UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________ to _____________
Commission file number Z - 24196
MEDPLUS, INC.
(Exact name of registrant as specified in its charter)
Ohio 48-1094982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
8805 Governor's Hill Drive, Suite 100
Cincinnati, OH 45249
(Address of principal executive offices)
(513) 583-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file
such report(s), and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No ____
As of August 1, 1996, there were 5,914,806 shares of the
Registrant's Common Stock without par value issued and outstanding.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1: Financial Statements.
MEDPLUS, INC. and SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
Net revenues $ 2,772,548 1,943,572 5,097,305 3,802,362
Cost of revenues 1,298,418 793,670 2,374,450 1,572,456
--------- --------- --------- ---------
Gross profit 1,474,130 1,149,902 2,722,855 2,229,906
Operating expenses:
Sales and marketing 936,034 759,164 1,703,356 1,600,201
Research and
development 55,403 138,723 172,105 217,996
General and
administrative 882,518 245,957 1,694,001 626,136
--------- --------- --------- ----------
Total operating
expenses 1,873,955 1,143,844 3,569,462 2,444,333
Operating profit
(loss) (399,825) 6,058 (846,607) (214,427)
Other income, net 86,574 40,462 187,796 77,571
Income (loss) before
income tax
(benefit) expense (313,251) 46,520 (658,811) (136,856)
Income tax (benefit)
expense --- 17,212 --- (50,000)
-------- ------ ------- ------
Net income (loss)$ (313,251) 29,308 (658,811) (86,856)
------------ ------ ------- ------
Net income (loss)
per share $ (0.05) 0.01 (0.11) (0.02)
----------- ------ ------- ------
Weighted average
number of shares
of common stock
outstanding 5,858,669 4,743,750 5,836,399 4,743,750
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. and SUBSIDIARIES
consolidated Balance Sheets
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 4,501,904 7,494,094
Investment securities 305,872 500,020
Accounts receivable, less
allowance for doubtful
accounts of $80,000 in 1996
and $50,000 in 1995 4,234,632 2,799,428
Other receivables 202,545 215,688
Inventories 342,880 538,274
Unbilled service contracts 875,771 708,900
Prepaid expenses and other
current assets 484,976 505,426
Total current assets 10,948,580 12,761,830
Investment securities --- 302,730
Unbilled service contracts 1,230,723 1,249,256
Capitalized software
development costs, net of
accumulated amortization of
$640,372 in 1996 and $475,217
in 1995 1,839,969 1,265,906
Equipment, furniture and
fixtures, less accumulated
depreciation of $339,041 in
1996 and $236,203 in 1995 1,087,819 905,365
Excess of cost over fair value
of net assets acquired, net
of accumulated amortization
of $53,675 in 1996 and $6,335
in 1995 964,966 1,040,649
Deferred income taxes 34,820 36,019
Other assets 97,163 130,686
__________ __________
$ 16,204,040 17,692,441
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of
obligations under capital
leases $ 48,826 53,093
Amount due under line
of credit 200,000 ---
Accounts payable 967,139 1,104,214
Accrued expenses 608,649 1,181,263
Payable to selling
shareholders of Universal
Document Managment
Systems, Inc. 163,093 1,011,353
Deferred revenue on unbilled
service contracts 875,771 708,900
Deferred revenue 620,830 560,802
Total current liabilities 3,484,308 4,619,625
Obligations under capital
leases, excluding current
installments 75,057 103,565
Deferred revenue on unbilled
service contracts 1,230,723 1,249,256
Deferred revenue 48,022 96,446
Total liabilities 4,838,110 6,068,892
Shareholders' equity:
Common stock, no par value,
authorized 15,000,000
shares, issued and
outstanding 5,901,806
in 1996 and 5,808,524
share in 1995 1,073 1,056
Additional paid-in capital 14,465,400 14,035,728
Accumulated deficit (3,036,199) (2,377,388)
Unrealized gain on investment 2,041 3,258
Deferred compensation under
employee stock award plan (66,386) (39,105)
Total shareholders' equity 11,365,929 11,623,549
---------- ----------
$ 16,204,039 17,692,441
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
MEDPLUS, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six months
ended June 30,
1996 1995
--------- ---------
Cash flows from operating activities:
Net loss $ (658,811) (86,856)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Amortization of capitalized
software development costs 184,960 69,000
Amortization of deferred
compensation costs 43,270 ---
Depreciation and amortization 150,450 56,941
Realized (gain) loss on sale of
investment securities and
equipment,furniture and fixtures (18,507) 769
Provision for loss on doubtful
accounts 30,000 ---
Deferred income taxes --- (59,760)
Changes in assets and liabilities:
Accounts receivable (1,465,204) (13,723)
Other receivables 13,143 (135,896)
Inventories 195,394 (331,714)
Prepaid expenses and other
assets 54,536 80,424
Accounts payable and accrued
expenses (609,186) 445,028
Income taxes payable --- (5,400)
Deferred revenue 11,604 (49,188)
--------- ---------
Net cash used in operating
activities (2,068,351) (30,375)
--------- ---------
Cash flows from investing activities:
Capitalization of software
development costs (759,023) (299,964)
Purchases of equipment, furniture
and fixtures (255,564) (265,208)
Purchases of investment securities --- (236,256)
Proceeds from sales of investment
securities and equipment, furniture
and fixtures 514,802 1,300,450
Payments to selling sharedolders
of Universal Document Management
Systems, Inc. (848,260) ---
Other payments made in acquisitions
of businesses (102,157) ---
--------- ---------
Net cash provided by (used in)
investing activities 1,450,202) 499,022
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common
stock 359,138 ---
Proceeds from borrowing on line of
credit 1,214,540 462,156
Repayments on line of credit (1,014,540) (356,857)
Principal payments on capital
lease obligations (32,775) (14,064)
--------- ---------
Net cash provided by financing
activities 526,363 91,235
--------- ---------
Net increase (decrease) in cash (2,992,190) 559,882
--------- ---------
Cash and cash equivalents at
beginning of period 7,494,094 546,998
--------- ---------
Cash and cash equivalents at end of
period $ 4,501,904 1,106,880
--------- ---------
--------- ---------
Interest paid $ 10,817 6,635
--------- ---------
--------- ---------
Income taxes paid $ --- 15,170
--------- ---------
--------- ---------
See accompanying notes to consolidated financial statements.
MedPlus, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Description of the Business
MedPlus, Inc. (the "Company") provides state-of-the-art
information management technology and products and consulting
services to customers in the healthcare industry. The Company's
products presently consist of the IntelliCode( Intelligent Bar Code
System ("IntelliCode"), the OptiMaxx( Optical Information Management
System ("OptiMaxx"), the ChartMaxx Electronic Patient Record System
("ChartMaxx"), and Step 2000( Document Management and Workflow
Solutions (Step 2000). IntelliCode is an intelligent bar coding
system for hospitals and other healthcare organizations. OptiMaxx is
an optical disk-based patient/clinical document management system.
ChartMaxx is an enterprise-wide centralized, electronic patient data
repository. Step 2000 is workflow and document management software
that enhances the
utilization of information on an enterprise-wide basis, regardless
of platforms or operating systems. With its acquisition of
FutureCORE, Ltd ("FutureCORE"), the Company has also begun to
provide process automation and improvement services, primarily in
the areas of patient care and laboratory services (see Note 3).
All of the Company's products utilize open architecture and
modular design software allowing them to be easily adapted to a
client's current information system. The Company's products allow
healthcare providers to more efficiently collect, store and retrieve
medical information. In addition, the Company's technologies and
products are designed to allow healthcare providers to easily and
quickly achieve quality and productivity enhancements, physician
office integration and cost containment goals.
(2) Summary of Significant Accounting Policies
(a) Interim Financial Information
The financial statements and the related notes thereto are
unaudited and have been prepared on the same basis as the audited
financial statements. In the opinion of management, such unaudited
financial statements include all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the
information set forth therein.
(b) Significant Accounting Policies
A description of the Company's significant accounting policies
can be found in the footnotes to the Company's 1995 annual financial
statements included in its registration
statement on Form 10-KSB dated March 29, 1996. The accompanying
financial statements should be read in conjunction with those
footnotes.
(c) Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average
number of shares of common stock and common stock equivalents
outstanding for each period. During periods of net loss, common
stock equivalents are not included in weighted average shares
outstanding.
(d) Reclassifications
Certain reclassifications have been made to the consolidated
financial statements for 1995 to conform to the current year
presentation.
(3) Acquisition of FutureCORE
Effective June 28, 1996, the Company acquired all of the assets
of FutureCORE, Ltd. ("FutureCORE"), a hospital, laboratory and
physician services consulting firm. The acquisition
has been accounted for under the purchase method, and the financial
position and results of operations of FutureCORE have been included
in the Company's consolidated financial statements since the date of
the acquisition.
The total consideration paid for these assets consisted of cash
of $61,250. The asset purchase agreement also provides for
additional consideration contingent upon the future net revenue and
contribution margin performance of FutureCORE as it relates to its
backlog as of June 28, 1996. The purchase price for FutureCORE has
been allocated to the identifiable tangible and intangible assets
acquired based on their fair market value. The additional
contingent consideration, if earned, would be accounted for as an
additional cost of the acquisition.
(4) Commitment
The Company signed a letter of agreement with a software
company ("software company"), dated July 12, 1996, in which the
Company, on or before January 31, 1997, agreed to either (a) pay
$1.65 million to the software company in return for 75% of the
common shares of the software company, or (b) secure a funding
commitment for the software company's operations in the amount of
$1.65 million from investors and/or lenders. In the event the
Company secures a funding commitment from investors and/or lenders,
then the software company will grant the Company the option to
purchase 75% of the common shares of the software company. The
Company's option would be immediately exercisable and remain open
until December 31, 1999.
Under the agreement, the Company will fund the operations of
the software company until funding has begun under either option
discussed in the preceding paragraph. If the Company pays the
software company $1.65 million for the common shares, then such
purchase price will be reduced by any funds previously paid to the
software company to fund its operations plus interest. If the
Company secures funding for the software company from investors
and/or lenders for $1.65 million, then upon the software company's
receipt of such funding, it will immediately reimburse the Company
for any funds previously paid to it plus interest. Interest will be
equal to the prime rate announced by the Company's primary bank
lender plus 1% per annum.
The software company provides software, education and services
to corporations that are implementing object-oriented systems in the
design and redesign of their business processes.
Item No. 2 -- Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Net revenues for the second quarter were a record $2,772,548, an
increase of $828,976 or 43% over the $1,943,572 reported for the
comparable period in 1995. For the six months ended June 30, 1996,
net revenues were also a record at $5,097,305, an increase of
$1,294,943 or 34% over the $3,802,362 reported for the comparable
period in 1995. The increase in net revenues for both periods is a
result of revenues from the ChartMaxx and Step 2000 products which
the Company did not begin selling until the third and fourth
quarters of 1995, respectively. The Company completed the
installation and implementation of its third ChartMaxx system during
the second quarter of 1996, and initiated the installation of a
fourth system in the second quarter. The increase in net revenues
is also a result of the continued growth of IntelliCode revenues.
IntelliCode's market penetration continues to increase, and order
sizes are increasing as IntelliCode becomes used in more departments
within hospitals.
Operating expenses for the second quarter of 1996 were $1,873,955
compared to $1,143,844 for 1995, an increase of 64%. Operating
expenses were $3,569,462 and $2,444,333, respectively, for the six
months ended June 30, 1996 and 1995, an increase of 46%. The
increase is a result of additional personnel in the areas of
development, sales, marketing and administration and substantial
expenditures which have been made in the current year to increase
market awareness of the Company's products, especially the
commercial release of the new ChartMaxx system. The Company has also
incurred significant expenses to expand the direct and indirect
channels of distribution and to recruit senior management personnel
to direct and support the Company's anticipated future growth.
Operating expenses as a percentage of net revenues, however,
decreased in the second quarter of 1996 relative to the first
quarter of 1996. This trend is expected to continue over the
remainder of the year.
The Company's net loss for the second quarter of 1996 was $313,251
compared to net income in 1995 of $29,308. For the six months ended
June 30, 1996, the net loss was $658,811 compared to a net loss of
$86,856 for the comparable period in 1995. The net losses are a
result of the increased operating expenses discussed in the
preceding paragraph.
The average shares outstanding used to compute earnings per share
increased from 4,743,750 shares in the second quarter of 1995 to
5,901,806 shares in the second quarter of 1996 primarily due to the
issuance of 1,000,000 shares of stock in the Company's secondary
offering in November, 1995, and the exercise by underwriters of a
warrant to purchase a total of 110,000 shares of common stock during
August and September 1995 and May 1996
The Company signed a letter of agreement with a software company
("software company"), dated July 12, 1996, in which the Company, on
or before January 31, 1997, agreed to either (a) pay $1.65 million
to the software company in return for 75% of the common shares of
the software company, or (b) secure a funding commitment for the
software company's operations in the amount of $1.65 million from
investors and/or lenders. In the event the Company secures a
funding commitment from investors and/or lenders, then the software
company will grant the Company the option to purchase 75% of the
common shares of the software company. The Company's option would
be immediately exercisable and remain open until December 31, 1999.
Under the agreement, the Company will fund the operations of the
software company until funding has begun under either option
discussed in the preceding paragraph. If the Company pays the
software company $1.65 million for the common shares, then such
purchase price will be reduced by any funds previously paid to the
software company to fund its operations plus interest. If the
Company secures funding for the software company from investors
and/or lenders for $1.65 million, then upon the software company's
receipt of such funding, it will immediately reimburse the Company
for any funds previously paid to it plus interest. Interest will be
equal to the prime rate announced by the Company's primary bank
lender plus 1% per annum. The software company provides software,
education and services to corporations that are implementing
object-oriented systems in the design and redesign of their business
processes.<PAGE>
PART II. OTHER INFORMATION
Items 1 - 3. None.
Item 4.
(a) The Company held its annual meeting of shareholders on
May 15, 1996.
(b) Richard A. Mahoney, Robert E. Kenny III, Paul J. Stein
and Jay Hilnbrand were re-elected as members of the
board of directors at the annual shareholders' meeting.
Directors are elected annually and serve one year terms.
(c) The following matters were voted upon at the annual
shareholders' meeting held on May 15, 1996: election of
the board of directors, an amendment to the Articles of
Incorporation and an amendment to the Company's 1994
Long-Term Stock Incentive Plan ("Plan").
Richard A. Mahoney, Robert E. Kenny III, Paul J. Stein
and Jay Hilnbrand were each re-elected as members of the
board of directors with 5,613,145 votes for, 515 votes
against, 8,325 abstentions and 74,025 broker non-votes.
The amendment to the Company's Articles of Incorporation
was to increase the number of shares of Common Stock
which the Company is authorized to issue from 6,000,000
to 15,000,000 shares. This amendment was passed with
5,583,315 votes for, 29,450 votes against, 11,020
abstentions and 74,025 broker non-votes. Further
information regarding this amendment may be found in the
Company's Proxy Statement dated April 17, 1996 which is
herein incorporated by reference.
The amendment to the Company's 1994 Long-Term Stock
Incentive Plan was to (a) increase the maximum aggregate
number of shares of Common Stock subject to Stock
Incentives that may be granted to participants in the
Plan from 350,000 to 1,000,000 and (b) increase the
limitation on the maximum amount of Common Stock subject
to Stock Incentives which may be granted to any person
during any calendar year from 50,000 to 100,000 in the
event of a grant made to a recipient upon the
recipient's initial hiring by the Company, or in the
event of a grant made to a recipient in lieu of a cash
bonus. This amendment was passed with 4,069,833 votes
for, 81,428 votes against, 15,350 abstentions and
1,526,714 broker non-votes. Further information
regarding this amendment may be found in the Company's
Proxy Statement dated April 17, 1996 which is herein
incorporated by reference.
Item 5. None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. 1 Asset Purchase Agreement, dated
June 28, 1996
10.2 Letter Agreement, dated July 12,
1996
27 Financial Data Schedule
(b) No reports were filed on Form 8-K during the
period for which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MedPlus, Inc.
Date: 8/13/96 By: /s/ Daniel A. Silber
Daniel A. Silber
Chief Financial Officer
* Pursuant to the last sentence of
General Instruction G to Form 10-QSB,
Mr. Daniel A. Silber has executed
this Quarterly report of Form 10-QSB
both on behalf of the registrant and
in his capacity as its principal
financial and accounting officer.
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of June 28, 1996, is
made and entered into by and among Med-Sub, Inc., an Ohio
corporation ("Purchaser"), MedPlus, Inc., an Ohio corporation
("MedPlus"), FutureCORE, Ltd., an Ohio Limited Liability Company
(the "Company"), and Daniel C. Swanson P.E., Arthur E. Frohwerk and
Lawrence C. Maguire, M.D., the members of the Company (the
"Members").
W I T N E S S E T H:
WHEREAS, the Company, with its principal executive offices
located in Cincinnati, Ohio, is engaged in the business of
consulting, engineering, program management and innovation (the
"Business"); and
WHEREAS, the Company desires to sell to Purchaser, and
Purchaser desires to purchase from the Company, certain of the
assets of the Company and the Business, upon the terms and
conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises
and covenants set forth herein, the parties hereto agree as follows:
1. Terms of Sale and Payment of Purchase Price.
1.1 Sale of Assets. The Company hereby agrees, subject to
the terms and conditions herein set forth, on the Closing Date (as
hereinafter defined) to sell, assign, transfer and deliver, free and
clear of all liens and encumbrances, to Purchaser and Purchaser
agrees to purchase and accept, in reliance upon the covenants,
agreements, representations, warranties and indemnities of the
Company and the Members set forth in this Agreement and for the
consideration set forth in Section 1.3 hereof, the assets of the
Company listed below (the "Assets"):
(a) Intellectual Property, as that term is defined in
Section 4.18 hereof and as more specifically described on Schedule
1.1(a) hereto;
(b) All orders of the Company which remain unfilled or
incomplete as of June 30, 1996 (the "Backlog"), as more specifically
described on Schedule 1.1(b) hereto;
(c) All potential orders of the Company that are evidenced
by an unconditional purchase order by no later than September 30,
1996 and that appear on the Company's June 30, 1996 pipeline report
(the "Pipeline"), as more specifically described on Schedule 1.1(c)
hereto;
(d) The furniture and equipment listed on Schedule 1.1(d)
hereto (the "Equipment"); and
(e) The name "FutureCORE."
1.2 No Liabilities and Obligations to be Assumed. The
parties hereto acknowledge and agree that, except as described on
Schedule 1.2 hereto, Purchaser is not assuming, paying or
discharging and shall not be liable for any debts, obligations,
responsibilities or liabilities of the Company or the Business, or
any claim, action or suit relating thereto (whether now existing or
hereafter arising), known or unknown, contingent or absolute,
relating to or arising from the period prior to the Closing Date,
including, by way of example only and not in limitation thereof,
liabilities related to the Company's employees or other personnel;
the Company's tax liabilities of any kind or nature whatsoever, or
any liabilities of the Company of any other kind or description
whether accrued, absolute, contingent or otherwise; and the Company
shall remain fully and completely liable for all such debts,
obligations, responsibilities and liabilities.
1.3 Consideration. In consideration for the sale, assignment
and transfer to Purchaser of the Assets, and as payment in full
therefor, the Company shall receive cash payments in amounts
specifically calculated and distributed as set forth on Schedule 1.3
hereto. The parties agree that the aggregate of the cash payments
made related to the Backlog and the Pipeline will be assigned to the
intellectual property set forth on Schedule 1.1(a) hereto for
purposes of allocation of the purchase price.
Closing Documents.
2. Closing Documents
2.1 The Company's Documents. At the Closing, the conveyance,
transfer, assignment and delivery of the Assets to Purchaser shall
be effected by bills of sale, endorsements, assignments and other
good and sufficient instruments of transfer and conveyance as
Purchaser's counsel may reasonably request. Such documents shall be
in form reasonably satisfactory to Purchaser's counsel, Dinsmore &
Shohl.
2.2 Future Documents. The Company and the Members agree that
they will, at any time and from time to time after the Closing Date
upon the reasonable request of Purchaser and without further
consideration, do, execute, acknowledge and deliver, or will cause
to be done, executed, acknowledged and delivered, all such further
acts, assignments, transfers, conveyances and assurances as may be
required in conformity with this Agreement for the better
assignment, transferring and assuring, to Purchaser, or its assigns,
or for aiding and assisting in collecting and reducing to possession
any or all of the Assets or property to be transferred to Purchaser
as provided herein.
3. Place and Date of Closing. The Closing shall take place at the
offices of MedPlus, Inc., 8805 Governor's Hill Drive, Cincinnati,
Ohio 45242 at 9:00 A..M., on June 28, 1996, concurrent with the
execution of this Agreement (sometimes herein called either the
"Closing" or the "Closing Date" as the context may require).
4. Representations and Warranties of the Company and the Members.
The Company and the Members hereby make the following
representations and warranties, all of which shall be made as of,
and be true at, the Closing Date and shall, regardless of
Purchaser's investigations, survive the Closing:
4.1 Organization. The Company is a limited liability company
duly organized, validly existing and in good standing under the laws
of the State of Ohio and has no subsidiaries. The Company is duly
qualified to do business as a foreign corporation and is in good
standing in all states in which the character of its properties,
owned or leased, or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified
or in good standing would not have a material adverse effect on the
business, properties, assets, results of operations or condition of
the Company.
4.2 Authority. The Company has full power and authority to own
its properties and conduct its business as now being conducted.
4.3 Power. The Company has the requisite power to own the
Assets and the right and power to sell, assign, transfer, convey and
deliver the Assets to Purchaser. All legal action required to carry
out all terms and conditions of this Agreement can and will be
promptly taken by the Company.
4.4 Due Execution. This Agreement and the other documents
delivered at the Closing have been duly executed and delivered and
are the lawful, valid and legally binding obligations of the Company
and the Members enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, rearrangement, reorganization or similar
debtor relief legislation affecting the rights of creditors
generally and subject to the application of general principles of
equity. The execution and delivery of this Agreement and the
consummation of this transaction will not result in the creation of
any lien, charge or encumbrance on the Assets, the Company or the
Business or the creation of a right of acceleration of any
indebtedness or other obligation of the Company or the Business and
are not prohibited by, do not violate or conflict with any provision
of, and will not result in a default under or a breach of (i) the
Articles of Organization or Code of Regulations of the Company, (ii)
any contract, agreement or other instrument to which the Company,
any of the Members or the Business is a party, (iii) any regulation,
order, writ, decree or judgment of any court or governmental agency,
or (iv) any law applicable to the Company, the Members or the
Business and will not restrict the ability of Purchaser to carry on
the Business.
4.5 Tax Returns and Audits. The Company has duly and timely
filed (or properly obtained an extension for filing) with the
appropriate governmental agencies all tax returns and tax reports
due and required to be filed by the Company, including all federal,
state and city profits, income, sales, use, occupation, property,
excise, social security, withholding, unemployment insurance, health
licenses and other taxes and has paid or provided for the payment of
all such taxes through the Closing Date. Neither the Company nor
any of the Members has notice of any pending audit pertaining to, or
claims for, taxes, or assessments asserted against the Company by
any taxing authority in respect of any period to date. The Company
has withheld from amounts paid to employees engaged in the Business
and, to the extent due, has paid, or will pay, to the appropriate
governmental agencies, all taxes or other amounts required to be
withheld, including but not limited to social security, federal
withholding and state withholding taxes.
4.6 Title to Assets. The Company is the sole and exclusive
legal and equitable owner of all right and title in and has good,
marketable and indefeasible title to all of the Assets, free and
clear of any mortgage, pledge, charge, lien, claim, right, security
interest, encumbrance, covenant, easement or restriction of any kind
or nature, direct or indirect, whether accrued, absolute, contingent
or otherwise. The execution of this Agreement and the performance
of the covenants herein contemplated will not result in the creation
of any lien, charge or encumbrance upon any of the assets or
properties of the Company, the Assets or the Business pursuant to
any indenture, agreement or other instrument to which the Company is
a party or by which the Company is bound or by which the Business or
its assets may be affected.
4.7 Liabilities. Nothing contained in any document, agreement,
contract or other instrument to which the Company is a party or by
which it is bound contains any provision or imposes any duties or
refers to or discloses any liabilities upon or with respect to the
Assets which separately or in the aggregate is materially adverse to
the Assets.
4.8 Contracts and Commitments. All contracts, agreements,
instruments, plans and leases related to the Business to which the
Company is a party or bound, or by which any of its properties are
subject or bound, meeting any of the descriptions set forth below
(the "Material Contracts"), have either been previously supplied to
Purchaser or are listed on Schedule 4.8 attached hereto:
(a) Any lease;
(b) Any sales order or customer contract, or other
agreement or commitment obligating the Company to sell or deliver
any product or item in excess of $10,000;
(c) Any other material contract, lease, commitment or
agreement related to the Business (other than contracts, commitments
or agreements of a kind excluded by an express exception from the
descriptions set forth in subsections (a) through (d) above; for the
purposes hereof, any contract, lease, commitment or agreement is
deemed material if it (1) provides for payment or performance by
either party thereto having an aggregate value of $10,000 or more,
or (2) is not terminable without payment or penalty on 60 days (or
less) notice).
Except as set forth in Schedule 4.8 hereto, (i) all Material
Contracts are valid and binding in accordance with their terms and
are in full force and effect and (ii) no party to any Material
Contract is in breach of any provision of, in violation of, or in
default under the terms of any Material Contract. The Company has
no contracts, commitments, agreements, understandings or
arrangements relating to the Business, whether written or oral,
which would interfere in any manner whatsoever with the Company's
liabilities and obligations contemplated except as set forth on
Schedule 4.8.
4.9 Personal Property. All of the Assets which constitute
personal property are in good operating condition and repair,
subject to ordinary wear and tear, are adequate to meet the
requirements of the Business as now operated, are suitable and
sufficient for the conduct of the Business as now operated and are
adequate and suitable for the purposes for which they are being
used.
4.10 Accounts Receivable. The Company shall retain all
accounts receivable of its business and collect said accounts
receivable in the ordinary course of its operations. The Company
shall exercise concern for the business of Purchaser in its
collection of such accounts receivable and will consult with
Purchaser in advance of the initiation of legal proceedings to
obtain collection.
4.11 Labor Agreements, Employee Benefit Plans and Employment
Agreements. The Company is not, as respects its employees, a party
to any union collective bargaining or similar agreement.
4.12 Discrimination, Occupational Safety and Other Statutes
and Regulations. No person or party (including, but not limited to,
governmental agencies of any kind) has any pending claim or basis
for any action or proceeding, as respects the Company's employees,
against the Company arising out of any statute, ordinance or
regulation relating to occupational safety and health standards
which, if upheld, would have a materially adverse effect on the
business or condition, financial or otherwise, of the Company. The
Company is not, as respects its employees, in default under any
other similar statute, law, ordinance, rule or regulation which may
have a materially adverse effect on the Company's business or
condition, financial or otherwise.
4.13 No Litigation or Adverse Events. There are no judgments,
suits, actions or legal, administrative, arbitration or other
proceedings or governmental investigations, or any change in the
zoning or building ordinances affecting the Assets or pending or
threatened against the Business, which might materially affect the
financial condition or operations of the Business or the Assets or
which would create a material liability of the Company. All
licenses required for the operation of the Business are in effect
and current. There is no event or condition of any character
pertaining to the Business or the Assets that may reasonably be
expected to adversely affect such business or the Assets.
4.14 Authorization for Agreement. The execution and
performance of this Agreement has been authorized and approved by
the Members. Certified copies of the minutes evidencing such
approval are being delivered to Purchaser simultaneously with the
execution of this Agreement.
4.15 Disclosure. No representation or warranty by the Company
or any of the Members in this Agreement, nor any statement,
certificate or schedule furnished or to be furnished Purchaser on
behalf of the Company pursuant to this Agreement, nor any document
or certificate delivered to Purchaser pursuant to this Agreement or
in connection with the actions contemplated herein, contains or
shall contain any untrue statement of a material fact or omits to
state a material fact.
4.16 Performance of Obligations. The Company and the Members
have performed all obligations required to be performed by them to
date, and are not in default in any respect under any contract,
agreement, lease or other instrument to which they are a party or by
which they may be bound or which relate to the Assets so as to
impose any liability upon the Company or give the other party to any
such contract, agreement, lease or other instrument the right to
terminate same.
4.17 Compliance with Law. The Company and the Members have
complied with all applicable laws, regulations, orders and published
guidelines of all governmental bodies and agencies having
jurisdiction over the conduct of the Business, the use of the
Company's property and assets.
4.18 Intellectual Property.
(a) Schedule 1.1(a) contains a complete and accurate list
of all of the Company's Intellectual Property, as defined herein.
Except as set forth in Schedule 1.1(a), the Company owns all right,
title and interest in and to, or hold valid licenses, if any, from
third parties for, all of the Intellectual Property. Schedule
1.1(a) sets forth a list of all software or other products currently
marketed by the Company, or marketed prior to the date of this
Agreement, and identifies the source or method of intellectual
property protection utilized or relied upon by the Company with
respect to each such product. Except as described on Schedule
1.1(a), none of such products marketed by the Company has entered
the public domain or otherwise lacks intellectual property
protection.
(b) Except as set forth on Schedule 1.1(a), has not, as
of and since the date upon which it acquired any of the Intellectual
Property, (i) transferred, conveyed, sold, assigned, pledged,
mortgaged or granted a security interest in any of the Intellectual
Property to any third party, (ii) entered into any license,
franchise or other agreement with respect to any of the Intellectual
Property with any third person, or (iii) otherwise encumbered any of
the Intellectual Property. The Company has maintained and enforced
the Intellectual Property in the manner described on Schedule
1.1(a).
(c) The conduct of the business of the Company as
currently conducted does not, to the Company's knowledge, conflict
or infringe in any way with any intellectual property right of any
third party that, individually or in the aggregate, is reasonably
likely to have a material adverse effect on the Company's business,
and there is no claim, suit, action or proceeding pending or, to the
Company's knowledge, threatened against the Company (i) alleging
that use of the Intellectual Property or any intellectual property
licenses conflicts or infringes in any way with any third party's
intellectual property rights, or (ii) challenging the Company's
ownership of or right to use or the validity of any Intellectual
Property. To the Company's knowledge, there are no conflicts or
infringements by any third party of any of the Intellectual Property
owned by or licensed by or to the Company.
(d) Each copyright registration, patent and trademark
registration and each application therefor listed in Schedule 1.1(a)
is valid, subsisting and in proper form, and has been duly
maintained, including the submission of all necessary filings in
accordance with the legal and administrative requirements of the
appropriate jurisdictions.
(e) Neither the Company nor any other person has, to the
Company's knowledge, granted any release, covenant not to sue, or
non-assertion assurance or entered into any indemnification or
settlement agreement with any person with respect to any part of the
Intellectual Property or any intellectual property licenses
associated with the Intellectual Property.
For the purpose of this Agreement, "Intellectual
Property" shall be defined as (a) all know-how, confidential or
proprietary technical information, trade secrets, designs,
processes, computer software, databases originating with the Company
or as "work for hire" created by the Company, research in progress,
inventions or invention disclosures (whether patentable or
unpatentable) and drawings, schematics, blueprints, flow sheets,
designs and models; (b) all copyrights, copyright registrations and
copyright applications (the "Copyrights"); (c) all patents, patent
applications, patents pending, patent disclosures on inventions and
all patents issued upon said patent applications or based upon such
disclosures (the "Patents"); and (d) all registered and unregistered
trade names, trademarks, service marks, product designations,
corporate names, trade dress, logos, slogans, designs and general
intangibles of like nature, together with all registrations and
recordings and all applications for registration therefor and all
translations, adaptations, derivatives and combinations thereof.
4.19 Prior Non-Disclosure Agreements. The Company's transfer
of Intellectual Property pursuant hereto is subject to limitations
existing as a result of certain non-disclosure agreements entered
into prior to the Closing Date by and between the Company and its
clients and/or the Members and previous employers.
5. Representations and Warranties of Purchaser. Purchaser hereby
makes the following representations and warranties to the Company
and the Members, all of which shall be made as of, and be true at,
the time of the Closing:
5.1 Corporate. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Ohio and has the power to own its properties and carry on its
business in the manner in which such business is to be conducted.
5.2 Authorization for Agreement. The execution of and delivery
of this Agreement by Purchaser and the execution of and delivery of
the considerations and documents provided for herein of Purchaser in
accordance with the terms and provisions of this Agreement have been
or shall be duly authorized by appropriate corporate action of
Purchaser.
5.3 Power to Perform. Purchaser has full power, right and
authority to enter into this Agreement and to perform its
obligations under this Agreement and this Agreement is legal, valid
and binding on Purchaser and is enforceable against Purchaser in
accordance with its terms.
6. Obligations of the Parties After Closing Date. From and after
the date of this Agreement the Company covenants, represents and
warrants that:
6.1 Continued Assistance. The Company shall refer to
Purchaser, as promptly as practicable, any telephone calls, letters,
orders, notices, requests, inquiries and other communications
relating to the Business or the Assets.
6.2 Certain Payments. Following the Closing Date, the Company
shall promptly pay and fully discharge all liabilities and
obligations of the Business which are not assumed by Purchaser as
and when due, and shall otherwise pay, discharge or make adequate
provision for all other liabilities and obligations of the Business.
6.3 Employees. The Company shall pay and perform all of the
Company's obligations to all employees of the Business as of the
Closing Date, including the payment of any wages, salaries and
benefits, pension contributions, profit sharing contributions and
severance pay.
6.4 Name Change. The Company and the Members agree that as
soon as practicable following the Closing Date, the Company shall
change its name.
7. Bulk Sale Requirements. The Company has requested Purchaser to
waive the requirements of the Bulk Sales Laws with respect to county
taxes due and owing to the Hamilton County Treasurer and Purchaser
has acceded to this request. The Company shall indemnify Purchaser
against all claims made by such taxing authority as a result of this
waiver.
8. Indemnification.
8.1 Indemnification. The Company and the Members shall
indemnify and hold harmless Purchaser against any and all losses,
claims, liabilities, damages (including incidental and consequential
damages), expenses of any kind or deficiencies resulting from any
misrepresentations, inaccuracy or breach of any representation,
warranty, covenant or promise contained in the Agreement or
contained in any certificate, document, list, schedule or instrument
delivered to Purchaser by or on behalf of the Company or in
connection with this Agreement or the transactions contemplated
herein, or other breach hereof or failure of compliance herewith,
and except as otherwise specifically provided in this Agreement all
such statements, representations, warranties, covenants and promises
shall survive the Closing for a period terminating one (1) year from
the Closing Date.
In addition, the Company and the Members hereby agree to
defend, indemnify and hold harmless Purchaser at any and all times
from and against any and all liabilities, obligations, debts,
claims, penalties, loss, damages (including incidental and
consequential damages), costs and expenses (including court costs
and reasonable attorneys' fees, interest expenses and amounts paid
in compromise or settlement), suits, or actions related to or
arising from the Business prior to the Closing Date.
Any claim for indemnification asserted within the periods
specified above shall survive until resolved or judicially
determined.
8.2 Claims Procedure. In the event Purchaser or the Company
believes that it has or will suffer any loss, damage, liability,
cost, fee or expense (the "Claiming Party") for which the other
party shall be obligated to indemnify it hereunder (the
"Indemnifying Party"), the Claiming Party shall promptly notify the
Indemnifying Party in writing of the claim, specifying therein the
amount claimed, and the basis on which it has calculated such
amount; provided that failure to receive notice shall not affect the
Indemnifying Party's obligations hereunder. The Indemnifying Party
shall have a reasonable time within which to contest any such claim,
including the right to employ counsel reasonably acceptable to
defend any such claim asserted against the Claiming Party. The
Claiming Party shall have the right to participate in the defense of
any such claim. So long as the Indemnifying Party is defending any
such claim in good faith, the Claiming Party will not settle the
claim. The Claiming Party will make available to the Indemnifying
Party or his representatives, at the Indemnifying Party's expense,
all records and other materials required by the Indemnifying Party
for the Indemnifying Party's use in contesting any such claim, and
the Indemnifying Party and his representatives agree that they will
not use the Claiming Party's making available to them of any such
material, or its agreement to do so, as a basis for asserting a
waiver by the Claiming Party of any statutory or common law
privilege the Claiming Party might have in any other proceedings,
whether related or unrelated to the matter giving rise to the claim.
If the Indemnifying Party does not elect to defend any claim, the
Claiming Party shall have no obligation to do so.
8.3 Arbitration. Any dispute under this Agreement with respect
to any matter shall be submitted to and settled by arbitration in
accordance with the Rules, existing on the date thereof, of the
American Arbitration Association. The dispute shall be submitted to
one arbitrator agreed to by Purchaser and the Company, or, if
Purchaser and the Company cannot agree on one arbitrator, by three
arbitrators selected in accordance with said Rules, and shall be
heard in Cincinnati, Ohio. Each arbitrator must be experienced in
the subject matter in dispute. The costs and expenses of the
arbitration shall be paid by the non-prevailing party in such
arbitration.
9. Conditions Precedent to Purchaser's Obligations. Purchaser's
obligations to consummate the transactions contemplated hereby are
expressly conditioned upon the following conditions:
9.1 Non-Competition and Employment Agreements. The Company and
the Members shall each have executed a Non-Competition and
Employment Agreement in the form attached hereto as Exhibit 9.1.
9.2 Development Acquisition Agreement. The Company shall have
executed the Development Acquisition Agreement in the form attached
hereto as Exhibit 9.2.
9.3 Assignment of Lease. The Company shall have executed an
assignment of lease in the form attached hereto as Exhibit 9.3.
10. Conditions Precedent to the Company's and the Members'
Obligations. The Company's and the Members' obligations to
consummate the transactions contemplated hereby are expressly
conditioned upon the following conditions:
10.1 Development Acquisition Agreement. Purchaser shall have
executed the Product Development Agreement in the form attached
hereto as Exhibit 9.2.
10.2 Non-Competition and Employment Agreements. Purchaser
shall have executed the Non-Competition and Employment Agreements in
the form attached hereto as Exhibit 9.1.
11. Miscellaneous Provisions.
11.1 Expenses of Sale; Brokers. Each party hereto shall bear
its own costs and expenses, including accountants' fees and
attorneys' fees incident to the performance by it of its obligations
under this Agreement. Each party represents that no broker is
involved and agrees to indemnify and hold the other parties harmless
from and against all claims for finder's fees and commissions made
by any person allegedly arising from actions or agreements of such
indemnifying party.
11.2 Entire Agreement. It is expressly agreed by and between
the parties hereto as a material consideration for the execution of
this Agreement that there are and were no verbal or written
representations, understandings, stipulations, agreements or
promises pertaining to the subject matter of this Agreement not
incorporated in writing herein; and it is likewise agreed that
neither this Agreement nor any of the terms, provisions, conditions,
representations or covenants herein contained can be modified,
changed, terminated, amended, superseded, waived or extended except
by an appropriate written instrument duly executed by the parties
hereto.
11.3 Parties in Interest. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and
be enforceable by each party and its successors and assigns. Any
assignment of this Agreement or the rights hereunder by a party
hereto without the prior written consent of the other party shall be
void.
11.4 Law to Govern. This Agreement is being made in the State
of Ohio, and shall be construed and enforced in accordance with the
laws of that state.
11.5 Notices. All communications and notices shall be in
writing, and shall be mailed by certified mail return receipt
requested as follows:
If to the Company:
FutureCORE, Ltd.
8118 Corporate Way, Ste. 100
Mason, OH 45040-9560
If to the Members:
Daniel C. Swanson
8118 Corporate Way, Ste. 100
Mason, OH 45040-9560
with a copy to:
Douglas M. Case, Esq.
8700 Old Indian Hill Road
Cincinnati, OH 45243-3724
If to Purchaser:
Med-Sub, Inc.
8805 Governors Hill
Cincinnati, Ohio 45249
Attn: Philip S. Present II, Vice President Corporate Development
with a copy to:
Moira J. Squier, Esq.
Dinsmore & Shohl
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax #: (513) 977-8327
11.6 Default. The parties agree that the Assets to be sold
hereunder are unique, and therefore in the event of a breach of any
term or condition of this Agreement the parties shall have, in
addition to all remedies provided hereunder or otherwise at law, the
right to enforce specific performance of this Agreement. In the
event, that suit is brought to enforce specific performance, the
breaching party shall pay all costs including reasonable attorneys'
fees incurred by the non-breaching party.
11.7 Announcements. All notices to customers or the public and
other announcements with respect to this Agreement and the
transactions hereunder shall be approved by both The Company and
Purchaser prior to the issuance thereof.
11.8 Descriptive Headings. The descriptive headings of the
several sections of this Agreement are inserted for convenience only
and shall not control or affect the meaning or construction of any
of the provisions hereof.
11.9 Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
it as of the date set forth above.
Med-Sub, Inc.
By: /s/ Philip S. Present II
Philip S. Present II, President
MedPlus, Inc.
By:/s/ Daniel A. Silber
Daniel A. Silber, Vice President of Finance and Chief Financial
Officer
FutureCORE, Ltd.
By:/s/ Daniel C. Swanson
Daniel C. Swanson, President
/s/ Daniel C. Swanson
Daniel C. Swanson, P.E.
/s/ Arthur E. Frohwerk
Arthur E. Frohwerk
/s/ Lawrence C. Maguire, M.D.
Lawrence C. Maguire, M.D.
Joseph C. Williams
President
Dialogos, Inc.
3674 Clifton Avenue
Cincinnati, Ohio 45220
RE: MedPlus, Inc. Financing Commitment to and Possible
Acquisition of Common Stock of Dialogos, Inc.
Dear Mr. Williams:
Pursuant to this Letter of Agreement between MedPlus, Inc., an
Ohio corporation ("MedPlus") and Dialogos, Inc., a Delaware
corporation (the "Company"), MedPlus agrees to provide or obtain
specified financing for the operations of the Company, and the
Company agrees to issue to MedPlus or grant MedPlus an option to
purchase, as the case may be, a certain percentage of the Company's
common stock (all of the Company's common stock hereinafter referred
to as the "Common Shares") in exchange for such financing. Now,
therefore, and in consideration of the mutual covenants and
agreements herein contained, the Company and MedPlus hereby agree as
follows:
1. MedPlus shall, on or before January 31, 1997, either (a)
agree to pay $1.65 million to the Company as consideration for 75%
of the Common Shares or (b) secure a funding commitment for the
Company's operations in the amount of $1.65 million from investors
("Investors") and/or lenders ("Lenders") with financing terms
reasonably agreed to by the Company and MedPlus ((a) and (b)
collectively are the "Obligation"). In the event MedPlus secures a
funding commitment from Investors and/or Lenders, the Company shall
grant MedPlus the option, which option shall be immediately
exercisable and remain open until December 31, 1999, to purchase 75%
of the Common Shares (the "MedPlus Option").
2. Prior to exercising the MedPlus Option, MedPlus shall have
entered into an agreement to either (a) pay to any Investors and/or
Lenders an amount equal to their investment, including appreciation
thereof as indicated in such agreement, or their loan, including any
interest accrued with respect thereto, made by them in or to the
Company (such payment hereinafter referred to as the "Buy-Out
Amount") or (b) pay to the Company an amount equal to the Buy-Out
Amount. The exercise price of the MedPlus Option shall be equal to
the Buy-Out Amount. Immediately upon actual payment of the Buy-Out
Amount to either the Investors and/or Lenders or the Company,
MedPlus shall receive 75% of the Common Shares.
3. The Common Shares will be transferred to MedPlus free,
clear and unencumbered.
4. MedPlus shall fund the general operations of the Company
from the date of this Letter of Agreement until the Obligation has
been satisfied and funding has actually begun pursuant to either
paragraph 1(a) or (b) above (the "Interim Funding"). The Interim
Funding shall be provided from time to time in amounts reasonably
requested by the Company, which amounts are consistent with funding
required to execute the financial plan provided to MedPlus by the
Company during June, 1996. In the event MedPlus agrees to pay $1.65
million to the Company as consideration for 75% of the Common Shares
pursuant to paragraph 1(a) above, such $1.65 million purchase price
shall be reduced by any and all monies paid to or on behalf of the
Company by MedPlus to effect the Interim Funding, plus Interest (as
hereinafter defined). In the alternative, if MedPlus secures a
funding commitment for the Company's operations in the amount of
$1.65 million from Investors and/or Lenders pursuant to paragraph
1(b) above, then, immediately upon the Company's receipt of such
funding, the Company shall reimburse MedPlus for any and all monies
paid to or on behalf of the Company by MedPlus to effect the Interim
Funding, plus Interest. For purposes of this paragraph 4,
"Interest" shall mean interest equal to the prime rate, as announced
from time to time by the Provident Bank, Cincinnati, Ohio, plus 1%
per annum.
5. Immediately following execution of this Letter of Agreement
by the Company, MedPlus will enter into a consulting agreement with
Joseph C. Williams, President and sole stockholder of the Company
("Williams"), in substantially the form attached hereto as Exhibit
A. Furthermore, the Company shall require each employee and/or
consultant thereto to execute a confidentiality agreement,
reasonably similar to confidentiality agreements executed by
employees and/or consultants in the technology industry, with
respect to information obtained by him or her as a result of his or
her relationship with the Company.
6. It is a condition precedent to the obligations of MedPlus
hereunder that Williams shall have executed a voting agreement, in
the form attached hereto as Exhibit B, whereby Williams agrees to
vote all Common Shares owned by him in favor of electing one person
designated by MedPlus as member of the Company's Board of Directors.
In addition, the holders of any and all shares issued by the Company
before the earlier of (i) the exercise of the MedPlus Option, (ii)
the Rejection, as hereinafter defined, or (iii) the expiration of
the MedPlus Option shall be required by the Company to execute a
voting agreement in substantially the form attached hereto as
Exhibit B.
7. In the event MedPlus exercises the MedPlus Option, MedPlus
and the Company agree that the Company shall amend any existing
employment agreements with Williams and other senior executives of
the Company (the "Executive Employees") to provide that, for each
year during the three-year period ending December 31, 1999, the
Executive Employees may be granted options to purchase Common Shares
("Incentive Shares"). Specifically, prior to January 15th of each
of the afore-mentioned years of each Amended Employment Agreement,
the Company shall establish a basis for determining whether any
Incentive Shares shall be granted to the Executive Employee
following the close of such year. The determination of whether to
grant Incentive Shares in any such year shall be based on the
achievement of the Contribution Margin (as hereinafter defined) of
the Company as budgeted for that fiscal year. (For purposes hereof,
"Contribution Margin" shall mean "operating income" as used by
MedPlus in its internal financial reporting system.) Furthermore,
the exercise price per share of any options granted as Incentive
Shares shall be determined by an independent appraiser selected by
the Company; in no event, however, shall such exercise price be less
than the price per share paid by MedPlus in exercising the MedPlus
Option. Finally, in no event shall the number of shares subject to
options granted as Incentive Shares to all Executive Employees for
each of the following years exceed in the aggregate (i) 3% of all
Common Shares outstanding at December 31, 1997 and 1998 and (ii) 4%
of all Common Shares outstanding at December 31, 1999.
8. The Company agrees that it shall be operated in the normal
and ordinary course until January 1, 1999, that all necessary
corporate and other actions will be taken pursuant to law, and that
all applicable laws and governmental regulations will be complied
with.
9. MedPlus contemplates the expenditure of substantial sums of
time and money in connection with legal, accounting, financial, and
due diligence work to be performed in conjunction with the
transaction(s) proposed herein. As consideration therefor, during
the period from the date of acceptance of this letter to MedPlus'
satisfaction of the Obligation or January 31, 1997, whichever is
earlier, the Company shall not, directly or indirectly, initiate or
hold discussions with any person or entity (other than MedPlus)
concerning a purchase, affiliation, or other transfer of any part of
the Company's business, directly or indirectly, whether by sale of
common shares, merger, consolidation, sale or lease of material
assets, affiliation, joint venture, or other material transaction.
After January 31, 1997 and until MedPlus affirmatively declines to
exercise the MedPlus Option (the "Rejection") or until December 31,
1999, whichever is earlier, the Company shall not accept financial
support for any reason from any third party without first offering
MedPlus the opportunity to provide such financial support on terms
reasonably similar to those offered by such third party. MedPlus
shall then have 30 days from the date of such offer to elect to
provide such financial support. If the offer is affirmatively
rejected by MedPlus or such 30 day period expires, then the Company
may accept financial support from such third party on the same terms
and conditions contained in the third party's original financing
offer.
10. The Company agrees to permit MedPlus' representatives,
agents, accountants and attorneys to have reasonable access during
regular business hours to the Company's books, records and
properties for the purpose of making a detailed examination of the
financial condition, assets, liabilities, legal compliance, affairs,
business and the conduct of the Company prior to MedPlus' exercise
of the MedPlus Option or the Rejection, whichever occurs first. In
addition, prior to MedPlus' exercise of the MedPlus Option or the
Rejection, whichever occurs first, Dialogos shall have its
financial statements audited annually by KPMG Peat Marwick.
It is understood and agreed that any public announcement of
this transaction will be through a mutually agreed upon joint
release.
Very truly yours,
MEDPLUS, INC.
/s/ Daniel A. Silber
Daniel A. Silber, Vice-President
of Finance and Chief Financial
Officer
Accepted by:
DIALOGOS, INC.
/s/ Joe Williams
Joe Williams, President
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,501,904
<SECURITIES> 305,872
<RECEIVABLES> 4,517,177
<ALLOWANCES> (80,000)
<INVENTORY> 342,880
<CURRENT-ASSETS> 10,948,580
<PP&E> 1,426,860
<DEPRECIATION> (339,041)
<TOTAL-ASSETS> 16,204,040
<CURRENT-LIABILITIES> 3,484,309
<BONDS> 0
0
0
<COMMON> 1,073
<OTHER-SE> 2,041
<TOTAL-LIABILITY-AND-EQUITY> 16,204,040
<SALES> 2,772,548
<TOTAL-REVENUES> 2,772,548
<CGS> 1,298,418
<TOTAL-COSTS> 1,873,955
<OTHER-EXPENSES> 86,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (313,251)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (313,251)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
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