MEDPLUS, INC.
8805 Governor's Hill Drive, Suite 100
Cincinnati, Ohio 45249
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JUNE 18, 1999
TO THE SHAREHOLDERS OF MEDPLUS, INC.:
You are cordially invited to attend a Special Meeting of the
Shareholders of MedPlus, Inc., in lieu of an Annual Meeting, to be
held on June 18, 1999 at 9:30 A.M. at the Marriott Hotel
Northeast, 9664 Mason-Montgomery Road, Mason, Ohio 45040, for the
purpose of considering and acting on the following:
1. Election of six directors to serve until the 2000 Annual
Meeting.
2. Approval of an amendment to the Company's Articles of
Incorporation creating a class of 5,000,000 shares of Series A
Convertible Preferred Stock ("Preferred Stock").
3. Approval of the issuance of 2,371,815 shares of Preferred
Stock, warrants to purchase up to an additional 1,040,699 shares
of Preferred Stock and the potential issuance of an indeterminate
number of shares of the Company's Common Stock issuable upon the
conversion of shares of Preferred Stock for purposes of complying
with the shareholder approval requirements of The Nasdaq Stock
Market.
4. Approval of the issuance of 2,371,815 shares of Preferred
Stock, warrants to purchase up to an additional 1,040,699 shares
of Preferred Stock and the potential issuance of an indeterminate
number of shares of the Company's Common Stock issuable upon the
conversion of shares of Preferred Stock for purposes of complying
with the shareholder approval requirements of the Ohio Control
Share Acquisition Act.
5. Transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Shareholders of record at the close of business on April 26, 1999
will be entitled to vote at the meeting.
By Order of the Board of Directors
Robert E. Kenny III
Secretary
May 15, 1999
__________________________________________________________________
IMPORTANT
A Proxy Statement and proxy are submitted herewith. As a
shareholder, you are urged to complete and mail the proxy promptly
whether or not you plan to attend this Special Meeting in person.
The enclosed envelope for return of proxy requires no postage if
mailed in the U.S.A. Shareholders attending the meeting may
personally vote on all matters that are considered in which event
their signed proxies are revoked. It is important that your
shares be voted. In order to avoid the additional expense to the
Company of further solicitation, we ask your cooperation in
mailing your proxy promptly.
__________________________________________________________________
May 15, 1999
PROXY STATEMENT
MEDPLUS, INC.
8805 Governor's Hill Drive, Suite 100
Cincinnati, Ohio 45249
SPECIAL MEETING OF SHAREHOLDERS
June 18, 1999
INTRODUCTION
The enclosed form of proxy is being solicited on behalf of the
Board of Directors of MedPlus, Inc. (also referred to as "MedPlus"
or the "Company") for the Special Meeting of Shareholders, in lieu
of an Annual Meeting, to be held on June 18, 1999. Each of the
6,055,269 shares of Common Stock, without par value, outstanding
on April 26, 1999, the record date of the meeting, is entitled to
one vote on all matters coming before the meeting. Only
shareholders of record of the Company at the close of business on
April 26, 1999 will be entitled to vote at the meeting either in
person or by proxy. This Proxy Statement is being mailed to
shareholders on or about May 15, 1999.
The shares represented by all properly executed proxies that are
sent to the Company will be voted as designated and each not
designated will be voted affirmatively. Unless otherwise provided
in writing by a shareholder and subject to applicable law, each
person granting a proxy may revoke it by giving notice to the
Company's Secretary in writing or in open meeting at any time
before it is voted. Proxies will be solicited principally by
mail, but may also be solicited by directors, officers and other
regular employees of the Company who will receive no compensation
therefor in addition to their regular salaries. Brokers and
others who hold stock in trust will be asked to send proxy
materials to the beneficial owners of the stock, and the Company
will reimburse them for their expenses. The expense of soliciting
proxies will be borne by the Company. The Annual Report of the
Company for the fiscal year ended January 31, 1999 ("fiscal 1999")
is enclosed with this Proxy Statement (see "Incorporation of
Certain Documents by Reference")
ELECTION OF DIRECTORS
Six directors are to be elected to hold office until the 2000
Annual Meeting of Shareholders. It is the intention of the
individuals named in the proxy to vote for the election of only
the six nominees named. Only the maximum of six directors may be
elected. The Company is not currently aware of any potential
candidates who may be nominated at or prior to the meeting, and in
no event will the proxies solicited hereby be voted for other than
the six nominees named.
The nominees, Richard A. Mahoney, Robert E. Kenny III, Paul J.
Stein, Jay Hilnbrand, Philip S. Present II and Martin A. Neads are
currently serving as members of the Board of Directors. While
management has no reason to believe that any of the nominees will,
prior to the date of the meeting, refuse or be unable to accept
the nominations, should any nominee so refuse or become unable to
accept, the proxies will be voted for the election of such
substitute nominee, if any, as may be recommended by the Board of
Directors. Nominees receiving the six highest totals of votes cast
in the election will be elected as directors. Proxies in the form
solicited hereby that are returned to the Company will be voted in
favor of the six nominees specified above unless otherwise
instructed by the shareholders. Abstentions and shares not voted
by brokers and other entities holding shares on behalf of
beneficial owners will not be counted and will have no effect on
the outcome of the election.
Directors are elected annually and serve for one year terms.
Information with respect to each of the six nominees is as
follows:
Jay Hilnbrand, age 65, has been, except for the period from
December 1, 1998 until February 16, 1999 during which Mr.
Hilnbrand resigned briefly due to illness, a director of the
Company since April 1994 and is the retired General Manager of
Universal Document Management Systems, Inc. ("UDMS"), a document
management software development company that became a wholly-owned
subsidiary of the Company in 1995.
Robert E. Kenny III, age 43, an attorney engaged in the private
practice of law since 1985, has served as Secretary of the Company
and as a director of the Company since 1991.
Richard A. Mahoney, age 51, has been the Company's President and a
director of the Company since January 1991. While Mr. Mahoney
has been the President of the Company since its inception, Mr.
Mahoney has held the titles of Chairman of the Board and Chief
Executive Officer of the Company since November 1995.
Martin A. Neads, age 50, became a director of the Company in
December 1998. Mr. Neads is currently an executive director and
business consultant with European IT Solutions, Ltd. ("EITS").
Prior to joining EITS, Mr. Neads was Vice President and General
Manager of Operations and Senior Vice President and General
Manager of the Software Products Division for Structural Dynamics
Research Corp. ("SDRC"), a leading international provider of
mechanical design automation software and engineering services.
Philip S. Present II, age 48, joined the Company in April 1995 as
Vice President of Corporate Development. Mr. Present was named
Chief Operating Officer of the Company in June 1996. He became a
director of the Company on December 13, 1997 to fill a vacancy
created on the Board by an increase in the number of directors of
the Company from five to six. From September 1973 to March 1995,
Mr. Present was employed by the certified public accounting firm
of KPMG LLP.
Paul J. Stein, age 52, has been a director of the Company since
1991. Mr. Stein has been a self-employed marketing consultant and
manufacturer's representative since October 1990.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
In fiscal 1999, the Board of Directors met on two occasions. Each
of Messrs. Mahoney, Kenny, Stein, Neads and Present attended 100%
of the total number of meetings of the Board of Directors held
during the period for which he was a director. Each of the
directors also attended the total number of meetings held by all
committees of the Board on which he served (during the periods
that he served). Mr. Hilnbrand and Mr. Paul Martin (who resigned
from the Board on February 16, 1999) each attended one of the
meetings of the Board of Directors held during the period for
which he was a director, but each executed all Actions By
Unanimous Written Consent of the Directors that were executed
during fiscal 1999.
The Company has an Audit Committee of the Board of Directors, the
members of which are not officers or employees of the Company
except for Mr. Mahoney. The Audit Committee, which held two
meetings during fiscal 1999, recommends to the entire Board of
Directors the independent auditors to be employed by the Company,
consults with the independent auditors with respect to their audit
plans, reviews the independent auditors' report and any management
letters issued by the auditors and consults with the independent
auditors with regard to financial reporting and the adequacy of
internal controls. The members of the Audit Committee during
fiscal 1999 were Messrs. Mahoney, Kenny and Stein.
The Company has a Compensation Committee of the Board of
Directors, which held one meeting and executed one Action by
Unanimous Written Consent during fiscal 1999. The Compensation
Committee recommends to the entire Board of Directors the
compensation arrangements, including grants of stock options and
other incentives under the Company's 1994 Long-Term Stock
Incentive Plan, for the corporate officers and employees of the
Company and reviews proposed changes in management organization.
The present members of the Compensation Committee are Messrs.
Stein, Neads and Kenny.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Beneficial Owners
Under Section 13(d) of the Securities Exchange Act of 1934 and the
rules promulgated thereunder, a beneficial owner of a security is
any person who, directly or indirectly, has or shares voting power
or investment power over such security. Such beneficial owner
under this definition need not enjoy the economic benefit of such
securities. The following shareholders are known by the Company
to have been the beneficial owners of 5% or more of the 6,025,371
shares of the Company's Common Stock outstanding as of January 31,
1999:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner(1) Ownership of Class(2)
____________________ ___________________________ _________________________ ____________
<S> <C> <C> <C>
Common Stock Richard A. Mahoney 2,986,005 shares owned 47.10%
Chairman of the Board, beneficially(3)
President and Chief Executive
Officer
8598 Twilight Tear Drive
Cincinnati, OH 45249
Common Stock The Keys Plus Irrevocable Trust 690,938 shares owned 10.90%
8598 Twilight Tear Drive beneficially(4)
Cincinnati, OH 45249
Common Stock The Keys Plus Irrevocable Trust 690,937 shares owned 10.90%
8598 Twilight Tear Drive beneficially(4)
Cincinnati, OH 45249
Common Stock Paul J. Stein 312,750 shares owned 5.18%
4041 Harding Drive beneficially(5)
Westlake, OH 44148
</TABLE
(1) The persons and entities named in the above table had, at
January 31, 1999, sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the
information contained in other footnotes to this table. For
purposes of this table, stock options were considered to be
exercisable if by their terms they could have been exercised as of
January 31, 1999 or if they became exercisable within 60 days
thereafter.
(2) Percentages indicated for each person are calculated with
respect to a total number of shares equal to the number of shares
actually outstanding as of January 31, 1999 plus that number of
shares that such person had the right to acquire as of the date 60
days thereafter.
(3) Total consists of (i) 927,725 owned outright by Mr. Mahoney,
(ii) approximately 9,431 shares held by Mr. Mahoney through the
MedPlus, Inc. 401(k) Plan (the "401(k) Plan"), (iii) 4,500 shares
owned by members of Mr. Mahoney's immediate family and (iv)
300,000 shares subject to options exercisable by Mr. Mahoney as of
January 31, 1999 or within 60 days thereafter. In addition, Mr.
Mahoney is the sole trustee of two trusts for the benefit of
certain minor children that at January 31, 1999 held a total of
1,381,875 shares of Common Stock; Mr. Mahoney had, and continues
to have, sole voting and dispository power with respect to the
shares held by the trusts but no pecuniary interest in such
shares. Finally, Mr. Mahoney had sole voting power as proxy with
respect to an additional 362,474 shares, 13,750 of which were
shares subject to options exercisable at January 31, 1999 or
within 60 days thereafter.
(4) These shares are also included in the shares shown as
beneficially owned by Mr. Mahoney.
(5) Total consists of (i) 258,000 shares owned outright by Mr.
Stein, (ii) 46,000 shares owned by members of Mr. Stein's
immediate family and (iii) 8,750 shares that Mr. Stein then had,
and continues to have, the option to purchase. Mr. Stein had, and
continues to have, shared voting and investment power with respect
to the shares owned by members of his immediate family. Mr.
Mahoney had, and continues to have, sole voting power as a proxy
with respect to the 258,000 shares owned outright by Mr. Stein and
the 8,750 shares that Mr. Stein had the option to purchase;
accordingly, these shares are also included in the shares shown as
beneficially owned by Mr. Mahoney.
Management
Ownership of MedPlus, Inc.
As of April 26, 1999, 6,055,269 shares of the Company's Common
Stock were outstanding. The following table sets forth the
beneficial ownership of the Company's Common Stock by its
directors, the named executives and all directors and executive
officers as a group, as of April 26, 1999
</TABLE>
<TABLE>
<CAPTION>
Name and Position of Amount and Nature of Percent
Title of Class Beneficial Owner(1) Ownership of Class
____________________ ___________________________ _________________________ ____________
<S> <C> <C> <C>
Common Stock Paul F. Albrecht 46,649 shares owned 0.76%
Vice President and Chief beneficially(2)
Technology Officer
Common Stock Jay Hilnbrand 95,724 shares owned 1.58%
Director and Retired General beneficially(3)
Manager of Subsidiary
Common Stock Robert E. Kenny III 16,750 shares owned 0.28%
Director beneficially(4)
Common Stock Richard A. Mahoney 3,381,455 shares owned 53.07%
Chairman of the Board, beneficially(5)
President and Chief Executive
Officer
Common Stock Timothy P. McMullen 54,427 shares owned 0.89%
Vice President of Sales beneficially(6)
and Marketing
Common Stock Martin A. Neads 4,700 shares owned 0.08%
Director beneficially
Common Stock Philip S. Present II 121,818 shares owned 1.98%
Chief Operating Officer beneficially(7)
Common Stock Gary Price 100,600 shares owned 1.66%
Former Senior Vice President beneficially(8)
of Business Development
Common Stock Daniel A. Silber 38,157 shares owned .63%
Vice President of Finance beneficially(9)
and Chief Financial Officer
Common Stock Paul J. Stein 315,250 shares owned 5.20%
Director beneficially(10)
_________________________ ____________
Common Stock All directors and executive 3,689,956 shares owned 55.91%
officer as a group beneficially(11)
(10 persons)
_________________
</TABLE
(1) The persons and entities named in the above table have sole
voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in
other footnotes to this table. For purposes of this table, stock
options were considered to be currently exercisable if by their
terms they could have been exercised as of April 26, 1999 or if
they will become exercisable within 60 days thereafter.
(2) Total consists of (i) 46,000 shares that Mr. Albrecht has the
option to purchase and (ii) approximately 649 shares held by Mr.
Albrecht through the 401(k) Plan.
(3) Total consists of (i) 90,724 shares owned outright by Mr.
Hilnbrand and (ii) 5,000 shares that Mr. Hilnbrand has or will
have the option to purchase on or before June 26, 1999. Mr.
Mahoney has sole voting power as a proxy with respect to the
90,724 shares owned outright by Mr. Hilnbrand and, should Mr.
Hilnbrand choose to exercise his option to purchase 5,000 shares,
Mr. Mahoney will also have sole voting power as a proxy with
respect to those shares. Accordingly, all shares shown as
beneficially owned by Mr. Hilnbrand are also included in the
shares shown as beneficially owned by Mr. Mahoney.
(4) Total consists of (i) 5,000 shares owned outright by Mr.
Kenny, (ii) 500 shares that Mr. Kenny owns through an IRA and
(iii) 11,250 shares that Mr. Kenny has the option to purchase or
will have the option to purchase on or before June 26, 1999.
(5) Total consists of (i) 927,725 shares owned outright by Mr.
Mahoney, (ii) approximately 9,431 shares held by Mr. Mahoney
through the 401(k) Plan (iii) 4,500 shares owned by members of Mr.
Mahoney's immediate family, (iv) 1,381,875 shares owned by Mr.
Mahoney as trustee for the benefit of certain minor children and
with respect to which Mr. Mahoney has sole voting and dispository
power, (v) 757,924 shares, 16,250 shares of which are shares
subject to options exercisable on or before June 26, 1999, as to
which Mr. Mahoney has sole voting power as proxy and (vi) 300,000
shares that Mr. Mahoney currently has the option to purchase
pursuant to options granted to him in 1995, 1996, 1997, and 1998
in accordance with his employment agreement with the Company, and
options granted to him in lieu of a cash bonus for 1996.
(6) Total consists of 53,334 shares that Mr. McMullen has the
option to purchase and approximately 1,093 shares held by Mr.
McMullen through the 401(k) Plan.
(7) Total consists of (i) 1,371 shares held outright by Mr.
Present, (ii) 30,000 shares owned by Mr. Present through a
personal retirement plan account, (iii) 85,001 shares that Mr.
Present has the option to purchase and (iv) approximately 5,446
shares held by Mr. Present through the 401(k) Plan. Mr. Mahoney
has sole voting power with respect to the 30,000 shares owned by
Mr. Present through a retirement plan and as such those shares are
also included in the shares shown as beneficially owned by Mr.
Mahoney.
(8) Mr. Price resigned effective September 15, 1998. Total
consists of 100,600 shares owned outright by Mr. Price. Mr.
Mahoney has sole voting power as a proxy with respect to 90,600 of
such shares and as such those shares are also included in the
shares shown as beneficially owned by Mr. Mahoney.
(9) Total consists of (i) 2,218 shares owned outright by Mr.
Silber, (ii) 32,334 shares that Mr. Silber has the option to
purchase and (iii) approximately 3,605 shares held by Mr. Silber
through the 401(k) Plan.
(10) Total consists of (i) 258,000 shares owned outright by Mr.
Stein, (ii) 46,000 shares owned by members of Mr. Stein's
immediate family and (iii) 11,250 shares that Mr. Stein currently
has the option to purchase or will have the option to purchase on
or before June 26, 1999. Mr. Stein has shared voting and
investment power with respect to the shares owned by members of
his immediate family. Mr. Mahoney has sole voting power as a
proxy with respect to the 258,000 shares owned outright by Mr.
Stein and, should Mr. Stein choose to exercise his option to
purchase 11,250 shares, Mr. Mahoney will also have sole voting
power as a proxy with respect to those shares. Accordingly, the
258,000 shares owned outright by Mr. Stein and the 11,250 shares
that Mr. Stein has the option to purchase as of are also included
in the shares shown as beneficially owned by Mr. Mahoney.
(11) Includes the shares owned by Mr. Mahoney as a trustee, shares
over which Mr. Mahoney has voting power and shares owned by Mr.
Stein's immediate family and the total number of shares owned
directly by all directors and executive officers, including those
officers, if any, who are not named executives.
Ownership of DiaLogos Incorporated
As of April 26, 1999, 100 shares of the common stock of the
Company's majority-owned subsidiary, DiaLogos Incorporated, were
outstanding. The following table sets forth the beneficial
ownership of the common stock of DiaLogos Incorporated by the
Company's directors, the named executives and all directors and
executive officers as a group, as of April 26, 1999
</TABLE>
<TABLE>
<CAPTION>
Name and Position of Amount and Nature of Percent
Title of Class Beneficial Owner(1) Ownership of Class
____________________ ___________________________ _________________________ ____________
<S> <C> <C> <C>
Common Stock Richard A. Mahoney 13.5 shares owned 13.50%
Chairman of the Board, beneficially(2)
President and Chief Executive
Officer
Common Stock Philip S. Present II 2 shares owned 2.00%
Chief Operating Officer beneficially
Common Stock Daniel A. Silber 1 share owned 1.00%
Vice President of Finance beneficially
and Chief Financial Officer
_________________________ ____________
Common Stock All directors and executive 16.5 shares owned 16.50%
officer as a group beneficially
(3 persons)
_________________
</TABLE>
(1) The persons named in the above table have sole voting and
investment power with respect to all shares of Common Stock shown
as beneficially owned by them, subject to community property laws
where applicable and the information contained in other footnotes
to this table. None of the persons named in the above table have
stock options to purchase additional shares of DiaLogos.
(2) Total consists of 6.75 shares owned outright by Mr. Mahoney
and 6.75 shares owned by a member of Mr. Mahoney's immediate
family.
The Company's executive officers not previously discussed under
"Election of Directors" are as follows:
Timothy P. McMullen, 44, has been the Vice President of Sales and
Marketing since December 13, 1997. He joined the Company as Vice
President, Corporate Accounts and Managed Care in June 1996 after
sixteen years with the Hill-Rom Co. Inc. At Hill-Rom, the world's
largest manufacturer and distributor of patient beds and patient
environments, he held several senior positions including Vice
President of Corporate Accounts, Merchandising, International, and
Domestic Sales.
Daniel A. Silber, 50, joined the Company as Vice President of
Finance and Chief Financial Officer in May 1995. From 1993 until
he joined the Company, he was Chief Financial Officer for Saturday
Knight LTD, a manufacturer and distributor of bathroom
accessories.
Paul F. Albrecht, 44, was elected Vice President and Chief
Technology Officer on December 13, 1997 following his tenure as
General Manager of the ChartMaxx[tm] Division of MedPlus since May
16, 1994. Prior to joining the Company, Mr. Albrecht had been the
Director of the Systems Development Area for Cincinnati Bell
Information Systems since December 1991.
PROPOSALS TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO
CREATE A CLASS OF SERIES A CONVERTIBLE PREFERRED STOCK;
APPROVE THE ISSUANCE OF SHARES OF SUCH PREFERRED STOCK; AND
APPROVE THE SUBSEQUENT ISSUANCE OF COMMON SHARES UPON
CONVERSION THEREOF
Background
__________
On April 30, 1999, the Company entered into an Agreement (the
"Agreement") with three investment firms (the "Investors") to
obtain $6,100,000 in debt and equity financing. The Agreement was
filed with the SEC as an exhibit to the Company's Annual Report on
Form 10-KSB for fiscal 1999 (see "Incorporation of Certain
Documents by Reference"). The terms of the Agreement provide for
financing of $4,100,000 in Series A Convertible Preferred Stock
(the "Preferred Stock") and $2,000,000 in subordinated debentures
(the "Notes"). The proceeds of the financing will be utilized to
fund working capital requirements and continue the market
penetration of certain of the Company's core products. Certain
terms of the agreement, including the authorization of the
Preferred Stock, are subject to shareholder approval.
On April 30, 1999, the Company issued the Notes, due 2004,
with a coupon rate of 10% in the first year and 12% thereafter.
The principal portion of the Notes is payable as follows: $666,666
in April 2002, $666,667 in April 2003 and $666,667 in April 2004;
however, the Company may redeem the Notes at any time during their
term without penalty. The Notes provide that if the Preferred
Stock is authorized and certain additional terms related to the
Agreement are approved by the Company's shareholders prior to July
30, 1999, then the Company will issue to the holders of the Notes
five-year warrants to purchase 281,137 shares of Preferred Stock
at an exercise price not to exceed $1.90. This warrant price is
subject to adjustment if the Company does not meet specified
requirements relating to the appreciation of its stock price at
the end of a defined two-year period. However, the Notes also
provide that if the Preferred Stock is not authorized and certain
additional terms related to the Agreement are not approved by the
Company's shareholders prior to July 30, 1999, then (a) the entire
amount of principal and interest which remains unpaid shall become
due and payable as of November 28, 1999 and (b) the Company shall
immediately issue to the holders of the Notes, for no additional
consideration, shares of the Company's Common Stock as described
in the Agreement and warrants to purchase 281,137 shares of Common
Stock.
In addition, subject to shareholder approval on or before
July 30, 1999, the Company has agreed to issue to the Investors
2,371,815 shares of Preferred Stock at a purchase price of $1.729
per share. The Preferred Stock will pay dividends quarterly at a
rate of 4% per share for the first four years, increasing to 10%
thereafter, and accruing on a cumulative basis. Shares of
Preferred Stock include (a) voting rights, (b) receive
preferential treatment upon liquidation of the Company and (c)
convert into Common Shares upon certain events. The designation,
rights, preferences and other terms and conditions relating to the
Preferred Stock are described below and are set forth in greater
detail in Exhibit A to this Proxy Statement and in the Agreement
with the Investors that has been filed with the Securities and
Exchange Commission as an exhibit to the Company's Annual Report
on Form 10-KSB relating to fiscal 1999 (see "Incorporation of
Certain Documents by Reference"). Also, subject to shareholder
approval on or before July 30, 1999, the Company has agreed to
issue to the Investors ten-year warrants for the purchase (subject
to adjustment as provided therein) of 759,562 shares of Preferred
Stock. These warrants cannot be exercised unless the value of the
Company's stock price as traded on the NASDAQ over a twenty-day
period exceeds $7.28.
Because the conversion price can vary depending on certain
circumstances in existence at the time of conversion, the exact
number of shares of Common Stock to be issued cannot be exactly
determined in advance of a conversion election. Based on the
terms of the Agreement and if the Company meets all the conversion
criteria described therein, the maximum number of shares of Common
Stock that may be issued upon conversion of all Preferred Stock
which may be issued to the Investors is 3.5 million shares, or
when added to the total outstanding Common Stock as of April 26,
1999, approximately 37% of the total outstanding Common Stock.
Amendment to Articles of Incorporation
______________________________________
The Board of Directors believes that a class of preferred
stock should be available for issuance by the Board from time to
time for proper corporate purposes, including those described
above. As of April 26, 1999, no preferred stock was authorized by
the Company. Thus, the Board has approved, and recommends the
shareholders adopt, an amendment to the Company's Articles of
Incorporation which authorizes a new class of 5,000,000 shares of
Series A Convertible Preferred Stock.
The newly authorized shares of Preferred Stock will be
issuable from time to time by action of the Board of Directors for
any proper corporate purpose, without shareholder approval unless
required by applicable law or the rules of The Nasdaq Stock
Market. These purposes could include financings (as described
above), payment of stock dividends and corporate acquisitions.
The shares could also be issued in a private placement transaction
to a third party favored by the Board in the event of a takeover
attempt directed at the Company, which could give the favored
party an advantage over a competing party in a contest to acquire
control of the Company.
At the present time, the Company has no immediate plans to
issue the Preferred Stock except as described above (see
"Background") and in the ordinary course of business. If the
issuance of Preferred Stock is approved by the shareholders in
accordance with The Nasdaq Stock Market rules and the Ohio Control
Share Acquisition Act, as discussed below, a portion of the newly
authorized shares of Preferred Stock, as well as a portion of the
Common Stock of the Company into which such Preferred Shares could
be converted, will be reserved for issuance.
At the Special Meeting, the following resolution will be
introduced:
RESOLVED, that Article Fourth of the Articles of
Incorporation of the Company be amended to read in its entirety as
described on Exhibit A to this Proxy Statement.
Adoption of the above resolution requires the affirmative
vote of the holders of at least a majority of the Company's
outstanding shares of common stock. Proxies received in response
to this solicitation will be voted in favor of the proposal unless
the shareholder otherwise instructs. Abstentions and shares not
voted by brokers and other entities holding shares on behalf of
beneficial owners will have the same effect as votes cast against
the resolution. The Board of Directors recommends the adoption of
the resolution.
The Nasdaq Stock Market
_______________________
The Company's Common Stock is traded on The Nasdaq National
Market. It is now the policy of The Nasdaq Stock Market to
require shareholder approval of the issuance, other than in a
public offering, of securities convertible into Common Stock if
the Common Stock underlying such securities would have, upon
issuance, voting power equal to or in excess of 20% of the
Company's total voting power outstanding before such issuance. As
noted above, under certain circumstances it is possible that the
Preferred Stock could be convertible into Common Stock exceeding
such 20% threshold. For this reason, once a class of Preferred
Stock has been authorized by the Company's shareholders by
amending the Articles of Incorporation (as described above), the
issuance of the Preferred Stock to the Investors must also be
approved by the Company's shareholders.
At the Special Meeting, the following resolution will be
introduced:
RESOLVED, that, for purposes of complying with the applicable
requirements of The Nasdaq Stock Market, the shareholders of
MedPlus, Inc. do hereby approve the Company's issuance of up to
5,000,000 shares of Series A Convertible Preferred Stock as
described in the Proxy Statement relating to this Special Meeting
of Shareholders.
The affirmative vote of the holders of a majority of the voting
power of the Company's outstanding voting stock present in person
or by proxy at the Special Meeting is required to adopt the
resolution. Proxies in the form solicited hereby that are
returned to the Company will be voted in favor of the resolution
unless otherwise instructed by the shareholders. Abstentions will
have the same effect as votes cast against the resolution,
provided such shares are properly present at the meeting in person
or by proxy. Shares not voted by brokers and other entities
holding shares on behalf of beneficial owners will have no effect
on the outcome of the proposal. The Board of Directors recommends
the adoption of the resolution.
The Ohio Control Share Acquisition Act
______________________________________
The Company is an issuing public corporation incorporated in Ohio,
and as such is subject to the laws contained in the Ohio Revised
Code (the "Code"). Section 1701.831 of the Code provides that any
"control share acquisition" of an issuing public corporation may
be made only with the prior authorization of the shareholders of
such corporation. For purposes of the Code, a "control share
acquisition" means the acquisition by any person of shares of an
issuing public corporation that would entitle such person,
immediately after such acquisition, to direct the exercise of the
voting power of the corporation in the election of directors
within any of the following ranges: (a) one-fifth or more but less
than one-third of such voting power; (b) one-third or more but
less than a majority of such voting power; or (c) a majority or
more of such voting power. The issuance of the Preferred Stock
and, subsequent thereto, the conversion of such Preferred Stock
into the Common Stock of the Company, could provide the Investors
with greater than or equal to one-third of the voting power in the
election of the Company's directors. As such, acquisition of such
shares by the Investors must be authorized by the Company's
shareholders in accordance with the Code. For this reason, once a
class of Preferred Stock has been authorized by the Company's
shareholders by amending the Articles of Incorporation (as
described above), the issuance of the Preferred Stock to the
Investors must also be approved by the Company's shareholders.
At the Special Meeting, the following resolution will be
introduced:
RESOLVED, that, for purposes of complying with the Ohio Control
Share Acquisition Act, the shareholders of MedPlus, Inc. do hereby
approve the Company's issuance of up to 5,000,000 shares of Series
A Convertible Preferred Stock as described in the Proxy Statement
relating to this Special Meeting of Shareholders.
The affirmative vote of the holders of a majority of the voting
power of the Company's outstanding voting stock present in person
or by proxy at the Special Meeting is required to adopt the
resolution. Proxies in the form solicited hereby that are
returned to the Company will be voted in favor of the resolution
unless otherwise instructed by the shareholders. Abstentions will
have the same effect as votes cast against the resolution,
provided such shares are properly present at the meeting in person
or by proxy. Shares not voted by brokers and other entities
holding shares on behalf of beneficial owners will have no effect
on the outcome of the proposal. The Board of Directors recommends
the adoption of the resolution.
Other Terms and Conditions of the Preferred Stock
_________________________________________________
The Preferred Stock is governed by numerous terms and conditions
in addition to those described above. Although certain of these
additional terms and conditions are described below, it should be
noted that such terms and conditions are described in much greater
detail in Exhibit A to this Proxy Statement and in the Agreement
with the Investors which has been filed with the Securities and
Exchange Commission as an exhibit to the Company's Annual Report
on Form 10-KSB relating to fiscal 1999 (see "Incorporation of
Certain Documents by Reference"). The following description is
merely a brief summary of such documents and is qualified in its
entirety by reference to such documents.
Conversion Features. Subject to the terms and conditions of
Exhibit A hereto, the holder of any share or shares of Preferred
Stock shall have the right, at its option at any time, to convert
any such shares into the number of fully paid and nonassessable
shares of Common Stock that is obtained by (i) multiplying the
number of shares of Preferred Stock to be converted by the
original purchase price for such shares and (ii) dividing the
result by the original purchase price per share for such shares
or, in case an adjustment of such price has taken place, then by
the conversion price as last adjusted and in effect at the date
the share or shares of Preferred Stock are surrendered for
conversion.
Mandatory Conversion. If at any time the Company conducts a firm
commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the
public is at least $25,000,000 and (ii) the price paid by the
public for such shares is at least $5.00 per share (as adjusted),
then effective upon the closing of such public offering, all
outstanding shares of Preferred Stock will automatically convert
to shares of Common Stock as described in Exhibit A. In addition,
if at any time after the third anniversary of the date on which
the Preferred Stock is initially issued to the Investors the Fair
Market Value of one share of Common Stock exceeds 200% of the
original purchase price of the Preferred Stock, (as adjusted),
then all outstanding shares of Preferred will automatically
convert to shares of Common Stock as described in Exhibit A.
Optional Redemption. In the event of a Change of Control (as
defined in Exhibit A), the holders of a majority of the shares of
the Preferred Stock may require the Company to redeem such shares.
The Preferred Stock will be redeemed by paying for each share an
amount in cash equal to 110% of the original purchase price per
share plus an amount equal to certain dividends declared but
unpaid thereon.
Dividends. The holders of the Preferred Stock shall be entitled
to receive quarterly cash dividends at the rate per annum equal to
4% of the original purchase price per share until the third
anniversary of the date on which such shares were initially issued
to the Investors, and thereafter at the rate equal to 10% of the
original purchase price per share. Such dividends will be
cumulative and will be declared by the Board of Directors and paid
by the Company quarterly on January 31, April 30, July 31 and
October 31 of each year. At the sole option of the holder of
shares of Preferred Stock, such dividends may be paid in the form
of additional shares of Common Stock.
Voting Rights. Except as otherwise provided in the terms of the
Preferred Stock or by law, the Preferred Stock will vote together
with all other classes and series of stock of the Company as a
single class on all actions to be taken by the shareholders of the
Company, including, but not limited to actions amending the
Company's Articles of Incorporation to increase the number of
authorized shares of Common Stock. Each share of Preferred Stock
will entitle its holder to the number of votes per share on each
action equal to the number of shares of Common Stock into which
each share of Preferred Stock is then convertible; provided,
however, that if the number of such number of votes is greater
than such number of shares of Series A Convertible Preferred Stock
and is consequently a violation of the rules of the Nasdaq Stock
Market applicable to the Company, then the number of votes shall
equal the number of shares of Preferred Stock.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
________________________________________________________________
Annual Compensation Awards
________________________ ________________________________________________________________
Name and Fiscal Restricted Stock Securities Underlying All Other
Principal Position Year(1) Salary($) Bonus($) Awards ($) Options(#) Compensation ($)
____________________ _______ __________ ___________ _________________ _____________________ _________________
<S> <C> <C> <C> <C> <C> <S>
Paul F. Albrecht, 1999 110,000 36,500 -- 20,000 --
Vice President and
Chief Technology 1998 96,667 48,472 -- 20,000(2) --
Officer
1996 75,000 30,000 -- 15,000 --
Richard A. Mahoney 1999 217,000 -- -- 50,000 --
Chairman of the Board,
President and Chief 1998 205,004 200,000 4,015(4) 50,000(2) --
Executive Officer
1996 200,750 -- -- 100,000 --
Timothy P. McMullen 1999 160,000 74,445(2) -- 10,000 --
Vice President of
Sales and Marketing 1998 149,583 28,262(2) -- 25,000(2) --
1996 78,750 -- -- 50,000 --
Philip S. Present II 1999 180,000 -- -- 40,000 --
Chief Operating Officer
and Director 1998 151,649 100,000 -- -- (2) --
1996 128,000 -- -- 30,000 --
Gary L. Price 1999 111,028 12,472(2) -- -- --
Former Senior Vice
President of Business 1998 132,541 68,088(2) 4,015(4) -- 21,420(5)
Development
1996 112,500 95,461 -- -- --
Daniel A. Silber 1999 120,000 10,000 -- 15,000 --
Vice President of
Finance and Chief 1998 109,000 -- -- 10,000(2) --
Financial Officer
1996 93,000 5,000 -- 10,000 --
</TABLE
____________________
(1) In December 1997, the Company changed its fiscal year end from
December 31 to January 31. Accordingly, the Company's 1999 and
1998 fiscal years commenced on February 1 and ended on January 31.
Information for the years ended January 31, 1999 and 1998 is
compared with information for the year ended December 31, 1996.
During the period from January 1 through January 31, 1997, Mr.
Albrecht earned a salary of $10,500 and was granted 1,500 options,
Mr. Mahoney earned a salary of $24,750 and was granted 50,000
options, Mr. McMullen earned a salary of $11,250 and was granted
5,000 options, Mr. Present earned a salary of $18,000 and was
granted 25,000 options, Mr. Price earned a salary of $16,500 and
was granted no options and Mr. Silber earned a salary of $13,000
and was granted 1,000 options. This information is not included
in the table and no additional compensation of any type was earned
by the named executive officers during that period.
(2) Amounts indicated represent bonus and commission payments.
(3) Mr. Price resigned effective September 15, 1998.
(4) In 1998, stock awards in equal amounts were given to all
Company employees who had completed their fifth year with the
Company. Mr. Mahoney and Mr. Price each received such a stock
award in 1998.
(5) Amount indicated represents the forgiveness of a loan made to
Mr. Price in the amount of $21,420.
</TABLE>
<TABLE>
<CAPTION>
Stock Options
The following table sets forth information regarding stock options granted to the named executives during
fiscal 1999:
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
___________________________________________________________________________________________________________
Number of Securities % of Total Options Exercise of
Underlying Options Granted to Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh.) Date
_____________ _______________________ ___________________________ _____________ _______________
<S> <C> <C> <C> <C>
Paul F. Albrecht 20,000 6% 6.50 June 24, 2003
Richard A. Mahoney 50,000 16% 6.50 June 24, 2003
Timothy P. McMullen 10,000 3% 6.50 June 24, 2003
Philip S. Present II 40,000 12% 6.50 June 24, 2003
Gary L. Price -- -- -- --
Daniel A. Silber 15,000 5% 6.50 June 24, 2003
</TABLE
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table sets forth information regarding stock options exercised by the named executives during fiscal 1999 and
the value of unexercised in-the-money options held by the named parties as of January 31, 1999:
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at FY-End (#) Options at FY-End ($)(1)
_________________________________ _________________________________
Shares
Acquired on Value
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
_________ ___________ ____________ ______________ _____________ ___________ _____________
<S> <C> <C> <C> <C> <C> <C>
Paul F. Albrecht -- -- 27,667 38,833 -- --
Richard A. Mahoney -- -- 300,000 -- -- --
Timothy P. McMullen -- -- 31,667 58,333 -- --
Philip S. Present II -- -- 70,000 50,000 -- --
Gary L. Price -- -- -- -- -- --
Daniel A. Silber -- -- 24,001 21,999 -- --
_______________
(1) Based on the average high and low prices of the Company's Common Stock on January 29, 1999.
</TABLE
Compliance with Section 16(a) of the Exchange Act
To the Company's knowledge, during fiscal 1999, all reports
required to be filed under Section 16(a) of the Exchange Act were
filed in a timely manner.
Compensation of Directors
During the year ended January 31, 1999, the Company's outside
directors (those directors who are not employees of the Company)
were compensated for their services as directors as follows: (i)
director Martin A. Neads was compensated at the rate of $1,000 per
meeting and (ii) directors Paul J. Stein and Robert E. Kenny III
were compensated for the first meeting at the rate of $3,000 per
meeting, thereafter being compensated at a rate of $3,500 per
meeting ($2,500 of each payment made to Messrs. Stein and Kenny
represented forgiveness of amounts due under promissory notes
issued to the Company by Messrs. Stein and Kenny for loans made to
them by the Company to purchase shares of the Company's Common
Stock). Outside directors are not compensated for committee
meetings that occur on the same date as full Board meetings. The
Company does not additionally compensate employee directors. All
directors are reimbursed for all expenses incurred in connection
with attendance at meetings of the Board and the performance of
Board duties.
In addition, outside directors are entitled to receive stock
options under the Directors' Plan. The Directors' Plan provides
that, commencing in 1995, nonemployee directors are entitled to an
option to purchase 5,000 shares of the Company's Common Stock
after their first year in office and to an annual, automatic grant
of an option to purchase 2,500 shares of the Company's Common
Stock at every annual shareholders' meeting commencing in 1995. A
total of 100,000 shares is available under the Directors' Plan.
All options granted under the Directors' Plan have a five year
term and an exercise price equal to 100% of fair market value of
the Common Stock on the date of issuance. Options are not
exercisable at all for six months after their issuance, at which
time they become exercisable as to 50% of the shares covered.
After 12 months, they become exercisable in full until expiration.
Employment Agreements
Paul F. Albrecht, the Company's Chief Technology Officer, is
employed pursuant to an employment agreement dated February 1,
1999. The term of this agreement is 12 months. The agreement
provides for a base salary of $9,167 per month, beginning in
February 1999, plus bonuses payable based upon the delivery of the
Company's ChartMaxx product. The agreement contains customary
noncompetition and confidentiality provisions and may be
terminated by the Company for nonperformance. The agreement does
not contain any special severance provisions that would be
triggered by a change in control of the Company.
Richard A. Mahoney, the Company's Chairman of the Board, President
and Chief Executive Officer, is employed pursuant to an employment
agreement dated October 31, 1995. The term of the agreement
expires on June 30, 2001 and commenced on November 1, 1995. It
provides for a base salary of $186,000 per annum initially,
increasing incrementally to a base salary of $245,000 per annum in
the final year of the agreement. Under the agreement, Mr. Mahoney
will also be entitled to annual bonuses of up to 100% of his
salary, the actual amount to be determined based on the Company's
performance and Mr. Mahoney's personal performance as determined
by the Board of Directors or the Compensation Committee of the
Board of Directors. He also is entitled to annual stock option
grants of 50,000 shares during the term of the agreement under the
Long-Term Plan and may be granted up to 50,000 stock options in
lieu of a cash bonus in a particular year.
Under the employment agreement, if the Company terminates Mr.
Mahoney's employment without cause or Mr. Mahoney terminates his
employment with the Company under a limited set of circumstances
defined in the employment agreement, including a change of
control, Mr. Mahoney will receive an amount derived by multiplying
the factor 2.99 by the sum of his salary and bonus paid in the
year prior to the year of termination. In addition, in the event
of a change in control of the Company, all outstanding stock
options held by Mr. Mahoney at the time of the change in control,
which were granted six months or more prior to such time, will
become exercisable in full and will become subject to repurchase,
at fair market value, for cash by the Company at Mr. Mahoney's
election. This agreement also provides that in the event it
expires and Mr. Mahoney is not rehired in the same position under
the terms and conditions of a new employment agreement acceptable
to both Mr. Mahoney and the Company, Mr. Mahoney will receive lump
sum severance compensation equal to the sum of the salary and
bonus paid to him in the year ending June 30, 2001, the final year
of the agreement. In the event the agreement is terminated by the
Company for cause, Mr. Mahoney would forfeit any severance payment
and all of his outstanding stock options. The agreement also
provides that upon termination or expiration, Mr. Mahoney's
participation in Company-sponsored employee and health benefit
plans will be continued at the Company's expense for a maximum of
18 months so long as he is alive and is not elsewhere employed or
self-employed.
Timothy P. McMullen, the Company's Vice President of Sales and
Marketing, is employed pursuant to an employment agreement dated
February 1, 1999. The term of this agreement is 12 months. The
agreement provides for a base salary of $13,333 per month, plus
commissions based on sales in the ChartMaxx and OptiMaxx
divisions. The agreement contains customary noncompetition and
confidentiality provisions and may be terminated by the Company
for nonperformance. In the event the Company terminates Mr.
McMullen's employment without cause, he shall receive severance
pay in the amount of three months' salary.
Philip S. Present II, the Company's Chief Operating Officer and
Director, is employed pursuant to an employment agreement dated
February 1, 1999. The term of this agreement is 12 months. The
agreement provides for a base salary of $15,000 per month,
beginning in February 1999, plus bonuses payable based upon the
attainment of certain profitability criteria. The agreement
contains customary noncompetition and confidentiality provisions
and may be terminated by the Company for nonperformance. In the
event Mr. Present is elected President of the Company during the
term of the agreement, whether or not such election follows a
change in control of the Company, the agreement provides that he
shall be awarded stock options to purchase 50,000 shares of the
Company's Common Stock under the Company's Long-Term Stock
Incentive Plan. In addition, if the Company terminates Mr.
Present's employment without cause, he shall receive severance pay
in the amount of six months' salary. Finally, should Mr.
Present's employment be terminated, with or without cause, as a
result of the liquidation, dissolution, consolidation, merger or
other business combination of the Company, including the transfer
of all or substantially all of the Company's assets, the agreement
provides that (i) the Company shall pay to Mr. Present an amount
equal to 2.5 times the aggregate of salary and bonus payments made
to him from February 1, 1999 until the date of such termination
and (ii) all stock options granted to Mr. Present prior to such
event shall immediately become fully vested (but in no event shall
any stock options become vested earlier than the minimum vesting
period provided by the Company's 1994 Long-Term Stock Incentive
Plan).
Daniel A. Silber, the Company's Chief Financial Officer, is
employed pursuant to an employment agreement dated February 1,
1999. The term of his agreement is 12 months. The agreement
provides for a base salary of $10,000 per month, beginning in
February 1999, plus bonuses payable based upon the attainment of
certain net income and profitability criteria. The agreement
contains customary noncompetition and confidentiality provisions
and may be terminated by the Company for nonperformance with 90
days written notice in addition to six months severance pay.
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND OTHER
INFORMATION
The Company signed a letter of agreement with DiaLogos, Inc.
("DiaLogos"), dated July 12, 1996, amended January 31, 1997, in
which the Company, on or before March 31, 1998, agreed to either
pay DiaLogos for 75% of the common shares of DiaLogos or secure a
funding commitment for DiaLogos' operations from investors and/or
lenders, or a combination thereof. (A copy of such letter of
agreement was included as an Exhibit to the Company's 1996 Annual
Report on Form 10-KSB). Certain investors identified by the
Company would receive a 1% interest in DiaLogos in exchange for
each $22,000 invested in DiaLogos. In addition, the letter
provides that in the event the Company secures a funding
commitment from investors and/or lenders, then DiaLogos will grant
the Company the option (immediately exercisable through December
31, 1999) to purchase 75% of the common shares of DiaLogos less
any shares already purchased by the Company and/or investors
identified by the Company. Richard Mahoney, the President, Chief
Executive Officer and Chairman of the Board of the Company, Philip
S. Present II, the Chief Operating Officer and Director of the
Company and Daniel A. Silber, the Chief Financial Officer of the
Company have each invested funds in DiaLogos in exchange for
ownership interests therein. Mr. Mahoney and his spouse have
invested a total amount of $297,000 for an interest of 13.5% of
DiaLogos, Mr. Present has invested $44,000 for a 2% interest in
DiaLogos and Mr. Silber has invested $22,000 for a 1% interest in
DiaLogos.
The terms of the Agreement of Merger and Plan of
Reorganization pursuant to which the Company acquired UDMS in
December 1995 provided that the Company would not sell or merge
UDMS to or into an unaffiliated third party or sell its stock to
an unaffiliated third party without the prior consent of Jay
Hilnbrand, one of the prior shareholders of UDMS, General Manager
of UDMS and a director of the Company. When the Board of
Directors of the Company determined it would be in the best
interests of the Company to conduct an initial public offering of
UDMS' common stock (the "IPO"), the Company needed to obtain Mr.
Hilnbrand's consent. In accordance with that obligation, the
Company and Mr. Hilnbrand entered into an Agreement on May 15,
1997, subsequently amended December 10, 1997, pursuant to which
Mr. Hilnbrand agreed to consent to the IPO and the Company agreed
to pay to Mr. Hilnbrand $10,100 on the effective date of the IPO.
(A copy of this Agreement, as amended, was included as an Exhibit
to the Company's 1998 Annual Report on Form 10-KSB.)
When the Company acquired UDMS in December 1995, it also
acquired all the common stock of HWB, Inc., a company that was
affiliated with UDMS and of which Mr. Hilnbrand was a shareholder
("HWB"). A portion of the consideration paid by the Company for
the common stock of HWB was to be based on the revenues of UDMS
over a period of time (the "Earn-Out Consideration"). As a result
of the potential IPO, the Company and Mr. Hilnbrand have also
amended the Stock Purchase Agreement dated December 29, 1995
pursuant to which Mr. Hilnbrand sold to the Company all of the
common stock of HWB, Inc. owned by him. (A copy of this
Agreement, as amended, was included as an Exhibit to the Company's
1998 Annual Report on Form 10-KSB). The amendment provides that
if the IPO occurs, certain Earn-Out Consideration due Hilnbrand
could be earned by him over an extended period of time and a
portion of such consideration could be paid in the form of UDMS'
common stock instead of the Company's common stock.
In January 1998, the Company decided to sell the net assets
of the Step2000 segment of UDMS and began negotiating with
prospective buyers. Jay Hilnbrand, General Manager of UDMS and a
director of the Company, acted on the Company's behalf in
identifying and negotiating with prospective buyers. It was the
intention of the Company to compensate Mr. Hilnbrand for these
efforts in the event the Company sold the Step2000 product as a
result of such efforts. At this time, however, the Company has
determined not to sell the net assets of the Step2000 segment of
UDMS.
On January 1, 1998, and again on January 1, 1999, the
Company entered into consecutive Representative Agreements with
European IT Solutions ("EITS") pursuant to which the Company hired
EITS to research, develop and implement an indirect sales channel
for the Company's products and services into part or parts of the
member states of the European Union ("EU"). Martin A. Neads, a
director of the Company, is a principle of EITS. Pursuant to the
Representative Agreement, the Company has advanced a certain
amount of funding to EITS for market assessment and other
activities to be performed by EITS and/or its agents in
furtherance of its objectives. In addition, in exchange for its
services pursuant to the Representative Agreement, EITS is to
receive certain marketing fees based on successful sales in the
EU.
The Company's Chief Operating Officer and Director, Philip
S. Present II, was an audit partner with the accounting firm KPMG
Peat Marwick LLP ("KPMG") prior to joining the Company in 1995.
In such capacity he served as the engagement partner for a client
of KPMG during 1993. In 1995 that client restated its financial
statements for the years 1992 and 1993 as a result of its
allegedly having reported premature and fictitious revenue for
such years. In April 1997, the Securities and Exchange Commission
("SEC") settled a civil proceeding in the United States District
Court for the Southern District of Ohio against that client and
five of its former senior officers. The client consented to a
permanent injunction and the former officers consented to both
permanent injunctions and a total of approximately $1.5 million in
monetary penalties. One of the former officers also pleaded
guilty to related criminal charges. In a separate administrative
proceeding also concluded in April 1997, Mr. Present and another
former KPMG partner voluntarily consented to a cease and desist
order arising out of the conduct of the audits of the client's
financial statements without admitting or denying any of the SEC's
allegations. As a result of the order, Mr. Present was prohibited
from practicing as an accountant before the SEC for a period of 30
months from the date of such order. The order does not affect his
current duties with the Company or his ability to serve as a
director of a publicly-held company. Mr. Present voluntarily
consented to the order in order to avoid the expense and time
burden of prolonged contested proceedings.
2000 SHAREHOLDER PROPOSALS
In order for any shareholder proposals for the 2000 Annual Meeting
of Shareholders to be eligible for inclusion at the meeting, they
must be received by the Secretary of the Company at 8805
Governor's Hill Drive, Suite 100, Cincinnati, Ohio 45249, prior to
December 28, 1999.
SELECTION OF ACCOUNTANTS FOR FISCAL YEAR 2000
The Company will continue to retain the services of KPMG LLP, its
outside accounting firm since 1994, for fiscal year 2000.
Representatives of KPMG LLP are expected to be present at the
Special Meeting, will have the opportunity to make a statement if
they desire to do so and are expected to be available to respond
to appropriate questions.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report of the Company for fiscal 1999 is enclosed with
this Proxy Statement. Portions of the Annual Report enclosed
herewith and portions of the Company's Annual Report on Form 10-
KSB as filed with the SEC for fiscal 1999 are incorporated by
reference into this Proxy Statement. Upon written request and
payment of a copying charge of $.10 per page, the Company will
provide any of its shareholders a copy of any document, or exhibit
thereto, incorporated herein by reference. Requests for such
copies should be directed to: Investor Relations, MedPlus, Inc.,
8805 Governor's Hill Drive, Suite 100, Cincinnati, Ohio 45249.
OTHER MATTERS
The Board of Directors does not know of any other business to be
presented to the meeting and does not intend to bring other
matters before the meeting. However, if other matters properly
come before the meeting, it is intended that the persons named in
the accompanying proxy will vote thereon according to their best
judgment in the interests of the Company.
By Order of the Board of Directors
Robert E. Kenny III
Secretary
</TABLE>
Exhibit A to Proxy Statement
FOURTH: The aggregate number of shares which the Corporation
shall have the authority to issue shall be (a) 6,000,000 shares
of Common Stock without par value; and (b) 5,000,000 shares of
Series A Convertible Preferred Stock as follows:
1. Number of Shares. The series of Preferred Stock
designated and known as "Series A Convertible Preferred Stock"
shall consist of 5,000,000 shares.
2. Voting. Except as may be otherwise provided in these
terms of the Series A Convertible Preferred Stock or by law, the
Series A Convertible Preferred Stock shall vote together with all
other classes and series of stock of the Corporation as a single
class on all actions to be taken by the stockholders of the
Corporation, including, but not limited to actions amending the
Certificate of Incorporation of the Corporation to increase the
number of authorized shares of Common Stock. Each share of
Series A Convertible Preferred Stock shall entitle the holder
thereof to such number of votes per share on each such action as
shall equal the number of shares of Common Stock (including
fractions of a share) into which each share of Series A
Convertible Preferred Stock is then convertible; provided,
however, that if the number of such number of votes is greater
than such number of shares of Series A Convertible Preferred Stock
and is consequently a violation of the rules of the Nasdaq Stock
Market applicable to the Company, then the number of votes shall
equal the number of shares of Series A Convertible Preferred
Stock.
3. Dividends. The holders of the Series A Convertible
Preferred Stock shall be entitled to receive, out of funds legally
available therefor, quarterly cash dividends at the rate per annum
of $____ [4% of the original purchase price] per share until
________ __, 2002 [third anniversary of the Preferred Share and
Warrant Closing] and thereafter at the rate of $_______ [10% of
the original purchase price] per share (the "Accruing Dividends").
Accruing Dividends shall accrue from day to day, whether or not
earned or declared, and shall be cumulative. Accruing Dividends
shall be declared by the Board of Directors and paid by the
Corporation quarterly on January 31, April 30, July 31 and October
31 of each year with respect to each share of Series A Convertible
Preferred Stock then issued and outstanding. At the sole option
of the holder of shares of Series A Convertible Preferred Stock,
the Accruing Dividends may be paid in the form of additional
shares of Common Stock. Upon declaration by the Board of
Directors of the Accruing Dividends, notice shall be sent to each
holder of Series A Convertible Preferred Stock of such declaration
and notifying each such holder (such notice, the "Dividend
Notice") that the Accruing Dividends shall be paid in cash unless
such holder elects, by notice to the Corporation within 15 days of
receipt of the Dividend Notice, to have the Accruing Dividends
paid in the form of additional shares of Common Stock. If any
holder so elects, such holder shall receive in payment in full of
the Accruing Dividends that number of shares of Common Stock as is
equal to the aggregate value of the Accruing Dividends to be paid
divided by the Fair Market Value (as defined in subparagraph 6Q
below) of one share of Common Stock on the date such Accruing
Dividends were declared (a statement as to such Fair Market Value
shall be included in the Dividend Notice). If payment of the
Accruing Dividends as provided above would violate applicable law,
the Corporation's Articles of Incorporation or its Code of
Regulations, then the Corporation shall notify the holders of
shares of Series A Convertible Preferred Stock of such fact and at
the election of at least a majority of the holders of the Series A
Convertible Preferred Stock, the Accruing Dividends shall be
declared and paid in the form of additional shares of Common Stock
as provided above. The holders of the Series A Convertible
Preferred Stock shall also be entitled to receive, out of funds
legally available therefor, dividends at the same rate as
dividends (other than dividends paid in additional shares of
Common Stock) are paid with respect to the Common Stock (treating
each share of Series A Convertible Preferred Stock as being equal
to the number of shares of Common Stock (including fractions of a
share) into which each share of Series A Convertible Preferred
Stock is then convertible).
4. Liquidation. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary,
the holders of the shares of Series A Convertible Preferred Stock
shall be entitled, before any distribution or payment is made upon
any stock ranking on liquidation junior to the Series A
Convertible Preferred Stock, to be paid an amount equal to the
greater of (i) $____ [original purchase price] per share plus, in
the case of each share, an amount equal to all Accruing Dividends
unpaid thereon (whether or not declared) and any other dividends
declared but unpaid thereon, computed to the date payment thereof
is made available, or (ii) such amount per share as would have
been payable had each such share been converted to Common Stock
pursuant to paragraph 6 immediately prior to such liquidation,
dissolution or winding up, and the holders of Series A Convertible
Preferred Stock shall not be entitled to any further payment, such
amount payable with respect to one share of Series A Convertible
Preferred Stock being sometimes referred to as the "Liquidation
Preference Payment" and with respect to all shares of Series A
Convertible Preferred Stock being sometimes referred to as the
"Liquidation Preference Payments". If upon such liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of
Series A Convertible Preferred Stock shall be insufficient to
permit payment to the holders of Series A Convertible Preferred
Stock of the amount distributable as aforesaid, then the entire
assets of the Corporation to be so distributed shall be
distributed ratably among the holders of Series A Convertible
Preferred Stock. Upon any such liquidation, dissolution or
winding up of the Corporation, after the holders of Series A
Convertible Preferred Stock shall have been paid in full the
amounts to which they shall be entitled, the remaining net assets
of the Corporation may be distributed to the holders of stock
ranking on liquidation junior to the Series A Convertible
Preferred Stock. Written notice of such liquidation, dissolution
or winding up, stating a payment date, the amount of the
Liquidation Preference Payments and the place where said
Liquidation Preference Payments shall be payable, shall be
delivered in person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or telex, not less
than 20 days prior to the payment date stated therein, to the
holders of record of Series A Convertible Preferred Stock, such
notice to be addressed to each such holder at its address as shown
by the records of the Corporation. Any of (i) the consolidation
or merger of the Corporation (other than a merger to reincorporate
the Corporation in a different jurisdiction) into or with any
other entity or entities in which the shares of the Corporation
outstanding immediately prior to the closing of such event
represent or are converted into shares of the surviving or
resulting entity that represent less than a majority of the total
number of shares of the surviving or resulting entity that are
outstanding or are reserved for issuance upon the exercise or
conversion of outstanding securities immediately after the closing
of such event, (ii) the sale or transfer of fifty percent (50%) or
more of the capital stock of the Corporation in a single
transaction or series of related transactions, and (iii) the sale,
lease, exchange or transfer of all or substantially all of the
assets of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of
the provisions of this paragraph 4, unless the holders of at least
sixty percent (60%) of the then outstanding Series A Convertible
Preferred Stock otherwise agree. For purposes hereof, the Common
Stock shall rank on liquidation junior to the Series A Convertible
Preferred Stock.
5. Restrictions. At any time when shares of Series A
Convertible Preferred Stock are outstanding, except where the vote
or written consent of the holders of a greater number of shares of
the Corporation is required by law or by the Articles of
Incorporation, and in addition to any other vote required by law
or the Articles of Incorporation, without the approval of the
holders of at least two-thirds of the then outstanding shares of
Series A Convertible Preferred Stock, given in writing or by vote
at a meeting, consenting or voting (as the case may be) separately
as a series, the Corporation will not:
5A. Create or authorize the creation of any
additional class or series of shares of stock unless the same
ranks junior to the Series A Convertible Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding
up of the Corporation, or increase the authorized amount of the
Series A Convertible Preferred Stock or increase the authorized
amount of any additional class or series of shares of stock unless
the same ranks junior to the Series A Convertible Preferred Stock
as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or create or authorize any
obligation or security convertible into shares of Series A
Convertible Preferred Stock or into shares of any other class or
series of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation,
whether any such creation, authorization or increase shall be by
means of amendment to the Articles of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or
winding up of the Corporation or consolidate or merge into or with
any other entity or entities or sell, lease, abandon, transfer or
otherwise dispose of all or substantially all its assets;
5C. Amend, alter or repeal its Articles of
Incorporation if the effect would be detrimental or adverse in any
manner with respect to the rights of the holders of the Series A
Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase
of, or pay any dividend or make any distribution on, any shares of
stock other than the Series A Convertible Preferred Stock, except
for dividends or other distributions payable on the Common Stock
solely in the form of additional shares of Common Stock and except
for the purchase of shares of Common Stock from former employees
of the Corporation who acquired such shares directly from the
Corporation, if each such purchase is made pursuant to contractual
rights held by the Corporation relating to the termination of
employment of such former employee and the purchase price does not
exceed the original issue price paid by such former employee to
the Corporation for such shares; or
5E. Redeem or otherwise acquire any shares of
Series A Convertible Preferred Stock except as expressly
authorized in paragraph 7 hereof or pursuant to a purchase offer
made pro rata to all holders of the shares of Series A Convertible
Preferred Stock on the basis of the aggregate number of
outstanding shares of Series A Convertible Preferred Stock then
held by each such holder.
6. Conversions. The holders of shares of Series A
Convertible Preferred Stock shall have the following conversion
rights:
6A. Right to Convert. Subject to the terms and
conditions of this paragraph 6, the holder of any share or shares
of Series A Convertible Preferred Stock shall have the right, at
its option at any time, to convert any such shares of Series A
Convertible Preferred Stock (except that upon any liquidation of
the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the
amount distributable on the Series A Convertible Preferred Stock)
into such number of fully paid and nonassessable shares of Common
Stock as is obtained by (i) multiplying the number of shares of
Series A Convertible Preferred Stock so to be converted by $____
[original purchase price] and (ii) dividing the result by the
conversion price of $____ [original purchase price] per share or,
in case an adjustment of such price has taken place pursuant to
the further provisions of this paragraph 6, then by the conversion
price as last adjusted and in effect at the date any share or
shares of Series A Convertible Preferred Stock are surrendered for
conversion (such price, or such price as last adjusted, being
referred to as the "Conversion Price"). Such rights of conversion
shall be exercised by the holder thereof by giving written notice
that the holder elects to convert a stated number of shares of
Series A Convertible Preferred Stock into Common Stock and by
surrender of a certificate or certificates for the shares so to be
converted to the Corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may
designate by notice in writing to the holders of the Series A
Convertible Preferred Stock) at any time during its usual business
hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be
issued.
6B. Issuance of Certificates; Time Conversion
Effected. Promptly after the receipt of the written notice
referred to in subparagraph 6A and surrender of the certificate or
certificates for the share or shares of Series A Convertible
Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a
certificate or certificates for the number of whole shares of
Common Stock issuable upon the conversion of such share or shares
of Series A Convertible Preferred Stock. To the extent permitted
by law, such conversion shall be deemed to have been effected and
the Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid,
and at such time the rights of the holder of such share or shares
of Series A Convertible Preferred Stock shall cease, and the
person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial
Conversion. No fractional shares shall be issued upon conversion
of Series A Convertible Preferred Stock into Common Stock and no
payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such
conversion. At the time of each conversion, the Corporation shall
pay in cash an amount equal to all dividends accrued and unpaid on
the shares of Series A Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to
take place as provided in subparagraph 6B. In case the number of
shares of Series A Convertible Preferred Stock represented by the
certificate or certificates surrendered pursuant to
subparagraph 6A exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver to
the holder, at the expense of the Corporation, a new certificate
or certificates for the number of shares of Series A Convertible
Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional
share of Common Stock would, except for the provisions of the
first sentence of this subparagraph 6C, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional
share, shall pay to the holder surrendering the Series A
Convertible Preferred Stock for conversion an amount in cash equal
to the current market price of such fractional share as determined
in good faith by the Board of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common
Stock. Except as provided in subparagraph 6E, if and whenever,
after the date one or more shares of Series A Convertible
Preferred Stock is first issued, the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7),
deemed to have issued or sold, any shares of Common Stock for a
consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then,
forthwith upon such issue or sale, the Conversion Price shall be
reduced to the price at which the Corporation issued or sold, or
is deemed to have issued or sold, such shares of Common Stock.
For purposes of this subparagraph 6D, the following subpara-
graphs 6D(1) to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case
at any time the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any warrants
or other rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock or any stock or security
convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "Convertible
Securities") whether or not such Options or the right to convert
or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion
or exchange of such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable
upon the exercise of such Options) shall be less than the
Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per share as of
the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be
outstanding. In the event that all Options referred to in this
subparagraph 6D(1) are terminated or expire without any such
Options having been exercised, the Conversion Price shall be
increased to the Conversion Price which would have been in effect
at the time of such expiration or termination had all such Options
never been issued. Except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion Price shall be
made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities.
6D(2) Issuance of Convertible Securities. In
case the Corporation shall in any manner issue (whether directly
or by assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (i) the total
amount received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Conversion Price in
effect immediately prior to the time of such issue or sale, then
the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be
deemed to have been issued for such price per share as of the date
of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be outstanding, provided that (a) except as
otherwise provided in subparagraph 6D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities, (b) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other
provisions of this subparagraph 6D, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale,
and (c) in the event that all Convertible Securities referred to
in this subparagraph 6D(2) are terminated or expire without any
such Convertible Securities having been converted or exchanged,
the Conversion Price shall be increased to the Conversion Price
which would have been in effect at the time of such expiration or
termination had all such Convertible Securities never been issued.
6D(3) Change in Option Price or Conversion
Rate. Upon the happening of any of the following events, namely,
if the purchase price provided for in any Option referred to in
subparagraph 6D(1), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities
referred to in subparagraph 6D(1) or 6D(2), or the rate at which
Convertible Securities referred to in subparagraph 6D(1) or 6D(2)
are convertible into or exchangeable for Common Stock shall change
at any time (including, but not limited to, changes under or by
reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall
forthwith be readjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold, but only if
as a result of such adjustment the Conversion Price then in effect
hereunder is thereby reduced; and on the termination of any such
Option or any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall
forthwith be increased to the Conversion Price which would have
been in effect at the time of such termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such termination, never been issued.
6D(4) Stock Dividends. In case the Corporation
shall declare a dividend (other than the Accruing Dividends) or
make any other distribution upon any stock of the Corporation
(other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued
or sold at a price per share equal to $.00001.
6D(5) Consideration for Stock. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received therefor shall
be deemed to be the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be
deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions
or concessions paid or allowed by the Corporation in connection
therewith. In case any Options shall be issued in connection with
the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board of
Directors of the Corporation.
6D(6) Record Date. In case the Corporation
shall take a record of the holders of its Common Stock for the
purpose of entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date
of the granting of such right of subscription or purchase, as the
case may be.
6D(7) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Corporation, and
the disposition of any such shares shall be considered an issue or
sale of Common Stock for the purpose of this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted.
Anything herein to the contrary notwithstanding, the Corporation
shall not be required to make any adjustment of the Conversion
Price in the case of the issuance from and after the date of
filing of these terms of the Series A Convertible Preferred Stock
of up to an aggregate of [remaining option pool] shares
(appropriately adjusted to reflect the occurrence of any event
described in subparagraph 6F) of Common Stock to directors,
officers, employees or consultants of the Corporation in
connection with their service as directors of the Corporation,
their employment by the Corporation or their retention as
consultants by the Corporation, plus such number of shares of
Common Stock which are repurchased by the Corporation from such
persons after such date pursuant to contractual rights held by the
Corporation and at repurchase prices not exceeding the respective
original purchase prices paid by such persons to the Corporation
therefor.
6F. Subdivision or Combination of Common Stock. In
case the Corporation shall at any time subdivide (by any stock
split, stock dividend or otherwise) its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price
in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased. In the case of
any such subdivision, no further adjustment shall be made pursuant
to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any
capital reorganization or reclassification of the capital stock of
the Corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful and
adequate provisions shall be made whereby each holder of a share
or shares of Series A Convertible Preferred Stock shall thereupon
have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore receivable upon the conversion of
such share or shares of Series A Convertible Preferred Stock, such
shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares
of such Common Stock equal to the number of shares of such Common
Stock immediately theretofore receivable upon such conversion had
such reorganization or reclassification not taken place, and in
any such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights.
6H. Notice of Adjustment. Upon any adjustment of
the Conversion Price, then and in each such case the Corporation
shall give written notice thereof, by delivery in person,
certified or registered mail, return receipt requested, telecopier
or telex, addressed to each holder of shares of Series A
Convertible Preferred Stock at the address of such holder as shown
on the books of the Corporation, which notice shall state the
Conversion Price resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
6I. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend
upon its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(2) the Corporation shall offer for
subscription pro rata to the holders of its Common Stock any
additional shares of stock of any class or other rights;
(3) there shall be any capital reorganization
or reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into another
entity or entities, or a sale, lease, abandonment, transfer or
other disposition of all or substantially all its assets, or any
Change of Control (a defined in paragraph 7);
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation; or
(5) the election by at least a majority of the
holders of Series A Convertible Stock to have the Corporation
redeem the outstanding shares of Series A Convertible Preferred
Stock pursuant to paragraph 7 hereof;
then, in any one or more of said cases, the Corporation shall
give, by delivery in person, certified or registered mail, return
receipt requested, telecopier or telex, addressed to each holder
of any shares of Series A Convertible Preferred Stock at the
address of such holder as shown on the books of the Corporation,
(a) at least 20 days' prior written notice of the date on which
the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation, winding up and (b) in the
case of any such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation, winding up, Change
of Control or redemption, at least 20 days' prior written notice
of the date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be
entitled thereto and such notice in accordance with the foregoing
clause (b) shall also specify the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding up, as the case
may be.
6J. Stock to be Reserved. The Corporation will at
all times reserve and keep available out of its authorized Common
Stock, solely for the purpose of issuance upon the conversion of
Series A Convertible Preferred Stock as herein provided, such
number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series A Convertible
Preferred Stock. The Corporation covenants that all shares of
Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation
covenants that it will from time to time take all such action as
may be requisite to assure that the par value per share of the
Common Stock is at all times equal to or less than the Conversion
Price in effect at the time. The Corporation will take all such
action as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securi-
ties exchange upon which the Common Stock may be listed. The
Corporation will not take any action which results in any adjust-
ment of the Conversion Price if the total number of shares of
Common Stock issued and issuable after such action upon conversion
of the Series A Convertible Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Articles
of Incorporation.
6K. No Reissuance of Series A Convertible Preferred
Stock. Shares of Series A Convertible Preferred Stock which are
converted into shares of Common Stock as provided herein shall not
be reissued.
6L. Issue Tax. The issuance of certificates for
shares of Common Stock upon conversion of Series A Convertible
Preferred Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the
holder of the Series A Convertible Preferred Stock which is being
converted.
6M. Closing of Books. The Corporation will at no
time close its transfer books against the transfer of any Series A
Convertible Preferred Stock or of any shares of Common Stock
issued or issuable upon the conversion of any shares of Series A
Convertible Preferred Stock in any manner which interferes with
the timely conversion of such Series A Convertible Preferred
Stock, except as may otherwise be required to comply with applic-
able securities laws.
6N. Definition of Common Stock. As used in this
paragraph 6, the term "Common Stock" shall mean and include the
Corporation's authorized Common Stock, no par value per share, as
constituted on the date of filing of these terms of the Series A
Convertible Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which
shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or
in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
provided that the shares of Common Stock receivable upon
conversion of shares of Series A Convertible Preferred Stock shall
include only shares designated as Common Stock of the Corporation
on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares
thereof, the stock, securities or assets provided for in
subparagraph 6G.
6O. Mandatory Conversion. If at any time the
Corporation shall effect a firm commitment underwritten public
offering of shares of Common Stock in which (i) the aggregate
price paid for such shares by the public shall be at least
$25,000,000 and (ii) the price paid by the public for such shares
shall be at least $5.00 per share (appropriately adjusted to
reflect the occurrence of any event described in subparagraph 6F),
then effective upon the closing of the sale of such shares by the
Corporation pursuant to such public offering, all outstanding
shares of Series A Convertible Preferred Stock shall automatically
convert to shares of Common Stock on the basis set forth in this
paragraph 6. If at any time after ____________ __, 2002 [the
third anniversary of the Preferred Share and Warrant Closing Date]
the Fair Market Value (as defined below) of one share of Common
Stock exceeds $_________ [200% of original purchase price]
(appropriately adjusted to reflect the occurrence of any event
described in subparagraph 6F), then effective upon delivery of a
notice of such Fair Market Value to each holder of any shares of
Series A Convertible Preferred Stock, such delivery to be in
person, certified or registered mail, return receipt requested,
telecopier or telex, to the address of such holder as shown on the
books of the Corporation, all outstanding shares of Series A
Convertible Preferred stock shall automatically convert to shares
of Common Stock on the basis set forth in this paragraph 6.
Holders of shares of Series A Convertible Preferred Stock
converted pursuant to this subparagraph 6O may deliver to the
Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by
notice in writing to such holders) during its usual business
hours, the certificate or certificates for the shares so
converted. As promptly as practicable thereafter, the Corporation
shall issue and deliver to such holder a certificate or
certificates for the number of whole shares of Common Stock to
which such holder is entitled, together with any cash dividends
and payment in lieu of fractional shares to which such holder may
be entitled pursuant to subparagraph 6C. Until such time as a
holder of shares of Series A Convertible Preferred Stock shall
surrender his or its certificates therefor as provided above, such
certificates shall be deemed to represent the shares of Common
Stock to which such holder shall be entitled upon the surrender
thereof.
6P. Additional Adjustment to Conversion Price. If
on _______ __, 2001 [the second anniversary of the Preferred Share
and Warrant Closing Date], the product of (A) the Fair Market
Value of one share of Common Stock, multiplied by (B) __________
[total number of shares of Series A issued at the Preferred Share
and Warrant Closing], is less than the difference of (i)
$6,250,000, minus (ii) the aggregate total of all Accruing
Dividends which have been declared and paid until such date, then
the Conversion Price shall be reduced to the price which equals
two-thirds of the Conversion Price in effect immediately prior to
such reduction.
6Q. Fair Market Value. For the purposes of
paragraph 3 and subparagraphs 6O and 6P, "Fair Market Value" of
one share of Common Stock on any specified date shall mean:
(i) If shares of Common Stock are traded on an
exchange or are quoted on the Nasdaq National Market, the average
of the last reported sale price of the Common Stock on the twenty
trading days before such date;
(ii) If shares of the Common Stock are not traded on
an exchange or on the Nasdaq National Market but are traded in the
over-the-counter market, the average of the mean of the last bid
and asked prices reported on the twenty trading days before such
date (1) by the Nasdaq or (2) if reports are unavailable under
clause (1) by the National Quotation Bureau Incorporated; and
(iii) If shares of the Company's Common Stock are not
publicly traded, then as determined in good faith by the Board of
Directors upon review of relevant factors.
6R. Adjustment for Dividends in Other Stock, Property,
etc.; Reclassification, etc. In case at any time or from time to
time, the holders of Common Stock shall have received, or (on or
after the record date fixed for the determination of shareholders
eligible to receive) shall have become entitled to receive,
without payment therefor:
(a) other or additional stock or other securities or
property (other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable
solely out of earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or
similar corporate rearrangement,
other than additional shares of Common Stock issued as a stock
dividend or in a stock-split, then and in each such case each
holder of shares of Series A Convertible Preferred Stock shall be
entitled to receive such stock and other securities and property
(including cash in the cases referred to in subparagraphs 6R(b)
and (c)) at the same rate as such stock and other securities and
property (including cash in the cases referred to in subparagraphs
6R(b) and (c)) are paid with respect to the Common Stock (treating
each share of Series A Convertible Preferred Stock as being equal
to the number of shares of Common Stock (including fractions of a
share) into which each share of Series A Convertible Preferred
Stock is then convertible).
7. Redemption. The shares of Series A Convertible Pre-
ferred Stock may be redeemed as follows:
7A. Optional Redemption. In the event of a Change
of Control (as defined below) the holders of a majority of the
shares of the Series A Convertible Preferred Stock may require the
Corporation to redeem the shares of Series A Convertible Preferred
Stock pursuant to this paragraph 7. "Change of Control" shall
mean the acquisition by a person or related persons, or entity or
related entities, of voting securities of the Corporation
(including securities convertible into voting securities, "Voting
Securities") which, together with all other Voting Securities
owned by such person, persons, entity or entities (A) exceeds
fifty percent (50%) of all outstanding Voting Securities of the
Corporation at such time, or (B) represents greater than fifty
percent (50%) of the voting power of all outstanding Voting
Securities at such time.
7B. Redemption Price and Payment. The Series A Con-
vertible Preferred Stock to be redeemed on the Redemption Date (as
defined below) shall be redeemed by paying for each share an
amount in cash equal to $__________ [110% of original purchase
price] per share plus, in the case of each share, an amount equal
to all dividends, excluding Accruing Dividends, declared but
unpaid thereon, computed to the Redemption Date, such amount being
referred to as the "Redemption Price". Such payment shall be made
in full on the Redemption Date to the holders entitled thereto.
7C. Redemption Mechanics. Pursuant to the
provisions of paragraph 6I, notice of any Change of Control shall
be delivered to each holder of any shares of Series A Convertible
Preferred Stock at least 20 days prior to the effective date of
any such Change of Control. By written notice delivered to the
Corporation, the holders of at least fifty percent (50%) of the
outstanding shares of Series A Convertible Preferred Stock may
require the Corporation to redeem all outstanding shares of Series
A Convertible Preferred Stock pursuant to this paragraph 7. Such
notice delivered to the Company shall specify the date on which
the Company shall redeem the shares of Series A Convertible
Preferred Stock (the "Redemption Date"), which shall in no event
be (i) prior to the effective date of the Change of Control or
(ii) fewer than 21 days after delivery of such notice to the
Company. From and after the close of business on the Redemption
Date, unless there shall have been a default in the payment of the
Redemption Price, all rights of holders of shares of Series A
Convertible Preferred Stock (except the right to receive the
Redemption Price) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available for
redemption of shares of Series A Convertible Preferred Stock on
the Redemption Date are insufficient to redeem the total number of
outstanding shares of Series A Convertible Preferred Stock, the
holders of shares of Series A Convertible Preferred Stock shall
share ratably in any funds legally available for redemption of
such shares according to the respective amounts which would be
payable with respect to the full number of shares owned by them if
all such outstanding shares were redeemed in full. The shares of
Series A Convertible Preferred Stock not redeemed shall remain
outstanding and entitled to all rights and preferences provided
herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of such
shares of Series A Convertible Preferred Stock, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which
funds are then legally available, on the basis set forth above.
8. Amendments. No provision of these terms of the
Series A Convertible Preferred Stock may be amended (whether by
merger, consolidation or otherwise), modified or waived without
the written consent or affirmative vote of the holders of at least
two-thirds of the then outstanding shares of Series A Convertible
Preferred Stock.
###
Exhibit A to Proxy Statement
