQUAL SYSTEMS, INC.
Stock Purchase Agreement
August 4, 1986
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. TERMS OF PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Reserved Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Sale and Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. REPRESENTATIONS AND WARRANTIES OF COMPANY . . . . . . . . . . . . . . . . 2
2.1. Organization and Corporate Power . . . . . . . . . . . . . . . . . . . . . 2
2.2. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4. Financial Statements & Backlog . . . . . . . . . . . . . . . . . . . . . . 5
2.5. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . 6
2.6. Absence of Certain Developments . . . . . . . . . . . . . . . . . . . . . 7
2.7. Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.9. Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . 9
2.10. Patents; Trade Secrets; Employee Restrictions . . . . . . . . . . . . . . 10
2.11. Effect of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.12. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.13. Offerees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.14. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.15. Information Supplied to Purchasers . . . . . . . . . . . . . . . . . . . . 14
2.16. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3. CONDITIONS OF PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.1. Certificate of Company . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2. Opinion of Company Counsel . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4. Amendment of Articles of Incorporation . . . . . . . . . . . . . . . . . . 16
3.5. Amendment of By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.6. Shareholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.7. Termination of Voting Trust . . . . . . . . . . . . . . . . . . . . . . . 17
3.8. Amendment of Shareholder Agreement . . . . . . . . . . . . . . . . . . . . 17
3.9. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.10. Election of Director . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.11. All Proceedings Satisfactory . . . . . . . . . . . . . . . . . . . . . . . 17
Section 4. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2. Budget and Operating Forecast . . . . . . . . . . . . . . . . . . . . . . 20
4.3. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4. Payment of Taxes, Compliance with Laws, Etc. . . . . . . . . . . . . . . . 20
4.5. Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.7. Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.8. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . 23
4.9. Affiliated Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.10. Management Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.11. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.12. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.13. Board of Directors Meetings . . . . . . . . . . . . . . . . . . . . . . . 24
4.14. Right to Participate in Sales of Additional Securities . . . . . . . . . . 24
4.15. Shareholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.16. Distributions or Redemption of Capital Stock . . . . . . . . . . . . . . . 27
4.17. No Amendments to Articles of Organization or By-Laws . . . . . . . . . . . 27
4.18. Restrictions on Other Agreements . . . . . . . . . . . . . . . . . . . . . 28
4.19. Further Shares Issuable . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5. REPRESENTATIONS AND WARRANTIES
OF REPURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 6. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.1. Optional Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.2. Required Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.3. Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.4. Further Obligations of the Company . . . . . . . . . . . . . . . . . . . . 36
6.5. Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.7. Rule 144 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.8. Transfer of Registration Rights . . . . . . . . . . . . . . . . . . . . . 41
6.9. Granting of Registration Rights . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.1. Amendments, Waivers and Consents . . . . . . . . . . . . . . . . . . . . . 42
7.2. Survival of Covenants; Assignability of Rights . . . . . . . . . . . . . . 43
7.3. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.4. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.5. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.6. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.7. Notices and Demands . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.9. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
Exhibits
Exhibit A - Purchasers
Exhibit B - Certificate of Amendment
Exhibit C - Form of Company Counsel Opinion
Exhibit D - Form of Shareholders Agreement
Exhibit E - Form of Confidentiality and Invention Agreement
Exhibit F - Intentionally Omitted
Exhibit G - Form of Amendment or Shareholder Agreement
Schedule Volume
Schedule 2.3.1 - Capitalization
Schedule 2.3.2 - Restrictions on Stock Transfer
Schedule 2.3.3 - Subsidiaries and Investments
Schedule 2.4 - Financial Statements and Backlog
Schedule 2.5 - Liabilities
Schedule 2.6 - Recent Developments
Schedule 2.7 - Title Matters
Schedule 2.8 - Intentionally Omitted
Schedule 2.9 - Contracts and Commitments
Schedule 2.10 - Intellectual Property Matters
Schedule 2.12 - Litigation
Schedule 2.13 - Intentionally Omitted
Schedule 4.9 - Affiliated Transactions
Schedule 4.11 - Use of Proceeds
(iii)
<PAGE> 5
AGREEMENT FOR PURCHASE AND SALE
OF CLASS B CONVERTIBLE PREFERRED STOCK OF
MEDIQUAL SYSTEMS, INC.
AGREEMENT made as of this fourth day of August, 1986 by and among
Mediqual Systems, Inc., a Delaware corporation (the "Company"), and the persons
named in Exhibit A hereto (collectively, the "Purchasers," and
each individually, a "Purchaser").
SECTION 1. TERMS OF PURCHASE
1.1. Description of Securities. The Company has authorized the issuance
and sale to the Purchasers of 5,714,286 shares (the "purchased Shares") of its
authorized but unissued Class B Convertible preferred Shares. $.01 par value
(the "Class B Preferred Shares"). for a purchase price of $.70 per purchased
Share
1.2. Reserved Shares. The Company will authorize and will
reserve. and covenants to continue to reserve, a sufficient number of shares of
the Common Shares, $.001 par value (the "Common Shares"), to satisfy the rights
of conversion of the holders of the purchased Shares. Any shares of Common
Shares or any successor class of stock of the Company hereafter issued or
issuable upon conversion of the purchased Shares are herein referred to as
"Conversion Shares," and the purchased Shares and the Conversion Shares are
herein collectively referred to as the "Securities."
1.3. Sale and Purchase. Subject to the terms and conditions herein set
forth. the Company shall issue and sell to each of the Purchasers. and each
Purchaser shall purchase from the Company the number of Purchased Shares set
forth opposite the name of such Purchaser in Column 2 of Exhibit A for the
aggregate purchase price set forth in Column 3 of Exhibit A.
1.4. Closing. A Closing (the "Closing") of the sale and
purchase of the Purchased Shares shall take place at the offices of Goodwin,
Procter & Hoar. located at Exchange Place Boston, Massachusetts. at 1:00 P.M.,
on August 4. 1986, or such other date, time and place as shall be mutually
agreed upon by the Company and the purchasers (the "Closing Date") At the
Closing the Company will deliver the Purchased Shares being acquired by each
Purchaser in the form of a certificate issued in such purchaser's name or in the
name of its nominee (of which the Purchaser shall notify the Company not less
than one (1) business day prior to the Closing). against payment of the purchase
price therefor by or on behalf of each Purchaser to the Company by certified or
bank cashier's check.
<PAGE> 6
-2-
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchasers to enter into this Agreement. the
Company hereby represents and warrants as follows:
2.1. Organization and Corporate Power. The Company is a corporation
duly organized. validly existing and in good standing under the laws of the
State of Delaware and is qualified to do business as a foreign corporation in
each jurisdiction where such qualification is required and failure to have such
qualification may have a material adverse effect on the Company The Company has
all required corporate power and authority to own its property. to carry on its
business as presently conducted or contemplated, to enter into and perform this
Agreement, and generally to carry out the transactions contemplated hereby The
copies of the Articles of Incorporation and By-Laws of the Company. as amended
to date, which have been furnished to counsel for the purchasers by the Company,
are correct and complete The Company is not in violation of any term of its
Articles of Incorporation or By-Laws, or any material agreement. instrument,
judgment, decree or order applicable to the Company the violation of which would
have a material adverse effect on the Company.
2.2. Authorization. This Agreement and the documents and instruments
executed pursuant hereto and referred to in Sections 3.6, 3.7 and 3.8 are valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws applicable to creditors' rights and
remedies and to the exercise of judicial' discretion in accordance with general
principles of equity and subject to any limitations on the enforcement of
indemnity obligations under applicable federal and state securities laws The
execution, delivery and performance of this Agreement and issuance of the Class
B preferred Shares and the Conversion Shares have been duly authorized by all
necessary corporate or other action of the Company.
2.3. Capitalization. The authorized and issued capital stock of the
Company and the consideration received and to be received therefor are as set
forth in Schedule 2.3.1 of the Schedule Volume delivered herewith (the "Schedule
Volume") All of the presently outstanding shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable The Class B Preferred Shares have been duly and validly
authorized and, when delivered and paid for pursuant to this Agreement1 will be
validly issued, fully paid and non-assessable The relative rights preferences,
restrictions and other provisions relating to the Class B preferred Shares are
as set forth in Exhibit B attached hereto- The Company has authorized and
reserved for issuance upon conversion of the Class B preferred Shares not less
than 5,714,286 shares of its Common Shares, and the shares of Conversion Shares
issued upon such conversion
<PAGE> 7
-3-
will, upon such issuance, be validly authorized and issued, fully paid and
non-assessable. Except as provided above or in said Schedule 2.3.1, the Company
has not issued any other shares of its capital stock and there are no
outstanding warrants1 options or -other rights to purchase or acquire any of
such shares, nor any outstanding securities convertible into such shares or
outstanding warrants. options or other rights to acquire any such convertible
securities. There are no preemptive rights with respect to the issuance or sale
of the Company's capital stock, other than rights to which holders of Class B
Preferred Shares and Conversion Shares are entitled as set forth in Section 4.14
hereof Except as disclosed in Schedule 2.3.2 of the Schedule Volume, there are
no restrictions on the transfer of the Company's capital stock other than those
arising from federal and state securities laws Except as disclosed on Schedule
2.3.3 of the Schedule Volume, the Company has no subsidiaries or investments in
any other corporation, trust, partnership or business entity and is not a party
to any joint venture The outstanding shares of the capital stock of the Company
are held of record and beneficially by the persons identified in said Schedule
2.3.1 in the amounts indicated therein.
2.4. Financial Statements and Backlog. Included in Schedule 2.4
of the Schedule Volume are the following financial statements of the Company,
all of which statements (including the footnotes thereto) fairly present the
financial position of the Company on the dates of such statements and the
results of its operations for the periods covered thereby and have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved and prior periods:
An audited Balance Sheet as of December 31, 1985, and
Statements of Operations, Shareholders' Equity and Retained Earnings,
and Changes in Financial Position for the year then ended;
An unaudited Balance Sheet as of June 30, 1986, and Statements
of Operations, Shareholders' Equity and Retained Earnings, and Changes
in Financial position for the six-month period then ended
Included in Schedule 2.4 of the Schedule Volume is a detailed backlog of all
firm orders for the Company 5 products as of June 30, 1986 Except as disclosed
in said Schedule 2.4, the Company is not aware of any cancellation 'or proposed
cancellations with respect to the orders contained in the backlog and has no
reason to believe that all orders set forth therein will not be delivered on
schedule; nor is there any claim for refunds of monies already paid to the
Company, or any reason to believe such claims will be forthcoming
2.5. Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the latest balance sheet included in Schedule
2.4 of the Schedule Volume (including the footnotes thereto) except for
liabilities arising in the ordinary course of its business since the date of
said balance sheet, and except as
<PAGE> 8
-4-
to accrued or contingent liabilities arising out of the facts disclosed in
Schedule 2.5 of the Schedule Volume, the Company does not have and has not
assumed any material accrued or contingent liability arising out of any
transaction or state of facts existing prior to the date hereof in any case
where the material facts or circumstances giving rise to such liability are
known to the Company or in the exercise of reasonable diligence should have been
known to the Company (whether such liability is accrued to become due,
contingent, or otherwise and whether or not such liability relates to any
predecessor business of the Company).
2.6. Absence of Certain Developments. Except as specifically disclosed
in Schedule 2.6 of the Schedule Volume, since the date of the latest balance
sheet included in Schedule 2.4 of the Schedule Volume, there has been (i) no
material adverse change in the condition, financial or otherwise, of the Company
or in the assets, liabilities, properties or business of the Company, (ii) no
declaration, setting aside or payment of any dividend or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any of the
capital stock of the Company, (iii) no waiver of any valuable right of the
Company or the cancellation of any debt or claim held by the Company, (iv) no
loan by the Company to any officer, director, employee or stockholder of the
Company, or any agreement or commitment therefor, (v) no increase, direct or
indirect, in the compensation paid or payable to any officer, director, employee
or agent of the Company which increase is in excess of an annual rate of $5,000,
(vi) no loss, destruction or damage to any property of the Company, whether or
not insured, in excess of $10,000 in the aggregate, (vii) no labor trouble
involving the Company where the consequence of such labor trouble may be
materially adverse with respect to the Company, and no material change in the
personnel of the Company or the terms and conditions of their employment, and
(viii) no acquisition or disposition of any assets (or any contract or
arrangement therefor), nor any other transaction by the Company otherwise than
for fair value in the ordinary course of business.
2.7. Title to Properties. The Company has good and marketable title to
all of its tangible properties and assets free and clear of all liens,
restrictions or encumbrances, except as specifically disclosed in Schedule 2.7
of-the Schedule Volume or in the financial statements and the footnotes thereto
included in Schedule 2.4 of the Schedule Volume The Company owns no real
property. All machinery and equipment included in such properties which is
necessary to the business of the Company is in reasonable working condition, and
all leases of real or personal property to which the Company is a party are
fully effective and afford the Company peaceful and undisturbed possession of
the subject matter of the lease To its best knowledge, the Company is not in
violation of any zoning, building or safety ordinance, regulation or requirement
or other law or regulation applicable to the operation of its owned or leased
tangible properties, nor has it received any notice of violation with which it
has not complied, in any case in which the consequences of such violation if
asserted by the applicable regulatory authority would be materially adverse with
respect to the Company. For purposes of this Agreement, "tangible
<PAGE> 9
-5-
properties" specifically excludes patent, trademark, copyright, trade secret and
other proprietary rights.
2.8. Tax Matters. All federal, state, county and local taxes, and all
applicable taxes owed to foreign jurisdictions, due and payable by the Company
have been paid The provisions for taxes on the latest balance sheet included in
Schedule 2.4 of the Schedule Volume are sufficient for the payment of all
accrued and unpaid federal, state, county and local taxes of the Company and any
applicable taxes owing to any foreign jurisdiction, whether or not assessed or
disputed as of the date of said balance sheet There exist no unpaid assessments
of federal income taxes nor any basis for the assessment of additional federal
income taxes on the Company for any fiscal period. The federal income tax
returns of the Company have not been audited by the Internal Revenue Service,
and no notice of audit has been received. The Company has duly filed all
federal, state, county and local tax returns required to have been filed by it
and there are in effect no waivers of applicable statutes of limitations with
respect to taxes for any year.
2.9. Contracts and Commitments. The Company does not have and has not
assumed any contract, obligation or commitment which involves a potential
commitment in excess of $10,000 or which is otherwise material and not entered
into in the ordinary course of business, and does not have any employment
contracts; stock redemption or purchase agreements; financing agreements;
licenses; distributor. sales representative or OEM agreements; agreements with
officers, directors, employees or shareholders of the Company or persons or
organizations related to or affiliated with any such persons; leases; agreements
relating to the licensing, distribution, development, purchase or sale of
software; or pension, profit-sharing, retirement or stock option plans, except
in each case as are described in Schedule 2.9 of the Schedule Volume, and copies
of which have been delivered to counsel for the Purchasers. Except as described
in said Schedule 2.9, (i) the Company is not in default under any material
contract, obligation or commitment, and (ii) without limiting the generality of
the foregoing, there are no outstanding claims by any customer of the Company
with respect to delivery or performance of the Company's products and (iii) all
receivables booked with respect to the sale of Company 5 products are valid and
enforceable receivables without offset The Company has no knowledge of any facts
or circumstances which are likely to cause any of the foregoing contracts,
obligations or commitments to have a materially adverse effect upon the business
or finances of the Company. The Company does not have and never has had any
government contracts or subcontracts.
2.10. Patents; Trade Secrets; Employee Restrictions. Except as set
forth in Schedule 2.10 of the Schedule Volume, the Company has exclusive
ownership of, or exclusive license to use, all patent, copyright, trademark,
trade secret or other proprietary rights used or to be used its business as
presently conducted or contemplated Except as disclosed in Schedule 4.9 hereto,
the Company has not used, and does not use or contemplate making use of, any
patent, copyright,
<PAGE> 10
-6-
trademark, trade secret or other proprietary information or rights of Interqual,
Inc. The Company owns no issued patents or patent applications. Except as set
forth in Schedule 2.10 of the Schedule Volume, the Company to the best of its
knowledge owns or has a license to use, free and clear of other claims or rights
of others, all trade secrets, manufacturing processes, hardware designs,
programming processes, software and other information required for or incident
to its products or its business as presently conducted or contemplated To the
best knowledge of the Company the Company is not infringing, and its planned
operations will not infringe, any patent, copyright, trademark or other
proprietary right of any other person and the Company is not making unauthorized
use of any confidential information or trade secrets of any person, including
without limitation any former employer of any of its past or present employees.
Neither the Company nor, to the best knowledge of the Company, any of the
Company's employees have any agreements or arrangements with former employers of
such employees relating to confidential information or trade secrets of such
employers To the best knowledge of the Company, the activities of the Company's
employees on behalf of the Company do not violate any agreements or arrangements
which any such employees have with former employers. To the best knowledge of
the Company, no other person is infringing any patent, copyright, trademark,
trade secret or other proprietary right of the Company.
2.11. Effect of Transactions. The execution, delivery and performance
by the Company of this Agreement and the Shareholders Agreement, and the
adoption of the Certificate of Amendment in accordance with Exhibit B, will not
conflict with or result in any default under any material contract obligation,
commitment, charter provision, by-law or corporate restriction of the Company or
the creation of any lien, charge or encumbrance of any nature upon any of the
properties or assets of the Company except pursuant to this Agreement or the
transactions contemplated hereby The Company's execution and delivery of this
Agreement and its performance of the transactions contemplated hereby will not
violate any material instrument, agreement, judgment, decree, order, statute,
rule or regulation of any federal, state or local government or agency
applicable to the Company the violation of which would have a material adverse
effect on the Company.
2.12. Litigation. Except as set forth in Schedule 2.12 of the Schedule
Volume, there is no litigation or governmental proceeding or investigation
pending against the Company. To the best knowledge of the Company, there is no
such litigation proceeding or investigation threatened against the Company, or
which is pending or threatened affecting any of the Company's properties or
assets, or is pending or threatened against any officer or key employee of the
Company, or is pending or threatened and has a reasonable possibility of calling
into question the validity, or materially hindering the enforceability or
performance, of this Agreement or any action taken or to be taken pursuant
hereto; nor, except as disclosed in Schedule 2.12 to the Schedule Volume, to the
best knowledge of the Company, has there occurred any event or does there exist
any condition on the basis of which any
<PAGE> 11
-7-
such litigation, proceeding or investigation might properly be instituted with
any substantial chance of a recovery which would be materially adverse to the
Company.
2.13. Offerees. Neither the Company, nor anyone acting on its behalf,
has in the past or will hereafter sell, offer for sale or solicit offers to buy
any of the Securities so as to bring the offer, issuance or sale of the
Purchased Shares or the Conversion Shares, as contemplated by this Agreement1
within the provisions of Section 5 of the Securities Act of 1933, as amended The
Company has complied and will comply with all applicable state "blue-sky" or
securities laws in connection with the issuance and sale of its Common Shares,
Class B Preferred Shares and other securities heretofore and upon the closing of
this Agreement.
2.14. Business. The Company has all necessary franchises, permits,
licenses and other rights and privileges necessary to permit it to own its
property and to conduct its present business The Company is not in violation,
and its planned business as heretofore described to the purchasers in writing
will not put the Company in violation1 of any material law, regulation,
authorization or order of any public authority relevant to the ownership of its
properties or the carrying on of its business The Company does not know of any
facts or circumstances (including without limitation expressions or other
indications of the attitude of the concerned governmental agencies or officials)
which are materially adverse with respect to any of the foregoing matters.
2.15. Information Supplied to Purchasers. Neither (i) this Agreement or
the Schedule Volume, (ii) the Business Plan and Information Package, each dated
April, 1986, in each case as supplemented by this Agreement and the Schedule
Volume, nor (iii) any document or certificate furnished to the Purchasers by or
on behalf of the Company pursuant to Section 3.1 or 3.10 of this Agreement,
contains or will contain at the time of its delivery any untrue statement of a
material fact, and this Agreement, the Schedule Volume, and said other documents
and certificates, do not omit to state a material fact necessary in order to
make the statements contained herein and therein not misleading. There is no
material fact relating to the business, prospects, operations, affairs or
conditions of the Company which adversely affects or in the future may in the
reasonable business judgment of the Company (so far as the Company may now
foresee based upon facts now known to the' Company) materially adversely affect
the same which has not been set forth in this Agreement or in the other
documents furnished to the Purchasers by or on behalf of the Company prior to or
on the date hereof The forecasts and projections of future financial results
contained in said Business Plan and said Information Package are based upon
information available to the Company as of the date on which such forecasts or
projections were made and upon reasonable inferences from such information, but
may be subject to revision in the event of changes in the facts and
circumstances upon which such forecasts and projections are based which could
not reasonably have been foreseen at the date on which such forecasts or
projections were made.
<PAGE> 12
-8-
2.16. Brokerage. Except for the finder's fee to be paid to Newbury,
Piret & Company, Inc. with respect to the transactions contemplated by this
Agreement, there are no valid claims for brokerage commissions, finder's fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Company.
SECTION 3. CONDITIONS OF PURCHASE
The purchasers' obligation to purchase and pay for the Purchased Shares
shall be subject to compliance by the Company with their agreements herein
contained and to the fulfillment on or before and at the Closing Date of the
following conditions:
3.1. Certificate of Company. The representations and warranties of the
Company contained in this Agreement, including but not limited to the
representations and warranties made in Section 2, shall be true and correct in
all material respects with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date; each
of the conditions hereafter specified in this Section 3 shall have been
satisfied; and on the Closing Date a certificate to such effect executed by the
President of the Company shall be delivered to the Purchasers.
3.2. Opinion of Company Counsel. The Purchasers shall have received
from counsel for the Company, Messrs. Altheimer & Gray their favorable opinion,
dated the Closing Date, substantially in the form attached hereto as Exhibit C.
3.3. Authorization. The Board of Directors of the Company shall have
duly adopted resolutions in form satisfactory to the Purchasers authorizing the
Company to consummate the transactions contemplated hereby in accordance with
the terms hereof, and the Purchasers shall have received a duly executed
certificate of the Secretary or an Assistant Secretary of the Company setting
forth a copy of such resolutions and such other matters as may be reasonably
requested by the Purchasers
3.4. Amendment of Certificate of Incorporation. The Certificate of
Incorporation of the Company shall have been amended by the shareholders of the
Company as set forth in Exhibit B hereto to create and to authorize the issuance
of the Class B Preferred Shares and to state the terms thereof and the revised
terms applicable to the Class A Preferred Shares.
3.5. Amendment of By-Laws The Board of Directors of the Company shall
have adopted a resolution making certain restrictions on the transfer of the
Common Shares of the Company contained in Section 5 of Article V thereof
inapplicable to the Class B preferred Shares and the Conversion Shares.
<PAGE> 13
-9-
3.6. Shareholders Agreement. The Company and certain shareholders of
the Company shall have executed and delivered a Shareholders Agreement with the
Purchasers in the form of Exhibit D.
3.7. Termination of Voting Trust. The Voting Trust dated April 9, 1984,
as amended, shall have been effectively terminated in writing by the parties
thereto.
3.8. Amendment of Shareholder Agreement. The Shareholder Agreement
dated April 9, 1984, as amended, shall have been amended by a written amendment
in the form of Exhibit G hereto.
3.9. Use of Proceeds. The Company shall have reached agreement with
certain parties identified on Schedule 4.11 attached hereto relating to
disbursement of funds and other transactions described therein in accordance
with the terms of said Schedule 4.11
3.10. Election of Director. The Company shall have caused the election
to its Board of Directors of Robert W. Daly as nominee of the Purchasers, who
shall be deemed the representative of the Class B preferred Shares hereunder
while serving as a Director of the Company elected by their vote
3.11. All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the
Purchasers, and the Purchasers shall receive such copies thereof and other
materials (certified, if requested) as they may reasonably request in connection
therewith. The issuance and sale of the Purchased Shares to the Purchasers shall
be made in conformity with all applicable state and federal securities laws.
SECTION 4. COVENANTS OF THE COMPANY
The Company shall comply, and shall cause any direct or indirect
subsidiaries of the Company to comply, with the following covenants, except as
shall otherwise be agreed pursuant to a written consent of a majority in
interest of the Purchasers delivered in accordance with Section 7.1, and until
(i) the Company has redeemed at least 4,571,429 of the Class B Preferred Shares
issued as of August 4, 1986 or Conversion Shares or (ii) such time as the
Company completes its first public offering of its Common Shares pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") in which (a) the sale price to the public is at least $2.10
per share (appropriately adjusted for stock splits, stock dividends' and the
like), and (b) aggregate gross proceeds to the Company from the sale of the
shares are at least $7,000,000 (a "Substantial Public Offering"). All references
to "the Company in this Section 4 shall be deemed to refer to the
<PAGE> 14
-10-
Company and its direct and indirect subsidiaries, if applicable on a
consolidated basis.
4.1. Financial Statements. The Company will maintain a system of
accounts in accordance with generally accepted accounting principles, keep full
and complete financial records and furnish to the Purchasers, subject to the
provisions of Section 7.5 hereof, the following reports: (a) within ninety (90)
days after the end of each fiscal year, a copy of the balance sheet of the
Company as at the end of such year, together with a statement of income and
retained earnings of the Company for such year, certified by Arthur Anderson &
Co. or other independent public accountants of recognized standing reasonably
satisfactory to the Purchasers, prepared in accordance with generally accepted
accounting principles and practices consistently applied; (b) within thirty (30)
days after August 4, 1986 and after the end of each month thereafter an
unaudited balance sheet of the Company as at the end of such month and an
unaudited statement of income and retained earnings for the Company for such
month and for the year to date, together with a brief written discussion and
analysis by management of such monthly and annual financial statements; and (c)
such other financial information as the Purchasers may reasonably request,
including without limitation, certificates of the principal financial officer of
the Company concerning compliance with the covenants of the Company under this
Section 4 of the Agreement when requested by a majority in interest of the
Purchasers.
4.2. Budget and Operating Forecast The management of the Company will
prepare and submit to the Board of Directors of the Company a budget for each
fiscal year of the Company at least 30 days prior to the beginning of such
fiscal year together with management's written discussion and analysis of such
budget The budget shall be accepted as the budget for such fiscal year when it
has been approved by a majority of the full Board of Directors of the Company
The management of the Company shall review the budget periodically and shall
advise the Board of Directors of all changes therein and all material deviations
therefrom.
4.3. Conduct of Business. The Company will continue to engage
principally in the business now conducted by it or businesses reasonably related
to such business. The Company will keep in full force and effect its corporate
existence and all patents and other intellectual property rights used or
necessary in its business and, consistent with the disclosures made on Schedule
2.14 to the Schedule Volume, comply with all applicable laws and regulations in
the conduct of its business- The Company shall use its best efforts to cause
each key employee of the Company to execute confidentiality and invention
agreements substantially in the form of Exhibit E. with such reasonable changes
therein as may be deemed appropriate by the Board of Directors
4.4. Payment of Taxes, Compliance with Laws, etc. The Company will pay
and discharge all lawful taxes, assessments and governmental charges or levies
<PAGE> 15
-11-
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however. that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy, or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books
The Company will comply with all applicable laws and regulations in the conduct
of its business.
4.5. Adverse Changes. The management of the Company will promptly
advise the Board of Directors and each Director of any event which represents a
material adverse change in the condition or business, financial or otherwise, of
the Company, and of each suit or proceeding commenced or threatened against the
Company which, if adversely determined, would result in such a material adverse
change The management of the Company will also promptly advise the Board of
Directors and each Director of any violations of the covenants made herein.
4.6. Insurance. The Company will keep its insurable properties insured
by financially sound and reputable insurers against the perils of liability,
casualty, fire and extended coverage in amounts of coverage at least equal to
those customarily maintained by companies in the same or a similar business of
similar size, to the extent that such insurance is available on reasonable
terms. The Company will also maintain with such insurers insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for corporations engaged in the same or a similar business of
similar size, to the extent such insurance is available on reasonable terms.
4.7. Life Insurance. The Company shall obtain and maintain a key-man
term life insurance policy on the life of its Chief Executive Officer in the
amount of $1,000,000, payable to a trust for the benefit of the Purchasers or
the then holders of the Class B preferred Shares In the event of the death of
the Chief Executive Officer, the then holders of the Class B Preferred Shares
may, within 30 days of notice of such death and upon the vote of at least 51% in
interest of the then holders of the Class B preferred Shares, elect to require
the Company to redeem on a pro rata basis 1,428,571 shares of the Class B
Preferred Shares at the price of $.70 per share, with the proceeds of the
insurance applied as payment for such shares under the terms of the
Shareholders' Agreement attached as Exhibit D hereto If the purchasers choose
not to redeem such Class B Preferred Shares, the insurance proceeds shall be
paid to the Company. The Company will not borrow against said policy and will
not cause or permit any assignment of the proceeds of said policy to be made or
otherwise alter or impair any of the rights or values of such policy.
4.8. Maintenance of Properties. The Company will maintain all
properties used or useful in the conduct of its business in reasonably good
repair, working order
<PAGE> 16
-12-
and condition as necessary to permit such business to be properly and
advantageously conducted
4.9. Affiliated Transactions. All transactions by and between the
Company and any officer, key employee or stockholder of the Company, or persons
controlled by or affiliated with such officer, key employee or stockholder,
including without limitation Interqual, Inc., shall be conducted on an
arm's-length basis, shall be on terms and conditions no less favorable to the
Company than could be obtained from nonrelated persons and shall be approved in
advance by the Board of Directors, after full disclosure of the terms thereof.
Certain such transactions are described on Schedule 4.9 hereto.
4.10. Management Compensation. Compensation paid by the Company to its
management will be reasonably comparable to compensation paid to management in
companies of similar size, of similar maturity, and in similar industries.
4.11. Use of Proceeds. The Company shall use the proceeds of the sale
of the Purchased Shares substantially as set forth in Schedule 4.11 attached
hereto. Pending use for the above described purpose, said proceeds shall be
temporarily invested in short-term interest bearing securities, including U.S.
Government securities, shares of money market mutual funds and certificates of
deposit and similar instruments of federally or state-chartered banks.
4.12. Inspection. The Company shall, during business hours and upon
reasonable notice, permit authorized representatives of the Purchasers to visit
and inspect any of the properties of the Company, including its books of account
(and to make copies thereof and take extracts therefrom), and to discuss its
affairs, finances and accounts with its officers, administrative employees and
independent accountants, all at such reasonable times and as often as may be
reasonably requested and subject to the provisions of Section 7.5 hereof.
4.13. Board of Directors Meetings. The Company shall ensure that
meetings of its Board of Directors are held at least six times each year and at
intervals of not more than three months- The Certificate of Incorporation or
By-Laws of the Company shall at all times during which any nominee of the
purchasers serves as director of the Company provide for indemnification of the
directors to the fullest extent permitted under applicable state law. The
Company will use its best efforts to obtain and maintain director's and
officer's liability insurance providing coverage for such director of at least
$1,000,000 per occurrence to the extent such insurance is available on
reasonable terms.
4.14. Right to participate in Sales of Additional Securities. If the
Company at any time wishes to sell any shares of capital stock of the Company,
or bonds, certificates of indebtedness, debentures or other securities
convertible into capital stock of the Company or options, warrants or rights
carrying any rights to purchase
<PAGE> 17
-13-
capital stock or convertible securities of the Company to a third party, other
than in connection with a Substantial Public Offering, the Company will submit a
written offer to the Purchasers identifying the third party to whom such stock,
securities, options, warrants or rights are proposed to be sold, and the terms
of the proposed sale, and offering to the Purchasers the opportunity to purchase
their proportionate share of such securities on terms and conditions, including
price, not less favorable to the Purchasers than those on which the Company
proposes to sell such securities to any other purchaser Each purchaser shall
have the right to purchase his proportionate share of such securities based on
the ratio which the Common Stock of the Company owned or obtainable by said
purchaser upon conversion of any Preferred Shares owned by him bears to all the
issued and outstanding shares of Common Shares of the Company (including all
such shares issuable upon conversion of then issued and outstanding Preferred
Shares)~ Any Purchaser may transfer its right to be offered any such opportunity
to (i) any affiliate, as that term is defined in the Investment Company Act of
1940, as amended, of a Purchaser, or (ii) any owner of an investment account
which is managed or advised by a purchaser, or by TA Associates or any such
affiliate thereof The Company's offer to the Purchasers shall remain open and
irrevocable for a period of thirty (30) days. Any shares so offered to the
Purchasers which are not purchased pursuant to such offer may be sold by the
Company to the purchaser originally named in the offer to the Purchasers on the
same terms contained in such offer at any time within 180 days following the
date of such offer, but may not be sold to any other person or after such 180
day period without renewed compliance with this Section 4.14 Notwithstanding the
above, the Company may issue up to 1,650,000 shares of Common Shares of the
Company to employees or directors pursuant to stock options heretofore or
hereafter issued with the approval of the Board of Directors of the Company and
300,000 shares of Common Stock pursuant to a Mediqual Option Agreement dated
January 5, 1986 between the Company and various optionees party to such
agreement.
4.15. Shareholders Agreement. At or before the Closing the Company will
enter into with the Purchasers and certain shareholders named therein an
agreement in the form attached hereto as Exhibit D (the "Shareholders
Agreement") The Company agrees that it will diligently enforce all of its rights
under the Shareholders Agreement and confidentiality and invention agreements
with key employees referred to in Section 4,3, and that it will not waive or
release any such rights or consent to any amendment of any such agreement
without the written consent of a majority in interest of the Purchasers then
holding Purchased Shares or Conversion Shares.
4.16. Distributions or Redemption of Capital Stock. Except as otherwise
expressly provided herein or in Exhibit B, the Company will not declare or pay
any dividends (other than a dividend payable in shares of its Common Shares) or
make any distributions of cash, property or securities of the Company with
respect to any shares of its Common Shares or any other class of its stock, or
directly or indirectly redeem, purchase, or otherwise acquire for a
consideration any shares of its Common Shares or any other class of its stock
(other than repurchases of shares from
<PAGE> 18
-14-
employees pursuant to the terms of any Incentive Stock Option Plans adopted by
the Company and approved by the Director elected by the Class B Preferred
Shares).
4.17. No Amendments to Articles of Incorporation or By-Laws. Except as
provided in this Section 4.17, the Company will not make any amendment to its
Articles of Incorporation or its By-Laws without the consent of the majority in
interest of the Class B preferred Shares and Conversion Shares. Notwithstanding
any contrary provision of this Agreement, the Company may issue, and the then
holders of the Class B Preferred Shares agree to vote to authorize, a class of
preferred stock which is subordinated with respect to rights upon liquidation,
dissolution or winding up, dividends, voting rights and redemption to the Class
B preferred Shares if the proceeds from the sale of such stock are used solely
to redeem the Class B preferred Shares.
4.18. Restrictions on Other Agreements. The Company will not enter into
any agreement with any party which would restrict the payments due the holders
of Class B Preferred Shares upon the mandatory redemption thereof or grant any
right relating to the registration of its Common Shares superior to or on a
parity with the rights granted to the Purchasers pursuant to Section 6 hereof.
4.19. Further Shares Issuable. In the event that the Company shall
issue to James A. Block ("Block") any of its Common Shares or any warrants,
options or other rights to purchase Common Shares other than for consideration
at least equal to $.70 per share, the Company agrees to issue, without further
consideration, to each of the Purchasers or the then holder of such Purchaser's
shares such Purchaser's pro rata portion of an aggregate of .3212 Common Shares
for every Common Share or right to purchase a Common Share issued to Block Such
Common Shares shall upon issue be duly authorized, validly issued fully paid and
non-assessable and shall be treated as Purchased Shares for purposes of Sections
1.2, 2, 4, 5, 6 and 7 of this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASERS
It is the understanding of the Company, and each Purchaser hereby
severally represents and warrants to the Company with respect to such
Purchaser's purchase of Securities hereunder, that:
A. The execution, delivery and performance of this Agreement and the
documents and instruments executed pursuant hereto have been duly authorized by
all necessary action on the part of the Purchaser, and this Agreement
constitutes the valid legal and binding agreement of the Purchaser, enforceable
in accordance with its terms.
<PAGE> 19
-15-
B. The Purchaser is acquiring the Securities for its own account, for
investment, and not with a view to any "distribution" thereof within the meaning
of the Securities Act of 1933 as amended (the "Securities Act").
C. The Purchaser understands that it may have to bear the economic risk
of its investment in the Company for an indefinite period of time because,
among other reasons, the Securities have not been registered under the
Securities Act or "blue sky" or securities laws of any other jurisdiction and
therefore cannot be disposed of unless such Securities are subsequently
registered under the Securities Act (and such "blue sky" or securities laws, if
applicable) or exemptions from such registration under the Securities Act (and
such "blue sky" or securities laws, if applicable) are available. The Purchaser
acknowledges and understands that, except as provided in Section 6 hereof, it
has no independent right to require the Company to register the Securities- The
Purchaser is aware that the Company may not accomplish a public offering of its
stock. The Purchaser further understands that the Company may, as a condition to
the transfer of any of the Securities, require that the request for transfer be
accompanied by opinion of counsel, in form and substance satisfactory to the
Company, to the effect that the proposed transfer does not result in violation
of the Securities Act, unless such transfer is covered by an effective
registration statement under the Securities Act The Purchaser understands that
each certificate representing the Securities will bear the following legend or
one substantially similar thereto:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended. These shares have been
acquired for investment and not with a view to distribution or resale,
and may not be offered, sold, mortgaged, pledged, hypothecated or
otherwise transferred or disposed of without an effective registration
statement for such shares under the Securities Act of 1933, as amended,
and applicable state securities laws, or an opinion of counsel
satisfactory to the corporation that such registration is not required.
D. The Purchaser has knowledge and experience in financial and business
matters and in the making of venture capital investments, is capable of
evaluating the merits and risks of an investment in the Company, is able to bear
the economic risk of loss of its entire investment in the Company, has been
granted the opportunity to make a thorough investigation of the affairs of the
Company and to question, to the extent deemed necessary and appropriate, the
officers, directors, employees agents and stockholders of the Company to verify
the information contained herein or otherwise furnished by the Company, and to
evaluate the merits and risks of the investment described herein, and has
availed itself of such opportunity either directly or through its authorized
representative.
E. The Purchaser has been advised that the Securities have not been and
are not being registered under the Securities Act or under the "blue sky" laws
of any
<PAGE> 20
-16-
jurisdiction and that the Company in issuing the Purchased Shares is relying
upon, among other things, the representations and warranties of each Purchaser
contained in this Article 5 in concluding that each such issuance is a-"private
offering" under Section 4(2) of the Securities Act and does not require
compliance with the registration provisions of the Securities Act The Purchaser
acknowledges that neither the Company nor any person acting on behalf of the
Company has offered to sell the Purchased Shares to the Purchaser by means of
any form of general advertising.
F. There are no valid claims for brokerage commissions, finder's fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of such
Purchaser.
SECTION 6. REGISTRATION RIGHTS
6.1. Optional Registrations. If at any time or times after the date
hereof, the Company shall determine to register any of its Common Shares or
securities convertible into or exchangeable or exercisable for Common Shares
under the Securities Act (whether in connection with a public offering of
securities by the Company (a "primary offering"), a public offering thereof by
stockholders (a "secondary offering"), or both, but not in connection with a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Securities and
Exchange Commission (the "Commission") under the Securities Act is applicable),
the Company will promptly give written notice thereof to the holders of
Registrable Securities (as hereinafter defined) then outstanding (the
"Holders"), and will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which the Holders may request in a
writing delivered to the Company within 15 days after the notice given by the
Company; provided, however, that in the case of the registration of Common
Shares by the Company in connection with an underwritten public offering. it
shall not be required to register Registrable Securities of the Holders in
excess of the amount. if any, of Common Shares which the principal underwriter
of an underwritten offering shall reasonably and in good faith agree in writing
to include in such offering (the "Secondary Shares"). If any Registrable
Securities of Holders who have requested participation are not included for the
foregoing reason: (i) if William D. Ryan and affiliates ("Ryan") and holders of
Common Shares other than the Holders have held capital stock of the Company for
less than two years for purposes of Rule 144(d), then the Company will permit
Holders who have requested participation to participate in such offering prior
to permitting participation by Ryan or such other holders, and (ii) if Ryan,
such other holders and the Holders have held capital stock of the Company for
more than two years, then the Company will permit the Holders of Registrable
Securities who have requested participation to participate in the offering
collectively as to not more than fifty percent of the Secondary Shares and
individually in proportion to the number of shares of Common Shares owned or
<PAGE> 21
-17-
obtainable by them upon exercise of rights with respect to other securities
owned by them, the remaining fifty percent of the Secondary Shares to be made up
of not more than (i) sixty percent shares held by Ryan and (ii) forty percent
shares held by other holders of Common Shares If the Company includes in such a
registration any securities to be offered by it, all expenses of registration
and offering shall be borne by the Company, except that the Holders shall bear
underwriting commissions and transfer taxes on shares being sold by such Holders
If the registration under this Section 6.1 is exclusively a secondary offering,
as defined in this Section the Holders shall bear their proportionate share of
the expenses of the registration and offering (provided all stockholders
registering shares thereunder bear their proportionate share of expenses),
except expenses which the Company would have incurred whether or not
registration was attempted, including, without limitation, the expense of
preparing normal audited or unaudited financial statements or summaries
consistent with this Agreement or applicable Commission filings Without in any
way limiting the types of registrations to which this Section 6.1 shall apply,
in the event that the Company shall effect a "shelf registration" under Rule 415
promulgated under the Securities Act, or any other similar rule or regulation
("Rule 415"), the Company shall take all necessary action, including, without
limitation the filing of post-effective amendments, to permit the Purchasers to
include their shares in such registration in accordance with the terms of this
Section 6.1, provided that the Company shall not be required to maintain the
effectiveness of such shelf registration beyond the latest date that the
prospectus prepared in connection herewith continues to comply with Section
10(3) of the Securities Act, unless the Company shall have prepared an amended
prospectus complying with said Section 10(3) for its own use or the use of any
other person selling under such shelf registration.
6.2. Required Registrations. If at any two (2) occasions after August
4, 1987, one or more of the Holders of an aggregate of not less than a majority
of the Registrable Securities then outstanding, including any Common Shares
issued or issuable upon conversion of the purchased Shares then outstanding,
shall notify the Company in writing that he or they intend to offer or cause to
be offered for public sale all or any portion of their Registrable Securities,
the Company will notify all of the Holders of Registrable Securities who would
be entitled to notice of a proposed registration under Section 6.1 of such
notification Upon the written request of any such Holder after receipt from the
Company of such notification, the Company will use its best efforts to cause
such of the Registrable Securities as may be requested by any Holders (including
the Holder or Holders giving the initial notice of intent to register hereunder)
to be registered under the Securities Act in accordance with the terms of this
Section 6.2. All expenses of such registrations and offerings shall be borne by
the Company, except that the Holders shall bear underwriting commissions,
transfer taxes of shares being sold by the Holders and the expense of any
special audit of the Company 5 financial statements if the notice requesting
registration does not reasonably permit the use of existing or contemplated
audited statements.
<PAGE> 22
-18-
6.3. Registrable Securities. For the purposes of this Section 6, the
term "Registrable Securities" shall mean any shares of Common Shares owned by a
Purchaser or issuable upon conversion of Class B Preferred Shares, and any
Common Shares issued or issuable with respect to such Class B Preferred Shares'
'or Common Shares by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganizations.
6.4. Further Obligations of the Company. Whenever under the preceding
sections of this Section 6 the Company is required hereunder to register Common
Shares, it agrees that it shall also do the following:
(i) Use its best efforts to diligently prepare for filing with
the Commission a registration statement and such amendments and
supplements to said registration statement and the prospectus used in
connection therewith as may be necessary to keep said registration
statement effective and to comply with the provisions of the Securities
Act with respect to the sale of securities covered by said registration
statement for the period necessary to complete the proposed public
offering;
(ii) Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such
Holder may reasonably request to facilitate the public offering of his
Common Shares;
(iii) Enter into any underwriting agreement with provisions
reasonably required by the proposed underwriter for the selling
Holders, if any; and
(iv) Use its best efforts to register or qualify the Common
Shares covered by said registration statement under the securities or
"blue-sky" laws of such jurisdictions as any selling Holder may
reasonably request, provided that the Company shall not be required to
register or qualify the Common Shares in any states in which it is not
now qualified to do business and which would require it to so qualify
or to subject itself to general service of process in order to so
register or qualify the Common Shares.
6.5. Form S-3. If the Company becomes eligible to use Form S-3 under
the Securities Act or a comparable successor form, the Company shall use its
best efforts to continue to qualify at all times for registration on Form S-3 or
such successor form The Holders of an aggregate of not less than fifteen percent
(15%) of Registrable Securities shall have the right to request and have
effected not more than one registration per year of shares of Registrable
Securities on Form S-3 or such successor form for a public offering of shares of
Registrable Securities having an aggregate proposed offering price of not less
than $250,000 (such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders)
<PAGE> 23
-19-
The Company shall not be required to cause a registration statement requested
pursuant to this Section 6.5 to become effective prior to 90 days following the
effective date of a registration statement initiated by the Company, if the
request for registration has been received by the Company subsequent to the
giving of written notice by the Company, made in good faith, to the Holders of
Registrable Securities to the effect that the Company is commencing to prepare a
Company-initiated registration statement (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act is
applicable); provided, however, that the Company shall use its
best efforts to achieve such effectiveness promptly following such 90-day period
if the request pursuant to this Section 6.5 has been made prior to the
expiration of such 90-day period The Company shall give notice to all Holders of
Registrable Securities of the receipt of a request for registration pursuant to
this Section 6.5 and shall provide a reasonable opportunity for such Holders to
participate in the registration Subject to the foregoing, the Company will use
its best efforts to effect promptly the registration of all shares of Common
Shares on Form 5-3 or such successor form to the extent requested by the Holder
or Holders thereof for purposes of disposition. If so requested by any Holder in
connection with a registration under this Section 6.5, the Company shall take
such steps as are required to register such Holder's Registrable Securities for
sale on a delayed or continuous basis under Rule 415, and to keep such
registration effective until all of such Holder's Registrable Securities
registered thereunder are sold, provided that the Company may terminate any such
shelf registration upon the commencement of any public offering of securities of
the Company pursuant to a firm commitment underwriting if in the opinion of the
underwriters for such public offering the continued effectiveness of such shelf
registration would interfere with the sale of such securities in such public
offering All expenses incurred in connection with a registration requested
pursuant to this Section 6.5, including, without limitation, all registration,
qualifications, printing, and accounting fees, and fees and disbursements of
counsel for the selling Holder or Holders of Registrable Securities and counsel
for the Company, shall be borne pro rata by the Holder or Holders participating
in the registration pursuant to this Section 6.5 on the basis of the amount of
securities so registered Notwithstanding the foregoing, the Company shall not be
required to effect a registration under this Section 6.5 if, in the unqualified
opinion of counsel for the Company, which counsel and opinion shall be
acceptable to the holders of Registrable Securities, such holders of Registrable
Securities may then sell all Registrable Securities proposed to be sold in the
manner proposed to be sold without registration under the Act.
6.6. Indemnification. Incident to any registration statement referred
to in this Section 6, and subject to applicable law, the Company will indemnify
each underwriter, each Holder of Registrable Securities so registered, and each
person controlling any of them against all claims, losses. damages and
liabilities, including legal and other expenses reasonably incurred in
investigating or defending against the same, arising out of any untrue statement
of a material fact contained therein, or any
<PAGE> 24
-20-
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of any
violation by the Company of the Securities Act, any state securities or
"blue-sky" laws or any rule or regulation thereunder in connection with such
registration, except insofar as the same may have been caused by an untrue
statement or omission based upon information furnished in writing to the Company
by such Holder expressly for use therein, and with respect to such untrue
statement or omission in the information furnished in writing to the Company by
such Holder, such Holder will indemnify the underwriters, the Company, its
directors and officers, the other Holders and each person controlling any of
them against any losses, claims, damages, expenses or liabilities to which any
of them may become subject to the same extent.
6.7. Rule 144 Requirements. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Company will use its best efforts to file with the
Commission such information as the Commission may require under either of said
Sections; and in such event, the Company shall use its best efforts to take all
action as may be required as a condition to the availability of Rule 144 under
the Securities Act (or any successor exemptive rule hereinafter in effect). The
Company shall furnish to any Holder of Registrable Securities upon request a
written statement executed by the Company as to the steps it has taken to comply
with the current public information requirement of Rule 144.
6.8. Transfer of Registration Rights. The registration rights of the
Holders under this Section 6 may be transferred only to transferees of
Registrable Securities, which transferees shall be (i) a Holder, (ii) an
affiliate, as that term is defined in the Investment Company Act of 1940, of a
Holder (including a partner of such Holder), or (iii) a party which acquires at
least five thousand (5,000) Class B Preferred Shares (or such lesser number of
Class B Preferred Shares which constitutes the total number of such shares
purchased by such Holder under this Agreement) or an equivalent amount (as
adjusted for stock splits, stock dividends, reclassifications, recapitalizations
or other similar events) of Registrable Securities, or a combination of Class B
Preferred Shares and Registrable Securities having an equivalent aggregate
amount Each such transferee shall be deemed to be a "Holder" for purposes of
this Section 6.
6.9. Granting of Registration Rights. The Company shall not, without
the prior written consent of a majority in interest of the Purchasers, grant any
rights to any persons to register any shares of capital stock or other
securities of the Company if such rights could reasonably be expected to
conflict with, or be superior to or on parity with, the rights of the Holders of
Registrable Securities granted pursuant to this Agreement.
<PAGE> 25
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SECTION 7. GENERAL
7.1. Amendments, Waivers and Consents. For the purposes of this
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein no course
of dealing between the Company and any Purchaser and no delay on the part of any
party hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or other provision hereof
or thereof may be waived otherwise than by a written instrument signed by the
party so waiving such covenant or other provision; provided, however, that
except as otherwise provided herein or therein, changes in or additions to, and
any consents required by this Agreement may be made, and compliance with any
term, covenant, condition or provision set forth herein may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively) by a consent or consents in writing signed by the holders of at
least a majority in interest of the Purchased Shares and (in the case of a
change or addition to this Agreement) the Company Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Securities purchased under this Agreement at the time outstanding (including
Securities into which Securities have been converted), each future holder of all
Securities, and the Company.
7.2. Survival of Covenants; Assignability of Rights. All covenants,
agreements, representations and warranties of the Company made herein and in the
certificates, lists, exhibits schedules or other written information delivered
or furnished to any Purchaser in connection herewith shall be deemed material
and to have been relied upon by such Purchaser, and, except as provided
otherwise in this Agreement, shall survive the delivery of the Purchased Shares,
and shall bind the Company's successors and assigns. whether so expressed or
not, and, except as provided otherwise in this Agreement, all such covenants,
agreements, representations and warranties shall inure to the benefit of the
Purchasers' successors and assigns and to transferees of the Securities, whether
so expressed or not.
7.3. Governing Law. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the
Commonwealth of Massachusetts.
7.4. Section Headings. The descriptive headings in this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
7.5. Confidentiality. Each Purchaser agrees to hold confidential all
information furnished to such Purchaser by the Company under this Agreement
which the Company identifies as confidential or proprietary or which such
Purchaser should have reasonably concluded was confidential, except for
information which (a) is known to the public or becomes so known without breach
by such Purchaser of
<PAGE> 26
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its obligation of confidentiality hereunder, (b) is disclosed to such Purchaser
on a nonconfidential basis by a third party who is not in breach of an
obligation of confidentiality in making such disclosure, or which was known to
such Purchaser prior to its being furnished to such Purchaser by the Company
hereunder.
7.6. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
7.7. Notices and Demands. Any notice or demand which, by any provision
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto except as otherwise provided therein, is required or provided
to be given shall be deemed to have been sufficiently given or served for all
purposes three days after being sent by certified or registered mail, postage
and charges prepaid, to the following addresses: if to the Company, at the
Company's address as shown on the signature page hereof, or at any other address
designated by the Company to each of the Purchasers in writing; if to a
Purchaser, at its mailing address as shown on Exhibit A hereto, or at any other
address designated by such Purchaser to the Company in writing; and if to an
assignee of a Purchaser. to its address as designated to the Company in writing.
7.8. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity,- and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions or this Agreement.
7.9. Expenses. The Company shall pay all reasonable costs and expenses
that it incurs with respect to the negotiation execution, delivery and
performance of this Agreement, and the Purchasers shall pay all costs and
expenses that they incur with respect to the negotiation, execution, delivery
and performance of this Agreement, except that upon the Closing pursuant to this
Agreement the Company shall reimburse the Purchasers for reasonable legal fees,
expenses, and disbursements of Messrs. Goodwin, Procter & Hoar, special counsel
for the Purchasers, incurred in connection with the negotiation, execution,
delivery and performance of this Agreement.
<PAGE> 27
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written
MEDIQUAL SYSTEMS, INC
By:
--------------------------
President
Address:
1900 West Park Drive
Westborough, MA 01581
<PAGE> 28
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PURCHASERS
ADVENT V LIMITED PARTNERSHIP ADVENT CHESTNUT II LIMITED
PARTNERSHIP
By: TA Associates V, General Partner By: TA Associates IV, General Partner
By: By:
---------------------------------- ----------------------------------
ADVANT INDUSTRIAL LIMITED DESIFTA, S.A.
PARTNERSHIP
By: TA Associates V, General Partner By: TA Associates V, Attorney-in-Fact
By: By:
---------------------------------- ----------------------------------
CHESTNUT CAPITAL TA INVESTORS
INTERNATIONALII
By: TA Associates V, General Partner By: TA Associates V, General Partner
By: By:
---------------------------------- ----------------------------------
ADVENT ATLANTIC & PACIFIC MICI MEDICAL SEED FUND -
LIMITED PARTNERSHIP LIMITED PARTNERS
By: TA Associates V, General Partner By: Timothy Maudlin, General Partner
By: By:
---------------------------------- ----------------------------------
<PAGE> 1
Exhibit 10.13
MEDIQUAL SYSTEMS, INC.
602,440 Shares of
Series 1987 Class B Convertible Preferred Stock
-----------------------------
STOCK PURCHASE AGREEMENT
-----------------------------
October, 1987
<PAGE> 2
-2-
MEDIQUAL SYSTEMS, INC.
Stock Purchase Agreement
October, 1987
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Section 1. TERMS OF PURCHASE
1.1 Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.2 Reserved Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.3 Sale and Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 2 REPRESENTATIONS AND WARRANTIES OF COMPANY
2.1 Organization and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Financial Statements & Backlog . . . . . . . . . . . . . . . . . . . . . . . . . .
2.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . .
2.6 Absence of Certain Developments . . . . . . . . . . . . . . . . . . . . . . . . .
2.7 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.8 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.9 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.10 Patents; Trade Secrets; Employee Restrictions . . . . . . . . . . . . . . . . . .
2.11 Effect of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.13 Offerees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.14 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.15 Information Supplied to Purchasers . . . . . . . . . . . . . . . . . . . . . . .
2.16 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 3 CONDITIONS OF PURCHASE
3.1 Certificate of Company
3.2 Opinion of Company Counsel
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4 Amendment of Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . .
3.5 Amendment of By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.6 Agreement of Shareholders
</TABLE>
<PAGE> 3
-3-
<TABLE>
<S> <C>
3.7 All Proceedings Satisfactory . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 4 COVENANTS OF THE COMPANY
4.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2 Budget and Operating Forecast . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.4 Payment of Taxes, compliance with Laws. Etc
4.5 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.6 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.7 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.8 Affiliated Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.9 Management Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.11 Board of Directors Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.12 Right to Participate in Sales of Additional Securities . . . . . . . . . . . . . .
4 13 Shareholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 14 Distributions or Redemption of capital Stock
4.15 No Amendments to Articles of Organization or By-Laws . . . . . . . . . . . . . . .
4.16 Restrictions on Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . .
4.17 Further Shares Issuable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 5 REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Section 6 REGISTRATION RIGHTS
6.1 Optional Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Required Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3 Registrable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.4 Further Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . .
6.5 Form 8-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.7 Rule 144 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.8 Transfer of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . .
6.9 Granting of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . .
Section 7 GENERAL
7.1 Amendments, Waivers and Consents . . . . . . . . . . . . . . . . . . . . . . . . .
7.2 Survival of Covenants: Assignability of Rights . . . . . . . . . . . . . . . . .
7.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.4 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 4
-4-
<TABLE>
<S> <C>
7.5 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.7 Notices and Demands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.10 Purchaser Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
<PAGE> 5
-5-
Exhibits
Exhibit A - Purchasers
Exhibit B - Certificate of Amendment
Exhibit C - Form of Company counsel Opinion
Exhibit D - Form of Agreement of Shareholders
Exhibit E - Form of Confidential Purchaser Questionnaire
Schedule Volume
Schedule 2.3.1 - Capitalization
Schedule 2.3.2 - Restrictions on Stock Transfer
Schedule 2.3.3 - Subsidiaries and Investments
Schedule 2.4 - Financial Statements & Backlog
Schedule 2.5 - Liabilities
Schedule 2.6 - Recent Developments
Schedule 2.7 - Title Matters
Schedule 2.8 - Tax Matters
Schedule 2.9 - Contracts and Commitments
Schedule 2.10 - Intellectual Property Matters
Schedule 2.12 - Litigation
Schedule 2.13 - Other Offerees
Schedule 4.9 - Affiliated Transactions
Schedule 4.11 - Use of Proceeds
<PAGE> 6
-6-
AGREEMENT FOR PURCHASE AND SALE
OF SERIES 1987 CLASS B CONVERTIBLE PREFERRED STOCK OF
MEDIQUAL SYSTEMS, INC.
AGREEMENT made as of this ______ day of October, 1987 by and among
MediQual Systems, Inc., a Delaware corporation (the "Company"), and the persons
named in Exhibit A hereto (collectively, the "Purchasers", and each
individually, a "Purchaser").
SECTION 1. TERMS OF PURCHASE
1.1 Description of Securities The Company has authorized the issuance
and sale to the Purchasers of 602,440 shares (the "Purchased Shares") of its
authorized but unissued Series 1987 Class S Preferred Stock, $.01 par value (the
"1987 Class B shares"), for a purchase price of $2.00 per Purchased Share (The
1987 Class B Shares and the Series 1986 class B Preferred Stock, $.01 par value,
of the Company are herein referred to collectively as the "Class B Preferred
Shares".
1.2 Reserved Shares The Company will authorize and will reserve, and
covenants to continue to reserve, a sufficient number of shares of the Common
Shares, $.001 par value (the "Common Shares"), to satisfy the rights of
conversion of the holders of the Purchased Shares Any shares of Common Shares or
any successor class of stock of the Company hereafter issued or issuable upon
conversion of the Class B Preferred Shares are herein referred to as "Conversion
Shares," and the Class B Preferred Shares and the conversion Shares are herein
collectively referred to as the "Securities."
<PAGE> 7
-7-
1.3 Sale and Purchase. Subject to the terms and conditions herein set
forth, the Company shall issue and sell to each of the purchasers, and each
purchaser shall purchase from the Company, the number of purchased shares set
forth opposite the name of such purchaser in Column 2 of Exhibit A for the
aggregate purchase price set forth in Column 3 of Exhibit A.
1.4 Closing. A Closing (the "Closing") of the sale and purchase of the
purchased Shares shall take place at the offices of Goodwin, Procter & Hoar,
located at Exchange Place Boston, Massachusetts, at ___________ on October __ ,
1987, or such other date, time and place as shall be mutually agreed upon by the
Company and the purchasers (the "Closing Date"). At the Closing the Company will
deliver the purchased Shares being acquired by each purchaser in the form of a
certificate issued in such purchaser's name or in the name of its nominee (of
which the purchaser shall notify the Company not less than one (1) business day
prior to the Closing), against payment of the purchase price therefor by or on
behalf of each Purchaser to the Company by certified or bank cashier's check or
as otherwise set forth in Column 3 of Exhibit A.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the purchasers to enter into this Agreement, the
Company hereby represents and warrants as follows:
2.1 Organization and Corporate Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business as a foreign corporation in each
jurisdiction where such qualification is
<PAGE> 8
-8-
required and failure to have such qualification may have a material adverse
effect on the Company The Company has all required corporate power and authority
to own its property, to carry on its business as presently conducted or
contemplated, to enter into and perform this Agreement, and generally to carry
out the transactions center-plated hereby The copies of the Articles of
Incorporation and By-Laws of the Company, as amended to date, which have been
furnished to counsel for the Purchasers by the Company, are correct and
complete. The Company is not in violation of any term of its Articles of
Incorporation or By-Laws, or any material agreement, instrument, judgment,
decree or order applicable to the Company the violation of which would have a
material adverse effect on the Company.
2.2 Authorization This Agreement and the documents and instruments
executed pursuant hereto and referred to in Section 3.6 are valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms subject to applicable bankruptcy, insolvency, reorganization
moratorium and other laws applicable to creditors' rights and remedies and to
the exercise of judicial discretion in accordance with general principles of
equity and subject to any limitations on the enforcement of indemnity
obligations under applicable federal and state securities laws. The execution.
delivery and performance of this Agreement and issuance of the Purchased Shares
and the conversion Shares issuable in respect thereof have been duly authorized
by all necessary corporate or other action of the Company.
2.3 Capitalization. The authorized and issued capital stock of the
Company and the consideration received and to be received therefor are as
<PAGE> 9
-9-
set forth in Schedule 2.3.1 of the Schedule Volume delivered herewith (the
"Schedule Volume"). All of the presently outstanding shares of capital stock of
the Company have been duly and validly authorized and issued and are fully paid
and non-assessable. The purchased Shares have been duly and validly authorized
and, when delivered and paid for pursuant to this Agreement, will be validly
issued, fully paid and non-assessable The relative rights, preferences
restrictions and other provisions relating to the Class B preferred Shares are
as set forth in Exhibit B attached hereto. The Company has authorized
and reserved for issuance upon conversion of the purchased Shares not less than
602,440 shares of its Common Shares, and the conversion shares issued upon such
conversion will, upon such issuance, be validly authorized and issued, fully
paid and non-assessable. Except as provided above or in said Schedule 2.3.1, the
Company has not issued any other shares of its capital stock and there are no
outstanding warrants, options or other rights to purchase or acquire any of such
shares, nor any outstanding securities convertible into such shares or
outstanding warrants, options or other rights to acquire any such convertible
securities. There are no preemptive rights with respect to the issuance or sale
of the Company 5 capital stock, other than rights to which holders of Class B
Preferred Shares and Conversion Shares are entitled as set forth in Section 4.12
hereof and in Section 4.14 of that certain Stock Purchase Agreement dated as of
August 4, 1986 among the Company and certain of the Purchasers named therein
Except as disclosed in schedule 2.3.2 of the schedule Volume, there are no
restrictions on the transfer of the Company's capital stock other than those
arising from federal and state securities laws. Except as disclosed on schedule
2.3.3 of the
<PAGE> 10
-10-
Schedule Volume, the Company has no subsidiaries or investments in any other
corporation trust, partnership or business entity and is not a party to any
joint venture The outstanding shares of the capital stock of the Company are
held of record and beneficially by the persons identified in said Schedule 2.3.1
in the amounts indicated therein.
2.4 Financial Statements and Backlog Included in Schedule 2.4 of the
Schedule Volume are the following financial statements of the Company, all of
which statements (including the footnotes thereto) fairly present the financial
position of the Company on the dates of such statements and the results of its
operations for the periods covered thereby and have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved and prior periods:
An audited Balance Sheet as of December 31, 1986, and Statements of
Operations, Shareholders' Equity and Retained Earnings, and Changes in Financial
Position for the year then ended;
An unaudited Balance Sheet as of August 31, 1987, and Statements of
Operations, Shareholders' Equity and Retained Earnings, and Changes in Financial
Position for the six-month period then ended. Included in Schedule 2.4 of the
Schedule Volume is a detailed backlog of all firm orders for the Company's
products as of August 31, 1987. Except as disclosed in said Schedule 2.4, the
Company is not aware of any cancellation or proposed cancellations with respect
to the orders contained in the backlog and has no reason to believe that all
orders set forth therein will not be delivered on schedule; nor is there any
material claim
<PAGE> 11
-11-
for refunds of monies already paid to the Company, or any reason to believe such
claims will be forthcoming.
2.5 Absence of Undisclosed Liabilities Except as and to the extent
reflected or reserved against in the latest balance sheet included in schedule
2.4 of the Schedule Volume (including the footnotes thereto), except for
liabilities arising in the ordinary course of its business since the date of
said balance sheet, and except as to accrued or contingent liabilities arising
out of the facts disclosed in Schedule 2.5 of the Schedule Volume, the Company
does not have and has not assumed any material accrued or contingent liability
arising out of any transaction or state of facts existing prior to the date
hereof in any case where the material facts or circumstances giving rise to such
liability are known to the Company or in the exercise of reasonable diligence
should have been known to the Company (whether such liability is accrued, to
become due contingent, or otherwise and whether or not such liability relates to
any predecessor business of the Company).
2.6 Absence of Certain Developments. Except as specifically disclosed
in schedule 2.6 of the Schedule Volume, since the date of the latest balance
sheet included in Schedule 2.4 of the schedule Volume, there has been (i) no
material adverse change in the condition, financial or otherwise, of the Company
or in the assets, liabilities, properties or business of the Company, (ii) no
declaration, setting aside or payment of any dividend or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any of the
capital stock of the Company, (iii) no waiver of any valuable right of the
Company or the cancellation of any debt or claim held by the Company, (iv) no
loan by the Company to
<PAGE> 12
-12-
any officer, director, employee or stockholder of the Company, or any agreement
or commitment therefor, (v) no increase, direct or indirect, in the compensation
paid or payable to any officer, director. employee or agent of the Company which
increase is in excess of an annual rate of $5,000, (vi) no loss, destruction or
damage to any property of the Company, whether or not insured, in excess of
$10,000 in the aggregate, (vii) no labor trouble involving the Company where the
consequence of such labor trouble may be materially adverse with respect to the
Company. and no material change in the personnel of the Company or the terms and
conditions of their employment, and (viii) no acquisition or disposition of any
assets (or any contract or arrangement therefor), nor any other transaction by
the Company otherwise than for fair value in the ordinary course of business.
2.7 Title to Properties The Company has good and marketable title to
all of its tangible properties and assets free and clear of all liens,
restrictions or encumbrances, except as specifically disclosed in Schedule 2.7
of the Schedule Volume or in the financial statements and the footnotes thereto
included in Schedule 2.4 of the Schedule Volume. The Company owns no real
property. All machinery and equipment included in such properties which is
necessary to the business of the Company is in reasonable working condition, and
all leases of real or personal property to which the Company is a party are
fully effective and afford the Company peaceful and undisturbed possession of
the subject matter of the lease. To its best knowledge, the Company is not in
violation of any zoning. building or safety ordinance, regulation or requirement
or other law or regulation applicable to the operation of its owned or leased
<PAGE> 13
-13-
tangible properties, nor has it received any notice of violation with which it
has not complied, in any case in which the consequences of such violation if
asserted by the applicable regulatory authority would be materially adverse with
respect to the Company- For purposes of this Agreement, "tangible properties"
specifically excludes patent, trademark. copyright, trade secret and other
proprietary rights.
2.8 Tax Matters. All federal, state, county and local taxes, and all
applicable taxes owed to foreign jurisdictions. due and payable by the Company
have been paid The provisions for taxes on the latest balance sheet included in
Schedule 2.4 of the Schedule Volume are sufficient for the payment of all
accrued and unpaid federal, state. county and local taxes of the Company and any
applicable taxes owing to any foreign jurisdiction, whether or not assessed or
disputed as of the date of said balance sheet. There exist no unpaid assessments
of federal income taxes nor any basis for the assessment of additional federal
income taxes on the Company for any fiscal period. The federal income tax
returns of the Company have not been audited by the Internal Revenue Service,
and no notice of audit has been received. The Company has duly filed all
federal, state, county and local tax returns required to have been filed by it
and there are in effect no waivers of applicable statutes of limitations with
respect to taxes for any year.
2.9 Contracts and Commitments The Company does not have and has not
assumed any contract, obligation or commitment which involves a potential
commitment in excess of $10,000 or which is otherwise material and not entered
into in the ordinary course of business, and does not have any employment
contracts; stock redemption
<PAGE> 14
-14-
or purchase agreements; financing agreements; licenses; distributor, sales
representative or OEM agreements; agreements with officers, directors, employees
or shareholders of the Company or persons or organizations related to or
affiliated with any such persons; leases; agreements relating to the licensing,
distribution, development, purchase or sale of software; or pension,
profit-sharing retirement or stock option plans, except in each case as are
described in Schedule 2.9 of the schedule Volume. Except as described in said
Schedule 2.9, (i) the Company is not in default under any material contract,
obligation or commitment, and (ii) without limiting the generality of the
foregoing, there are no outstanding claims by any customer of the Company with
respect to delivery or performance of the Company's products and (iii) all
receivables booked with respect to the sale of Company's products are valid and
enforceable receivables without offset. The Company has no knowledge of any
facts or circumstances which are likely to cause any of the foregoing contracts,
obligations or commitments to have a materially adverse effect upon the business
or finances of the Company. The Company does not have and never has had any
government contracts or subcontracts.
2.10 Patents; Trade Secrets; Employee Restrictions. Except as set forth
in Schedule 2.10 of the Schedule Volume, the Company has exclusive ownership of,
or exclusive license to use, all patent, copyright, trademark, trade secret or
other proprietary rights used or to be used its business as presently conducted
or contemplated. Except as disclosed in Schedule 4.9 hereto, the Company has not
used, and does not use or contemplate making use of, any patent, copyright,
trademark, trade secret or other proprietary information or rights of Interqual,
Inc. The Company owns
<PAGE> 15
-15-
no issued patents or patent applications. Except as set forth in Schedule 2.10
of the Schedule Volume, the Company to the best of its knowledge owns or has a
license to use, free and clear of other claims or rights of others, all trade
secrets, manufacturing processes, hardware designs, programming processes
software and other information required for or incident to its products or its
business as presently conducted or contemplated. To the best knowledge of the
Company the Company is not infringing, and its planned operations will not
infringe, any patent, copyright trademark or other proprietary right of any
other person and the Company is not making unauthorized use of any confidential
information or trade secrets of any person, including without limitation any
former employer of any of its past or present employees. Neither the Company
nor, to the best knowledge of the Company, any of the Company 5 employees have
any agreements or arrangements with former employers of such employees relating
to confidential information or trade secrets of such employers. To the best
knowledge of the Company, the activities of the Company's employees on behalf of
the Company do not violate any agreements or arrangements which any such
employees have with former employers To the best knowledge of the Company, no
other person is infringing any patent, copyright, trademark, trade secret or
other proprietary right of the Company.
2.11 Effect of Transactions. The execution, delivery and performance by
the Company of this Agreement and the Shareholders Agreement, and the adoption
of the Certificate of Amendment in accordance with Exhibit B will not conflict
with or result in any default under any material contract, obligation,
commitment, charter provision,
<PAGE> 16
-16-
by-law or corporate restriction of the Company or the creation of any lien,
charge or encumbrance of any nature upon any of the properties or assets of the
Company except pursuant to this Agreement or the transactions contemplated
hereby. The Company's execution and delivery of this Agreement and its
performance of the transactions contemplated hereby will not violate any
material instrument, agreement, judgment, decree, order, statute, rule or
regulation of any federal, state or local government or agency applicable to the
Company the violation of which would have a material adverse effect on the
Company.
2.12 Litigation. Except as set forth in Schedule 2.12 of the schedule
Volume, there is no litigation or governmental proceeding or investigation
pending against the Company. To the best knowledge of the Company, there is no
such litigation, proceeding or investigation threatened against the Company, or
which is pending or threatened affecting any of the Company's properties or
assets, or is pending or threatened against any officer or key employee of the
Company, or is pending or threatened and has a reasonable possibility of calling
into question the validity, or materially hindering the enforceability or
performance, of this Agreement or any action taken or to be taken pursuant
hereto; nor, except as disclosed in Schedule 2.12 to the Schedule Volume, to the
best knowledge of the Company, has there occurred any event or does there exist
any condition on the basis of which any such litigation, proceeding or
investigation might properly be instituted with any substantial chance of a
recovery which would be materially adverse to the Company.
<PAGE> 17
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2.13 Offerees. Neither the Company, nor anyone acting on its behalf,
has in the past or will hereafter sell, offer for sale or solicit offers to buy
any of the Securities so as to bring the offer, issuance or sale of the
Purchased Shares or the Conversion Shares, as contemplated by this Agreement
within the provisions of Section 5 of the Securities Act of 1933, as amended.
The Company has complied and will comply with all applicable state "blue-sky" or
securities laws in connection with the issuance and sale of its Common Shares
Class B Preferred Shares and other securities heretofore and upon the closing of
this Agreement.
2.14 Business. The Company has all necessary franchises, permits,
licenses and other rights and privileges necessary to permit it to own its
property and to conduct its present business The Company is not in violation,
and its planned business as heretofore described to the purchasers in writing
will not put the Company in violation, of any material law regulation,
authorization or order of any public authority relevant to the ownership of its
properties or the carrying on of its business. The Company does not know of any
facts or circumstances (including without limitation expressions or other
indications of the attitude of the concerned governmental agencies or officials)
which are materially adverse with respect to any of the foregoing matters.
2.15 Information Supplied to Purchasers. Neither (i) this Agreement or
the schedule Volume, (ii) the Business Plan dated June 1987, as supplemented by
this Agreement and the Schedule Volume, nor (iii) any document or certificate
furnished to the purchasers by or on behalf of the Company pursuant to Section
3.1 or 3.7 of this Agreement, contains or will contain at the time of its
delivery any untrue statement of
<PAGE> 18
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a material fact, and this Agreement, the Schedule Volume, and said other
documents and certificates, a not omit to state a material fact necessary in
order to make the statements contained herein and therein not misleading. There
is no material fact relating to the business, prospects, operations, affairs or
conditions of the Company which adversely affects or in the future may in the
reasonable business judgment of the Company (so far as the Company may now
foresee based upon facts now known to the Company) materially adversely affect
the same which has not been set forth in this Agreement or in the other
documents furnished to the Purchasers by or on behalf of the Company prior to or
on the date hereof The forecasts and projections of future financial results
contained in said Business Plan are based upon information available to the
Company as of the date on which such forecasts or projections were made and upon
reasonable inferences from such information, but may be subject to revision in
the event of changes in the facts and circumstances upon which such forecasts
and projections are based which could not reasonably have been foreseen at the
date on which such forecasts or projections were made.
2.16 Brokerage. There are no valid claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company.
SECTION 3 CONDITIONS OF PURCHASE
The Purchasers' obligation to purchase and pay for the Purchased Shares
shall be subject to compliance by the Company with their
<PAGE> 19
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agreements herein contained and to the fulfillment on or before and at the
Closing Date of the following conditions:
3.1 Certificate of Company The representations and warranties of the
Company contained in this Agreement, including but not limited to the
representations and warranties made in Section 2, shall be true and correct in
all material respects with the same force and effect as though such
representations and warranties had been made on and as of the closing Date; each
of the conditions hereafter specified in this Section 3 shall have been
satisfied; and on the closing Date a certificate to such effect executed by the
Chairman of the Board of the Company shall be delivered to the purchasers.
3.2 Opinion of Company Counsel. The purchasers shall have received from
counsel for the Company, Messrs. Altheimer & Gray their favorable opinion, dated
the closing Date, substantially in the form attached hereto as Exhibit C.
3.3 Authorization. The Board of Directors of the Company shall have
duly adopted resolutions in form satisfactory to the purchasers authorizing the
Company to consummate the transactions contemplated hereby in accordance with
the terms hereof and the Purchasers shall have received a duly executed
certificate of the Secretary or an Assistant Secretary of the Company setting
forth a copy of such resolutions and such other matters as may be reasonably
requested by the purchasers
3.4 Amendment of certificate of Incorporation. The Certificate of
Incorporation of the Company shall have been amended by the shareholders of the
Company as set forth in Exhibit B hereto.
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3.5 Amendment of By-Laws The Board of Directors of the Company shall
have adopted a resolution making certain restrictions on the transfer of the
Common Shares of the Company contained in Section 5 of Article V thereof
inapplicable to the Purchased Shares and the Conversion Shares.
3.6 Agreement of Shareholders The Company and certain of its
shareholders shall have executed and delivered to the purchasers an Agreement of
Shareholders in the form of Exhibit D hereto.
3.7 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the
Purchasers. and the Purchasers shall receive such copies thereof and other
materials (certified, if requested) as they may reasonably request in connection
therewith. The issuance and sale of the Purchased Shares to the Purchasers shall
be made in conformity with all applicable state and federal securities laws.
SECTION 4. COVENANTS OF THE COMPANY
The Company shall comply, and shall cause any direct or indirect
subsidiaries of the Company to comply, with the following covenants, except as
shall otherwise be agreed pursuant to a written consent of a majority in
interest of the holders of the Class B Preferred Shares and conversion Shares
delivered in accordance with Section 7.1, and until (i) the Company has redeemed
at least 80% of the Class B Preferred Shares or Conversion Shares or (ii) such
time as the Company completes
<PAGE> 21
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its first public offering of its Common Shares pursuant to a registration
statement under the Securities Act of 1933, as amended (the "Securities Act") in
which (a) the sale price to the public is at least $2.10 per share
(appropriately adjusted for stock splits, stock dividends and the like), and (b)
aggregate gross proceeds to the Company from the sale of the shares are at least
$7,000,000 (a "substantial Public offering"). All references to "the Company" in
this Section 4 shall be deemed to refer to the Company and its direct and
indirect subsidiaries, if applicable on a consolidated basis.
4.1 Financial Statements. The Company will maintain a system of
accounts in accordance with generally accepted accounting principles, keep full
and complete financial records and furnish to the purchasers, subject to the
provisions of Section 7.5 hereof, within ninety (90) days after the end of each
fiscal year, a copy of the balance sheet of the Company as at the end of such
year, together with a statement of income and retained earnings of the Company
for such year, certified by Arthur Anderson & Co. or other independent public
accountants of recognized standing reasonably satisfactory to the purchasers,
prepared in accordance with generally accepted accounting principles and
practices consistently applied.
4.2 Budget and Operating Forecast. The management of the Company will
prepare and submit to the Board of Directors of the Company a budget for each
fiscal year of the Company at least 30 days prior to the beginning of such
fiscal year together with management's written discussion and analysis of such
budget. The budget shall be accepted as the budget for such fiscal year when it
has been approved by a
<PAGE> 22
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majority of the full Board of Directors of the Company. The management of the
Company shall review the budget periodically and shall advise the Board of
Directors of all changes therein and all material deviations therefrom.
4.3 Conduct of Business. The Company will continue to engage
principally in the business now conducted by it or businesses reasonably related
to such business The Company will keep in full force and effect its corporate
existence and all patents and other intellectual property rights used or
necessary in its business and, consistent with the disclosures made on Schedule
2.14 to the schedule Volume, comply with all applicable laws and regulations in
the conduct of its business. The Company shall use its best efforts to cause
each key employee of the Company to execute confidentiality and invention
agreements.
4.4 Payment of Taxes, compliance with Laws, etc. The Company will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy, or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books-
The Company will comply with all applicable laws and regulations in the conduct
of its business.
<PAGE> 23
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4.5 Adverse Changes. The management of the Company will promptly advise
the Board of Directors and each Director of any event which represents a
material adverse change in the condition or business, financial or otherwise, of
the Company, and of each suit or proceeding commenced or threatened against the
Company which, if adversely determined. would result in such a material adverse
change. The management of the Company will also promptly advise the Board of
Directors and each Director of any violations of the covenants made herein.
4.6 Insurance. The Company will keep its insurable properties insured
by financially sound and reputable insurers against the perils of liability,
casualty, fire and extended coverage in amounts of coverage at least equal to
those customarily maintained by companies in the same or a similar business of
similar size, to the extent that such insurance is available on reasonable terms
The Company will also maintain with such insurers insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for corporations engaged in the same or a similar business of
similar size, to the extent such insurance is available on reasonable terms.
4.7 Maintenance of Properties. The Company will maintain all properties
used or useful in the conduct of its business in reasonably good repair, working
order and condition as necessary to permit such business to be properly and
advantageously conducted.
4.8 Affiliated Transactions. All transactions by and between the
Company and any officer, key employee or stockholder of the Company. or persons
controlled by or affiliated with such officer, key employee or
<PAGE> 24
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stockholder, including without limitation Interqual, Inc. shall be conducted on
an arm's-length basis, shall be on terms and conditions no less favorable to the
Company than could be obtained from nonrelated persons and shall be approved in
advance by the Board of Directors, after full disclosure of the terms thereof.
4.9 Management Compensation. Compensation paid by the Company to its
management will be reasonably comparable to compensation paid to management in
companies of similar size, of similar maturity, and in similar industries.
4.10 Use of Proceeds. The Company shall use the proceeds of the sale of
the Purchased Shares for general corporate purposes.
4.11 Board of Directors Meetings. So long as at least 631,673 Class B
Preferred Shares are outstanding, the Company shall use its best efforts to
cause one nominee of the holders of the Class B Preferred Shares, who shall be
designated by a majority in interest of the holders of the Class B Preferred
Shares, to be recommended to the Stockholders of the Company for election as a
director at all meetings of Stockholders, or consents in lieu thereof, for such
purpose. The Company shall ensure that meetings of its Board of Directors are
held at least six times each year and at intervals of not more than three
months. The certificate of Incorporation or By-Laws of the Company shall at all
times during which any nominee of the purchasers serves as director of the
Company provide for indemnification of the directors to the fullest extent
permitted under applicable state law. The Company will use its best efforts to
obtain and maintain director's and officer's liability insurance providing
coverage for
<PAGE> 25
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such director of at least $1,000,000 per occurrence, to the extent such
insurance is available on reasonable terms.
4.12 Right to Participate in Sales of Additional Securities. If the
Company at any time wishes to sell any shares of capital stock of the Company,
or bonds. certificates of indebtedness, debentures or other securities
convertible into capital stock of the Company or options, warrants or rights
carrying any rights to purchase capital stock or convertible securities of the
Company to a third party, other than in connection with a Substantial Public
offering, the Company will submit a written offer to the purchasers identifying
the third party to whom such stock, securities, options, warrants or rights are
proposed to be sold, and the terms of the proposed sale, and offering to the
purchasers the opportunity to purchase their proportionate share of such
securities on terms and conditions. including price, not less favorable to the
purchasers than those on which the Company proposes to sell such securities to
any other purchaser. Each purchaser shall have the right to purchase his
proportionate share of such securities based on the ratio which the Common Stock
of the Company owned or obtainable by said purchaser upon conversion of any
preferred Shares owned by him bears to all the issued and outstanding shares of
Common Shares of the Company (including all such shares issuable upon conversion
of then issued and outstanding preferred Shares). Any purchaser may transfer its
right to be offered any such opportunity to (i) any affiliate. as that term is
defined in the Investment Company Act of 1940, as amended of a purchaser, or
(ii) any owner of an investment account which is managed or advised by a
Purchaser, or by TA Associates or any such affiliate thereof. The
<PAGE> 26
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Company's offer to the Purchasers shall remain open and irrevocable for a period
of thirty (30) days. Any shares so offered to the purchasers which are not
purchased pursuant to such offer may be sold by the Company to the purchaser
originally named in the offer to the Purchasers on the same terms contained in
such offer at any time within 180 days following the date of such offer, but may
not be sold to any other person or after such 180 day period without renewed
compliance with this Section 4.14. Notwithstanding the above, the Company may
issue up to 2,135,492 shares of Common Shares of the Company to employees or
directors pursuant to stock options heretofore or hereafter issued with the
approval of the Board of Directors of the Company and 300,000 shares of Common
stock pursuant to a Mediqual Option Agreement dated January 5, 1986 between the
Company and various optionees party to such agreement.
4.13 Agreement of shareholders. At or before the Closing. the Company
will enter into with the purchasers and certain shareholders named therein an
agreement in the form attached hereto as Exhibit D (the "Agreement of
shareholders"). The Company agrees that it will diligently enforce all of its
rights under the Agreement of Shareholders and confidentiality and invention
agreements with key employees referred to in Section 4.3, and that it will not
waive or release any such rights or consent to any amendment of any such
agreement without the written consent of a majority in interest of the holders
of the Class B preferred Shares or Conversion Shares with respect thereto.
4.14 Distributions or Redemption of Capital Stock. Except as otherwise
expressly provided herein or in Exhibit B, the Company will not declare or pay
any dividends (other than a dividend payable in shares of
<PAGE> 27
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its Common Shares) or make any distributions of cash, property or securities of
the Company with respect to any shares of its Common Shares or any other class
of its stock, or directly or indirectly redeem, purchase, or otherwise acquire
for a consideration any shares of its Common Shares or any other class of its
stock (other than repurchases of shares from employees pursuant to the terms of
any Incentive Stock Option Plans adopted by the Company and approved by the
Director elected by the Class B Preferred Shares).
4.15 No Amendments to Articles of Incorporation or By-Laws. Except as
provided in this Section 4.17, the Company will not make any amendment to its
Articles of Incorporation or its By-Laws without the consent of the majority in
interest of the Class B Preferred Shares and Conversion Shares. Notwithstanding
any contrary provision of this Agreement, the Company may issue and the then
holders of the Class B Preferred Shares agree to vote to authorize, a class of
preferred stock which is subordinated with respect to rights upon liquidation.
dissolution or winding up, dividends, voting rights and redemption to the Class
B Preferred Shares if the proceeds from the sale of such stock are used solely
to redeem the Class B Preferred Shares.
4.16 Restrictions on Other Agreements. The Company will not enter into
any agreement with any party which would restrict the payments due the holders
of Class B Preferred Shares upon the mandatory redemption thereof or grant any
right relating to the registration of its Common Shares superior to or on a
parity with the rights granted to the Purchasers pursuant to Section 6 hereof.
<PAGE> 28
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4.17 Further Shares Issuable- In the event that the Company shall issue
to James A. Block ("Block") any of its Common Shares or any warrants, options or
other rights to purchase Common Shares other than for consideration at least
equal to $2.00 per share the Company agrees to issue, without further
consideration, to each of the Purchasers or the then holder of such purchaser's
shares such purchaser's pro rata portion of an aggregate of . ____ Common Shares
for every Common Share or right to purchase a Common Share issued to Block. Such
Common Shares shall upon issue be duly authorized, validly issued, fully paid
and non-assessable and shall be treated as purchased Shares for purposes of
Sections 1.2, 2, 4, 5, 6 and 7 of this Agreement.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF PURCHASERS
It is the understanding of the Company, and each purchaser hereby
severally represents and warrants to the Company with respect to such
Purchaser's purchase of Securities hereunder, that:
A. The execution, delivery and performance of this Agreement and the
documents and instruments executed pursuant hereto have been duly authorized by
all necessary action on the part of the Purchaser. and this Agreement
constitutes the valid legal and binding agreement of the Purchaser, enforceable
in accordance with its terms.
B. The purchaser is acquiring the Securities for its own account, for
investment, and not with a view to any "distribution" thereof within the meaning
of the Securities Act of 1933 as amended (the "Securities Act") -
C. The Purchaser understands that it may have to bear the economic risk
of its investment in the Company for an indefinite period of
<PAGE> 29
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time because, among other reasons, the Securities have not been registered under
the securities Act or "blue sky" or securities laws of any other jurisdiction
and therefore cannot be disposed of unless such Securities are subsequently
registered under the securities Act (and such "blue sky" or securities laws, if
applicable) or exemptions from such registration under the Securities Act (and
such "blue sky" or securities laws, if applicable) are available. The Purchaser
acknowledges and understands that, except as provided in Section 6 hereof, it
has no independent right to require the Company to register the Securities. The
Purchaser is aware that the Company may not accomplish a public offering of its
stock. The purchaser further understands that the Company may, as a condition to
the transfer of any of the Securities, require that the request for transfer be
accompanied by opinion of counsel. in form and substance satisfactory to the
Company, to the effect that the proposed transfer does not result in violation
of the Securities Act, unless such transfer is covered by an effective
registration statement under the Securities Act The Purchaser understands that
each certificate representing the Securities will bear the following legend or
one substantially similar thereto:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended. These shares have been
acquired for investment and not with a view to distribution or resale,
and may not be offered, sold, mortgaged, pledged, hypothecated or
otherwise transferred or disposed of without an effective registration
statement for such shares under the Securities Act of 1933, as amended,
and applicable state securities laws, or an opinion of counsel
satisfactory to the corporation that such registration is not required
D. The Purchaser has knowledge and experience in financial and business
matters and in the making of venture capital investments, is
<PAGE> 30
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capable of evaluating the merits and risks of an investment in the Company, is
able to bear the economic risk of loss of its entire investment in the Company,
has been granted the opportunity to make a thorough investigation of the affairs
of the Company and to question, to the extent deemed necessary and appropriate,
the officers, directors, employees. agents and stockholders of the Company to
verify the information contained herein or otherwise furnished by the Company,
and to evaluate the merits and risks of the investment described herein, and has
availed itself of such opportunity either directly or through its authorized
representative.
E. The Purchaser has been advised that the Securities have not been and
are not being registered under the Securities Act or under the "blue sky" laws
of any jurisdiction and that the Company in issuing the purchased Shares is
relying upon, among other things, the representations and warranties of each
Purchaser contained in this Article 5 in concluding that each such issuance is a
"private offering" under Section 4(2) of the Securities Act and does not require
compliance with the registration provisions of the Securities Act The Purchaser
acknowledges that neither the Company nor any person acting on behalf of the
Company has offered to sell the Purchased Shares to the purchaser by means of
any form of general advertising.
F. There are no valid claims for brokerage commissions finder's fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of such
Purchaser.
<PAGE> 31
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SECTION 6 REGISTRATION RIGHTS
6.1 Optional Registrations. If at any time or times after the date
hereof, the Company shall determine to register any of its Common Shares or
securities convertible into or exchangeable or exercisable for Common Shares
under the Securities Act (whether in connection with a public offering of
securities by the Company (a "primary offering"), a public offering thereof by
stockholders (a "secondary offering"), or both, but not in connection with a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the securities and
Exchange Commission (the "commission") under the Securities Act is applicable),
the Company will promptly give written notice thereof to the holders of
Registrable Securities (as hereinafter defined) then outstanding (the
"Holders"), and will use its best efforts to effect the registration under the
securities Act of all Registrable Securities which the Holders may request in a
writing delivered to the Company within 15 days after the notice given by the
Company; provided, however, that in the case of the registration of Common
Shares by the Company in connection with an underwritten public offering, it
shall not be required to register Registrable securities of the Holders in
excess of the amount, if any, of Common Shares which the principal underwriter
of an underwritten offering shall reasonably and in good faith agree in writing
to include in such offering (the "Secondary Shares"). If any Registrable
securities of Holders who have requested participation are not included for the
foregoing reason: (i) if William D. Ryan and affiliates ("Ryan") and holders of
Common Shares other than the Holders have held capital stock of the Company for
less than two years for purposes of Rule
<PAGE> 32
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144(d), then the Company will permit Holders who have requested participation to
participate in such offering prior to permitting participation by Ryan or such
other holders, and (ii) if Ryan, such other holders and the Holders have held
capital stock of the Company for more than two years, then the Company will
permit the Holders of Registrable securities who have requested participation to
participate in the offering collectively as to not more than fifty percent of
the Secondary Shares and individually in proportion to the number of shares of
Common Shares owned or obtainable by them upon exercise of rights with respect
to other securities owned by them, the remaining fifty percent of the Secondary
Shares to be made up of not more than (i) sixty percent shares held by Ryan and
(ii) forty percent shares held by other holders of Common Shares- If the Company
includes in such a registration any securities to be offered by it, all expenses
of registration and offering shall be borne by the Company. except that the
Holders shall bear underwriting commissions and transfer taxes on shares being
sold by such Holders If the registration under this Section 6.1 is exclusively a
secondary offering, as defined in this Section the Holders shall bear their
proportionate share of the expenses of the registration and offering (provided
all stockholders registering shares thereunder bear their proportionate share of
expenses), except expenses which the Company would have incurred whether or not
registration was attempted, including, without limitation, the expense of
preparing normal audited or unaudited financial statements or summaries
consistent with this Agreement or applicable Commission filings. Without in any
way limiting the types of registrations to which this Section 6.1 shall apply,
in the event that the Company shall effect a
<PAGE> 33
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"shelf registration" under Rule 415 promulgated under the Securities Act, or any
other similar rule or regulation ("Rule 415"), the Company shall take all
necessary action. including, without limitation, the filing of post-effective
amendments, to permit the Purchasers to include their shares in such
registration in accordance with the terms of this Section 6.1, provided that the
Company shall not be required to maintain the effectiveness of such shelf
registration beyond the latest date that the prospectus prepared in connection
herewith continues to comply with Section 10(3) of the securities Act, unless
the Company shall have prepared an amended prospectus complying with said
Section 10(3) for its own use or the use of any other person selling under such
shelf registration.
6.2 Required Registrations. If at any two (2) occasions after the
Closing Date, one or more of the Holders of an aggregate of not less than a
majority of the Registrable Securities then outstanding, including any Common
Shares issued or issuable upon conversion of the purchased Shares then
outstanding, shall notify the Company in writing that he or they intend to offer
or cause to be offered for public sale all or any portion of their Registrable
Securities, the Company will notify all of the Holders of Registrable Securities
who would be entitled to notice of a proposed registration under Section 6.1 of
such notification. Upon the written request of any such Holder after receipt
from the Company of such notification, the Company will use its best efforts to
cause such of the Registrable Securities as may be requested by any Holders
(including the Holder or Holders giving the initial notice of intent to register
hereunder) to be registered under the Securities Act in accordance with the
terms of
<PAGE> 34
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this Section 6.2. All expenses of such registrations and offerings shall be
borne by the Company, except that the Holders shall bear underwriting
commissions, transfer taxes of shares being sold by the Holders and the expense
of any special audit of the Company's financial statements if the notice
requesting registration does not reasonably permit the use of existing or
contemplated audited statements.
6.3 Registrable Securities. For the purposes of this Section 6, the
term "Registrable Securities" shall mean any shares of Common Shares owned by a
Purchaser or issuable upon conversion of Class B Preferred Shares, and any
Common Shares issued or issuable with respect to such Class B Preferred Shares
or Common Shares by way of a stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganizations.
6.4 Further Obligations of the Company. Whenever under the preceding
sections of this Section 6 the Company is required hereunder to register Common
Shares, it agrees that it shall also do the following;
(i) Use its best efforts to diligently prepare for filing with the
Commission a registration statement and such amendments and supplements to said
registration statement and the prospectus used in connection therewith as may be
necessary to keep said registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale of securities covered
by said registration statement for the period necessary to complete the proposed
public offering;
<PAGE> 35
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(ii) Furnish to each selling Holder such copies of each preliminary and
final prospectus and such other documents as such Holder may reasonably request
to facilitate the public offering of his Common Shares;
(iii) Enter into any underwriting agreement with provisions reasonably
required by the proposed underwriter for the selling Holders, if any; and
(iv) Use its best efforts to register or qualify the Common Shares
covered by said registration statement under the securities or "blue-sky" laws
of such jurisdictions as any selling Holder may reasonably request, provided
that the Company shall not be required to register or qualify the Common Shares
in any states in which it is not now qualified to do business and which would
require it to so qualify or to subject itself to general service of process in
order to so register or qualify the Common Shares
6.5 Form S-3 If the Company becomes eligible to use Form S-3 under the
Securities Act or a comparable successor form. the Company shall use its best
efforts to continue to qualify at all times for registration on Form S-3 or such
successor form. The Holders of an aggregate of not less than fifteen percent
(15%) of Registrable Securities shall have the right to request and have
effected not more than one registration per year of shares of Registrable
Securities on Form S-3 or such successor form for a public offering of shares of
Registrable Securities having an aggregate proposed offering price of not less
than $250,000 (such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders). The Company shall not be
required to cause a
<PAGE> 36
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registration statement requested pursuant to this Section 6.5 to become
effective prior to 90 days following the effective date of a registration
statement initiated by the Company, if the request for registration has been
received by the Company subsequent to the giving of written notice by the
Company. made in good faith, to the Holders of Registrable Securities to the
effect that the Company is commencing to prepare a company-initiated
registration statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the commission under the securities Act is applicable); provided,
however, that the Company shall use its best efforts to achieve such
effectiveness promptly following such 90-day period if the request pursuant to
this Section 6.5 has been made prior to the expiration of such 90-day period.
The Company shall give notice to all Holders of Registrable Securities of the
receipt of a request for registration pursuant to this Section 6.5 and shall
provide a reasonable opportunity for such Holders to participate in the
registration Subject to the foregoing, the Company will use its best efforts to
effect promptly the registration of all shares of Common Shares on Form S-3 or
such successor form to the extent requested by the Holder or Holders thereof for
purposes of disposition. If so requested by any Holder in connection with a
registration under this Section 6.5, the Company shall take such steps as are
required to register such Holder's Registrable securities for sale on a delayed
or continuous basis under Rule 415, and to keep such registration effective
until all of such Holder's Registrable Securities registered thereunder are
sold, provided that the Company may terminate any such shelf registration upon
the commencement of any
<PAGE> 37
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public offering of securities of the Company pursuant to a firm commitment
underwriting if in the opinion of the underwriters for such public offering the
continued effectiveness of such shelf registration would interfere with the sale
of such securities in such public offering. All expenses incurred in connection
with a registration requested pursuant to this Section 6.5, including, without
limitation. all registration, qualifications, printing, and accounting fees, and
fees and disbursements of counsel for the selling Holder or Holders of
Registrable Securities and counsel for the Company, shall be borne pro rata by
the Holder or Holders participating in the registration pursuant to this Section
6.5 on the basis of the amount of securities so registered. Notwithstanding the
foregoing, the Company shall not be required to effect a registration under this
Section 6.5 if, in the unqualified opinion of counsel for the Company, which
counsel and opinion shall be acceptable to the holders of Registrable
Securities, such holders of Registrable Securities may then sell all Registrable
Securities proposed to be sold in the manner proposed to be sold without
registration under the Act.
6.6 Indemnification. Incident to any registration statement referred to
in this Section 6, and subject to applicable law, the Company will indemnify
each underwriter, each Holder of Registrable Securities so registered, and each
person controlling any of them against all claims, losses, damages and
liabilities, including legal and other expenses reasonably incurred in
investigating or defending against the same, arising out of any untrue statement
of a material fact contained therein, or any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or
<PAGE> 38
-38-
arising out of any violation by the Company of the securities Act, any state
securities or "blue-sky" laws or any rule or regulation thereunder in connection
with such registration, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing to the
Company by such Holder expressly for use therein, and with respect to such
untrue statement or omission in the information furnished in writing to the
Company by such Holder, such Holder will indemnify the underwriters, the
Company, its directors and officers, the other Holders and each person
controlling any of them against any losses, claims, damages, expenses or
liabilities to which any of them may become subject to the same extent.
6.7 Rule 144 Requirements. If the Company becomes subject to the
reporting requirements of either Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Company will use its best efforts to file with the
commission such information as the Commission may require under either of said
Sections; and in such event, the Company shall use its best efforts to take all
action as may be required as a condition to the availability of Rule 144 under
the Securities Act (or any successor exemptive rule hereinafter in effect). The
Company shall furnish to any Holder of Registrable securities upon request a
written statement executed by the Company as to the steps it has taken to comply
with the current public information requirement of Rule 144.
6.8 Transfer of Registration Rights. The registration rights of the
Holders under this Section 6 may be transferred only to transferees of
Registrable securities, which transferees shall be (i) a Holder, (ii) an
affiliate, as that term is defined in the Investment Company Act of 1940,
<PAGE> 39
-39-
of a Holder (including a partner of such Holder), or (iii) a party which
acquires at least five thousand (5,000) Class B preferred shares (or such lesser
number of Class B preferred Shares which constitutes the total number of such
shares purchased by such Holder under this Agreement) or an equivalent amount
(as adjusted for stock splits, stock dividends, reclassifications
recapitalizations or other similar events) of Registrable Securities, or a
combination of Class B Preferred shares and Registrable Securities having an
equivalent aggregate amount. Each such transferee shall be deemed to be a
"Holder" for purposes of this Section 6.
6.9 Granting of Registration Rights. The Company shall not, without the
prior written consent of a majority in interest of the holders of Class B
preferred Shares and Conversion Shares, grant any rights to any persons to
register any shares of capital stock or other securities of the Company if such
rights could reasonably be expected to conflict with or be superior to or on
parity with, the rights of the Holders of Registrable securities granted
pursuant to this Agreement.
SECTION 7. GENERAL
7.1 Amendments, Waivers and Consents For the purposes of this Agreement
and all agreements. documents and instruments executed pursuant hereto, except
as otherwise specifically set forth herein or therein no course of dealing
between the Company and any Purchaser and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or other provision hereof
or thereof may be waived otherwise than by a written instrument signed by the
party so waiving such covenant or other provision; provided, however, that
except as
<PAGE> 40
-40-
otherwise provided herein or therein, changes in or additions to, and any
consents required by this Agreement may be made, and compliance with any term,
covenant, condition or provision set forth herein may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively) by a consent or consents in writing signed by the holders of at
least a majority in interest of the holders of Class B preferred shares and
conversion Shares and (in the case of a change or addition to this Agreement)
the Company Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any securities purchased under this
Agreement at the time outstanding (including securities into which Securities
have been converted). each future holder of all Securities, and the Company.
7.2 Survival of Covenants; Assignability of Rights. All covenants,
agreements, representations and warranties of the Company made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished to any purchaser in connection herewith shall be deemed material
and to have been relied upon by such purchaser, and, except as provided
otherwise in this Agreement, shall survive the delivery of the purchased Shares,
and shall bind the Company's successors and assigns. whether so expressed or
not. and, except as provided otherwise in this Agreement, all such covenants,
agreements. representations and warranties shall inure to the benefit of the
purchasers' successors and assigns and to transferees of the Securities, whether
so expressed or not.
<PAGE> 41
-41-
7.3 Governing Law. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with the laws of the Commonwealth of
Massachusetts.
7.4 Section Headings. The descriptive headings in this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
7.5 Confidentiality. Each purchaser agrees to hold confidential all
information furnished to such purchaser by the Company under this Agreement
which the Company identifies as confidential or proprietary or which such
purchaser should have reasonably concluded was confidential, except for
information which (a) is known to the public or becomes so known without breach
by such purchaser of its obligation of confidentiality hereunder, (b) is
disclosed to such purchaser on a nonconfidential basis by a third party who is
not in breach of an obligation of nonconfidentiality in making such disclosure,
or which was known to such Purchaser prior to its being furnished to such
Purchaser by the Company hereunder.
7.6 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
7.7 Notices and Demands. Any notice or demand which, by any provision
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or provided
to be given shall be deemed to have been
<PAGE> 42
-42-
sufficiently given or served for all purposes three days after being sent by
certified or registered mail postage and charges prepaid, to the following
addresses: if to the Company, at the Company's address as shown on the signature
page hereof, or at any other address designated by the Company to each of the
Purchasers in writing; if to a purchaser, at its mailing address as shown on
Exhibit A hereto. or at any other address designated by such purchaser to the
Company in writing; and if to an assignee of a Purchaser to its address as
designated to the Company in writing.
7.8 Severability Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions or this Agreement.
7.9 Expenses. The Company shall pay all reasonable costs and expenses
that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement, and the Purchasers shall pay all costs and
expenses that they incur with respect to the negotiation, execution, delivery
and performance of this Agreement.
7.10 Purchaser Questionnaire. On or prior to the closing Date, the
purchasers whose names are set forth on Exhibit A under the heading "Individual
purchasers" shall complete execute and deliver to the Company a Confidential
Purchaser Questionnaire in the form thereof attached as Exhibit E hereto.
<PAGE> 43
-43-
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
MEDIQUAL SYSTEMS, INC.
By:
--------------------------
Chairman of the Board
Address.
1900 West Park Drive
Westborough. MA 01581
<PAGE> 44
-44-
EXHIBIT A
PURCHASERS
Number of Class B Aggregate Purchase
Preferred Shares Price of Class B
Name and Address Purchased Preferred Shares
BLUE CROSS-BLUE SHIELD
OF MINNESOTA, INC.
Individual Purchasers:
[to be inserted]
TA Purchasers:
ADVENT V LIMITED PARTNERSHIP
c/c TA Associates
45 Milk Street
Boston, MA 02109
ADVENT INDUSTRIAL LIMITED
PARTNERSHIP
c/c TA Associates
45 Milk Street
Boston, MA 02109
CHESTNUT CAPITAL
INTERNATIONAL II
c/o TA Associates
45 Milk street Boston, MA 02109
ADVENT CHESTNUT II
PARTNERSHIP
c/c TA Associates
45 Milk Street
Boston, MA 02109
<PAGE> 45
-45-
DESIFTA, S.A.
c/o TA Associates
45 Milk Street Boston, MA 02109
TA INVESTORS
c/o TA Associates
45 Milk Street
Boston, MA 02109
MICI MEDICAL SEED FUND
a Limited Partnership
c/o Medical Innovation
Capital, Inc.
Suite 400
1201 Marquette Avenue
Minneapolis, MN 55403
ADVENT ATLANTIC & PACIFIC
LIMITED PARTNERSHIP
c/c TA Associates
45 Milk Street
Boston, MA 02109
<PAGE> 1
10.14
MEDIQUAL SYSTEMS, INC.
2,000 Shares of
Class C Convertible Preferred Stock
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
April 1, 1993
<PAGE> 2
MEDIQUAL SYSTEMS, INC.
Stock Purchase Agreement
April 1, 1993
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. TERMS OF PURCHASE.......................................................... 1
1.1. Description of Securities.................................................. 1
1.2. Reserved Shares............................................................ 1
1.3. Sale and Purchase.......................................................... 1
1.4. Closing.................................................................... 2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF
THE COMPANY.............................................................. 2
2.1. Organization and Corporate Power........................................... 2
2.2. Authorization.............................................................. 3
2.3. Capitalization............................................................. 3
2.4. Financial Statements and Backlog........................................... 4
2.5. Absence of Undisclosed Liabilities......................................... 4
2.6. Absence of Certain Developments............................................ 4
2.7. Title to Properties........................................................ 5
2.8. Tax Matters................................................................ 5
2.9. Contracts and Commitments.................................................. 6
2.10. No Defaults................................................................ 6
2.11. Patents; Trade Secrets; Employee Restrictions.............................. 7
2.12. Effect of Transactions..................................................... 7
2.13. Litigation................................................................. 8
2.14. Offerees................................................................... 8
2.15. Business................................................................... 8
2.16. Information Supplied to Purchasers......................................... 8
2.17. Brokerage.................................................................. 9
SECTION 3. CONDITIONS OF PURCHASE..................................................... 9
3.1. Certificate of Company..................................................... 9
3.2. Opinion of Company Counsel................................................. 10
3.3. Authorization.............................................................. 10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
3.4. Amendment and Restatement of Certificate
of Incorporation......................................................... 10
3.5. Agreement of Shareholders; Registration Rights
Agreement................................................................ 10
3.6. All Proceedings Satisfactory............................................... 10
3.7. Waivers and Consents....................................................... 10
3.8. Purchase of Common Stock................................................... 11
3.9. Due Diligence.............................................................. 11
3.10. Termination of Agreements.................................................. 11
SECTION 4. COVENANTS OF THE COMPANY................................................... 11
4.1. Financial Statements....................................................... 12
4.2. Budget and Operating Forecast and Monthly
Financial Statements..................................................... 12
4.3. Conduct of Business........................................................ 13
4.4. Payment of Taxes, Compliance with Laws, etc................................ 13
4.5. Adverse Changes............................................................ 13
4.6. Insurance.................................................................. 13
4.7. Maintenance of Properties.................................................. 14
4.8. Affiliated Transactions.................................................... 14
4.9. Management Compensation.................................................... 14
4.10. Use of Proceeds............................................................ 14
4.11. Board of Directors meetings................................................ 14
4.12. Right to Participate in Sales of Additional Securities..................... 14
4.13. Agreement of Shareholders.................................................. 16
4.14. Distributions or Redemption of Capital Stock............................... 16
4.15. No Amendments to Certificate of Incorporation or
By-Laws.................................................................. 16
4.16. Restrictions on Other Agreements........................................... 16
SECTION 5. REPRESENTATIONS AND WARRANTIES OF
PURCHASERS............................................................... 16
SECTION 6. GENERAL.................................................................... 18
6.1. Amendments, Waivers and Consents........................................... 18
6.2. Survival of Covenants; Assignability of Rights............................. 18
6.3. Governing Law.............................................................. 18
6.4. Section Headings........................................................... 19
6.5. Counterparts............................................................... 19
6.6. Notices and Demands........................................................ 19
6.7. Severability............................................................... 19
6.8. Expenses................................................................... 20
</TABLE>
-ii-
<PAGE> 4
AGREEMENT FOR PURCHASE AND SALE
OF CLASS C CONVERTIBLE PREFERRED STOCK OF
MEDIQUAL SYSTEMS, INC.
AGREEMENT made as of this 1st day of April, 1993 by and among MediQual
Systems, Inc., a Delaware corporation (the "Company"), and the persons named in
Exhibit A hereto (collectively, the "Purchasers," and each individually, a
"Purchaser").
SECTION 1. TERMS OF PURCHASE
1.1. Description of Securities. The Company has authorized the issuance
and sale to the Purchasers of the greater of (i) 2,000 shares (such shares, or
such greater number of shares determined in accordance with sections 1.1(i)
hereof are referred to herein as the "Purchased Shares") of its authorized but
unissued Class C Preferred Stock, $.01 par value (the "Class C Preferred
Shares") and (ii) that number of shares of Class C Preferred Stock which would
at the time of purchase, on an as-converted basis, equal 8.83006% of the
outstanding Common Stock, $.001 par value (the "Common Stock"), assuming the
conversion and exercise of all securities convertible into or exercisable for
Common Shares including the Purchased Shares but excluding Common Shares issued
to Eric Kriss and Warrants to purchase up to 632,275 Common Shares issued to
holders of the Company's Class B Preferred Stock, $0.01 par value), in either
case for an aggregate purchase price of $2,000,000 for all the Purchased Shares.
Simultaneously, the Purchasers will purchase 1,107,611 Common Shares which have
previously been issued and outstanding and options to acquire an additional
1,107,611 such shares.
1.2. Reserved Shares. The Company will authorize and will reserve, and
covenants to continue to reserve, a sufficient number of shares of the Common
Shares to satisfy the rights of conversion of the holders of the Purchased
Shares. Any shares of Common Shares or any successor class of stock of the
Company hereafter issued or issuable upon conversion of the Class C Preferred
Shares are herein referred to as "Conversion Shares," and the Class C Preferred
Shares and the Conversion Shares are herein collectively referred to as the
"Securities."
1.3. Sale and Purchase. Subject to the terms and conditions herein set
forth, the Company shall issue and sell to each of the Purchasers, and each
Purchaser shall purchase from the Company, (i) the number of Purchased Shares
set forth opposite the name of such Purchaser in Column 2 of Exhibit A or, (ii)
if more than 2,000 Purchased
<PAGE> 5
-2-
Shares are sold to the Purchasers pursuant to Section 1.1(ii) above, each
Purchaser shall purchase such Purchased Shares pro rata, based on the numbers
set forth opposite such Purchaser's name in Column 2 of Exhibit A, in either
such case, for the aggregate purchase price set forth in Column 3 of Exhibit A.
1.4. Closing. A Closing (the "Closing") of the sale and purchase of the
Purchased Shares shall take place at the offices of Ropes & Gray, located at One
International Place, Boston, Massachusetts, at 10:00 a.m. on April 30, 1993, or
such other date, time and place as shall be mutually agreed upon by the Company
and the Purchasers (the "Closing Date"). If the Closing does not occur on or
before April 30, 1993 or at such later date agreed upon by the parties hereto,
due to the conditions in Section 3 hereof not being met to the satisfaction of
the Purchasers or waived by the Purchasers in their sole discretion with no
obligation to do so, this Agreement shall terminate and be of no further force
and effect and the parties hereto shall have no further obligations to each
other. At the Closing the Company will deliver the Purchased Shares being
acquired by each Purchaser in the form of a certificate issued in such
Purchaser's name or in the name of its nominee (of which the Purchaser shall
notify the Company not less than three (3) business days prior to the Closing)
against payment of the purchase price therefor by or on behalf of each Purchaser
to the Company by certified or bank cashier's check or by wire transfer.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchasers to enter into this Agreement and
purchase the Purchased Shares hereunder and to purchase the Common Shares and
options described under Section 1.1 hereof, the Company hereby represents and
warrants that, except as disclosed in the Schedule Volume delivered herewith
(the "Schedule Volume"):
2.1. Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is qualified to do business as a foreign corporation in
each jurisdiction where such qualification is required and failure to have such
qualification may have a material adverse effect on the Company. The Company has
all required corporate power and authority to own its property, to carry on its
business as presently conducted or contemplated, to enter into and perform this
Agreement and generally to carry out the transactions contemplated hereby. The
copies of the Certificate of Incorporation and By-Laws of the
<PAGE> 6
-3-
Company, as amended to date, which have been furnished to counsel for the
Purchasers by the Company, are correct and complete. The Company is not in
violation of any of its Certificate of Incorporation or By-Laws, or any material
agreement, instrument, judgment, decree or order applicable to the Company the
violation of which would have a material adverse effect on the Company.
2.2. Authorization. This Agreement is, and the documents and
instruments to be executed pursuant hereto and referred to in Section 3.6, upon
execution and delivery thereof by the Company and the other parties thereto,
will be valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws applicable to creditors'
rights and remedies and to the exercise of judicial discretion in accordance
with general principles of equity and subject to any limitations on the
enforcement of indemnity obligations under applicable federal and state
securities laws. The execution, delivery and performance of this Agreement and
issuance of the Purchased Shares and the Conversion Shares issuable in respect
thereof have been duly authorized by all necessary corporate or other action of
the Company.
2.3. Capitalization. The authorized and issued capital stock of the
Company and the consideration received and to be received therefor are as set
forth in Schedule 2.3.1 of the Schedule Volume. All of the presently outstanding
shares of capital stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable. As of the Closing Date, the
Purchased Shares will be duly and validly authorized and, when delivered and
paid for pursuant to this Agreement, will be validly issued, fully paid and
non-assessable. As of the Closing Date, the relative rights, preferences,
restrictions and other provisions relating to the Class C Preferred Shares will
be as set forth in Exhibit B attached hereto. As of the Closing Date, the
Company will have authorized and reserved for issuance upon conversion of the
Purchased Shares sufficient shares of its Common Shares, and the Conversion
Shares issued upon such conversion will, upon such issuance, be validly
authorized and issued, fully paid and non-assessable. The Company has reserved
sufficient Common Shares for issuance upon the exercise or conversion of all
outstanding securities exercisable for or convertible into Common Shares and
such number of reserved shares is sufficient. Except as provided above or in
said Schedule 2.3.1, the Company has not issued any of its shares of its capital
stock and there are no outstanding warrants, options or other rights to purchase
or acquire any of such shares, nor any outstanding securities convertible into
such shares or outstanding warrants, options or other rights to acquire any such
<PAGE> 7
-4-
convertible securities. There are no preemptive rights with respect to the
issuance or sale of the Company's capital stock, other than rights to which
holders of Class C Preferred Shares and Conversion Shares are entitled as set
forth in Section 4.12 hereof. There are no restrictions on the transfer of the
Company's capital stock other than those arising from federal and state
securities laws. The Company has no subsidiaries or investments in any other
corporation, trust, partnership or business entity and is not a party to any
joint venture. Other than as set forth in the Registration Rights Agreement
attached hereto as Exhibit E, there are no existing rights with respect to
registration under the Securities Act of 1933, as amended, of any securities of
the Company. The outstanding shares of the capital stock of the Company are held
of record and beneficially by the persons identified in Schedule 2.3.1 in the
Schedule Volume in the amounts indicated therein.
2.4. Financial Statements and Backlog. Included in Schedule 2.4 of the
Schedule Volume are (i) an audited balance sheet as of December 31, 1992 and
statement of income and cash flow for the year then ended and (ii) an unaudited
balance sheet as of February 1993 and statement of income and cash flow for such
two month period, which statements (including the footnotes thereto) fairly
present the financial position of the Company on the dates of such statements
and the results of its operations for the periods covered thereby and have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved and prior periods;
provided, however, that the unaudited financials are subject to year-end
adjustments which in the aggregate will not be material and may not contain all
footnotes required under generally accepted accounting principles. Included in
Schedule 2.4 of the Schedule Volume is a detailed backlog of all firm orders for
the Company's products as of February 28, 1993. The Company is not aware of any
cancellation or proposed cancellations with respect to the orders contained in
the backlog and has no reason to believe that all orders set forth therein will
not be delivered on schedule; nor is there any material claim for refunds of
monies already paid to the Company, or any reason to believe such claims will be
forthcoming.
2.5. Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the latest balance sheet included in Schedule
2.4 of the Schedule Volume (including the footnotes thereto), except for
liabilities arising in the ordinary course of its business since the date of
said balance sheet, the Company does not have and has not assumed any material
accrued or contingent liability arising out of any transaction or state of facts
existing prior to the date hereof in any case where the material facts or
circumstances giving rise to such liability are
<PAGE> 8
-5-
known to the Company or in the exercise of reasonable diligence should have been
known to the Company (whether such liability is accrued, to become due,
contingent, or otherwise and whether or not such liability relates to any
predecessor business of the Company).
2.6. Absence of Certain Developments. Since the date of the latest
balance sheet included in Schedule 2.4 of the Schedule Volume, there has been
(i) no material adverse change in the condition, financial or otherwise, of the
Company or in the assets, liabilities, properties or business of the Company,
(ii) no declaration, setting aside or payment of any dividend or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of the Company, (iii) no waiver of any
valuable right of the Company or the cancellation of any debt or claim held by
the Company, (iv) no loan by the Company to any officer, director, employee or
stockholder of the Company, or any agreement or commitment therefor, (v) no
increase, direct or indirect, in the compensation paid or payable to any
officer, director, employee or agent of the Company which increase is in excess
of an annual rate of $5,000, (vi) no loss, destruction or damage to any property
of the Company, whether or not insured, in excess of $10,000 in the aggregate,
(vii) no labor trouble involving the Company where the consequence of such labor
trouble may be materially adverse with respect to the Company, and no material
change in the personnel of the Company or the terms and conditions of their
employment, and (viii) no acquisition or disposition of any assets (or any
contract or arrangement therefor), nor any other transaction by the Company
otherwise than for fair value in the ordinary course of business.
2.7. Title to Properties. The Company has good and marketable title to
all of its tangible properties and assets free and clear of all liens,
restrictions or encumbrances, except as specifically disclosed in Schedule 2.7
of the Schedule Volume or in the financial statements and the footnotes thereto
included in Schedule 2.4 of the Schedule Volume. The Company owns no real
property. All machinery and equipment included in such properties which is
necessary to the business of the Company is in reasonable working condition, and
all leases of real or personal property to which the Company is a party are
fully effective and afford the Company peaceful and undisturbed possession of
the subject matter of the lease and the Company is not in default under any such
lease, which default could cause a materially adverse effect on the properties,
assets or business of the Company. To its best knowledge the Company is not in
violation of any zoning, building or safety ordinance, regulation or requirement
or other law or regulation applicable to it or to the operation of its owned or
leased tangible properties. The Company has not received
<PAGE> 9
-6-
any notice of violation with which it has not complied, in any case in which the
consequences of such violation if asserted by the applicable regulatory
authority would be materially adverse with respect to the Company. For purposes
of this Agreement, "tangible properties" specifically excludes patent,
trademark, copyright, trade secret and other proprietary rights.
2.8. Tax Matters. All federal, state, county and local taxes, and all
applicable taxes owed to foreign jurisdictions, due and payable by the Company
have been paid. The provisions for taxes on the latest balance sheet included in
Schedule 2.4 of the Schedule Volume are sufficient for the payment of all
accrued and unpaid federal, state, county and local taxes of the Company and any
applicable taxes owing to any foreign jurisdiction, as of the date of said
balance sheet, whether or not assessed or disputed. There exist no unpaid
assessments of federal income taxes nor any basis for the assessment of
additional federal income taxes on the Company for any fiscal period. The
federal income tax returns of the Company have not been audited by the Internal
Revenue Service, and no notice of audit has been received. The Company has duly
filed all federal, state, county and local tax returns required to have been
filed by it and there are in effect no waivers of applicable statutes of
limitations with respect to taxes for any year.
2.9. Contracts and Commitments. The Company does not have and has not
assumed any contract, obligation or commitment which involves a potential
commitment in excess of $10,000 or which is otherwise material and not entered
into in the ordinary course of business, including any employment contracts;
stock redemption or purchase agreements; financing agreements; licenses;
distributor, sales representative or OEM agreements; agreements with officers,
directors, employees or shareholders of the Company or persons or organizations
related to or affiliated with any such persons; leases; agreements relating to
the licensing, distribution, development, purchase or sale of software; or
pension, profit-sharing, retirement, stock option or other employee benefit
plans.
2.10. No Defaults. The Company is not in default or in noncompliance
(i) under any contract, obligation or commitment or under its Certificate of
Incorporation or by-laws, each as amended to date, or (ii) with respect to any
order, writ, injunction or decree of any court or any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which default or noncompliance could cause
a materially adverse effect on the properties, assets or business of the
Company. There exists no condition,
<PAGE> 10
-7-
event or act which after notice, lapse of time, or both, could constitute such a
default under any of the foregoing. To the best of the Company's knowledge, no
third party is in default under any contract or other instrument, document, or
agreement to which the Company is a party or by which it or any of its property
is affected, which default may have a material adverse effect on the Company's
properties or assets or the business of the Company as presently conducted or
proposed to be conducted. Without limiting the generality of the foregoing,
there are no outstanding claims by any customer of the Company with respect to
delivery or performance of the Company's products and all receivables booked
with respect to the sale of Company's products are valid and enforceable
receivables without offset. The Company has no knowledge of any facts or
circumstances which are likely to cause any of the foregoing contracts,
obligations or commitments to have a materially adverse effect upon the business
or finances of the Company. The Company does not have and never has had any
government contracts or subcontracts.
2.11. Patents; Trade Secrets; Employee Restrictions. The Company has
exclusive ownership of, or exclusive license to use, all patent, copyright,
trademark, trade secret or other proprietary rights used or to be used its
business as presently conducted or contemplated. The Company has not used, and
does not use or contemplate making use of, any patent, copyright, trademark,
trade secret or other proprietary information or rights of Interqual, Inc. The
Company owns no issued patents or patent applications. The Company to the best
of its knowledge owns or has a license to use, free and clear of other claims or
rights of others, all trade secrets, manufacturing processes, hardware designs,
programming processes, software and other information required for or incident
to its products or its business as presently conducted or contemplated. The
Company is not infringing, and its planned operations will not infringe, any
patent, copyright, trademark or other proprietary right of any other person or
entity and the Company is not making unauthorized use of any confidential
information or trade secrets of any person or entity, including without
limitation any former employer of any of its past or present employees. Neither
the Company nor, to the best of the Company's knowledge, any of the Company's
employees have any agreements or arrangements with former employers of such
employees relating to confidential information or trade secrets of such
employers. To the best of the Company's knowledge, the activities of the
Company's employees on behalf of the Company do not violate any agreements or
arrangements which any such employees have with former employers. To the best
knowledge of the Company, no other person is infringing any patent, copyright,
trademark, trade secret or other proprietary right of the Company.
<PAGE> 11
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2.12. Effect of Transactions. The execution, delivery and performance
by the Company of this Agreement and the Agreement of Shareholders (as
hereinafter defined), and the amendment and restatement of the Certificate of
Amendment in accordance with Exhibit B, will not conflict with or result in any
default under any material contract, obligation, commitment, charter provision,
by-law or corporate restriction of the Company or the creation of any lien,
charge or encumbrance of any nature upon any of the properties or assets of the
Company except pursuant to this Agreement or the transactions contemplated
hereby. The Company's execution and delivery of this Agreement and its
performance of the transactions contemplated hereby will not violate any
material instrument, agreement, judgment, decree, order, statute, rule or
regulation of any federal, state or local government or agency applicable to the
Company, the violation of which might have a material adverse effect on the
Company.
2.13. Litigation. There is no litigation or governmental proceeding or
investigation pending against the Company. To the best knowledge of the Company,
there is no such litigation, proceeding or investigation threatened against the
Company, or which is pending or threatened affecting any of the Company's
properties or assets, or is pending or threatened against any officer or key
employee of the Company, or is pending or threatened and has a reasonable
possibility of calling into question the validity, or materially hindering the
enforceability or performance, of this Agreement or any action taken or to be
taken pursuant hereto; nor, except as disclosed in Schedule 2.13 to the Schedule
Volume, to the best knowledge of the Company, has there occurred any event or
does there exist any condition on the basis of which any such litigation,
proceeding or investigation might properly be instituted with any substantial
chance of a recovery which may be materially adverse to the Company.
2.14. Offerees. Neither the Company, nor anyone acting on its behalf,
has in the past or will hereafter sell, offer for sale or solicit offers to buy
any of the Securities so as to bring the offer, issuance or sale of the
Purchased Shares or the Conversion Shares, as contemplated by this Agreement,
within the provisions of Section 5 of the Securities Act of 1933, as amended.
Assuming that the Purchasers' representations and warranties contained in
Section 5 of this Agreement are true and correct, the offer, issuance and sale
of the Purchased Shares are and the Conversion Shares (assuming no change in
applicable law) will be exempt from the registration and prospectus delivery
requirements of the 1933 Act, and will at the time of issuance have been
registered or qualified (or
<PAGE> 12
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will be at the time of issuance exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state blue sky and securities laws. The Company has complied with all applicable
state "blue-sky" and securities laws in connection with the issuance and sale of
all other securities issued by the Company.
2.15. Business. The Company has all necessary franchises, permits,
licenses and other rights and privileges necessary to permit it to own its
property and to conduct its present business. The Company is not in violation,
and its planned business will not put the Company in violation, of any material
law, regulation, authorization or order of any public authority relevant to the
ownership of its properties or the carrying on of its business. The Company does
not know of any facts or circumstances (including without limitation expressions
or other indications of the attitude of the concerned governmental agencies or
officials) which are materially adverse with respect to any of the foregoing
matters.
2.16. Information Supplied to Purchasers. Neither (i) this Agreement or
the Schedule Volume, (ii) the Business Plan delivered to the Purchasers, as
supplemented by this Agreement and the Schedule Volume, nor (iii) any agreement,
certificate or other document furnished to the Purchasers by or on behalf of the
Company in connection with this Agreement and the transactions contemplated
hereby, contains or will contain at the time of its delivery any untrue
statement of a material fact, and this Agreement, the Schedule Volume, and said
other documents and certificates, do not omit to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
There is no material fact relating to the business, prospects, operations,
affairs or conditions of the Company which adversely affects or in the future
may in the reasonable business judgment of the Company (so far as the Company
may now foresee based upon facts now known to the Company) materially adversely
affect the same which has not been set forth in this Agreement or in the other
documents set forth above furnished to the Purchasers by or on behalf of the
Company prior to or on the date hereof. The forecasts and projections of future
financial results contained in said Business Plan are based upon information
available to the Company as of the date on which such forecasts or projections
were made and upon reasonable inferences from such information, but may be
subject to revision in the event of changes in the facts and circumstances upon
which such forecasts and projections are based which could not reasonably have
been foreseen at the date on which such forecasts or projections were made.
<PAGE> 13
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2.17. Brokerage. There are no valid claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company.
SECTION 3. CONDITIONS OF PURCHASE
The Purchasers' obligation to purchase and pay for the Purchased Shares
shall be subject to compliance by the Company with its agreements herein
contained and to the fulfillment on or before and at the Closing Date of the
following conditions:
3.1. Certificate of Company. The representations and warranties of the
Company contained in this Agreement, including but not limited to the
representations and warranties made in Section 2, shall be true and correct in
all material respects with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date; each
of the conditions hereafter specified in this Section 3 (other than those
specified in Sections 3.8 and 3.9) shall have been satisfied; and on the Closing
Date a certificate to such effect executed by the Chairman of the Board of the
Company shall be delivered to the Purchasers.
3.2. Opinion of Company Counsel. The Purchasers shall have received
from Burns & Levinson and Bingham, Dana & Gould, counsels for the Company, their
favorable opinions, dated the Closing Date, substantially in the forms attached
hereto as Exhibit C.
3.3. Authorization. The Board of Directors and shareholders of the
Company shall have duly adopted resolutions in form satisfactory to the
Purchasers authorizing the Company to consummate the transactions contemplated
hereby in accordance with the terms hereof, and the Purchasers shall have
received a duly executed certificate of the Secretary or an Assistant Secretary
of the Company setting forth a copy of such resolutions and such other matters
as may be reasonably requested by the Purchasers.
3.4. Amendment and Restatement of Certificate of Incorporation. The
Amendment and Restatement of the Certificate of Incorporation of the Company as
set forth in Exhibit B hereto shall have been duly approved by the shareholders
of the Company and filed with the Secretary of State of Delaware and shall
provide that none of the Company's Class A or Class B Preferred Shares shall be
redeemable before April 1, 1995.
<PAGE> 14
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3.5. Agreement of Shareholders; Registration Rights Agreement. The
Company and certain of its shareholders shall have executed and delivered to the
Purchasers an Agreement of Shareholders in the form of Exhibit D hereto (the
"Agreement of Shareholders") and the Registration Rights Agreement substantially
in the form of Exhibit E hereto.
3.6. All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident thereto
shall be reasonably satisfactory in form and substance to the Purchasers, and
the Purchasers shall receive such copies thereof and other materials (certified,
if requested) as they may reasonably request in connection therewith. The
issuance and sale of the Purchased Shares to the Purchasers shall be made in
conformity with all applicable state and federal securities laws.
3.7. Waivers and Consents. All holders of securities of the Company
that (i) have preemptive rights with respect to the issuance of the Purchased
Shares, the Conversion Shares or any other securities to be issued in connection
with the transactions contemplated hereby or (ii) have the benefit of
anti-dilution provisions which would cause a change in the number of securities
issuable upon exercise of conversion thereof or a change in the consideration to
be paid on such exercise or conversion as a result of the transactions
contemplated hereby, shall have waived such preemptive rights and anti-dilution
provisions with respect to the transactions contemplated hereby.
3.8. Purchase of Common Stock. The Purchasers shall pursuant to one or
more agreements with holders of Common Shares of the Company (the "Common Shares
and Option Agreements"), simultaneously with the purchase of the Purchased
shares hereunder, purchase at least 2,500,000 Common Shares of the Company.
3.9. Due Diligence. The Purchasers shall have completed an accounting
and legal due diligence investigation, including a review of the Schedule
Volume, and shall be satisfied with the results of such investigation.
3.10. Termination of Agreements. Each of the following agreements, as
amended to date, shall have been terminated:
3.10.1. The "Come Along" Stock Option Agreement dated April
19, 1991 between the Company and Charles M. Jacobs;
<PAGE> 15
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3.10.2. The Voting Agreement dated April 19, 1991 among
Charles M. Jacobs, William D. Ryan and the other persons named on the
signature pages thereof;
3.10.3. The Shareholder Agreement dated April 9, 1984 among
the Company, William D. Ryan and the other shareholders named therein;
and
3.10.4. The Agreement Among Certain Shareholders dated August
4, 1986 Charles M. Jacobs, Alan C. Brewster, M.D. and William D. Ryan.
SECTION 4. COVENANTS OF THE COMPANY
The Company shall comply, and shall cause any direct or indirect
subsidiaries of the Company to comply, with the following covenants, except as
shall otherwise be agreed pursuant to a written consent of a majority in
interest of the holders of the Class C Preferred Shares and Conversion Shares
delivered in accordance with Section 6.1, and until (i) the Company has redeemed
at least 80% of the Class C Preferred Shares or (ii) such time as the Company
completes its first public offering of its Common Shares pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") in which (a) the sale price to the public is at least $3.00
per share (appropriately adjusted for stock splits, stock dividends and the
like), and (b) aggregate gross proceeds to the Company from the sale of the
shares are at least $10,000,000 (a "Substantial Public Offering"). All
references to "the Company" in this Section 4 shall be deemed to refer to the
Company and its direct and indirect subsidiaries, if applicable on a
consolidated basis.
4.1. Financial Statements. The Company will maintain a system of
accounts in accordance with generally accepted accounting principles, keep full
and complete financial records and furnish to the Purchasers, subject to the
provisions of Section 6.5 hereof, (i) within ninety (90) days after the end of
each fiscal year, a copy of the balance sheet of the Company as at the end of
such year, together with a statement of income and cash flows of the Company for
such year, certified by Arthur Anderson & Co. or other independent public
accountants of recognized national standing reasonably satisfactory to the
Purchasers, prepared in accordance with generally accepted accounting principles
and practices consistently applied, (ii) within forty-five (45) days after the
end of each of the first three quarters of each fiscal year, a copy of the
balance sheet of the Company as of the end of such quarter and statements of
income and
<PAGE> 16
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of cash flows of the Company for the fiscal quarter and for the portion of the
fiscal year ending on the last day of such quarter, each of the foregoing
balance sheets and statements to set forth in comparative form the corresponding
figures for the same period of the prior fiscal year, to be in reasonable detail
(provided, however, such financial statements may not contain all footnotes
required under generally accepted accounting principles) and to be certified,
subject to normal year-end audit adjustments, by the chief financial officer of
the Company that to the best of his knowledge they are true and accurate in all
material respects as of their dates, (iii) within 20 days of receipt by the
Company, any management letters from the Company's accountants and (iv) copies
of all financial statements and reports which the Company shall send to its
stockholders or file with the Securities and Exchange Commission or any stock
exchange on which any securities of the Company may be listed.
4.2. Budget and Operating Forecast and Monthly Financial Statements.
The management of the Company will prepare and submit to the Board of Directors
of the Company a budget for each fiscal year of the Company at least 30 days
prior to the beginning of such fiscal year, together with management's written
discussion and analysis of such budget. The budget shall be accepted as the
budget for such fiscal year when it has been approved by a majority of the full
Board of Directors of the Company. The management of the Company shall review
the budget monthly and shall advise the Purchasers and the Board of Directors of
all material changes therein and all material deviations therefrom. The Company
will furnish to each Purchaser within thirty (30) days after the end of each
month, other than the last month of any fiscal quarter or of the fiscal year of
the Company, a copy of the balance sheet of the Company as of the end of such
month and consolidated statements of income and of cash flows of the Company for
such month, each of the foregoing balance sheets and statements to set forth in
comparative form the corresponding figures for the prior fiscal period, to be in
reasonable detail, to be prepared in accordance with generally accepted
accounting principles, consistently applied, and to be certified, subject to
normal year-end audit adjustments, by the principal financial officer of the
Company that to the best of his knowledge they are true and accurate in all
material respects as of their dates.
4.3. Conduct of Business. The Company will continue to engage
principally in the business now conducted by it or businesses reasonably related
to such business. The Company will keep in full force and effect its corporate
existence and all patents and other intellectual property rights used or
necessary in its business and, consistent with the disclosures made on Schedule
2.15 to the Schedule Volume, comply with
<PAGE> 17
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all applicable laws and regulations in the conduct of its business. The Company
shall cause each key employee of the Company to execute confidentiality and
invention agreements.
4.4. Payment of Taxes, Compliance with Laws, etc. The Company will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy, or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
The Company will comply with all applicable laws and regulations in the conduct
of its business.
4.5. Adverse Changes. The management of the Company will promptly
advise the Board of Directors and each Purchaser of any event which represents a
material adverse change in the condition or business, financial or otherwise, of
the Company, and of each suit or proceeding commenced or threatened against the
Company which, if adversely determined, would result in such a material adverse
change. The management of the Company will also promptly advise the Board of
Directors and each Purchaser of any violations of the covenants made herein.
4.6. Insurance. The Company will keep its insurable properties insured
by financially sound and reputable insurers against the perils of liability,
casualty, fire and extended coverage in amounts of coverage at least equal to
those customarily maintained by companies in the same or a similar business of
similar size, to the extent that such insurance is available on reasonable
terms. The Company will also maintain with such insurers insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner customary for corporations engaged in the same or a similar business of
similar size, to the extent such insurance is available on reasonable terms.
4.7. Maintenance of Properties. The Company will maintain all
properties used or useful in the conduct of its business in reasonably good
repair, working order and condition as necessary to permit such business to be
properly and advantageously conducted.
<PAGE> 18
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4.8. Affiliated Transactions. All transactions by and between the
Company and any officer, key employee or stockholder of the Company, or persons
controlled by or affiliated with such officer, key employee or stockholder shall
be conducted on an arm's-length basis, shall be on terms and conditions no less
favorable to the Company than could be obtained from nonrelated persons and
shall be approved in advance by the Board of Directors, after full disclosure of
the terms thereof.
4.9. Management Compensation. Compensation paid by the Company to its
management will be reasonably comparable to compensation paid to management in
companies of similar size, of similar maturity, and in similar industries and
approved by the Board of Directors.
4.10. Use of Proceeds. The Company shall use the proceeds of the sale
of the Purchased Shares for general corporate purposes.
4.11. Board of Directors meetings. The Company shall use its best
efforts to cause one nominee of the holders of the Class C Preferred Shares, who
shall be designated by a majority in interest of the holders of the Class C
Preferred Shares, to be recommended to the stockholders of the Company for
election as a director at all meetings of stockholders, or consents in lieu
thereof, for such purpose. The Company shall ensure that meetings of its Board
of Directors are held at least six times each year and at intervals of not more
than three months. The Certificate of Incorporation or By-Laws of the Company
shall at all times during which any nominee of the Purchasers serves as director
of the Company provide for exculpation and indemnification of the directors to
the fullest extent permitted under applicable state law. The Company will use
its best efforts to obtain and maintain director's and officer's liability
insurance providing coverage for such director of at least $1,000,000 per
occurrence, to the extent such insurance is available on reasonable terms.
4.1.2. Right to Participate in Sales of Additional Securities. If the
Company at any time wishes to sell any shares of capital stock of the Company,
or bonds, certificates of indebtedness, debentures or other securities
convertible into capital stock of the Company or options, warrants or rights
carrying any rights to purchase capital stock or convertible securities of the
Company to a third party, other than in connection with a Substantial Public
Offering, the Company will submit a written offer to the Purchasers identifying
the third party to whom such stock, securities, options, warrants or rights are
proposed to be sold, and the terms of the proposed sale, and offering to the
Purchasers the opportunity to purchase their proportionate share of such
securities on
<PAGE> 19
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terms and conditions, including price, not less favorable to the
Purchasers than those on which the Company proposes to sell such securities to
any other purchaser. Each Purchaser shall have the right to purchase his
proportionate share of such securities based on the ratio which the Common
Shares of the Company owned by said Purchaser (including all shares issuable
upon conversion of any capital stock of the Company) bears to all the issued and
outstanding shares of Common Shares of the Company (including, all such shares
issuable upon conversion of then issued and outstanding capital stock of the
Company). Each Purchaser which purchases his entire proportionate share pursuant
to the preceding sentence shall have the right to purchase his proportionate
share of the securities offered to, but not purchased by, other Purchasers based
on the ratio which the Common Shares of the Company owned by said Purchaser
(including all shares issuable upon conversion of any capital stock of the
Company) bears to all the Common Shares of the Company owned or obtainable upon
conversion of the Class C Preferred Shares held by all Purchasers which purchase
their entire proportionate share pursuant to the preceding sentence. The
Company's offer to the Purchasers shall remain open and irrevocable for a period
of thirty (30) days. Any shares so offered to the Purchasers which are not
purchased pursuant to such offer may be sold by the Company to the purchaser
originally named in the offer to the Purchasers on the same terms contained in
such offer at any time within 180 days following the date of such offer, but may
not be sold to any other person or entity or after such 180-day period without
renewed compliance with this Section 4.14. Notwithstanding the above, the
Company may issue (i) up to 3,426,624 shares of Common Shares of the Company to
employees or directors pursuant to stock options heretofore issued or hereafter
issued with the approval of the Board of Directors of the Company, (ii) any
securities on the exercise or conversion of any securities exercisable for or
convertible into other securities of the Company which are described in Schedule
2.3.1 of the Schedule Volume (iii) to Erik Kriss Common Shares in an amount not
in excess of 5% of the number of Common Shares outstanding, on a fully diluted
basis, after taking into account the issuance of such shares, the Purchased
Shares hereunder and Warrants issued to holders of the Company's Class B
Preferred Stock to purchase up to 632,275 Common Shares.
4.13. Agreement of Shareholders. The Company agrees that it will
diligently enforce all of its rights under the Agreement of Shareholders and
confidentiality and invention agreements with key employees referred to in
Section 4.3, and that it will not waive or release any such rights or consent to
any amendment of any such agreement without the written consent of a majority in
interest of the holders of the Class C Preferred Shares or Conversion Shares
with respect thereto.
<PAGE> 20
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4.14. Distributions or Redemption of Capital Stock. Except as otherwise
expressly provided herein or in Exhibit B, the Company will not declare or pay
any dividends (other than a dividend payable in shares of its Common Shares) or
make any distributions of cash, property or securities of the Company with
respect to any shares of its Common Shares or any other class of its stock, or
directly or indirectly redeem, purchase, or otherwise acquire for a
consideration any shares of its Common Shares or any other class of its stock
(other than repurchases approved by the Director elected by the Class C
Preferred Shares) of shares from directors, officers, consultants and employees
pursuant to the terms of any equity incentive plans adopted by the Company.
4.15. No Amendments to Certificate of Incorporation or By-Laws. The
Company will not make any amendment to its Certificate of Incorporation or its
By-Laws without the consent of the majority in interest of the Class C Preferred
Shares and Conversion Shares (on an as-converted basis).
4.16. Restrictions on Other Agreements. The Company will not enter into
any agreement with any party which would restrict the payments due the holders
of Class C Preferred Shares upon the mandatory redemption thereof or grant any
right relating to the registration of its Common Shares superior to or on a
parity with the rights granted to the Purchasers pursuant to the Registration
Rights Agreement attached hereto as Exhibit E.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASERS
It is the understanding of the Company, and each Purchaser hereby
severally represents and warrants to the Company with respect to such
Purchaser's purchase of Securities hereunder, that:
5.1. The execution, delivery and performance of this Agreement and the
documents and instruments executed pursuant hereto have been duly authorized by
all necessary action on the part of the Purchaser, and this Agreement
constitutes the valid, legal and binding agreement of the Purchaser, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws applicable to creditors' rights and
remedies and general principles of equity.
<PAGE> 21
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5.2. The Purchaser was not organized for the purpose of making an
investment in the Company and the Purchaser is an "accredited investor" as such
term is defined under Rule 501 under the Securities Act. A substantial portion
of the Purchaser's business activities consist of investing, purchasing, selling
or trading in securities issued by others and its investment decisions are made
by persons having such knowledge and experience in business and financial
matters as to be capable of evaluating the merits and risk of the investment
contemplated hereby. The Purchaser has total assets in excess of $5 million.
5.3. The Purchaser is acquiring the Securities for its own account, for
investment, and not with a view to any "distribution" thereof within the meaning
of the Securities Act.
5.4. The Purchaser understands that the Company may, as a condition to
the transfer of any of the Securities, require that the request for transfer be
accompanied by opinion of counsel, in form and substance satisfactory to the
Company, to the effect that the proposed transfer does not result in violation
of the Securities Act, unless such transfer is covered by an effective
registration statement under the Securities Act or by Rule 144(k) of the
Securities Act. The Purchaser understands that each certificate representing the
Securities will bear the following legend or one substantially similar thereto:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. These
shares may not be offered, sold, mortgaged, pledged,
hypothecated or otherwise transferred or disposed of, unless
sold pursuant to Rule 144(k) of the Securities Act of 1993, as
amended, without an effective registration statement for such
shares under the Securities Act of 1933, as amended, and
applicable state securities laws, or an opinion of counsel
satisfactory to the corporation that such registration is not
required.
5.5. The Purchaser has been advised that the Securities have not been
and are not being registered under the Securities Act and that the Company in
issuing the Purchased Shares is relying upon, among other things, the
representations and warranties of each Purchaser contained in this Article 5 in
concluding that the offer and sale of the Purchased Shares shall be exempt from
the provisions of Section 5 of the Securities Act.
<PAGE> 22
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5.6. There are no valid claims for brokerage commissions, finder's fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of such
Purchaser other than Link Resources.
SECTION 6. GENERAL
6.1. Amendments, Waivers and Consents. For the purposes of this
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no course
of dealing between the Company and any Purchaser and no delay on the part of any
party hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or other provision hereof
or thereof may be waived otherwise than by a written instrument signed by the
party so waiving such covenant or other provision; provided, however, that
except as otherwise provided herein or therein, changes in or additions to, and
any consents required by this Agreement may be made, and compliance with any
term, covenant, condition or provision set forth herein may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively) by a consent or consents in writing signed by the holders of at
least a majority in interest of the holders of Class C Preferred Shares (on an
as-converted basis) and Conversion Shares and (in the case of a change or
addition to this Agreement) the Company. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Securities purchased under this Agreement at the time outstanding (including
Securities into which Securities have been converted), each future holder of all
Securities, and the Company.
6.2. Survival of Covenants; Assignability of Rights. All covenants,
agreements, representations and warranties of the Company made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished to any Purchaser in connection herewith shall be deemed material
and to have been relied upon by such Purchaser, and, except as provided
otherwise in this Agreement, shall survive the delivery of the Purchased Shares,
and shall bind the Company's successors and assigns, whether so expressed or
not, and, except as provided otherwise in this Agreement, all such covenants,
agreements, representations and warranties shall inure to the benefit of the
Purchasers' successors and assigns and to transferees of the Securities, whether
so expressed or not.
<PAGE> 23
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6.3. Governing Law. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of The
Commonwealth of Massachusetts.
6.4. Section Headings. The descriptive headings in this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
6.5. Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
6.6. Notices and Demands. All notices, requests, payments, instructions
or other documents to be given hereunder shall be in writing or by written
telecommunication, and shall be deemed to have been duly given if (i) delivered
personally (effective upon delivery), (ii) mailed by certified mail, return
receipt requested, postage prepaid (effective five business days after
dispatch), (iii) sent by a reputable, established courier service that
guarantees next business day delivery (effective the next business day), or (iv)
sent by telecopier followed within 24 hours by confirmation by one of the
foregoing methods (effective upon receipt of the telecopy in complete, readable
form), addressed as follows (or to such other address as the recipient may have
furnished for the purpose pursuant to this Section 6.6):
(A) if to the Company, to the address shown on the signature page
hereto;
with a copy to: Bingham Dana & Gould
150 Federal Street
Boston, MA 02110
Attn: Victor Paci
(B) if to a Purchaser, to its address shown on Exhibit A hereto; and
with a copy to: Ropes & Gray
One International Place
Boston, MA 02110
Attn: Mary E. Weber
<PAGE> 24
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(C) if to a permitted assignee of a Purchaser, to its address as
designated to the Company in writing (or if none, to the last address of the
Assignor given to the Company pursuant to this Section 6.6).
6.7. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions or this Agreement.
6.8. Expenses. At the closing the Company shall pay all reasonable
costs and expenses incurred by the Purchasers with respect to the negotiation,
execution, delivery and performance of this Agreement and any related documents
including, without limitation, the Purchasers' attorneys' fees and expenses and
up to $30,000 of any fees and expenses of Link Resources.
6.9. Termination of Section 4. If the Company's Stock Purchase
Agreements dated August 4, 1986 and October 13, 1987 are amended to provide that
the Company will not be required to comply with the covenants contained in
Section 4 of each of such agreements, the Company shall not be required to
comply with the covenants contained in Section 4 herein at any time when all
Purchased Shares shall have been converted into Common Shares.
[The remainder of this page has been intentionally left blank]
<PAGE> 25
-22-
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
MEDIQUAL SYSTEMS, INC.
By: /s/ Eric Kriss
-----------------------------------
Title: President and Chief Executive Officer
Address:
1900 West Park Drive
Westborough, MA 01581
INFORMATION PARTNERS CAPITAL
FUND, L.P.
By Information Partners
By: /s/ David Dominik
-----------------------------------
Title: General Partner
BCIP ASSOCIATES
By: /s/ David Dominik
-----------------------------------
Title: General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ David Dominik
-----------------------------------
Title: General Partner
<PAGE> 26
-23-
EXHIBIT A
PURCHASERS
<TABLE>
<CAPTION>
Number of Class C Aggregate Purchase
Preferred Shares Price of Class C
Name and Address Purchased Preferred Shares
- ---------------- --------- ----------------
<S> <C> <C>
Information Partners 1,870.35 $1,850,000.00
Capital Fund, L.P.
Two Copley Place
Boston, MA 02110
Attn: David Dominik
BCIP Associates 47.64 47,121.65
Two Copley Place
Boston, MA 02110
Attn: David Dominik
BCIP Trust Associates, 104.01 102,878.34
-------- -------------
L.P.
Two Copley Place
Boston, MA 02110
Attn: David Dominik
2,022.00 $2,000,000.00
======== =============
</TABLE>
<PAGE> 1
10.15
MEDIQUAL SYSTEMS, INC.
1900 West Park Drive
Westborough, Massachusetts 01581
April 27, 1993
To the Purchasers (the "Purchasers") Listed
on Exhibit A of that certain Class C
Convertible Preferred Stock Purchase Agreement
(the "Stock Purchase Agreement")
dated as of April 1, 1993
c/o Information Partners Capital Fund, L.P.
Two Copley Place
Boston, MA 02116
Re: Purchase of Shares of Series C Preferred Stock, $.01
par value (the "Shares"), of MediQual Systems, Inc.
(the "Company")
Ladies and Gentlemen:
This Letter Agreement is entered into by the Company to induce the
Purchasers to close the transaction contemplated by the Stock Purchase Agreement
and purchase the Shares. Capitalized terms not otherwise defined herein are used
herein as defined in the Stock Purchase Agreement.
Pursuant to Section 1.1 of the Stock Purchase Agreement, the Company
has agreed to issue and sell to the Purchasers of that number of Shares which
would at the time of purchase, on an as converted basis, equal 8.83006% of the
outstanding Common Shares, assuming the conversion and exercise of all
outstanding securities convertible into or exercisable for Common Shares
including the Shares but excluding Common Shares issued to Eric Kriss (the
"Kriss Shares") and warrants (the "Warrants") to purchase up to 632,275 Common
Shares issued or to be issued to holders of the Company's Class B Preferred
Stock, $.01 par value. Such number of Shares which are outstanding on such
basis, excluding the number of Common Shares issuable upon conversion of the
Shares, is referred to herein as the 'Share Number." Although there are
uncertainties with respect to the number of Common Shares outstanding on such
basis, the number of Shares to be issued to the Purchasers has
<PAGE> 2
-2-
To the Purchasers Listed
on Exhibit A
been set at 2,022,000 Common Shares) based on the assumption that the Share
Number is 20,875,143.
The Company hereby agrees that if it is determined at any time that the
Share Number would have been greater than 20,875,143 for any reason including
without limitation (i) that application of any anti-dilution provisions
applicable to any of the Company's securities or derivative securities in
connection with the issuance of any of the Company's securities (the "Existing
Securities") prior to the date hereof, the Shares, the Kriss Shares or the
Warrants, (ii) the issuance of additional securities or derivative securities of
the Company as a result of the exercise of preemptive rights in connection with
the issuance of the Existing Securities, the Shares, the Kriss Shares, or the
Warrants or (iii) the application or exercise of any other rights affected by
the issuance of the Existing Securities, the Shares, the Kriss Shares or the
Warrants, then the Company shall issue to the purchasers, pro rata based on the
numbers set forth opposite such Purchasers' names on Exhibit A to the Stock
Purchase Agreement, for no additional consideration other than $.01 per
additional share (subject to adjustment for stock splits, stock dividends and
the like with respect to the Series C Preferred Stock) that number of additional
shares which on an as-converted basis would equal 8.83006% of the sum of (i) the
amount by which the Share Number exceeds 20,875,143, plus (ii) the number of
additional shares to be issued pursuant to this calculation, on an as-converted
basis.
If the foregoing properly sets forth your understanding of our
agreement to issue additional shares, please sign this letter below to indicate
your agreement with, and acceptance, of these terms.
Very truly yours,
MEDIQUAL SYSTEMS, INC.,
By: /s/ Eric Kriss
-----------------------
Title: President
<PAGE> 3
-3-
To the Purchasers Listed
on Exhibit A
AGREED AND ACCEPTED BY:
INFORMATION PARTNERS
CAPITAL FUND, L.P.
BY: Information Partners
By:________________________________________
Title General Partner
BCIP ASSOCIATES
By:________________________________________
Title: General Partner
BCIP TRUST ASSOCIATES, L.P.
By:________________________________________
Title: General Partner
<PAGE> 1
10.16
REGISTRATION RIGHTS AGREEMENT
This AGREEMENT (the "Agreement") is made as of April 27, 1993 by and
among MediQual Systems, Inc., a Delaware corporation (the "Company"), the
Purchasers listed on Exhibit A hereto (the "Purchasers"), and the Investors
listed on Exhibit B hereto (the "Investors").
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company and the Purchasers have entered into a Stock Purchase
Agreement (the "Purchase Agreement") in connection with the issuance and sale of
shares of the Class C Preferred Shares (as defined in the Purchase Agreement);
WHEREAS, pursuant to stock purchase agreements (the "Class B Purchase
Agreements") with the Company dated August 4, 1986 and October 13, 1987, the
Investors have certain rights to registration of securities under the Securities
Act of 1933, as amended, in connection with the purchase by the Investors of
shares of the Company's Class B Preferred Shares and such Investors desire to
integrate such rights with those of the Purchasers;
WHEREAS, the Purchasers and each of Alan Brewster, InterQual, Inc.,
John L. Kordash, Michael W. Broderick and James A. Block have entered into
common stock purchase agreements (the "Common Stock Purchase Agreements") in
connection with the purchase of 1,107,611 shares (the "Purchased Common Shares")
of the Company's Common Stock, $.001 par value (the "Common Shares") and options
("Options") to purchase up to 1,107,611 Common Shares;
WHEREAS, certain of the Investors have on the date hereof been issued
Warrants (the "Warrants") to purchase an aggregate of 632,275 Common Shares; and
WHEREAS, it is a condition to the purchase of the Class C Preferred
Shares pursuant to the Purchase Agreement and the Purchase Common Shares and
Options pursuant to the Common Stock Purchase Agreements that the parties hereto
enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
<PAGE> 2
-2-
1. Registration Rights.
1.1. Definitions.
(a) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of
1933, as amended (the "1933 Act"), and the automatic effectiveness or
the declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registrable Securities" means (1) the Common
Shares, $.001 par value (the "Common Shares"), of the Company issuable
or issued upon conversion of the Class C Preferred Shares, (2) Common
Shares issuable or issued upon conversion of the Class B Preferred
Shares, (3) the Purchased Common Shares, (4) any Common Shares issued
upon exercise of the Options, (5) any Common Shares issuable upon
exercise of the Warrants, (6) up to 300,000 Common Shares issued or
issuable upon exercise of certain options (the "Investor Options")
issued to certain Investors on January 5, 1986, as the same may have
been amended or extended and (7) any Common Shares of the Company
issued as (or issuable upon the conversion or exercise of any warrant,
right, or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of,
the ownership interest described in (1), (2), (3), (4), (5) or (6) of
this paragraph; provided, however, that any securities previously sold
to the public pursuant to a registered public offering or pursuant to
an exemption from the registration requirements of the 1933 Act shall
cease to be Registrable Securities;
(c) The amount of Registrable Securities outstanding at any
time shall be determined by adding the amount of securities outstanding
which are, and the amount of securities issuable pursuant to then
exercisable or convertible securities which upon issuance would be,
Registrable Securities;
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof;
(e) The terms "Form S-1", "Form S-2", "Form S-3", "Form S-4"
and "Form S-8" mean such respective forms under the 1933 Act as in
effect on the date hereof or any successor registration forms to "Form
S-1", Form S-2, Form S-3, Form S-4 and Form S-8,
<PAGE> 3
-3-
respectively, under the 1933 Act subsequently adopted by the
Securities and Exchange Commission ("SEC").
1.2. Request for Registration.
(a) If the Company shall receive at any time a written request
from the (x) Purchasers holding at least 50% of the Registrable
Securities then held by all Purchasers or (y) Investors holding at
least 50% of the Registrable Securities then held by all Investors
(such Purchasers or Investors, as the case may be, are referred to as
the "Initiating Holders") that the Company effect the registration
under the 1933 Act of Registrable Securities, then the Company shall,
within five business days of the receipt thereof, give written notice
of such request to all Holders and shall, subject to the limitations of
this Section 1.2, use its best efforts to effect such a registration as
soon as practicable and in any event to file within 120 days of the
receipt of such request a registration statement under the 1933 Act
covering all the Registrable Securities which the Holders shall in
writing request (given within 20 days of receipt of the notice given by
the Company pursuant to this Section 1.2(a)) to be included in such
registration and to use its best efforts to have such registration
statement become effective; provided, however, if such registration is
the initial public offering of the Company, the Company shall not be
obligated to effect such registration pursuant to this Section 1.2(a)
unless the Initiating Holders request registration of at least
$5,000,000 of Registrable Securities at a sale price to the public of
at least $3.00 per share (appropriately adjusted for stock splits,
stock dividends and the like).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as part of their request
made pursuant to this Section 1.2 and the Company shall include such
information in the written notice referred to in subsection 1.2(a). In
such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together
with the Company as provided in subsection 1.4(d)) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for
<PAGE> 4
-4-
such underwriting by a majority in interest of the Holders
participating in such underwriting. Notwithstanding any other provision
of this Section 1.2, if, in the case of a registration requested
pursuant to Section 1.2(a), the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Initiating Holders shall
so advise all Holders of Registrable Securities which would otherwise
be underwritten pursuant hereto, and the number of Registrable
Securities that may be included in the underwriting shall be allocated
pro rata among all Holders thereof desiring to participate in such
underwriting (according to the number of Registrable Securities then
held by each Holder).
(c) The Company is obligated to effect only two registrations
pursuant to requests by Purchasers pursuant to Section 1.2(a) and two
registrations pursuant to requests by Investors pursuant to Section
1.2(a); provided, however, that no registration of Registrable
Securities which shall not have become and remained effective in
accordance with Section 1.4 hereof and no registration of Registrable
Securities pursuant to which the Initiating Holders and all other
Holders of Registrable Securities joining therein are not able to
include at least 50% of the Registrable Securities which they desire to
include, shall be deemed to be a registration for any purpose of this
sentence.
(d) Notwithstanding the foregoing, (i) the Company shall not
be obligated to effect the filing of a registration statement pursuant
to this Section 1.2 or Section 1.11 during the six months following the
effective date of a registration statement pertaining to the
underwritten public offering of securities for the account of the
Company, or (ii) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 1.2 a certificate
signed by the President of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would not be in
the best interests of the Company generally for such registration
statement to be filed, the Company shall have the right to defer such
filing for a period of not more than 90 days after receipt of the
request of the Initiating Holders (or until the expiration of the
six-month period referred to in Section 1.2(d)(i) above, if
applicable); provided, however, that the Company may not utilize the
right set forth in this subsection (d)(ii) more than once in any
twelve-month period.
<PAGE> 5
-5-
(e) Each registration requested pursuant to Section 1.2(a)
shall be effected by the filing of a registration statement on Form S-1
(or if such form is not available, any other form which includes
substantially the same information (other than by incorporating by
reference) as would be required to be included in a registration
statement on such form as currently constituted), unless the use of a
different form is consented to by Initiating Holders holding a majority
of Registrable Securities held by all Initiating Holders.
1.3. Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for holders other than the Holders) any of its ownership
interests or other securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a registration on Form
S-8, or a registration on Form S-4 or any successor form), the Company shall, at
such time, promptly give each Holder written notice of such registration. Upon
the written request of any Holder given within 20 days after mailing of such
notice by the Company the Company shall, subject to the provisions of Section
1.7, use its best efforts to cause a registration statement covering all of the
Registrable Securities that each such Holder has requested to be registered to
become effective under the 1933 Act. The Company shall be under no obligation to
complete any offering of its securities it proposes to make and shall incur no
liability to any Holder for its failure to do so.
1.4. Obligations of the Company. Whenever required under this Section 1
to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible: Prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to 180 days or, if earlier, until the Holders have informed the
Company in writing that the distribution of their securities has been completed;
and shall:
(a) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement, and use its best efforts
to cause each such amendment to become and remain effective for a
period of at least 180 days, as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement.
<PAGE> 6
-6-
(b) Furnish to the Holders such reasonable number of copies of
a prospectus, including a preliminary prospectus, in conformity with
the requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(c) Use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdiction.
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement,
including furnishing any opinion of counsel or entering into a lock-up
agreement reasonably requested by the managing underwriter.
(e) Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto covered by such registration statement is required to be
delivered under the 1933 Act, of the happening of any event as a result
of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing and promptly file such amendments and
supplements which may be required pursuant to subparagraph (b) of this
Section 1.4 on account of such event and use its best efforts to cause
each such amendment and supplement to become effective.
(f) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to
this Section 1, if such securities are being sold through underwriters,
or, if such securities are not being sold through
<PAGE> 7
-7-
underwriters on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion, dated
such date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given by
company counsel to the underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities, if any, and (ii) a letter dated
such date, from the independent certified public accountant of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(g) Apply for listing and use its best efforts to list the
Registrable Securities, if any, being registered on any national
securities exchange on which a class of the Company's equity securities
is listed or, if the Company does not have a class of equity securities
listed on a national securities exchange, apply for qualification and
use its best efforts to qualify the Registrable Securities, if any,
being registered for inclusion on the automated quotation system of the
National Association of Securities Dealers, Inc.
1.5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 in
respect of the Registrable Securities of any selling Holder that such selling
Holders, if any, shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
1.6. Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions relating to Registrable Securities
incurred in connection with each registration, filings or qualifications
pursuant to Section 1.2(a) and each registration, filing or qualification
pursuant to Section 1.11, including (without limitation) all registration,
filing and qualification fees, printing and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company. Underwriting discounts and commissions relating to Registrable
Securities will be borne and paid ratably by the Holders of such Registrable
Securities.
<PAGE> 8
-8-
1.7 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder, including, without limitation, all
registration, filing and qualification fees, printing and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders. Underwriting discounts and
commissions relating to Registrable Securities will be borne and paid ratably by
the Holders of such Registrable Securities.
1.8. Underwriting Requirements. In connection with any offering
involving an underwriting of securities being issued by the Company, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as reasonably agreed upon between the Company and the underwriters selected by
it, and then only in such quantity, if any, as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Company. If the
managing underwriter for the offering shall advise the Company in writing that
the total amount of securities, including Registrable Securities, requested by
shareholders to be included in such offering exceeds the amount of securities to
be sold other than by the Company that can be successfully offered, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the managing underwriter
believes will not jeopardize the success of the offering (in such event, the
amount of Registrable Securities which each selling Holder will be entitled to
include in such offering will be determined on a pro rata basis, in accordance
with the amount of Registrable Securities then held by all selling Holders),
provided, however, that the number of Registrable Securities to be included in
the offering shall not be reduced unless the securities to be included in such
offering for the account of any person other than the Company, the Purchasers or
the Investors are first excluded from such offering. For purposes of
apportionment pursuant to this Section 1.8, for any selling Holder which is a
Holder of Registrable Securities and which is a partnership or a corporation,
the partners, retired partners and shareholders of such Holder, or the estates
and family members of such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall collectively be deemed to be a
'selling Holder', and any pro rata reduction with respect to such 'selling
Holder' shall be based upon the aggregate amount of shares carrying registration
rights owned by all entities and individuals included in such 'selling Holder',
as defined in this sentence.
<PAGE> 9
-9-
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1, and in connection
with any registration statement or other disclosure document produced by or on
behalf of the Company:
(a) The Company will indemnify and hold harmless each Holder,
the officers, directors, partners, agents and employees of each Holder,
any underwriter (as defined in the 1933 Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as
amended (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under
the 1933 Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following
statements, omissions or violations (a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading, or (iii) any violation or alleged violation by
the Company of the 1933 Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the 1933 Act, the 1934 Act or
any state securities law. The Company will reimburse each such Holder,
officer, director, partner, agent, employee, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action. The indemnity agreement contained in this
subsection 1.9(a) shall not apply to amounts paid in settlement of any
loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable to a Holder in
any case for any loss, claim, damage, liability, or action (i) to the
extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf
of such Holder, underwriter or controlling person or (ii) in the case
of a sale directly by a Holder of Registrable Securities (including a
sale of such Registrable Securities through any underwriter retained by
such Holder to engage in a distribution solely on behalf of such
Holder),
<PAGE> 10
-10-
such untrue statement or alleged untrue statement or omission
or alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and such Holder failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Registrable Securities to the person
asserting any such loss, claim, damage or liability in any case where
such delivery is required by the Securities Act.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement, that the Company
shall have received an undertaking from the prospective selling Holder
that such selling Holder will indemnify and hold harmless the Company,
directors and officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the 1933
Act, each agent and any underwriter for the Company, and any other
Holder selling securities in such registration statement or any of its
directors, officers, partners, agents or employees or any person who
controls such Holder or underwriter, against any losses, claims,
damages, or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, agent, or underwriter or
controlling person, or other such Holder or director, officer or
controlling person may become subject, under the 1933 Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity
with written information furnished by or on behalf of such Holder
expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling person, agent
or underwriter or controlling person, other Holder, officer, director,
partner, agent, employee, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the liability of any Holder under any
agreement pursuant to this subsection 1.9(b) shall be limited to the
amount of net proceeds (after deduction of all underwriters' discounts
and commissions and all other expenses paid by such Holder in
connection with the registration in question) received by such Holder
in the offering giving rise to the Violation; and provided further that
any indemnity agreement pursuant to this subsection 1.9(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the
<PAGE> 11
-11-
consent of the Holder, which consent shall not be unreasonably withheld
nor, in the case of a sale directly by the Company of its securities
(including a sale of such securities through any underwriter retained
by the Company to engage in a distribution solely on behalf of the
Company), shall the Holder be liable to the Company in any case in
which such untrue statement or alleged untrue statement or omission or
alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and the Company failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the securities to the person asserting any
such loss, claim, damage or liability in any case where such delivery
is required by the 1933 Act.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 1.9, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume
and control the defense thereof with counsel mutually satisfactory to
the parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the fees and expenses to be
paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests, as
reasonably determined by either party, between such indemnified party
and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this Section 1.9
to the extent of such prejudice, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this
Section 1.9.
(d) The obligations of the Company and the Holders under this
Section 1.9 shall remain in full force and effect regardless of any
investigation made by any indemnified party and survive
<PAGE> 12
-12-
completion of any offering of Registrable Securities in a registration
statement whether under this Section 1 or otherwise.
(e) If the indemnification provided for in this Section 1.9 is
unavailable to a party that would have been an indemnified party under
such Section in respect of any losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) referred to therein,
then each party that would have been an indemnifying party thereunder
shall, in lieu of indemnifying such indemnified party, contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) in such proportion as is appropriate to reflect the
relative fault of such indemnifying party on the one hand and such
indemnified party on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities
(or actions or proceedings in reference to, among other things, whether
the Violation relates to information supplied by such indemnifying
party or such indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such Violation. The parties agree that it would not be just and
equitable if contribution pursuant to this Section 1.9(e) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
in the preceding sentence. The amount paid or payable by a contributing
party as a result of the losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to above in this
Section 1.9(e) shall include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The liability of
any Holder of Registrable Securities in respect of any contribution
obligation of such Holder (after deduction of all underwriters'
discounts and commissions and all other expenses paid by such Holder in
connection with the registration in question) arising under this
Section 1.9(e) shall not in any event exceed an amount equal to the net
proceeds to such Holder from the disposition of the Registrable
Securities disposed of by such Holder pursuant to such registration.
1.10. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 and 144A
<PAGE> 13
-13-
promulgated under the 1933 Act and any other rule or regulation of the SEC that
may at any time permit a Holder to sell securities of the Company to the public
without registration, and with a view to making it possible for Holders to
register the Registrable Securities pursuant to a registration on Form S-2 or
Form S-3, the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at
all times after 90 days after the effective date of the first
registration statement filed by the Company for the offering of its
securities to the general public;
(b) take such action, including the voluntary registration of
its securities under Section 12 of the 1934 Act, as is necessary to
enable the Holders to utilize Form S-2 and Form S-3 for the sale of
their Registrable Securities;
(c) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under
the 1933 Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement
by the Company as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), or as to its
qualification as a registrant whose securities may be resold pursuant
to Form S-2 or Form S-3 (at any time it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested in availing any Holder
of any rule or regulation of the SEC which permits the selling of any
such securities without registration or pursuant to such form.
(e) at all times during which the Company is neither subject
to the reporting requirements of Section 13 or 15(d) of the 1934 Act,
nor exempt from reporting pursuant to Rule 12g3-2(b) under the 1934
Act, provide in written form, upon the written request of any Holder,
or a prospective purchaser of securities of the Company from such
Holder, all information required by Rule 144A(d)(4)(i) of the General
Regulations promulgated by the SEC under the 1933 Act ("144A
Information"); the Company further agrees, upon written request, to
cooperate with and assist any
<PAGE> 14
-14-
Holder or any member of the National Association of Securities Dealers,
Inc. system for Private Offerings Resales and Trading through Automated
Linkages ("PORTAL") in applying to designate and thereafter maintaining
the eligibility of the Company's securities for trading through PORTAL.
With respect to each Holder, the Company's obligations under this
Section 1.10(e) shall at all times be contingent upon such Holder's
obtaining from a prospective purchaser an agreement to take all
reasonable precautions to safeguard the 144A Information from
disclosure to anyone other than employees of the prospective purchaser
who require access to the 144A Information for the sole purpose of
evaluating its purchase of the Company's securities.
1.11. Form S-3 Registration. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 or Form S-2 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders in an amount reasonably likely to be sold for gross proceeds of not
less than $250,000, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) use its best efforts to effect, as soon as practicable,
such registration, qualification or compliance as may be so requested
and as would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 20 days
after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section
1.10 if: (1) Form S-3 or Form S-2, as the case may be, is not available
for such offering by the Holders or (2) the Company shall furnish to
the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of
the Company, it would not be in the best interests of the Company for
such Form S-3 or Form S-2, as the case may be, registration to be
effected at such time, in which event the Company shall have the right
to defer the filing of the Form S-3 or Form S-2, as the case may be,
registration for a period of not more than 90
<PAGE> 15
-15-
days after receipt of the request of the Holder or Holders under this
Section 1.11, provided, however, that the Company shall not utilize
this right more than once in any twelve-month period.
1.12. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of Purchasers holding a majority of the Registrable Securities then held by all
Purchasers and Investors holding a majority of the Registrable Securities then
held by all Investors, enter into any agreement with any holder or prospective
holder of any securities of the Company relating to registration rights unless
such agreement includes: (a) to the extent the agreement would allow such holder
or prospective holder to include such securities in any registration filed under
Section 1.2 or 1.3 hereof, a provision that such holder or prospective holder
may include such securities in any such registration only to the extent that the
inclusion of its securities will not reduce the amount of the Registrable
Securities of the Holders which would otherwise be included; (b) to the extent
the agreement would allow such holder or prospective holder to include such
securities in any registration effected pursuant to Section 1.2 or 1.3 hereof, a
provision that the rights of such holder to participate in such registration
shall permit participation on no greater level than that of the Holders; and (c)
no provision which would allow such holder or prospective holder to make a
demand registration which could result in (i) the registration of less than
$5,000,000 of securities in the initial public offering of the Company's
securities at a sale price to the public of less than $3.00 per share of Common
Share (as adjusted for stock splits, stock dividends and the like or (ii) such
registration statement being declared effective within six months after the
effective date of any registration effected pursuant to Section 1.
2. Miscellaneous.
2.1. Notices. All notices, requests, payments, instructions or other
documents to be given hereunder shall be in writing or by written
telecommunication, and shall be deemed to have been duly given if (i) delivered
personally (effective upon delivery), (ii) mailed by certified mail, return
receipt requested, postage prepaid (effective five business days after
dispatch), (iii) sent by a reputable, established courier service that
guarantees next business day delivery (effective the next business day), or (iv)
sent by telecopier followed within 24 hours by confirmation by one of the
foregoing methods (effective upon receipt of the telecopy in complete, readable
form), addressed as follows (or to such other address as the recipient may have
furnished for the purpose pursuant to this Section 6.6):
<PAGE> 16
-16-
(A) if to the Company, to the address shown on the signature page
hereto;
with a copy to: Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110-1726
Attention: Victor Paci, Esq.
(B) if to a Purchaser, to its address shown on Exhibit A hereto;
with a copy to: Ropes & Gray
One International Place
Boston, MA 02110-2624
Attention: Mary E. Weber, Esq.
(C) if to an Investor, to its address shown on Exhibit B hereto; and
with a copy to: Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109-2881
` Attention: Jeffrey C. Hadden, Esq.
(D) if to a permitted assignee of a Purchaser, to its address as
designated to the Company in writing (or if none, to the last address of the
Assignor given to the Company pursuant to this Section 6.6).
or such other address as may be furnished in writing to the other parties
hereto. All such notices, requests, demands and other communication shall, when
mailed (registered or certified mail, return receipt requested, postage
prepaid), personally delivered, or telegraphed, be effective four days after
deposit in the mails, when personally delivered, or when delivered to the
telegraph company, respectively, addressed as aforesaid, unless otherwise
provided herein and, when telecopied, shall be effective upon actual receipt.
2.2. Entire Agreement; Termination of Prior Agreements. This Agreement
constitutes the entire agreement of the parties with respect to the matters
contemplated herein. This Agreement supersedes any and all prior understandings
or agreements as to the subject matter of this Agreement including, without
limitation, the provisions of Section 6 of each of the Class B Purchase
Agreements and any provisions relating to registrations contained in any
Investor Options.
<PAGE> 17
-17-
2.3. Amendments, Waivers and Consents. Any provision in this Agreement
to the contrary notwithstanding, changes in or additions to this Agreement may
be made, and compliance with any covenant or provision herein set forth may be
omitted or waived, if the Company (i) shall obtain consent thereto in writing
from Purchasers holding a majority of the aggregate of the Registrable
Securities then held by all Purchasers and from Investors holding a majority of
the aggregate of the Registrable Securities then held by all Investors and (ii)
shall, in each such case, deliver copies of such consent in writing to any
Holders who did not execute the same.
2.4. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the personal representatives, successors and assigns
of the respective parties hereto. In addition, whether or not any express
assignment has been made, the provisions of this Agreement shall also inure to
the benefit of, and be enforceable by, all transferees or Registrable Securities
unless the rights hereunder are expressly not assigned, provided, however, that
the rights hereunder may only be transferred to other Holders, affiliates
thereof or persons acquiring at least 5,000 shares of Registrable Securities or
such lesser number if such transfer is a transfer of all the Registrable
Securities then held by such Holder. The Company shall not have the right to
assign its obligations hereunder or any interest herein without obtaining the
prior written consent of the Holders in accordance with Section 2.3.
2.5. General. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural, the singular, the masculine gender includes the neuter,
masculine and feminine genders. This Agreement shall be governed by and
construed under the laws of The Commonwealth of Massachusetts.
2.6. Severability. If any provisions of this Agreement shall be found
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
<PAGE> 18
-18-
2.7. Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute one and the same instrument.
2.8. Specific Performance. The Company recognizes that the rights of
the Holders under this Agreement are unique, and, accordingly, the Holders
shall, in addition to such other remedies as may be available to them at law or
in equity, have the right to enforce their rights hereunder by actions for
injunctive relief and specific performance to the extent permitted by law. This
Agreement is not intended to limit or abridge any rights of the Holders which
may exist apart from this Agreement.
2.9 Dominion Warrant. For purposes of Sections 1.2(b) hereof and 1.8
hereof, (i) the term "Registrable Securities" shall include shares issuable upon
conversion of the Company's Class B Preferred Shares issuable upon exercise of
that certain Warrant to Purchase 35,000 shares of Series 1987 Class B Preferred
Stock issued to Dominion Ventures, Inc. on December 22, 1987 and (ii) the term
"Holder" shall also mean Dominion Ventures, Inc.
[The remainder of this page has been intentionally left blank.]
<PAGE> 19
-19-
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
MEDIQUAL SYSTEMS, INC.
By: /s/ William C. Price
------------------------------
Title: Chief Financial Officer
------------------------------
PURCHASERS
INFORMATION PARTNERS CAPITAL
FUND, L.P.
By Information Partners
By: /s/ David Dominik
------------------------------
Title: General Partner
BCIP ASSOCIATES
By: /s/ David Dominik
------------------------------
Title: General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ David Dominik
------------------------------
Title: General Partner
<PAGE> 20
-20-
INVESTORS
- --------------------------- -------------------------------
ERNEST BROPHY PATRICIA C. NOPRIS
- --------------------------- -------------------------------
CLARK WACKERMAN ROBERT S. STRASENBURGH
- --------------------------- -------------------------------
JOHN W. HANDY BETTY STRASENBURGH
- --------------------------- -------------------------------
RALPH PEEK ANTHONY J. CALDERONE
- --------------------------- -------------------------------
E. ANTHONY WILSON ROBERT W. MEAD
- --------------------------- -------------------------------
MARYANN B. HENDERSON DANIEL J. MORGAN
- --------------------------- -------------------------------
RICHARD J. DORSCHEL JOHN J. DORSCHEL
<PAGE> 21
-21-
ADVENT V LIMITED ADVENT CHESTNUT II LIMITED
PARTNERSHIP PARTNERSHIP
By: TA Associates V, General By: TA Associates IV, General
Partner Partner
By: /s/ Robert Daly By: /s/ Robert Daly
----------------------- -----------------------
ADVENT ATLANTIC & PACIFIC DESIFTA, S.A.
LIMITED PARTNERSHIP By: TA Associates V,
By: TA Associates V, General Attorney-in-Fact
Partner
By: /s/ Robert Daly By: /s/ Robert Daly
----------------------- -----------------------
CHESTNUT CAPITAL TA INVESTORS
INTERNATIONAL II
By: TA Associates V, General
Partner
By: /s/ Robert Daly By: /s/ Robert Daly
----------------------- -----------------------
Attorney-in-Fact
ADVENT INDUSTRIAL LIMITED MICI MEDICAL SEED FUND,
PARTNERSHIP a Limited Partnership
By: TA Associates V, General
Partner
By: /s/ Robert Daly By: /s/ Timothy Maudlin
----------------------- -----------------------
Timothy Maudlin,
President of its
General Partner
BLUE CROSS-BLUE SHIELD OF
MINNESOTA, INC.
By: /s/ Norman Storbakken
-------------------------------
Title: CFO
<PAGE> 22
-22-
Exhibit A
PURCHASERS
Information Partners Capital Fund, L.P.
Two Copley Place, 7th Floor
Boston, Massachusetts 02216
Attention: David Dominik
BCIP Associates
Two Copley Place, 7th Floor
Boston, Massachusetts 02216
BCIP Trust Associates, L.P.
Two Copley Place, 7th Floor
Boston, Massachusetts 02216
<PAGE> 23
Exhibit B
INVESTORS
Blue Cross-Blue Shield
of Minnesota, Inc.
3535 Blue Cross Road
St. Paul, MN 55164
Ernest Brophy
140 Allens Creek Road
Rochester, NY 14618
Clark Wackerman
- ---------------------------
- ---------------------------
John W. Handy
- ---------------------------
- ---------------------------
Ralph Peek
c/o MQ-Roc, Inc.
150 West Broad Street
Rochester, NY 14614
E. Anthony Wilson
- ---------------------------
- ---------------------------
Maryann B. Henderson
- ---------------------------
- ---------------------------
Patricia C. Norris
- ---------------------------
- ---------------------------
Robert J. Strasenburgh
- ---------------------------
- ---------------------------
Betty Strasenburgh
- ---------------------------
<PAGE> 24
-24-
- ---------------------------
Anthony J. Calderone
- ---------------------------
- ---------------------------
Robert W. Mead
- ---------------------------
- ---------------------------
Daniel J. Morgan
- ---------------------------
- ---------------------------
John J. Dorschel
- ---------------------------
- ---------------------------
TA Purchasers:
ADVENT V LIMITED PARTNERSHIP
c/o TA Associates
45 Milk Street
Boston, MA 02109
ADVENT INDUSTRIAL LIMITED PARTNERSHIP
c/o TA Associates
45 Milk Street
Boston, MA 02109
CHESTNUT CAPITAL INTERNATIONAL II
c/o TA Associates
45 Milk Street
Boston, MA 02109
ADVENT CHESTNUT II LIMITED PARTNERSHIP
c/o TA Associates
45 Milk Street
Boston, MA 02109
<PAGE> 25
-25-
DESIFTA, S.A.
c/o TA Associates
45 Milk Street
Boston, MA 02109
TA INVESTORS
c/o TA Associates
45 Milk Street
Boston, MA 02109
MICI MEDICAL SEED FUND, a Limited Partnership
c/o Medical Innovation Capital, Inc.
Suite 400
1201 Marquette Avenue
Minneapolis, MN 55403
ADVENT ATLANTIC & PACIFIC LIMITED PARTNERSHIP
c/o TA Associates
45 Milk Street
Boston, MA 02109
<PAGE> 1
EXHIBIT 10.17
AGREEMENT OF SHAREHOLDERS
This AGREEMENT dated as of the 27th day of April, 1993, by and among
MediQual Systems, Inc., a Delaware corporation (the "Company"), William D. Ryan,
Charles M. Jacobs and Alan C. Brewster, M.D. (the "Shareholders"), those persons
whose names are set forth on Exhibit B hereto (the "Purchasers") and those
persons whose names are set forth on Exhibit C hereto (the "Investors")
WHEREAS, each of the Shareholders owns that number of shares of common
stock, $.001 par value (the "Common Shares") or of Class A Preferred Shares, no
par value (the "Class A Preferred Shares") set forth next to his name on Exhibit
A. For purposes of this Agreement, the term "Shares" shall mean and include all
shares of Common Shares or capital stock or other securities convertible into or
exchangeable or exercisable for Common Shares of the Company Owned by any
Shareholder, whether presently held or hereafter acquired, including, without
limitation, any shares, securities or other rights received as the result of any
stocksplit, stock dividend or other capital reorganization of the Company;
WHEREAS, pursuant to the Class C Convertible Preferred Stock Purchase
Agreement dated as of April 1, 1993 (the "Class C Purchase Agreement") among the
Company and the Purchasers, the Purchasers on the date hereof have purchased
shares of the Company's Class C Preferred Shares, $.01 par value (the "Class C
Preferred Shares") and have also acquired 1,107,611 shares of the Company's
Common Shares (the "Purchase Common Shares") and options (the "Options") to
purchase up to 1,107,611 additional Common Shares (the "Option Shares" and
together with the Purchase Common shares, the "Purchased Shares");
WHEREAS, the Investors have previously acquired an aggregate of
6,316,726 shares of the Class B Convertible Preferred Shares, $. 01 par value
(the "Class B Preferred Shares"), of the Company pursuant to certain Stock
Purchase Agreements dated as of August 4, 1986 and October 13, 1987 (the "Stock
Purchase Agreement"); and
WHEREAS, the Company, the Shareholders, the Purchasers and the
Investors have reached agreement with respect to other matters as hereinafter
provided;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and
<PAGE> 2
2
sufficiency of which is hereby acknowledged, the Company, the Shareholders, the
Purchasers and the Investors hereby agree as follows:
1. Right of Participation in Sales by Shareholders. If at any time any
Shareholder wishes to sell, assign or transfer any or all of the Shares owned by
him to a third party (a "Transferee"), he shall deliver a written notice (the
"Notice") to all the Purchasers and Investors stating the identity of the
proposed buyer or transferee, the number of Shares proposed to be sold or
transferred, the agreed terms of the sale or transfer and any other material
facts relating to the sale or transfer. Upon receipt of the Notice, each
Purchaser and Investor shall have the right to require, as a condition to such
sale or disposition, that the Transferee purchase from said Purchaser or
Investor, as the case may be, at the same price per Share and on the same terms
and conditions as provided in the Notice that number of Common Shares owned
(after giving effect to any conversion and exercise of Class B Preferred Shares,
Class C Preferred Shares and/or Options) by said Purchaser or Investor, as the
case may be, equal to the number of Shares offered by such Shareholder pursuant
to the Notice multiplied by a fraction the numerator of which shall be equal to
the sum of (i) the number of Common Shares owned by said Purchaser or Investor,
as the case may be, (ii) the number of Common Shares into which Class B
Preferred Shares and Class C Preferred Shares held by such Purchaser or
Investor, as the case may be, are convertible at the date of the Notice and
(iii) the number of Common Shares for which the options owned by said Purchaser
may be exercised at the date of the Notice and the denominator of which shall be
equal to the sum of (i) the aggregate number of Common Shares owned by all
Purchasers, Investors and said Shareholder, (ii) the aggregate number of Common
Shares into which all Class B Preferred Shares and Class C Preferred Shares held
by the Purchasers and Investors are convertible on the date of such offer and
(iii) the aggregate number of Common Shares for which all Options held by the
Purchasers are exercisable on the date of such offer. Each Purchaser and
Investor wishing so to participate in any such sale or disposition shall notify
the Shareholder of such intention as soon as practicable after receipt of the
Notice, and in any event within 30 days after receipt thereof. In the event that
a Purchaser or Investor shall elect to participate in such sale or disposition,
such Purchaser or Investor, as the case may be, shall individually give notice
of such election to the Shareholder in accordance with the provisions of Section
5. The provisions of this Section 1 shall not apply (i) to the sale of any
Shares by a Shareholder to a Purchaser, an Investor or a Qualified Transferee,
(ii) the sale by Mr. Jacobs and Mr. Brewster of up to ten percent each of their
shares currently owned to present shareholders of the Company or (iii) the sale
by Mr. Ryan of any shares currently owned to present shareholders of
<PAGE> 3
3
the Company. Present shareholders of the Company shall include (a) those listed
on Schedule 2.3.1 to the Class C Purchase Agreement and (b) any Purchaser. For
purposes of this Section 1, the price applicable to any security which is
convertible into or exchangeable or exercisable for shares of Common Shares
shall be the same as the price applicable to the number of shares into or for
which such security may be converted, exchanged or exercised.
For purposes of this Section 1, a Qualified Transferee shall mean any
person who is (i) a Purchaser, (ii) an Investor, (iii) any affiliate, as that
term is defined in the Investment Company Act of 1940, as amended, of a
Purchaser or Investor, or (iv) the owner of an investment account which is
managed or advised by a Purchaser, an Investor, TA Associates or any affiliate
thereof.
2. Permitted Transfers by Shareholders. Anything herein to the contrary
notwithstanding, the provisions of section 1 shall not apply to: (a) any
transfer of Shares by a Shareholder by gift or bequest or through inheritance
to, or for the benefit of, the spouse or issue of such Shareholder; (b) any
transfer of not more than 50% of a Shareholder's Shares by a Shareholder to such
Shareholder's spouse or former spouse pursuant to a divorce settlement or
decree; (c) any transfer of Shares by a Shareholder to a trust in respect of
which he serves as trustee, provided that the trust instrument governing said
trust shall provide that such Shareholder, as trustee, shall retain sole and
exclusive control over the voting and disposition of said Shares until the
termination of this Agreement; (d) any sale or transfer of Shares to the
Company; and (e) any sale of Common Shares in a public offering pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission. In the event of any such transfer pursuant to subsection (a), (b) or
(c) of this Section 2, the transferee of the Shares shall hold the Shares so
acquired with all the rights conferred by, and subject to all the restrictions
imposed by, this Agreement.
3. Company to Enforce Rights. The Company covenants and agrees with the
Purchasers (i) that it will diligently enforce all of its rights under a certain
Stock Agreement dated March 3, 1984, as amended, by and among the Company and
Ryan, (ii) that it will not waive or release any of such rights or consent to
any amendment of such agreements without the written consent of a majority in
interest of the then holders of (a) the Class B Preferred Shares (on an
as-converted basis) and shares issuable upon conversion of the Class B Preferred
Shares and (b) the Class C Preferred Shares (on an as-converted basis) and
shares issuable upon conversion of the Class C Preferred Shares, and (iii) that,
if a majority in
<PAGE> 4
4
interest of such holders of Class B Preferred Shares and a majority in interest
of such holders of Class C Preferred Shares so request in writing, the Company
will exercise any rights it may have to purchase Shares under such agreements
and that it will promptly offer any Shares so acquired to the Purchasers and
Investors, who jointly and severally agree to acquire their pro rata portion of
such Shares.
4. Termination. This Agreement, and the respective rights and
obligations of the parties hereto, shall terminate upon the completion of the
Company's initial public offering pursuant to a registration statement under the
Securities Act of 1933 in which (a) the price per share of Common Shares of the
Company sold in the offering is at least $3.00 per share (subject to adjustment
for intervening stock splits, stock dividends and the like) and (b) aggregate
gross proceeds to the Company from the sale of such shares are at least
$10,000,000.
5. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered or mailed by first
class, registered or certified mail (air mail if to or from outside the United
States) postage prepaid, if to a Shareholder at his address set forth in Exhibit
A hereof, if to any Purchaser, at its respective address set forth on Exhibit B,
and if to any Investor, at its respective address set forth on Exhibit C or to
such other address as the addressee shall have furnished to the other parties
hereto in the manner prescribed by this Section 5.
6. Shareholders' Lockup Agreement. Each Shareholder hereby agrees in
connection with the company's initial public offering, upon the request of the
Company or the principal underwriter managing the public offering, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Shares now owned or hereafter acquired by him without the prior
written consent of the Company or such underwriter, as the case may be, for such
period of time (not to exceed ninety (90) days) from the effective date of such
registration as the Company or the underwriter may specify.
7. Specific Performance. The rights of the parties under this Agreement
are unique and, accordingly, the parties shall, in addition to such other
remedies as may be available to any of them at law or in equity, have the right
to enforce their rights hereunder by actions for specific performance to the
extent permitted by law.
<PAGE> 5
5
8. Legend. The certificates representing the Shares shall bear on their
face a legend indicating the existence of the restrictions imposed hereby.
9. Entire-Agreement; Termination of Prior Agreements. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings between
them or any of them as to such subject matter, including, without limitation
that certain Agreement of Shareholders dated as of October 13, 1987 among the
Company and certain of the Investors and that certain Shareholders' Agreement
dated as of August 4, 1986 among the Company and certain of the Investors, each
of which agreements is hereby terminated.
10. Waivers and Further Agreements. Any of the provisions of this
Agreement which operate for the benefit of the Purchasers may be waived with the
written consent of (a) Purchasers holding a majority of the issued and
outstanding Class C Preferred Shares (including shares of Common Shares into
which any such shares may have been converted) on an as-converted basis then
held or deemed to be held by all Purchasers and (b) Investors holding a majority
of the issued and outstanding Class B Preferred Shares (including shares of
Common Shares into which any such shares may have been converted) on an
as-converted basis then held or deemed to be held by all Investors. Any waiver
by any party of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach of that provision or of any
other provision hereof. Each of the parties hereto agrees to execute all such
further instruments and documents and to take all such further action as any
other party may reasonably require in order to effectuate the terms and purposes
of this Agreement.
11. Amendments. Except as otherwise expressly provided herein, this
Agreement may not be amended except by an instrument in writing executed by (a)
Purchasers holding a majority of the issued and outstanding Class C Preferred
Shares (including shares of Common Shares into which any such shares may have
been converted) on an as-converted basis then held or deemed to be held by all
Purchasers, (b) Investors holding a majority of the issued and outstanding Class
B Preferred Shares (including shares of Common Shares into which any such shares
may have been converted) on an as-converted basis then held or deemed to be held
by all Investors, (c) the holders of a majority of the Common Shares subject to
this Agreement and (d) the Company.
<PAGE> 6
6
12. Assignment; Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, legal representatives, successors and permitted transferees,
except as may be expressly provided otherwise herein.
13. Severability. In case any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
14. 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.
15. Section Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
16. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
MEDIQUAL SYSTEMS, INC.
By: /s/ William C. Price
--------------------
Vice President
<PAGE> 7
7
PURCHASERS
INFORMATION PARTNERS
CAPITAL FUND, L.P.
By Information Partners
By: /s/ David Dominik
---------------------------
Title: General Partner
BCIP ASSOCIATES
By: /s/ David Dominik
---------------------------
Title: General Partner
BCIP TRUST ASSOCIATES, L.P.
By: /s/ David Dominik
---------------------------
Title: General Partner
<PAGE> 8
8
ADVENT V LIMITED ADVENT CHESTNUT II
PARTNERSHIP LIMITED PARTNERSHIP
By: TA Associates V, General By: TA Associates IV, General
Partner Partner
DESIFTA, S.A.
ADVENT ATLANTIC & PACIFIC By: TA Associates V,
LIMITED PARTNERSHIP Attorney-in-Fact
By: TA Associates V, General
Partner
By: /s/ Robert Daly
By /s/ Robert Daly ---------------------
----------------------
TA INVESTORS
CHESTNUT CAPITAL
INTERNATIONAL II
By: TA Associates V, General
Partner By: /s/ Robert Daly
---------------------
Attorney-in-Fact
By /s/ Robert Daly
----------------------
MICI MEDICAL SEED FUND,
a Limited Partnership
ADVENT INDUSTRIAL
LIMITED PARTNERSHIP
By: TA Associates V, General
Partner By:
---------------------
Timothy Maudlin, President
of its General Partner
By: /s/ Robert Daly
---------------------
BLUE CROSS-BLUE SHIELD OF
MINNESOTA, INC.
By:
---------------------
Title:
<PAGE> 9
9
SHAREHOLDERS
/s/ William D. Ryan
- ----------------------------
William D. Ryan
- ----------------------------
Alan C. Brewster, M.D.
- ----------------------------
Charles M. Jacobs
<PAGE> 10
10
EXHIBIT A
SHAREHOLDERS
<TABLE>
<CAPTION>
Name and Address Number of Shares
- ---------------- ----------------
<S> <C>
William D. Ryan 2,863,333 Common
1640 Midtown Tower 199 Class A Preferred
Rochester, NY 14604
Alan C. Brewster, M.D. 1,469,806 Common
14 South Street
Grafton, MA 01519
Charles M. Jacobs 1,625,000 Common
1900 West Park Drive
Westborough, MA 01581
</TABLE>
<PAGE> 11
11
EXHIBIT B
PURCHASERS
<TABLE>
<CAPTION>
Number of Class C
Preferred Shares
Name and Address Purchased
- ---------------- ---------
<S> <C>
Information Partners Capital 1,870.35
Fund, L.P.
Two Copley Place
Boston, MA 02110
Attn: David Dominik
BCIP Associates 47.64
Two Copley Place
Boston, MA 02110
Attn: David Dominik
BCIP Trust Associates, L.P. 104.01
Two Copley Place
Boston, MA 02110
Attn: David Dominik
</TABLE>
<PAGE> 12
12
INVESTORS
Number of Class B
Preferred Shares
Name and Address Purchased
Blue Cross-Blue Shield
of Minnesota, Inc.
3535 Blue Cross Road
St. Paul, MN 55164
Ernest Brophy
140 Allens Creek Road
Rochester, NY 14618
Clark Wackerman
- ----------------------------
- ----------------------------
John W. Handy
- ----------------------------
- ----------------------------
Ralph Peek
c/o MQ-Roc, Inc.
150 West Broad Street
Rochester, NY 14614
E. Anthony Wilson
- ----------------------------
- ----------------------------
Maryann B. Henderson
- ----------------------------
- ----------------------------
Patricia C. Norris
- ----------------------------
- ----------------------------
Robert J. Strasenburgh
- ----------------------------
- ----------------------------
<PAGE> 13
13
Betty Strasenburgh
- ----------------------------
- ----------------------------
Anthony J. Calderone
- ----------------------------
- ----------------------------
Robert W. Mead
- ----------------------------
- ----------------------------
Daniel J. Morgan
- ----------------------------
- ----------------------------
John J. Dorschel
- ----------------------------
- ----------------------------
TA Purchasers:
ADVENT V LIMITED PARTNERSHIP
c/o TA Associates
45 Milk Street
Boston, MA 02109
ADVENT INDUSTRIAL LIMITED
PARTNERSHIP
c/o TA Associates
45 Milk Street
Boston, MA 02109
CHESTNUT CAPITAL INTERNATIONAL II
c/o TA Associates
45 Milk Street
Boston, MA 02109
ADVENT CHESTNUT II LIMITED
PARTNERSHIP
c/o TA Associates
45 Milk Street
Boston, MA 02109
<PAGE> 14
14
DESIFTA, S.A.
c/o TA Associates
45 Milk Street
Boston, MA 02109
TA INVESTORS
c/o TA Associates
45 Milk Street
Boston, MA 02109
MICI MEDICAL SEED FUND, a
Limited Partnership
c/o Medical Innovation Capital, Inc.
Suite 400
1201 Marquette Avenue
Minneapolis, MN 55403
ADVENT ATLANTIC & PACIFIC
LIMITED PARTNERSHIP
c/o TA Associates
45 Milk Street
Boston, MA 02109
<PAGE> 1
EXHIBIT 10.18
- 1 -
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") dated as of
March 29, 1993, is by and between MediQual Systems, Inc. (the "Company"), a
Delaware corporation with its principal executive offices at 1900 West Park
Drive, Westborough, Massachusetts 01581, and Eric Kriss (the "Executive"), an
individual residing at 36 Ivanhoe Street, Newton, Massachusetts 02158.
NOW, THEREFORE, in consideration of the mutual promises set forth in
this Agreement, and intending to be legally bound subject to the terms and
conditions hereof, the parties agree as follows:
1. Employment of Executive.
(a) Employment. Subject to the terms and conditions of this Agreement,
the Company agrees to employ the Executive in a full-time capacity, and the
Executive agrees to serve, as the President and Chief Executive Officer of the
Company, having such powers and duties as are consistent with such positions,
subject to the direction of the Company's board of directors (the "Board of
Directors"). Such employment shall commence on the date hereof and shall
continue until terminated in accordance with Section 3 hereof.
(b) No Conflicting Commitments. During the period of the Executive's
full-time employment with the Company, the Executive will not undertake any
commitments that would impair his performance of his duties as a full-time
employee of the Company.
(c) Election as Director. The Company shall propose to its stockholders
at each annual meeting and on each other occasion during the term of this
Agreement when directors of the Company are to be elected, the election or
reelection of the Executive as a director of the Company, provided, that the
Executive has agreed to serve as a director if elected, and is otherwise
eligible for election as a director.
2. Compensation. In consideration of the services to be rendered by the
Executive to the Company pursuant to this Agreement, the Company shall pay to
the Executive the compensation and provide for the Executive the benefits set
forth below:
(a) Base Salary. The Company shall pay to the Executive a base salary
of $190,000 per annum, prorated and payable in bi-weekly installments, and
subject to increase from time to time by the Board of Directors, in its sole
discretion.
(b) Bonuses. The Executive shall be entitled to participate in a cash
bonus plan to be established by the Company that will provide that the Executive
will be eligible to earn annual cash bonuses based on the achievement of
objectives established jointly by the Board of Directors and the Executive. The
amount of such cash bonuses available to the Executive with respect to the
calendar year 1993 shall be up to $57,000 (i.e., 30% of his base compensation
rate for such year),
<PAGE> 2
- 2 -
and thereafter the parties contemplate that more aggressive objectives, and
correspondingly higher bonus payments, will be established. Such cash bonuses,
if earned, will be payable to Executive annually within 90 days after the end of
each calendar year.
(c) Fringe Benefits. In addition to the Executive's base salary and
cash bonuses, the Company shall provide to the Executive and his dependents
life, medical, and disability insurance and such other benefits as are
consistent with Company policy and the Executive's position. The Executive shall
also be entitled to four (4) weeks of paid vacation per twelve months of
employment hereunder, accruing on a monthly basis, with carryover of any unused
vacation time. The Executive may take vacations at such reasonable times as the
Company and the Executive may determine.
If at any time during the term of this Agreement, the benefits provided
to the Executive under this Section 2(c), in the aggregate, are decreased in
value from those provided on the date hereof, then the Company will pay to the
Executive in cash the dollar-value of the decrease.
(d) Equity Participation. In order to provide the Executive with an
opportunity for equity participation in the Company, concurrently with the
execution and delivery of this Agreement, the Company and the Executive are
entering into a stock purchase agreement (the "Stock Purchase Agreement") dated
the date hereof, pursuant to which the Company will sell to the Executive
certain shares of its Common Stock, $0.001 par value, subject to certain
restrictions on transfer and a certain repurchase option of the Company, all as
set forth in the Stock Purchase Agreement. The Executive shall also be entitled
to participate, to the extent and in the manner determined by the Board of
Directors, in any stock option, stock purchase, or other equity incentive plans
established by the Company, if any, it being the understanding of the Company
and the Executive that such participation would be for the purpose of providing
the Executive with additional opportunities for equity participation in the
Company.
3. Termination.
(a) Events Causing Termination. The Executive's employment hereunder
shall continue until terminated upon the occurrence of any of the following
events:
(1) The Executive's death or legal incapacity; or
(2) The termination of the Executive's employment hereunder by
the Board of Directors, at its option, to be exercised by written
notice to the Executive, upon the Executive's incapacity or inability
to perform services as contemplated hereby for a period aggregating 180
days or more within any twelve-month period because the Executive's
physical or mental health shall have become impaired so as to make it
impossible or impractical to perform the duties and responsibilities
contemplated hereunder; or
(3) The termination of the Executive's employment hereunder by
the Board of Directors, at its option, to be exercised by written
notice to the Executive, for Cause (as defined in Section 3[b] hereof),
to be exercised by written notice to the Executive; or
(4) The termination of Executive's employment hereunder by the
Board of
<PAGE> 3
- 3 -
Directors, without Cause, at its option, to be exercised by delivery of
90 days' prior written notice from the Company to the Executive; or
(5) The termination of Executive's employment hereunder by the
Executive, at his option, for Good Reason (as defined in Section 3[b]
hereof); to be exercised by written notice to the Company; or
(6) The termination of Executive's employment hereunder by
Executive, without Good Reason, to be exercised by delivery of 30 days'
prior written notice from the Executive to the Company.
(b) Cause and Good Reason Defined. For purposes of this Agreement, the
terms "Cause" and "Good Reason" shall have the following meanings:
"Cause" means the Executive's gross neglect of his duties hereunder or
commission of an act of fraud or moral turpitude in connection with his
employment by the Company. Notwithstanding any other provision of this
Agreement, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the Board of Directors at a meeting called and held for the
purpose (after reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard by the Board of Directors), finding that
in the good faith opinion of the Board of Directors, the Executive was guilty of
the conduct set forth above in this section and specifying the particulars
thereof.
"Good Reason" means (i) failure of the Company to continue the
Executive in the positions of President, Chief Executive Officer, and member of
the Board of Directors, (ii) diminution in the nature or scope of the
Executive's responsibilities, powers, duties, or authority, or the assignment to
the Executive of any duties inconsistent with the Executive's positions as
President and Chief Executive Officer of the Company, (iii) reduction by the
Company of the Executive's base salary as in effect on the date hereof or as the
same may be increased from time to time; (iv) the Company's requiring the
Executive to be based anywhere other than within 25 miles of the present office
location of the Company set forth above, except for required travel on the
Company's business to an extent substantially consistent with the Executive's
present business travel obligations; or (v) failure by the Company to provide
the Executive the compensation provided for in Section 2 hereof.
(c) Adjustments Upon Early Termination. Notwithstanding any other
provisions in this Agreement or any stock option agreement or stock restriction
agreement between Executive and the Company to the contrary:
(1) If the Executive's employment with the Company terminates
pursuant to Sections 3(a)(1) or 3(a)(2), then (a) all payments and
benefits provided to the Executive under this Agreement shall cease as
of the date of termination of employment and (b) all stock options and
restricted stock in the Company held by the Executive on that date
shall become immediately exercisable or vest, as the case may be, on
that date.
(2) If the Executive's employment with the Company terminates
pursuant to
<PAGE> 4
- 4 -
Sections 3(a)(3) or 3(a)(6), then (a) all payments and benefits
provided to Executive under this Agreement shall cease as of the date
of termination of employment and (b) all further vesting on all stock
options and restricted stock in the Company held by the Executive on
that date shall immediately cease as of the date of termination of
employment and thereafter such stock options shall be exercisable and
such restricted stock shall be subject to repurchase by the Company in
accordance with their respective terms.
(3) If the Executive's employment with the Company terminates
pursuant to Sections 3(a)(4) or 3(a)(5), then (a) all payments and
benefits provided to Executive under this Agreement shall continue
until the later of (i) one year after the date hereof or (ii) six
months after the date of such termination of employment and (b) all
stock options and restricted stock in the Company held by the Executive
on the date of termination of employment shall become immediately
exercisable or vest, as the case may be, on that date.
(d) No Duty to Mitigate. The Executive shall not be required to
mitigate the amount of any payment provided for in Section 3(c) by seeking other
employment or otherwise.
4. Covenants Against Certain Competition with the Company.
(a) Non-Solicitation of Employees. The Executive agrees that during the
term of his employment with the Company, and for a period of one year after any
termination of Executive's employment with the Company pursuant to Sections
3(a)(1)-3(a)(3) or 3(a)(6), the Executive shall not directly or indirectly
recruit, solicit, or otherwise induce or attempt to induce any employees of the
Company to leave the employment of the Company.
(b) Non-Competition. The Executive agrees that during the term of his
employment with the Company, he shall not directly or indirectly, except as a
passive investor in publicly held companies and except for investments held at
the date hereof, engage in competition with the Company or any of its
subsidiaries, or own or control any interest in, or act as director, officer, or
employee of, or consultant to, any firm, corporation, or institution directly or
indirectly engaged in competition with the Company or any of its subsidiaries.
5. Confidentiality and Non-Disclosure.
(a) Maintenance of Confidentiality. The Executive agrees that he will
not (except as required in the course of employment with the Company), both
during the term of Executive's employment with the Company and thereafter,
communicate or divulge to, or use for his own benefit or the benefit of any
other person, firm, or organization, any confidential and proprietary
information of the Company and its subsidiaries.
(b) Ownership of Confidential Information. Any records, files,
memoranda, reports, price lists, customer lists, drawings, plans, sketches,
documents and the like, relating to the business of the Company, that Executive
may use, prepare, or come into contact with in the course of, in connection
with, or as a result of employment with the Company, shall remain the Company's
sole and exclusive property.
<PAGE> 5
- 5 -
6. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the Commonwealth of
Massachusetts (without reference to principles of conflicts or choice of law
that would cause the application of the internal laws of any other
jurisdiction).
7. Notices. All notices, requests, instructions or other documents to
be given hereunder shall be in writing or by written telecommunication, and
shall be deemed to have been duly given if (i) delivered personally (effective
upon delivery), (ii) mailed by certified mail, return receipt requested, postage
prepaid (effective five business days after dispatch), (iii) sent by a
reputable, established courier service that guarantees next business day
delivery (effective the next business day), or (iv) sent by telecopier followed
within 24 hours by confirmation by one of the foregoing methods (effective upon
receipt of the telecopy in complete, readable form), addressed to the recipient
party at his or its address set forth in the first paragraph above or at such
other address as such party may have supplied for the purpose pursuant to this
Section 7.
8. Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts together shall constitute one and the same
instrument. In pleading or proving this Agreement, it shall not be necessary to
produce or account for more than one such counterpart.
9. Captions. The captions of sections or subsections of this Agreement
are for reference only and shall not affect the interpretation or construction
of this Agreement.
10. Severability. Each provision of this Agreement shall be interpreted
in such manner as to validate and give effect thereto to the fullest lawful
extent, but if any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable under applicable law, such
provision shall be ineffective only to the extent so determined and such
invalidity or unenforceability shall not affect the remainder of such provision
or the remaining provisions of this Agreement.
11. Binding Effect; Benefits; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors, and permitted assigns. Neither party hereto may assign its
rights or delegate its obligations under this Agreement without the prior
written consent of the other party, and any attempted assignment or delegation
without such consent shall be void and of no effect.
12. No Conditions to Effectiveness; Entire Agreement, etc. There are no
conditions precedent to the effectiveness of this Agreement. This Agreement,
together with the Stock Purchase Agreement, contains the entire agreement and
understanding of the parties, and supersedes all prior agreements and
understandings between them, with respect to the subject matter hereof. This
Agreement may not be amended except by a written agreement signed by both of the
parties.
IN WITNESS WHEREOF, each of the Company and the Executive has executed
and delivered this Agreement as an agreement under seal as of the date first
above written.
<PAGE> 6
- 6 -
MEDIQUAL SYSTEMS, INC.
By /s/ William D. Ryan
--------------------
William D. Ryan
Chairman of the Board
/s/ Eric Kriss
- ----------------------------
Eric Kriss
<PAGE> 7
Amendment to the
EXECUTIVE EMPLOYMENT AGREEMENT
of March 29, 1993
The parties agree as follows:
1. The Company shall pay to the Executive a base salary of $202,600.00 per
annum, beginning January 1, 1995.
2. The Company shall pay to the Executibe a cash bonus of $70,000.00 with
respect to the calendar year 1994.
IN WITNESS WHEREOF, the Company and the Executive agree and execute
this amendment on the 24th day of January, 1995.
MEDIQUAL SYSTEMS, INC.
By /s/ William D. Ryan /s/ Eric Ryan
------------------------------- -------------------------
William D. Ryan Eric Kriss
By /s/ Robert Daly
-------------------------------
Robert Daly
By /s/ David Dominik
-------------------------------
David Dominik
<PAGE> 1
EXHIBIT 10.19
8465C
PROMISSORY NOTE
$201,523 March 29, 1993
FOR VALUE RECEIVED, the undersigned Eric Kriss (the "Maker"), subject
to the other terms and conditions of this Note, promises to pay to MediQual
Systems, Inc., (the "Payee") the principal sum of Two Hundred Thousand Five
Hundred Twenty-Three Dollars ($201,523), with interest on the principal sum
outstanding hereunder from time to time from the date hereof until tender of
payment, at an annual rate equal to Three and Ninety-Two Hundredths per cent
(3.92%).
The entire principal amount of this Note and all accrued interest
thereon shall be payable upon the earlier to occur of: (i) the third
anniversary of the date hereof or (ii) the termination of the Maker's
employment with the Payee under the Executive Employment Agreement dated the
date hereof by and between the Maker and the Payee. All payments hereunder
shall be made at the principal residence or business address of the Payee.
Whenever any payment under this Note becomes due on a date that is not a
regular business day in the Commonwealth of Massachusetts, the maturity thereof
shall be extended to the next succeeding business day and interest shall accrue
at the applicable rate during such extension.
The Maker shall have the right to prepay the unpaid principal amount of
this Note in full at any time, or in part from time to time, without premium or
penalty, with all accrued interest to the date of prepayment.
The Maker waives presentment, notice, protest, and all other demands and
notices.
The failure of the Payee to exercise any of its rights, remedies,
powers, or privileges hereunder in any instance shall not constitute a waiver
thereof in that or any other instance.
The Maker will pay on demand all costs of collection, including all
court costs and reasonable attorneys' fees, paid or incurred by the Payee in
enforcing this Note on default.
This Note is made and delivered by the Maker pursuant to a certain
Stock Purchase Agreement dated the date hereof by and between the Maker and the
Payee. The Maker hereby grants to the Payee a security interest in the Shares
(as defined in the Stock Purchase Agreement) to secure the payment of all
amounts that may become due and payable hereunder.
<PAGE> 2
-2-
Notwithstanding any other provision of this Note to the contrary, the
Payee, by its acceptance hereof, hereby agrees as follows:
(a) The Maker, at his option, may pay any amount due or to
become due under this Note in whole or in part by surrendering Shares to the
Payee, valued at the then fair market value of such Shares. Such fair market
value shall be determined by the agreement of the Maker and the Payee, or in
the event that the Maker and the Payee cannot agree on the fair market value of
such Shares within 30 days of the Maker's tender of such Shares to the Payee,
such value shall be determined by three arbitrators, one designated by the
Maker, one designated within five days thereafter by the Payee, and the third
designated within five days after the Payee's designation, by the other two.
The arbitrators shall proceed promptly to determine the fair market value of
such Shares. The determination of such value by agreement of any two of the
arbitrators shall be conclusive (absent manifest error) upon the Maker and
the Payee.
(b) The Maker shall be entitled to set off and deduct from any
amount payable hereunder, any amount that may be or become payable by the Payee
to the Maker under the Executive Employment Agreement or the Stock Purchase
Agreement.
THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAW THAT WOULD CAUSE
APPLICATION OF THE INTERNAL LAWS OF ANY OTHER JURISDICTION).
IN WITNESS WHEREOF, the Maker has executed and delivered this
Promissory Note on the date first above written.
/s/ Eric Kriss
-------------------------
Eric Kriss
ACCEPTED:
MEDIQUAL SYSTEMS, INC.
By /s/ William D. Ryan
---------------------------
William D. Ryan
Chairman of the Board
<PAGE> 1
EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated as of March 29,
1993, is by and between MediQual Systems, Inc. (the "Company"), a Delaware
corporation with its principal executive offices at 1900 West Park Drive,
Westborough, Massachusetts 01581, and Eric Kriss (the "Executive"), an
individual residing at 36 Ivanhoe Street, Newton, Massachusetts 02158.
Concurrently with the execution and delivery of this Agreement, the
parties are entering into an employment agreement (the "Executive Employment
Agreement"), pursuant to which the Company will employ the Executive as its
President and Chief Executive Officer. To induce the Executive to enter into the
Executive Employment Agreement, and in order to provide the Executive with an
opportunity for equity participation in the Company, the Company has agreed to
sell certain shares of its Common Stock, $0.001 par value, to the Executive
subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises set forth in this Agreement, and intending to be legally bound subject
to the terms and conditions hereof, the parties agree as follows:
1. Purchase of Shares. The Company hereby agrees to issue and sell to
the Executive, and the Executive hereby agrees to purchase and accept from the
Company, a number of shares (the "Shares") of the common stock, $0.001 par
value, of the Company ("Common Stock"), approximating 1,250,000 shares, and to
be exactly the number of shares representing five per cent (5%) of (i) the
aggregate number of shares of Common Stock issued and outstanding as of the date
of issuance (after giving effect to such issuance), on a fully diluted basis
(i.e., assuming the full conversion, exercise, or exchange of all options
(including ungranted stock options reserved for issuance pursuant to employee
benefit plans), warrants, and other rights to acquire shares of Common Stock,
and all stock or other securities convertible into or exchangeable for shares of
Common Stock), plus (ii) the assumed issuance of an additional 2,000,000 shares
of Common Stock (or rights to acquire such shares) in connection with a
contemplated financing. The purchase price for the Shares shall be $0.20 per
share (the "Purchase Price"), and shall be paid by (i) delivery of a check
payable to the order of the Company in the amount of $50,000 and (ii) delivery
of a promissory note of the Executive in a principal amount representing the
balance and substantially in the form attached hereto as Exhibit A. Upon receipt
of such payment, the Company shall issue to the Executive one or more
certificates representing the Shares. The Shares shall be subject to the
Repurchase Option set forth in Section 2 of this Agreement and the restrictions
on transfer set forth in Section 4 of this Agreement.
2. Repurchase Option.
(a) Subject to the following paragraph, for purposes of this Agreement,
the Executive's rights in one--thirty-sixth (1/36) of the aggregate number of
Shares shall vest on the last day of each of the thirty-six (36) consecutive
months commencing with March 1993, provided, with respect to each such vesting
date, that the Executive's employment with the Company has not previously been
<PAGE> 2
terminated pursuant to Sections 3(a)(3) or (6) of the Executive Employment
Agreement.
Notwithstanding the foregoing, the Executive's rights in all of the
Shares shall immediately vest in full on the occurrence of any of the following
events: (i) the termination of the Executive's employment with the Company
pursuant to Sections 3(a)(1), (2), (4), or (5) of the Executive Employment
Agreement, (ii) the acquisition of equity securities of the Company (and/or
options, warrants, convertible securities, and other rights to acquire equity
securities of the Company) representing at least 20% of the equity of the
Company, by any person or entity or any two or more persons or entities that are
"affiliates" within the meaning of that term as defined in Rule 144(a)(1) under
the Securities Act of 1933, as amended, or that are acting as a group for the
purpose of acquiring, holding, or disposing of such equity securities or rights,
(iii) the closing of a public offering of the Company's securities registered in
a registration statement filed with the United States Securities and Exchange
Commission, (iv) the sale, lease, assignment, transfer, mortgaging, encumbering,
or other disposition of or grant of a security interest in, all or substantially
all of the Company's assets, (v) the merger or consolidation of the Company with
or into another corporation or other entity (other than a wholly owned
subsidiary of the Company), or (vi) the dissolution or liquidation of the
Company or the winding-up of its affairs.
(b) In the event that the Executive's employment with the Company is
terminated pursuant to Sections 3(a)(3) or (6) of the Executive Employment
Agreement, the Company shall have the right and option (the "Repurchase
Option"), but not the obligation, to repurchase from the Executive any or all of
the Shares in which the Executive's rights have not vested. The repurchase price
for Shares repurchased pursuant to the Repurchase Option shall be determined
based upon the effective date of the notice of exercise given to the Executive
in accordance with this Agreement, as follows:
<TABLE>
<CAPTION>
Effective Date of
Exercise of Repurchase Price
Repurchase Option Per Share
-----------------------------------------------------
<S> <C>
Until September 30, 1993................ $0.20
From October 1, 1993
through March 31, 1994................. $0.21
From April 1, 1994
through September 30, 1994............. $0.22
From October 1, 1994
through March 31, 1995................. $0.23
From April 1, 1995
through September 30, 1995............. $0.24
From October 1, 1995
through March 31, 1996................. $0.25
</TABLE>
3. Exercise of Repurchase Option and Closing.
<PAGE> 3
(a) The Company may exercise the Repurchase Option by giving written
notice of exercise to the Executive within 30 days after the termination of the
Executive's employment with the Company, specifying the number of Shares to be
repurchased. If and to the extent the Repurchase Option is not so exercised
within such 30-day period, the Purchase Option shall automatically expire and
terminate, effective as of the expiration of such 30-day period.
(b) Within 10 days after the effective date of the Company's notice of
exercise of the Repurchase Option pursuant to subsection (a) above, the
Executive (or his estate) shall tender to the Company at its principal offices
the certificate or certificates representing the Shares that the Company has
elected to repurchase, duly indorsed in blank by the Executive or with duly
executed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such Shares, the Company shall
pay to the Executive in cash the aggregate repurchase price payable for the
repurchased Shares.
(c) After the time at which any Shares are required to be delivered to
the Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Executive on account of such Shares or
permit the Executive to exercise any of the privileges or rights of a
stockholder with respect to such Shares, but shall, in so far as permitted by
law, treat the Company as the owner of such Shares.
(d) The Company shall not purchase any fraction of a Share upon
exercise of the Repurchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 2 of this Agreement shall be rounded to the
nearest whole Share (with any one-half Share being rounded upward).
4. Restrictions on Transfer.
(a) Except as is otherwise provided below, the Executive shall not,
during the term of the Repurchase Option, sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively "Transfer"), any of the Shares, or any interest therein, unless
and until the Executive's rights in such Shares have vested or such Shares
otherwise are no longer subject to the Repurchase Option.
(b) Notwithstanding the foregoing, the Executive may Transfer Shares to
or for the benefit of any parent, spouse, child, sibling, or grandchild, or to a
trust for their benefit, provided, that such Shares shall remain subject to this
Agreement (including without limitation the Repurchase Option and the
restrictions on transfer set forth in this Section 4) and such permitted
transferee shall, as a condition to such transfer, deliver to the Company a
written instrument confirming that such transferee shall be bound by all of the
terms and conditions of this Agreement.
5. Effect of Prohibited Transfer. Any Transfer prohibited by any
provision of this Agreement shall be wholly void and without effect. The Company
shall not be required to transfer on its books any of the Shares that have been
sold or transferred in violation of any provision of this Agreement or to treat
as the owner of such Shares or to pay dividends to any transferee to whom any
such Shares shall have been so sold or transferred.
6. Restrictive Legend. All certificates representing Shares shall have
affixed thereto a legend substantially in the following form, in addition to any
other legends that may be required under federal or state securities laws:
<PAGE> 4
"The shares of stock represented by this certificate are subject to restrictions
on transfer and options to purchase set forth in a certain Stock Purchase
Agreement between the corporation and the registered owner of this certificate
(or his predecessor in interest). A copy of such Agreement is available for
inspection without charge at the office of the Secretary of the corporation. The
corporation will furnish a copy of the restrictions on transfer and options to
purchase to the holder of this certificate upon written request and without
charge."
7. Investment Representations. The Executive represents and warrants as
follows:
(a) He is purchasing the Shares for his own account for investment
only, and not with a view to, or for sale in connection with, any distribution
of the Shares in violation of the Securities Act of 1933 (the "Securities Act"),
or any rule or regulation under the Securities Act.
(b) He understands and agrees that a legend substantially in the
following form will be placed on the certificate(s) representing the Shares:
"The Shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended, and may not be sold, transferred, or
otherwise disposed of in the absence of an effective registration statement
under such Act or an opinion of counsel satisfactory to the corporation to the
effect that such registration is not required."
8. Adjustments for Stock Splits, Stock Dividends, etc. If from time to
time during the term of the Repurchase Option there is any stock split-up, stock
dividend, stock distribution, or other reclassification of the Common Stock of
the Company, any and all new, substituted, or additional securities to which the
Executive is entitled by reason of his ownership of the Shares immediately shall
be subject to the Repurchase Option, the restrictions on transfer, and the other
provisions of this Agreement in the same manner and to the same extent as the
Shares, and the repurchase price payable by the Company on any exercise of the
Repurchase Option shall be appropriately adjusted.
9. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the Commonwealth of
Massachusetts (without reference to principles of conflicts or choice of law
that would cause the application of the internal laws of any other
jurisdiction).
10. Notices. All notices, requests, instructions or other documents to
be given hereunder shall be in writing or by written telecommunication, and
shall be deemed to have been duly given if (i) delivered personally (effective
upon delivery), (ii) mailed by certified mail, return receipt requested, postage
prepaid (effective five business days after dispatch), (iii) sent by a
reputable, established courier service that guarantees next business day
delivery (effective the next business day), or (iv) sent by telecopier followed
within 24 hours by confirmation by one of the foregoing methods (effective upon
receipt of the telecopy in complete, readable form), addressed to the recipient
party at his or its address set forth in the first paragraph above or at such
other address as such party may have supplied for the purpose pursuant to this
Section 10.
11. Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts together shall constitute one and the same
instrument. In pleading or proving this Agreement, it shall not be necessary to
produce or account for more than one such counterpart.
<PAGE> 5
12. Captions. The captions of sections or subsections of this Agreement
are for reference only and shall not affect the interpretation or construction
of this Agreement.
13. Severability. Each provision of this Agreement shall be interpreted
in such manner as to validate and give effect thereto to the fullest lawful
extent, but if any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable under applicable law, such
provision shall be ineffective only to the extent so determined and such
invalidity or unenforceability shall not affect the remainder of such provision
or the remaining provisions of this Agreement.
14. Binding Effect; Benefits; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, successors, and permitted assigns. Neither party hereto may assign its
rights or delegate its obligations under this Agreement without the prior
written consent of the other party, and any attempted assignment or delegation
without such consent shall be void and of no effect.
15. No Conditions to Effectiveness; Entire Agreement, etc. There are no
conditions precedent to the effectiveness of this Agreement. This Agreement,
together with the Executive Employment Agreement, contains the entire agreement
and understanding of the parties, and supersedes all prior agreements and
understandings between them, with respect to the subject matter hereof. This
Agreement may not be amended except by a written agreement signed by both of the
parties.
IN WITNESS WHEREOF, each of the Company and the Executive has executed
and delivered this Agreement as an agreement under seal as of the date first
above written.
MEDIQUAL SYSTEMS, INC.
By /s/ William D. Ryan
-----------------------
William D. Ryan
Chairman of the Board
/s/ Eric Kriss
- ----------------------------
Eric Kriss
<PAGE> 1
10.21
MEDIQUAL SYSTEMS, INC.
1900 WEST PARK DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
April 3, 1995
Mr. Eric Kriss
36 Ivanhoe Street
Newton, Massachusetts 02158
Re: Letter Agreement
Dear Mr. Kriss:
Reference is made to the Executive Employment Agreement (your
"Employment Agreement") dated as of March 29, 1993, between MediQual Systems,
Inc. (the "Company") and you, the intent of which was to provide incentives for
you as President and Chief Executive Officer of the Company.
When you were hired in March 1993, the Company's Board of Directors had
hoped to achieve certain financial goals prior to April 1, 1995, the date on
which the Company's preferred stockholders may elect to exercise certain
redemption rights. Due to the unstable position of the Company prior to your
tenure, and subsequent adverse changes in the marketplace, the Company has not
achieved these goals. It now appears that the Company may be required to engage
in extensive reengineering of its current products and refocusing of its
marketing efforts in order to do so. In addition, the Company is expected to
require additional financing to fund such product development and marketing
efforts and the continuation and expansion of its business.
The Company is presently considering potential courses of action to
maximize value and liquidity to its shareholders, including, among other
alternatives, the possibilities of obtaining additional outside financing,
restructuring the present capital structure of the Company, finding a strategic
partner, or selling the Company. The Company has not yet determined which, if
any, of these possible courses of action to pursue, but believes that at this
critical time, and regardless of which alternative the Company ultimately may
determine to pursue, it is essential to retain your services as President and
Chief Executive Officer in order to enable the Company to remain a viable
ongoing enterprise, and to achieve the product development and marketing goals
that will be required to enable the Company to implement any such course of
action on terms (including valuation of the Company) favorable to the Company's
shareholders.
Accordingly, subject to the terms of this Letter Agreement, you hereby
agree to remain with the Company at least until April 1, 1996, and the Company
hereby
<PAGE> 2
agrees to provide you with the following additional incentives to remain
with the Company:
1. The Company hereby agrees, subject to applicable laws, that upon
your election in writing delivered to the Company on or before the close of
business on April 1, 1996, the Company will purchase from you, in whole or in
part as you may so elect, up to 1,307,615 shares of the Company's Common Stock,
for a purchase price of $0.25 per share (regardless of whether your rights in
such shares have vested; such number of share and purchase price both to be
subject to proportionate adjustment in the event of any stock split, stock
dividend, stock combination, or other recapitalization or similar event
affecting the Company's Common Stock). The purchase price will be settled first
by offsetting the aggregate amount, if any, due from you to the Company in
respect of principal and accrued interest under your promissory note to the
Company dated as of March 29, 1993, in the original principal amount of
$201,523, with any remaining balance to be paid to you in cash.
2. You hereby agree that upon the Company's election in writing
delivered to you on or before the close of business on April 1, 1996, you will
sell and transfer to the Company, in whole or in part as the Company may so
elect, up to 1,307,615 shares of the Company's Common Stock, for a purchase
price of $0.70 per share, which is the fair market value of a share of Common
Stock as of the date hereof, as determined by the Company's Board of Directors
(regardless of whether your rights in such shares have vested; such number of
share and purchase price both to be subject to proportionate adjustment in the
event of any stock split, stock dividend, stock combination, or other
recapitalization or similar event affecting the Company's Common Stock). The
purchase price will be settled first by offsetting the aggregate amount, if any,
due from you to the Company in respect of principal and accrued interest under
your promissory note referred to above, with any remaining balance to be paid to
you in cash.
Please confirm your agreement with the foregoing by countersigning this
Letter Agreement in the space provided below. This Letter Agreement will then
constitute an amendment to your Employment Agreement and an agreement
<PAGE> 3
under seal governed by the internal laws of the Commonwealth of Massachusetts.
Very truly yours,
MEDIQUAL SYSTEMS, INC.
By /s/ Willam D. Ryan
-----------------------------
William D. Ryan
Chairman of the Board
ACCEPTED AND AGREED TO:
/s/ Erik Kriss
- -----------------------
Eric Kriss
<PAGE> 1
10.22
PROMISSORY NOTE
$75,000 Principal Amount January 2, 1996
FOR VALUE RECEIVED, MediQual Systems, Inc. (the "Maker") promises to
pay to Eric Kriss (the "Payee") the principal sum of Seventy-five Thousand
Dollars ($75,000), with interest on the principal sum from time to time
outstanding hereunder from the date hereof until payment in full, at a rate
equal to ten percent (10%) per annum. Interest shall be paid quarterly in
arrears.
The entire principal amount of this Note and all accrued and unpaid
interest thereon shall be payable upon the earlier to occur of: (i) January 2,
1998, or (ii) the voluntary termination by the Payee of his employment with the
Maker, or (iii) the sale of all or substantially all of the assets or more than
50% of the outstanding capital stock of Maker to a third party, irrespective of
the form or structure of any such transaction (i.e., whether by sale, merger or
otherwise).
All payments hereunder shall be made at the principal residence or
business address of the Payee. Whenever any payment under this Note becomes due
on a date that is not a regular business day in The Commonwealth of
Massachusetts, the maturity thereof shall be extended to the next succeeding
business day and interest shall accrue at the applicable rate during the
extension.
The Maker shall have the right to prepay the unpaid principal amount of
this Note in full at any time, or in part from time to time, without premium or
penalty, provided that such prepayment shall be accompanied by a payment of all
accrued and unpaid interest on the principal so prepaid to the date of
prepayment. The Maker waives presentment, notice, protest, and all other demands
and notices. The failure of the Payee to exercise his rights, remedies, powers,
or privileges hereunder in any instance shall not constitute a waiver thereof or
of any other rights, remedies, powers, or privileges in that or any other
instance. The Maker shall pay on demand all costs of collection, including all
court costs and reasonable attorney's fees, paid or incurred by the Payee in
enforcing the terms and provisions of this Note.
<PAGE> 2
-2-
THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (without
reference to principles of conflicts or choice of law that would cause
application of the internal laws of any other jurisdiction).
IN WITNESS WHEREOF, the Maker has executed and delivered this
Promissory Note on the date first above written.
MEDIQUAL SYSTEMS, INC.
By /s/ William D. Ryan
-------------------------------------
William D. Ryan, Chairman
Thereunto duly authorized
<PAGE> 1
EXHIBIT 10.23
as of January 20, 1996
Mr. Eric Kriss
36 Ivanhoe Street
Newton, MA 02158
Re: 1996 Agreement
Dear Mr. Kriss:
Since the Company does not presently have funds with which to increase
your base salary for 1996 or to pay you any 1995 bonus without potentially
violating prudent guidelines for cash management, and since the Company believes
it is in the best interest of its stockholders to retain your services as
President and Chief Executive Officer, you and the Company hereby agree as
follows:
1. You hereby agree that you shall remain as President and Chief
Executive Officer of the Company until at least January 2,
1998 and that, except as expressly set forth below, you shall
not be entitled to any bonus for 1995 or any increase in base
salary for 1996 or bonus for 1996.
2. In consideration of such agreement by you to remain as
President and Chief Executive Officer of the Company until
January 2, 1998, and as otherwise set forth in paragraph 1
above:
(a) The Company will issue to you a promissory note dated
as of January 2, 1996, in the principal amount of
$75,000, representing the amount due to you in
respect of your 1995 bonus, such promissory note to
be in the form of the attached Exhibit A. In
addition, you and the Company agree that your
promissory note dated March 29, 1993, is hereby
amended such that the principal amount thereof shall
be due and payable on January 2, 1998 (subject to
optional prepayment in accordance with the terms of
such note).
b) The Company will provide to you a contingent
incentive (the "Incentive") in lieu of any other 1996
performance bonus or base salary increase, as
described in Exhibit B attached hereto; in the event
that the Company terminates your employment (for any
reason), this Incentive shall remain in force, but in
the event of your voluntary departure prior to
January 2, 1998 (unless such departure occurs on or
after the closing of a sale of, or public offering of
securities by, the Company as contemplated in Exhibit
B attached hereto), you shall forfeit said Incentive.
<PAGE> 2
-2-
Please confirm your agreement with the foregoing by countersigning this
letter agreement in the space provided below. This letter agreement will then
constitute an amendment to your Employment Agreement and an agreement under seal
governed by the internal laws of The Commonwealth of Massachusetts.
Sincerely,
MEDIQUAL SYSTEMS, INC.
By /s/ William D. Ryan
---------------------------------
William D. Ryan, Chairman
Thereunto duly authorized
ACCEPTED AND AGREED TO:
ERIC A. KRISS
/s/ Eric Kriss
- -------------------------
<PAGE> 3
EXHIBIT A
PROMISSORY NOTE
$75,000 Principal Amount January 2, 1996
FOR VALUE RECEIVED, MediQual Systems, Inc. (the "Maker") promises to
pay to Eric Kriss (the "Payee") the principal sum of Seventy-five Thousand
Dollars ($75,000), with interest on the principal sum from time to time
outstanding hereunder from the date hereof until payment in full, at a rate
equal to ten percent (10%) per annum. Interest shall be paid quarterly in
arrears.
The entire principal amount of this Note and all accrued and unpaid
interest thereon shall be payable upon the earlier to occur of: (i) January 2,
1998, or (ii) the voluntary termination by the Payee of his employment with the
Maker, or (iii) the sale of all or substantially all of the assets or more than
50% of the outstanding capital stock of Maker to a third party, irrespective of
the form or structure of any such transaction (i.e., whether by sale, merger or
otherwise).
All payments hereunder shall be made at the principal residence or
business address of the Payee. Whenever any payment under this Note becomes due
on a date that is not a regular business day in The Commonwealth of
Massachusetts, the maturity thereof shall be extended to the next succeeding
business day and interest shall accrue at the applicable rate during the
extension.
The Maker shall have the right to prepay the unpaid principal amount of
this Note in full at any time, or in part from time to time, without premium or
penalty, provided that such prepayment shall be accompanied by a payment of all
accrued and unpaid interest on the principal so prepaid to the date of
prepayment. The Maker waives presentment, notice, protest, and all other demands
and notices. The failure of the Payee to exercise his rights, remedies, powers,
or privileges hereunder in any instance shall not constitute a waiver thereof or
of any other rights, remedies, powers, or privileges in that or any other
instance. The Maker shall pay on demand all costs of collection, including all
court costs and reasonable attorney's fees, paid or incurred by the Payee in
enforcing the terms and provisions of this Note.
<PAGE> 4
-2-
THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (without
reference to principles of conflicts or choice of law that would cause
application of the internal laws of any other jurisdiction).
IN WITNESS WHEREOF, the Maker has executed and delivered this
Promissory Note on the date first above written.
MEDIQUAL SYSTEMS, INC.
By
-------------------------------
Name:
Thereunto duly authorized
<PAGE> 5
EXHIBIT B
INCENTIVE
For purposes hereof, a "Transaction" shall be defined to mean (i) a
sale to a third party of all or substantially all of the assets, or at least 50%
of the outstanding capital stock, of the Company, irrespective of the form or
structure of any such sale, i.e., whether by sale, merger or otherwise, or (ii)
a public offering of the Company's common stock, in either case consummated on
or before January 2, 1998, and "Valuation" shall be defined to mean, in the case
of a sale, the purchase price of the assets or capital stock so purchased
(subject to adjustment in the case of a sale of the capital stock of the Company
as set forth in the immediately succeeding sentence), in whatever combination of
cash, securities or other property, and, in the case of a public offering, the
product obtained by multiplying (x) the total number of shares of common stock
and common stock equivalents (i.e., on a fully-diluted basis) of the Company
outstanding immediately after such public offering by (y) the gross offering
price to the public of one share of the Company's common stock in such offering,
in each case, before any discounts, commissions, redemptions, closing costs,
legal fees, broker fees, contingent bonuses, contingent fees, or any other
adjustment or reduction. In the event that less than 100% of the outstanding
capital stock of the Company is sold to a third party pursuant to a sale
Transaction as described in clause (i) of the immediately preceding sentence,
Valuation shall be imputed from the fraction of such capital stock so sold,
provided that the fraction sold is at least 50% of the outstanding capital stock
of the Company.
The Company shall grant an option (the "Option") to Eric Kriss, issued
as of January 20, 1996, to purchase up to 900,000 shares (the "Option Shares")
of the Company's Common Stock at an exercise price of $.25 per share, the fair
market value of a share of the Company's Common Stock as of the date of grant
(such number of shares and per-share exercise price both to be subject to
proportionate adjustment in the event of any stock dividend, stock split,
reverse stock split, recapitalization, or similar events affecting the Company's
Common Stock), subject to the following vesting and cancellation provisions. The
Option shall be immediately exercisable, but any unvested Option Shares shall be
subject to repurchase by the Company, at its election, for the original exercise
price of $.25 per share (such repurchase price to be subject to proportionate
adjustment in the event of any stock dividend, stock split, reverse stock split,
recapitalization, or similar events affecting the Company's Common Stock). The
Option shall be canceled, and the Option Shares shall be entirely unvested, if
either (i) no Transaction has been consummated on or before January 2, 1998, or
(ii) the Transaction Valuation does not equal or exceed $15,000,000. For any
Transaction Valuation between $15,000,000 and $25,000,000, inclusive, the Option
Shares shall vest by the percentage determined by a fraction, the numerator of
which shall be the excess of (i) the Valuation over (ii) $15,000,000, and the
denominator of which shall be $10,000,000, and the Option shall terminate to the
extent of any unvested Option Shares. For any Transaction Valuation exceeding
$25,000,000, the Option Shares shall vest 100%. The Option shall have a term
commencing on the date of grant and
<PAGE> 6
-2-
continuing for a period of five years after your rights in all or any
portion of the shares issued or issuable under the Option have vested, or until
canceled as described above, and shall be evidenced by a separate Common Stock
Purchase Option substantially in the form of the attached Exhibit C.
The Company shall provide a cash bonus (the "Bonus") contingent upon a
Transaction occurring on or before January 2, 1998, as follows. If the
Transaction Valuation is less than $16,000,000, no Bonus shall be paid. For any
Transaction with a Valuation between $16,000,000 and $20,000,000, the Bonus
shall be equal to a double Lehman fee (i.e., 5% of the first $2,000,000 of
Valuation, 4% of the next $2,000,000, 3% of the next $2,000,000, 2% of the next
$2,000,000, and 1% of the amount of Valuation exceeding $8,000,000). For any
Transaction with a Valuation between $20,000,001 and $25,000,000, the Bonus
shall be equal to a single Lehman fee (i.e., 5% of the first $1,000,000 of
Valuation, 4% of the next $1,000,000, 3% of the next $1,000,000, 2% of the next
$1,000,000, and 1% of the amount of Valuation exceeding $1,000,000.
Notwithstanding the foregoing, for any Transaction with a Valuation exceeding
$25,000,000, the Bonus shall be equal to $200,000.
The Company shall cancel the promissory note issued to it by Eric
Kriss, dated March 29, 1993, upon the closing of any Transaction if Valuation
exceeds $16,000,000.
The Company shall transfer to Eric Kriss all of the Company's right,
title and interest, in perpetuity, in and to two Windows software programs (the
"Programs"), known as "Peer Review" and "Time System", which were developed at
the Company from Mr. Kriss's own concepts and ideas after March 1993 for use in
connection with internal Company personnel management, and which have not
contributed to Company revenue as of this date, provided that the Company shall
retain a perpetual license to the Programs as is, at no charge, expressly and
solely for use in connection with the Company's own internal management;
provided, however, that the transfer of all of the Company's rights to the
Programs shall be conditioned upon the closing of a Transaction involving a sale
of substantially all of the Company's assets (or at least 50% of its outstanding
capital stock) on or before January 2, 1998 and no such transfer shall be
effected in the event of a Transaction consisting of a public offering of the
Company's Common Stock. The documentation relating to such transfer and
license-back shall be in form and substance mutually reasonably acceptable to
the Company and Mr. Kriss.
<PAGE> 1
Exhibit 10.24
NEITHER THIS OPTION NOR THE SECURITIES ISSUABLE HEREUNDER HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO TRANSFER, SALE, OR
OTHER DISPOSITION OF THIS OPTION OR ANY SECURITIES ISSUED HEREUNDER MAY BE MADE
UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS OPTION OR SUCH SECURITIES,
AS THE CASE MAY BE, HAS BECOME EFFECTIVE UNDER SUCH ACT, OR THE ISSUER HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER IN FORM AND
SUBSTANCE, THAT SUCH REGISTRATION IS NOT REQUIRED.
IN ADDITION, THIS OPTION AND THE SECURITIES ISSUABLE HEREUNDER ARE SUBJECT
TO CERTAIN CANCELLATION AND REPURCHASE RIGHTS OF THE ISSUER SET FORTH IN SECTION
2 HEREOF, AND TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN SECTIONS 11 AND
12 HEREOF.
COMMON STOCK PURCHASE OPTION
MediQual Systems, Inc. (the "Company"), a Delaware corporation, hereby
agrees and certifies that, for value received, Eric Kriss, an individual, and
his successors and permitted assigns are entitled, subject to the terms set
forth below, to purchase from the Company at any time and from time to time
after the date hereof Nine Hundred Thousand (900,000) (such number of shares
subject to adjustment as provided herein) duly authorized, validly issued, fully
paid, and non-assessable shares of Common Stock (as defined in Section 13
hereof), at an initial purchase price per share of $0.25 (subject to adjustment
from time to time as provided herein, the "Exercise Price").
This Option is issued pursuant to the "1996 Agreement" dated as of January
20, 1996, by and between the Company and Mr. Kriss. Certain terms used in this
Option are defined in Section 13 hereof.
1. EXERCISE OF OPTION.
(a) MECHANICS OF EXERCISE. This Option may be exercised by the holder
hereof at any time or from time to time by surrender to the Company of this
Option, with the form of subscription agreement appended hereto duly executed by
such holder, accompanied by payment, by check payable to the Company or by wire
transfer to its account, in an amount equal to the product of (i) the number of
shares of Common Stock for which this Option is then being exercised (such
shares, the "Exercise
<PAGE> 2
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Shares") by (ii) the Exercise Price then in effect. Alternatively, at the
election of the holder hereof, such holder may pay the aggregate Exercise Price
for the Exercise Shares by surrendering its rights to receive a portion of the
Exercise Shares having a fair market value equal to or greater than the
aggregate Exercise Price for the Exercise Shares, in which case the holder
hereof shall receive the excess of (i) the number of Exercise Shares to which it
would otherwise be entitled upon such exercise, minus (ii) the number of
Exercise Shares so surrendered. For purposes of this Section 1(a), the fair
market value of one share of Common Stock shall be determined in good faith by
the Company's Board of Directors (by reference to the Valuation in respect of
the Transaction, if such exercise occurs upon or after the occurrence of a
Transaction).
(b) OPTION AGENT. In the event that a bank or trust company is appointed
as trustee for the holder of this Option pursuant to Section 5(b) hereof, such
bank or trust company shall have all the powers and duties of an Option agent
appointed pursuant to Section 14 hereof and shall accept, in its own name for
the account of the Company or such successor entity as may be entitled thereto,
all amounts otherwise payable to the Company or such successor, as the case may
be, upon exercise of this Option.
2. CANCELLATION AND REPURCHASE RIGHTS OF THE COMPANY.
(a) EVENTS TRIGGERING REPURCHASE RIGHTS.
(i) NO TRANSACTION OR VALUATION UNDER $15,000,000. In the event that
(A) no Transaction occurs on or before January 2, 1998, or (B) a
Transaction occurs and the Valuation in respect of such Transaction is
less than $15,000,000, then in either such case this Option, to the extent
then unexercised, shall immediately and automatically be canceled and the
Company shall have the right and option, but no obligation, to repurchase
any and all securities previously issued hereunder as provided herein.
(ii) VALUATION OF AT LEAST $25,000,000. In the event that a
Transaction occurs on or before January 2, 1998, and the Valuation in
respect of such Transaction is at least $25,000,000, then this Option
shall be irrevocable and shall continue in effect until the fifth
anniversary of the Transaction, and the Company shall not have any right
or option to repurchase any of the securities issued hereunder, whether
before or after such Transaction.
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(iii) VALUATION BETWEEN $15,000,000 AND $25,000,000. In the event that
a Transaction occurs on or before January 2, 1998, and the Valuation in
respect of such Transaction is at least $15,000,000 but less than
$25,000,000, then this Option shall be irrevocable and shall continue in
effect until the fifth anniversary of the Transaction, but the aggregate
number of shares of Common Stock for which the holder hereof may be
entitled to exercise this Option and to retain (the "Vested Shares") shall
be the product of the maximum number of shares of Common Stock issued
and/or issuable hereunder, multiplied by a fraction, the numerator of
which is (A) the excess of the Valuation in respect of such Transaction
over $15,000,000, and (B) the denominator of which is $10,000,000.
Upon the occurrence of such Transaction:
(1) This Option shall immediately and automatically be canceled
to the extent of the excess over the number of Vested Shares of the
sum of (a) the number of shares of Common Stock for which this Option
has previously been exercised, plus (b) the number of shares then
remaining subject to issuance hereunder.
(2) To the extent that the number of shares of Common Stock for
which this Option has previously been issued exceeds the number of
Vested Shares, the Company shall have the right and option, but no
obligation, to repurchase such excess shares of Common Stock as
provided herein.
(iv) VOLUNTARY TERMINATION OF EMPLOYMENT BEFORE JANUARY 2, 1998.
Notwithstanding any other provision of this Option and/or any assignment
or transfer hereof or of any securities issued upon exercise hereof, in
the event that before January 2, 1998, Mr. Kriss voluntarily terminates
his employment with the Company (other than for Good Reason, as defined in
the Executive Employment Agreement dated as of March 29, 1993, by and
between the Company and Mr. Kriss, as amended and in effect from time to
time), then this Option, to the extent then unexercised, shall immediately
and automatically be canceled and the Company shall have the right and
option, but no obligation, to repurchase any and all securities previously
issued hereunder as provided herein.
<PAGE> 4
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(b) EXERCISE OF REPURCHASE RIGHTS. The Company may exercise its repurchase
rights and options granted to it in Section 2(a) hereof by written notice to the
holder hereof given within 30 days after the earlier to occur of (i) a
Transaction, or (ii) January 2, 1998. Any such notice shall specify the number
of shares of Common Stock that the Company has elected to repurchase, the
per-share and aggregate repurchase prices thereof, and a reasonable date, time,
and place for the closing of such repurchase, which shall be within 30 days
after the giving of such notice. The repurchase price payable for each share so
to be repurchased hereunder shall be the price paid therefor upon exercise of
this Option. At such closing, the holder(s) of the shares of Common Stock to be
repurchased shall deliver to the Company the certificate(s) representing such
shares, duly indorsed, or accompanied by duly executed instruments of transfer,
for transfer to the Company or in blank, against delivery by the Company of a
certified or bank check for the aggregate repurchase price thereof.
3. DELIVERY OF STOCK CERTIFICATES; FRACTIONAL SHARES.
(a) DELIVERY OF STOCK CERTIFICATES. As soon as practicable after any
exercise of this Option, and in any event within ten days thereafter, the
Company, at its expense (including the payment by it of any applicable issue
taxes), shall cause to be issued in the name of and delivered to the holder
hereof, or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of duly
authorized, validly issued, fully paid, and non-assessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled in respect of
such exercise, together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled in respect
of such exercise.
(b) FRACTIONAL SHARES. In the event that any exercise of this Option
would, but for the provisions of this Section 3(b), result in the issuance of
any fractional share of Common Stock, then in lieu of such fractional share the
holder hereof shall be entitled to cash equal to the fair market value of such
fractional share, as determined in good faith by the Company's Board of
Directors.
4. ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS, AND RECLASSIFICATIONS. In case
at any time or from time to time prior to the exercise of this Option, the
holders of Common Stock, as such, receive or become entitled to receive, without
payment therefor:
<PAGE> 5
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(a) other or additional stock or other securities or property (other
than cash out of current earnings) by way of a dividend; or
(b) other or additional (or less) stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination or division of shares, or similar corporate
restructuring;
in each case, other than additional shares of Common Stock issued as a stock
dividend or by reason of a stock split (adjustments in respect of which are
provided for in Section 6 hereof), then and in each such case the holder of this
Option, shall be entitled upon exercise hereof to receive the amount of stock
other securities, cash, and/or property that such holder would have received
prior to or would have held on the date of such exercise if on the date hereof
he had been the holder of record of the number of shares of Common Stock called
for on the face of this Option, and thereafter, during the period from the date
hereof to and including the date of such exercise, had retained such shares and
all such other or additional stock, other securities, cash, and/or property
receivable by such holder as aforesaid during such period, giving effect to all
further adjustments called for during such period by Sections 5 and 6 hereof.
5. ADJUSTMENT FOR REORGANIZATIONS, CONSOLIDATIONS, MERGERS, ETC.
(a) CERTAIN ADJUSTMENTS. In case at any time or from time to time prior to
the exercise of this Option, the Company shall (i) effect a capital
reorganization, reclassification, or recapitalization, (ii) consolidate with or
merge with or into any other Person, or (iii) transfer all or substantially all
of its properties or assets to any other Person under any plan or arrangement
contemplating the dissolution of the Company, then in each such case, the holder
of this Option, upon exercise hereof at any time after the consummation of such
reorganization, recapitalization, consolidation, or merger or the effective date
of such dissolution, as the case may be, shall receive, in lieu of the shares of
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had exercised this Option immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 4 and 6 hereof.
(b) APPOINTMENT OF TRUSTEE FOR OPTION HOLDERS UPON DISSOLUTION. In the
event of any dissolution of the Company, the
<PAGE> 6
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Company, prior to such dissolution, shall, at its expense, deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holder(s) of this Option after the effective date
of such dissolution pursuant to this Section 5 to a bank or trust company having
its principal office in Boston, Massachusetts, as trustee for the holder(s) of
this Option.
(c) CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger,
or transfer (and any dissolution following any transfer) referred to in this
Section 5, this Option shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Option after the consummation of
such reorganization, consolidation, or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the Person acquiring all or substantially all of the
properties or assets of the Company, whether or not such Person shall have
expressly assumed the terms of this Option as provided in Section 7 hereof.
6. ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING
COMMON STOCK.
(a) GENERAL. If at any time or from time to time there shall occur any
stock split, stock dividend, reverse stock split, or other combination or
subdivision of the Common Stock (a "Stock Event"), then the number of shares of
Common Stock issuable upon exercise hereof shall be appropriately adjusted such
that the proportion of the number of shares issuable hereunder to the total
number of shares of Common Stock of the Company outstanding immediately before
such Stock Event is equal to the proportion of the number of shares of Common
Stock issuable hereunder immediately after such Stock Event to the total number
of shares of Common Stock of the Company outstanding immediately after such
Stock Event. No adjustment to the Exercise Price shall be made in connection
with any adjustment of the number of shares of Common Stock receivable upon
exercise of this Option, except that the Exercise Price shall be proportionately
decreased (but not below the par value of a share of Common Stock) or increased
upon the occurrence of any stock split, reverse stock split, or other
subdivision or combination of shares of Common Stock.
(b) OTHER SECURITIES. In the event that any Other Securities are issued,
or are subject to issuance upon the conversion or exchange of any stock (or
Other Securities) of the Company (or any other issuer of
<PAGE> 7
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Other Securities or any other entity referred to in Section 5 hereof) or to
subscription, purchase, or other acquisition pursuant to any rights or options
granted by the Company (or such other issuer or entity), the holder hereof shall
be entitled to receive upon exercise hereof such amount of Other Securities (in
lieu of or in addition to shares of Common Stock) as is determined in accordance
with the terms hereof, treating all references to Common Stock herein as
references to Other Securities to the extent applicable, and the computations,
adjustments, and readjustments provided for in this Section 6 with respect to
the number of shares of Common Stock issuable upon exercise of this Option shall
be made as nearly as possible in the manner so provided and applied to determine
the amount of Other Securities from time to time receivable on the exercise of
this Option, so as to provide the holder of this Option with the benefits
intended by this Section 6 and the other provisions of this Option.
7. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Option, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Option against
dilution. Without limiting the generality of the foregoing, the Company (i)
shall not increase the par value of any shares of stock receivable on the
exercise of this Option above the amount payable therefor on such exercise, (ii)
shall take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable shares of
stock upon exercise of this Option from time to time, (iii) shall not issue any
capital stock of any class that is preferred as to dividends or other
distributions of assets (including without limitation upon voluntary or
involuntary dissolution, liquidation, or winding-up), unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and distributions of assets, and (iv)
shall not transfer all or substantially all of its properties and assets to any
other Person or consolidate into or merge with or into any other Person (if the
Company is not the surviving entity), unless such other Person shall expressly
agree in writing (naming the holders hereof, as such, as intended third-party
beneficiaries) to assume and be bound by all the terms of this Option applicable
to the Company.
8. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any event
that may require any adjustment or readjustment with
<PAGE> 8
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respect to the shares of Common Stock issuable upon exercise of this Option, the
Company, at its expense, shall cause its independent certified public
accountants promptly to prepare a certificate setting forth such adjustment or
readjustment, or stating the reasons why no adjustment or readjustment is
required, and showing in detail the facts upon which any such adjustment or
readjustment is based, including a statement of (i) the number of shares of the
Company's Common Stock then outstanding or subject to issuance upon the
exercise, conversion, or exchange of all options, warrants, convertible or
exchangeable securities, and other rights to acquire shares of Common Stock, and
(ii) the number of shares of Common Stock to be received upon exercise of this
Option, as in effect immediately prior to such adjustment or readjustment and as
adjusted and readjusted. The Company will promptly mail a copy of each such
certificate to each holder of a Option, and will, on the written request at any
time of any holder of a Option, furnish to such holder a like certificate
setting forth the calculations used to determine such adjustment or
readjustment.
9. NOTICES OF RECORD DATE, ETC. In the event from time to time of any:
(a) taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase, or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(b) capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, or any transfer of
all or substantially all the assets of the Company to, or any
consolidation or merger of the Company with or into, any other Person; or
(c) voluntary or involuntary dissolution, liquidation, or winding-up of
the Company; or
(d) proposed issuance or grant by the Company of any shares of stock of
any class or any other securities, or any right or option to subscribe
for, purchase, or otherwise acquire any shares of stock of any class or
any other securities (other than the issue of shares of Common Stock upon
exercise of this Option).
<PAGE> 9
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then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Option a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution, or right, and
stating the amount and character of such dividend, distribution, or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation, or winding-up is
anticipated to take place, and the time, if any is to be fixed, as of which the
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation, or
winding-up, or (iii) the amount and character of any stock or other securities,
or rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant, and the persons or class of persons to
whom such proposed issue or grant is to be offered or made. Such notice shall be
mailed at least thirty days prior to the earliest date specified in such notice
on which any such action or transaction is to be taken or consummated.
10. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF OPTION. The Company at
all times and from time to time shall reserve and keep available, solely for
issuance and delivery on the exercise of this Option, a number of shares of
Common Stock equal to the maximum number of shares of Common Stock from time to
time issuable upon exercise of this Option. If at any time the Company does not
have sufficient authorized shares to comply with the foregoing sentence, the
Company promptly shall take all steps necessary to amend its Certificate of
Incorporation to provide a reserved number of shares of Common Stock sufficient
to effect the exercise in full of this Option.
11. INVESTMENT REPRESENTATIONS. Mr. Kriss hereby represents, and each
subsequent holder of this Option, by his, her, or its acceptance of this Option
thereby represents, as follows:
(a) Such holder represents that this Option and any shares of Common Stock
to be acquired by him, her, or it as contemplated hereby shall be acquired for
his, her, or its own account, for investment, and not with a view to the
distribution thereof. Such holder understands that neither this Option nor such
securities have been registered under the Securities Act of 1933, as amended
(the "Act"), on the ground that the offer and sale of this Option and/or such
shares to him or it are exempt from the registration requirements of the Act
under Section 4(2) thereof as transactions not involving any public offering of
such securities. Such
<PAGE> 10
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holder understands that the Company's reliance on such exemption is predicated
in part on the representations of such holder contained herein.
(b) Such holder understands that he, she, or it must bear the economic
risk of his, her, or its investment in this Option and any shares of Common
Stock acquired by him, her, or it hereunder for an indefinite period of time
because neither this Option nor such shares have been registered under the Act,
and therefore cannot be sold unless they are subsequently registered under the
Act or an exemption from such registration is available. Such holder agrees that
he, she, or it shall not offer to sell or otherwise transfer this Option or any
of such shares except after the Company has received an opinion of counsel,
reasonably acceptable to the Company in form and substance, that such offer,
sale, and/or transfer is not in violation of the registration requirements of
the Act or other applicable law.
(c) Such holder acknowledges and agrees that each certificate representing
this Option or any securities acquired by him, her, or it hereunder shall bear
restrictive legends substantially to the following effect:
"Neither this Option nor the securities issuable hereunder have been
registered under the Securities Act of 1933, as amended. No transfer,
sale, or other disposition of this Option or any securities issued
hereunder may be made unless a registration statement with respect to
this Option or such securities, as the case may be, has become
effective under such act, or the issuer has been furnished with an
opinion of counsel, satisfactory to the issuer in form and substance,
that such registration is not required.
"In addition, this Option and the securities issuable hereunder are
subject to certain cancellation and repurchase rights of the issuer
set forth in Section 2 hereof, and to certain restrictions on transfer
set forth in Sections 11 and 12 hereof."
(d) Such holder acknowledges and agrees that the Company shall make a
notation regarding the restrictions on transfer of this Option and the shares of
Common Stock acquired by such holder hereunder in the register of the Company
referred to in Section 12 hereof, and any purported transfer of this Option or
such shares shall be reflected in such register of the Company only if and when
transferred in compliance with all of the terms and conditions of this Option.
<PAGE> 11
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12. RESTRICTIONS ON TRANSFER; REGISTRATION AND TRANSFER OF SECURITIES.
(a) RESTRICTIONS ON TRANSFER. In addition to the restrictions on transfer
imposed under Section 11 hereof, no holder hereof shall sell, assign, pledge, or
otherwise dispose of or transfer this Option or any securities issued hereunder
or any interest (legal, beneficial, or otherwise) in any of the foregoing unless
the transferee thereof shall first have executed and delivered to the Company a
written instrument, in form reasonably acceptable to the Company, by which such
transferee agrees to be bound by all of the provisions of this Option applicable
to holders hereof, including without limitation the repurchase rights of the
Company set forth in Section 2 hereof.
(b) REGISTRATION OF OPTION AND COMMON STOCK. The Company shall keep at its
principal office a register in which shall be recorded the names and addresses
of the record holders from time to time of this Option and of the shares of
Common Stock issued hereunder, and all transfers thereof. References to the
"holder" or "holder of record" of this Option or any such shares of Common Stock
shall mean the holder thereof reflected in such register. The ownership of this
Option and/or any such shares of the Common Stock shall be proven by such
register and the Company may conclusively rely upon such register.
(c) TRANSFER OF OPTION AND COMMON STOCK. Upon surrender at the principal
office of the Company of this Option or any stock certificate representing
shares of Common Stock issued hereunder for registration of transfer, duly
indorsed, or accompanied by a written instrument of transfer duly executed by
the registered holder of this Option or such certificate, as the case may be, or
such holder's attorney duly authorized in writing, then subject to compliance
with the applicable provisions of this Option and any applicable securities
laws, the Company shall issue, at its expense, a new Option or Options of like
tenor or stock certificates representing the transferred shares of Common Stock,
as the case may be, registered as the presenting holder may have requested.
(d) REPLACEMENT OF SECURITIES. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Option or any certificate representing any shares of Common Stock
hereunder[, and in the case of any such loss, theft, or destruction, upon
delivery of an unsecured indemnity agreement from such holder reasonably
satisfactory to the Company], and in the case of any such mutilation, upon the
surrender of such certificate to the Company at its principal office for
cancellation, the Company, at its own
<PAGE> 12
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expense, shall execute and deliver, in lieu thereof, a new option or stock
certificate, as the case may be, of like tenor. Any such lost, stolen,
destroyed, or mutilated Option or stock certificate in lieu of which any such
new Option or stock certificate has been so executed and delivered by Holding
shall not be deemed to be outstanding for any purpose.
13. DEFINITIONS. As used in this Option, the following terms have the
following respective meanings:
"Common Stock" means (i) the Company's Common Stock, $0.001 par value per
share, (ii) any other capital stock of any class or classes (however designated)
of the Company, the holders of which shall have the right, without limitation as
to amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to any preference, and (iii) any other securities into which or
for which any of the securities described in clauses (i) or (ii) above have been
converted or exchanged pursuant to any recapitalization, reorganization, merger,
sale of assets, or otherwise.
"Company" means MediQual Systems, Inc., a Delaware corporation, and any
corporation that succeeds to or assumes the obligations of MediQual Systems,
Inc. hereunder.
"Other Securities" means any shares of capital stock (other than Common
Stock) and any other securities of the Company or any other Person that (i) the
holder of this Option at any time is entitled to receive, or receives, upon
exercise of this Option, in lieu of or in addition to Common Stock, or (ii) at
any time may be issuable or issued in exchange for or in replacement of Common
Stock or Other Securities, in each case pursuant to the provisions of this
Warrant.
"Person" means any natural person, entity, or association, including
without limitation any corporation, partnership, limited liability company,
government (or agency or subdivision thereof), trust, joint venture, or
proprietorship.
"Transaction" means the consummation of (a) the issuance, sale, or other
transfer (regardless of the means by which such transfer is effected, and
including without limitation any merger or consolidation of the Company with or
into any other Person) to any Person or group of Persons acting together, in any
transaction or series of related transactions, of all or substantially all of
the assets of the Company, or of shares of the Company's capital stock
constituting at least 50% of the shares of the
<PAGE> 13
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Company's capital stock issued and outstanding immediately after such
transaction or series of transactions; or (b) a public offering of shares of
Common Stock registered in a registration statement filed under the Securities
Act of 1933, as amended.
"Valuation" means (a) in the case of any Transaction other than a public
offering of shares of Common Stock, the aggregate consideration received or
receivable by the Company and/or its stockholders in respect of such
Transaction, including the aggregate amount of any liabilities assumed by the
acquiror(s), provided, that in the case of a Transaction involving the issuance,
sale, or other transfer of less than 100% of the Company's outstanding capital
stock, the Valuation shall be the "grossed-up" valuation of the Company's total
outstanding capital stock implied by the valuation of the portion thereof issued
or transferred in such Transaction; and (b) in the case of a public offering of
shares of Common Stock, the product of (i) the gross offering price to the
public of one share of Common Stock, multiplied by (ii) the total number of
shares of Common Stock outstanding immediately after the consummation of such
public offering (calculated on a fully diluted basis treating as outstanding all
shares of Common Stock issuable upon exercise of all outstanding options
(including this Option), warrants, convertible or exchangeable securities, and
other rights to acquire shares of Common Stock.
14. OPTION AGENT. The Company may, by written notice to the holder of this
Option, appoint an agent having an office in Boston, Massachusetts for the
purpose of issuing Common Stock upon exercise of this Option pursuant to Section
1 hereof, and exchanging or replacing this Option pursuant to the Agreement, or
any of the foregoing, and thereafter any such issuance, exchange, or
replacement, as the case may be, shall be made at such office by such agent.
15. CAPTIONS. The captions of sections or subsections of this Option are
for reference only and shall not affect the interpretation or construction of
this Option.
16. EQUITABLE RELIEF. The Company and each holder of this Option, by his,
her, or its acceptance hereof, hereby or thereby acknowledges that any breach by
him, her, or it of his, her, or its respective obligations under this Option
would cause substantial and irreparable damage to the other, and that money
damages would be an inadequate remedy therefor, and accordingly, acknowledges
and agrees that the other shall be entitled to an injunction, specific
performance, and/or other equitable relief to prevent the breach of such
obligations.
<PAGE> 14
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17. WAIVERS. No waiver of any breach or default hereunder shall be valid
unless in a writing signed by the waiving Person. No failure or other delay by
the holder hereof exercising any right, power, or privilege hereunder shall be
or operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power, or privilege.
18. GOVERNING LAW. This Option shall be governed by and interpreted and
construed in accordance with the internal laws of the State of Delaware, as
applied to contracts under seal made, and entirely to be performed, within
Delaware, and without reference to principles of conflicts or choice of law.
[The rest of this page is intentionally left blank.]
<PAGE> 15
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IN WITNESS WHEREOF, Mr. Kriss, as the initial holder hereof, and the
Company, in each case for himself or itself and each of his or its respective
successors and permitted assigns, have executed and delivered this Option as an
agreement under seal as of January 20, 1996.
MEDIQUAL SYSTEMS, INC.
By /s/ William D. Ryan /s/ Eric Kriss
---------------------------- -----------------------------
Name: William D. Ryan Eric Kriss
Title: Chairman of the Board
<PAGE> 16
-16-
FORM OF SUBSCRIPTION
(To be signed only on exercise of Option)
TO: MediQual Systems, Inc.
The undersigned, the Holder of the within Common Stock Purchase Option,
hereby irrevocably elects to exercise this Common Stock Purchase Option for, and
to purchase thereunder ________ shares of Common Stock of MediQual Systems, Inc.
and herewith makes payment of $______ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_______________ _______, whose address is _______________.
Dated ___________________________ _______________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Option)
Address: _______________________________
_______________________________
<PAGE> 17
-17-
FORM OF ASSIGNMENT
(To be signed only on transfer of Option)
For value received, the undersigned __________________ (the "Assignor")
hereby sells, assigns, and transfers to ________________ (the "Assignee") the
right represented by the within Option to purchase ______________ shares of
Common Stock of MediQual Systems, Inc. (the "Company"), a Delaware corporation,
to which the within Option relates, and appoints ___________________ as the
Assignor's attorney to transfer such right on the books of the Company, with
full power of substitution in the premises.
The Assignee hereby irrevocably agrees to be bound by all of the
provisions of the within Option applicable to holders thereof, including without
limitation the repurchase rights of the Company set forth in Section 2 thereof.
ASSIGNOR:
___________________________________
(Signature must conform in all
respects to name of Assignor as
specified on the face of the within
Option)
Dated _____________________________
ASSIGNEE:
___________________________________
(Signature)
Dated _____________________________
Address: ___________________________________
___________________________________
<PAGE> 1
Exhibit 10.25
MEDIQUAL SYSTEMS, INC.
1900 WEST PARK DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
April 29, 1996
Eric Kriss
36 Ivanhoe Street
Newton, Massachusetts 02158
Dear Mr. Kriss:
Reference is hereby made to the "1996 Agreement" (the "1996 Agreement")
dated as of January 20, 1996, by and between MediQual Systems, Inc. (the
"Company") and you, and to the Common Stock Purchase Option (the "Option") dated
as of January 20, 1996, executed and delivered by the Company and you pursuant
to the 1996 Agreement. The Company and you hereby agree, and the 1996 Agreement
and the Option are each hereby amended, as follows:
1. In the event that no Transaction (as defined in the Option) occurs on
or before January 2, 1998: The Option will not at that time be canceled, and the
Company will not at that time have any right or option to repurchase any
securities issued under the Option. Subject to the following sentence, the
Option will remain in effect until the termination of your employment with the
Company, at which time the Option will immediately and automatically be
canceled, and the Company will have the right and option, but no obligation, to
repurchase any and all securities issued thereunder as provided in the Option.
Notwithstanding the preceding sentence, if you remain employed by the Company
until at least January 20, 2001, then the Option will remain in effect in
accordance with its terms until February 20, 2001, and the Company will not have
any right or option to repurchase any of the securities issued thereunder.
2. The Company will not exercise its repurchase rights and options, if
any, under the 1996 Agreement and/or the Option until the earlier of (i) the
occurrence of a Transaction, and (ii) the termination of your employment with
the Company before January 20, 2001.
3. Except as specifically amended hereby, the 1996 Agreement and the
Option will remain in full force and effect in accordance with their respective
terms.
Please confirm your agreement with the foregoing by countersigning this
Letter Agreement below and returning it to the Company. This Letter Agreement
will then constitute an agreement under seal governed by the internal laws of
the State of Delaware (without reference to principles of conflicts or choice of
law) and an amendment to the 1996 Agreement and the Option, respectively.
MEDIQUAL SYSTEMS, INC.
By /s/ William D. Ryan
--------------------------
William D. Ryan
Chairman
AGREED TO AND ACCEPTED:
/s/ Eric Kriss
- ----------------------------
Eric Kriss
<PAGE> 1
Exhibit 10.26
MediQual Systems, Inc.
Stay Agreement
July 14, 1995
TO:______________________
I have been duly authorized by the MediQual (the "Company") Board of
Directors to offer you a collection of incentives designed to encourage your
continued employment and active involvement in the Company's business. This
letter constitutes a formal Stay Agreement, meaning that the guarantees herein
are backed by the full faith and credit of the Company and shall be defined, for
settlement purposes, as equal in seniority to the Company's regular payroll
liabilities (which are more senior than any obligations to stockholders).
Should you elect to remain at MediQual, you will be extended the following
additional benefits, collectively the Stay Agreement provisions, as stated
below.
1. Employment, and related base salary and benefits, shall be guaranteed
through January 3, 1996.
2. Employment beyond January 3, 1996 shall be guaranteed, in the form of a
severance benefit, to the extent of the cash equivalent of twelve
months of base salary payable in full at the departure date for any
termination reason from the Company other than a voluntary departure. A
termination induced by a base salary reduction, a significant change of
duties or responsibilities, or relocation of the place of work more
than twenty-five miles from 1900 West Park Drive, or a significant
deterioration of working conditions shall be deemed to be non-voluntary
for the purposes of this severance benefit.
3. Bonuses for 1995 performance (as previously defined in the Company's
employee policy manual) shall be guaranteed at the 100%, or maximum,
level and fully paid in cash on January 3, 1996.
4. All Stock Options previously granted pursuant to the Company's Stock
Option Plan shall be deemed to be fully vested as of January 3, 1996.
<PAGE> 2
By your signature below you indicate that you understand these incentives and
that it is your stated intention to remain at MediQual at least until January 3,
1996. Should you change your mind and voluntarily depart prior to this date, you
forfeit any and all claim to any Stay Agreement provisions.
___________________________________ ___________________________
For MediQual Systems, Inc.
Eric Kriss, Chief Executive Officer
<PAGE> 1
Exhibit 10.33
[ETHICON ENDO-SURGERY LETTERHEAD]
February 28, 1996
Mr. Eric Kriss, CEO
MediOual Systems, Inc.
1900 West Park Drive, Suite 250
Westborough, MA 01581
Re: CONSULTING AGREEMENT
Dear Mr. Kriss:
Representatives of Ethicon Endo-Surgery, Inc. ("Ethicon") and your
company, MediOual Systems, Inc. (referred to as "Consultant"), have had
discussions concerning the desirability of Consultant rendering professional
consulting services to Ethicon in the solution of agreed upon problems. Ethicon
wants to engage such services, and Consultant wants to render them, subject to
the following Agreement which shall become effective upon the last date of
signature of this Agreement by both parties.
1. Consultant shall use its best efforts to provide consulting services to
Ethicon as described below, to keep Ethicon advised of the progress of the work,
to permit any representative of Ethicon to inspect from time to time the results
of its consulting services as are susceptible of inspection, to provide Ethicon
with reports, specifications, drawings, models, and the like, as are appropriate
to the nature of the services which Consultant will perform, and to keep records
of hours worked and cost of materials used, as well as other reasonable
out-of-pocket expenses, which such records Ethicon's representative may examine
upon reasonable notice to Consultant.
2. Any confidential information acquired by Consultant from Ethicon
concerning existing or contemplated machines, products, processes, techniques,
or know-how, or any information or data developed pursuant to the performance of
the consulting services below shall not be disclosed by Consultant to others or
used for Consultant's own benefit without the written consent of Ethicon.
Consultant's obligations under this paragraph and under Paragraph 3 below shall
survive the expiration or termination of this Agreement.
3. (a) Any * or * or *
Consultant in connection with or during the performance of services for Ethicon
shall * . Consultant, * to Ethicon other
than * for * in the event this Agreement shall have
terminated, but at * , shall * to
Ethicon all * , including * , as may be
* to enable Ethicon to * such * ,
* by * or
* Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 2
MediQual Systems, lnc.
Page 2
otherwise in * and to * to said * ,
* Ethicon or its * , their * .
Consultant shall render assistance as Ethicon may require in any *
* .
Consultant, as part of the services to be performed below, shall *
* of its * , properly * for use as * ,
and shall * such * to * when requested or at the termination of
the * .
(b) Any copyrightable work whether published or unpublished created by
Consultant in connection with or during the performance of services below shall
be considered a work made for hire, to the fullest extent permitted by law and
all right, title and interest therein, including the worldwide copyrights, shall
be the property of Ethicon as the employer and party specially commissioning
such work. In the event that any such copyrightable work or portion thereof
shall not be legally qualified as a work made for hire, or shall subsequently be
so held to not be a work made for hire, Consultant agrees to assign, and does
hereby so assign to Ethicon, all right, title and interest in and to such work
or portion thereof, including but not limited to the worldwide copyrights,
extensions of such copyrights, and renewal copyrights therein, and further
including all rights to reproduce the copyrighted work in copies or
phonorecords, to prepare derivative works based on the copyrighted work, to
distribute copies of the copyrighted work, to perform the copyrighted work
publicly, to display the copyrighted work publicly, and to register the claim of
copyright therein. Consultant, without charge to Ethicon, shall duly execute,
acknowledge, and deliver to Ethicon all further papers, including assignments
and applications for copyright registration or renewal, as may be necessary to
enable Ethicon to publish or protect such works by copyright or otherwise in any
and all countries and to vest title to said works in Ethicon, or its nominees,
their successors or assigns, and shall render all such assistance as Ethicon may
require in any proceeding or litigation involving the rights in such works.
4. Should Consultant's services below require the employment by Consultant
of third party personnel, Consultant shall employ only those whose employment
shall be approved by Ethicon in writing and who have for the benefit of Ethicon
executed an agreement containing provisions of the character and scope of
Paragraphs 2 and 3 above; except that Ethicon may waive the requirement that
such agreements be executed in the case of stenographic and certain other
nonprofessional personnel regularly employed at Consultant's place of business
and whose work is performed strictly in accordance with Consultant's directions.
5. Ethicon reserves the right to * any work upon
which Consultant shall have been engaged for Ethicon in which event Ethicon
shall be obligated to pay Consultant * by Consultant and *
* for which Consultant has become obligated in connection with the
contemplated services up to the date of such * .
* Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 3
MediQual Systems, Inc.
Page 3
6. During the term of this Agreement, including any renewals or extensions
thereof, and for a period of * thereafter, Consultant agrees not to
* for * involving the *
* of any * relating to the
* without a * from Ethicon.
7. Ethicon hereby offers to engage and Consultant accepts engagement by
Ethicon of Consultant's professional services as set forth in Appendix A (copy
attached) and as further set forth as follows:
C.U.P.I.D. Project - Development of Protocol/Table Shells/Analytic
Plan
C.U.P.I.D. Project - Ongoing Data Processing and Analysis for HMOs
C.U.P.I.D. Project - Chart Abstraction, Data Collection and Analysis
for HMOs Physician BenchMark Databases - Data Processing and
Analysis, Creation of Physician-specific databases for Ethicon.
8. In consideration of its acceptance of this Consulting Agreement and of
its performance of the professional services as specifically set forth in
Paragraph 7 above, Ethicon shall pay Consultant as set forth in Appendix A, but
in no event shall Ethicon be required to pay an amount which exceeds *
* of any of the * set forth in Appendix A without the mutual
consent of the parties.
9. Consultant represents that it does not have an obligation, whether
express or implied, to any third party that would interfere, hamper or limit his
ability to render the professional services as described above. In conducting
other activities, Consultant will not take a position or represent interests
that conflict with Ethicon's interest during the initial term or any extended
term of this Agreement.
10. Consultant shall not assign this Agreement or any part thereof without
Ethicon's prior written approval. Ethicon may, without Consultant's consent,
assign or extend this Agreement including all rights and obligations hereunder
at any time to any of its affiliates, or to any entity acquiring substantially
all of Ethicon's assets to which this Agreement relates.
11. For the purpose of this Agreement and all services to be provided
under this Agreement, Consultant shall be and shall be deemed to be, an
independent contractor and not the agent or employee of Ethicon. Consultant
shall be solely responsible for the payment when applicable of any licenses,
taxes, or any and all other costs associated with Consultant's complying with
pertinent laws and regulations. Consultant agrees that it will not be entitled
under this Agreement to participate in any benefit plans which Ethicon or its
affiliates sponsor for its employees.
12. The term of this Agreement shall be for * from the date set
forth below unless renewed or otherwise extended by mutual written agreement.
*Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 4
MediQual Systems, lnc.
Page 4
13. Any controversy or claim arising out of or relating to this Agreement,
or the parties' decision to enter into this Agreement, or the breach thereof,
shall be settled by arbitration in accordance with the provisions, then
obtaining, of the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in Cincinnati, Ohio and the arbitrators shall apply the substantive law of Ohio
except that the interpretation and enforcement of this arbitration provision
shall be governed by the Federal Arbitration Act. The arbitrators shall not
award either party punitive damages and the parties shall be deemed to have
waived any right to such damages.
14. The validity and interpretation of this Agreement and the legal
relations of the parties to it shall be governed by the internal laws of the
State of Ohio.
15. This document contains the entire agreement between the parties and
supersedes all preexisting agreements between the parties respecting its subject
matter. Modification of this Agreement shall only be effective if made in
writing and signed by both parties.
This Agreement is signed below in duplicate on the dates set forth below
by an authorized representative for each of the respective parties.
Consultant Ethicon Endo-Surgery, Inc.
By: /s/ Eric Kriss By: /s/ Nicholas J. Valeriani
------------------- ---------------------------------
Eric Kriss, CEO Nicholas J. Valeriani, Vice President
Sales and Marketing
Date: 4/1/96 Date: 3/28/96
<PAGE> 5
APPENDIX A
CUSTOMER UTILIZATION BY PROCEDURE INFORMATION DATABASE (C.U.P.I.D.) PROJECT
REVISED PROPOSAL
Study Types
1. Analysis of billing (claims) information from clients for patients based on
procedures or other parameters.
2. Analysis of information mased on chart review of patients based on procedures
or other parameters.
3. Analysis of electronic chart-based information of patients based on
procedures or other parameters
Objective
The objective would be to help clients, including HMO's, provider/hospitals, and
physicians, analyze their current modalities of therapy and determine where
there might be opportunities to convert current treatment modalities to
videoscopic procedures.
Methods
Three methods are proposed:
1. Study based entirely on a review and compilation of information from billing
or claims information systems;
2. Study based on a combination of billing/claims information and a targeted
chart review of select patients, and
3. Compile a database of select "benchmark' physicians, based on electronic
chartbased information supplied by those physicians.
Design
All studies will involve a retrospective analysis of patients with select
profiles or treatments at select managed care or provider locations. The data
will be gathered through electronic downloads and/or chart review using the
MediQual Systems, Inc. abstraction and glossary methodology. Ethicon
Endo-Surgery, Inc. will develop, with the assistance of MediQual and other
parties, a proprietary glossary specific to Ethicon Endo-Surgery's needs.
Patient Identification
Patients will be uniquely identified based on an initial electronic review of
the claims or charts using CPT-4 or ICD-9 codes or other Ethicon Endo-Surgery
designated parameters. These patients will then undergo a review of electronic
information alone or review of electronic information plus additional chart
abstraction.
<PAGE> 6
Appendix A - Revised C. U. P. I . D. Proposal
2/16/96
Page 2
Settings
The settings will consist of those selected by Ethicon Endo-Surgery for this
study. This will consist of either select outpatient settings, select inpatient
settings, select physician practices, or a blend of settings. The data from
these settings will be gathered and analyzed on an individual basis and made
available to the client, Ethicon EndoSurgery, or both. The number of patients
analyzed will vary by setting. The quoted source of the data may be MediQual,
Ethicon Endo-Surgery, or the client itself, depending upon individual project
preferences. Comparative information from MediQual's comparative database is
available for inpatient settings only and is available for use in these studies.
Patient Follow-Up
In all studies, the proposed follow-up time period would be up to twelve (12)
months following the sentinel procedure event, with other data (up to six [6]
months) being collected before the sentinel event. Depending upon the nature of
the situation, additional follow-up, beyond the above period, may be available.
The actual time period shall be dynamic by customer.
Sample Size
The studies will include all patients at the individual setting with the exact
number to be determined for each project. Other criteria may be used if
statistical comparisons of certain sub-groups will be undertaken. Generally,
claims will be analyzed for the entire population, whereas charts will be
reviewed for a subset of the population.
Patient Characteristics
A number of characteristics will be used to describe the patients, and, where
comparisons are done, to ascertain whether the patients in the various treatment
arms are comparable. These include a variety of uni-variate analyses comparing
age, gender, diagnosis, co-morbidity, etc. Exclusion criteria will be further
delineated as part of the formal protocol, whereas charts will be reviewed for a
subset of the population.
Data Gathering Options
For the electronic portion of the study, MediQual will gather the electronic
information which is available on these patients. If the chart review option is
used, the inpatient MediQual glossary used for gathering information on a
consistent basis would be reviewed, edited, and supplemented (after joint
discussions between Ethicon EndoSurgery and MediQual ) in order to ascertain
which data elements may need to be collected in both the outpatient and the
inpatient settings. These data elements may include patient demographic
information, historical information, co-morbidity data, symptoms, physical
findings, diagnostic test results, lab results, use of certain surgical
techniques, health care utilization data, monitoring and follow-up data, and
educational interventions. Of note, some of these data elements may be gathered
either manually or electronically (depending on availability of the information)
<PAGE> 7
Appendix A - Revised C. U. P. I. D. Proposal
2/16/96
Page 3
Study Outcomes
The final reports will contain a variety of tables and analyses, with the output
to be determined after discussions between Ethicon Endo-Surgery and MediQual The
output will probably include the following:
1. Number of patients who received a targeted procedure, by surgical technique
used
2. Number of patients eligible for treatment with videoscopic techniques
3. Diagnostic procedures preceding and following the surgery, by surgical
technique used
4. Baseline descriptions:
a) Co-morbidity
b) Demographic characteristics (age, sex, race, insurance classifications,
etc.)
c) Number of patients treated by the type of physician
5. Complications, by surgical technique
6. Resource consumption by surgical technique:
a) Physician visits
b) Hospitalization rates
c) ER visits
d) Clinic visits
e) Charges/payments (if available)
7. Unique morbidity, utilization, and other factors will be developed with
MediQual but be proprietary to Ethicon Endo-Surgery.
Analyses
The statistical significance of differences in outcomes will be evaluated, when
appropriate, by both uni-variate means (t-test for means and chi-squared test
for proportions). Comparisons to other settings may be possible once a
sufficient database is accumulated.
Timing and Possible Points of Delay
The timing for this project is dependent upon a number of factors as described
below:
- - Protocol development and finalization ( * )
- Depends on availability of personnel at Ethicon Endo-Surgery, MediQual, and
outsiders (at Ethicon Endo-Surgery's discretion) to come for *
meetings. The lead role will be taken by MediQual with periodic reviews at
Ethicon Endo-Surgery involving key personnel (clinicians, statisticians,
outcomes personnel, etc.).
- Depends on internal delays at Ethicon Endo-Surgery for protocol approval.
- - Data gathering - electronic only
- Depending on the availability and quality of data ( * ).
* Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 8
Appendix A - Revised C. U. P. I . D. Proposal
2/16/96
Page 4
Data gathering (chart abstraction) ( * )
- Actual abstraction can take, depending on the setting and number of
abstractors, * .
- Delays may develop due to IRB approval (may or may not be necessary) and
availability of staff at the setting to identify patients and pull medical
records.
- - Development of analytic plan, table shells, and programming ( * )
- This will run concurrently with the protocol development and the data
gathering.
Data analysis and reporting (electronic only)
- Depending on data quality ( * ).
- - Data analysis and reporting (chart abstraction) ( * )
- This time may increase if there are special analyses performed, above and
beyond what is in the analytic plan.
- - Benchmark databases
- Development of the public inpatient databases will take *
- Development of the CUPID electronic and electronic/manual summary database
will take * after the data is available for those plans which will
be in the database
- Development of the summary database for the physicians with electronic
charts will depend on both the time to develop the protocol and the time to
gather and analyze the data. Due to the variety of chart types and the
different ways of collecting the data points, protocol development and
cleaning up of the tapes could be a fairly major undertaking.
Overall, it is estimated that the initial development plan will take *
with data gathering and analysis at each additional setting, depending on the
type of study and the delays at the setting, taking * . Of note,
MediQual has the resources to undertake analysis or data gathering at numerous
study sites concurrently.
BUDGET
Administrative Data Analysis
- - Project Development - electronic download ( * )
- Develop protocol
- Develop analytic plan
- Develop table shells
* Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 9
Appendix A - Revised C. U. P. I. D. Proposal
2/16/96
Page 5
- - Provision of analysis
- If data tape is clean ( * )
- If data tape is dirty ( * /hour for tape cleanup)
Chart Abstraction
- - Project development - electronic download and manual abstraction ( * )
- Develop protocol
- Develop glossary and data entry tools
- Develop analytic plan
- Develop table shells
- - Data gathering
- Manual abstraction ( * per chart, depending on complexity of data
elements)
- - Provision of analyses
- MediQual performed analysis ( * per site)
Example of Chart Abstraction Project
<TABLE>
<S> <C>
Manual abstraction of 100 charts @ * per chart *
MediQual performed analysis *
Abstractor travel *
------
*
</TABLE>
Note: Abstraction costs will vary, based on the complexity of the final data
elements chosen, and the number of charts chosen to abstract. Travel costs
will vary, based on the site's geographic location.
Development of both protocols concurrently ( * )
- - Synergy of plan would permit the development to cost less for both projects (
- - Individual institution data provision as above
"Benchmark" Datasets - Four different types of benchmark datasets are available
and these include:
- - Compilation of the inpatient state databases which contain physician level
information
- - Compilation of the electronically derived data, as described above
- - Compilation of the electronically and chart reviewed data, as described above
- - Compilation of the data supplied by physicians based on their electronic
charts
* Confidential portion has been omitted and filed separately with the
Commission.
<PAGE> 10
Appendix A - Revised C. U. P. I. D. Proposal
2/16/96
Page 6
Option 1: Inpatient physician level detail from 8 states (Public Data)
Custom database on top 5-10% performers overall ( * ) - or
Custom database, physician license numbers supplied by Ethicon
electronically ( * )
Option 2: Compilation of the electronically derived claims data, as above
Provision of database on all plans - assuming no changes ( * )
Option 3: Compilation of the electronically derived and chart reviewed
information
Provision of database on all plans - assuming no changes ( * )
Option 4: Compilation of the data supplied by physicians electronic charts
(Note: This option assumes identical protocol and analytic plan to
the C.U.P.I.D. project; if any changes or new work are necessary, a
new protocol and/or analytic plan must be devised for additional
fees)
Processing fees for electronic information ( * /hour)
Provision of the database for all sites collected ( * )
Note: The above quoted figures do not include such items as travel, honoraria to
individuals or institutions, or other out-of-pocket expenses.
* Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 1
EXHIBIT 10.34
MARKETING AND LICENSE AGREEMENT
THIS MARKETING AND LICENSE AGREEMENT (the "Agreement") is made this
22nd day of March, 1996, between MEDIQUAL SYSTEMS, INC., a Massachusetts
corporation with offices at 1900 West Park Drive, Westborough, Massachusetts
01581 ("MediQual"), and SPACELABS MEDICAL, INC., a California corporation with
offices at 15220 NE 40th Street, Redmond, Washington 98073-9713 ("SMI").
RECITALS
--------
A. MediQual is the developer and owner of the MediQual Products (as
defined below), and SMI desires to obtain from MediQual the rights and licenses
granted herein to engage in the marketing and distribution of the MediQual
Products.
B. MediQual is willing to grant such rights and licenses under the
terms and conditions of this Aareement. NOW, THEREFORE, MediQual and SMI agree
as follows:
ARTICLE 1
-------
DEFINITIONS
-----------
When used in this Agreement, the capitalized terms listed below shall
have the following meanings:
1.1 "Documentation" means the MediQual user manuals, specifications,
reference materials, guides, instructions, and other documentation relating to
the MediQual Products, as listed in the attached Exhibit A, any revisions to
such documentation which may be created by MediQual from time to time, and any
similar documentation created by MediQual for new MediQual Programs it develops
during the term of this Agreement.
1.2 "End User" means a customer who licenses or otherwise receives
MediQual Products.
1.3 "Maintenance Services" means technical support to End Users, and
computer programming and related services to diagnose and correct defects or
"bugs" in the MediQual Programs, and the Provision of Updates which correct such
defects and "bugs."
1.4 "Marketing Fee" means the fee to be collected and retained by SMI
in consideration of the marketing services to be provided by it under this
Agreement; this fee will equal * of the Net License Fees
collected by SMI hereunder.
1.5 "MediQual License Agreement" means the form software license
agreement under which MediQual licenses the MediQual Products to End Users, as
such form may be amended by MediQual from time to time.
1.6 "MediQual Products" means MediQual Programs, Documentation,
Updates and Upgrades.
1.7 "MediQual Programs" means the computer software programs listed on
the attached Exhibit A, including any Upgrades to such programs and any new
versions of, replacements for, derivatives of, or improvements to, such programs
developed by or on behalf of MediQual during the term of this Agreement.
1.8 "Net License Fees" means, with respect to fees received by SMI or
MediQual from End Users for the license or other distribution by SMI of MediQual
Products, all revenues actually received from such End User,
*
* Confidential portions have been omitted and filed separately with the
Commission.
1
<PAGE> 2
*
.
1.9 "Proprietary Information" means, subject to the provisions of
Section 7.3, (i) the terms of this Agreement and (ii) all products,
documentation, software, releases, ideas, concepts, techniques, know-how,
technical information, designs or other information or material, in whatever
form, which one party to this Agreement receives from the other. However,
Proprietary Information does not include any of the following:
(a) information that enters the public domain other than
through a breach of this Agreement;
(b) information that is subsequently lawfully obtained by
the receiving party from a third party or parties without breach of this
Agreement;
(c) information that the disclosing party has expressly
declared in writing as not being "Proprietary Information";
(d) information which the receiving party can establish by
competent proof was independently developed by its employees, consultants,
agents or licensors;
(e) information which the receiving party can establish by
competent proof was in its possession at the time of disclosure by the
disclosing party and was not acquired, directly or indirectly, from the
disclosing party; and
(f) information which is required to be disclosed by
applicable law.
1.10 "SMI Dealer" means a third party authorized by SMI in a written
agreement to distribute MediQual Products to End Users in accordance with the
terms and conditions of this Agreement.
1.11 "Updates" means a modification, revision or supplement to a
MediQual Program which is provided by MediQual to its customers under
maintenance agreements with such customers, and which either (i) makes the
MediQual Program perform functions it was designed to perform or corrects
defects or "bugs" in the MediQual Program, or (ii) adds new features or
functions to existing MediQual Programs.
1.12 "Upgrade" means a new or revised MediQual software program which
MediQual provides to its customers in consideration for additional license fees.
ARTICLE 2
---------
LICENSE TO MARKET AND DISTRIBUTE MEDIQUAL PRODUCTS
--------------------------------------------------
2.1 Scope of License. MediQual hereby grants to SMI a worldwide,
nonexclusive and nontransferable (except as provided in Section 10.6) license to
market, advertise, demonstrate, distribute and license the MediQual Products,
both directly to End Users and through SMI Dealers, under the trademarks and
service marks of MediQual and to use the MediQual Products in any other manner
incidental, appropriate or necessary to the marketing and distribution of the
MediQual Products in accordance with this Agreement.
2.2 License Agreement with End Users. SMI shall, and shall cause the
SMI Dealers to, license and distribute MediQual Products to End Users using
MediQual's then-current form of license agreement, as it may be amended from
time to time (the "MediQual License Agreement"); a copy of MediQual's form
license agreement as of the date of this Agreement is attached as Exhibit B.
MediQual will provide SMI not less than ninety (90) days' prior written notice
before implementing any changes to its then-current form of license agreement.
* Confidential portions have been omitted and filed separately with the
Commission.
2
<PAGE> 3
ARTICLE 3
---------
MARKETING, PRODUCT SHIPMENT, INSTALLATION, SUPPORT AND MAINTENANCE
------------------------------------------------------------------
3.1 Marketing, Product Shipments, End User Installation and Training. SMI
will use * efforts to market the MediQual Products on behalf
of MediQual, but shall not be required to license or otherwise distribute
* of MediQual Products. MediQual will provide to SMI, upon request
* to SMI, reasonable quantities of MediQual's promotional brochures
and other marketing materials, and copies of the MediQual Products for use by
SMI for demonstration purposes. SMI will procure orders for the MediQual
Products on the terms set forth in the MediQual License Agreement, using order
forms to be provided by SMI (which forms will be consistent with the terms of
this Agreement) at the license fees set forth in MediQual's then-current price
list; a copy of MediQual's price list as of the date of this Agreement is
attached as Exhibit C. MediQual will provide SMI not less than *
days prior written notice of any changes to its price list during the term of
this Agreement; provided, however, that MediQual * for any outstanding
bid quotations which SMI has delivered to prospective End Users prior to SMI's
receipt of notice from MediQual of * . The license of the
MediQual Products shall be a direct contractual obligation between MediQual and
the End User, and MediQual shall be * to the End User for the
delivery, installation and support of the MediQual Products, including but not
limited to any obligation to provide Maintenance Services, Updates or Upgrades.
SMI shall bill the End User for the license of the MediQual Products and shall
use * efforts to collect the license fees payable by the End
User for the license of the MediQual Products; provided, however, that SMI will
have * for installation services, training, Maintenance
Services, Updates or Upgrades. SMI shall use * efforts to
collect all fees required to be collected by it hereunder, but shall not be
liable to MediQual if an End User * of the license fees and
other consideration payable by it.
3.2 Demonstration Programs, Training and Consultation. MediQual shall
provide SMI, * copies of demonstration programs for SMI's use in
marketing, promoting and demonstrating the MediQual Products, in such
quantities as SMI may reasonably request from time to time. In addition,
MediQual will provide SMI product training, technical support services and
technical information to assist SMI in demonstrating, distributing and
licensing the MediQual Products. Such services shall be provided by MediQual
* to SMI at mutually agreeable times and in such locations as
SMI may reasonably specify.
ARTICLE 4
---------
PAYMENT
-------
4.1 Compensation. In consideration for SMI's efforts to distribute the
MediQual Products and generate licenses of the MediQual Products, SMI shall
receive * (the "Marketing Fee") of the Net License Fees
* by End Users arising from the distribution and license of the
MediQual Products by SMI. SMI shall pay the license fees and other revenues
invoiced to End Users, * the Marketing Fee and *
the amount of any * SMI to End Users for *
MediQual Products, within * after the end of each SMI
fiscal quarter in which the MediQual Products were invoiced by SMI,
concurrently with a written report of the number of MediQual Products which
were licensed by SMI and the SMI Dealers, and the number of MediQual Products
which were * by End Users during such * . SMI
shall not be entitled to a Marketing Fee for returned MediQual Products. The
report shall include sufficient detail to enable MediQual to confirm SMI's
calculation of the payments then due; in addition, SMI agrees to maintain
reasonable books and records of the number of MediQual Products licensed by SMI
and the SMI Dealers in a form sufficient to enable MediQual to verify the
accuracy of the report. MediQual shall * arising from the
distribution of the MediQual Products to the End Users.
4.2 Audit. Either party (the "Auditor") shall have the right to audit
the other party's (the "Auditee") calculation of fees payable under this
Agreement. The Auditor may conduct an audit not more
* Confidential portions have been omitted and filed separately with the
Commission.
3
<PAGE> 4
frequently than once per year and upon not less than ten (10) business days'
prior written notice to the Auditee. Such audit shall consist of a verification
of the accuracy of the Auditee's accounting records, through inspection of the
pertinent records and books of account maintained by the Auditee in the ordinary
course of business. Such audit shall be conducted by a certified public
accountant (the "CPA") which is chosen by the Auditor in its reasonable
discretion and which is reasonably acceptable to the Auditee. Such CPA must
agree to sign a nondisclosure agreement in favor of the Auditee, which may
require that the Auditee's books and records of account shall be held in strict
confidence except as may be necessary to report to the Auditor concerning the
accuracy of the Auditee's accounting reports. If the CPA determines that Auditee
has overpaid the Auditor, the Auditor shall promptly refund the amount of such
overpayment to the Auditee. If the CPA determines that the Auditee has underpaid
the Auditor, the Auditee shall promptly pay the Auditor the amount of any such
underpayment. The Auditor shall pay all costs, expenses and fees of the CPA
unless the Auditee has underpaid the Auditor and the amount of such underpayment
exceeds ten percent (10%) of the amount actually due for the period audited, in
which event the CPA's reasonable costs, fees and expenses shall be paid by the
Auditee.
ARTICLE 5
-------
REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Right and Authority. MediQual represents and warrants that (i) it
is the owner of the MediQual Products, including all intellectual property
rights therein under any United States or foreign copyright, patent, trademark,
trade secret, and other applicable law; (ii) it has the full and sufficient
right and authority to grant the rights and licenses granted herein, free and
clear of any and all agreements, liens, adverse claims, encumbrances or
interests of any third party; and (iii) the MediQual Products and the exercise
by SMI of its rights hereunder with respect to the MediQual Products do not and
will not infringe upon, violate or misappropriate any United States or foreign
copyright, patent, trademark, trade secret, contract or other right or interest
of any third party.
5.2 Conformity, Performance and Compliance. MediQual represents and
warrants that the MediQual Products have been prepared in a workmanlike manner
and with professional diligence and skill, and will meet the performance
criteria and technical specifications set forth in the Documentation and any
additional documentation provided by MediQual in conjunction with the delivery
of Upgrades and Updates hereunder.
5.3 Warranties to End Users. SMI is authorized to provide the
warranties set forth in the MediQual License Agreement to End Users regarding
the MediQual Products, and MediQual agrees to honor such warranties and to bear
all costs and expenses of doing so. Except as MediQual may otherwise authorize
in writing, SMI will not provide any warranties to End Users other than those
set forth in the MediQual License Agreement. Nothing in this Section shall: (i)
reduce or otherwise modify either party's indemnification obligations under
Article 9, or (ii) impose any liability on SMI to the extent an End User claims
that the warranty disclaimers and limitations set forth in the MediQual License
Agreement are invalid or unenforceable, or that the Documentation or the
marketing materials prepared by MediQual create implied or express warranties in
addition to those set forth in the MediQual License Agreement.
5.4 THE WARRANTIES SET FORTH IN SECTIONS 5.1, 5.2, AND 5.3 AND THE
MEDIQUAL LICENSE AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
4
<PAGE> 5
ARTICLE 6
-------
TERM AND TERMNATION
6.1 Term of Agreement. This Agreement shall become effective on the
date set forth in the preamble paragraph above and shall continue in effect for
[ *** ] thereafter, unless earlier terminated or canceled as provided in
Secton 6.2.
6.2 Terminaton. Either party may, at its option, terminate this
Agreement in the event of a material breach of this Agreement by the other
party. Such terminaton may be effected only through a written notice,
specifically identifying the breach on which terminaton is based. Following
receipt of such notice, the party in breach shall have [ *** ] to cure
the breach. This Agreement shall terminate [ *** ] if the cure is not effected
by the end of [ *** ] cure period.
6.3 Survival. In the event of the terminaton of this Agreement, the
provisions of Articles 4, 5, 8, 7, 8, 9 and 10, shall survive and continue in
effect, and, if this Agreement is terminated by SMI or a breach by MediQual.
ARTICLE 7
---------
PROPRIETARY RIGHTS AND CONFIDENTIALITY
--------------------------------------
7.1 Proprietary Rights.
7.1.1 MediQual's Proprietary Interest in the MediQual Products.
All right, title and interest in and to the MediQual Products shall at all
times remain in MediQual, including but not limited to all applicable
copyrights, trade secrets, trademarks and patents.
7.1.2 Proprietary Marks. SMI shall not remove MediQual's
copyright notices from the MediQual Products, shall reproduce such copyright
notices on all copies of the MediQual Products made by SMI in accordance with
this Agreement, and shall market the MediQual Products under MediQual's
trademarks and service marks. SMI may use its own trade names, trademarks and
service marks in conjunction with MediQual's trademarks and service marks, but
shall do so only to indicate that SMI is an authorized representative for the
license and distribution of the MediQual Products, and not in any manner which
suggests that SMI has any proprietary interest in such trademarks or service
marks.
7.2 Confidentiality.
7.2.1 Protection of Proprietary Information. Subject to Section
7.3, SMI and MediQual each acknowledge that in the course of dealings between
the parties, each party will acquire Proprietary Information of the other party
which they shall protect with at least the same degree of care that they
protect their own Proprietary Information of a similar nature, but in no event
less than a reasonable degree of care.
7.2.2 Disclosure of Proprietary Information. Subject to Section
7.3, neither party shall have the right to disclose or disseminate Proprietary
Information of the other party to any person or entity except to the extent
necessary to perform its obligations under this Agreement, provided that
confidentiality restrictions shall be imposed upon the parties to whom such
disclosures are made, which confidentiality restrictions shall not be less
stringent than those the disclosing party places upon its own Proprietary
Information of a similar nature.
7.2.3 Use of Proprietary Information. Subject to Section 7.3,
neither party shall have the right to use Proprietary Information of the other
party for any reason other than as necessary for the performance of its
obligations under this Agreement.
7.3 Scope of Restrictions. Notwithstanding anything to the contrary in
this Agreement, nothing shall prohibit or restrict SMI from engaging in or
continuing to engage in the clinical information systems business, so long as
its activities do not include the use of intellectual property developed by
MediQual to
5
* Confidential portions have been omitted and filed separately with
the Commission.
<PAGE> 6
the extent such intellectual property is copyrighted or patented by MediQual or
is otherwise protectable by MediQual as a trade secret in an action with a third
party. MediQual acknowledges and agrees that the identity of End Users and
potential End Users, and information learned by SMI from End Users in marketing
the MediQual Products, do not constitute "Proprietary Information," nor does any
information that could be derived by SMI by general investigation of or
familiarity with the clinical information systems industry, and that SMI may use
such information without restriction.
ARTICLE 8
-------
LIMITATION OF LIABILITY
In no event shall either party be liable to the other for any
consequential, indirect, special, or incidental damages, even if such party has
been advised of the possibility of such potential loss or damage. However, these
limitations will not limit or diminish the parties' indemnity obligations set
forth in Article 9.
ARTICLE 9
-------
INDEMNIFICATION
---------------
9.1 General Indemnification.
9.1.1 By MediQual. MediQual shall indemnify and hold harmless
SMI from and against any and all claims, demands, actions, suits, losses,
liabilities, damages, injuries, fines, penalties, costs and expenses including,
without limitation, reasonable attorneys' fees (collectively, the "Claims"),
arising out of or related to damages incurred by a third party, to the extent
such Claims are caused by any defect in MediQual's design or development of the
MediQual Products, any error or omission in information supplied by MediQual to
SMI, by any breach of this Agreement by MediQual, or by any negligent or willful
act or omission of MediQual in connection with the performance of this
Agreement. SMI will provide MediQual reasonable notice of all Claims, and the
opportunity to assume control of the defense, compromise or settlement of those
portions of the Claim for which indemnification is sought. SMI shall assist and
cooperate with MediQual to the extent reasonably required for such defense. The
foregoing indemnification shall not extend to any Claims to the extent such
Claims arise out of matters included in SMl's indemnification of MediQual, as
set forth below.
9.1.2 By SMI. SMI shall indemnify and hold harmless MediQual
from and against any and all Claims arising out of or related to damages
incurred by a third party, to the extent such Claims are caused by any breach of
this Agreement by SMI, or by any negligent or wilful act or omission of SMI in
connection with the performance of this Agreement. MediQual will provide SMI
reasonable notice of all Claims, and the opportunity to assume control of the
defense, compromise or settlement of those portions of the Claim for which
indemnification is sought. MediQual shall assist and cooperate with SMI to the
extent reasonably required for such defense. The foregoing indemnification shall
not extend to any Claims to the extent such Claims arise out of matters
included in MediQual's indemnification of SMI, as set forth above.
9.2 Intellectual Property Indemnification. MediQual shall indemnify
and hold harmless SMI from all Claims arising out of any infringement or claim
of infringement of any patents, copyrights or trade secrets, due to the
distribution, use or license of the MediQual Products in accordance with this
Agreement. SMI will provide MediQual reasonable notice of all such Claims, and
the opportunity to assume the control the defense, compromise or settlement of
such Claims. The foregoing indemnification does not cover Claims of infringement
to the extent they are based upon any breach by SMI of its obligations under
this Agreement. SMI shall assist MediQual to the extent reasonably required for
the defense of such Claims.
ARTICLE 1Q
----------
MISCELLANEOUS
-------------
10.1 Force Majeure. Neither party shall be in default of this
Agreement by reason of any failure in performance of this Agreement if such
failure arises, directly or indirectly, out of causes reasonably beyond the
control or foreseeability of such party, including, but not limited to, default
by subcontractors or
6
<PAGE> 7
suppliers, acts of God or the public enemy, U.S. or foreign governmental acts
in either a sovereign or contractual capacity which are beyond the direct
control of the parties, labor, fire, flood, epidemic, strikes and freight
embargoes.
10.2 Non-Waiver. Any failure by either party to detect, protest or
remedy any breach of this Agreement shall not constitute a waiver or
impairment of any such term or condition, or the right of such party at any
time to avail itself of such remedies on another occasion as it may have for
any other breach or breaches of such term or condition. In order to constitute
an effective waiver hereunder, such waiver must be in writing signed by an
authorized officer of the waiving party.
10.3 Authority to Contract. Each party warrants to the other that:
(1) it has full authority to execute and perform this Agreement; (2) this
Agreement has been duly executed and delivered by such party and constitutes a
legal, enforceable and binding obligation; (3) its execution and performance of
this Agreement will not violate any law, to the best of its knowledge, or
breach any other agreements to which it is a party; and (4) no approval,
action or authorization by any other governmental entity or agency is required
for its execution and performance hereof.
10.4 Severability. If any provision hereof is declared invalid by a
court of competent jurisdiction, such provision shall be ineffective only to
the extent of such invalidity, so that the remainder of that provision and all
remaining provisions of this Agreement will continue in full force and effect.
10.5 Notice. All communications between the parties which are
required or permitted to be in writing shall be sent by personal delivery
(including by commercial courier service or telephone facsimile), with receipt
obtained, or by prepaid, first class U.S. postal service mail, certified return
receipt requested, and sent to the addresses (and telephone facsimile number,
if applicable) specified below. By written communication in accordance with
this Section, either party may designate a different address for notices.
Addresses for notices are as follows:
To MediQual: MediQual Systems, Inc.
1900 West Park Drive
Westborough, MA 01581
Fax No.: (508) 898-3008
Attn: William C. Price, CFO
To SMI: SpaceLabs Medical, Inc.
15220 NE 40th Street
PO Box 97013
Redmond, Washington 98073-9713
Fax No.: (206) 883-7091
Attn: General Counsel
Notices shall be deemed delivered either (1) upon actual delivery, if
personally delivered, or (2) five (5) days after deposit into the United States
mail, if mailed according to the provisions of this Section 10.5.
10.6 Assignability. SMI may assign this Agreement, upon written
notice to MediQual, to any entity which is owned or controlled by SMI, without
MediQual's consent. Except as specifically set forth in the preceding sentence,
this Agreement may not be assigned by either party, including, without
limitation, by operation of law, without the prior written consent of the other
party, which consent shall not be unreasonably withheld or delayed. Subject to
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and (to the extent specified
in any allowed assignments) assigns. No such assignment shall relieve the
assignor of any liability arising from or related to facts and circumstances
which occur prior to the effective date of such assignment, and the assignor
and assignee shall be jointly and severally liable for such liability.
10.7 Entire Agreement. This Agreement (including the exhibits
hereto) constitutes the complete
7
<PAGE> 8
and final understanding of the parties with respect to its subject matter and
supersedes any and all prior agreements and understandings between the parties
with respect to such subject matter. This Agreement may be amended only in
writing signed by both parties.
10.8 Independent Contractors. MediQual and SMI are independent
contractors in all relationships and actons under and contemplated by this
Agreement. This Agreement does not create any partnership, joint venture, or
agency relationship between the parties and, except as specifically set forth in
this Agreement, does not authorize either party to enter into any commitment or
agreement binding on the other. Other than as expressly permitted herein,
neither party shall make any warranties, guarantees or any other commitment on
behalf of the other.
10.9 Headings. The headings contained in this Agreement are for
reference purposes only and shall not in any way control the meaning or
interpretation of this Agreement.
10.10 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Washington as they apply to a
contract made and performed solely in such state, without regard to its conflict
of laws provisions. Subject to Section 10.12, SMI and MediQual hereby submit to
the exclusive jurisdicton of the federal and state courts located in King
County, Washington, for the resolution of any disputes arising under or related
to this Agreement.
10.11 Arbitration. Any dispute involving solely the interpretation,
construction or breach of this Agreement, other than the enforcement of Sections
9.1 and 9.2, shall be settled by the procedures for dispute resolution and
arbitration set forth on Exhibit D. No legal right of action may arise out of
any such dispute. The procedures designated on Exhibit D may not be invoked by
any party for a claim after the date when institution of legal or equitable
proceedings based upon such claim, dispute or other matter in question would be
barred by the applicable statute of limitations. Each party, however, shall have
full access to the courts to compel compliance with these provisions, enforce an
arbitration award, or to seek injunctive relief, whether or not an arbitration
has been commenced.
10.12 Compliance With Laws. MediQual represents and warrants that it
has received all governmental licenses and approvals necessary for the use,
distribution and license of the MediQual Products in accordance with this
Agreement, including but not limHed to approvals required, if any, from the
United States Food and Drug Administrabon.
10.13 Counterparts. This Agreement may be executed in separate
counterparts, each of which shall toaether consbtute one and the same agreement.
IN WITNESS WHEREOF, MediQual and SMI have executed this Agreement upon
the date first written above.
MEDIQUAL SYSTEMS, INC. SPACELABS MEDICAL, INC.
By: /s/ Eric Kriss By: /s/ Edward R. Larsen
------------------------ -------------------------------------
Title: President & CEO Title: Vice President, Strategic Planning
--------------------- ----------------------------------
8
<PAGE> 9
LIST OF EXHIBITS TO LICENSE AGREEMENT
Exhibit A List of MediQual Products
Exhibit B Form of MediQual License Agreement
Exhibit C MediQual Price List
Exhibit D Dispute Resoluton Procedures
9
<PAGE> 10
EXHIBIT A
List of MediQual Products
"Atlas 2.0," including:
(a) Outcomes
(b) Resources
(c) Market View
10
<PAGE> 11
EXHIBIT B
Form of MediQual License Agreement
See attached form.
11
<PAGE> 12
EXHIBIT C
MediQual Price List
12
<PAGE> 13
THE FOLLOWING MATERIAL IS CONFIDENTIAL AND FOR INTERNAL DISTRIBUTION ONLY
[MEDIQUAL LOGO]
PRODUCTS & SERVICES PRICE LIST
SpaceLabs Medical
Marketing & License Agreement
Last updated: February 28, 1996
NOTE: PRODUCTS UNDER ALPHA\BETA TESTING ARE INDICATED BY**
<TABLE>
<S> <C>
1. ATLAS 2.0 PRODUCT LINE .................................................. 1
A] ATLAS UPGRADES .......................................................... 1
B] ATLAS 2.0 MODULES ....................................................... 2
C] MODULE PRICING .......................................................... 2
D] LICENSE DEFINITIONS ..................................................... 2
E] MATERIALS ............................................................... 3
F] CD-ROMS ................................................................. 3
1. MQ Profile (for Outcomes or Resources) ............................... 3
2. Peer Series (for Outcomes) ........................................... 3
3. Mortality BenchMark (for Outcomes) ................................... 3
4. Market View Series (for Market View) ................................. 3
5. Custom CD-ROMs ....................................................... 3
2. PRODUCT SERVICES ........................................................ 4
A] INITIAL 2.0 SETUP ....................................................... 4
B] ON-GOING SEMINARS ....................................................... 4
C] OTHER SERVICES .......................................................... 4
1. Data Quality ........................................................ 4
2. Insurance ........................................................... 4
3. Atlas Outsource ..................................................... 5
APPENDIX: TERMINOLOGY ...................................................... 6
COMPARATIVE FEATURES ....................................................... 8
</TABLE>
1. ATLAS 2.0 PRODUCT LINE
A] ATLAS UPGRADES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
ANNUAL FEE LIST PROMO
---------------------------------------------------------------------------
<S> <C> <C>
Additional user (includes
Glossary or documentation set, * *
depending on user type)
---------------------------------------------------------------------------
Mortality BenchMark * *
---------------------------------------------------------------------------
**Physician BenchMark * *
---------------------------------------------------------------------------
**Physician Report Card * *
---------------------------------------------------------------------------
**Patient ROI (MGII download record
type extension) * *
---------------------------------------------------------------------------
**Lab ROI (for lab systems) * *
---------------------------------------------------------------------------
**Pharmacy ROI (for pharmacy
systems) * *
---------------------------------------------------------------------------
</TABLE>
* Confidential portions have been omitted and filed separately with the
Commission.
Page 1 - Printed on 5/23/96
<PAGE> 14
B] ATLAS 2.0 MODULES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
MODULE DESCRIPTION
---------------------------------------------------------------------------
<S> <C>
Outcomes Atlas single user, Patient Summary, Scoring Sum, Proc Val,
MQPro CD, Mortality BenchMark, Peer CD, Physician
BenchMark, Physician Report Card
---------------------------------------------------------------------------
**Resources Atlas single user, Patient Summary, Scoring Sum, MQPro CD
(UB92 dataset only)
---------------------------------------------------------------------------
Market View Atlas single user, Market View MQ-A, CD (state or
Medpar)
---------------------------------------------------------------------------
MV & Resources bundle with three users
---------------------------------------------------------------------------
MV & Outcomes bundle with five users (software and/or Glossary)
---------------------------------------------------------------------------
Data Satellite UB92 only or complete: Atlas single user, data collection
only (multi-facility includes query)
---------------------------------------------------------------------------
MV multi-site Atlas single user (purchased with regular MV)
---------------------------------------------------------------------------
</TABLE>
C] MODULE PRICING
See module descriptions above for included features. List prices, while
"unpublished", are used for general RFP responses and other inquiries. Promotion
prices are quoted as "good for the next 30 days" with no commitment beyond that
time frame. Promotion pricing may be extended at the discretion of the sales
team.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
ANNUAL FEE LIST PROMO DISCOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C>
Outcomes * * *
---------------------------------------------------------------------------
**Resources * * *
---------------------------------------------------------------------------
Market View * * *
---------------------------------------------------------------------------
MV & Resources * * *
---------------------------------------------------------------------------
MV & Outcomes * * *
---------------------------------------------------------------------------
Data Satellite, UB92
only * * *
---------------------------------------------------------------------------
Data Satellite, complete * * *
---------------------------------------------------------------------------
MV multi-site * * *
---------------------------------------------------------------------------
</TABLE>
Prices do not include training, setup fees, or extra materials, if any
D] LICENSE DEFINITIONS
Users are defined as simultaneous software and/or Glossary users. Atlas fees
include telephone customer support, annual software updates, and one set of
documentation. Glossaries and forms are purchased separately.
* Confidential portions have been omitted and filed separately with the
Commission.
Page 2 - Printed on 5/23/96
<PAGE> 15
E] MATERIALS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
PRICE
---------------------------------------------------------------------------
<S> <C>
Getting Started *
---------------------------------------------------------------------------
Data Entry & Management Guide-----documentation set *
---------------------------------------------------------------------------
Reporter Reference Guide *
---------------------------------------------------------------------------
Atlas documentation set (3 titles) *
---------------------------------------------------------------------------
Atlas 2.0 Glossary *
---------------------------------------------------------------------------
Atlas Glossary Reference Tool-----Glossary set *
---------------------------------------------------------------------------
Atlas Glossary set (2 titles) *
---------------------------------------------------------------------------
Atlas 2.0 Abstract Forms, 250 4-sided package *
---------------------------------------------------------------------------
Atlas 2.0 Extended Stay Forms, 250 2-sided *
---------------------------------------------------------------------------
Atlas Training Workbook *
---------------------------------------------------------------------------
Atlas 2.0 File Format Specifications *
---------------------------------------------------------------------------
Database Configuration Workbook *
---------------------------------------------------------------------------
Entering Data Workbook *
---------------------------------------------------------------------------
</TABLE>
F] CD-ROMS
CD-ROMs are annually licensed for * each. A multiple site discount of
* (that is, * per CD-ROM) applies to subsequent copies of the same
title if ordered at the same time as the first title. Additional copies of the
same title for the same site are * each. A volume discount is available for
multiple CD-ROM titles purchased at the same time: three titles for * ,
and * per title after the first three.
1. MQ PROFILE (for OUTCOMES or RESOURCES)
For new clients, bundled with Outcomes or Resources.
2. PEER SERIES (for OUTCOMES)
For new clients, one title of choice is bundled with Outcomes
3. MORTALITY BENCHMARK (for OUTCOMES)
For new clients, bundled with Outcomes.
4. MARKET VIEW SERIES (for MARKET VIEW)
For new clients, one title* of choice is bundled with Market
View. Updates, if available and ordered at the time of the original
subscription, are * per update (that is, * extra for semi-annual, and
* extra for quarterly).
*A title may cover part of a state, an entire state, or a
cross-section of states, depending on the data source and
focus.
5. CUSTOM CD-ROMS
Custom CD-ROMs are * each, plus programming charges of
* per hour. Additional copies of the same custom CD-ROM for the same
licensee are * each. No discounts apply to custom CD-ROMs.
* Confidential portions have been omitted and filed separately with the
Commission.
Page 3 - Printed on 5/23/96
<PAGE> 16
2. PRODUCT SERVICES
A] INITIAL 2.0 SETUP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SETUP STEP MODULE FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
1a On-site planning day Outcomes or Resources *
1b Designing Your Database
- --------------------------------------------------------------------------------
2a Atlas Data Collection Outcomes only *
2b PC-based test
- --------------------------------------------------------------------------------
3a Features & Function Training Outcomes, Market View *
and Resources
- --------------------------------------------------------------------------------
</TABLE>
B] ON-GOING SEMINARS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SEMINAR TYPE FEE
- ----------------------------------------------------------------------------------------------
<S> <C>
1-day *
- ----------------------------------------------------------------------------------------------
2-day Atlas Data Collection only *
- ----------------------------------------------------------------------------------------------
Private seminars (on site; client provides PCs if required) *
- ----------------------------------------------------------------------------------------------
National CIMposium* *
- ----------------------------------------------------------------------------------------------
Workshops (pre-CIMposium) *
- ----------------------------------------------------------------------------------------------
</TABLE>
* volume discount of * is available if more than five
attendees are billed to, and paid by, the same entity name at
the same time.
C] OTHER SERVICES
1. DATA QUALITY
All Outcomes clients receive free annual data quality PC tests for
their Glossary users. Participation is voluntary. Clients will be
certified if they submit test scores of all abstractor and if all
scores are 95 or above; certificates are sent to the client and each
individual abstractor.
2. INSURANCE
Atlas Safe provides disaster recovery security for all Atlas software
and database products beyond what a client's property insurance might
cover. In the case of a disaster such as a flood, hurricane,
earthquake, fire or an unexpected database destruction, MediQual will
provide the following:
- recovery of data up through 1993 on CD-ROM ( * value)
- one replacement copy of the most current version of all
purchased software products and databases, diskettes,
documentation and glossary materials
<TABLE>
<CAPTION>
------------------------------------------------------------------------
SERVICE DESCRIPTION FEE
------------------------------------------------------------------------
<S> <C>
Data Quality Certificate * per abstractor
------------------------------------------------------------------------
Review abstracted record * per record
------------------------------------------------------------------------
Atlas Safe * per year
------------------------------------------------------------------------
</TABLE>
* Confidential portions have been omitted and filed separately with the
Commission.
Page 4 - Printed on 5/23/96
<PAGE> 17
3. ATLAS OUTSOURCE
A. ABSTRACTING SERVICES
Abstracting services performed at the client site are quoted on a per
record basis according to the type of hospital or records and the
length of stay for each record. Clients sign contracts confirming the
pricing structure including an estimate of records to be abstracted.
Clients are invoiced for the actual number of records abstracted. Data
Collection Specialists document all records abstracted including their
DRG and length of stay. All travel expenses (including transportation,
parking, lodging) are billed to clients at cost. For projects requiring
overnight stays, a meal per diem is charged covering meals, tips,
personal phone calls and laundry)
FOR NON-PHILADELPHIA PROJECTS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
LENGTH OF STAY
-----------------------------------------------------------------------------
ABRIDGED 0-6 7-12 13-29 29+ CABG
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DATA ABSTRACTING
-----------------------------------------------------------------------------
Non-teaching Hospital * * * * * *
-----------------------------------------------------------------------------
Teaching Hospital * * * * * *
-----------------------------------------------------------------------------
</TABLE>
FOR PROJECTS LOCATED IN PHILADELPHIA
(Rates include a * premium to cover Business Privilege taxes and license)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
LENGTH OF STAY
-----------------------------------------------------------------------------
ABRIDGED 0-6 7-12 13-29 29+ CABG
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DATA ABSTRACTING
-----------------------------------------------------------------------------
Non-teaching Hospital * * * * * *
-----------------------------------------------------------------------------
Teaching Hospital * * * * * *
-----------------------------------------------------------------------------
</TABLE>
B. DATA ENTRY SERVICES
Date entry services are performed off-site. Clients will send data
abstraction forms to MQDS offices for work performed in the office.
Data entry services charges are * per record if client downloads
demographic data or * per record if demographic data must be
entered by MQDS.
* Confidential portions have been omitted and filed separately with the
Commission.
Page 5 - Printed on 5/23/96
<PAGE> 18
APPENDIX: TERMINOLOGY
CLINICAL INFORMATION MANAGER (CIM)
A single PC software system that integrates large volumes of data for easy
analysis using the following building blocks: 1) a data dictionary, 2) outcome
and severity measurements, 3) comparative data, and 4) data collection and
integration tools
ATLAS(TM) MediQual's CIM solution for any healthcare vertical market where data
collection is necessary, and/or where data analysis and query are useful. Atlas
also describes MediQual's overall product line, comprised of the horizontal CIM
platform together with any mix of vertical modules.
ATLAS 2.0
A major 1996 release which replaces the MedisGroups DESYS data collection
platform (DOS) with a new Windows interface, and integrates the Atlas reporting
system, together with vertical market modules
ATLAS MODULE
A selection of MQ Analysis dialog boxes, activated query fields, and MQ
Templates, together with optional or bundled Atlas CD-ROM databases designed for
a specific vertical market need. Three modules for the acute care market --
Outcomes, Market View, and Resources -- are currently available:
- Outcomes
MQ Templates
Patient Summary {MQ-A}
Scoring Summary {MQ-A}
Procedure Validation {MQ-A} )
Procedure Risk Profile {MQ-A} ) PROCEDURE VALIDATION
Validator Frequency {MQ-A} )
MQPro {CD-ROM}
Mortality BenchMark {MQ-A, CD-ROM}
Physician BenchMark {MQ-A bundle}
Physician Report Card
Peer {CD-ROM}
- Market View
MQ Templates
Charges & Stay {MQ-A}
Discretionary Admissions {MQ-A}
Mortality {MQ-A}
Strategic Position {MQ-A}
MEDPAR {CD-ROM} or State {CD-ROM}
- Resources
MQ Templates
Patient Summary {MQ-A}
Scoring Summary {MQ-A}
MQPro {CD-ROM}
MQ TEMPLATE(S)
A MediQual-designed query definition, included as a component in Atlas modules,
that provides a quick method of generating a useful report; users may modify MQ
Templates or design their own from scratch
MQ ANALYSIS(SES)
A MediQual-structured framework, with its own dialog box(es), for complex data
calculations or special reporting formats; included as a component in Atlas
modules
Page 6 - Printed on 5/23/96
<PAGE> 19
ATLAS DATABASE(S)
Generic term for all CD-ROMs used with Atlas software; derived from MediQual's
master data bank of over 17 million patient records or from other sources,
individual databases are provided in CD-ROM format and used to reach
statistically valid conclusions about differences, or variance, between groups;
a component of Atlas modules
MQ PROFILE
Comparative CD-ROM database designed to reflect the membership of the AHA
without specific hospital identifiers; same format as Peer series
PEER SERIES
Comparative CD-ROM databases without specific hospital identifiers used with
Outcomes; derived from MediQual's master database
MARKET VIEW SERIES
State all-payor or MEDPAR Medicare CD-ROM databases used with Market View that
provide ICD-9 and demographic data with hospital, and in some cases, physician
identifiers
MORTALITY BENCHMARK
Comparative CD-ROM database together with special MQ Analyses & MQ Templates,
designed for Outcomes
PHYSICIAN BENCHMARK
Six special MQ Analyses -- Mortality Threshold, High Value Clusters, Clinical
Targets, Physician Opportunities, Process Targets, and Physician Portfolio --
designed for Outcomes or Resources
PHYSICIAN REPORT CARD
Runs multiple queries and formats results into a convenient single page "report
card" that grades physician performance from A to D based on objective criteria
RAPID OBJECT INTEGRATOR - ROI
A series of download extenders and data integrators for Outcomes and Resources;
these data warehousing tools translate data output from legacy transaction
systems and reformat into HL7 Atlas specs; three ROI tools cover (1) expanded
patient types using the MGII download, (2) lab, and (3) pharmacy
ATLAS GROUPER(S)
Generically describes all statistical groupers used in Atlas whether ICD-9 or
key clinical finding (KCF) based, and incorporated as part of the reporting
platform; use of particular groupers is controlled by Atlas modules
ATLAS SOFTWARE DOCUMENTATION
A collection of printed user publications; similar to online Help accessed from
main menu bar
ATLAS GLOSSARY
A data dictionary used to accurately abstract information from patient medical
records; integral to data acquisition platform, the Glossary defines and
describes key clinical findings (KCFs). A major revision of the Glossary was
released in 1996; required for Outcomes and Resources clients
MEDISGROUPS
The predecessor to Atlas 1.0 reporting and Atlas 2.0 data collection.
MedisGroups II is a DOS program which will no longer be supported after Atlas
2.0 conversion is complete
ATLAS UNIVERSITY
Westboro-based and regional seminars, and the national CIMposium
ATLAS ONLINE
An electronic bulletin board open to all no charge (except cost of phone call)
ATLAS SAFE
Page 7 - Printed on 5/23/96
<PAGE> 20
A disaster recovery insurance plan for Atlas clients that includes source code
protection (required by some MIS departments) and pre-paid database replacement
costs
DATA ABSTRACTING
On-site abstraction and data input services for Atlas and pharmacoeconomics
clients
HOTLINE
Telephone and faxback assistance for technical, application and data collection
questions; included as part of Atlas license fees
PHARMACOECONOMICS
Custom studies concerned with the cost effectiveness of various treatment
alternatives; not discussed in this price document
SERVICES
Generally work on databases and system customization
WEB SITE
Address is http://www.mediqual.com
COMPARATIVE FEATURES
<TABLE>
<CAPTION>
MODULES
- --------------------------------------------------------------------------------
Feature Outcomes Resources
- --------------------------------------------------------------------------------
<S> <C> <C>
KCF data (with Glossary) x
Custom data collection x x
Data sampling options x x
UB92 download x x
Lab download x x
Pharmacy download x x
Patient & scoring summary x x
Procedure validation x
Mortality BenchMark x
Physician BenchMark x
Physician Report Card x
MQ Profile CD-ROM x x
Peer series CD-ROMs x
Market View CD-ROMs
Mortality risk adjustment x
LOS risk adjustment x
C-Section risk adjustment x
Charge risk adjustment x x
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SATELLITES
- --------------------------------------------------------------------------------
Feature Full Satellite UB92 Satellite
- --------------------------------------------------------------------------------
<S> <C> <C>
KCF data (with Glossary) x
Custom data collection x x
Data sampling options x x
UB92 download x x
Lab download x x
Pharmacy download x x
Patient, scoring summary x x
Mortality risk adjustment x
LOS risk adjustment x
C-Section risk adjustment x
Charge risk adjustment x x
- --------------------------------------------------------------------------------
</TABLE>
Page 8 - Printed on 5/23/96
<PAGE> 21
EXHIBIT D
DISPUTE RESOLUTION AND ARBITRATION PROCEDURES
1. Pre-Arbitration Resolution. In the event of any dispute between the
parties regarding the interpretation, construction or breach of any provision
of this Agreement, or with respect to the performance by any party under this
Agreement, then upon written request of any party, each party will designate
an officer (the "Negotiator") who will meet for the purpose of endeavoring to
resolve the dispute. The Negotiators must be of a rank of Vice President,
General Counsel or comparable status within their respective organizations,
and shall have the authority to resolve the dispute or to negotiate for an
adjustment to Agreement provisions in accordance with this paragraph. The
Negotiators shall meet in good faith in an effort to resolve the dispute or
renegotiate the applicable section or provision without the necessity
of any formal proceeding, including arbitration. The specific format for the
discussions will be left to the discretion of the Negotiators. If the
Negoitators are unable to resolve the dispute and if the dispute is subject to
arbitration in accordance with the provisions in this Agreement, the arbitration
provisions in this Exhibit shall apply.
2. Arbitration: General. Any arbitration to which Section 10.12 of the
Agreement applies shall be conducted in accordance with the following
provisions. It shall be the purpose and intent of these arbitration procedures,
the parties, and the arbitrators to facilitate a prompt resolution of the issues
presented for arbitration. By consent of all parties to any dispute under this
Agreement, the method of selecton of arbitrators (including the arbitrators
selected), or any other procedure for arbitration may be changed at any time.
3. Notice. The party demanding arbitration must give the other party
a written notice of such demand. The written notice must contain, in addition
to the demand for arbitration, a clear statement of the issue or issues
to be resolved by arbitration, an appropriate reference to the provisions of the
Agreement which are involved, the relief the party requests through arbitration,
and the name and address of the arbitrator selected by the demanding party.
4. Response. The party receiving the notice of demand for arbitration
must provide a written response to the demand within thirty (30) days following
receipt of the notice. The response must contain a clear statement of the
respondent's position concerning the issue or issues in dispute and the name and
address of the arbitrator the respondent selects as one of the arbitrators to
hear the dispute. The response must also contain, by way of counterclaim, a
clear statement of any other issue or issues in dispute between the parties
reasonably related to the original notice of demand for arbitration. If the
response includes a statement of counterclaim, the party first demanding
arbitration shall make a response in accordance with this paragraph 4 and may
change its designated arbitrator. If the party receiving the notice of demand
for arbitration fails to designate its arbitrator within the time allowed, the
demanding party may apply to the American Arbitration Association to designate
the second arbitrator. Only one set of arbitrators shall be selected in
accordance with this Exhibit to resolve all claims and counterclaims raised in a
specific dispute.
5. Third Arbitrator. With fifteen (15) days following the selection of
the second arbitrator, the two arbitrators selected in accordance with
paragraphs 3 and 4 of this Exhibit shall select a third arbitrator. If they fail
to do so within that time period, either party may apply to the American
Arbitration Association to appoint a third arbitrator. Unless otherwise agreed
by the first two arbitrators, the third arbitrator shall be either: an
individual with at least five years' relevant business or technical experience
in the medical device industry; or shall be a lawyer with at least five years'
relevant experience in commercial law or intellectual property law, and who has
not represented any party to the arbitration. The first two arbitrators may
agree on other or additional qualifications they reasonably believe to be
relevant to the issues present for arbitration including, without limitation,
use of professional arbitration services organizations.
6. General Qualifications; Fees. No arbitrator shall be: a current
employee of any party, a
13
<PAGE> 22
current contractor or agent of any party (excluding participation as an
arbitrator), or have been an employee of any party in the 12 months preceding
the notice of demand for arbitration first given in the matter. Arbitrators fees
shall be agreed in writing in advance of the arbitration meeting and shall not
be contingent upon the outcome of the arbitration. Any individual who can
reasonably be expected to receive direct pecuniary benefit from the decision
made in the arbitration (except in the form of fees as an arbitrator) shall be
disqualified. Arbitrators shall agree to be bound by Secton 7.2 of the
Agreement regarding confidentiality, as a condition of their qualification to
serve as an arbitrator.
7. Arbitration Meeting. The arbitrators will meet in Seattle,
Washington within thirty (30) days after the selection of the third arbitrator
and will allow each party an opportunity to submit oral and written evidence
and argument concerning the issues in dispute. The arbitrators may decide, by
majority vote, to extend the amount of time from thirty (30) days to some
longer period as reasonably required to permit the parties to prepare their
respective presentations (including the completion of discovery in accordance
with paragraph 11 of this Exhibit), and to set the duration of the arbitration
meeting as reasonably necessary to accommodate an adequately thorough
hearing by the arbitrators. The three arbitrators may resolve only the
questions submitted to arbitration and must include as part of their
consideration a full review of the Agreement and all material incorporated in
the Agreement by reference. The arbitration shall be held in Seattle,
Washington.
8. Confidentiality. All information used or disclosed in the
arbitration shall be deemed Confidential Information of the disclosing party
and shall be held in confidence in accordance with Section 7.2 of the
Agreement. However, if reasonably necessary to the presentation or defense of
a claim in the arbitration, another party's Confidential Information may be
disclosed to an agent, contractor or representative ("Consultant") of a party
otherwise bound not to disclose such information, provided that such
Consultant agrees in writing to be bound by the terms of Section 7.2. If the
issue of the arbitration is or includes a dispute whether certain information
is prohibited pursuant to Secton 7.2 to be disclosed, for purposes of the
arbitration procedures, such information shall be treated by all parties and
the arbitrators as confidential information pursuant to this procedure unless
and until the arbitrators may decide otherwise in their final decision.
9. Decisions. Unless otherwise stated in these procedures or agreed by
the parties, any matter that may be decided by the arbitrators shall be decided
by majority vote of the arbitrators. The decision of a majority of the
arbitrators to resolve the issues in dispute will be final and will bind the
parties. The arbitrators may award any remedy that would have been available at
law or equity to resolve the matter under dispute including, without limitation,
injunctive relief. The arbitrators shall issue written findings and conclusions
in support of their decision.
10. Payment of Costs. Any party desiring a transcript of the
arbitration meeting shall bear the cost of arranging for the reporting and
preparation of such transcript. If more than one party desires a transcript,
only a single court reporter shall be present and the cost of reportng and
transcribing shall be shared on a equal pro rata basis among the parties
desiring a transcript. If the arbitrators determine that a nonprevailing party
either has not acted in good faith or has been excessively unreasonable, either
in its conduct giving rise to the arbitration matter or in pursuit of its claim
or defense in the arbitration, the arbitrators may order that such nonprevailing
parly shall pay all or a porbon of a prevailing parly's costs and expenses,
including but not limited to arbitrator fees, witness fees, attorney fees, and
costs and expenses incurred in connecton with the arbitration. The determination
of "prevailing" or "nonprevailing" shall be in the reasonable judgment of the
arbitrators.
11. Discovery and Evidence Rules. In any arbitration, the discovery
and evidentiary rules of the federal district court for the jurisdiction in
which the arbitration will be held will apply. The arbitrators may set
reasonable deadlines for completion of discovery.
14
<PAGE> 1
Exhibit 10.35
February 6, 1996
MediQual Systems, Inc.
1900 West Park Drive
Westborough, Ma 01581
Gentlemen:
This letter. when countersiqned by you, will constitute an Agreement
between Marquette Electronics, Inc. ("Marquette") and MediQual Systems, Inc.
("MediQual") with respect to MediQual's development of two software programs or
sets of software programs, each to serve as a medical outcomes analysis system
for use in the cardiology and obstetrics fields (each referred to as "System").
Following development of the Systems, Marquette, directly and/or through its
subsidiaries, will distribute and sublicense the Systems to hospitals and other
medical providers, subject to the terms hereinafter set forth.
The following sets forth the terms of our Agreement:
1. The Systems. MediQual agrees to develop two (2) Systems, (a) one, a
Cardiology-specific System ("MarqView") which will operate as a separate
software application on Marquette's MUSE Cardiology Management System; and (b)
one, for an Obstetrics-specific System ("QS-OB Atlas") which will operate as an
integrated software application on the QMI Quantitative Sentinel Clinical
Information System. Each System will be developed in two phases. The first phase
will consist of the delivery by MediQual to Marquette of both Systems for
* and, following acceptance of each System and subject to
any * that Marquette may give to MediQual, the second phase will
consist of the delivery of * Systems in the form and
functionally as specified in the Product Description and Specifications document
(Exhibit "A"' attached to this letter. MediQual shall use its * to
complete the first phase by * and the second phase by *
.
2. Marquette's Exclusive Rights. MediQual hereby grants to Marquette an
exclusive and perpetual right and license to use and duplicate the Systems, or
either of them, and to sublicense third party sublicensees to use the Systems
and the documentation in the conduct of medical outcomes analysis.
3 Marquette's * . For and in consideration of Marquette's rights
granted hereunder by MediQual, Marquette agrees to pay to MediQual, as
Marquette's * of the * of the Systems, the sum of
* each, the first of which was paid *
, the second of
* Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 2
MediQual Systems, Inc.
February 6, 1996
Page 2
which shall be payable by Marquette within * following the date of the
execution of this Agreement and the remainder on * or promptly
following a * of both Systems to Marquette, showing such
Systems to be * and in form and packaginq sufficient for
commercial sale, whichever first occurs. MediQual shall * of
the development.
4. Sublicenses. After delivery to Marquette of versions of each System
which Marquette reasonably determines is commercially saleable, Marquette will
offer to sublicense the Systems to third party sublicensees, each of which
sublicenses will require the payment of license fees to Marquette as set out in
the "Marquette Outcomes Software Pricing" document (Exhibit "B") attached
hereto, as the same may be revised by Marquette from time to time. While this
Agreement remains in effect, MediQual shall provide to Marquette such number of
copies of each System and documentation to accompany each System as Marquette
may request from time to time to fulfill sublicensees' orders and an additional
number of copies of each System as Marquette may reasonably wish to stock for
future distribution.
5. Payments to MediQual. Sublicensee orders for sublicenses of each of the
Systems will be solicited, booked and invoiced by Marquette. Marquette agrees to
pay to MediQual, * following the date of invoice to the
sublicensee, * of the license fees billed by Marquette during such
* , provided, however, if any *
payment of any license fee to Marquette by reason of *
of the System, Marquette may * payment to MediQual
* , whichever shall
first occur.
6. Term and Termination. This Agreement shall continue in full force and
effect * , subject to * right of termination by delivery of
not less than ninety days prior written notice to MediQual, provided that such
termination shall not be effective until MediQual has received from Marquette,
pursuant to the provisions of Section 5 hereof, * .
Neither party shall have any further liability or obligation to the other
following Marquette's termination of this Agreement, except that (a) Marquette
shall continue to have the rights granted under Sections 2 and 4, but such
rights shall no longer be exclusive; and (b) Marquette shall continue to be
obligated to pay MediQual one-half of the license fees received from
sublicensees; and (c) MediQual shall be obligated to provide software support to
* Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 3
MediQual Systems, Inc.
February 6, 1996
Page 3
Marquette and the sublicensee and software updates, enhancements, and releases
under Section 8 with respect to Systems sublicensed by Marquette prior to and
following termination of this Agreement.
7. Training. Initially, MediQual will provide training to Marquette's
sublicensees, with respect to the use of the Systems, at MediQual's usual and
customary training fees to be charged to the sublicensee. MediQual will also
provide Marquette trainers and specialists with in-depth training on selling,
installation, set-up, customer in-service, troubleshooting and support with
respect to the Systems, and will provide similar, appropriate training as to all
upgrades and enhancements thereto. At such times as both parties believe that
Marquette employees have been sufficiently trained, Marquette shall take over
the responsibility of training customers in the use of the Systems.
8. Sublicenses. Each sublicense of a System shall include a non-exclusive
annually renewable license for the sublicensee to use the System at its
facility. Any software updates will be provided to the sublicensee by MediQual
in consideration of the annual sublicense fees payable by the sublicensee.
System updates and enhancements will include application software corrective
releases and operating system updates. Unless these releases repair/correct
major software deficiencies or "bugs", such updates and enhancements will be
priced accordingly and offered for sub-license by Marquette pursuant to this
Agreement as extensions of the standard product.
9. Documentation. MediQual standard sublicensee documentation will be
provided to Marquette and each sublicensee of Marquette. Both parties will work
together to create proper documentation of non-standard MediQual software
applications as appropriate.
10. Warranties.
(a) MediQual will repair or replace any software composing a part of
either System that fails to meet specifications during the term of each
sublicense.
(b) MediQual represents and warrants to Marquette that (i) MediQual is
and will be the sole and exclusive owner of the Systems; and (ii) neither the
System, the documentation, nor the use thereof by Marquette or any sublicensee
of Marquette in accordance with reasonable instructions provided by MediQual
will infringe upon or violate any patent, copyright, trade secret or other
proprietary right of any third party that is valid or
<PAGE> 4
MediQual Systems, Inc.
February 6, 1996
Page 4
enforceable in the United States (whether conferred by statute, code, common
law or otherwise).
11. Software Support and Installation. MediQual will provide telephone
support for the Systems sublicensed by Marquette pursuant to this Agreement.
Marquette will be responsible for installation at sublicensee sites. Wherever
possible, Marquette will seek to provide first call service.
12. Indemnities.
(a) MediQual shall indemnify, defend and hold harmless Marquette and
its sublicensees, affiliates and employees from and against any and all damages,
awards, amounts paid in settlement, liabilities, costs and expenses (including
reasonable attorney's fees and disbursements) in connection with any claim or
action brought against any of them based on any allegation that any part of the
System, or documentation infringes upon or violates any patent, copyright, trade
secret or other proprietary right of any third party which is enforceable in the
United States.
(b) In the event that a judgment or any injunction shall be obtained
against Marquette, its affiliates or sublicensees prohibiting use or possession
of any part of the System, MediQual shall, at its option and expense, (i)
procure for the enjoined party the right to continue to use such part of the
System; or (ii) replace or modify such part of the System so that it becomes
non-infringing; provided, however, that no part of such System shall suffer any
degradation in quality or performance, and each part of the System shall
continue to function as warranted and in accordance with all specifications
therefor.
(c) Marquette shall indemnify, defend and hold harmless Medi-Qual and
its affiliates and employees from and against any and all damages, awards,
amounts paid in settlement, liabilities, costs and expenses (including
reasonable attorney's fees and disbursements) in connection with any claim or
action brought against any of them based on any allegation that any part of the
equipment manufactured by Marquette on which the System is operating infringes
upon or violates any patent, copyright, trade secret or other proprietary right
of any third party which is enforceable in the United States.
13. Software Escrow. MediQual agrees, within ten days following the
receipt by Marquette of its first order for either System, to deposit, in
escrow, the source code and related documentation covering each of the Systems
and all other secret
<PAGE> 5
MediQual Systems, Inc.
February 6, 1996
Page 5
information concerning the Systems as may be necessary to recreate the System.
Bingham, Dana & Gould, Boston, Massachusetts, shall serve as escrowee pursuant
to the terms of an Escrow Agreement in the form attached hereto as Exhibit "C".
If the foregoing terms and provisions are acceptable to you, please sign
and return to the undersigned the enclosed copy of this letter.
Yours very truly,
MARQUETTE ELECTRONICS, INC.
By: /s/ Mark Steia
------------------------
Name: Mark Steia
Title: Vice President
ACCEPTED AND AGREED AS OF THE 12th
DAY OF February , 1996.
MEDIQUAL SYSTEMS, INC.
By: /s/ Eric Kriss
- ------------------
Name: Eric Kriss
Title: CEO
<PAGE> 6
EXHIBIT "A"
PRODUCT DESCRIPTION AND SPECIFICATIONS
MediQual/QS Obstetrics General Specifications
The QS will contain a number of precisely defined data items/measurements of the
physiology of the patient(s), along with demographic and process data. From
these data a number of calculations, indices or scores will be computed based on
a patient's physiology, age, and condition. The score is then integrated into a
series of predictive equations, which combine the score, the patients diagnosis,
admission source, surgical status, time of labor, etc. The predictive equations
provide probability estimates, on a daily basis, for various outcomes including
hospital length of stay, hospital death, and the use of various resources.
This application:
1. The daily scores and predictions for individual patients provides
clinical decision support to physicians and nurses in L&D. The equations
integrate the results of the most significant clinical values into a
single value which shows their adjusted impact on expected outcomes.
2. Aggregated scores and predictions from consecutive admissions, combined
with the observed outcomes for each patient over time, are powerful
outcomes analysis and process improvement tools. These data can be
combined among institutions for further comparisons and analysis.
The OB development will be fully integrated into the QS system, receiving
downloads from the QS to populate the Atlas database. The database schema for OB
analysis will require further definition.
Development will include approximately *
* would replicate
QMl's birth log reporting, and the balance would report on other areas of
interest. The MQ analyses would cover: 1. Delivery statistics 2. C-Section and
VBAC's 3. Complications perhaps combined with 2 above.
Development would also include an OB comparative database, built from MediQual's
master database, which would be fully integrated into the application. The
product would have full reference reports describing the QMI codes and other
internal documentation including on-line help.
These general goals will have to be defined more clearly in a detailed
specification which will follow.
* Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 7
EXHIBIT "B"
MAROUETTE OUTCOMES SOFTWARE PRICING
February 2, 1996
MediQual
Diagnostics Pricing
Product
* Disease Topics *
*
*
*
Base - * CD-ROM's for * annually includes software and support
Full package ADDITIONAL data ( * CD-ROM's) = * introductory price
Annual updates - new CD-ROM's * /pr plus the * annual fee may
offer 3fers, 4fers, etc. and fullset quantity pricing.
Customer Availability - Spring, 1996
Additional users - * /user/year
*Confidential portions have been omitted and filed separately with the
Commission.
<PAGE> 8
EXHIBIT "C"
ESCROW AGREEMENT
<PAGE> 9
SOURCE CODE ESCROW AGREEMENT
This Source Code Escrow Agreement (this "Agreement") dated as of September
1, 1994, is by and among MediQual Systems, Inc. (the "Company"), a Delaware
corporation; Bingham, Dana & Gould (the "Escrow Agent"), a general partnership
with offices in Boston, Massachusetts, and which acts as counsel to the Company;
and each person or entity who becomes a "Licensee" party hereto in accordance
with Section 1 hereof
The Company has requested the Escrow Agent to hold the source code to
certain computer software in escrow in connection with the Company's "Atlas
Safe(TM)" program; and the Escrow Agent is willing to do so on and subject to
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. LICENSEES. From time to time after the date hereof, one or more
customers of the Company may become Licensee parties hereto, provided, that each
such customer and the Company execute and deliver to the Escrow Agent a
Counterpart Signature Page hereto in the form of the attached Exhibit A,
whereupon such customer shall be deemed for all purposes to be a "Licensee"
party to this Agreement.
2. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the following respective meanings:
(a) Licensed Programs: The computer programs listed in the attached
Schedule 1, as it may be amended from time to time.
(b) Source Code: The versions of the source code used by the Company to
generate the respective Licensed Programs, contained on one or more diskettes or
other storage media.
(c) Documentation: Such explanatory information as is reasonably necessary
to enable a software engineer to understand the structure, purpose, and
operation of the Source Code.
(d) Information: The Source Code and the Documentation, collectively.
3. APPOINTMENT OF ESCROW AGENT. The Company hereby appoints the Escrow
Agent to act as escrow agent under this Agreement, and the Escrow Agent hereby
accepts this appointment and agrees to serve in this capacity, all subject to
the terms and conditions, and for the puruoses, set forth in this Agreement. In
<PAGE> 10
consideration of the Escrow Agent's services hereunder, the Company shall pay
the Escrow Agent its reasonable charges for time spent and disbursements and
other expenses incurred, in connection with the performance of such services.
4. ESCROW OF INFORMATION.
(a) Promptly following the execution of this Agreement, the Company shall
deliver to the Escrow Agent at least three master copies of the Information,
each sealed in a separate envelope labeled with a list of its contents.
(b) Within 30 days after the Company makes generally available to its
licensees any new release of any of the Licensed Programs, the Company shall
deliver to the Escrow Agent three replacement master copies of the Information,
updated to reflect such new release, each sealed in a separate envelope labeled
with a list of its contents. Upon any delivery of such updated Information, the
Company may request the Escrow Agent to return to it any previously delivered
Information that is no longer necessary to satisfy the Company's obligations
under this Agreement.
(c) The Escrow Agent shall maintain materials delivered to it in escrow
hereunder in its vault or any other storage area that it may determine is
reasonably suitable therefor, in its sole and absolute discretion, which storage
area the Company and each Licensee acknowledges will not be particularly
designed or denominated as a storage area for computer software. Except as
specifically otherwise provided herein, the Escrow Agent shall have no
obligations with respect to any materials delivered to or held by it hereunder,
including without limitation any obligation (i) to inspect or verify in any way
any Information or other materials delivered to it pursuant to this Agreement,
or any copy thereof prepared in accordance with Section 4(c) hereof, or (ii) to
take special care of Information by reason of its nature as computer software.
4. CLAIMS FOR RELEASE OF INFORMATION.
(a) Upon the occurrence of the contingencies described in both subsections
(ii) and (iii) below, any person who is then a Licensee party hereto may send a
written request (a "Release Request") to the Escrow Agent in accordance with the
notice provisions of Section 13 hereof, requesting that the Escrow Agent release
from escrow and deliver to such person one copy of the Information, and stating:
(i) that such person is a Licensee party to this Agreement; and
(ii) that (A) the Company has been dissolved or liquidated and there
is no successor-in-interest to its business or assets, (B) there has been
commenced by or against the Company any proceeding under any
<PAGE> 11
bankruptcy, insolvency, readjustment of debt, or similar law of any
jurisdiction, and, in the case of a proceeding against the Company, that
such proceeding was commenced more than 150 days prior to the date of such
Release Request and has not been dismissed, (C) the Company has assigned
all or substantially all of its assets for the benefit of its creditors,
or (D) the Company has suffered a major physical disaster causing the
destruction of, or severe damage to, all or substantially all of its
assets; or
(iii) that such person has made a written request to the Company for
software maintenance or support services that the Company is obligated to
provide to such person pursuant to a written agreement, and that the
Company has materially failed to perform such maintenance and support
obligations within 90 days following the date such request was delivered
to the Company.
(b) Within ten business days after its receipt of a Release Request, the
Escrow Agent shall send a copy thereof to the Company. If within twenty business
days after the date such copy is sent to the Company, the Company advises the
Escrow Agent in writing that it objects to the requested release of Information,
then such Release Request shall be deemed to be a "Disputed Request"; otherwise,
such Release Request shall be deemed to be an "Allowed Request."
(c) As promptly as is practicable after a Release Request is determined to
be an Allowed Request, the Escrow Agent shall copy, or cause to be copied, one
set of the Information then held in escrow, and deliver or cause such copy to be
delivered to the requesting person. For purposes of the foregoing, the Escrow
Agent shall be deemed to have complied fully with its obligations hereunder upon
its delivery of one copy of the most recently delivered materials then held in
escrow hereunder to one of the commercial copying services listed in the
attached Schedule 2, or another commercial copying service selected by the
Escrow Agent, in its sole and absolute discretion, with instructions to copy
such materials and to send such copy or copies to the Licensee(s) listed in a
list provided by the Escrow Agent to such service. The Company hereby grants to
the Escrow Agent, and to any commercial copying service or other third party to
whom the Escrow Agent may deliver Information and/or other materials for
copying, a non-exclusive, royalty-free, non-transferable license, to possess and
copy such Information and other materials for the foregoing purposes.
(d) Except as otherwise expressly provided herein, the Escrow Agent shall
not release from escrow or deliver any Information in respect of any Disputed
Request.
4. COMPLIANCE WITH COURT ORDERS, ETC. If at any time the Escrow Agent
receives notice that a judgment, order, or decree has been entered or made by
any court or administrative body with respect to the disposition of any
materials
<PAGE> 12
held in escrow hereunder that, in the opinion of legal counsel chosen by the
Escrow Agent (who may be a partner or employee of Bingham, Dana & Gould), is
binding upon the Escrow Agent and not subject to further appeal or modification
before compliance is required therewith, then the Escrow Agent shall comply with
such judgment, order, or decree.
5. RELEASE OF INFORMATION BY AGREEMENT OF COMPANY AND LICENSEE.
Notwithstanding any other provision of this Agreement, the Escrow Agent shall
release one copy of the Information and deliver it to a Licensee in accordance
with written instructions duly executed by both of the Company and such
Licensee.
6. USE OF INFORMATION. In the event that Information is released to any
Licensee pursuant to this Agreement, the Company hereby grants to such Licensee
a non-exclusive, royalty-free, non-transferable license, effective for so long
as such Licensee's license with respect to the Licensed Programs is valid and
effective, to possess and use such Information solely for such Licensee's
internal maintenance and support of the Licensed Programs. Such Licensee shall
keep all Information confidential and hold it in trust for the Company, and
shall not permit any person to have access thereto, other than on a need-to-know
basis to its employees who are directly involved in the maintenance and support
of the Licensed Programs and who are bound by written agreements (naming the
Company as an intended third party beneficiary) to preserve the confidentiality
thereof. Such Licensee shall not possess, use, copy, duplicate, or reproduce any
Information for any other purpose or disclose, market, distribute, sell,
license, sublicense, or otherwise permit access or make any Information
available to any third party. Such Licensee shall promptly notify the Company of
any actual or suspected violation of this Section 6 and shall take all such
actions as the Company may reasonably request to prevent or remedy any such
violation. The Company shall retain all title to the Information, together with
all rights and interests therein not inconsistent with the foregoing license.
All Information and other materials delivered to any Licensee hereunder shall be
returned to the Company promptly upon the expiration or other termination of
such Licensee's license from the Company with respect to the Licensed Programs.
7. LIABILITY OF ESCROW AGENT. This Agreement is entered into by the Escrow
Agent as an accommodation to, and solely for the benefit of, the Company and the
Licensees. No person or entity not a party hereto shall have any right to
enforce or receive the benefits of this Agreement. The Escrow Agent shall be
obligated to perform only such duties as are specifically required by this
Agreement, and shall not be liable to any person or entity whatsoever, except
for actual direct damages caused by the Escrow Agent's willful misconduct, in an
aggregate amount not exceeding the cost to replace the physical storage media
(diskettes, CD-ROMs, etc.) delivered to the Escrow Agent hereunder with
comparable blank storage media. In any event, the Escrow Agent shall not be
liable for any incidental or consequential damages including without limitation
lost profits that may result
<PAGE> 13
from any cause whatsoever (including without limitation the unauthorized,
transfer, use, or reproduction of the physical storage media delivered to the
Escrow Agent hereunder or the programs, data, or other information contained
therein). The Company and the Licensees acknowledge that the Escrow Agent is
receiving no special or additional compensation for its services hereunder
beyond payment of its normal hourly fees spent in the performance of its duties
hereunder and any firm charges for disbursements in connection with such
performance, and that the Escrow Agent would not be willing to enter into this
Agreement without additional compensation but for the limitations on its
liability set forth herein; and the Company and the Licensees have agreed to
such limitations in lieu of paying such additional compensation to the Escrow
Agent.
8. INDEMNIFICATION. The Company and each Licensee hereby agree, jointly
and severally, to indemnify, defend, and hold harmless the Escrow Agent (and its
partners, employees, agents, and representatives) from and against all loss,
damage, liability, and expense (including without limitation legal costs and
attorney's fees) arising or resulting from, relating to, or in connection with
this Agreement or the transactions hereby contemplated, excepting only such
loss, damage, liability, or expense as may be directly caused by the Escrow
Agent's willful misconduct.
9. RELIANCE BY ESCROW AGENT. In the absence of actual willful misconduct,
the Escrow Agent shall incur no liability for (a) acting or failing to act in
reliance upon any document or notice required or permitted under this Agreement
and believed by the Escrow Agent to be genuine and to have been signed by the
proper person(s) or entities, without any obligation on the part of the Escrow
Agent to make any inquiry or investigation with respect thereto, or (b) acting
or failing to act in reliance upon the advice of counsel, including without
limitation partners and employees of the Escrow Agent.
10. RESIGNATION OR REMOVAL OF ESCROW Agent. The Escrow Agent may resign at
any time, by written notice delivered to the Company; and the Escrow Agent may
be removed by written notice from the Company and at least a majority of the
Licensees then party hereto, upon ten business days' joint written notice
delivered to the Escrow Agent. Upon any such resignation or removal, the Escrow
Agent's responsibilities under this Agreement shall terminate, except that it
shall retain custody of any materials then held in escrow hereunder for up to
ten business days until it receives written notice from the the Company as to
the identity of its successor, which shall be either another law firm, a bank or
other financial institution, or a professional escrow company. The Company shall
appoint such successor and so notify the Escrow Agent in writing as promptly as
is practicable but in any case no later than ten business days after such
resignation or removal of the Escrow Agent. If the Company has not so appointed
such successor and notified the Escrow Agent within ten business days after such
resignation or removal of the Escrow Agent, then the Escrow Agent thereafter may
return to the Company the
<PAGE> 14
materials then held in escrow hereunder, without any requirement of prior notice
to any person.
11. TERMINATION, AMENDMENT, AND MODIFICATION.
(a) This Agreement may be terminated by the Company, (i) with respect to
any particular Licensee, if such Licensee does not pay the Company its annual
Atlas Safe(TM) renewal fees in accordance with the Company's then prevailing
policies, or if such Licensee materially breaches this Agreement or its license
agreement with the Company with respect to the Licensed Programs, in each case
without any requirement of notice of such termination to such Licensee, and (ii)
with respect to all Licensees, if the Company determines, in its sole and
absolute discretion, to discontinue its Atlas Safe(TM) program as presently
constituted, on not less than 30 days' prior written notice to such Licensees.
(b) Each Licensee's rights and remedies under this Agreement shall
completely terminate upon the delivery to such Licensee of a copy of the
Information.
(c) This Agreement may be amended by written agreement of the Company and
the Escrow Agent, provided, that any amendment that would materially adversely
affect the rights of the Licensees shall require the written consent of at least
a majority of the Licensees then party hereto.
(d) Notwithstanding any other provision of this Agreement, the provisions
of Sections 6, 7, 8, and 9 hereof shall survive any termination or expiration of
this Agreement.
12. DISPUTES; CONFLICTS WAIVER.
(a) In the event that there arises any dispute with respect to this
Agreement or any transaction or matter in connection with this Agreement,
including without limitation the rights of any person with respect to any
materials in escrow hereunder, the Escrow Agent is authorized (but shall not be
required) (a) to retain possession of all or any part of the materials in escrow
hereunder until such dispute is finally resolved, including without limitation
resolution by mutual agreement of the disputants or by the final order,
judgment, or decree of a court of competent jurisdiction after the time for
appeal has expired and without any rights of appeal having been perfected, and
(b) to deposit any materials to which such dispute relates with a court of
competent jurisdiction, upon which the Escrow Agent's responsibilities under
this Agreement shall immediately terminate (only with respect to such deposited
materials, if any other materials then remain in escrow hereunder, but
completely, if otherwise). The Escrow Agent is authorized but not required, to
institute, prosecute, intervene in, and/or defend any such
<PAGE> 15
proceedings.
(b) Each of the Licensees hereby (i) acknowledges and agrees that
notwithstanding the engagement of Bingham, Dana & Gould as Escrow Agent
hereunder, and any actions or omissions by it or any of its partners or
employees in such capacity or in connection with this Agreement, neither
Bingham, Dana & Gould nor any of its partners or employees shall be precluded
from representing the Company in any matter, including without limitation in
connection with any dispute arising hereunder or in connection herewith, and
(ii) hereby irrevocably waives and relinquishes any rights or privileges it may
at any time or from time to time have in respect of or in; connection with any
such representation, and irrevocably agrees not to assert any such right or
privilege against the Company or Bingham, Dana & Gould or its partners or
employees.
13. NOTICES. All notices, requests, instructions, or other documents to be
given hereunder shall be in writing or by written telecommunication, and shall
be deemed to have been duly given if (a) delivered personally (effective upon
delivery), (b) mailed by certified mail, return receipt requested, postage
prepaid (effective five business days after dispatch), (c) sent by a reputable,
established courier service that guarantees next business day delivery
(effective the next business day), or (d) sent by telecopier followed within 24
hours by confirmation by one of the foregoing methods (effective upon receipt of
the telecopy in complete, readable form), addressed as follows (or to such other
address as the recipient may have furnished for the purpose pursuant to this
Section 13):
(i) If to the Company, to:
William C. Price
Chief Financial Officer
MediQual Systems, Inc.
1900 West Park Drive, Suite 120
Westborough, Massachusetts 01581
Telecopier No. 508-898-3008
(ii) If to the Escrow Agent, in duplicate counterparts to each of Victor J.
Paci, Esq. and Leslie H. Shapiro, Esq., respectively, at the following
address and telecopier number:
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
Telecopier No. 617-951-8736
(iii) If to any Licensee, to his address or telecopier number set forth in
such Licensee's Counterpart Signature Page executed and delivered pursuant to
<PAGE> 16
Section 1 hereof.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement. In pleading or proving this
Agreement, it shall not be necessary to produce or account for more than one
fully executed counterpart hereof.
15. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
and agreement of the parties, and supersedes any prior or contemporaneous
understandings and agreements among them, or between or among any of them. with
respect to the subject matter hereof.
16. NO ASSIGNMENT; BINDING EFFECT AND BENEFITS. Except as specifically
permitted hereby, no party may assign its rights or delegate its obligations
hereunder without the written consent of the other parties hereto, and any
attempt to do so shall be wholly void. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement is intended to confer any rights or remedies
on any person or entity other than the parties hereto.
17. GOVERNING LAW. This Agreement shall be governed by and interpreted and
construed in accordance with the internal laws of The Commonwealth of
Massachusetts, as applied to contracts made, and entirely to be performed,
within Massachusetts.
<PAGE> 17
Executed and delivered as an agreement under seal as of the date first above
COMPANY:
MEDIQUAL SYSTEMS, INC.
By: ____________________________
Name:William C. Price
Title: Chief Financial Officer
ESCROW AGENT:
BINGHAM, DANA & GOULD
By:_____________________________
Victor J. Paci
A Partner
<PAGE> 18
EXHIBIT A
COUNTERPART SIGNATURE PAGE
TO
SOURCE CODE ESCROW AGREEMENT
Reference is made to the Source Code Escrow Agreement (the "Agreement")
dated as of September 1, 1994, by and among MediQual Systems, Inc. (the
"Company"), a Delaware corporation; Bingham, Dana & Gould (the "Escrow Agent"),
a general partnership with offices in Boston, Massachusetts, and which acts as
counsel to the Company; and certain "Licensee" parties thereto.
The undersigned, desiring to become a Licensee party to the Agreement
pursuant to Section 1 thereof, hereby agrees that by its execution hereof, the
undersigned has become and is a Licensee party to the Agreement, entitled to all
of the rights and benefits, and subject to all of the obligations, of a Licensee
under the Agreement.
This Counterpart Signature Page shall take effect and become part of the
Agreement when duly executed by the undersigned, accepted by the Company, and
delivered to the Escrow Agent.
LICENSEE:
(Name) (Address)
By
Name:
Title
ACCEPTED:
MEDIQUAL SYSTEMS INC.
By
Name:
Title:
<PAGE> 19
SCHEDULE 1
LICENSED PROGRAMS
SOFTWARE
ATLAS OUTCOMES
ATLAS MARKET VIEW
MARQVIEW
QS-OB ATLAS
CD-ROM DATABASES - PEER SERIES
ACADEMIC MEDICAL CENTER
BEDST7F 300-399
BEDSIZE 500+
MIDWEST BEDSIZE 500+
MORTALITY BENCHMARK
NON-TEACH1NG HOSPITAL
PEDIATRIC HOSPITAL
PENNSYLVANIA REGION 8
SOUTHEAST BEDSIZE 1-299
TEXAS
WESTERN REGION
CD-ROM DATABASES - MARKET VIEW
MARKET VIEW LOUISIANA
MARKET VIEW OHIO
MARKET VIEW PENNSYLVANIA
MARKET VIEW TEXAS
GLOSSARY
ATLAS GLOSSARY
DOCUMENTATION
ATLAS DOCUMENTATION KIT (Includes Atlas User Guide & MedisGroups Training
Exercises)
<PAGE> 20
SCHEDULE 2
COMMERCIAL COPYING
SERVICES
Image Software
55 Green Street
Clinton, Massachusetts
Telephone (508) 368-0107
Encryption Technology Corp.
Acton, Massachusetts
Braun Media Services
3800 Annapolis Lane
Plymouth, Minnesota 55447
Telephone (612) 551-3100
<PAGE> 1
EXHIBIT 10.36
MEDIQUAL SOFTWARE LICENSE
This is a legal agreement between MediQual Systems, Inc. ("MediQual") and the
entity or individual (the "Licensee") purchasing the enclosed software product
(the "Software"). If you do not agree to the following terms, promptly return
all materials to MediQual with no obligation. Installation of the Software
constitutes evidence of acceptance of License terms.
1. GRANT OF LICENSE. This license permits the Licensee to use one copy of the
Software on any single computer, provided the Software is in use by only
one individual on only one computer at any one time. If Licensee has
multiple Licenses for the Software, then at any time Licensee may have as
many copies of the Software as granted. This License provides for
non-exclusive, non transferable use only. The Licensee will not translate,
disassemble, decompose, reverse engineer, alter, or modify the Software,
and will not make any copies of documentation or Software (except one copy
for back-up or archival purposes only).
2. COPYRIGHT The Software is owned by MediQual and protected by copyright and
other laws. The Licensee will not sell, assign, sub license, transfer,
disclose, or permit access to the Software, MediQual data or documentation
to any unauthorized person or entity, and will take all actions necessary
or reasonably requested by MediQual in order to protect MediQual's rights
herein.
3. LIMITED WARRANTY MediQual warrants that the Software will perform
substantially as described by the accompanying documentation when installed
on computers meeting MediQual's specification as described in Technical
Guides issued from time to time. MEDIQUAL DISCLAIMS ANY OTHER WARRANTY,
EXPRESSED OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTIBILITY OR FITNESS
FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SOFTWARE.
4. LICENSEE REMEDIES MediQual's entire liability and Licensee's exclusive
remedy shall be, at MediQual's option, to (i) correct, at no charge,
defects within a reasonable period after receiving written notice from
Licensee, or (ii) refund the License fee paid by Licensee. Except for these
exclusive remedies, MediQual will not be liable for any damages whatsoever
arising out of the use, or inability to use the Software.
5. REQUIRED DATA TRANSMITTAL Licensees will transmit to MediQual all collected
data, and will make a best efforts attempt to continuously monitor and
assure data reliability. MediQual will store Licensee's data at no charge
and will take all reasonable precautions to ensure the confidentiality of
this data, and shall not disclose any information that may identify by name
any patient or the name of Licensee itself, except with Licensee's prior
written consent. MediQual has established data quality protocols and audit
procedures. In the event of evidence of inadequate data quality, Licensee
agrees to conduct appropriate MediQual training and data quality review, at
Licensee's cost.
This Agreement will be governed by the internal laws of the Commonwealth of
Massachusetts. Should you have any questions concerning this License, please
write MediQual, 1900 West Park Drive, Westborough, MA 01581.
<PAGE> 1
EXHIBIT 11
MEDIQUAL SYSTEMS, INC.
STATEMENT RE: PRO FORMA EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------------
<S> <C> <C>
Net income (loss)............................................. $(1,757,178 ) $ 471,503
Accretion of preferred stock dividends........................ 294,890 113,734
Interest expense.............................................. 89,161 24,716
------------ ------------------
Pro forma net income (loss).............................. $(1,373,127 ) $ 609,953
========== ================
Weighted average common shares outstanding.................... 3,517,605 3,532,345
Assumed Conversion of Class B and Class C Convertible
Preferred Stock............................................. 2,151,550 2,171,080
Common stock and stock options issued after June 1, 1995,
pursuant to the treasury stock method....................... 416,980 416,980
Common stock equivalents outstanding, pursuant to the treasury
stock method................................................ -- 424,849
Common shares assumed to be issued in proposed initial public
offering in order to redeem Class A Redeemable Preferred
Stock and outstanding debt.................................. 436,687 436,687
------------ ------------------
Pro forma weighted average number of common and common
equivalent shares outstanding............................... 6,522,822 6,981,940
========== ================
Per share amount......................................... $ (0.21 ) $ 0.09
========== ================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 1,006,477 1,619,622
<SECURITIES> 0 0
<RECEIVABLES> 1,025,358 1,182,928
<ALLOWANCES> 200,000 245,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,147,560 2,921,953
<PP&E> 2,545,692 2,545,692
<DEPRECIATION> 1,595,290 1,715,290
<TOTAL-ASSETS> 3,230,715 3,878,152
<CURRENT-LIABILITIES> 3,571,986 3,795,216
<BONDS> 605,223 141,036
11,280,909 11,394,643
0 0
<COMMON> 3,523 3,786
<OTHER-SE> (12,230,926) (11,456,529)
<TOTAL-LIABILITY-AND-EQUITY> 3,230,715 3,878,152
<SALES> 0 0
<TOTAL-REVENUES> 10,973,839 2,738,859
<CGS> 0 0
<TOTAL-COSTS> 12,366,188 2,049,415
<OTHER-EXPENSES> (19,222) 2,282
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 89,161 24,716
<INCOME-PRETAX> (1,462,288) 662,446
<INCOME-TAX> 0 77,209
<INCOME-CONTINUING> (1,462,288) 585,237
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,757,178) 471,503
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (0.21) 0.09
</TABLE>
