AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1999
REGISTRATION NO. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MEDICALOGIC, INC.
(Exact name of registrant as specified in its charter)
OREGON 7374 93-0890696
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation Classification Number)
or organization) Code Number)
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20500 NW EVERGREEN PARKWAY
HILLSBORO, OREGON 97124
(503) 531-7000
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive
offices)
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MARK K. LEAVITT
CHIEF EXECUTIVE OFFICER
20500 NW EVERGREEN PARKWAY
HILLSBORO, OREGON 97124
(503) 531-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
STEPHEN E. BABSON ROY W. TUCKER
TODD A. BAUMAN Perkins Coie LLP
Stoel Rives LLP 1211 SW Fifth Avenue, Suite 1500
900 SW Fifth Avenue, Suite 2600 Portland, OR 97204
Portland, Oregon 97204 (503) 727-2000
(503) 224-3380
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date
of this Registration Statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. If delivery of the prospectus is expected to be made
pursuant to Rule 434, check the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed Maximum
Title of Each Class Aggregate Amount of
Of Securities to Be Registered Offering Price(1) Registration Fee
- ------------------------------ ---------------- -----------------
<S> <C> <C>
Common Stock $60,000,000 $16,680
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1999
Prospectus
, 1999
MEDICALOGIC, INC.
[LOGO]
____________ Shares of Common Stock
- --------------------------------------------------------------------------------
Market & Proposed Symbol: The Offering:
o We have applied for listing on o We are offering __________ shares
the Nasdaq National Market with of our common stock.
the symbol MDLI.
o The underwriters have an option
to purchase an additional
__________ shares from us to
cover over-allotments.
o We anticipate that the initial
public offering price will be
between $______ and $_______ per
share.
- --------------------------------------------------------------------------------
Per Share Total
- --------------------------------------------------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to MedicaLogic:
This investment involves risk. See "Risk Factors" beginning on Page 9.
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
BancBoston Robertson Stephens
U.S. Bancorp Piper Jaffray
DLJdirect Inc.
<PAGE>
TABLE OF CONTENTS
Page Page
Prospectus Summary .............. 3 Business ........................ 40
Risk Factors .................... 9 Management ...................... 60
Use of Proceeds ................. 22 Certain Transactions ............ 70
Dividend Policy ................. 22 Principal Shareholders .......... 72
Capitalization .................. 23 Description of Capital Stock .... 75
Dilution ........................ 24 Shares Eligible for Future Sale . 79
Selected Consolidated Underwriting .................... 81
Financial Data ............... 25 Additional Information .......... 84
Management's Discussion and Legal Matters ................... 84
Analysis of Financial Experts ......................... 84
Condition and Results of Index to Financial Statements ... F-1
Operations ................... 27
"MedicaLogic," "Practice With Knowledge," "Logician," "SIMPL," "Quickstep,"
"ScheduLogic," "LinkLogic," "KnowledgeBank," "AboutMyHealth" and the MedicaLogic
logo are trademarks or service marks of MedicaLogic. Other trademarks or service
marks appearing in this prospectus are the property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before investing in our common stock. You should read the entire
prospectus carefully. This prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements for reasons such as those
set forth under "Risk Factors."
MedicaLogic, Inc.
Our Business
Our business is connecting physicians and patients through the Internet.
For physicians, we offer a line of enterprise and Internet-based electronic
medical record products and services for use at the point of care in the exam
room, with configurations suitable for practices of all sizes. For patients, we
will provide a Web site that will allow them to access certain healthcare
information from their physician-generated medical record, enter personal
medical information and effectively communicate with their physician. For both
physicians and patients, we will provide focused healthcare content and commerce
opportunities, keyed to information in a selectively shared database that unites
physicians and patients. Together, these products, services and databases will
comprise our Internet Health Services Center. We believe we can increase the
efficiency and quality of healthcare and enhance the physician-patient
relationship through our Internet Health Services Center.
Founded in 1985, MedicaLogic has been developing, marketing and supporting
electronic medical records for over a decade and has products in daily use by
physicians across the country. While most healthcare information systems have
primarily supported financial and administrative functions, we have focused
exclusively on the challenge of providing clinical solutions that are used by
physicians at the point of care to create and access the electronic medical
record. Our customers include academic medical centers such as Baylor College of
Medicine in Houston, Texas, integrated healthcare delivery systems such as
Providence Health System in Portland, Oregon, and other customers such as the
NASA space shuttle program. More than 7,000 health professionals, including
approximately 3,000 physicians, now maintain electronic medical records with our
enterprise electronic medical record software, constituting an estimated base of
over 7 million electronic patient records. Our technology will use the Internet
to link healthcare consumers to physicians using either our enterprise or
Internet-based electronic medical record. We believe we are the leading provider
of electronic medical record software in the healthcare industry.
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Our Market Opportunity
The patient medical record developed and maintained by the physician is of
paramount importance in the U.S. healthcare system. Despite increased needs by
the healthcare industry for more accurate and accessible clinical information,
the vast majority of clinical data is still recorded in handwritten or
hand-typed notes filed within paper charts which cannot be accessed, aggregated
or organized electronically. We believe the Internet has made computerized tools
more useful and more affordable than traditional client-server applications to
the 600,000 practicing physicians in the United States and will facilitate the
widespread adoption of an electronic medical record. The Internet is also an
efficient means to distribute medical information to healthcare consumers, whose
interest in such information is growing rapidly. According to a 1997 survey in
the Journal of the American Medical Association, 43% of U.S. adults who used the
Internet were seeking health information. According to Cyber Dialogue, 78% of
Internet users with health insurance are interested in managing their health
insurance benefits online and 23% of all Internet users are interested in
purchasing prescription drugs online. Also according to Cyber Dialogue, 90% of
all Internet users have health insurance.
Our Solution
Our solution is the Internet Health Services Center, which will provide the
following benefits:
Improved Quality of Care. Our solution is designed to increase patient
medical information flows among all healthcare participants, which ultimately
will result in more accurate diagnoses and more timely and appropriate
treatments. Using our solution, physicians will be able to enter and access
patient-specific data online at the point of care, allowing them, for example,
to review data regarding potentially harmful drug interactions, without manually
searching through the often unorganized and incomplete paper records. We believe
this and other benefits provided by our solution will result in improved quality
of care.
Empower Healthcare Consumers with Information Regarding their Healthcare.
Whether they see a physician themselves on a regular or episodic basis, or act
as a coordinator of healthcare for a child, elderly parent or other relative,
healthcare consumers want more information and more control over their
healthcare needs. Through the use of the Internet, our solution is designed to
increase information flows among all healthcare participants, including
patients, which ultimately gives patients greater control. Our solution will
permit consumers to communicate electronically with other healthcare
participants, such as physicians, payers and suppliers, giving them quicker,
more efficient and more effective access to patient records, prescription drugs,
payment services and information and other health-related supplies and services.
Improved Physician-Patient Relationship. Our Internet solution is designed
to facilitate communication between physicians and patients, which has been
reduced by the widespread adoption of managed care. We believe improved
physician access to information at the point of care will result in
higher-quality clinical interaction between physicians and patients. Likewise,
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providing patients with better access to information and electronic
communication with physicians will result in a better understanding of physician
instructions by patients and, ultimately, a lower risk of treatment error.
Reduced Healthcare Costs. Our solution is designed to reduce healthcare
costs and improve the management of patient records by:
o Reducing the inefficiencies of manual and paper-based transactions;
o Eliminating redundant data entry;
o Reducing transcription costs;
o Reducing hospitalizations related to harmful drug interaction events;
o Reducing duplicative and unnecessary laboratory tests resulting from
inaccurate or misplaced records;
o Rationalizing entry and availability of Health Care Financing
Administration-mandated patient chart and account coding information;
o Decreasing the communication inefficiencies created by isolated
proprietary systems; and
o Improving health maintenance through greater efficiency and better
access to patient medical records.
Our Strategy
Our objective is to be the leading provider of Internet-based electronic
health record information. Our strategy to achieve this objective has the
following key elements:
o Gain rapid adoption by physicians of our electronic medical records
solutions;
o Offer the most compelling Internet destination for healthcare
consumers;
o Become a leading driver of clinical e-commerce transactions; and
o Capitalize on the value of our large, clinically-rich database.
Strategic Relationships
Because our products and services are used at the point of care, we are
well positioned to offer electronic transaction services to both physicians and
their patients. To pursue these opportunities, we will form relationships with
strategic partners who can provide these electronic transaction services,
including electronic processing of claims, automatic filling and refilling of
prescriptions and electronic transmission of laboratory results. In addition, we
will enter into strategic partnerships with vendors who will provide medical
content to our customers as well as partnerships that will allow our physician
customers to have access to computer hardware on which they may use our products
and services. To date, we have entered into the following strategic
relationships:
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o CVS.com. CVS.com, a leading online pharmacy, will fill orders for
prescriptions received from physicians and patients using our
Internet-based products.
o Dell. Dell is a preferred provider of notebooks, personal computers
and other hardware, and we granted Dell a nonexclusive right and
license to reproduce and install our software programs and related
materials on Dell branded hardware products.
o Envoy. Envoy Corporation, a leader in electronic transaction
processing in the healthcare industry, will provide us with a
nonexclusive and nontransferable license to its services for the
processing of certain healthcare transactions, including patient
eligibility and referral checks and medical claims submissions. These
services will become available in early 2000.
MedicaLogic, Inc. was incorporated in Oregon in May 1985 and commenced
operations that year. Our executive offices are located at 20500 NW Evergreen
Parkway, Hillsboro, Oregon 97124. Our telephone number is (503) 531-7000.
The Offering
Common stock offered by MedicaLogic......... __________ shares
Common stock to be outstanding after
the offering............................. __________ shares
Nasdaq National Market Symbol............... MDLI
Use of proceeds............................. o working capital;
o general corporate purposes;
and
o potential acquisitions.
See "Use of Proceeds" on
page 22.
The number of shares of common stock to be outstanding after the offering
excludes an aggregate of 13,994,384 shares of common stock reserved for issuance
under our stock plans, of which 4,359,651 shares of common stock were subject to
outstanding options as of September 15, 1999 at a weighted average exercise
price of $2.48 per share. See "Management-Stock Incentive Plans," and Notes 7
and 13 of Notes to Consolidated Financial Statements.
Assumptions which Apply to this Prospectus
Unless we indicate otherwise, all information in this prospectus reflects
the following:
o the conversion of our outstanding preferred stock on a one-for-one
basis into common stock; and
o no exercise by the underwriters of their over-allotment option to
purchase up to ____ additional shares of common stock.
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Summary Consolidated Financial Data
(In thousands, except per share data)
The summary consolidated historical financial information below was derived
from the Consolidated Financial Statements beginning on page F-1. This summary
should be read together with the Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 27.
We completed our acquisition of PrimaCis Health Information Technology,
Inc. in January 1999. The unaudited pro forma consolidated statements of
operations data combine MedicaLogic's and PrimaCis' historical statements of
operations for the year ended December 31, 1998 and give effect to the
acquisition as if it occurred on January 1, 1998. This information is presented
for illustrative purposes only and is not necessarily indicative of the
operating results that would have actually occurred if the acquisition had been
completed as of the dates indicated, nor is it necessarily indicative of the
future operating results of the combined company.
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended
---------------------------------------------- June 30,
Pro Forma ----------------------
1996 1997 1998 1998 1998 1999
---------- -------- -------- --------- --------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues................................. $ 9,664 $ 12,807 $ 16,160 $ 16,408 $ 6,659 $ 8,975
Operating expenses:
Cost of revenues.................... 6,120 7,756 6,754 6,770 3,283 3,418
Marketing and sales................. 6,498 7,539 7,579 9,166 3,630 7,946
Research and development............ 6,583 7,047 8,016 8,575 3,858 5,092
General and administrative.......... 718 865 1,044 2,100 451 1,255
---------- -------- -------- --------- --------- --------
Operating loss........................... (10,255) (10,400) (7,233) (10,203) (4,563) (8,736)
Net loss................................. $ (10,315) $(10,670) $ (7,035) $ (10,126) $ (4,497) $ (7,993)
========== ======== ======== ========= ========= ========
Basic and diluted net loss per common
share(1)................................. $ (0.78) $ (0.80) $ (0.51) $ (0.66) $ (0.34) $ (0.47)
========== ======== ======== ========= ========= ========
Weighted average shares used in computing
basic and diluted net loss per common
share(1)................................. 13,153 13,269 13,766 15,231 13,358 16,841
Pro forma basic and diluted net loss per
common share(1).......................... $ (0.20) $ (0.21)
======== ========
Weighted average shares used in computing
pro forma basic and diluted net loss per
common share(1).......................... 34,957 38,919
</TABLE>
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<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: June 30, 1999
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(unaudited)
Actual As Adjusted (2)
--------- ---------------
<S> <C> <C>
Cash and cash equivalents.................................. $ 9,922 $
Working capital............................................ 38,424
Total assets............................................... 59,203
Long-term obligations, net of current portion.............. 984
Convertible redeemable preferred stock..................... 83,687
Total stockholders' equity (deficit)....................... (35,841)
(1) For a description of the computation of the net loss per share and number
of shares used in per share calculations, see Note 1 of the Notes to the
Consolidated Financial Statements. Pro forma basic and diluted net loss per
share includes shares of common stock issued on the conversion of our
outstanding preferred stock on a one-for-one basis into common stock.
(2) As adjusted to reflect the conversion of all outstanding shares of
preferred stock into common stock and the sale by us of _____ shares of
common stock offered by this prospectus at an initial public offering price
of $___ per share and after deducting the estimated underwriting discounts
and commissions and offering expenses payable by us.
</TABLE>
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus,
including our financial statements and related notes, before you purchase any
shares of our common stock. If any of the following risks actually occur, our
business, financial condition and results of operations would likely suffer. In
such case, the trading price of our common stock could fall, and you may lose
all or part of the money you paid to buy our common stock.
Risks Related to MedicaLogic
Our Internet-based business model may not be successfully implemented, and it is
difficult to evaluate because it is new and unproven.
We have only recently implemented our Internet-based business model, and we
do not have an operating history with this model upon which you can evaluate our
prospects. In attempting to implement our Internet-based business model, we are
significantly changing our business operations, sales and implementation
practices, customer service and support operations and management focus. We are
also facing new risks and challenges, including a lack of meaningful historical
financial data upon which to plan future budgets, the need to develop strategic
relationships and other risks described below. For each of the last three fiscal
years and the first six months of 1999, all of our revenue was generated from
the sale of licenses on and services related to our enterprise software and no
revenue was derived from our Logician Internet system or other Internet-based
products and services. Accordingly, our operating history is not indicative of
our future performance under our Internet-based business model, and you should
not rely upon our past performance to predict our future performance. We may not
be able to implement our business model successfully.
We may not achieve broad acceptance of our products and services by physicians,
patients and other healthcare stakeholders.
Our business model depends on our ability both to sell our Logician and
Logician Internet systems to physicians and other healthcare providers and to
generate usage by a large number of physicians. Achieving market acceptance for
our products and services will require substantial marketing efforts and the
expenditure of significant financial and other resources to create awareness and
demand by physicians and healthcare consumers. Use of our products and services
requires physicians to adopt different behavior patterns and new methods of
conducting business and exchanging information. Physicians may not choose to
integrate our products and services into their office work flow. Failure to
achieve broad acceptance of our products and services by physicians and other
healthcare stakeholders would have a material adverse effect on our business,
financial condition and results of operations.
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We are dependent on a small number of customers.
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of customers. To the extent that any
significant customer spends less money on licenses for Logician or related
services, or terminates its relationship with us, our revenues could decline
substantially. In 1998, we derived 21% of our revenue from VHA, Inc., a
distribution partner, and in the first six months of 1999, we derived
approximately 50% of our revenue from Baylor College of Medicine. The loss of
any of these large customers could have a material adverse effect on our
business, financial condition and results of operations. In the near term, we
expect to continue to derive a significant portion of our future revenues from
sales of our Logician enterprise product to a limited number of large integrated
healthcare delivery networks. Failure to make such sales during any quarter
could cause our revenues and results of operations to fall short of expectation,
which could adversely affect the price of our common stock.
We have a history of net operating losses and may not be profitable in the
future.
Failure to achieve or maintain profitability could materially and adversely
affect the market price of our common stock. We have experienced net losses of
approximately $10.3 million, $10.7 million, $7.0 million and $8.0 million in
1996, 1997, 1998 and the first six months of 1999, respectively. At June 30,
1999, we had a retained deficit of $43.1 million. We are investing heavily to
develop our Internet-based products and services and expand our sales and
marketing capabilities related to our Internet-based business. To date, we have
not achieved any revenue on Internet-based products or services. We expect to
continue to experience net losses for the foreseeable future, and we are not
certain when we will become profitable, if at all. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis.
Our results of operations are likely to fluctuate significantly.
Because of the emerging nature of our Internet-based business, we may be
unable to forecast accurately our revenues. In addition, the sales cycle for our
products and services varies widely, particularly for sales of our Logician
product to large integrated healthcare delivery networks, and it is difficult
for us to predict the timing of particular sales. Since most of our costs are
based on projected revenue levels, small variations in the timing of revenue
recognition could cause significant variations in results of operations from
quarter to quarter. Sales and results of operations may fluctuate from quarter
to quarter depending on:
o The amount and timing of operating costs and capital expenditures
relating to development and expansion of our business;
o Our introduction of new or enhanced services and products, and similar
introductions by our competitors;
o The budgetary cycles of large healthcare providers and other
healthcare organizations;
o Our ability to upgrade and develop our systems and infrastructure;
o Government regulations; and
o General economic conditions.
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As a result, we believe that quarter-to-quarter comparisons of our sales
and results of operations are not necessarily meaningful and that such
comparisons may not be accurate indicators of future performance. Since we may
be unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall, any significant decrease in revenue would likely have an
immediate and material adverse effect on our business, financial condition and
results of operations. In addition, if our future results of operations are
below the expectations of securities analysts or investors our stock price may
decline.
Our business prospects depend on our ability to introduce successfully new
products and services and enhance current products and services.
The implementation of our Internet-based business model depends on our
ability to introduce successfully new products and services. These include
Logician Internet, which we began to offer on a commercial basis in September
1999, and our consumer Web site code-named AboutMyHealth.net, which is currently
being tested in a pilot program and which will be released commercially in late
1999. We may not be able to introduce these products and services or our other
products and services under development on schedule, or at all. Any failure by
us to introduce planned products or to introduce such products on schedule could
have a material adverse effect on our business, financial condition and results
of operations. In addition, early releases of software often contain errors or
defects. Despite our extensive testing, errors could be found in our new product
releases and services before or after commercial release, which would result in
product redevelopment costs and loss of, or delay in, market acceptance.
In addition, we must enhance our product and service offerings to add
functionality in such areas as interfacing with the products of our strategic
partners. Our products and services often must be integrated and customized to
operate with existing customer legacy computer systems. Developing, integrating
and customizing our products and services will be expensive and time consuming.
We are also working on enhancements that will allow our Logician and Logician
Internet products to communicate with each other, thereby facilitating
connections between physicians in integrated healthcare delivery networks, who
primarily use Logician, and physicians who use Logician Internet. Failure to
achieve these goals could have a material adverse effect on our business,
financial condition and results of operations.
We rely on strategic relationships that may not provide anticipated benefits.
To be successful, we must establish and maintain strategic relationships
with leaders in a number of healthcare and Internet industry segments. We will
depend upon these relationships to, among other things, extend the reach of our
products and services to a larger number of participants in the healthcare
industry, develop and deploy new products and generate additional revenue.
To date, we have established only a limited number of strategic
relationships, and these relationships are in the early stages of development.
We have limited experience in establishing and maintaining strategic
relationships with healthcare and Internet industry participants. Entering into
strategic relationships is complicated by several factors, including the
following:
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o Current or future strategic partners may decide to compete with us in
some or all of our markets;
o Key participants in the healthcare industry may refuse to establish
strategic relationships with us if we have entered into such
relationships with their competitors; and
o Potential strategic partners may be reluctant to work with us until
our products and services have obtained widespread market acceptance.
If we lose any of our existing strategic relationships or fail to establish
additional relationships, or if our strategic relationships fail to benefit us
as expected, we may not be able to execute our business plan, which would have a
material adverse effect on our business, financial condition and results of
operations. See "Business-Sales and Marketing" and "Business-Strategic
Relationships."
Potential integrated healthcare delivery network customers could take a long
time to evaluate the purchase of our products and services and to complete the
purchase even after a decision has been made.
One element of our strategy is to market our services directly to large
healthcare organizations. The sale and implementation of our products and
services are often subject to delays due to these organizations' internal
budgets and procedures for approving large capital expenditures and deploying
new technologies within their networks. We do not control many of the factors
that will influence their buying decisions or affect the timing of
implementation.
Intense competition in our markets may lead to reduced sales of our products and
services.
Our industry is intensely competitive and subject to fragmentation, high
growth and rapid technological change. We may face significant competition from
traditional healthcare information system vendors and Internet healthcare
companies as they expand their product offerings. Many of these companies have
significantly greater financial resources, well-established brand names and
large installed customer bases. We may be unable to compete successfully against
these organizations. We believe that, to be successful, we must gain significant
market share with our products and services before our competitors introduce
alternative products and services with features similar to ours. Failure to
achieve a significant market share may materially reduce our ability to compete
successfully, if at all, with other market participants and could have a
material adverse effect on our business, financial condition and results of
operations.
Our failure to keep pace with advances in technology could harm our business.
If we cannot adapt to changing technologies, our business, financial
condition and results of operations could be materially adversely affected. The
Internet and healthcare information markets are characterized by rapid
technological change, changes in users' and customers' requirements, frequent
new service and product introductions embodying new technologies and
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the emergence of new industry standards and practices that could make our
existing technology obsolete. Our success will depend, in part, on our ability
to continue to enhance our products and services, develop new technology that
addresses the increasingly sophisticated and varied needs of our prospective
customers, license leading technologies and respond to technological advances
and emerging industry standards and practices on a timely and cost-effective
basis. We may not be successful in using new technologies effectively or
adapting our proprietary technology to evolving customer requirements or
emerging industry standards.
We may not be able to manage our growth effectively.
We will need to expand our operations if we successfully achieve market
acceptance for our products and services. Difficulties in managing any future
growth could have a significant negative impact on our business, financial
condition and results of operations. We cannot be certain that our systems,
procedures, controls and existing space will be adequate to support expansion of
our operations. Our future results of operations will depend on the ability of
our officers and key employees to manage changing business conditions and to
implement and improve our technical, administrative, financial control and
reporting systems. We may not be able to project the rate or timing of increases
in the use of our products and services accurately or to expand and upgrade our
systems and infrastructure to accommodate such increases.
Our success depends on our key personnel.
Our success depends in large part on the continued service of our
management and other key personnel and our ability to continue to attract,
motivate and retain highly qualified employees. In particular, the services of
Mark K. Leavitt, our President and Chief Executive Officer, David C.
Moffenbeier, our Chief Operating Officer, Harvey J. Anderson, our Senior Vice
President, General Manager of Internet Operations, and Cameron Lewis, our Vice
President, Internet Marketing and eCommerce Strategies, are integral to the
execution of our business strategy. If one or more of our key employees leaves
MedicaLogic, we will have to find a replacement with the combination of skills
and attributes necessary to execute our strategy. Because competition for
skilled employees is intense, and the process of finding qualified individuals
can be lengthy and expensive, we believe that the loss of the services of key
personnel could negatively affect our business, financial condition and results
of operations. We do not maintain key person life insurance on any of our
employees.
We may not be able to hire or retain skilled personnel.
Our future success depends on our ability to attract and retain skilled
management and other highly qualified personnel who are responsible for
day-to-day development and maintenance of our products and technologies,
marketing our products and services and servicing our customers. Competition is
intense for employees with experience and expertise related to software and the
Internet. We may not be able to hire and retain sufficiently skilled personnel
to support the development and growth of our business.
13
<PAGE>
Our competitive position depends on our ability to protect our intellectual
property rights.
Our ability to compete depends upon our proprietary systems and technology,
including Logician Internet and Logician. We protect our proprietary rights
through a combination of trademark, trade secret and copyright law,
confidentiality agreements and technical measures. In addition, we are preparing
six patent applications for filing with the U.S. Patent and Trademark Office.
Any steps we take to protect our intellectual property may be inadequate, time
consuming and expensive. Despite our efforts, we may be unable to prevent third
parties from infringing upon or misappropriating our intellectual property.
Misappropriation of our intellectual property would have a material adverse
effect on our business, financial condition and results of operations. In
addition, we may have to engage in litigation in the future to enforce or
protect our intellectual property rights or to defend against claims of
invalidity, and we may incur substantial costs as a result.
Intellectual property infringement claims against us can be costly and result in
the loss of significant rights.
We could be subject to intellectual property infringement claims as the
number of our competitors grows and the functionality of our applications
overlaps with competing products. One party has recently filed a patent
infringement lawsuit against us and several other companies asserting broad
proprietary rights in processes similar to our electronic medical record
solutions. While we do not believe that we have infringed or are infringing on
any valid proprietary rights of third parties, similar infringement claims may
be asserted against us and may be successful. We could incur substantial costs
and diversion of management resources defending any infringement claims. In
addition, a party making a claim against us could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief that could
effectively block our ability to provide products or services. This type of
judgment would have a material adverse effect on our business, financial
condition and results of operations. Licenses for intellectual property of third
parties that might be required for our products or services may not be available
on commercially reasonable terms, or at all.
We are vulnerable to interruptions in our operations.
To succeed, we must be able to operate our systems without interruption.
Our operations are vulnerable to interruption from a variety of sources, many of
which are not within our control, including:
o Power loss and telecommunications failures;
o Software and hardware errors, failures or crashes;
o Computer viruses and similar disruptive problems; and
o Fire, flood and other natural disasters.
We have not yet completed comprehensive plans addressing these
contingencies. In addition, certain of our communications and information
services are provided through our service providers. We expect to depend on
independent service providers for many of the services we provide through our
Internet Health Services Center system, including the routing of transaction
data to third-party payers. Any problems experienced by our providers that
result in interruptions of our services or a failure of our services to function
as desired could have a
14
<PAGE>
material adverse effect on our business, financial condition and results of
operations. We may have no means of replacing services on a timely basis or at
all if they are inadequate or in the event of a service interruption or failure.
Although we attempt to limit our liability for service interruptions, we may
face liability for the failure of our system to function for any of the above
reasons.
We may be liable for use of data we provide.
We provide data for use by physicians, consumers and other healthcare
stakeholders. This data may be obtained from our physician customers, strategic
partners, other third parties or, with patient consent, from the aggregation of
patient health records. Although no claims have been brought against us to date
regarding injuries related to the use of this data, claims may be made in the
future. While we attempt to limit our liability in our license and service
agreements, these measures may not prove to be adequate, and we may not be able
to insure adequately against these claims. A claim brought against us that is
uninsured or under-insured could materially harm our business, financial
condition and results of operations.
Our Internet infrastructure is unproven and may not accommodate high levels of
use.
To date, we have processed a limited number and variety of Internet-based
transactions. In addition, our Internet products and services have only been
used by a limited number of physicians and healthcare consumers. Our
infrastructure may not accommodate increased use while maintaining acceptable
overall performance. To successfully implement our Internet-based business
model, we must continue to expand and adapt our network infrastructure to
accommodate additional users, increased transaction volumes and changing
customer requirements. An unexpectedly large increase in the volume or pace of
traffic on our Web site, the number of physicians using Logician Internet or our
other Internet-based products and services, or orders placed by customers may
require us to expand and further upgrade our technology. This expansion and
adaptation would be expensive and will divert our attention from other
activities. Failure to expand and adapt our Internet infrastructure could have a
material adverse effect on our business, results of operations and financial
condition.
We may not be able to prevent security breaches.
The difficulty of securely transmitting confidential information over the
Internet has been a significant barrier to conducting e-commerce and engaging in
sensitive communications. We believe that any well-publicized compromise of
Internet security may deter people from using our products and services to
conduct transactions that involve transmitting confidential healthcare
information over the Internet.
It is also possible that third parties could penetrate our network security
or otherwise misappropriate our patient and other information. If this happens,
our operations could be interrupted, and we could be subject to liability. We
may have to devote significant financial and other resources to protect against
security breaches or to alleviate problems caused by breaches. We could face
financial loss, litigation and other liabilities to the extent that our
activities or the
15
<PAGE>
activities of third-party contractors involve the storage and transmission of
confidential information like patient records or credit information.
If we are unable to obtain additional financing for our future needs, our
business may be adversely affected.
We expect the net proceeds of this offering, together with our available
cash, to be sufficient to meet our anticipated needs for working capital and
other cash requirements for at least the next 12 months. We may need to raise
additional funds, however, in order to:
o Fund more rapid expansion;
o Develop new or enhance existing services or products;
o Respond to competitive pressures; or
o Acquire complementary products, businesses or technologies.
We cannot be certain that additional financing will be available on favorable
terms, or at all. If adequate financing is not available or is not available on
acceptable terms, our ability to fund our expansion, take advantage of potential
acquisition opportunities, develop or enhance services or products, or respond
to competitive pressures would be significantly limited. This limitation could
have a material adverse effect on our business, financial condition and results
of operations.
We may not be able to implement our new management information systems in a
timely manner and the new systems may not be adequate to support our operations.
The growth in the complexity of our business has placed and will continue
to place a significant strain on our operational, financial and management
information systems. In June, 1999 we purchased a new management information
system from Oracle Corporation and the required hardware to support it. This
system includes accounting, operations, purchasing and project billing
capability. We must integrate this system with our Internet products and
services and with our existing customer relationship management system. The
successful implementation of this system is expected to be crucial to our
operations. We may not be able to implement this new system in an efficient and
timely manner and the new system may not be adequate to support our operations.
Year 2000 problems may adversely affect us.
We may discover Year 2000 compliance problems that will require substantial
revisions to our systems, products or services. In addition, third-party
software, hardware or services that we rely on may need to be revised or
replaced, all of which could be time consuming and expensive. Failure to address
any problems that may arise on a timely basis could result in lost revenue,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition.
16
<PAGE>
In addition, systems and software used by physicians, payers, Internet
access companies, business partners and others outside our control may not be
Year 2000 compliant. The failure of these entities to be Year 2000 compliant
could result in a systemic failure beyond our control, such as a prolonged
Internet or communications failure, which could also prevent us from delivering
our services to customers, decrease the use of the Internet or prevent users
from accessing our services. This failure could have a material adverse effect
on our business, financial condition and results of operations. As the Year 2000
issue has many elements and potential consequences, some of which are not
reasonably foreseeable, the ultimate impact of the Year 2000 on our operations
could differ materially from our expectations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Year 2000 Compliance."
Risks Related to the Healthcare Industry and the Internet
Government regulation of the healthcare industry could adversely affect our
business.
We are subject to government regulation of the healthcare industry.
Existing and new laws and regulations applicable to the healthcare industry
could have a material adverse effect on our business, financial condition and
results of operations. The federal and state governments extensively regulate
the confidentiality and release of patient records. Additional legislation
governing the distribution of medical records has been proposed at both the
state and federal level. It may be expensive to implement security or other
measures designed to comply with any new legislation. Moreover, we may be
restricted or prevented from delivering patient records electronically.
Legislation currently being considered at the federal level could affect
our business. For example, the Health Insurance Portability and Accountability
Act of 1996 mandates the use of standard transactions and identifiers,
prescribed security measures and other provisions within two years after the
adoption of final regulations by the Department of Health and Human Services. We
are designing our platform and applications to comply with these proposed
regulations; however, until these regulations become final, they could change,
which could cause us to use additional resources and lead to delays in order to
revise our platform and applications. In addition, our success depends on other
healthcare participants complying with these regulations.
Some computer applications and software are considered medical devices and
are subject to regulation by the United States Food and Drug Administration. We
do not believe that our current applications or services are subject to FDA
regulation. We may, however, expand our application and service offerings into
areas that subject us to FDA regulation. We have no experience in complying with
FDA regulations. We believe that complying with FDA regulations would be time
consuming, burdensome and expensive and could delay our introduction of new
applications or services. See "Business-Governmental Regulation and Healthcare
Reform."
17
<PAGE>
A federal law commonly known as the Medicare/Medicaid antikickback law, and
several similar state laws, prohibit payments that are intended to induce
physicians or others to acquire, arrange for or recommend the acquisition of
healthcare products or services. Another federal law, commonly known as the
"Stark" law, prohibits physicians from referring Medicare and Medicaid patients
for designated health services to entities with which they have a financial
relationship, unless that relationship qualifies for an explicit exception to
the referral ban. The application and interpretation of these laws are complex
and difficult to predict and could constrain our financial and marketing
relationships.
Government regulation of the Internet could adversely affect our business.
Our business is subject to evolving government regulation of the Internet.
Existing as well as new laws and regulations could adversely affect our
business, financial condition and results of operations. Laws and regulations
may be adopted with respect to the Internet or other online services covering
issues such as:
o User privacy;
o Pricing;
o Content;
o Copyrights;
o Distribution; and
o Characteristics and quality of products and services.
The applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Demand for our
applications and services may be affected by additional regulation of the
Internet. For example, until recently Health Care Financing Administration
guidelines prohibited transmission of Medicare eligibility information over the
Internet.
We could be subject to sales or other taxes on Internet transactions.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local levels and by
certain foreign governments that could impose taxes on online sales of goods and
services and certain other Internet activities. A recently enacted federal law
places a temporary moratorium on certain types of taxation on Internet commerce.
We cannot predict the effect of current attempts at taxing or regulating
commerce over the Internet. Any legislation that substantially impairs the
growth of e-commerce could have a material adverse effect on our business,
financial condition and results of operations. See "Business-Government
Regulation and Healthcare Reform."
Consolidation in the healthcare industry could adversely affect our business.
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide products and services
to industry participants will become more intense.
18
<PAGE>
These industry participants may try to use their market power to negotiate price
reductions for our products and services. If we were forced to reduce our
prices, our business, financial condition and results of operations could suffer
unless we were able to achieve corresponding reductions in our expenses. In
addition, the acquisition by third parties of any of our customers could have an
adverse effect on our relationship with that customer.
We depend on continued improvements in the Internet infrastructure.
If the Internet continues to experience significant growth in the number of
users and the level of use, then the Internet infrastructure may not be able to
continue to support the demands placed on it. The Internet may not prove to be a
viable commercial medium because of:
o Inadequate development of the necessary infrastructure;
o Lack of timely development of complementary products like high speed
modems; and
o Delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity or increased
government regulation.
Risks Related to This Offering and Our Common Stock
The public market for our common stock may be volatile.
Prior to this offering, there has been no public market for our common
stock. We cannot guarantee that an active trading market will develop or be
sustained or that the market price of our common stock will not decline. Even if
an active trading market develops, the market price of our common stock is
likely to be highly volatile and could fluctuate significantly in response to
various factors, including:
o Actual or anticipated variations in our quarterly results of
operations;
o Announcements of technological innovations or new services or products
by us or our competitors;
o Timeliness of our introductions of new products;
o Changes in financial estimates by securities analysts;
o Conditions and trends in the electronic healthcare information,
Internet and e-commerce markets; and
o General market conditions and other factors.
In addition, the stock markets, especially the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have affected the market
prices of equity securities of many technology companies, and Internet-related
companies in particular. These fluctuations have often been unrelated or
disproportionate to operating performance. The trading prices of many technology
companies' stocks are at or near historical highs. These high trading prices may
not be sustained. These broad market factors may materially affect the trading
price of our common stock. General economic, political and market conditions
like recessions and interest rate fluctuations may also have an adverse effect
on the market price of our common stock. In the past, following periods of
volatility in the market price for a company's securities,
19
<PAGE>
shareholders have often initiated securities class action litigation. Any
securities class action litigation could result in substantial costs and the
diversion of management's attention and resources, which would have a material
adverse effect on our business, financial condition and results of operations.
We may have substantial sales of our common stock after the offering.
Sales of substantial amounts of our common stock in the public market after
this offering, or the perception that such sales will occur, could adversely
affect the market price of our common stock and make it more difficult for us to
raise funds through equity offerings in the future. After the offering, based on
shares outstanding on August 31, 1999, the holders of approximately 32,655,933
of our shares of common stock will be entitled to registration rights with
respect to these shares until the holders may sell the shares under Rule 144 or
144(k) of the Securities Act. On the 181st day after the date of this
prospectus, 32,958,907 shares of our common stock, including 22,279,090 of the
shares subject to registration rights, will be eligible for sale in the public
market subject in some cases to volume limitations, based on shares outstanding
on August 31, 1999. In addition, a substantial number of outstanding shares of
common stock and shares issuable upon exercise of outstanding options will
become available for resale in the public market at prescribed times. After the
offering, we intend to register 13,994,384 shares of common stock reserved for
issuance under our stock incentive plans. See "Shares Eligible for Future Sale."
Investors will suffer immediate and substantial dilution.
The initial public offering price will be substantially higher than the net
tangible book value per share of common stock. If we sell _______ shares in the
offering at an assumed initial public offering price of $_______ per share, our
net tangible book value per share will be $_______, which is $_______ below the
assumed initial public offering price. If we issue additional common stock in
the future, or outstanding options to purchase our common stock are exercised,
there will be further dilution. See "Dilution."
The anti-takeover provisions of our articles of incorporation, bylaws and Oregon
law could delay or prevent an acquisition of our company.
Our articles of incorporation, bylaws and the anti-takeover provisions of
Oregon law could make it more difficult for a party to gain control of
MedicaLogic, even if doing so would be beneficial to our shareholders. Our
articles of incorporation and bylaws contain the following anti-takeover
provisions:
o The authority to issue up to 50 million shares of preferred stock,
with preferences, limitations and relative rights fixed by the board
of directors without any vote or action by the shareholders;
o A classified board of directors, which is divided into three classes
with each class standing for election every three years;
20
<PAGE>
o The requirement that directors may only be removed for cause or with
the affirmative vote of at least 75% of the voting power of the
outstanding shares of our capital stock; and
o The requirement that the above provisions may only be amended by an
affirmative vote of the holders of not less than 75% of the voting
power of the outstanding shares of our capital stock.
See "Description of Capital Stock."
Forward-looking statements may prove inaccurate.
This prospectus contains forward-looking statements that involve risks and
uncertainties, including those discussed above and elsewhere in this prospectus.
These statements often contain words like believe, expect, anticipate, intend,
contemplate, seek, plan, estimate or similar expressions. Forward-looking
statements do not guarantee future performance. Because we cannot predict all of
the risks and uncertainties that may affect us, or control the ones we do
predict, these risks and uncertainties can cause our results to differ
materially from the results we express in our forward-looking statements.
Recognize these statements for what they are and do not rely on them as facts.
We are not obligated to update forward-looking statements.
21
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $_______
million, or approximately $______ million if the underwriters' overallotment
option is exercised in full, from the sale of shares of common stock offered by
us. These estimates assume an initial public offering price of $____ per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by us.
We expect to use the net proceeds from this offering for working capital
and other general corporate purposes. In addition, although we are not currently
participating in any active negotiations and have no commitments or agreements
with respect to any acquisition, we might in the future use a portion of the
remaining proceeds to pay for acquisitions. We intend to invest the net proceeds
from this offering in short-term, investment grade, interest-bearing instruments
until they are used.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying cash dividends in the foreseeable future. We
currently intend to retain earnings, if any, to fund the development and growth
of our business.
22
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999 our capitalization (1)
on an actual basis and (2) on an as adjusted basis after giving effect to the
conversion of all outstanding shares of preferred stock into common stock, the
sale by us of the ___________ shares of common stock offered by this prospectus
at an initial public offering price of $______ per share and after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by us and the filing upon the closing of the offering of Amended and Restated
Articles of Incorporation to increase the number of authorized shares of common
stock to 150 million.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and related Notes appearing elsewhere in this prospectus.
The shares issued and outstanding do not include 3,883,489 shares issuable on
the exercise of outstanding options.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------
Actual As Adjusted
--------- -----------
(Dollars in thousands)
<S> <C> <C>
Cash, cash equivalents and
short-term investments.......................... $ 41,199 $
========= ===========
Capital leases and notes payable,
less current portion............................ $ 984 $
--------- -----------
Convertible redeemable preferred
stock; 50,000,000 shares authorized,
$85,918 aggregate liquidation preference,
46,091,527 shares designated, 29,059,283
issued and outstanding at June 30, 1999,
actual; no shares issued or outstanding,
as adjusted..................................... 83,687
Shareholders' equity (deficit):
Common stock, no par value, 100,000,000
shares authorized, 17,542,422 issued and
outstanding at June 30, 1999, actual;
150,000 shares authorized, _______ shares
issued and outstanding, as adjusted........ 14,211
Common stock notes receivable................ (5,959)
Deferred compensation........................ (956)
Accumulated deficit.......................... (43,137)
--------- -----------
Total shareholders' equity (deficit)..... (35,841)
--------- -----------
Total capitalization..................... $ 48,830 $
========= ===========
</TABLE>
23
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$44,046,000 or $0.95 per share. Pro forma net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the total pro forma number of shares of common stock outstanding
after giving effect to the conversion of all outstanding shares of preferred
stock into common stock. Dilution in net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of our common stock in this offering and the net tangible book value per
share of our common stock immediately afterwards. After giving effect to our
sale of ________ shares of common stock offered by this prospectus and after
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us, our pro forma net tangible book value would have been
approximately $_______, or approximately $_____ per share. This represents an
immediate increase in pro forma net tangible book value of $_____ per share to
existing shareholders and an immediate dilution in pro forma net tangible book
value of $______ per share to new investors.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share.............................. $_______
Pro forma net tangible book value per share as of June 30, 1999..... $0.95
Increase attributable to this offering.............................. _____
Pro forma net tangible book value per share after this offering.............. _______
Dilution to new investors.................................................... $
</TABLE>
The following table summarizes, as of June 30, 1999 on the pro forma basis
described above, the total number of shares of common stock purchased from us,
the total consideration paid and the average price paid per share by the
existing shareholders and by the new investors based upon an initial public
offering price of $_____ per share before deducting the estimated underwriting
discounts and commissions and offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
-------------------- -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ---------- ------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Existing shareholders............ 46,601,705 ______% $ 96,942 _____% $2.08
New investors.................... __________ ______ ________ _____ $_____
Total....................... __________ 100.0% $________ 100.0%
========== ====== ======== =====
</TABLE>
These tables exclude all options that will remain outstanding upon
completion of this offering. See Note 7 to Notes to the Consolidated Financial
Statements. The exercise of outstanding options having an exercise price less
than the offering price would increase the dilutive effect to new investors.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the Consolidated Financial Statements and
accompanying Notes, which are included elsewhere in this prospectus. The
consolidated statements of operations data for the three-year period ended
December 31, 1998 and the consolidated balance sheet data as of December 31,
1997 and 1998 are derived from, and are qualified by reference to, the audited
Consolidated Financial Statements included elsewhere in this prospectus. The
consolidated statements of operations data for the two-year period ended
December 31, 1995 and the consolidated balance sheet data as of December 31,
1994, 1995 and 1996 are derived from, and are qualified by reference to, audited
Consolidated Financial Statements that are not included in this prospectus. The
consolidated statements of operations data for the six-month periods ended June
30, 1998 and 1999 and the balance sheet data as of June 30, 1999 are derived
from unaudited financial statements included elsewhere in this prospectus and,
in the opinion of our management, include all adjustments, consisting only of
normal recurring adjustments, which are necessary for a fair presentation of the
financial position and results of operations for these periods. Historical
results of operations are not necessarily indicative of results in the future,
and the results for interim periods are not necessarily indicative of the
results that may be expected for the entire year.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
---------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- ---------
(In thousands, except per share data) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Revenues:
Software........................ $ 2,084 $ 6,765 $ 6,845 $ 7,617 $ 10,410 $ 3,989 $ 5,787
Service and support............. 366 772 2,819 5,190 5,750 2,670 3,188
-------- -------- -------- -------- -------- -------- ---------
Total revenues............. 2,450 7,537 9,664 12,807 16,160 6,659 8,975
Operating expenses:
Cost of revenue................. 987 3,141 6,120 7,756 6,754 3,283 3,418
Marketing and sales............. 2,755 5,061 6,498 7,539 7,579 3,630 7,946
Research and development........ 1,024 2,980 6,583 7,047 8,016 3,858 5,092
General and administrative...... 376 582 718 865 1,044 451 1,255
-------- -------- -------- -------- -------- -------- ---------
Total operating expenses... 5,142 11,764 19,919 23,207 23,393 11,222 17,711
-------- -------- -------- -------- -------- -------- ---------
Operating loss............. (2,692) (4,227) (10,255) (10,400) (7,233) (4,563) (8,736)
-------- -------- -------- -------- -------- -------- ---------
Other income (expense):
Interest expense................ (88) (176) (251) (240) (187) (106) (93)
Interest income................. 70 172 456 617 707 313 494
Other, net...................... (22) (30) (265) (647) (322) (141) 342
-------- -------- -------- -------- -------- -------- ---------
Total other income
(expense)................ (40) (34) (60) (270) 198 66 743
-------- -------- -------- -------- -------- -------- ---------
Loss before income taxes... (2,732) (4,261) (10,315) (10,670) (7,035) (4,497) (7,993)
Provision for income taxes.......... - - - - - - -
======== ======== ======== ======== ======== ======== =========
Net loss................... $ (2,732) $ (4,261) $(10,315) $(10,670) $ (7,035) $ (4,497) $ (7,993)
======== ======== ======== ======== ======== ======== =========
Net loss per share:
$
Basic and diluted.............. $ (3.30) $ (0.34) $ (0.78) $ (0.80) $ (0.51) $ (0.34) $ (0.47)
======== ======== ======== ======== ======== ======== =========
Weighted average shares--basic
and diluted.................... 827 12,603 13,153 13,269 13,766 13,358 16,841
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1994 1995 1996 1997 1998 June 30, 1999
-------- --------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet (Dollars in thousands) (Unaudited)
Data:
Cash and cash equivalents..... $ 3,545 $ 10,614 $ 18,651 $ 4,924 $ 4,718 $ 9,922
Working capital............... 4,159 10,245 19,096 14,870 16,091 38,424
Total assets.................. 6,242 14,787 26,074 22,072 24,308 59,203
Long-term obligations, net of
current portion............... 406 1,454 977 278 679 984
Convertible redeemable
preferred stock............... 5,698 15,795 35,818 42,593 49,387 83,687
Total shareholders' deficit... (869) (4,995) (15,268) (25,895) (32,044) (35,841)
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of MedicaLogic should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
and related Notes appearing elsewhere in this prospectus. This discussion and
analysis contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of factors that include, but are
not limited to, those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
MedicaLogic was founded in 1985 and released its first DOS-based electronic
medical record product in 1989. In 1996, we released Logician, our Windows-based
electronic medical record product. From 1994 through 1998, we concentrated on
building our development and implementation capabilities by hiring additional
engineering and sales personnel, improving the functionality of Logician through
the release of three major upgrades, and implementing our product at customer
sites. During the first six months of 1999, we released our current version of
Logician and expect to ship an upgrade in September 1999. Our revenues totaled
approximately $16.2 million and $9.0 million for the year ended December 31,
1998 and the six months ended June 30, 1999, respectively. All of this revenue
was derived from the sale and associated support and services of our Logician
software product, both directly and through resellers, to physicians in
integrated healthcare delivery systems.
We receive software license revenues from licensing our software products
both directly to end-users and indirectly through resellers. We receive service
revenues from two major sources: customer support contracts and consulting
contracts. Customer support revenue, which consists of annual subscription fees
for ongoing support of the product, including upgrades, is recognized ratably
over the term of the contract, which is typically one year. We derive consulting
revenues primarily from the implementation services performed on a
time-and-materials basis under separate service arrangements related to the
implementation of our software products. We recognize revenues from consulting
services as the services are performed.
During 1996, four customers accounted for approximately 41% of total
revenues. During 1997, two customers accounted for approximately 32% of our
total revenues and in 1998, one customer accounted for approximately 21% of our
total revenues. During the first six months of 1999, one customer accounted for
approximately 50% of our total revenues.
Costs of revenues consist of licensing fees paid to third-party software
vendors, the cost of product media, product duplication, order fulfillment
personnel, manuals and implementation and support personnel and third-party
service provider costs related to customer support. Marketing and sales expenses
consist primarily of salaries, commissions and bonuses earned by sales and
marketing personnel, travel and promotional expenses and facility and
communication
27
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costs. Research and development expenses consist primarily of salaries and
benefits paid to software developers, quality assurance personnel and technical
writers, equipment for software developers and payments to outside contractors.
General and administrative expenses consist primarily of salaries, benefits and
related costs for our finance and administrative personnel and professional
services fees.
We recognize software license revenue in accordance with Statement of
Position 97-2, Software Revenue Recognition, as amended by Statement of Position
98-4. These statements provide guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions and have
been applied to transactions entered into after January 1, 1998. The application
of SOP 97-2 has not had a material impact on our results of operations.
With the implementation of our Internet business model, we expect that our
historical revenue sources, sales of software licenses and services, will
gradually be replaced by sources of revenue related to our Internet business
model. Our first Internet product, Logician Internet, was not commercially
introduced until September 1999. Our consumer Web site code-named
AboutMyHealth.net is being tested in a pilot program and will not be introduced
until late 1999. Because our Internet business model is in an emerging stage,
revenue and income potential from our Internet products and services is
unproven. For this reason, we expect our historical revenue sources will
continue to be major contributors to our overall revenues for the foreseeable
future. Despite the continued importance of our historical revenue sources, you
should not use our past results as a basis to predict our future performance due
to the implementation of our Internet business model.
In addition to our historical revenue sources, we expect to generate future
revenue from the following sources:
o Subscription fees for use of Logician, rather than the one-time
license fees we have historically charged;
o Subscription fees for Logician Internet, our hosted application that
allows physicians and other healthcare providers to create and manage
electronic medical records over the Internet;
o Transaction fees for drug prescriptions transmitted through the
Internet Health Services Center;
o Transaction fees to process payment claims through our Internet Health
Services Center; and
o Fees charged to advertisers for posting banner and other forms of
advertising on our physician- and consumer-oriented Web sites.
Since inception, but increasingly during the past year, we have made
substantial investments in infrastructure and in staffing and management to
accommodate current and anticipated future growth. From January 1, 1999 to
August 31, 1999, we hired 73 employees, or approximately 33% of our current
workforce, and invested approximately $8.5 million in capital assets. A large
portion of these assets is dedicated to the development of our Internet Health
Services Center. Our planned growth will require additional staff and
infrastructure.
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We have incurred net losses each year since we began operations. We had a
net loss of approximately $7.0 million for the year ended December 31, 1998 and
$8.0 million for the six months ended June 30, 1999 and, as of June 30, 1999,
had an accumulated deficit of $43.1 million. We intend to increase further our
spending on technology infrastructure development, marketing and promotion,
services development and strategic relationships, all of which are related to
the establishment of our Internet Health Services Center. As a result, we expect
to continue incurring net losses and negative cash flows from operations at
least through 2000.
Effective January 1999, we acquired PrimaCis Health Information Technology,
Inc. in a transaction that was accounted for as a purchase. PrimaCis, which was
founded by faculty members of the Baylor College of Medicine, was a developer of
electronic medical record software and had developed in-depth Internet-based
oncology content for its Internet site. We paid PrimaCis shareholders total
consideration of $6.3 million and paid $153,000 in merger-related costs to
acquire the outstanding shares of PrimaCis capital stock. These amounts
consisted of $2.1 million in cash, the issuance of shares of MedicaLogic common
stock valued at $3.3 million and the assumption of $1.1 million in PrimaCis'
liabilities. Goodwill in the amount of $3.2 million, reflecting the excess of
the purchase price for PrimaCis over the fair value of the net tangible and
other intangible assets acquired, will be amortized on a straight-line basis
over a four-year period. Concurrently, in a transaction facilitated by our
acquisition of PrimaCis, Baylor College of Medicine purchased 1,500 licenses of
Logician from us for $4.5 million. Because the PrimaCis transaction facilitated
the Baylor College of Medicine transaction, we allocated approximately $2.3
million of the purchase price for PrimaCis as a sales commission, which was
recognized during the first six months of 1999.
At about the time of the PrimaCis acquisition, we entered into an agreement
with the Baylor College of Medicine providing that for each purchase of licenses
of Logician prior to January 1, 2003 by Baylor College of Medicine or any other
institution or health care provider in the Houston, Texas area, we will issue as
payment to Baylor College of Medicine shares of our common stock having a
then-current fair market value equal to 50% of the license fees received from
that sale, up to an aggregate maximum of $12 million of our stock. Accordingly,
when we sell additional licenses to Baylor College of Medicine, the amount of
revenue we recognize reflects a sales discount equal to 50% of the license fee.
When we sell licenses covered by this agreement to others, we reflect the
payment to Baylor College of Medicine in the form of a sales commission.
At June 30, 1999, we recorded aggregate deferred compensation of $956,000
for the grant of stock options at exercise prices less than the deemed fair
value on the grant date. We expect to record additional deferred compensation of
approximately $1.0 million in the third quarter of 1999 to reflect additional
option grants at exercise prices less than the deemed fair value of common stock
on the grant date through September 1999. The deferred compensation is being
amortized over the vesting period of the options, which is generally three
years. Of the total deferred compensation, none was amortized in the second
quarter and approximately $127,000 will be amortized in the third quarter of
1999.
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Results of Operations
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------------------ ---------------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software 70.8 % 59.5 % 64.4 % 59.9 % 64.5 %
Service and support 29.2 40.5 35.6 40.1 35.5
--------- --------- --------- --------- ---------
Total revenues 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of revenue 63.3 60.6 41.8 49.3 38.1
Marketing and sales 67.2 58.9 46.9 54.5 88.5
Research and development 68.1 55.0 49.6 57.9 56.7
General and administrative 7.4 6.8 6.5 6.8 14.0
--------- --------- --------- --------- ---------
Total operating expenses 206.1 181.2 144.8 168.5 197.3
Operating loss (106.1) (81.2) (44.8) (68.5) (97.3)
Other income (expense):
Interest expense (2.6) (1.9) (1.2) (1.6) (1.0)
Interest income 4.7 4.8 4.4 4.7 5.5
Other, net (2.7) (5.1) (2.0) (2.1) 3.8
--------- --------- --------- --------- ---------
Total other income (expense): (0.6) (2.1) 1.2 1.0 8.3
Loss before income taxes (106.7) (83.3) (43.5) (67.5) (89.1)
Provision for income taxes - - - - -
--------- --------- --------- --------- ---------
Net loss (106.7)% (83.3)% (43.5)% (67.5)% (89.1)%
--------- --------- --------- --------- ---------
</TABLE>
Six Months Ended June 30, 1999 and 1998
Revenues
Total revenues, which consisted of software licenses and service revenues,
increased to $9.0 million for the first six months of 1999 from $6.7 million for
the first six months of 1998. This increase primarily resulted from an increase
of $1.8 million in software revenue, which in turn was primarily attributable to
increases in the average selling price of Logician, partly offset by a decrease
in the total licenses sold. The increase in the average selling price resulted
primarily from a higher percentage of products sold through direct channels
versus products sold through reseller channels.
Total service revenue increased to $3.2 million for the first six months of
1999 from $2.7 million for the first six months of 1998, due primarily to an
increase in our Logician installed base to 6,790 users on June 30, 1999 from
4,740 users on June 30, 1998. Service revenue represented 36% of our total
revenues for the first six months of 1999 and 40% for the same period in 1998.
The decrease as a percentage of total revenue was due primarily to the
relatively higher increase in software license revenue compared to service
revenue.
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Operating Expenses
Costs of Revenues
Costs of revenues increased slightly to $3.4 million for the first six
months of 1999 from $3.3 million for the first six months of 1998. Costs of
revenues as a percentage of revenues was 38% for the six months ended June 30,
1999 and 49% for the six months ended June 30, 1998. The decrease in cost of
revenues as a percentage of revenue resulted primarily from an average decrease
of 53% in a third-party's licensing fees which took effect April 1, 1998 and
from the decreasing marginal cost of service on each additional installed
license. The cost of providing service to customers as a percentage of
associated revenues often varies between periods because the costs of
implementation and support personnel are relatively fixed and, at any given
time, the staff may not be fully utilized. If we are required to hire additional
support staff to service installed licenses on support contracts, we may
experience short term increases in costs relative to the revenue produced.
Marketing and sales
Marketing and sales expenses increased to $7.9 million for the first six
months of 1999 from $3.6 million for the first six months of 1998. Marketing and
sales expenses represented 89% of our total revenues for the six months ended
June 30, 1999 and 55% of our total revenues for the six months ended June 30,
1998. The increase in dollar amount and percentage of our marketing and sales
expenses resulted primarily from sales commissions of $2.3 million associated
with our sale of licenses to Baylor College of Medicine, incremental expenses of
$1.5 million related to our new Internet business, including the hiring of 19
new employees and an increase in other marketing activities, including trade
shows and public relations. We believe that we need to increase significantly
our sales and marketing efforts to expand our market penetration and increase
acceptance of our Internet products and services. Accordingly, we anticipate
that marketing and sales expenses will continue to increase in future periods.
Research and development
Research and development expenses increased to $5.1 million for the first
six months of 1999 from $3.9 million for the first six months of 1998. The
increase resulted from an increase in the number of software developers and
quality assurance personnel to 65 as of June 30, 1999 from 52 as of June 30,
1998 and the use of outside contractors to support our product development and
testing activities. Research and development costs represented 57% of total
revenue for the six months ended June 30, 1999 and 58% of total revenues for the
six months ended June 30, 1998.
General and administrative
General and administrative expenses increased to $1.3 million for the first
six months of 1999 from $451,000 for the first six months of 1998. The increase
resulted from amortization of $335,000 of goodwill related to the PrimaCis
acquisition and an increase in finance and administrative personnel to 17 as of
June 30, 1999 from 11 as of June 30, 1998, to support the
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growth of our business. General and administrative cost represented 14% of our
total revenues for the six months ended June 30, 1999 and 7% of our total
revenues for the six months ended June 30, 1998. We believe our general and
administrative expenses will continue to increase as we expand our
administrative staff and incur expenses associated with becoming a public
company, including, but not limited to, annual and other public reporting costs,
director and officer liability insurance, investor relations programs and
professional services fees.
Other Income (Expense)
Other income consists of earnings on our cash and cash equivalents and
short-term investment balances offset by interest expense associated with debt
obligations and other non-operating costs. Other income was $743,000 for the
first six months of 1999 compared to an expense of ($66,000) for the first six
months of 1998. The increase in other income is mainly attributable to an
increase of $200,000 in interest earned on cash and cash equivalents and short
term investments and the settlement of litigation related to two customer
contracts for $350,000 less than we had reserved for that expense.
Provision for Income Taxes
As a result of our net operating losses, no provision for income taxes
during the six month periods ended June 30, 1999 and 1998 was recorded.
Years Ended December 31, 1996, 1997, and 1998
Revenues
Total revenues increased from $9.7 million in 1996 to $12.8 million in
1997, and to $16.2 million in 1998. Software revenue increased from $6.8 million
in 1996 to $7.6 million in 1997, and to $10.4 million in 1998. The increase in
software revenues from 1996 to 1997 primarily resulted from an increase in the
average selling price from 1996 to 1997 due to more sales through direct rather
than reseller channels. The increase in software revenues from 1997 to 1998
continued the trend of realizing higher average selling prices through our
direct sales channel.
Service revenues increased from $2.8 million in 1996 to $5.2 million in
1997, and to $5.8 million in 1998. The increase in the dollar value of service
revenues is the result of support contracts on newly installed licenses that
have been added each year. Service revenue represented 29% of total revenues in
1996, 41% in 1997 and 36% in 1998. The fluctuation in service revenues as a
percentage of total revenues reflects purchasing and implementation cycles of
our customers and a lower level of revenues during the early period of our
business.
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Operating Expenses
Costs of Revenues
Costs of revenues increased from $6.1 million in 1996 to $7.8 million in
1997, and decreased to $6.8 million in 1998. Costs of revenues as a percentage
of revenues was 63% in 1996, 61% in 1997 and 42% in 1998. The decrease in dollar
amounts and percentage of revenue amounts from 1997 to 1998 reflects the more
favorable license fee terms negotiated with a third-party software product
provider and the reorganization of our consulting practice, which included
personnel changes, the relocation of personnel to in-home offices from rented
space and the reduction of our use of third-party contractors and the decreasing
marginal cost of service on each additional installed license.
Marketing and sales
Marketing and sales expenses increased from $6.5 million in 1996 to $7.5
million in 1997, and to $7.6 million in 1998. The increases in marketing and
sales expenses from 1996 to 1998 resulted primarily from an increase in
commissions paid to sales staff based on increased sales and marketing
activities, including trade shows and public relations. Marketing and sales
expenses represented 67% of our total revenues in 1996, 59% in 1997 and 47% in
1998. The decrease in marketing and sales expenses as a percentage of total
revenues reflects the more rapid growth in our revenues compared to the growth
of marketing and sales expenses due to our early investment in marketing
activities to create product awareness.
Research and development
Research and development expenses increased from $6.6 million in 1996 to
$7.0 million in 1997, and to $8.0 million in 1998. The increases in research and
development expenses from 1996 to 1998 resulted from an increase in the number
of software developers and quality assurance personnel and the use of outside
contractors to support our product development and testing activities. Research
and development costs represented 68% of total revenues for 1996, 55% in 1997
and 50% in 1998. The decrease in research and development expenses as a
percentage of total revenues primarily reflects the higher increase in revenues
relative to the increase in research and development staff to develop and
enhance our Logician product.
General and administrative
General and administrative expenses increased from $718,000 in 1996 to
$865,000 in 1997, and to $1.0 million in 1998. The increases from 1996 to 1998
resulted primarily from the addition of finance and administrative personnel and
professional services to support the growth of our business during these
periods. General and administrative expenses represented approximately 7% of
total revenues in 1996, 1997 and 1998.
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Other Income (Expense)
Other expense increased from ($60,000) in 1996 to ($270,000) in 1997,
compared to other income of $198,000 in 1998. The increased expense in 1997
primarily reflects an accrual of $450,000 for litigation costs related to two
customer contracts. Excluding the impact of this accrual, net other income has
improved over time due to interest on investments of cash, cash equivalents and
short term investments and improved financing rates.
Provision for Income Taxes
As a result of our net operating loss in 1998 and prior years, we made no
provision or benefit for federal or state income taxes. As of December 31, 1998
we had net operating loss carryforwards for tax reporting purposes of
approximately $33.7 million and research and experimentation credits of
approximately $1.3 million which expire through 2018. Approximately $7.1 million
of the net operating losses is subject to an annual utilization limitation due
to ownership changes in prior years.
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Quarterly Results of Operations
The following table presents our unaudited quarterly results of operations
for 1998 and the first six months of 1999. You should read the following table
in conjunction with our Consolidated Financial Statements and related Notes
included elsewhere in this prospectus. We have prepared this unaudited
information on the same basis as the audited Consolidated Financial Statements.
This table includes all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our financial
position and results of operations for the quarters presented. You should not
draw any conclusions about our future results from the results of operations for
any quarter.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
----------- ----------- ------------ ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software $ 1,417 $ 2,572 $ 2,545 $ 3,876 $ 2,137 $ 3,650
Service and support 1,394 1,276 1,555 1,525 1,490 1,698
----------- ----------- ------------ ------------- ------------ ------------
Total revenues 2,811 3,848 4,100 5,401 3,627 5,348
Operating expenses:
Costs of revenue 1,654 1,629 1,679 1,792 1,602 1,816
Marketing and sales 1,742 1,888 1,962 1,987 3,211 4,735
Research and development 1,886 1,972 2,068 2,090 2,292 2,800
General and administrative 203 248 284 309 462 793
----------- ----------- ------------ ------------- ------------ ------------
Total operating expenses 5,485 5,737 5,993 6,178 7,567 10,144
----------- ----------- ------------ ------------- ------------ ------------
Loss from operations (2,674) (1,889) (1,893) (777) (3,940) (4,796)
Other income (expense), net 36 29 144 (11) 538 205
----------- ----------- ------------ ------------- ------------ ------------
Loss before income taxes (2,638) (1,860) (1,749) (788) (3,402) (4,591)
Income tax provision - - - - - -
----------- ----------- ------------ ------------- ------------ ------------
Net loss $ (2,638) $ (1,860) $ (1,749) $ (788) $ (3,402) $ (4,591)
=========== =========== ============ ============= ============ ============
</TABLE>
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<PAGE>
Liquidity and Capital Resources
Since our inception, we have primarily financed our operations through
private placements of equity securities with investors such as Continental
Casualty Company; Dell Computer Corporation; Franklin Capital Associates III,
L.P.; Furman Selz SBIC, L.P.; Glynn Ventures III, L.P.; New Enterprise
Associates VI, Limited Partnership; Sequoia funds; Soros investment funds; and
VHA, Inc. As of August 31, 1999, net proceeds from these private placements
totaled $97.0 million.
As of August 31, 1999, we had cash and cash equivalents of $13.2 million
and short term investments of $33.1 million. We have a $3.3 million term loan
facility with General Electric Capital Business Asset Funding Corporation to
finance the purchase of new capital equipment. We have borrowed $1.7 million
under this facility, and $1.6 million remains available. Notes issued under this
facility are payable in two years if they relate to the purchase of computer
equipment and in three years if they relate to other office equipment. Interest
accrues annually at rates ranging from 9.4% to 10.4%. Principal and interest are
payable monthly in arrears and amortized over the term of the note.
In August 1999, we entered into a leasing arrangement for the purpose of
leasing computer equipment for the development of our Internet products and
services. The cost of the financed equipment totaled $1.8 million with a lease
term of two years. We paid $430,000 of this amount as a down payment. The
remaining principal and interest is amortized over the life of the lease.
Our operating activities resulted in net cash inflows of $3.4 million for
the first six months of 1999 and in cash outflows of $6.8 million in 1998 and
$11.6 million in 1997. The net cash inflow during the first six months of 1999
resulted from improved collections on customer contracts and an increase in
accounts payable due to the timing of invoice due dates. Cash outflows in 1997
and 1998 resulted from our continued investment in research and development,
consulting services and sales and marketing, which led to operating losses.
Investing activities used cash of $33.7 million in the first six months of
1999. Of that amount, $6.3 million was used to purchase fixed assets, $3.2
million was used for the acquisition of PrimaCis and $24.2 million was invested
in short term investment instruments. Financing activities provided cash of
$35.5 million in the six months ended June 30, 1999, $7.8 million in 1998 and
$5.6 million in 1997, primarily through the issuance of equity securities and
partially offset by payments on capital equipment lease and note obligations.
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we:
o Enter new markets for our products and services;
o Increase marketing activities;
o Increase research and development spending;
o Develop new distribution channels;
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<PAGE>
o Expand our infrastructure; and
o Improve our operational and financial systems.
These operating expenses will consume a material amount of our cash
resources, including a large portion of the proceeds of this offering. We
believe the net proceeds of this offering, together with our existing cash and
cash equivalents, and available bank borrowings, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. Thereafter, we may require additional funds to support our
working capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financing or from other
sources. We may not be able to obtain adequate or favorable financing at that
time. Any financing we obtain may dilute your ownership interest.
Year 2000 Compliance
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January 1,
2000, computer systems and software used by many companies and organizations in
a wide variety of industries including technology, transportation, utilities,
finance and telecommunications, will produce erroneous results or fail unless
they have been modified or upgraded to process date information correctly.
Significant uncertainty exists in the software industry and other industries
concerning the scope and magnitude of problems associated with the century
change. We recognize the need to ensure our operations will not be adversely
affected by Year 2000 software failures. We are assessing the potential overall
impact of the impending century change on our business, financial condition and
results of operations.
Based on our assessment to date, we believe the current versions of our
software products are Year 2000 compliant; that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. However,
our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products that may not be Year 2000
compliant.
We may face claims based on Year 2000 problems in other companies' products
or issues arising from the integration of multiple products within an overall
system. Although we have not been a party to any litigation or arbitration
proceeding involving our products or services on Year 2000-related disputes, any
liability we have for Year 2000 related damages, including consequential
damages, could materially adversely affect our business, financial condition and
results of operations. In addition, we believe that the purchasing patterns of
customers and potential customers may be affected by Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software products
such as those we offer. To the extent Year 2000 issues cause a significant delay
in, or cancellation of, decisions to purchase our products or services, our
business, financial condition and results of operations would be materially
adversely affected.
We periodically review our internal management information and other
systems to identify any products, services or systems that are not Year 2000
compliant and to take
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<PAGE>
corrective action. To date, we have not encountered any material Year 2000
problems with our computer systems or any other equipment that might be subject
to such problems. We also verify compliance by external vendors that supply us
with any material software and information systems and communicate with
significant suppliers to determine their Year 2000 readiness. As part of our
assessment, we periodically evaluate the level of validation we require of third
parties to ensure their Year 2000 readiness. To date, we have not encountered
any material Year 2000 problems with software and information systems provided
to us by third parties.
The majority of our Internet development and marketing groups will be
moving into a new facility in the fourth quarter of 1999 at a location currently
under construction. Before the relocation, we will complete our evaluation of
whether the infrastructure and building systems associated with the facility,
such as security and sprinkler systems, and all information technology systems,
such as telephone and computer network systems, are Year 2000 compliant.
We do not expect the total cost of these Year 2000 compliance activities to
be material to our business, financial condition and results of operations. To
date, we have spent approximately $450,000 on Year 2000 compliance issues and
expect to incur approximately $200,000 in additional expenses to evaluate and
address these issues. These costs and the timing of when we plan to complete our
Year 2000 modifications and testing processes are based on our management's
estimates. However, we may not identify and correct all significant Year 2000
problems before January 1, 2000. Year 2000 compliance efforts may involve
significant time and expense and unremediated problems could materially
adversely affect our business, financial condition and results of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. Because we
currently hold no derivative financial instruments and do not currently engage
in hedging activities, adoption of SFAS No. 133 is expected to have no material
impact on our financial condition or results of operations. In June 1999, the
FASB issued Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133." Statement No. 137 defers the effective
date of Statement No. 133 for one year. Statement No. 133, as amended, is now
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000.
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP, 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
that entities capitalize certain costs related to internal use software once
certain criteria have been met. We are required to implement SOP 98-1 for the
year ending December 31, 1999. Adoption of SOP 98-1 is expected to have no
material impact on our financial condition or results of operations.
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In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
requires recognition of revenue using the "residual method" in a
multiple-element software arrangement when fair value does not exist for one or
more of the delivered elements in the arrangement. Under the "residual method,"
the total fair value of the undelivered elements is deferred and recognized in
accordance with SOP 97-2. We are required to implement SOP 98-9 for the year
ending December 31, 2000. SOP 98-9 also extends the deferral of the application
of SOP 97-2 to certain other multiple-element software arrangements through our
fiscal year ending December 31, 1999. Adoption of SOP 98-9 is expected to have
no material impact on our financial condition or results of operations.
39
<PAGE>
BUSINESS
Overview
Our business is connecting physicians and patients through the Internet.
For physicians, we offer a line of enterprise and Internet-based electronic
medical record products and services for use at the point of care in the exam
room, with configurations suitable for practices of all sizes. For patients, we
will provide a Web site that will allow them to access certain healthcare
information from their physician-generated medical record, enter personal
medical information and effectively communicate with their physician. For both
physicians and patients, we will provide focused healthcare content and commerce
opportunities, keyed to information in a selectively shared database that unites
physicians and patients. Together, these products, services and databases will
comprise our Internet Health Services Center. We believe we can increase the
efficiency and quality of healthcare and enhance the physician-patient
relationship through our Internet Health Services Center.
Founded in 1985, MedicaLogic has been developing, marketing and supporting
electronic medical records for over a decade and has products in daily use by
physicians across the country. While most healthcare information systems have
primarily supported financial and administrative functions, we have focused
exclusively on the challenge of providing clinical solutions that are used by
physicians at the point of care to create and access the electronic medical
record. Our customers include academic medical centers such as Baylor College of
Medicine in Houston, Texas, integrated healthcare delivery systems such as
Providence Health System in Portland, Oregon, and other customers such as the
NASA space shuttle program. More than 7,000 health professionals, including
approximately 3,000 physicians, now maintain electronic medical records with our
enterprise electronic medical record software, constituting an estimated base of
over 7 million electronic patient records. Our technology will use the Internet
to link healthcare consumers to physicians using either our enterprise or
Internet-based electronic medical record. We believe we are the leading provider
of electronic medical record software in the healthcare industry.
The Internet, with its open architecture and broadening availability at
home, in the workplace and at the point of care, makes it possible for us to
create our Internet Health Services Center and make electronic medical records
more useful and cost-effective for physicians who practice alone, in small
groups or with integrated healthcare delivery networks. As a result, we believe
we can substantially accelerate the rate of adoption of electronic medical
record technology by physicians. As these electronic medical records are
created, our Internet Health Services Center will make available to consumers
for the first time accurate and timely access to their physician-created medical
information. By connecting physicians and consumers around this shared database
of Internet health records, we can enhance the physician-patient relationship
and make common communications processes, such as prescription refills or
appointment requests, much more convenient. Finally, we will be able to offer
healthcare consumers a combination of health news, education, goods and services
that will be precisely tailored to their health status and interests because it
will be based on the physician-created clinical information included in their
personal health record.
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The products and services that will comprise our Internet Health Services
Center are:
o Logician, our proprietary client-server electronic medical record
enterprise software;
o Logician Internet, our product for creating and managing electronic
medical records over the Internet;
o AboutMyHealth.net, our code-named Web site for healthcare consumers
currently being tested in a pilot program, through which patients will
be able to maintain their own personal health portfolio based on their
physician-created electronic medical record and access specific
healthcare information as well as commerce opportunities; and
o MedicaLogic.com, our Web site for physicians and other medical
professionals, providing for physician access to patient electronic
medical records and, over time, a range of healthcare information and
commerce opportunities and services.
Historically, we sold Logician to integrated healthcare delivery networks.
Going forward, we will offer both Logician and Logician Internet to these
customers depending on their needs. We intend to allow Logician and Logician
Internet to communicate with each other, thereby facilitating connections
between physicians in such networks and affiliated physicians who use Logician
Internet. Logician and Logician Internet will also support communications
between physicians and consumers who use our Web site for healthcare consumers
code-named AboutMyHealth.net, which we expect to introduce commercially in late
1999.
Industry Background
Overview of the Healthcare Industry. According to the Health Insurance
Association of America, healthcare is the largest single sector of the U.S.
economy, consuming approximately $1 trillion annually, or 14% of the country's
gross domestic product. The participants include:
o Patients: the individual consumers of healthcare services.
o Providers: physicians and organizations such as hospitals,
rehabilitation centers and nursing homes.
o Suppliers: manufacturers and distributors of goods such as
pharmaceuticals, medical devices and healthcare supplies, and
providers of ancillary services such as laboratories and others.
o Payers: the Medicare and Medicaid programs, indemnity insurers, health
plans, employers, individuals, government agencies, insurance
companies, managed care organizations and other enterprises that pay
the bills for healthcare.
In the midst of this complex industry, and despite additional complexity
introduced by managed care programs, the physician remains the ultimate
decision-maker. Based on data contained in 1999 Environmental Assessment, a
joint publication of VHA and Deloitte & Touche, 85% of the dollars spent on
healthcare, such as admitting patients and ordering lab tests, are initiated by
the attending physician. However, the information the physician relies upon to
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make healthcare decisions is largely contained in a paper record that often is
unorganized and cannot be sorted or retrieved easily or effectively.
Inefficiencies within the healthcare system consume enormous amounts of
time, resources and money. In a recent report to Congress and the General
Accounting Office dated November 1998, the Health Care Financing Administration,
or HCFA, estimated that over $250 billion, or 25% of every healthcare dollar, is
wasted through the delivery of unnecessary care, performance of redundant tests
and procedures and excessive administrative costs. As a result, HCFA has
instituted a program to monitor physician billing practices, which has forced
physicians to spend more time writing and dictating to comply with strict
documentation requirements. Because of this regulatory burden and other
administrative burdens created by managed care, the length of a typical
physician-patient encounter has been reduced.
The Patient Medical Record. The patient medical record developed and
maintained by the physician is of paramount importance in the U.S. healthcare
system. This medical record chronicles all patient history, encounters,
medication orders, procedures, referrals and vital statistics. All transactions,
from the order of laboratory tests, medical procedures and medication
prescriptions to invoice generation, payment requests, payer documentation
compliance and clinical research data compilation are recorded in the patient's
medical record. Physicians require this information about specific patients to
diagnose accurately and prescribe appropriate treatments.
Despite increasing needs by the healthcare industry for information about
its processes and outcomes, the vast majority of clinical data is still recorded
today in handwritten or hand-typed notes filed within paper charts which cannot
be accessed or aggregated and organized electronically. Recent studies have
demonstrated that paper charts are unavailable for patient encounters up to 30%
of the time, and that the data within them is frequently inaccurate and
incomplete, missing diagnoses, allergies, medication details, and plans for
follow-up. Studies show that six out of every 100 hospital admissions are the
result of an adverse drug event of which 28% were preventable. Besides the
obvious impact on quality, studies have also shown cost consequences, such as
laboratory tests being unnecessarily duplicated 11% of the time solely because
results have been misfiled.
Growth of the Internet and Applicability to Healthcare. The Internet's open
architecture, accessibility and growing acceptance make it an increasingly
important means of information exchange for both business-to-business and
business-to-consumer interaction. Use of the Internet is rapidly expanding from
simple information publishing, messaging and data gathering to critical business
transactions and confidential communications.
We believe that the Internet has changed the electronic medical records
software environment and made computerized tools more useful and acceptable to
physicians. In the past, several factors have limited the rate of adoption by
physicians of computerized tools for creating and accessing the medical record.
First, the cost of acquiring, installing and maintaining the workstations,
servers and networks required for a conventional client-server product exceeds
the capital budgets of most physician practices. Second, there has been a
shortage of personnel skilled in implementing advanced information technology
within the physician office sector.
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Internet-hosted applications have the potential to dramatically lower the
capital and resources required of customers, insulating them from the cost and
complexity of server configuration and administration. In addition, the
availability and falling cost of personal computers, and the simple
point-and-click paradigm of the Internet have raised the level of computer usage
within the general population and clearly shown the benefit of easily accessible
digital information. Physicians have not been left behind in this diffusion of
new technology: a 1998 survey published in Modern Physician magazine reported
that 84% of doctors surveyed used the Internet for e-mail and 78% used the
Internet for educational purposes. Moreover, reports indicate that this trend
will continue as a new generation of physicians who are more familiar with
Internet technology enter the profession.
Consumer Interest in Healthcare Information. Consumer interest in
healthcare information is growing rapidly, driven in part by consumers' needs to
form their own opinions about treatment options and restrictions imposed by
their health plan, as well as a perception that physicians have less time to
explain their health conditions and treatments to them. According to a 1997
survey in the Journal of the American Medical Association, 43% of U.S. adults
who used the Internet were seeking health information. According to Cyber
Dialogue, 78% of Internet users with health insurance are interested in managing
their health insurance benefits online and 23% of all Internet users are
interested in purchasing prescription drugs online. Also according to Cyber
Dialogue, 90% of all Internet users have health insurance. In addition, the
Department of Health and Human Services has recently adopted guidelines
stipulating that individuals have a right to access their own or their
dependents' medical information. Finally, as healthcare payment models shift
more of the financial responsibility for healthcare to the consumer, we expect
consumer interest in healthcare information and treatment options to increase.
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The MedicaLogic Solution
Our solution is the Internet Health Services Center, which will integrate
the following:
o Electronic Medical Records - for physicians, Internet-hosted
applications and Internet-enabled client-server applications, used at
the point of care to document physician-patient encounters and manage
clinical information.
o Personal Health Portfolio - for consumers, a compelling Internet
application that will let them maintain a personal health portfolio,
combining portions of their physician-created electronic medical
record with personally entered information.
o Context-specific Content and eCommerce - for both consumers and
physicians, health information content and e-commerce opportunities,
precisely tailored to the patient's clinical conditions and needs
based on data in the Internet Health Record. The content and
e-commerce will be provided through strategic relationships with our
e-healthcare partners.
o Internet Health Record - a highly secure, clinically rich and deeply
structured core database for use by physicians, patients and our
strategic partners that will combine data from the electronic medical
record, the personal health portfolio and our strategic partners. This
core database will allow for the sharing of selective data among all
the participants in the Internet Health Services Center.
The MedicaLogic Internet Health Services Center
[Graphic omitted]
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The MedicaLogic solution provides the following key benefits:
Improved Quality of Care. Our solution is designed to increase patient
medical information flows among all healthcare participants, which ultimately
will result in more accurate diagnoses and more timely and appropriate
treatments. Online access to ccurate, up-to-date healthcare records will
facilitate timely and accurate determinations by physicians regarding a
patient's condition and appropriate treatment. In particular, this access could
significantly enhance the ability of providers in remote areas to provide
quality care. Using our solution, physicians will be able to enter and access
patient-specific data online at the point of care, allowing them, for example,
to review data regarding potentially harmful drug interactions, without manually
searching through the often unorganized and incomplete paper records. We believe
these and other benefits provided by our solution will result in improved
quality of care.
Empower Healthcare Consumers with Information Regarding their Healthcare.
Whether they see a physician themselves on a regular or episodic basis, or act
as a coordinator of healthcare for a child, elderly parent or other relative,
healthcare consumers want more information and more control over their
healthcare needs. Through the use of the Internet, our solution is designed to
increase information flows among all healthcare participants, including
patients, which ultimately gives patients greater control. For healthy adults,
our solution will help them gather their medical and family history and set and
achieve wellness goals. For those with significant illness together with these
persons' healthcare coordinators, our solution will allow them to manage
multiple patient records generated by different physicians, provide a
physician-patient communication channel for managing disease, deliver
educational information and offer a convenient way to purchase healthcare
products. With the adoption of legislation and guidelines that will require
providers to give patients access to their medical records, the electronic
access to healthcare records that will be provided to patients and others
through our solution is timely and significant. Likewise, our solution will
permit consumers to communicate electronically with other healthcare
participants, such as payers and suppliers, giving them quicker, more efficient
and more effective access to prescription drugs, payment services and
information and other health-related supplies and services.
Improved Physician-Patient Relationship. Our Internet solution is designed
to facilitate communication between physicians and patients. We believe improved
physician access to information at the point of care will result in
higher-quality clinical interaction between physicians and patients. Likewise,
providing patients with better access to information and electronic
communication with physicians will result in a better understanding of physician
instructions by patients and, ultimately, a lower risk of treatment error.
Reduced Healthcare Costs. Our solution is designed to reduce healthcare
costs and improve the management of patient records by reducing the
inefficiencies of manual and paper-based transactions, eliminating redundant
data entry, reducing transcription costs, reducing hospitalizations related to
harmful drug interaction events, reducing repetitive and unnecessary laboratory
tests resulting from inaccurate or misplaced records, rationalizing entry and
availability of Health Care Financing Administration-mandated patient chart and
account coding information and decreasing the communication inefficiencies
created by isolated proprietary
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systems. In addition, through greater efficiency and better access to patient
medical records, health maintenance should be improved, thereby reducing the
costs of treatment.
Our Growth Strategy
Our objective is to be the leading provider of Internet-based electronic
health record information. Our strategy to achieve this objective has the
following key elements:
Gain Rapid Adoption by Physicians of our Electronic Medical Records
Solutions. We intend to build on our position as the leading provider of
electronic medical record solutions to define the industry standard for this
service. Using Internet technology, we are delivering a solution at a
dramatically lower cost than was previously possible, which will allow the
physician to reduce his or her operating costs from the first month of use. We
believe the value of our solution to physicians will increase and its adoption
rate will accelerate as physicians standardize on electronic records and it
becomes possible to exchange electronic medical records in the course of
referrals and transfers of care. Another key component of creating
physician-friendly software is our unique KnowledgeBank, an Internet-based
community repository that allows physicians to submit their ideas for the design
and layout of clinical encounter forms. The best ideas are implemented and then
made available to all physician customers at no additional cost. As a result of
KnowledgeBank, the refinement and applicability of our product for specific
practices has been continually increasing. As of August 31, 1999, our electronic
medical record solutions were being used by more that 7,000 health
professionals, including approximately 3,000 physicians, constituting an
estimated base of over 7 million electronic patient records.
Offer the Most Compelling Web Destination for Healthcare Consumers. We
believe that our Web-site, code-named AboutMyHealth.net, will be highly valued
by consumers. This Web site is currently being tested in a pilot program and
will be released commercially in late 1999. The Web site will provide consumers
with access to portions of their physician-generated medical records, enable
consumers to communicate with physicians and contain highly personalized content
surrounding a patient's personal health data. We also believe that as word
spreads among consumers of this new level of healthcare service, consumers'
usage will increase physician interest in adopting the electronic medical
records solutions that make the Internet Health Record possible.
Become a Leading Driver of Clinical e-Commerce Transactions. Because of our
unique position at the point of care, where clinical decisions are made that
influence the majority of healthcare expenditures, our systems can provide
decision support that makes healthcare more consistent and efficient. For
example, in Logician, the physician can quickly select a drug, screen the
patient's medical record for harmful drug interactions, check the cost and
confirm the acceptability of the chosen drug within the formulary of that
patient's health plan, all before the physician has released the prescription to
the patient. Without electronic medical records, none of the automatic checks
are made, and prescriptions may be rejected when the patient arrives at the
pharmacy, creating inefficiencies and frustrations. The desirability of using
our systems at the point of care will position us to become a leading driver of
clinical e-commerce transactions,
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which will be completed through strategic partnerships with the appropriate
healthcare stakeholders, such as pharmacies, laboratories and electronic claims
clearinghouses.
Capitalize on the Value of our Large, Clinically-Rich Database. As
physicians and patients use our systems, we will develop a large and
clinically-rich database. With the consent of providers and patients, and in
accordance with legal requirements, the aggregated statistical and
epidemiological data may be marketed to a range of interested parties in the
healthcare industry. These include clinical research organizations,
pharmaceutical companies and governmental agencies. We believe that the
information in this database has the potential to become one of the most
valuable resources in the healthcare industry.
Products and Markets
The primary target markets for our solution consist of healthcare providers
and healthcare consumers. The healthcare provider market is divided into two
segments: physicians in private practice and physicians in integrated healthcare
delivery systems. In addition, with appropriate patient consent, and in
compliance with applicable law, we intend to aggregate anonymous data contained
in the Internet Health Record and market the information to a variety of parties
in the healthcare industry.
Physicians in Private Practice. There are approximately 450,000 physicians
in private practice, constituting approximately 75% of the practicing physician
population in the United States. Our product offering for this market is
Logician Internet, which we introduced commercially in September 1999. Logician
Internet provides the following benefits:
o The creation of required documentation at a lower cost and with higher
quality than is currently possible with handwriting or
dictation/transcription;
o The ability to verify automatically compliance with Health Care
Financing Administration documentation guidelines for the level of
service billed;
o The ability to obtain secure and rapid access to key patient clinical
information from any Web browser;
o The ability to be used at the point of care in the exam room, without
requiring a continuous Internet connection;
o The ability to securely store electronic records at our data center;
and
o Additional planned benefits in future releases including integration
of laboratory results, electronic prescription transmission, claims
submission and eligibility checking as well as the ability of
physicians to communicate with patients using AboutMyHealth.net by
sharing records data and exchanging messages via patients' Personal
Health Portfolios.
To minimize the challenges for nontechnical users in installing software
and obtaining Internet access, Logician Internet will be available as a
complete, ready-to-run solution. For a monthly fee, a physician will receive a
complete package that includes an ultramobile laptop computer from Dell Computer
Corporation, pre-installed voice recognition software, Internet access service
and the Logician Internet hosted application with storage for an unlimited
number
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of charts. For users who already have a suitable computer and Internet access,
the hosted application and storage service will be made available at a lower
monthly fee.
Physicians in Integrated Healthcare Delivery Systems. Integrated healthcare
delivery systems currently employ approximately 150,000 physicians. Our
solutions for this market include Logician, a comprehensive client-server based
electronic medical record software solution, and Logician Internet, depending on
the needs of the institution. Clients will be able to migrate between Logician
and Logician Internet in future releases. After delivering first-generation
electronic medical record products for the PC-DOS environment from 1990 to 1995,
we released Logician for the Windows client-server environment in 1996 and have
delivered three major upgrade releases since then. Our current customers include
Allina Health System, Baylor College of Medicine, Carilion Health System,
Providence Health System, Riverside Health System and more than 30 others.
Logician provides the following benefits specially designed for this
market:
o Extensive clinical decision support to improve outcomes, including
preventive care reminders, drug interaction and allergy checking and
formulary management;
o Enhanced ability to measure and manage patient populations using
query, reporting and intervention tools;
o The creation of required documentation at a lower cost and with higher
quality than is currently possible with handwriting or
dictation/transcription;
o The ability to automatically verify compliance with Health Care
Financing Administration documentation guidelines for the level of
service billed, which will help capture revenue for which physicians
are not being adequately reimbursed today; and
o The ability to be used at the point of care, in the exam room.
In the future, Logician will also provide the following benefits:
o The ability to obtain secure and rapid access to key patient clinical
information from any Web browser;
o The ability to store electronic records at our data center securely;
o The ability of physicians to communicate with patients using
AboutMyHealth.net by sharing records data and exchanging messages via
their Personal Health Portfolio; and
o Additional planned benefits in future releases including integration
of laboratory results, electronic prescription transmission, claims
submission and eligibility checking.
Logician interfaces have been developed and implemented with major vendor
systems encountered in the integrated healthcare delivery system environment,
including laboratory systems, practice management systems and transcription
systems. We intend to expand the interfacing capabilities of Logician to include
e-commerce transaction capabilities such as electronic prescription
transmission. We will continue to deliver an enterprise-wide electronic
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medical record solution to this market, evolving from its traditional
license-based pricing to monthly subscription pricing. We also expect to enhance
the enterprise product's compatibility with the Internet and the
interconnectivity between Logician and Logician Internet.
Healthcare Consumers. We estimate that at least 75% of Americans are
healthcare consumers, whether they see a physician themselves on a regular or
episodic basis, or act as a coordinator of healthcare for a child, elderly
parent, or other relative. Healthcare consumers want more information and more
control over their healthcare. To provide this, we will offer a Web site
code-named AboutMyHealth.net, which is currently in a pilot program and which we
expect to be commercially available in late 1999. AboutMyHealth.net will provide
the following benefits for healthcare consumers:
o The ability to securely view summary data from the physician,
including medications, diagnoses, allergies, health directives and
laboratory results;
o The ability to enter information about medical and family history,
wellness goals and behaviors into a Personal Health Portfolio;
o The ability to integrate these two sources of data into the Internet
Health Record, providing useful information that can be shared
selectively with other individuals and health professionals;
o The ability to conveniently communicate with their personal physician,
to request appointments, obtain medication refills, ask questions or
clarify their records;
o The ability to access health information content that is tailored to
their personal needs through data in the Internet Health Record; and
o The ability to engage in commerce, which would also be tailored to
specific medical needs through data in the Internet Health Record.
The Personal Health Portfolio will have the appeal of a personalized Web
page while providing specialized tools for health data entry and display, and
specific viewing privileges controlled by the individual. For a child, it will
provide a visual record of growth and development as well as a timeline of
medical incidents. For healthy adults, it will help them gather their medical
and family history and set and achieve wellness goals. For those with
significant illness together with these persons' healthcare coordinators, it
will allow them to manage multiple patient records generated by different
physicians, provide a physician-patient communication channel for managing
disease, deliver educational information and offer a convenient way to purchase
medical products.
Other Healthcare Stakeholders. As a result of our position as a provider
and custodian of personal and professional health data on the Internet, we have
the opportunity to become a driver of healthcare e-commerce transactions, such
as placing prescription orders with pharmacies, and to become a healthcare
infomediary, providing aggregated and anonymous health data to organizations
such as clinical research organizations. Subject to the consent of individual
patients and physicians, and compliance with applicable legal requirements,
these opportunities include:
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o Pharmacy - delivery of new and refill prescription orders from
physicians and patients to pharmacies and/or pharmacy benefit
managers;
o Laboratory - delivery of orders and return of results to physicians
and patients;
o Payers - direct submission of claims from physicians via electronic
data interchange claims clearinghouses and electronic bill
presentment/payment for patients via their Personal Health Portfolio;
o Clinical research organizations - enhanced recruitment of patients for
studies through automated screening and notification;
o Healthcare organizations (government and private) - aggregated and
anonymous data about the health of certain populations for
epidemiologic research, planning and management;
o Pharmaceutical marketing research - more accessible data on the use
and outcomes of drugs; and
o Advertising/sponsorship - highly personalized and targeted marketing
to consumers and physicians for healthcare-related products or
services.
Customer Service and Support
We believe effective customer service is essential to both attracting and
retaining physician usage of our electronic healthcare applications as well as
attracting consumers and retaining them as customers of our Internet-based
services. We are acutely sensitive to the demands for person-to-person
responsiveness of the healthcare community. We provide a wide range of customer
support services through a staff of customer service personnel, multiple call
centers and an e-mail help desk. We also offer Web-based support services that
are available 24 hours a day, seven days a week and are frequently updated to
improve existing information and to support new services. Our ongoing telephone
support is accessible by a toll-free telephone number and is available from
either 5 a.m. to 6 p.m. Pacific Time, Monday through Friday or, for an
additional charge 24 hours a day, seven days a week. Our operators screen all
requests for telephone support and direct the call to the appropriate customer
service personnel. Technical support personnel are responsible for consulting
with our strategic partners regarding technical support issues and for resolving
technical problems encountered by users, strategic partners or other parties. We
also employ technical support personnel who work closely with our direct sales
force, distribution partners and customers. We provide our customers with the
ability to purchase maintenance for our applications and services, which
includes technical support and upgrades. We also provide training programs for
our customers.
In addition, we provide enterprise planning, site evaluation, work flow
preparation, hardware and software installation, interface development and
installation and training of physicians and their staff in connection with the
implementation of our Logician application. Enterprise and site evaluation helps
us understand how best to implement our Logician application within the
enterprise and physician's office work flow. The objective of the implementation
process is to maximize the value of electronic medical records to the enterprise
and the physician's practice.
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Significant Customers
We market our products and services to physicians and large integrated
healthcare delivery networks. See "-Products and Markets." Because of our
historical reliance on large integrated healthcare delivery networks, a large
portion of our revenue has been derived from relatively few customers. In 1997,
we derived approximately 20% of our revenue from VHA, Inc., one of our
distribution partners, and approximately 12% from Wake Forest Baptist Medical
Center. In 1998, we derived approximately 21% of our revenue from VHA. In the
first six months of 1999, we derived approximately 50% of our revenue from
Baylor College of Medicine.
Our products and services are currently being used by 40 integrated
healthcare delivery networks, including:
o Allina Health System;
o Baylor College of Medicine;
o Carilion Health System;
o Christiana Care Health System;
o Eastern Maine Healthcare;
o MeritCare Health System;
o Promina Health System;
o Providence Health System;
o Riverside Physician Services; and
o Wake Forest University Baptist Medical Center.
Sales and Marketing
Our sales and marketing programs are organized around our main customer
segments: integrated healthcare delivery systems, physicians in private practice
and healthcare consumers. Our products and services are distributed by a
nationwide direct sales force, a complementary inside sales team and a select
number of strategic distribution partners, and directly through the Internet. We
also partner with national consulting firms and systems integrators to deliver
complete information technology solutions for large system customers.
Physicians in Private Practice. We promote our products and services to
physicians in private practice with programs designed to take advantage of the
value of peer-to-peer relationships in the physician community. In contrast to
the national image-building campaign required for sales to large health systems,
we are building our individual physician sales and marketing campaign around
activities that will stimulate physician referrals of Logician Internet. Sales
will be offered primarily through online subscription capabilities supported by
an inside telephone sales team. Programs for this market segment will include:
o A team of physicians who use our products and who are trained and
compensated to present at more than 200 national, state and local
physician society meetings from the fourth quarter of 1999 through
2000;
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o Promotion of free trial periods and low cost bundled hardware
packages;
o A physician incentive program that offers every physician subscribing
to Logician Internet a points-based redeemable reward for referring
fellow physicians;
o An affiliate program for e-commerce partners and professional
associations;
o A media relations campaign targeted at physician publications and
local media; and
o Online and offline brand and product advertising aimed at early
adopters and high volume specialties.
Integrated Healthcare Delivery Systems. We approach the integrated
healthcare delivery system market primarily through direct sales and
distribution partners. Our access to premier reference accounts plays a large
part in the success of the sales process. Direct sales are supported by
marketing programs that include:
o Participation at national health information technology trade
conferences;
o A speakers program placing current customers and executives before key
decision makers of prospective customers;
o An editorial and news presence in the healthcare information
technology press supported by targeted advertising of our brand;
o Publication of industry-reference briefs and texts addressing critical
adoption issues; and
o Internet access to online product and service information,
demonstrations and promotional trials and offline publications.
Healthcare Consumers. Marketing programs for the healthcare consumer market
are likely to be more successful when they are supported by the existing
relationship between the physician or local health system and their patients.
Based on that premise, we will be launching a Web site code-named
AboutMyHealth.net, which is currently being tested in a pilot program and which
we expect to release commercially in late 1999, that is co-branded with local
integrated healthcare delivery networks. In addition, promotion of
AboutMyHealth.net will include a national brand building campaign designed to
create interest by healthcare consumers through physicians. Consumers will
register for membership at no charge at the AboutMyHealth.net site or through a
co-branded provider partner site. Marketing programs will include:
o Co-branded direct mail and point of service promotional campaigns
developed and sponsored by us and executed with provider partners;
o Consumer brand building in communities with a high concentration of
physician users of electronic medical record products that can be
interfaced to AboutMyHealth.net;
o Online advertising with consumer e-commerce and content partners; and
o An aggressive, locally-based media relations campaign targeting people
with chronic disease and women, who tend to be the primary health
coordinators of their families.
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Our executive sales and marketing management is located in our Hillsboro,
Oregon office with significant Internet marketing and business development
resources located in our San Francisco, California facilities, while our account
representatives are deployed across the United States. As of August 31, 1999, we
employed 60 people in the areas of sales and marketing.
Strategic Relationships
Because our products and services are used at the point of care, we are
well positioned to offer electronic transaction services to both physicians and
their patients. To pursue these opportunities, we will form relationships with
strategic partners who can provide these electronic transaction services,
including electronic processing of claims, automatic filling and refilling of
prescriptions and electronic transmission of laboratory results. In addition, we
will enter into strategic partnerships with vendors who will provide medical
content to our customers as well as partnerships that will allow our physician
customers to have access to computer hardware on which they may use our products
and services.
To date, we have entered into strategic relationships with the following
companies:
CVS.com. CVS.com, a subsidiary of CVS Corporation, is a leading online
pharmacy and source of health, beauty and wellness products. We have entered
into an agreement with CVS.com that provides access to an online licensed
pharmacy that will receive and fill orders for prescriptions generated from
physicians and patients using our Internet-based products. The one year
agreement provides that CVS will pay a transaction fee to us for each
prescription filled by its pharmacy pursuant to an order received through our
Internet-based products. The agreement may be renewed for subsequent one-year
terms.
Dell. Dell Marketing L.P. is a subsidiary of Dell Computer Corporation, a
leading manufacturer of personal computers and related equipment and a
shareholder of our company. We have entered into a nonexclusive agreement with
Dell Marketing L.P. providing for a mutual marketing relationship to promote our
respective products and services, including hyperlinks between our respective
Web sites and cooperative marketing efforts which may include trade shows,
direct mail campaigns and sales training. Pursuant to the agreement, we
designated Dell as a preferred provider of notebooks, personal computers and
other hardware, and we granted Dell a nonexclusive right and license to
reproduce and install our software programs and related materials on Dell
branded hardware products. We will promote the Dell products with our
pre-installed software programs.
Envoy. Envoy Corporation is a leader in electronic transaction processing
in the healthcare industry. We have entered into an agreement with Envoy that
provides us with a nonexclusive and nontransferable license to Envoy's services
for the processing of certain healthcare transactions, including patient
eligibility and referral checks and medical claims submissions. Envoy will also
provide technical assistance in developing new functionality to facilitate
claims submission. Envoy will charge us transaction fees for use of its
services. These fees will be passed on to our Logician Internet customers who
elect to subscribe to this premium service, for which we will charge an
additional fee.
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Pursuant to the agreement, Envoy will rebate to us a portion of the transaction
fees received by Envoy for batch electronic transactions generated through
Logician Internet that are submitted by Envoy to its participating payers. We
expect this service to become available to our Logician Internet subscribers in
early 2000.
Competition
High growth, intense competition, and technological change characterize the
market for electronic healthcare information services and e-commerce. In
addition to direct competitors in the electronic medical records market, none of
which has a significant share of the market, we face competition from many
companies with significantly greater financial resources, well-established brand
names and large installed customer bases. We expect significant competition
from:
Traditional Healthcare Information System Vendors. These vendors, including
Cerner Corporation, Epic Systems Corporation, IDX Corporation, McKesson/HBOC,
Medic, a division of Misys PLC, and Shared Medical Systems Corporation, focus on
providing information systems to large healthcare enterprises and physician
practice groups. They have large installed bases of customers. Although they
have not traditionally focused on providing electronic medical record solutions,
they have begun to pursue a variety of Internet strategies, some of which could
provide functions competitive with our products and services.
Internet Healthcare Companies. Internet healthcare companies are focusing
on a wide variety of areas, including:
o Automating financial, administrative and clinical transactions, such
as Healtheon Corporation and CareInsite, Inc.;
o Attracting physicians with journalistic content, such as Medscape,
Inc. and Physicians Online, Inc.; and
o Targeting the health consumer area, including drkoop.com, Inc. and
iVillage Inc. for content, as well as online pharmacies, such as
drugstore.com, Inc.
Each of these companies can be expected to compete with us within certain
segments of the evolving Internet healthcare market, but it is also likely that
some of them will serve in the role of our partner or vendor. Major Internet
companies, including those not currently specializing in the healthcare
industry, may also enter our markets.
We may be unable to compete successfully against these companies. The most
significant competitive factors include clinical focus, service reliability,
breadth of product offerings, price/performance, network security, ease of
access and use, content bundling, customer support, brand recognition and
operating experience. We believe we will be able to compete favorably with
respect to these factors.
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Technology
Our Internet Health Services Center consists of a fault tolerant
configuration of Web and database server computers interconnected through
redundant, high speed network components. The Center is currently located at a
secure third-party data center. A new, state-of-the-art data center is being
constructed at our San Francisco office, together with backup facilities at our
corporate headquarters in Hillsboro, Oregon. All data centers incorporate
advanced technology to provide a high degree of security in the transmission of
highly sensitive and confidential patient medical record data over the Internet.
This includes strict authentication, sophisticated data encryption techniques,
strong network firewalls, stringent personnel policies, tightly controlled
physical access to the data centers and independent overall security audits of
those sites. All of our services will be linked to advanced storage systems that
provide data protection through techniques such as replication. We also will
maintain on-site backup power systems in the San Francisco data center and will
install similar facilities in our back-up data center in Oregon. These
safeguards are designed to provide a reliable and secure environment for the
storage and exchange of confidential patient and customer data. Although we
believe our facilities are highly resistant to systems failure and sabotage, we
are developing, and are in the process of implementing, a disaster recovery and
contingency operations plan.
Development and Engineering
We believe our future success will depend on our ability to continue to
maintain and enhance our Internet Health Services Center, Logician applications
and collateral services. We have developed applications and services in house,
although future extensions to our products and services may come through
acquisitions as well. In any event, we will continue to work closely with other
companies in our development efforts.
We have several significant projects currently in development. These
include the continued enhancement of Logician, development of new services such
as Logician Internet and our physician and consumer oriented Web sites and
development of interfaces with our strategic partners' and others' technology.
As of August 31, 1999, we employed 100 people in the areas of applications
design, research and development, quality assurance and technical support.
Rapid technological developments and evolving industry standards
characterize the emerging market for Internet-based electronic medical records
and associated transaction processing. The emerging nature of this market and
its rapid evolution will require that we continually improve the performance,
features and reliability of Logician and the Internet Health Services Center,
particularly in response to competing offerings.
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We must maintain a high standard and appetite for the most effective and
innovative technologies. The success of new product and service introductions is
dependent on several factors, including:
o Proper definition of new applications or services;
o Appropriate staffing of expertise on the particular assignment;
o Timely completion and introduction of new products and services; and
o Differentiation of new products and services from those of our
competitors.
Government Regulation and Healthcare Reform
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare organizations. Proposals to reform the U.S. healthcare system have
been and will continue to be considered by the U.S. Congress. These programs may
contain proposals to increase or decrease government involvement in healthcare
or otherwise change the operating environment for our potential customers.
Healthcare organizations may react to these proposals and the uncertainty
surrounding such proposals by curtailing or deferring investments, including
those for our products and services. On the other hand, changes in the
regulatory environment have in the past increased and may continue to increase
the needs of healthcare organizations for cost-effective information management
and thereby enhance the marketability of our applications and services. We
cannot predict with any certainty what impact, if any, such proposals or
healthcare reforms might have on our business, financial condition and results
of operations.
The Health Insurance Portability and Accountability Act of 1996 mandates
the use of standard transactions and identifiers, prescribed security measures
and other provisions within two years after the adoption of final regulations by
the Department of Health and Human Services. It will be necessary for our
products and services to be in compliance with the proposed regulations.
Congress is also likely to consider legislation that would establish uniform,
comprehensive federal rules about individuals' rights to access their own or
someone else's medical information within a "Patient Bill of Rights." This
legislation would likely define what is to be considered protected health
information and outline steps to ensure the confidentiality of this information.
The proposed Health Information Modernization and Security Act would provide for
establishing standards and requirements for the electronic transmission of
health information. In addition, the Department of Health and Human Services has
recently adopted guidelines stipulating that individuals have a right to access
their own or their dependents' medical information.
The United States Food and Drug Administration is responsible for assuring
the safety and effectiveness of medical devices under the Federal Food, Drug and
Cosmetic Act. Computer applications and software are considered medical devices
and subject to regulation by the FDA when they are indicated, labeled or
intended to be used in the diagnosis of disease or other conditions, or in the
cure, mitigation, treatment or prevention of disease, or are intended to affect
the structure or function of the body. We do not believe that any of our current
applications or services are subject to FDA jurisdiction or regulation; however,
we plan to expand our
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application and service offerings into areas that may subject us to FDA
regulation. We have no experience in complying with FDA regulations. Our
compliance with FDA regulations could prove to be time consuming, burdensome and
expensive, which could have a material adverse effect on our ability to
introduce new applications or services in a timely manner.
The confidentiality of patient records and the circumstances under which
records may be released for inclusion in our databases are subject to
substantial regulation by the federal and state governments. State laws and
regulations govern both the disclosure and the use of confidential patient
medical record information. Regulations governing patient confidentiality rights
are evolving rapidly. Additional legislation governing the dissemination of
medical record information has been proposed at both the state and federal
level. This legislation may require holders of this information to implement
security measures that may require substantial expenditures by us. Changes to
state or federal laws may materially restrict the ability of healthcare
providers to submit information from patient records using our applications.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as online content, user privacy,
pricing and characteristics and quality of applications and services. For
example, although it was held unconstitutional, the Communications Decency Act
of 1996 prohibited the transmission over the Internet of some types of
information and content.
Internet user privacy has become an issue in the United States. Current
United States privacy law consists of a few disparate statutes directed at
specific industries that collect personal data, none of which specifically
covers the collection of personal information online. The United States or any
state may adopt legislation purporting to protect such privacy. Any such
legislation could affect the way in which we are allowed to conduct our
business, especially those aspects that involve the collection or use of
personal information, and could have a material adverse effect on our business,
financial condition and results of operations. Moreover, it may take years to
determine the extent to which existing laws governing issues such as property
ownership, libel, negligence and personal privacy are applicable to the
Internet.
International regulations with respect to the Internet, privacy and
transborder data flows are considerably more developed than regulations in the
United States. We intend to develop applications and services to be used on a
worldwide basis and, consequently, will be required to comply with international
regulations regarding the Internet and electronic commerce, as well as with U.S.
regulations. We have not evaluated the effect that these regulations would have
on our business. These regulations also may have an adverse effect on our
ability to compete internationally.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and some other Internet activities. A recently passed law places a
temporary moratorium on certain types of taxation on Internet commerce. We
cannot predict the effect of current attempts at taxing or regulating commerce
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over the Internet. Any legislation that substantially impairs the growth of
e-commerce could have a material adverse effect on our business, financial
condition and results of operations.
We expect to conduct our healthcare e-commerce business in substantial
compliance with all material federal, state and local laws and regulations
governing our operations. However, the impact of regulatory developments in the
healthcare industry is complex and difficult to predict. We cannot assure you
that we will not be materially adversely affected by existing or new regulatory
requirements or interpretations. These requirements or interpretations could
also limit or prohibit our ability to use the Internet for the methods of
healthcare e-commerce we are developing.
Intellectual Property Rights
We believe patent, trade secret and copyright protection are less
significant to our success than our ability to develop new products and
services. We rely on a combination of trademark, trade secret and copyright law,
and contractual restrictions to protect the proprietary aspects of our
technology. We presently have several federal trademark registrations, including
"MedicaLogic," "Practice With Knowledge," "Logician," "SIMPL" and "LinkLogic"
and numerous pending trademark applications, including "KnowledgeBank,"
"AboutMyHealth," "Quickstep" and "ScheduLogic." We are currently preparing six
applications for U.S. patents. We seek to protect our source code for our
software, documentation and other written materials under trade secret and
copyright laws. We presently have nine pending copyright applications for our
software, tools and KnowledgeBank forms, reports and templates. We license our
software under signed license agreements, which impose restrictions on the
licensee's ability to utilize the software. Finally, we seek to avoid disclosure
of our intellectual property by requiring employees and consultants with access
to our proprietary information to execute confidentiality agreements with us and
by restricting access to our source code.
The steps taken by us to protect our proprietary rights may be inadequate,
we may not be able to secure trademark or service mark registrations for marks
in the United States or in foreign countries and third parties may infringe upon
or misappropriate our copyrights, trademarks, service marks and similar
proprietary rights. In addition, effective copyright and trademark protection
may be unenforceable or limited in certain foreign countries, and the global
nature of the Internet makes it impossible to control the ultimate destination
of our services. Our competitors or others may adopt product or service names
similar to ours, thereby impeding our ability to build brand identity and
possibly leading to customer confusion. Moreover, because domain names derive
value from the individual's ability to remember such names, our domain name may
lose its value if, for example, users begin to rely on mechanisms other than
domain names to access online resources. Our inability to protect our marks
adequately could have a material adverse effect on the acceptance of our brand
and on our business, financial condition and results of operations. In the
future, litigation may be necessary to enforce and protect our trade secrets,
copyrights and other intellectual property rights. Litigation would divert
management resources and be expensive and may not effectively protect our
intellectual property.
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Employees
As of August 31, 1999, we employed 225 persons on a full-time basis, of
whom there were 100 in technical development and support, 60 in sales and
marketing, 26 in professional services, 17 in operations and networks and 22 in
finance and administration. None of our employees is a member of a labor union
or is covered by a collective bargaining agreement and we have never experienced
a work stoppage. We believe we have good relations with our employees.
Facilities
Our executive offices are located in Hillsboro, Oregon in approximately
103,000 square feet of leased space under a lease that expires in December 2007.
We also lease approximately 38,000 square feet of office space in San Francisco,
California under a lease that expires in May 2009. We believe our facilities are
adequate for our current operations.
Legal Proceedings
We have been named as a defendant in an action filed by AllCare Health
Management Systems, Inc. in the United States District Court for the Northern
District of Texas. The complaint alleges that MedicaLogic and eleven other named
defendants are infringing a patent relating to an integrated healthcare system.
Pursuant to the complaint, the plaintiff is seeking to recover damages in an
unspecified amount. We believe the suit against MedicaLogic is without merit and
intend to vigorously defend against such claims.
This litigation, whether or not determined in our favor or settled by us,
may be costly and may divert the efforts and attention of our management from
normal business operations.
We are not currently subject to any other material legal proceedings.
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MANAGEMENT
Executive Officers, Directors and Key Employees
The following table sets forth information with respect to our executive
officers, directors and key employees as of August 31, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Mark K. Leavitt....................... 49 Chairman of the Board and Chief Executive Officer
David C. Moffenbeier.................. 48 Chief Operating Officer and Director
Harvey J. Anderson.................... 35 Senior Vice President, General Manager of Internet
Operations
Blackford Middleton................... 41 Senior Vice President, Clinical Informatics
Richard L. Samco...................... 49 Senior Vice President and Chief Technology Officer
Thomas M. Watson...................... 49 Senior Vice President, Worldwide Sales and Professional
Services
Eliot H. Bergson...................... 40 Vice President, Internet Content Programming
Guy E. Field.......................... 44 Vice President, Finance
Joseph M. Godsil...................... 34 Vice President, Network Architecture and Data Center
Operations
D. Cameron Lewis...................... 48 Vice President, Internet Marketing and eCommerce
Strategies
C. Sue Reber.......................... 53 Vice President, Marketing and Corporate Communications
Charles D. Burwell.................... 54 Director
Bruce M. Fried........................ 49 Director
Ronald H. Kase........................ 41 Director
Neal Moszkowski....................... 33 Director
Mark A. Stevens....................... 39 Director
Ronald R. Taylor...................... 51 Director
David W. Wroe......................... 52 Director
</TABLE>
Mark K. Leavitt founded MedicaLogic in 1985 and has served as its Chairman
of the Board and Chief Executive Officer since its inception. From December 1997
to June 1998, Dr. Leavitt served as a director of Physician Partners, Inc., a
physician practice management company. From 1992 to 1996, Dr. Leavitt served as
a faculty member for St. Vincent Internal Medicine Practice and concurrently
served as Medical Director and Regional Information Systems Director for Sisters
of Providence Health System from 1992 to 1994. Dr. Leavitt operated a private
practice of internal medicine from 1982 to 1992. Dr. Leavitt received a B.S.
from the University of Arizona and an M.S. and a Ph.D. in electronic engineering
from Stanford University. Dr. Leavitt received an M.D. from the University of
Miami and served as a resident in internal medicine at Oregon Health Sciences
University from 1979 to 1982.
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David C. Moffenbeier has served as Chief Operating Officer and as a
Director since 1994. From 1993 to 1994, Mr. Moffenbeier served as chairman of
the board of directors of Summit Design Inc., a supplier of software tools for
integrated circuits. Previously, Mr. Moffenbeier co-founded Mentor Graphics
Corp., a manufacturer of hardware and software for electronic design automation,
where he served as a director from 1981 to 1993 and the company's chief
financial officer from 1981 to 1984, its vice president of international sales
from 1985 to 1988 and its vice president of worldwide sales from 1989 to 1993.
He currently serves on the board of directors of Providence Good Health Plan, a
health care management organization, and North Pacific Group, Inc., a wholesale
distributor of commodities. Mr. Moffenbeier received a B.A. from Wesleyan
University and an M.B.A. from Harvard University. Mr. Moffenbeier is a certified
public accountant.
Harvey J. Anderson has served as Senior Vice President, General Manager of
Internet Operations since March 1999. From 1996 to 1999, Mr. Anderson served as
the assistant general counsel for Netscape Communications Corp., a provider of
software, services and Web site resources for the Internet. From 1993 to 1996,
Mr. Anderson practiced intellectual property law with McCutchen Doyle Brown &
Enersen, LLP, a law firm in San Francisco, California. Mr. Anderson received a
B.S. from Marquette University and a J.D. from the University of San Francisco
School of Law.
Blackford F. Middleton has served as Senior Vice President, Clinical
Informatics since March 1999. From 1994 to 1999, Dr. Middleton served as our
Vice President, Clinical Informatics. From 1992 to 1994, Dr. Middleton served as
the medical director for information management and technology at Stanford
University. Since 1995, Dr. Middleton has served on the Computer-based Patient
Record Institute board of directors and currently serves as its chairman. Dr.
Middleton is a general internist who practiced in academic medical centers for
over 15 years and received a B.A. from the University of Colorado and an M.D.
from Stanford University and additional training in epidemiology and public
health at Yale University.
Richard L. Samco has served as Senior Vice President and Chief Technology
Officer since March 1999. From 1991 to 1999, Mr. Samco served as our Vice
President, Engineering and Vice President, Product Development. Mr. Samco was a
co-founder of Mentor Graphics Corp. in 1981 and served in various engineering
and management positions from 1981 to 1991. Prior to 1981, Mr. Samco held
various engineering management positions with Tektronix Inc., a maker of high
technology products, and Burroughs Corp., a leading computer corporation now
known as Unisys Corporation. Mr. Samco received a B.S. from Stanford University.
Thomas M. Watson has served as Senior Vice President, Worldwide Sales and
Professional Services since March 1999. From 1997 to 1999, Mr. Watson served as
our Vice President, Sales. From 1989 to 1997, Mr. Watson served as vice
president of sales at Phamis Inc., a leading provider of healthcare information
systems solutions. Mr. Watson received a B.A. from Drexel University.
Eliot H. Bergson has served as Vice President, Internet Content Programming
since May 1999. From 1998 to 1999, Mr. Bergson served as acting director of
content and production at Network Associates, Inc., a network security and
management software company. From 1995 to
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1998, he served as editor-in-chief at Netscape Communications Corp. From 1994 to
1995, Mr. Bergson served as editor for both Online Design, a publication for
professional designers, photographers and illustrators, and HotWired, an
Internet site on Web technology and culture. From 1992 to 1994, Mr. Bergson
served as editor for NeXTWORLD, a publication covering the NEXT and NEXTSTEP
markets. Mr. Bergson received a B.A. from the University of Vermont.
Guy E. Field has served as Vice President, Finance since 1998. From 1994 to
1997, Mr. Field served as the Corporate Controller of MedicaLogic. From 1983 to
1994, Mr. Field held management positions in treasury, finance, marketing and
major account management with Mentor Graphics Corp. He has served on the board
of directors of the Software Association of Oregon since 1998. Mr. Field
received a B.A. from Loyola University in Los Angeles and is a certified public
accountant.
Joseph M. Godsil has served as Vice President, Network Architecture and
Data Center Operations since May 1999. From 1996 to 1999, Mr. Godsil served as
area engineering manager at Netscape Communications Corp. From 1994 to 1996, he
served as regional engineer for Sun Microsystems, Inc., a leading provider of
hardware, software and services for the Internet. Mr. Godsil received a B.S.
from Millikin University in Decatur, Illinois.
D. Cameron Lewis has served as Vice President, Internet Marketing and
eCommerce Strategies since May 1999. From 1998 to 1999, Mr. Lewis served as
director of electronic commerce and Internet operations at Network Associates,
Inc. From 1995 to 1998, Mr. Lewis served as group manager of the electronic
commerce group and acting vice president of customer marketing at Netscape
Communications Corp. From 1994 to 1995, Mr. Lewis served as vice president of
sales and marketing for Magellan Interactive. Mr. Lewis received a B.A. from
the University of Western Ontario and an executive business degree from the
University of Toronto.
C. Sue Reber has served as Vice President, Strategic Marketing and
Corporate Communications since March 1999. From 1993 to 1999, Ms. Reber served
as Vice President of Marketing. Prior to joining MedicaLogic, Ms. Reber had more
than 15 years of experience in healthcare sales and marketing in managed care,
medical equipment distribution and hospital management. She received a nursing
degree from the Johns Hopkins Hospital School of Nursing and received an M.B.A.
from St. Mary's College in Emmitsburg, Maryland.
Charles D. Burwell has been a director since 1997. Since 1993, Mr. Burwell
has served as Senior Vice President of VHA, Inc., a healthcare alliance. As head
of Information Services, he oversees activities associated with VHA's healthcare
information technologies and VHA's management information systems team. Mr.
Burwell received a B.A. from Northeastern Oklahoma University.
Bruce M. Fried has been a director since 1998. Mr. Fried is a partner and
chair of the healthcare practice group at Shaw Pittman Potts & Trowbridge, a law
firm in Washington, D.C. From 1995 to 1998, Mr. Fried served as the Health Care
Financing Administration's Director of the Center for Health Plans and
Providers, where he was responsible for policy development and execution and
operations for the Medicare program. From 1994 to 1995, Mr. Fried was vice
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president of federal affairs at FHP International Corporation, one of the
nation's largest managed care organizations. Mr. Fried received a B.A. and a
J.D. from the University of Florida.
Ronald H. Kase has been a director since July 1994. Mr. Kase joined New
Enterprise Associates, a venture capital investment firm in 1990 and has been a
general partner since May 1995. Mr. Kase serves on the board of directors of
Endocardial Solutions, Inc., a manufacturer of minimally invasive diagnostic
healthcare equipment, and several privately-held information technology and
healthcare companies. Mr. Kase received a B.S. from Purdue University and
received an M.B.A. from the University of Chicago.
Neal Moszkowski has been a director since May 1999. Since 1998, Mr.
Moszkowski has served as a partner of Soros Private Equity Partners, LLC, a
venture capital investment firm. From 1993 to 1998, Mr. Moszkowski was an
executive director in the Principal Investment Area of Goldman, Sachs
International and a vice president of Goldman, Sachs & Co. Mr. Moszkowski serves
on the board of directors of Integra Life Sciences Holdings Corporation, a
developer and marketer of medical products, implants and biomaterials, Crystal
Gas Storage, Inc., a natural gas storage company, Bluefly, Inc., an off-price
apparel Internet retailer, and several private companies. Mr. Moszkowski earned
his B.A. from Amherst College and an M.B.A. from Stanford University.
Mark A. Stevens has been a director since 1994. Since 1989, Mr. Stevens has
been a principal of Sequoia Capital venture funds. Mr. Stevens serves on the
boards of directors of Aspect Development, Inc., a provider of solutions for
component and supplier management, Nvidia Corp., a supplier of 3D graphics
processors and software, Pixelworks, Inc., an electronic media production
company, StratumOne Communications, Inc., a broadband networking company,
MP3.com, Inc., a digital music Internet company, Terayon Communication Systems,
Inc., a provider of cable modem systems, Medibuy.com, an Internet healthcare
commerce company, Billpoint, Inc., an Internet credit card payment processor,
and Teragen Pty. Ltd., an Internet networking company. Mr. Stevens received a
B.S.E.E., a B.A. and an M.S. in Computer Engineering from the University of
Southern California and an M.B.A. from Harvard University.
Ronald R. Taylor has been a director since 1995. Since 1998, Mr. Taylor has
been a general partner of Enterprise Partners, a venture capital firm. In 1987,
Mr. Taylor founded Pyxis Corporation, a medical information systems company, and
served as its chairman and chief executive officer until it merged with Cardinal
Health, Inc. in 1996. Mr. Taylor serves on the boards of directors of Watson
Pharmaceuticals, Inc., a pharmaceutical company, and Cavanaugh's Hospitality
Corporation, a leading owner of full service hotels in the Northwest. He
received a B.A. from the University of Saskatchewan and an M.A. from the
University of California at Irvine.
David W. Wroe has been a director since 1999. Since 1996, he has served as
a senior vice president and chief technology officer for Continental Casualty
Company, an insurance company. From 1983 to 1996, Mr. Wroe served as chief
executive officer of Agency Management Services, Inc., a CCC majority-owned
automation company, and Mr. Wroe continues to serve as the chairman of its board
of directors. Mr. Wroe serves on the boards of directors of Rogers & Gray
Insurance Company, an insurance company, Home Financial
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Network, a software company, and Healthware Solutions International, Inc., a
software company. Mr. Wroe earned a B.A. from Providence College.
Executive officers serve at the discretion of the board of directors and
hold office until their successors have been duly elected and qualified. There
are no family relationships among any of the directors, officers or key
employees of MedicaLogic.
Directors are elected at the annual shareholders meeting and hold office
until their successors are elected and qualified.
Committees of the Board of Directors
The board of directors has an audit committee and a compensation committee.
The audit committee, among other things, reviews and makes recommendations
to the board of directors concerning our internal accounting procedures, reviews
and consults with our independent accountants on the accounting principles and
auditing practices used for our financial statements and makes recommendations
to the board of directors concerning the engagement of independent accountants
and the scope of the audit to be undertaken by such accountants. The current
members of the audit committee are Bruce M. Fried, Neal Moszkowski and Ronald R.
Taylor.
The compensation committee reviews and makes recommendations to the board
of directors concerning the policies, practices and procedures relating to the
compensation and benefits of our officers and managerial employees. The
compensation committee exercises all authority under our stock incentive plans
and advises and consults with our officers regarding personnel policies. The
current members of the compensation committee are Charles D. Burwell, Ronald H.
Kase and Mark A. Stevens.
Compensation Committee Interlocks and Insider Participation
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more directors serving as an executive officer of our company. See
"Certain Transactions."
Director Compensation
Generally, directors do not receive any cash compensation from us for their
service as members of the board of directors, but directors are reimbursed for
expenses incurred in connection with their attendance at board and committee
meetings. Under our stock incentive plan, non-employee directors are granted a
one-time option to purchase 60,000 shares of our common stock upon initial
election to the board. In addition, we have entered into an arrangement pursuant
to which we pay Enterprise Partners, of which Ronald R. Taylor serves as a
general partner, $2,000 for each directors meeting attended by Mr. Taylor.
Directors' fees
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totaling $4,000 have been paid to Enterprise Partners for Mr. Taylor's
attendance at board meetings. We carry an insurance policy for the protection of
our officers and directors against any liability asserted against them in their
official capacities. See "-Stock Incentive Option Plans" and "-Limitations on
Directors' Liability and Indemnification."
Executive Compensation
The following table sets forth the total compensation paid or accrued for
services rendered to us in all capacities by our Chief Executive Officer and our
four other most highly compensated executive officers whose salary and bonus
exceeded $100,000 during the year ended December 31, 1998 (collectively, the
"Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
----------------------- All Other
Name and Principal Position Salary Bonus Compensation (1)(2)
- --------------------------- --------- --------- -------------------
<S> <C> <C> <C>
Mark K. Leavitt, Chairman of the Board and
Chief Executive Officer..................... $ 210,000 --- ---
David C. Moffenbeier, Chief Operating
Officer..................................... $ 190,000 --- $ 50,000
Blackford Middleton, Senior Vice President,
Clinical Informatics........................ $ 160,000 $ 20,000 $ 48,621
Richard L. Samco, Senior Vice President and
Chief Technology Officer.................... $ 185,000 --- ---
Thomas M. Watson, Senior Vice President,
Worldwide Sales and Professional Services... $ 150,000 $ 75,559 (3) ---
- --------------
(1) Comprised of commission payments.
(2) See "Long-Term Incentive Plans-Awards in Last Fiscal Year."
(3) Includes $20,000 payment for 1997 performance.
</TABLE>
We have entered into an employment agreement with Dr. Leavitt. The
agreement is terminable at will on 60-days notice.
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<TABLE>
<CAPTION>
Long-Term Incentive Plans-Awards in Last Fiscal Year
Percent of Total
Restricted Stock Per Share Restriction
Name and Principal Position Number of Shares(1) Granted Price Expiry(4)
- --------------------------- ------------------- ---------------- --------- ------------
<S> <C> <C> <C> <C>
Mark K. Leavitt, Chairman of the
Board and Chief Executive Officer... 30,000 18% $ 2.00 July 1, 2000
David C. Moffenbeier, Chief
Operating Officer................... 30,000 18% $ 2.00 July 1, 2000
Blackford Middleton, Senior Vice
President, Clinical Informatics..... 15,000 (2) 9% $ 2.00 July 1, 2000
Richard L. Samco, Senior Vice
President and Chief Technology
Officer............................. 30,000 18% $ 2.00 July 1, 2000
Thomas M. Watson, Senior Vice
President, Worldwide Sales and
Professional Services............... 30,000 (3) 18% $ 2.00 July 1, 2000
- --------------
(1) Except as otherwise provided, shares of restricted stock are subject to
MedicaLogic's right of repurchase if specific performance criteria are not
met. Our option to repurchase is exercisable for all of the shares in the
event the holder voluntarily terminates his or her employment within two
years of the date the shares were originally granted unless we complete
an initial public offering, release an Internet version of Logician and
release a consumer based Internet product prior to December 31, 1999. If
all performance criteria are met on or before December 31, 1999, the shares
will be released from the repurchase option. As of December 31, 1998, the
named executive officers beneficially owned 469,000 shares of restricted
stock with an aggregate value of $779,000.
(2) Does not include 25,000 shares of restricted stock issued to Mr. Middleton
on July 1, 1998 upon his surrender of 25,000 outstanding options to
purchase common stock. Of these 25,000 shares of restricted stock, 11,111
were not subject to a right of repurchase, and 13,889 shares were subject
to a right of repurchase by MedicaLogic and have been released from the
repurchase option ratably over a period of 20 months beginning July 1,
1998.
(3) Does not include 150,000 shares of restricted stock issued to Mr. Watson on
July 1, 1998 upon his surrender of 150,000 outstanding options to purchase
common stock. Of these 150,000 shares of restricted stock, 66,667 shares
were not subject to a right of repurchase, and 83,333 were subject to a
right of repurchase by MedicaLogic and have been released from the
repurchase option ratably over a period of 20 months beginning July 1,
1998.
(4) Unless the repurchase option is terminated earlier upon satisfaction of
performance criteria.
</TABLE>
Option Grants in Last Fiscal Year
No options were granted to, or exercised by, any of the Named Executive
Officers during the year ended December 31, 1998.
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Stock Incentive Plans
An aggregate of 13,994,384 shares of common stock have been reserved for
issuance under our three stock incentive plans described below.
The Stock Incentive Plan was adopted February 9, 1993 and, as amended,
allowed for issuance of 4,494,384 shares. Under the 1996 Stock Incentive Plan,
adopted December 27, 1996, 1,000,000 shares were originally reserved for
issuance. The 1996 Plan was amended in 1998 to reserve an additional 700,000
shares for issuance and in 1999 to reserve an additional 3,800,000 shares for
issuance, bringing the total number of shares reserved under the 1993 Plan and
the 1996 Plan to 9,994,384. The stock option plans were approved by the board of
directors and the shareholders. The 1996 Plan provides for the granting to
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, for the granting to employees and
consultants of nonstatutory stock options and for the issuance of stock bonuses,
restricted stock and stock appreciation rights. Unless terminated earlier, the
1996 stock incentive plan will terminate automatically in December 2006.
As of August 31, 1999, options to purchase 4,359,651 shares of common stock
at a weighted average exercise price of $2.48 per share were outstanding and
1,525,000 shares of restricted stock had been issued under the stock incentive
plans.
The stock incentive plans are administered by the board of directors. The
board has the power to determine the terms of the options or rights granted,
including the exercise price, the number of shares subject to each option or
right, the character of the grant, the exercisability of the grant and the form
of consideration payable upon exercise of options. The board of directors may
delegate administration of the stock incentive plans to a committee.
The exercise price of incentive stock options must not be less than the
fair market value of the common stock at the date of the grant or, in the case
of incentive stock options issued to holders of more than 10% of the outstanding
common stock, 110% of the fair market value. The maximum term of incentive stock
options is 10 years, or five years in the case of 10% shareholders. The
aggregate fair market value, on the date of the grant, of the common stock for
which incentive stock options are exercisable for the first time by an employee
during any calendar year may not exceed $100,000.
Options become exercisable over a period of time in accordance with the
terms of the option agreements entered into at the time of grant. Options issued
to existing employees become exercisable ratably over a 36-month period. Before
March 1, 1999, stock options awarded to new employees vested ratably over 30
months beginning six months from the date of hire. For options granted to an
employee hired after March 1, one-sixth of the shares vest on the six-month
anniversary of the hire date, and the remaining five-sixths of the options vest
ratably over the remaining 30 months. These new hire options also include an
acceleration clause, which allows 100% of the shares to become exercisable upon
termination without cause. Stock option awards to non-employee directors also
generally become exercisable over a 36-month period.
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Options granted under the stock incentive plans are generally
nontransferable by the optionee and, unless otherwise determined by the board of
directors, must be exercised by the optionee during the period of the optionee's
employment or service with MedicaLogic or within 90 days of termination thereof.
The stock incentive plans provide that in the event we merge with or into
another corporation, or we sell substantially all of our assets, each
outstanding option will be assumed by the successor corporation.
The 1999 Stock Incentive Plan authorizes the issuance of 4 million shares
of our common stock. The 1999 Plan was approved by the board of directors and
the shareholders. The 1999 Plan provides for the granting to employees of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, for the granting to employees and consultants
of nonstatutory stock options and for the issuance of stock bonuses, restricted
stock and stock appreciation rights. Unless terminated earlier, the 1999 Plan
will terminate automatically in September 2009.
The 1999 Plan is administered by the board of directors. The board has the
power to determine the terms of the options or rights granted, including the
exercise price, the number of shares subject to each option or right, the
character of the grant, the exercisability of the grant and the form of
consideration payable upon exercise of options. The board of directors has
delegated administration of the stock incentive plans to the compensation
committee.
The exercise price of incentive stock options must not be less than the
fair market value of the common stock at the date of the grant or, in the case
of incentive stock options issued to holders of more than 10% of the outstanding
common stock, 110% of the fair market value. The maximum term of incentive stock
options is 10 years, or five years in the case of 10% shareholders. The
aggregate fair market value, on the date of the grant of the common stock for
which incentive stock options are exercisable for the first time by an employee
during any calendar year may not exceed $100,000.
Options become exercisable over a period of time in accordance with the
terms of the option agreements entered into at the time of grant.
Options granted under the 1999 Plan are generally nontransferable by the
optionee and, unless otherwise determined by the board of directors, must be
exercised by the optionee during the period of the optionee's employment or
service with MedicaLogic or within 90 days of termination thereof.
The 1999 Plan provides that in the event we merge with or into another
corporation, or we sell substantially all of our assets, each outstanding option
will be assumed by the successor corporation.
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<PAGE>
Limitations on Directors' Liability and Indemnification
Our articles of incorporation eliminate, to the fullest extent permitted by
Oregon law, liability of a director to MedicaLogic or its shareholders for
monetary damages resulting from conduct as a director. Although liability for
monetary damages has been eliminated, equitable remedies such as injunctive
relief or rescission remain available. In addition, a director is not relieved
of his or her responsibilities under any other law, including the federal
securities laws.
Our articles of incorporation require us to indemnify our directors to the
fullest extent permitted by law. We believe that the limitation of liability
provisions in our articles of incorporation enhance our ability to attract and
retain qualified individuals to serve as directors.
We carry an insurance policy for the protection of our officers and
directors against any liability asserted against them in their official
capacities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of MedicaLogic pursuant to the foregoing provisions, or otherwise,
MedicaLogic has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
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CERTAIN TRANSACTIONS
We have accepted promissory notes from the following persons in the amounts
set forth below as consideration for restricted stock issued to such persons:
<TABLE>
<CAPTION>
Principal
Name Amount of Note Date of Note
---- -------------- ------------
<S> <C> <C>
Harvey J. Anderson $385,000 March 31, 1999
Harvey J. Anderson 66,000 March 31, 1999
Guy E. Field 30,000 February 2, 1995
Guy E. Field 100,000 July 1, 1998
Guy E. Field 30,000 July 1, 1998
Guy E. Field 33,000 March 31, 1999
Mark K. Leavitt 60,000 July 1, 1998
Mark K. Leavitt 66,000 March 31, 1999
Berkeley T. Merchant 125,000 June 29, 1994
Berkeley T. Merchant 120,000 July 1, 1998
Blackford F. Middleton 159,000 August 11, 1995
Blackford F. Middleton 50,000 July 1, 1998
Blackford F. Middleton 30,000 July 1, 1998
Blackford F. Middleton 33,000 March 31, 1999
David C. Moffenbeier 60,000 July 1, 1998
David C. Moffenbeier 66,000 March 31, 1999
Richard L. Samco 60,000 July 1, 1998
Richard L. Samco 66,000 March 1, 1999
Thomas M. Watson 300,000 July 1, 1998
Thomas M. Watson 60,000 July 1, 1998
Thomas M. Watson 66,000 March 1, 1999
</TABLE>
All of the above non-negotiable promissory notes accrue interest at 6% per
annum on the unpaid principal balance from the date of the note until the
principal balance is paid in full. Interest is payable quarterly in arrears. The
notes are payable in full 10 years from the date of the loan and each note can
be prepaid without penalty.
We loaned Harvey Anderson $103,800 to pay for relocation expenses pursuant
to an unsecured promissory note that accrues interest at 6% per annum on the
unpaid principal balance from the date of the note until the principal is paid
in full. The entire unpaid principal balance and all accrued interest is due and
payable on the earlier to occur of (1) the closing of the sale of a residence
located in Portland, Oregon, (2) the cessation or termination of his employment
by us for any reason, or (3) July 1, 2001. The note is prepayable in full
without penalty. In September 1999, we entered into a separate agreement with
Mr. Anderson in consideration of Mr. Anderson relocating to San Francisco,
California. Under the terms of this agreement, we agreed to (1) reimburse Mr.
Anderson for a specified amount in improvements to his Portland, Oregon
residence, any shortfall between the sales price on his Portland, Oregon
residence and the original purchase price paid by Mr. Anderson and any
transaction costs not covered by the sales
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<PAGE>
price of this residence, unless the sales price is greater than the purchase
price, (2) forgive the interest accrued on the unsecured promissory note
referred to above, which will be repaid from the proceeds of the sale of the
Portland, Oregon residence and (3) pay the mortgage payment on Mr. Anderson's
residence in Portland, Oregon until it is sold.
In connection with our Series C Preferred Stock financing, we sold an
aggregate of 2,505,970 additional shares of Series C Preferred Stock at a price
of $2.25 per share in May 1996, including 514,445 shares of Series C Preferred
Stock to New Enterprise Associates IV Limited Partnership, a beneficial owner of
greater than 5% of our common stock on a converted basis, and an aggregate of
514,445 shares of Series C Preferred Stock to entities associated with Sequoia
Funds, a group of affiliated entities beneficially owning greater than 5% of our
common stock on a converted basis. See "Principal Shareholders."
In August 1998, we entered into Stock Purchase Agreements with Enterprise
Partners IV Associates, L.P. and Enterprise Partners IV, L.P. for the issuance
of an aggregate of 350,000 shares of our common stock at a price of $2.00 per
share. We also granted an option to purchase 16,000 shares of our common stock
at a price of $2.00 per share to Enterprise Partners IV Associates, L.P. and
granted an option to purchase 184,000 shares of common stock to Enterprise
Partners IV, L.P. The options were exercised on April 14, 1999. Directors Ronald
R. Taylor and Ronald H. Kase are affiliated with the Enterprise funds. See
"Principal Shareholders."
In connection with our Series J Preferred Stock financing, we sold an
aggregate of 1,052,632 shares of Series J Preferred Stock in May 1999 to Sequoia
Capital Franchise Fund and Sequoia Capital Franchise Partners, both of which are
affiliates of Mark A. Stevens, a director of the Company. See "Principal
Shareholders."
Bruce M. Fried, a member of our board of directors, is a partner in a law
firm retained by us to provide legal counsel regarding certain regulatory and
intellectual property issues.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table presents the beneficial ownership of our common stock
as of August 31, 1999 and as adjusted to reflect the common stock offered by
this prospectus, by (a) each person known by us to be the beneficial owner of
more than 5% of the outstanding shares of our common stock on a converted basis;
(b) each director and named executive officer; and (c) all directors and
officers as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
----------------------------
Percentage Percentage
Name Number Prior to Offering After Offering
---- --------- ----------------- --------------
<S> <C> <C>
Entities associated with Sequoia
Funds........................... 5,607,679(2) 11.3%
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
New Enterprise Associates......... 4,707,189 9.5%
2490 Sand Hill Road
Menlo Park, CA 94025
Continental Casualty
Company......................... 4,000,000(3) 8.1%
CNA Insurance
CNA Plaza
Chicago, IL 60685
Quantum Industrial
Partners LDC.................... 3,136,842 6.3%
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
SFM Domestic
Investment LLC.................. 3,136,842 6.3%
c/o Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10016
Mark A. Stevens................... 5,661,012(4) 11.4%
3000 Sand Hill Rd.,
Bldg.4, Ste. 280
Menlo Park, CA 94025
Ronald H. Kase.................... 4,760,522(5) 9.6%
2490 Sand Hill Road
Menlo Park, CA 94025
David W. Wroe..................... 4,000,000(3) 8.1%
CNA Insurance
CNA Plaza
Chicago, IL 60685
Mark K. Leavitt................... 3,040,000(6) 6.1%
20500 NW Evergreen Pky.
Hillsboro, Oregon 97124
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<PAGE>
Shares Beneficially Owned(1)
----------------------------
Percentage Percentage
Name Number Prior to Offering After Offering
---- --------- ----------------- --------------
<S> <C> <C>
Richard L. Samco.................. 1,940,606(7) 3.9%
20500 NW Evergreen Pky.
Hillsboro, Oregon 97124
David C. Moffenbeier.............. 1,317,903(8) 2.7%
20500 NW Evergreen Pky.
Hillsboro, Oregon 97124
Ronald R. Taylor.................. 1,042,111(9) 2.1%
Enterprise Partners
7979 Ivanhoe Ave., Ste. 550
La Jolla, CA 92037
Blackford F. Middleton............ 216,500(10) *
20500 NW Evergreen Pky.
Hillsboro, Oregon 97124
Thomas M. Watson.................. 210,000 *
20500 NW Evergreen Pky.
Hillsboro, Oregon 97124
Bruce M. Fried.................... 3,333(11) *
2300 N. Street, NW
Washington, DC 20037
Charles D. Burwell................ 53,333(12) *
220 East Las Colinas Blvd.
Irving, TX 75039
Neal Moszkowski................... 0(13) *
888 Seventh Avenue
Suite 3300
New York, NY 10106
All Executive Officers
and Directors as a
group (14 persons).............. 22,632,389(14) 45.7%
- --------------
* Less than 1%.
(1) Shares that the person or entity has the right to acquire within 60 days
after August 31, 1999 are deemed to be outstanding in calculating the
percentage ownership of the person or entity but are not deemed to be
outstanding as to any other person or entity.
(2) Includes 3,550,016 shares of common stock held of record by Sequoia Capital
Growth Fund; 716,541 shares of common stock held of record by Sequoia
Capital VI; 31,497 shares of common stock held of record by Sequoia 1995;
39,370 shares of common stock held of record by Sequoia Technology Partners
VI; 217,623 shares of common stock held of record by Sequoia Technology
Partners III; 894,737 shares of common stock held of record by Sequoia
Capital Franchise Fund; and 157,895 shares of common stock held of record
by Sequoia Capital Franchise Partner.
(3) Includes 4,000,000 shares of common stock held of record by Continental
Casualty Company. Mr. Wroe is Senior Vice President and Chief Technology
Officer of Continental Casualty Company.
(4) Includes 5,607,679 shares of common stock held of record by entities
associated with Sequoia funds, of which Mr. Stevens disclaims beneficial
ownership, except to the extent of his pecuniary interest therein. See note
(2). Mr. Stevens is a general partner of Sequoia Capital VI and Sequoia
Technology Partners VI and is a managing member of Sequoia Capital
Franchise Fund and Sequoia Capital Franchise Partners. Mr. Stevens
participates in the voting control of the shares held of record by Sequoia
Capital Growth Fund,
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<PAGE>
Sequoia 1995 and Sequoia Technology Partners III. The share amount also
includes 5,000 shares subject to an option held of record by Mr. Stevens
that is exerciseable within 60 days of August 31, 1999.
(5) Includes 4,726,268 shares of common stock held of record by New Enterprises
Associates VI, LP, of which Mr. Kase disclaims beneficial ownership.
Includes 53,333 shares subject to an option held of record by Mr. Kase that
is exerciseable within 60 days of August 31, 1999.
(6) Includes 505,000 shares of common stock held of record by Sandra Leavitt,
Dr. Leavitt's former wife, which are voted by Dr. Leavitt as trustee of a
voting trust, 10,000 shares of common stock held of record by Amy Elizabeth
Leavitt and 170,000 shares of common stock held in trust for Amy Elizabeth
Leavitt.
(7) Includes 10,000 shares of common stock held of record by Courtaney E. Samco
and 10,000 shares of common stock held of record by Mark R. Samco.
(8) Includes 500,000 shares of common stock held of record by Elizabeth
Moffenbeier.
(9) Includes 950,000 shares of common stock held of record by entities
associated with Enterprise Partners, for which Mr. Taylor disclaims
beneficial ownership, except to the extent of his pecuniary interest
therein. Of those shares for which beneficial ownership is disclaimed, Mr.
Taylor has the right to acquire beneficial ownership of 55,555 shares at
any time. Also includes 57,777 shares subject to an option held of record
by Mr. Taylor that is exerciseable within 60 days of August 31, 1999
and an aggregate of 9,000 shares of common stock of which 3,000 shares each
are held of record by his children, Luke Rand Williams, Leah Williams
Barbieri and Tiffany Marie Taylor.
(10) Includes 5,000 shares of common stock held of record by Allie Middleton.
(11) Includes 3,333 shares subject to an option held of record by Mr. Fried that
is exerciseable within 60 days of August 31, 1999.
(12) Consists of 53,333 shares subject to an option held of record by Mr.
Burwell that is exerciseable within 60 days of August 31, 1999. Mr. Burwell
disclaims beneficial ownership of the shares underlying these options. Mr.
Burwell is a Senior Vice President of VHA, Inc, which holds of record
1,587,302 shares of common stock. Mr. Burwell disclaims beneficial
ownership in shares of common stock held of record by VHA as he does not
have voting or dispositive power over such shares.
(13) Mr. Moszkowski is an employee of Soros Fund Management LLC, which is the
principal investment advisor to Quantum Industrial Partners LDC. Mr.
Moszkowski is also a non-managing member of SFM Domestic Investments LLC.
Mr. Moszkowski does not have voting or dispositive power over shares held
of record by Quantum Industrial Partners LDC or SFM Domestic Investments
LLC.
(14) Includes 232,359 shares subject to options that are exercisable within 60
days of August 31, 1999.
</TABLE>
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized to issue
150,000,000 shares of common stock, no par value, and 50,000,000 shares of
undesignated preferred stock, no par value. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our articles of incorporation and bylaws, which are included as
exhibits to the registration statement of which this prospectus forms a part,
and by the provisions of applicable Oregon law.
Common Stock
As of August 31, 1999, there were 46,601,705 shares of our common stock
outstanding, which were held of record by approximately 260 shareholders, after
giving effect to the conversion of the outstanding series of preferred stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. In the event we liquidate, dissolve or wind up, the holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to the prior distribution rights of preferred stock, if
any, then outstanding. The holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to our common stock. The outstanding shares
of common stock are, and the shares of common stock offered by this prospectus
when issued will be, fully paid and nonassessable. See "Dividend Policy."
Preferred Stock
The board of directors has the authority, without action by the
shareholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of our common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of our common stock until the board of directors determines the
specific rights of the holders of preferred stock. However, the effects might
include, among other things:
o Restricting dividends on our common stock;
o Diluting the voting power of our common stock;
o Impairing the liquidation rights of our common stock; and
o Delaying or preventing a change in control of our company without
further action by the shareholders.
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Upon the completion of this offering, no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.
Registration Rights
After this offering, the holders of 32,655,933 shares of common stock will
be entitled to rights with respect to the registration of these shares under the
Securities Act. Under the terms of the agreements between us and the holders of
these shares, if we propose to register any of our securities under the
Securities Act, either for our own account or for the account of other security
holders exercising registration rights, these holders are entitled to notice of
registration and are entitled to include their shares of common stock in the
registration. These holders of registrable securities are also entitled to
specified demand registration rights under which they may require us to file a
registration statement under the Securities Act at our expense with respect to
their shares of our common stock, and we are required to use our best efforts to
effect this registration. Further, some of the holders of these demand
registration rights may require us to file additional registration statements.
All of the registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares included in the registration and our right not to effect a requested
registration within sixty days following the effectiveness of a registration
statement registering any of our stock or other securities in connection with
the public offering of those securities solely for cash.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC.
Oregon Control Share and Business Combination Statutes
Upon completion of this offering, we will become subject to the Oregon
Control Share Act. The Oregon Control Share Act generally provides that a person
who acquires voting stock of an Oregon corporation in a transaction, other than
a transaction in which voting shares are acquired from the issuing public
corporation, that results in the acquiror holding more than 20%, 33 1/3% or 50%
of the total voting power of the corporation cannot vote the shares it acquires
in the acquisition unless voting rights are accorded to the control shares by:
o A majority of each voting group entitled to vote; and
o The holders of a majority of the outstanding voting shares, excluding
the control shares held by the acquiror and shares held by the
company's officers and inside directors.
The term "acquiror" is broadly defined to include persons acting as a group.
The acquiror may, but is not required to, submit to the target company a
statement setting forth certain information about the acquiror and its plans
with respect to the company. The statement may also request that the company
call a special meeting of shareholders to determine whether voting rights will
be accorded to the control shares. If the acquiror does not request a
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<PAGE>
special meeting of shareholders, the issue of voting rights of control shares
will be considered at the next annual or special meeting of shareholders. If the
acquiror's control shares are accorded voting rights and represent a majority or
more of all voting power, shareholders who do not vote in favor of voting rights
for the control shares will have the right to receive the appraised "fair value"
of their shares, which may not be less than the highest price paid per share by
the acquiror for the control shares.
Upon completion of this offering, we will become subject to certain
provisions of the Oregon Business Corporation Act that govern business
combinations between corporations and interested shareholders. The Oregon
Business Corporation Act generally provides that if a person or entity acquires
15% or more of the outstanding voting stock of an Oregon corporation, the
corporation and the acquiring shareholder, or any affiliated entity of the
acquiring shareholder, may not engage in certain business combination
transactions for three years following the date the person acquired the shares.
Business combination transactions for this purpose include:
o A merger or plan of share exchange;
o Any sale, lease, mortgage or other disposition of 10% or more of the
assets of the corporation; and
o Certain transactions that result in the issuance or transfer of
capital stock of the corporation to the acquiring shareholder.
These restrictions do not apply if:
o The acquiring shareholder, as a result of the transaction in which
such person acquired the shares, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by
directors who are also officers and certain employee benefits plans);
o The board of directors approves the business combination or the
transaction that resulted in the shareholder acquiring the shares
before the acquiring shareholder acquires 15% or more of the
corporation's voting stock; or
o The board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned
by the acquiring shareholder) approve the business combination after
the acquiring shareholder acquires 15% or more of the corporation's
voting stock.
Staggered Board; Removal of Directors only for Cause
Our articles and restated bylaws contain provisions that:
o Classify the board of directors into three classes as nearly equal in
number as possible, each of which will serve for three years with one
class being elected each year; and
o Provide that directors may be removed by shareholders only for cause
and only upon the vote of 75 percent of the votes then entitled to be
cast for the election of directors.
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<PAGE>
The classified board provisions may have the effect of lengthening the time
required for a third party to acquire control of MedicaLogic through a proxy
contest or the election of a majority of the board of directors and may deter
any potential unfriendly offers or other efforts to obtain control of the
company. These provisions could deprive you of opportunities to realize a
premium for your shares and could make removal of incumbent directors more
difficult. At the same time, these provisions may have the effect of inducing
any third parties seeking control of MedicaLogic to negotiate terms acceptable
to the board of directors. In addition, the provisions regarding removal of
directors will make the removal of any director more difficult, even if you
believe such removal is in your best interests. Since these provisions make the
removal of directors more difficult, they increase the likelihood that incumbent
directors will retain their position and, since the board has the power to
retain and discharge management, could perpetuate incumbent management.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
If our shareholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity related
securities in the future and at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding an aggregate of
__________ shares of our common stock, assuming no exercise of outstanding
options or warrants. As of August 31, 1999, we had approximately 260 holders of
common stock, after giving effect to the conversion of the convertible preferred
stock. All of the shares sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act, unless these
shares are purchased by "affiliates" as that term is defined in Rule 144 under
the Securities Act. This leaves 46,601,705 shares eligible for sale in the
public market as follows:
Number of Shares Date
- ---------------- ----
32,958,907 After 180 days from the date of this
prospectus (subject, in some cases, to
volume limitations).
13,642,798 At various times after 181 days from the
date of this prospectus (subject, in some
cases, to volume limitations).
Lock-up Agreements
All of our officers and directors and shareholders holding substantially
all of our outstanding shares of common stock have signed lock-up agreements
with our underwriters under which they agreed not to transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for shares of our common stock,
for a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
o 1% of the number of shares of our common stock then outstanding, which
will equal approximately _________ shares immediately after this
offering; or
o the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to that sale.
79
<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
MedicaLogic, Inc.
Rule 144(k)
Under Rule 144(k) as currently in effect, a person who is not deemed to
have been one of our affiliates at any time during the 90 days preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years, including the holding period of any prior owner other than an affiliate,
is entitled to sell those shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, Rule 144(k) shares may be sold
immediately upon the completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares of our common
stock from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell those shares 90 days after the effective
date of this prospectus in reliance on Rule 144, but without compliance with
some of the restrictions, including the holding period, contained in Rule 144.
Registration Rights
After this offering, the holders of 32,655,933 shares of our common stock,
or their transferees, will be entitled to rights with respect to the
registration of those shares under the Securities Act. If these shares are
registered, they will become freely tradeable without restriction under the
Securities Act. These sales could have a material adverse effect on the trading
price of our common stock.
Stock Options
Shortly after this offering, we intend to file a registration statement on
Form S-8 covering the shares of common stock reserved for issuance under our
stock option plans. Shares of common stock registered under any registration
statement will, subject to Rule 144 volume limitations applicable to affiliates,
be available for sale in the open market, unless the shares are subject to
vesting restrictions or the lock-up agreements described above.
80
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement,
dated _____________, 1999, the underwriters named below, for whom Donaldson,
Lufkin & Jenrette Securities Corporation, BancBoston Robertson Stephens Inc.,
U.S. Bancorp Piper Jaffray Inc. and DLJdirect Inc. are acting as
representatives, have severally agreed to purchase from MedicaLogic the number
of shares of common stock set forth opposite each of their names below.
Number
Underwriters of Shares
------------ ---------
Donaldson, Lufkin & Jenrette Securities Corporation ..
BancBoston Robertson Stephens Inc. ...................
U.S. Bancorp Piper Jaffray Inc. ......................
DLJdirect Inc. .......................................
---------
Total.......................................... =========
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval by their counsel of certain
legal matters and to certain other conditions. The underwriters are obligated to
purchase and accept delivery of all the shares of common stock offered by this
prospectus (other than those shares covered by the over-allotment option
described below) if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $_____ per share.
The underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $______ per share. After the initial
offering of the common stock, the public offering price and other selling terms
may be changed by the representatives at any time without notice. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
We have granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of ________ additional shares of common stock at the
initial public offering price less underwriting discounts and commissions. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise this option, each underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based on
such underwriter's percentage underwriting commitment as indicated in the
preceding table.
The following table shows the underwriting fees to be paid to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our common stock to cover over-allotments.
81
<PAGE>
No Full
Exercise Exercise
-------- --------
Per Share.....................................
Total.........................................
We will pay the offering expenses, estimated to be $_________________.
An electronic prospectus is available on the Internet site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
such Internet site relating to our offering is not a part of this prospectus,
has not been approved or endorsed by us or any underwriter and should not be
relied on by prospective purchasers.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in respect thereof.
Each of MedicaLogic, its executive officers and directors and certain of
our shareholders has agreed, subject to certain exceptions, not to (a) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of common stock or any securities convertible into or exercisable or
exchangeable for common stock or (b) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any common stock (regardless of whether any of the transactions
described in clause (a) or (b) are to be settled by the delivery of common
stock, or other securities, in cash or otherwise) for a period of 180 days after
the date of this prospectus without the prior written consent of Donaldson
Lufkin & Jenrette Securities Corporation. In addition, during such period, we
have also agreed not to file any registration statement with respect to, and
each of our executive officers, directors and certain of our shareholders has
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock without the prior written consent
of Donaldson Lufkin & Jenrette Securities Corporation.
Prior to this offering, there has been no established trading market for
our common stock. The initial public offering price for the shares of common
stock offered by this prospectus will be determined by negotiation among us and
the representatives. The factors to be considered in determining the initial
public offering price include the history of and the prospects for the industry
in which we compete, our past and present operations, our historical results of
operations, our prospects for future earnings, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of this offering.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "MDLI."
82
<PAGE>
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction where action for that purpose is
required. The shares of common stock offered by this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of common stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
prospectus comes are advised to inform themselves about and to observe any
restrictions relating to this offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of common stock offered by this prospectus in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. The underwriters may bid for and purchase
shares of common stock in the open market to cover such syndicate short position
or to stabilize the price of our common stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members if the
syndicate repurchases previously distributed common stock in syndicate covering
transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of our common stock above
independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.
83
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules that are part of the registration
statement. For further information on us and our common stock, you should review
the registration statement and its exhibits and schedules. Any document we file
may be read and copied at the Commission's public reference rooms at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commissioner located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the Commission at 1-800-SEC-0330 for further
information about the public reference rooms. Our filings with the Commission
are also available to the public from the Commission's Web site at
http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms and the Web site of the Commission referred to above.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Stoel Rives LLP, Portland, Oregon. Certain legal matters will be
passed upon for the underwriters by Perkins Coie LLP, Portland, Oregon. As of
the date of this prospectus, partners and employees of Stoel Rives LLP
beneficially owned an aggregate of 50,000 shares of our common stock.
EXPERTS
The financial statements of MedicaLogic, Inc. as of December 31, 1997 and
1998 and for each of the years in the three-year period ended December 31, 1998
have been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in auditing and
accounting.
84
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Index to Financial Statements
Page
MedicaLogic, Inc. - Consolidated Financial Statements:
Report of KPMG LLP........................................................F-2
Consolidated Balance Sheets...............................................F-3
Consolidated Statements of Operations.....................................F-4
Consolidated Statements of Shareholders' Equity (Deficit).................F-5
Consolidated Statements of Cash Flows.....................................F-6
Notes to Consolidated Financial Statements................................F-7
PrimaCis Health Information Technology, Inc. - Financial Statements:
Report of KPMG LLP.......................................................F-26
Balance Sheet............................................................F-27
Statement of Operations..................................................F-28
Statement of Shareholders' Deficit.......................................F-29
Statement of Cash Flows..................................................F-30
Notes to Financial Statements............................................F-31
Pro Forma Financial Information:
Summary...................................................................F-41
Unaudited Pro Forma Condensed Combined Balance Sheet......................F-42
Unaudited Pro Forma Condensed Combined Statement of Operations............F-43
Notes to the Unaudited Pro Forma Condensed Combined Financial Information.F-44
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
MedicaLogic, Inc.:
We have audited the accompanying consolidated balance sheets of
MedicaLogic, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MedicaLogic, Inc.
and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
Portland, Oregon
April 23, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
December 31
-------------------------------
Assets 1997 1998 June 30, 1999
------------- ------------- -----------------------------
(Unaudited) (Unaudited)
(Pro forma)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,924 $ 4,718 $ 9,922
Short-term investments 7,116 7,030 31,277
Accounts receivable, net 7,663 10,084 6,219
Prepaid expenses and other current assets 263 545 1,379
------------- ------------- ------------
Total current assets 19,966 22,377 48,797
Property and equipment, net 1,969 1,804 6,619
Other assets 137 127 3,787
------------- ------------- ------------
Total assets $ 22,072 $ 24,308 $ 59,203
============= ============= ============
Liabilities, Redeemable Preferred Stock
and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable 667 557 5,803
Accrued and other liabilities 2,187 2,286 1,204
Deferred revenue 1,396 2,701 2,338
Current portion of capital leases 846 215 104
Current portion of notes payable -- 527 924
------------- ------------- ------------
Total current liabilities 5,096 6,286 10,373
Non-current portion of capital leases 278 92 151
Non-current portion of notes payable -- 587 833
------------- ------------- ------------
Total liabilities 5,374 6,965 11,357
------------- ------------- ------------
Convertible redeemable preferred stock; 50,000,000
shares authorized; aggregate liquidation preference
$50,128 at December 31, 1998 and $85,918 at June 30,
1999 (unaudited); issued and outstanding 19,525,545,
21,524,545, and 29,059,283 at December 31, 1997 and
1998, and June 30, 1999 (unaudited), respectively;
pro forma no shares issued and outstanding 42,593 49,387 83,687 $ --
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, no par value; authorized 100,000,000
shares; issued and outstanding 13,308,561, 14,255,122
and 17,542,422 shares at December 31, 1997 and
1998 and June 30, 1999 (unaudited), respectively;
pro forma 46,601,705 shares issued and outstanding 3,202 5,139 14,211 97,898
Common stock notes receivable (988) (2,039) (5,959) (5,959)
Deferred compensation -- -- (956) (956)
Accumulated deficit (28,109) (35,144) (43,137) (43,137)
------------- ------------- ------------ ------------
Total shareholders' equity (deficit) (25,895) (32,044) (35,841) $ 47,846
------------- ------------- ------------ ============
Total liabilities, redeemable preferred stock
and shareholders' equity (deficit) $ 22,072 $ 24,308 $ 59,203
============= ============= ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Six Months Ended
Years Ended December 31, June 30,
----------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software $ 6,845 $ 7,617 $ 10,410 $ 3,989 $ 5,787
Service and support 2,819 5,190 5,750 2,670 3,188
----------- ----------- ----------- ----------- -----------
Total revenues 9,664 12,807 16,160 6,659 8,975
Operating expenses:
Cost of revenue 6,120 7,756 6,754 3,283 3,418
Marketing and sales 6,498 7,539 7,579 3,630 7,946
Research and development 6,583 7,047 8,016 3,858 5,092
General and administrative 718 865 1,044 451 1,255
----------- ----------- ----------- ----------- -----------
Total operating
expenses 19,919 23,207 23,393 11,222 17,711
----------- ----------- ----------- ----------- -----------
Operating loss (10,255) (10,400) (7,233) (4,563) (8,736)
Other income (expense):
Interest expense (251) (240) (187) (106) (93)
Interest income 456 617 707 313 494
Other, net (265) (647) (322) (141) 342
----------- ----------- ----------- ----------- -----------
Total other income
(expense) (60) (270) 198 66 743
----------- ----------- ----------- ----------- -----------
Loss before income
taxes (10,315) (10,670) (7,035) (4,497) (7,993)
Provision for income taxes -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss $ (10,315) $ (10,670) $ (7,035) $ (4,497) $ (7,993)
=========== =========== =========== =========== ===========
Historical net loss per share:
Basic and diluted $ (0.78) $ (0.80) $ (0.51) $ (0.34) $ (0.47)
=========== =========== =========== =========== ===========
Weighted average shares - basic
and diluted 13,152,557 13,269,082 13,766,073 13,357,891 16,840,576
Pro forma net loss per share:
Basic and diluted $ (0.20) $ (0.21)
Weighted average shares - basic =========== ===========
and diluted 34,957,284 38,919,064
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Consolidated Statements of
Shareholders' Equity (Deficit)
(Dollars in thousands)
Common Total
Common stock stock shareholders'
---------------------- notes Deferred Accumulated equity
Shares Amount receivable compensation deficit (deficit)
---------- ---------- ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 13,056,224 $ 2,812 $ (683) $ -- $ (7,124) $ (4,995)
Issuance of common stock in exchange
for a promissory note 105,000 210 (210) -- -- --
Issuance of common stock in
exchange for services 25,000 50 -- -- -- 50
Issuance of common stock for cash 5,000 10 -- -- -- 10
Options exercised 36,500 26 -- -- -- 26
Interest accrued on common stock
notes receivable -- -- (44) -- -- (44)
Net loss -- -- -- -- (10,315) (10,315)
---------- ---------- ------------ -------------- -------------- -----------
Balance at December 31, 1996 13,227,724 3,108 (937) -- (17,439) (15,268)
Issuance of common stock in
exchange for services 28,700 51 -- -- -- 51
Options exercised 52,137 43 -- -- -- 43
Interest accrued on common stock
notes receivable -- -- (51) -- -- (51)
Net loss -- -- -- -- (10,670) (10,670)
---------- ---------- ------------ -------------- -------------- -----------
Balance at December 31, 1997 13,308,561 3,202 (988) -- (28,109) (25,895)
Issuance of common stock for acquisition 27,500 55 -- -- -- 55
Issuance of common stock for cash 350,000 700 -- -- -- 700
Issuance of restricted common stock
in exchange for promissory notes 500,000 1,000 (1,000) -- -- --
Non-cash stock compensation -- 110 -- -- -- 110
Options exercised 69,061 72 -- -- -- 72
Interest accrued on common stock
notes receivable -- -- (51) -- -- (51)
Net loss -- -- -- -- (7,035) (7,035)
---------- ---------- ------------ -------------- -------------- -----------
Balance at December 31, 1998 14,255,122 5,139 (2,039) -- (35,144) (32,044)
Issuance of common stock for
acquisition (unaudited) 1,500,000 3,300 -- -- -- 3,300
Issuance of restricted common stock in
exchange for promissory notes (unaudited) 1,360,000 3,790 (3,790) -- -- --
Issuance of common stock in exchange for
services (unaudited) 47,500 105 -- -- -- 105
Warrants exercised (unaudited) 45,000 14 -- -- -- 14
Options exercised (unaudited) 334,800 598 -- -- -- 598
Stock compensation expense (unaudited) -- 309 -- -- -- 309
Interest accrued on common stock notes
receivable (unaudited) -- -- (130) -- -- (130)
Deferred compensation related to
stock options (unaudited) -- 956 -- (956) -- --
Net loss (unaudited) -- -- -- -- (7,993) (7,993)
---------- ---------- ------------ -------------- -------------- -----------
Balance at June 30, 1999 (unaudited) 17,542,422 $ 14,211 $ (5,959) $ (956) (43,137) $ (35,841)
========== ========== ============ ============== ============== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Six Months Ended
Years Ended December 31, June 30,
-------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (10,315) $ (10,670) $ (7,035) $ (4,497) $ (7,993)
Adjustments to reconcile net loss to net cash
(used by) provided by operating activities:
Depreciation and amortization 912 1,464 1,537 762 2,082
Non-cash expenses 50 51 110 110 2,664
Provision for doubtful accounts 304 829 756 40 437
Loss (gain) on disposition of assets -- 14 (2) (4) (2)
Other non-cash expenses (44) (51) (51) (25) (130)
Changes in assets and liabilities:
Accounts receivable (3,027) (3,630) (3,177) 491 3,428
Prepaid expenses and other current assets (25) (133) (239) (423) (858)
Other assets 300 (35) -- (70) (13)
Accounts payable 1,131 (906) (110) (96) 5,246
Accrued and other liabilities 80 1,314 99 (295) (1,082)
Deferred revenue (250) 113 1,305 509 (363)
---------- ---------- ---------- ---------- ----------
Net cash (used by) provided by
operating activities (10,884) (11,640) (6,807) (3,498) 3,416
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of fixed assets (263) (525) (1,280) (823) (6,322)
Purchase of business -- -- (12) (12) (3,152)
Proceeds from sale of fixed assets -- -- 6 29 6
Purchase of short-term investments -- (15,261) (28,248) (15,715) (31,277)
Purchase from maturities of short-term investments -- 8,145 28,334 11,048 7,030
---------- ---------- ---------- ---------- ----------
Net cash used by investing activities (263) (7,641) (1,200) (5,473) (33,715)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock 20,023 6,775 6,794 6,794 34,300
Net proceeds from issuance of common stock 36 43 772 13 612
Proceeds from issuance of notes payable -- -- 1,264 150 792
Principal payments under capital lease (875) (1,264) (879) (503) (52)
Principal payments under note obligations -- -- (150) (22) (149)
---------- ---------- ---------- ---------- ----------
Net cash provided by financing activities 19,184 5,554 7,801 6,432 35,503
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 8,037 (13,727) (206) (2,539) 5,204
Cash and cash equivalents at beginning of period 10,614 18,651 4,924 4,924 4,718
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $ 18,651 $ 4,924 $ 4,718 $ 2,385 $ 9,922
========== ========== ========== ========== ==========
Summary of non-cash investing and financing activities:
Issuance of common stock in exchange for note
receivable $ 210 $ -- $ 1,000 $ 1,000 $ 3,790
Issuance of common stock for purchase of a business -- -- 55 55 3,300
Assets acquired or exchanged under capital leases 1,451 593 62 -- --
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Company
MedicaLogic, Inc. (the Company) develops, markets and supports
electronic medical record software used by physicians at the point of
care, throughout the U.S.
The accompanying consolidated financial statements include the
accounts of the Company and subsidiaries. All significant intercompany
balances have been eliminated in consolidation.
(b) Unaudited Quarterly Information
The financial information included herein for the six-month periods
ended June 30, 1998 and 1999 is unaudited; however, such information
reflects all adjustments, consisting only of normal recurring
adjustments, which are, in the opinion of management, necessary for a
fair presentation of the financial position, results of operations and
cash flows for the interim periods. The interim consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes included in the consolidated
financial statements. The results of operations for the interim period
presented are not necessarily indicative of the results to be expected
for the full year.
(c) Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or
less to be cash equivalents.
(d) Short-Term Investments
Short-term investments include various corporate debt instruments and
have been classified as available-for-sale securities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities at
December 31, 1997 and 1998. Short-term investments are carried at
amortized cost, which approximates market. At December 31, 1998,
contractual maturities of short-term investments ranged from
seventy-two to one hundred and thirty-three days. At June 30, 1999
(unaudited), contractual maturities of short-term investments ranged
from 104 to 296 days.
F-7 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(e) Accounts Receivable
Accounts receivable are shown net of allowance for doubtful accounts
of $852, $1,360 and $1,514 at December 31, 1997 and 1998 and June 30,
1999 (unaudited), respectively. The following table presents a
rollforward of the allowance for doubtful accounts:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Balance - beginning of period $ 30 $ 165 $ 852
Provision 304 829 756
Charge offs (169) (142) (248)
---------- ---------- ----------
Balance - end of period $ 165 $ 852 $ 1,360
========== ========== ==========
</TABLE>
(f) Property and Equipment
Property and equipment are stated at cost. Property and equipment
under capital leases are stated at the lower of the present value of
minimum lease payments at the beginning of the lease term or fair
value of the leased assets at the inception of the lease. The cost of
repairs and maintenance is expensed as incurred.
Depreciation on furniture, equipment and leasehold improvements is
calculated on a straight-line basis over the estimated useful lives of
the assets, five years for furniture and two to three years for
equipment. Property and equipment held under capital leases are
amortized on a straight-line basis over the shorter of the lease term
or estimated useful life of the asset. Amortization of leasehold
improvements is recognized over the shorter of the life of the
improvement or the remaining life of the lease using the straight-line
method.
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
management reviews long-lived assets and the related intangible assets
for impairment whenever events or changes in circumstances indicate
the carrying amount of such assets may not be recoverable.
Recoverability of these assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which the
assets relate, to the carrying amount including associated intangible
assets of such operation. If the operation is determined to be unable
to recover the carrying amount of its assets, then intangible assets
are written down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on discounted
cash flows or appraised values, depending upon the nature of the
assets.
F-8 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(g) Goodwill
Goodwill represents the excess of the aggregate purchase price over
the fair value of the tangible and intangible assets acquired in
various acquisitions. Goodwill costs are being amortized on a
straight-line basis, over periods ranging from two to four years.
Amortization expense for the years ended December 31, 1996, 1997 and
1998 and for the six months ended June 30, 1999 (unaudited) was $-0-,
$-0-, $34 and $361, respectively. Accumulated amortization at December
31, 1997 and 1998 and at June 30, 1999 (unaudited) was $-0-, $34 and
$395, respectively.
(h) Software Development Costs
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
Under the standard, capitalization of software development costs
begins upon the establishment of technological feasibility, subject to
net realizable value considerations. To date, the period between
achieving technological feasibility and the general availability of
such software has been short; therefore, software development costs
qualifying for capitalization have been immaterial. Accordingly, the
Company has not capitalized any software development costs and charged
all costs to research and development expense.
(i) Revenue Recognition
In October 1997, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") No. 97-2, Software
Revenue Recognition. Subsequently, in March 1998, the Financial
Accounting Standards Board ("FASB") approved SOP 98-4, Deferral of the
Effective Date of a Provision of 97-2, Software Revenue Recognition.
SOP 98-4 defers for one year, the application of several paragraphs
and examples in SOP 97-2 that limit the definition of vendor specific
objective evidence (VSOE) of the fair value of various elements in a
multiple element arrangement. The provisions of SOP's 97-2 and 98-4
have been applied to transactions entered into by the Company
beginning January 1, 1998. Prior to 1997, the Company's revenue policy
was in accordance with the preceding authoritative guidance provided
by SOP No. 91-1, Software Revenue Recognition.
SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on
VSOE of the relative fair values of each element in the arrangement.
The revenue allocated to software products is generally recognized by
the Company upon the delivery of the products. The revenue allocated
to extended support agreements is recognized ratably over the term of
the maintenance agreement and revenue allocated to service elements is
recognized as the services are performed.
F-9 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions.
This SOP amends SOP 97-2 to require recognition of revenue using the
"residual method" in circumstances outlined in the SOP. Under the
residual method, revenue is recognized as follows: (1) the total fair
value of undelivered elements, as indicated by VSOE, is deferred and
subsequently recognized in accordance with the relevant sections of
SOP 97-2 and (2) the difference between the total arrangement fee and
the amount deferred for the undelivered elements is recognized as
revenue related to the delivered elements.
SOP 98-9 is effective for fiscal years beginning after March 15, 1999.
Also, the provisions of SOP 97-2 that were deferred by SOP 98-4 will
continue to be deferred until the date SOP 98-9 becomes effective.
(j) Income Taxes
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred income taxes
reflect the future tax consequences of differences between the tax
bases of assets and liabilities and their financial reporting amounts
at each year-end. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
year in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that
include the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
(k) Stock-Based Employee Compensation
The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which defines a fair value based method of accounting
for employee stock options and similar equity instruments. As is
permitted under SFAS No. 123, the Company has elected to continue to
account for its stock-based compensation plans under APB Opinion No.
25 and provide the pro forma disclosures as prescribed by SFAS No.
123.
(l) Advertising
The Company expenses costs of advertising when the costs are incurred.
Advertising expense was approximately $700, $836 and $896 for the
years ended December 31, 1996, 1997 and 1998, respectively.
F-10 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(m) Net Loss Per Share
The Company has adopted SFAS No. 128, Earnings Per Share, which
provides that "basic net income (loss) per share" and "diluted net
income (loss) per share" for all prior periods presented are to be
computed using the weighted average number of common shares
outstanding during each period, with diluted net income per share
including the effect of potentially dilutive common shares. The
reconciliation of shares used to calculate basic and diluted income
per share consists of the following as of December 31:
<TABLE>
<CAPTION>
June 30,
--------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Basic weighted average
shares of common
stock 13,152,557 13,269,082 13,766,073 13,357,891 16,840,576
Effect of dilutive
securities:
Stock options and
warrants -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Diluted weighted average
shares of common
stock 13,152,557 13,269,082 13,766,073 13,357,891 16,840,576
=========== =========== =========== =========== ===========
</TABLE>
Common stock equivalents related to stock options and warrants of
839,853, 1,830,568, 2,259,447, 2,274,118 and 3,059,283 are
anti-dilutive in a net loss year and, therefore, are not included
during the years ended December 1996, 1997 and 1998, and the six
months ended June 30, 1998 and 1999 (unaudited) net loss per share.
(n) Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets,
liabilities and contingencies at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
(o) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, short-term
investments, accounts receivable, and accounts payable approximate
fair value due to the short-term nature of these instruments. The
carrying amounts of capital leases and notes payable approximate fair
value as the stated interest rates reflect current market rates. Fair
value estimates are made at a specific point in time, based on
relevant market information about the financial instrument when
available. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
F-11 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(p) Contingencies and Factors that Could Affect Future Results
A substantial portion of the Company's revenues each year are
generated from the development and release to market of computer
software products. In the extremely competitive industry environment
in which the Company operates, such product generating, development
and marketing processes are uncertain and complex, requiring accurate
prediction of market trends and demand as well as successful
management of various development risks inherent in such products. In
light of these dependencies, it is possible that failure to
successfully manage a significant product introduction could have a
severe near term impact on the Company's growth and results of
operations.
(q) Pro Forma Shareholders Equity (Unaudited)
Pro forma net loss per share has been computed as described above and
also gives effect to common equivalent shares from preferred stock
that will automatically convert upon the closing of the Company's
initial public offering (using the as-if-converted method). If the
Company's initial public offering is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into an aggregate of 29,059,283 shares of
common stock based on the shares of convertible preferred stock
outstanding at June 30, 1999. Unaudited pro forma shareholders' equity
at June 30, 1999, as adjusted for the conversion of the convertible
preferred stock, is disclosed on the balance sheet.
(2) Acquisition
On January 5, 1998, the Company paid $12 in cash and issued 27,500
shares of common stock valued at $2.00 per share to acquire certain
intangible assets of Health Outcome Technologies, Inc. (HOT). This
acquisition was accounted for as a purchase and results of operations
for the acquired company are included only from the date of
acquisition forward. In connection with this acquisition, the Company
recorded goodwill of $67, which is being amortized over two years, the
estimated economic life of the goodwill. The separate results of
operations of HOT were not material compared to the Company's overall
results of operations and as such, pro forma financial information has
been omitted.
F-12 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(3) Balance Sheet Components
(a) Property and Equipment
Property and equipment, including equipment under capital leases,
consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------ June 30,
1997 1998 1999
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
Furniture and equipment $ 3,850 $ 4,565 $ 9,343
Leasehold improvements 876 1,267 1,347
------------- ------------- -------------
4,726 5,832 10,690
Less accumulated depreciation
and amortization (2,757) (4,028) (4,071)
------------- ------------- -------------
$ 1,969 $ 1,804 $ 6,619
============= ============= =============
</TABLE>
(b) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Royalties $ 947 $ 843
Payroll and related liabilities 674 627
Litigation accruals 301 488
Other 265 328
----------- -----------
$ 2,187 $ 2,286
=========== ===========
</TABLE>
(4) Leases
The Company leases certain office furniture and equipment under long-term
capital leases, which expire over the next two years. At December 31, 1997
and 1998, the net book value of leased furniture and equipment included in
property and equipment was $1,122 and $307, respectively.
The Company also leases its office facilities under non-cancelable
operating lease agreements.
F-13 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Future minimum lease payments under non-cancelable operating leases and the
capital leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- -----------
<S> <C> <C>
Year ending December 31:
1999 $ 267 $ 821
2000 65 945
2001 40 945
2002 -- 953
2003 -- 1,044
Thereafter -- 4,090
----------- -----------
Total minimum lease payments 372 $ 8,798
===========
Less amount representing interest (65)
-----------
Present value of net minimum capital
lease payments 307
Less current portion of capital leases (215)
-----------
Non-current portion of capital leases $ 92
===========
</TABLE>
Rent expense for the years ended December 31, 1996, 1997 and 1998 totaled
approximately $600, $611 and $1,073, respectively.
F-14 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(5) Notes Payable
Notes payable consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------- June 30,
1997 1998 1999
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Notes payable, monthly principal and interest
payments of $47; interest at two-year treasury
constant maturities plus 5% per annum (10.4%
as of December 31, 1998 and 9.53% at June 30,
1999 (unaudited)); maturing between September
2000 and September 2001; secured by equipment
purchased thereunder $ -- $ 1,007 $ 774
Note payable, monthly principal and interest
payments of $1; interest at 11% per annum;
final payment due December 31, 2008; unsecured -- 70 68
Note payable, monthly principal and interest
payments of $3; interest at 11% per annum;
final payment due December 31, 2000; unsecured -- 37 --
Notes payable, monthly principal and interest
payments of $25; interest at two-year treasury
constant maturities plus 5% per annum (9.45%
at June 30, 1999); maturing between March 2001
and July 2001; secured by equipment purchased
thereunder, (unaudited) -- -- 529
Note payable, monthly principal and interest
payments of $3; interest at 11% per annum;
final payment due December 1999; unsecured;
(unaudited) -- -- 17
Note payable, monthly principal and interest
payments of $13; interest at 7.96% per annum;
final payment due April 2001; secured by
equipment purchased thereunder, (unaudited) -- -- 369
----------- ----------- -----------
-- 1,114 1,757
Less current portion of long-term debt -- 527 924
----------- ----------- -----------
$ -- $ 587 $ 833
=========== =========== ===========
</TABLE>
Future minimum payments as of December 31, 1998 are as follows:
Year ending December 31:
1999 $ 527
2000 465
2001 69
2002 7
2003 7
Thereafter 39
---------
Total minimum payments $ 1,114
=========
F-15 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(6) Convertible Redeemable Preferred Stock
The Company has authorized several series of convertible redeemable
preferred stock. The title, carrying amount, and number of shares issued
and outstanding are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------- June 30,
1997 1998 1999
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Series A, $1.00 liquidation preference; issued
and outstanding 5,750,001 at December 31,
1997 and 1998 and June 30, 1999 (unaudited) 5,698 5,698 5,698
Series A-1, $10.00 liquidation preference; no
shares issued and outstanding at June 30,
1999 (unaudited) -- -- --
Series C, $2.25 liquidation preference; issued
and outstanding 7,012,637 shares at
December 31, 1997 and 1998 and June 30, 1999
(unaudited) 15,697 15,697 15,697
Series C-1, $22.50 liquidation preference; no
shares issued and outstanding at June 30,
1999 (unaudited) -- -- --
Series E, $3.15 liquidation preference; 4,761,907
shares issued and outstanding at December 31,
1997 and 1998 and June 30, 1999 (unaudited) 14,423 14,423 14,423
Series E-1, $31.50 liquidation preference; no
shares issued and outstanding at June 30,
1999 (unaudited) -- -- --
Series F, $3.40 liquidation preference; 2,000,000,
4,000,000, and 4,000,000 shares issued and
outstanding at December 31, 1997 and 1998
and June 30, 1999 (unaudited) 6,775 13,569 13,569
Series F-1, $34.00 liquidation preference; no
shares issued and outstanding at June 30,
1999 (unaudited) -- -- --
Series I, $3.80 liquidation preference; no
shares issued and outstanding at June 30,
1999 (unaudited) -- -- --
Series I-1, $38.00 liquidation preference; no
shares issued and outstanding at June 30,
1999 (unaudited) -- -- --
Series J, $4.75 liquidation preference; 7,534,738
shares issued and outstanding at June 30, 1999
(unaudited) -- -- 34,300
Series J-1, $47.50 liquidation preference; no
shares issued and outstanding at June 30,
1999 (unaudited) -- -- --
------------ ------------ ------------
Total convertible redeemable
preferred stock 42,593 49,387 83,687
============ ============ ============
See note 13 for unaudited recent developments.
</TABLE>
F-16 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The terms for each series of preferred stock are similar and are summarized
below:
Dividends
---------
Preferred shareholders are entitled to receive dividends when and if
declared by the Board of Directors at an annual rate of $.10 and $1 per
share for Series A and A-1, $.225 and $2.25 per share for Series C and C-1,
$.315, $3.15 for Series E and E-1, $.340 and $3.40 for Series F and F-1,
and $.380 and $3.80 for Series I and I-1, respectively. The right to
receive dividends on preferred stock is not cumulative and no right to
receive dividends accrues to holders of the preferred stock in the event
the Board of Directors does not declare dividends. No dividends may be
declared or paid on common stock until all declared dividends on preferred
stock have been paid. As of December 31, 1998, no dividends had been
declared or paid.
Liquidation Preferences
-----------------------
Upon dissolution, liquidation or winding up of the affairs of the Company,
either voluntarily or involuntarily, the preferred shareholders receive
preference in liquidation over the common shareholders of the Company. The
liquidation value for each outstanding share is $1 and $10 for Series A and
A-1, $2.25 and $22.50 for Series C and C-1, $3.15 and $31.50 for Series E
and E-1, $3.40 and $34.00 for Series F and F-1 and $3.80 and $38.00 for
Series I and I-1, respectively, adjusted for any stock dividends. The
holders of Series E and E-1, Series F and F-1 and Series I and I-1, on a
parity basis among these Series, are entitled to receive their liquidation
value prior to and in preference to any distribution to the holders of
Series A and A-1 and Series C and C-1 preferred stock. The holders of
Series C and C-1 preferred stock are entitled to receive their liquidation
value prior to and in preference to any distribution to the holders of
Series A and A-1.
Redemption
----------
The preferred stock is subject to certain mandatory redemption features
following the affirmative vote of a majority of the outstanding shares of
the preferred stock, effective no earlier than December 31, 2001. Upon the
majority vote of the outstanding shares, the Company is required to redeem
all of the then outstanding preferred stock or an amount determined by the
Company for which funds are available for redemption. The per share
redemption price for each series of preferred stock is equal to its per
share liquidation value for each respective series discussed above.
In the event of a redemption of only a portion of the total outstanding
preferred stock, the Company is required to redeem Series E and E-1, Series
F and F-1 and Series I and I-1 prior to and in preference to the holders of
Series A and A-1 and Series C and C-1 preferred stock. In addition, the
holders of Series C and C-1 will have preference over the holders of Series
A and A-1 preferred stock.
F-17 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Voting
------
The holder of each share of each series of preferred stock is entitled to
the number of votes such holder would be entitled to if the shares of
preferred stock were converted to common stock.
Conversion
----------
Each share of preferred stock is voluntarily convertible into common stock
at any time after the date of issuance at a rate that equals the original
issue price divided by the conversion price at the time in effect, subject
to certain adjustments as set forth in the purchase agreements. Automatic
conversion to common stock at the then effective conversion rate will occur
for Series A, A-1, C, C-1, E and E-1, following the effectiveness of a
registration statement under the Securities Act of 1933 in which the
aggregate price to the public equals or exceeds $7,500,000 and in which the
public offering price per share of common stock equals or exceeds $5. The
public offering price of the Company's common stock that will trigger
automatic conversion of the Series F and F-1 and the Series I and I-1
preferred stock is $5.40 and $5.79 per share, respectively.
(7) Shareholders' Equity
(a) Shareholders' Agreement
The Company and certain of its shareholders have an agreement that
includes restrictions on the purchase and sale of the Company's stock.
Except as expressly provided, no shareholder is allowed to transfer
ownership of stock without the prior written consent of the other
shareholders that are party to the agreement. These restrictions lapse
upon the effectiveness of a registration of common stock under the
Securities Act of 1933, as amended, and the consummation of the sale
of common stock pursuant to that registration statement.
The agreement also requires the Company to purchase a shareholder's
stock under specific conditions and entitles the Company to purchase a
shareholder's stock under certain other conditions. The acquisition
price is equal to the fair value of the shares to be purchased.
F-18 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(b) Stock Incentive Plan
On February 9, 1993, the Company adopted a Stock Incentive Plan which
allowed for the issuance of 4,499,384 shares of common stock. Under
the 1996 Stock Incentive Plan, adopted December 31, 1996, together
with the 1993 Stock Incentive Plan (the Plans), 1,000,000 shares of
common stock were reserved for issuance. The 1996 Plan was amended in
1998 to reserve an additional 700,000 shares of common stock for
issuance, bringing the total under the Plans to 6,194,384. Pursuant to
the terms of the Plans, the Board of Directors is authorized to grant
incentive stock options, non-statutory stock options and to sell
restricted stock to employees or others providing services or benefits
to the Company. The Plans also allow granting of stock bonuses, stock
appreciation rights, and other forms of stock based incentives,
although none have been granted to date. Option prices for incentive
stock options are set at not less than the fair market value of the
common stock at the date of grant. Options vest over periods
determined by the Board of Directors. Options to employees are
contingent upon continued employment with the Company and, unless
otherwise specified, expire ten years from the date of grant. As of
March 1998, the Company extended the term of all outstanding options
from five years to ten years, which constituted a new measurement
date. The Company recorded a compensation charge of $110 in connection
with this change in option terms.
The per share weighted average fair market value, as determined by
applying the Black-Scholes option pricing model to stock options
granted under the Plans during 1996, 1997 and 1998 was $1.44, $1.45
and $1.72, respectively, on the date of grant, with the following
weighted average assumptions:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate 6.3% 6.5% 6.0%
Expected dividend yield 0% 0% 0%
Expected life (in years) 4 4 7
Expected volatility 100% 100% 100%
</TABLE>
The Company continues to apply APB Opinion No. 25 in accounting for
the Plan and, accordingly, compensation cost is generally not
recognized for its stock options in the financial statements. The
effect on the Company's net loss, had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123 is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net loss $ (10,315) $ (10,670) $ (7,035)
Pro forma net loss (10,859) (11,772) (8,145)
Net loss per share (0.78) (0.80) (0.51)
Pro forma net loss
per share (0.83) (0.89) (0.59)
</TABLE>
F-19 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Transactions involving the Plans are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of shares Price
------------- -------------
<S> <C> <C>
Options outstanding, December 31, 1995 591,040 $ 1.20
Granted 496,300 2.00
Exercised (36,500) 0.75
Forfeited (42,700) 1.25
------------- -------------
Options outstanding, December 31, 1996 1,008,140 1.54
Granted 1,072,950 2.00
Exercised (52,137) 0.82
Forfeited (80,923) 1.95
------------- -------------
Options outstanding, December 31, 1997 1,948,030 1.84
Granted 960,986 2.02
Exercised (69,061) 1.05
Forfeited (413,153) 1.99
------------- -------------
Options outstanding, December 31, 1998 2,426,802 1.90
Granted (unaudited) 1,820,500 2.86
Exercised (unaudited) (334,800) 1.79
Forfeited (unaudited) (29,013) 1.96
------------- -------------
Options outstanding, June 30, 1999
(unaudited) 3,883,489 $ 2.36
============= =============
</TABLE>
At December 31, 1998, the range of exercise prices and weighted
average remaining contractual life of outstanding options were $0.20
to $2.00 and eight years, respectively. At December 31, 1998 1,509,146
options were exercisable with a weighted average exercise price of
$1.84.
At December 31, 1998, 193,024 shares were available for grant. See
note 13 for unaudited recent developments.
F-20 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(c) Stock Warrants
In 1994, the Company entered into a Stock Purchase Warrant Agreement
(the Agreement) with Indius, Inc. (II). Pursuant to the Agreement, the
Company issued II warrants to purchase up to 45,000 shares of common
stock at $.31 per share, conditioned on II meeting certain software
development and licensing requirements. At December 31, 1998 all of
the warrants were exercisable. These warrants were exercised in March
1998.
(d) Restricted Stock Purchase Agreement
As of December 1998, the Company had sold 500,000 shares of common
stock for $2.00 per share to senior management of the Company under
agreements which allow the Company, at its option, to repurchase these
shares of common stock at $2.00 per share. In accordance with the
Company repurchase agreements associated with 335,000 of these shares,
the shares subject to repurchase are reduced in equal increments over
36 months from the original vesting dates which range from February
28, 1996 to February 13, 1997. 165,000 of these shares of common stock
are released from the Company's repurchase rights if certain key
business performance criteria are met. See note 13 for Unaudited
Recent Developments.
(8) Income Taxes
The Company incurred a loss for both financial reporting and tax return
purposes for the years ended December 31, 1996, 1997 and 1998. As such,
there was no current or deferred tax provision for those years.
The actual income tax expense differs from the expected tax expense
(computed by applying the U.S. federal corporate income tax rate of 34% to
net income (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Computed expected income tax
(benefit) expense (34.0)% (34.0)% (34.0)%
Increase (reduction) in income tax
expense (benefit) resulting from:
State income tax (benefit) expense (4.3) (4.3) (4.3)
Increase in valuation allowance 39.0 43.8 44.7
Research and development credits (0.7) (3.1) (8.3)
Other -- (2.4) 1.9
------------ ------------ ------------
Income tax expense --% --% --%
============ ============ ============
</TABLE>
F-21 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Furniture and equipment due to differences
in depreciation $ 165 $ 229
Net operating loss and research and
experimentation credit carryforwards 11,221 14,169
Allowance for doubtful accounts 326 234
Other accruals 173 215
-------------- --------------
Gross deferred tax assets 11,885 14,847
Less valuation allowance (11,406) (14,559)
-------------- --------------
Net deferred tax assets 479 288
-------------- --------------
Deferred tax liabilities:
Change in method of accounting (467) (280)
Other (12) (8)
-------------- --------------
Net deferred tax liabilities (479) (288)
-------------- --------------
Net deferred tax assets and liabilities $ -- $ --
============== ==============
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1998 was
approximately $14,559. The net change in the total valuation allowance for
the years ending December 31, 1996, 1997 and 1998 was an increase of
approximately $4,067, $4,668 and $3,153, respectively.
The Company has available federal and state net operating loss
carryforwards for tax purposes of approximately $33,671 and research and
experimentation credits of approximately $1,259, which expire through 2018.
Approximately $7,100 of the net operating losses are subject to annual
utilization limitation due to ownership changes in prior years.
(9) Contingencies
The Company is involved in various claims and legal actions in the normal
course of business. In the opinion of management, the ultimate disposition
of these matters will not have a material effect on the Company's
consolidated financial position, results of operations or liquidity.
F-22 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(10) Segment Information
MedicaLogic derives its revenue from a single operating segment, electronic
medical records, and the service and support related to these products.
Geographic Information
MedicaLogic operates solely within the United States and to date has
derived all of its revenue from within the United States.
Major Customers
During 1996, the Company had sales to four customers which accounted for
approximately 41% of total revenues.
During 1997, the Company had sales to two customers which accounted for
approximately 32% of total revenues. The Company had accounts receivable
from these customers representing approximately 36% of trade accounts
receivable at December 31, 1997.
During 1998, the Company had sales to one customer which accounted for
approximately 21% of total revenues. The Company had accounts receivable
from this customer representing approximately 20% of trade accounts
receivable at December 31, 1998.
(11) 401(k) Plan
The Company sponsors a 401(k) deferred savings plan for all employees.
Employees become eligible to participate in the plan upon employment.
Employees may contribute up to 15% of their pay to the plan, subject to the
limitation of $10 by the Internal Revenue Code. All employee contributions
vest immediately. The Company has not made any matching contributions but
does pay administrative costs for the Plan. These costs were not
significant for any period presented.
F-23 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(12) Subsequent Event
On January 29, 1999, the Company acquired PrimaCis Health Information
Technology, Inc. (PrimaCis), a Delaware corporation. The total purchase
price, including acquisition costs, was $6,453 and consisted of $3,153 in
cash and the issuance of 1,500,000 shares of common stock. In connection
with this transaction, the Company entered into a separate agreement under
which it will receive a purchase order from a customer for 1,500 licenses.
Also related to this separate agreement, the Company has agreed to issue
common stock at fair market value up to $12 million, contingent upon sales
of additional licenses. The contingent stock agreement expires December 31,
2002.
Approximately $2,300 of the total purchase price for PrimaCis related to a
prepayment for a commission related to the purchase order from a customer
for 1,500 licenses. The purchase accounting allocations resulted in
goodwill of approximately $3,200 and other intangible assets of $1,000.
Goodwill costs will be amortized on a straight-line basis over a four year
period. Other intangible assets will be amortized on a straight-line basis
over a two year period.
The pro forma results shown below assume the acquisition described above
occurred as of the beginning of 1998.
Revenues $ 16,408
Net loss (10,126)
Diluted net loss per share (0.66)
The pro forma results are not necessarily indicative of what actually would
have occurred had the acquisition been in effect for the periods presented.
In addition, they are not intended to be a projection of future results
that may be achieved from the combined operations.
(13) Unaudited Recent Developments
(a) Issuance of Preferred Stock
On May 28, 1999, the Company amended its Articles of Incorporation to
authorize 8,421,050 shares of Series J preferred stock and 842,105
shares of Series J-1 preferred stock. The terms of Series J and J-1
preferred stock are substantially identical to Series I and I-1
preferred stock as described in note 6 except that the dividend
preference for Series J and J-1 preferred stock is $0.475 and $4.75
per share, respectively; the liquidation preference and redemption
price for Series J and J-1 preferred stock are $4.75 and $47.50 per
share, respectively; and the public offering price of the Company's
common stock that will trigger automatic conversion of the Series J
and J-1 preferred stock is $5.40 per share. There are 7,534,738 and
-0- shares of Series J and J-1 preferred stock outstanding as of June
30, 1999.
F-24 (Continued)
<PAGE>
MEDICALOGIC, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(b) Lease Transactions
On May 12, 1999 the Company entered into a ten year operating lease
agreement for office space. The lease requires a letter of credit in
lieu of a cash security deposit in the amount of $1,750. In
consideration for the lessor's agreement to enter into the lease, the
Company irrevocably granted options to purchase up to 50,000 shares of
common stock, at a price of $3.25 per share. The lessor is required to
exercise the option at any time within three years of the Company's
initial public offering. In addition, at the time of the Company's
initial public offering the lessor will have the right to purchase the
greater of 100,000 shares of common stock or 1% of the number of
shares offered at the initial offering price.
(c) Stock Incentive Plan
On April 30, 1999, the Company's 1996 Stock Incentive Plan was amended
to reserve an additional 3,800,000 shares of common stock, bringing
the total under the 1993 and 1996 Plans to 9,994,384.
The Company adopted, subject to shareholder approval, the MedicaLogic,
Inc. 1999 Stock Incentive Plan, which authorizes the issuance of
4,000,000 shares of common stock.
(d) Employee Stock Purchase Plan
The Company adopted, subject to shareholder approval, the MedicaLogic,
Inc. 1999 Employee Stock Purchase Plan.
(e) Term Loan Facility and Leasing Arrangement
The Company entered into a term loan facility to finance the purchase
of new capital equipment in the amount of $3,300. These loans are
secured by the equipment purchased thereunder. $1,672 is outstanding
under this facility at June 30, 1999.
In August 1999, the Company entered into a leasing arrangement for the
purpose of leasing computer equipment. These leases are secured by the
equipment obtained thereunder.
(f) Restricted Stock Purchase Agreement
During the first six months of 1999, the Company sold an additional
1,360,000 shares of common stock to senior management at prices
between $2.20 per share and $3.25 per share. 1,090,000 of these shares
are subject to a repurchase option which lapses in equal increments
over 36 months from the purchase date. An additional 270,000 shares
are subject to repurchase if certain key business performance criteria
are not met. In connection with these stock issuances the Company
recorded compensation expense of $309 for the first six months of
1999.
F-25
<PAGE>
Independent Auditors' Report
The Board of Directors
PrimaCis Health Information
Technology, Inc.:
We have audited the accompanying balance sheet of PrimaCis Health Information
Technology, Inc. as of December 31, 1998, and the related statements of
operations, stockholders' deficit, and cash flows for the year ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PrimaCis Health Information
Technology, Inc. as of December 31, 1998, and the results of its operations and
its cash flows for the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
KPMG LLP
Portland, Oregon
July 23, 1999
F-26
<PAGE>
<TABLE>
<CAPTION>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Balance Sheet
(Dollars in thousands, except per share data)
December 31,
Assets 1998
-----------
<S> <C>
Current assets:
Cash and cash equivalents $ 50
Accounts receivable 51
Other receivables 10
-----------
Total current assets 111
Property and equipment, net 58
Other assets 11
-----------
Total assets $ 180
===========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable 19
Accrued liabilities 72
Deferred revenue 225
Current portion of capital leases 10
Notes payable to related party 381
-----------
Total current liabilities 707
Non-current portion of capital leases 10
-----------
Total liabilities 717
-----------
Stockholders' deficit:
Common stock, par value $0.001 per share; authorized
15,000,000 shares; issued and outstanding 11,361,425
shares at December 31, 1998 11
Additional paid in capital 3,005
Notes from shareholders (39)
Warrants 109
Accumulated deficit (3,623)
-----------
Total stockholders' deficit (537)
-----------
Total liabilities and stockholders' deficit $ 180
===========
See accompanying notes to financial statements.
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Statement of Operations
(Dollars in thousands, except per share data)
Year Ended
December 31,
1998
-----------
<S> <C>
Revenues:
Software $ 70
Maintenance and service 178
-----------
Total revenues 248
Operating expenses:
Cost of revenue 16
Marketing and sales 282
Research and development 559
General and administrative 1,063
-----------
Operating loss (1,672)
Other income (expense):
Interest expense (116)
Interest income 2
Other (7)
-----------
Loss before income taxes (1,793)
Provision for income taxes --
Net loss $ (1,793)
===========
Net loss per share - basic and diluted $ (0.16)
===========
Shares used in computing net loss
per share - basic and diluted 11,481,704
See accompanying notes to financial statements.
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Statement of Stockholders' Deficit
Year ended December 31, 1998
(Dollars in thousands)
Common stock Additional Total
---------------------- paid in Notes from Accumulated shareholders'
Shares Amount capital shareholders Warrants deficit deficit
---------- --------- ---------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 9,458,093 $ 9 $ 1,687 $ -- $ -- $ (1,830) $ (134)
Issuance of common stock 3,203,332 3 1,329 (39) -- -- 1,293
Cancellation of common stock (1,300,000) (1) (11) -- -- -- (12)
Issuance of stock warrants -- -- -- -- 109 -- 109
Net loss -- -- -- -- -- (1,793) (1,793)
---------- --------- ---------- ------------ ---------- ----------- -------------
Balances at December 31, 1998 11,361,425 $ 11 $ 3,005 $ (39) $ 109 $ (3,623) $ (537)
========== ========= ========== ============ ========== =========== =============
See accompanying notes to financial statements.
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Statement of Cash Flows
(Dollars in thousands)
Year Ended
December 31,
1998
-----------
<S> <C>
Cash flows from operating activities:
Net loss $ (1,793)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 37
Other non-cash expense 91
Changes in assets and liabilities:
Accounts receivable (22)
Prepaid expenses and other current assets 5
Accounts payable 16
Accrued and other liabilities (128)
Deferred revenue 200
-----------
Net cash used by operating activities (1,594)
-----------
Cash flows from investing activities:
Purchase of fixed assets (37)
-----------
Net cash used by investing activities (37)
-----------
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,293
Proceeds from issuance of notes payable 381
Principal payments under capital lease (7)
-----------
Net cash provided by financing activities 1,667
-----------
Net increase in cash and
cash equivalents 36
Cash and cash equivalents at beginning of year 14
-----------
Cash and cash equivalents at end of year $ 50
===========
Summary of non-cash investing and financing activities:
Issuance of common stock in exchange for note
receivable $ 39
Assets acquired or exchanged under capital leases 23
===========
See accompanying notes to financial statements.
</TABLE>
F-30
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
(1) Summary of Significant Accounting Policies
(a) Company
PrimaCis Health Information Technology, Inc. (the Company), located in
Houston, Texas, was formed in April 1996. The Company develops,
supports and markets its electronic medical record software and its
Internet-based oncology content for its Internet site.
(b) Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or
less to be cash equivalents.
(c) Property and Equipment
Property and equipment are stated at cost. Property and equipment
under capital leases are stated at the lower of the present value of
minimum lease payments at the beginning of the lease term or fair
value of the leased assets at the inception of the lease. The cost of
repairs and maintenance is expensed as incurred.
Depreciation on property and equipment is calculated on a
double-declining basis over the estimated useful lives of the assets,
generally five to seven years. Property and equipment held under
capital leases is amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
Amortization of leasehold improvements is recognized over the shorter
of the life of the improvement or the remaining life of the lease
using the straight-line method.
(d) Software Development Costs
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
Under the standard, capitalization of software development costs
begins upon the establishment of technological feasibility, subject to
net realizable value considerations. To date, the period between
achieving technological feasibility and the general availability of
such software has been short; therefore, software development costs
qualifying for capitalization have been immaterial. Accordingly, the
Company has not capitalized any software development costs and charged
all such costs to research and development expense.
F-31 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
(e) Revenue Recognition
In October 1997, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") No. 97-2, Software
Revenue Recognition. Subsequently, in March 1998, the Financial
Accounting Standards Board ("FASB") approved SOP 98-4, Deferral of the
Effective Date of a Provision of 97-2, Software Revenue Recognition.
SOP 98-4 defers for one year, the application of several paragraphs
and examples in SOP 97-2 that limit the definition of vendor specific
objective evidence (VSOE) of the fair value of various elements in a
multiple element arrangement. The provisions of SOP's 97-2 and 98-4
have been applied to transactions entered into beginning January 1,
1998. Prior to 1997, the Company's revenue policy was in accordance
with the preceding authoritative guidance provided by SOP No. 91-1,
Software Revenue Recognition.
SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on
VSOE of the relative fair values of each element in the arrangement.
The revenue allocated to software products is generally recognized
upon the delivery of the products. The revenue allocated to extended
support agreements is recognized ratably over the term of the
maintenance agreement and revenue allocated to service elements is
recognized as the services are performed. Deferred revenue consists of
payments received or owed from customers for support or other services
not yet performed.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions.
This SOP amends SOP 97-2 to require recognition of revenue using the
"residual method" in circumstances outlined in the SOP. Under the
residual method, revenue is recognized as follows: (1) the total fair
value of undelivered elements, as indicated by VSOE, is deferred and
subsequently recognized in accordance with the relevant sections of
SOP 97-2 and (2) the difference between the total arrangement fee and
the amount deferred for the undelivered elements is recognized as
revenue related to the delivered elements.
SOP 98-9 is effective for fiscal years beginning after March 15, 1999.
Also, the provisions of SOP 97-2 that were deferred by SOP 98-4 will
continue to be deferred until the date SOP 98-9 becomes effective.
F-32 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
(f) Income Taxes
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred income taxes
reflect the future tax consequences of differences between the tax
bases of assets and liabilities and their financial reporting amounts
at each year-end. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
year in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that
include the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
(g) Stock-Based Employee Compensation
The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which defines a fair value based method of accounting
for employee stock options and similar equity instruments. As is
permitted under SFAS No. 123, the Company has elected to continue to
account for its stock-based compensation plans under APB Opinion No.
25 and provide the pro forma disclosures as prescribed by SFAS No.
123.
(h) Net Loss Per Share
The Company has adopted SFAS No. 128, Earnings Per Share, which
provides that "basic net income (loss) per share" and "diluted net
income (loss) per share" for all prior periods presented are to be
computed using the weighted average number of common shares
outstanding during each period, with diluted net income per share
including the effect of potentially dilutive common shares. The
reconciliation of shares used to calculate basic and diluted income
per share consists of the following as of December 31, 1998:
Basic weighted average shares
of common stock 11,481,704
Effect of dilutive securities:
Stock options and warrants 400,000
------------
Diluted weighted average share
of common stock 11,881,704
============
Common stock equivalents related to stock options and warrants are
anti-dilutive in a net loss year and, therefore, are not included in
the 1998 net loss per share.
F-33 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
(i) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts
receivable, and accounts payable approximate fair value due to the
short-term nature of these instruments. The carrying amounts of
capital leases and notes payable approximate fair value as the stated
interest rates reflect current market rates. Fair value estimates are
made at a specific point in time, based on relevant market information
about the financial instrument when available. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
(j) Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets,
liabilities and contingencies at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
(k) Other Assets
Other assets consist primarily of legal costs related to the
organization of the Company. The organizational costs are being
amortized on a straight-line basis over a period of five years.
Amortization expense for the year ended December 31, 1998 was $5.
Accumulated amortization at December 31, 1998 was $14.
(l) Contingencies and Factors that Could Affect Future Results
A substantial portion of the Company's revenues each year are
generated from the development and release to market of computer
software products. In the extremely competitive industry environment
in which the Company operates, such product generating, development
and marketing processes are uncertain and complex, requiring accurate
prediction of market trends and demand as well as successful
management of various development risks inherent in such products. In
light of these dependencies, it is possible that failure to
successfully manage a significant product introduction could have a
sever near term impact on the Company's growth and results of
operations.
F-34 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
(2) Property and Equipment
Property and equipment, including equipment under capital leases, consist
of the following at December 31, 1998:
Furniture $ 74
Equipment 27
----------
101
Less accumulated depreciation
and amortization 43
----------
$ 58
==========
(3) Leases
The Company leases certain office furniture and equipment under a long-term
capital lease, which expires on December 2, 2000. At December 31, 1998, the
net book value of leased furniture and equipment included in property and
equipment was $20.
The Company also leases its office facilities under non-cancelable
operating lease agreements.
F-35 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
Future minimum lease payments under non-cancelable operating leases and the
capital leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- -----------
<S> <C> <C>
Year ending December 31:
1999 $ 12 $ 42
2000 12 12
2001 -- --
2002 -- --
2003 -- --
Thereafter -- --
----------- -----------
Total minimum lease payments 24 $ 54
===========
Less amount representing interest 4
-----------
Present value of net minimum capital
lease payments 20
Less current portion of capital leases 10
-----------
Non-current portion of capital leases $ 10
===========
</TABLE>
Rent expense for the year ended December 31, 1998, totaled approximately
$35.
(4) Notes Payable
During 1998, the Company received an unsecured loan of $381 from an officer
and shareholder of the Company. The loan was evidenced by promissory note
payable and other supporting documentation, and was paid in full during
1999. In conjunction with this loan, the Company granted the shareholder
the option to purchase 300,000 shares of common stock of the Company at an
exercise price of $0.06 per share. The Company recorded the option at fair
value, as determined by the Black-Scholes method, as additional interest
expense over the life of the loan.
(5) Stockholders' Equity
(a) Stockholders' Agreement
The Company and its stockholders have an agreement that includes
restrictions on the purchase and sale of the Company's stock. Except
as expressly provided, no stockholder is allowed to transfer ownership
of stock without the prior written consent of all stockholders.
F-36 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
(b) Stock Incentive Plan
In 1997, the Company adopted an Incentive Stock Option Plan (the
Plan). Pursuant to the terms of the Plan, the Board of Directors is
authorized to grant incentive stock options, non-statutory stock
options and restricted stock to employees or non-employees. Option
prices for incentive stock options are generally set at not less than
the fair market value of the common stock at the date of grant.
Options vest over periods determined by the Board of Directors.
Options are contingent upon continued employment with the Company and,
unless otherwise specified, expire ten years from the date of grant.
The Company has reserved 500,000 shares of its common stock for
issuance under the Plan.
The per share weighted average fair market value, as determined by
applying the Black-Scholes method to stock options granted under the
Plan during 1998, was $0.37 on the date of grant with the following
weighted average assumptions:
Year Ended December 31, 1998
----------------------------------------------------
Risk free interest rate 6.0%
Expected dividend yield 0%
Expected life (in years) 10.0
Expected volatility 100%
The Company continues to apply APB Opinion No. 25 in accounting for
its Plan and, accordingly, compensation cost is generally not
recognized for its stock options in the financial statements. For the
year ended December 31, 1998, the Company recognized $282 in
compensation costs with respect to stock based compensation awards as
valued under APB No. 25. The effect on the Company's net loss, had the
Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, for the year
ended December 31, 1998 is as follows:
Net loss $ (1,793)
Pro forma net loss (1,801)
Net loss per share $ (0.16)
Pro forma net loss per share (0.16)
F-37 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
Transactions involving the Plan are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of shares Price
------------ ------------
<S> <C> <C>
Options outstanding, December 31, 1997 -- $ --
Granted 270,000 0.48
Exercised -- --
Forfeited (205,000) 0.59
------------ ------------
Options outstanding, December 31, 1998 65,000 $ 0.14
============ ============
</TABLE>
At December 31, 1998, the range of exercise prices and weighted
average remaining contractual life of outstanding options were $.05 to
$.09 and ten years, respectively. At December 31, 1998, 65,000 options
were exercisable with a weighted average exercise price of $0.14.
At December 31, 1998, 435,000 shares were available for grant.
(c) Warrants
During fiscal 1998, the Company issued warrants to investors. At
December 31, 1998 warrants to purchase 300,000 and 35,000 shares of
common stock at exercise prices of $0.06 and $0.40, respectively, were
outstanding.
(6) Income Taxes
The Company incurred a loss for both financial reporting and tax return
purposes and, as such, there was no current or deferred tax provision for
the year ended December 31, 1998.
F-38 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
The actual income tax expense differs from the expected tax expense
(computed by applying the U.S. federal corporate income tax rate of 34% to
net income (loss) before income taxes) as follows (in thousands):
<TABLE>
<CAPTION>
1998
------------
<S> <C>
Computed expected income tax (benefit) expense (34.0)%
Increase (reduction) in income tax expense
(benefit) resulting from:
State income tax (benefit) expense --
Increase in valuation allowance 34.0
Research and development credits --
------------
Income tax expense --%
============
The tax effects of temporary differences and net operating loss
carryforwards which give rise to significant portions of deferred tax
assets and deferred tax liabilities at December 31, 1998 are as follows:
Deferred tax assets:
Net operating loss and research and
experimentation credit carryforwards $ 1,362
------------
Gross deferred tax assets 1,362
Less valuation allowance (1,362)
------------
Net deferred tax assets $ --
============
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1998 was an increase of $687.
The Company has available federal and state net operating loss
carryforwards for tax purposes of approximately $3,537 which expire through
2018. Approximately $3,537 of the net operating losses are subject to
annual utilization limitation due to the change in ownership in 1999.
(7) Significant Customers
The Company had two customers that accounted for approximately 98% of the
total revenue for the year ended December 31, 1998.
F-39 (Continued)
<PAGE>
PRIMACIS HEALTH INFORMATION
TECHNOLOGY, INC.
Notes to Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
(8) Subsequent Events
On January 29, 1999, the Company entered into a reorganization and merger
agreement with MedicaLogic, Inc. The purchase price consisted of $3,000 in
cash and 1,500,000 shares of MedicaLogic common stock at $2.20 per share.
F-40
<PAGE>
Pro Forma Financial Information
The following unaudited pro forma condensed combined financial statements have
been prepared to give effect to the acquisition of PrimaCis Health Information
Technology, Inc. (PrimaCis). The historical financial information has been
derived from the respective historical financial statements of MedicaLogic, Inc.
and PrimaCis, and should be read in conjunction with such financial statements
and the related notes included herein. The unaudited pro forma condensed
combined statements of operations combine MedicaLogic's and PrimaCis' historical
statements of operations and give effect to the acquisition, including the
amortization of goodwill and other tangible assets resulting from the
acquisition, as if it occurred on January 1, 1998. The unaudited pro forma
condensed combined statement of operations for the period from December 31, 1998
through June 30, 1999 have not been presented as the results of operations
presented for MedicaLogic during this period include PrimaCis' operating
results. The unaudited pro forma condensed combined balance sheet as of December
31, 1998 gives effect to the acquisition of PrimaCis as if it had occurred on
December 31, 1998.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have actually occurred if the
acquisition had been consummated as of the dates indicated, nor is it
necessarily indicative of the future operating results or financial position of
the combined companies. The pro forma adjustments are based upon available
information and certain assumptions that MedicaLogic believes are reasonable
under the circumstances.
F-41
<PAGE>
<TABLE>
<CAPTION>
MEDICALOGIC, INC.
Unaudited Pro Forma Condensed
Combined Balance Sheet
(Dollars in thousands)
December 31, 1998
---------------------------------------------------------------
Pro forma Pro forma
Assets MedicaLogic PrimaCis adjustments combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,718 $ 50 $ (3,153)(1) $ 1,615
Short-term investments 7,030 -- 7,030
Accounts receivable, net 10,084 51 10,135
Other current assets 545 10 2,250 (3) 2,805
------------ ------------ ------------
Total current assets 22,377 111 21,585
Property and equipment, net 1,804 58 (15)(3) 1,847
Other assets 127 11 4,755 (3) 4,893
------------ ------------ ------------
Total assets $ 24,308 $ 180 $ 28,325
============ ============ ============
Liabilities, Redeemable Preferred Stock
and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 557 $ 19 $ 576
Accrued and other liabilities 2,286 72 2,358
Deferred revenue 2,701 225 2,926
Current portion of capital leases 215 10 225
Current portion of notes payable 527 381 908
------------ ------------ ------------
Total current liabilities 6,286 707 6,993
Non-current portion of capital leases 92 10 102
Notes payable 587 -- 587
------------ ------------ ------------
Total liabilities 6,965 717 7,682
------------ ------------ ------------
Convertible redeemable preferred stock;
50,000,000 shares authorized; aggregate
liquidation preference $50,128; issued
and outstanding 21,524,545 at December 31,
1998 49,387 -- 49,387
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, no par value; authorized
10,000,000 shares; issued and outstanding
13,308,561 shares at December 31, 1998 5,139 11 3,289 (1,2) 8,439
Additional paid in capital -- 3,114 (3,114)(2) --
Common stock notes receivable (2,039) (39) 39 (2) (2,039)
Accumulated deficit (35,144) (3,623) 3,623 (2) (35,144)
------------ ------------ ------------
Total shareholders' equity (deficit) (32,044) (537) (28,744)
------------ ------------ ------------
Total liabilities, redeemable preferred
stock and shareholders' equity
(deficit) $ 24,308 $ 180 $ 28,325
============ ============ ============
See notes to unaudited pro forma condensed combined financial information.
</TABLE>
F-42
<PAGE>
<TABLE>
<CAPTION>
MEDICALOGIC, INC.
Unaudited Pro Forma Condensed Combined
Statement of Operations
(Dollars in thousands, except per share data)
Year Ended December 31, 1998
---------------------------------------------------------------
Pro forma Pro forma
MedicaLogic PrimaCis adjustments combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software $ 10,410 $ 70 $ 10,480
Service and support 5,750 178 5,928
------------ ------------ ------------
Total revenues 16,160 248 16,408
------------ ------------ ------------
Operating expenses:
Cost of revenue 6,754 16 6,770
Marketing and sales 7,579 282 $ 1,305 (4) 9,166
Research and development 8,016 559 8,575
General and administrative 1,044 1,063 (7)(4) 2,100
------------ ------------ ------------
Total operating expenses 23,393 1,920 26,611
------------ ------------ ------------
Operating loss (7,233) (1,672) (10,203)
Other income (expense):
Interest expense (187) (116) (303)
Interest income 707 2 709
Other, net (322) (7) (329)
------------ ------------ ------------
Loss before income taxes (7,035) (1,793) (10,126)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (7,035) $ (1,793) $ (10,126)
============ ============ ============
Net loss per share:
Basic and diluted $ (0.51) $ (0.16) $ (0.66)
============ ============ ============
Shares used in computing net loss per share:
Basic and diluted 13,766,073 11,481,704 15,230,789
============ ============ ============
See notes to unaudited pro forma condensed combined financial information.
</TABLE>
F-43
<PAGE>
Medicalogic, inc.,
Notes to the Unaudited Pro Forma Condensed
Combined Financial Information
(Dollars in thousands, except per share data)
The unaudited pro forma condensed financial information reflects the
acquisition by MedicaLogic, Inc. of PrimaCis Health Information Technology,
Inc. (PrimaCis) and gives effect to certain reclassifications to the
historical financial statements to conform the presentation of the
historical operations of the merged companies.
The adjustments to the unaudited pro forma condensed combined balance sheet
have been calculated as if the acquisition occurred on December 31, 1998.
The adjustments to the unaudited pro forma condensed combined statement of
operations have been calculated as if the acquisition occurred on January
1, 1998.
Pursuant to the merger agreement, a total of $3,000 in cash and 1,500,000
shares of common stock, valued at $2.20 per share, was issued in connection
with the acquisition of PrimaCis in exchange for all outstanding common
shares and vested options of PrimaCis. In addition, MedicaLogic paid $153
in merger related costs which is included in the total purchase price. The
pro forma adjustments to record the purchase of PrimaCis are as follows:
(1) To record the cash paid and stock issued in exchange for all
outstanding shares of PrimaCis capital stock.
(2) To reflect the elimination of the historical stockholders' equity
accounts of PrimaCis.
(3) To record allocation of the purchase price and adjust PrimaCis'
balance sheet for purchase accounting entries:
Total consideration $ 6,453
Book value of assets acquired $ 537
Write down of property and
equipment to fair value 15
Write down of startup costs 11
----------
Net book value allocated to
tangible assets 563
Record prepaid commission (2,250)
----------
Goodwill and other intangibles $ 4,766
==========
F-44 (Continued)
<PAGE>
Medicalogic, inc.,
Notes to the Unaudited Pro Forma Condensed
Combined Financial Information
(Dollars in thousands, except per share data)
The adjustments to the net book value of assets acquired relate to
allocation of the purchase price to the assets acquired based on their
relative fair values and are summarized as follows:
o To write down PrimaCis' property and equipment to the fair value of
the property and equipment acquired.
o To eliminate PrimaCis intangibles consisting of start up costs to
their fair value.
o To allocate a portion of the purchase price to prepaid commission
related to the sale of MedicaLogic software to a PrimaCis customer.
o To record the allocation of the excess purchase price over the fair
value of net tangible assets acquired, totaling approximately $4,800,
which has been recorded as goodwill and other intangible assets which
consists primarily of a customer list. Goodwill, totaling $3,800, is
amortized on a straight line basis, over a four year period. Other
intangible assets, totaling $1,000, are amortized on a straight-line
basis, over a two year period.
(4) To record amortization of goodwill and other intangible assets recorded as
a result of the acquisition and to reduce depreciation expense to reflect
new asset fair values.
F-45
<PAGE>
- --------------------------------------------------------------------------------
1999
MEDICALOGIC, INC.
________________ Shares
---------------
PROSPECTUS
---------------
Donaldson, Lufkin & Jenrette
BancBoston Robertson Stephens
U.S. Bancorp Piper Jaffray
DLJdirect Inc.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of MedicaLogic,
Inc. have not changed since the date hereof.
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these shares of common stock may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the Registrant in connection with the offer
and sale of the Common Stock being registered. All amounts are estimates except
the registration fee, the NASD filing fee and the Nasdaq National Market entry
fee.
Registration fee................................... $ 16,680
NASD filing fee.................................... 6,500
Blue Sky fees and expenses (including legal fees).. 5,000 (1)
Nasdaq National Market entry fee................... 95,000 (1)
Accounting fees and expenses....................... 250,000 (1)
Other legal fees and expenses...................... 200,000 (1)
Transfer agent and registrar fee................... 5,000 (1)
Printing and engraving............................. 90,000 (1)
Miscellaneous...................................... 31,820 (1)
-------
Total............. $700,000 (1)
=======
- --------------
(1) Estimated expense.
Item 14. Indemnification of Directors and Officers
Article IV of the Registrant's 1994 Restated Articles of Incorporation
requires indemnification of current or former directors of the Company to the
fullest extent not prohibited by the Oregon Business Corporation Act. The Oregon
Business Corporation Act permits or requires indemnification of directors and
officers in certain circumstances. The effects of the indemnification provisions
are as follows:
(a) The Indemnification Provisions grant a right of indemnification in
respect of any proceeding (other than an action by or in the right of the
Company), if the person concerned acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Company, was not adjudged liable on the basis of receipt of an improper personal
benefit and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. The termination of a
proceeding by judgment, order, settlement, conviction or plea of nolo
contendere, or its equivalent, is not, of itself, determinative that the person
did not meet the required standards of conduct.
(b) The Indemnification Provisions grant a right of indemnification in
respect of any proceeding by or in the right of the Company against the expenses
(including attorney fees) actually and reasonably incurred if the person
concerned acted in good faith and in a manner the person reasonably
II-1
<PAGE>
believed to be in or not opposed to the best interests of the Company, except
that no right of indemnification will be granted if the person is adjudged to be
liable to the Company.
(c) Every person who has been wholly successful, on the merits or
otherwise, in the defense of any proceeding to which the person was a party
because of the person's status as a director or officer is entitled to
indemnification as a matter of right.
(d) Because the limits of permissible indemnification under Oregon law are
not clearly defined, the Indemnification Provisions may provide indemnification
broader than that described in (a) and (b).
(e) The Registrant may advance to a director or officer the expenses
incurred in defending any proceeding in advance of its final disposition if the
director or officer affirms in writing in good faith that he or she has met the
standard of conduct to be entitled to indemnification as described in (a) or (b)
above and undertakes to repay any amount advanced if it is determined that the
person did not meet the required standard of conduct.
The Registrant has obtained insurance for the protection of its directors
and officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise.
Item 15. Recent Sales of Unregistered Securities
Within the last three years, the Registrant has issued and sold the
following unregistered securities on the dates and for the consideration
indicated:
In December 1996, the Registrant issued an aggregate of 4,761,907 shares of
Series E Preferred Stock to 24 investors for total consideration of
$15,000,007.05. The Series E Preferred Stock was offered and sold by the
Registrant in reliance upon the exemptions from registration pursuant to Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the
Securities Act.
In November 1997, the Registrant issued 2,000,000 shares of Series F
Preferred Stock to one investor for total consideration of $6,800,000. The
shares of Series F Preferred Stock was offered and sold by the Registrant in
reliance upon the exemptions from registration pursuant to Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act. In connection with the same transaction, the Registrant granted to the
investor an option to purchase an additional 2,000,000 shares of Series F
Preferred for $3.40 a share and an option to purchase 4,129,665 shares of Series
G Preferred Stock for $3.65 a share. The Registrant also issued to the investor
an option to purchase one share of Series H Preferred Stock, which option was
exercisable upon the failure of the Registrant to reach specific revenue
targets. On March 31, 1998, the investor exercised its option to purchase
2,000,000 shares of Series F Preferred Stock for a total purchase price of
$6,800,000. The investor and the Registrant agreed to extend the exercise period
for the Series G option agreement to June 1, 1998. The Series G option has
expired and will not be exercised. The Series H option has also expired and will
not be exercised. The Series F Preferred Stock was offered and sold, and the
Series F option, the Series G option and the Series H option were issued and, in
the case of the Series G option, extended by the Registrant, in reliance upon
the exemptions from registration pursuant to Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated under the Securities Act.
In January 1998, the Company issued an aggregate of 27,500 shares of Common
Stock at a deemed value of $2.00 a share to Health Outcome Technologies, Inc.
("HOT") in consideration for the acquisition of certain intangible assets of
HOT. These shares of Common Stock were offered and sold by
II-2
<PAGE>
the Registrant in reliance upon the exemptions from registration pursuant to
Section 4(2) of the Securities Act and Rule 504 of Regulation D promulgated
under the Securities Act.
In March 1998, the Registrant issued 45,000 shares of Common Stock to an
investor for a total purchase price of $13,950, pursuant to the exercise of a
warrant issued in 1994. The Common Stock issued pursuant to the warrant was
offered and sold by the Registrant in reliance upon the exemptions from
registration pursuant to Section 4(2) of the Securities Act.
In August 1998, the Registrant issued an aggregate of 350,000 shares of
Common Stock to Enterprise Partners IV Associates, L.P. and Enterprise Partners
IV, L.P., for a total purchase price of $700,000. In addition, the Registrant
granted an option to purchase 16,000 shares of Common Stock at a price of $2.00
a share to Enterprise Partners IV Associates, L.P. and granted an option to
purchase 184,000 shares of Common Stock at a price of $2.00 a share to
Enterprise Partners IV, L.P. The options were exercised on April 14, 1999. The
shares of Common Stock and the options were offered and sold and issued in
reliance upon the exemptions from registration pursuant to Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities
Act.
In February 1999, the Registrant issued 1,500,000 shares of Common Stock to
the shareholders of PrimaCis Information Technology, Inc., at a deemed value of
$2.20 a share, as partial consideration for the acquisition of PrimaCis. The
shares of Common Stock were offered and sold by the Registrant in reliance upon
the exemptions from registration pursuant to Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated under the Securities Act.
In May 1999, the Registrant issued shares of its Series J Preferred Stock
to four investors. The Registrant offered and sold an aggregate of 7,326,316
shares of Series J Preferred Stock to the investors at a price of $4.75 a share,
for a total purchase price of $34,800,000. The shares of Series J Preferred
Stock were offered and sold by the Registrant in reliance upon the exemptions
from registration pursuant to Section 4(2) of the Securities Act and Rule 506 of
Regulation D promulgated under the Securities Act.
In August 1999, the Registrant issued an additional 3,050,527 shares of its
Series J Preferred Stock to 11 investors. The Registrant offered and sold the
shares of Series J Preferred Stock to the investors at a price of $4.75 a share,
for $13,499,998.75 in cash, and services from three of the investors valued at
$990,004.50. The shares of Series J Preferred Stock were offered and sold by the
Registrant in reliance upon the exemptions from registration pursuant to Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the
Securities Act.
Options, Restricted Stock and Grants under Stock Incentive Plan
As set forth in the chart below, between September 1996 and September 1999
the Registrant granted to employees, consultants and directors stock options
under the Registrant's Stock Incentive Plans in reliance on the exemption from
registration provided by either (i) Section 4(2) of the Securities Act, or (ii)
Rule 701 promulgated under the Securities Act.
II-3
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares
Subject to Exercise
Options Price
---------- --------
<S> <C> <C>
September 1, 1996 to October 28, 1998.............. 1,901,636 $ 2.00
October 29, 1998 to May 25, 1999................... 743,000 $ 2.20
May 26, 1999 and thereafter........................ 1,719,500 $ 3.25
</TABLE>
Of the options granted during the period from September 1, 1996 to
October 28, 1998 to purchase 1,901,636 shares of Common Stock, 1,752,189 were
outstanding as of September 10, 1999. Of the options granted during the period
from October 29, 1998 to May 25, 1999 to purchase 743,000 shares of Common
Stock, 742,631 remain outstanding. Of the options granted after May 26, 1999 to
purchase 1,719,500 shares of Common Stock, all were outstanding as of September
10, 1999.
In the past three years, the Registrant from time to time offered and sold
the following shares of Common Stock as incentive compensation to senior
management of the Registrant, subject to repurchase or performance requirements,
pursuant to Registrant's Stock Incentive Plans. Such restricted Common Stock was
issued in reliance on the exemption from registration provided by either (i)
Section 4(2) of the Securities Act, or (ii) Rule 701 promulgated under the
Securities Act.
<TABLE>
<CAPTION>
Number of
Shares of
Restricted Sale
Common Price
---------- ------
<S> <C> <C>
September 1, 1996 to October 28, 1998........... 500,000 $ 2.00
October 29, 1998 to May 25, 1999................ 600,000 $ 2.20
May 26, 1999 and thereafter..................... 885,000 $ 3.25
</TABLE>
In the past three years, the Registrant from time to time has granted
shares of its Common Stock to employees or consultants in exchange for services
rendered to the Registrant, pursuant to the Registrant's Stock Incentive Plans,
as set forth in the table below in reliance upon the
II-4
<PAGE>
exemption from registration provided by either (i) Section 4(2) of the
Securities Act, or (ii) Rule 701 promulgated under the Securities Act.
<TABLE>
<CAPTION>
Deemed Per
Number of Shares Share Value at
Date of Common Date of Grant
---- ---------------- ---------------
<S> <C> <C>
September 1, 1996 to October 28, 1998.... 58,700 $ 2.00
October 29, 1998 to May 25, 1999......... 47,500 $ 2.20
May 26, 1999 and thereafter.............. 70,000 $ 3.25
</TABLE>
II-5
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1(2) Form of Underwriting Agreement
3.1 1994 Restated Articles of Incorporation, as amended
3.2 Restated Bylaws
4.1 See Article II of Exhibit 3.1 and Article V of Exhibit 3.2
4.2(2) Specimen Stock Certificate
5.1(2) Opinion of Stoel Rives LLP
10.1 1999 Amended and Restated Investor Rights Agreement
10.2 1993 Stock Incentive Plan
10.3 1996 Stock Incentive Plan, as amended
10.4 1999 Stock Incentive Plan
10.5 Form of Incentive Stock Option Agreement
10.6(2) Form of Restricted Stock Purchase Agreement (Performance)
10.7 Form of Restricted Stock Purchase Agreement
10.8 Equipment Financing Agreement between the Company and GE Capital
Financing dated June 5, 1998
10.8.1 Industrial Business Park Lease between the Company and Evergreen
Corporate Center LLC dated January 15, 1997, as amended July 15,
1999
10.8.2 Office Lease between 945 Battery LLC, and the Company, dated May
9, 1999
10.9 Agreement to Issue Shares of Common Stock between the Company and
Baylor College of Medicine dated as of February 16, 1999
10.10 Software Deposit Agreement with Fidex Americas Corporation dated
April 15, 1996
10.11(1) Oracle Alliance Agreement between the Company and Oracle
Corporation dated April 1, 1998, as amended
10.12 Employment Agreement between the Company and Mark Leavitt, dated
August 1, 1985
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2(2) Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
- --------------
(1) Certain portions of this Exhibit have been omitted based on a request for
confidential treatment; such portions have been filed separately with the
Commission.
(2) To be filed by amendment.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-6
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hillsboro, State of Oregon, on September 17, 1999.
MEDICALOGIC, INC.
By DAVID C. MOFFENBEIER
--------------------------------------
David C. Moffenbeier
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mark K. Leavitt and David C. Moffenbeier
his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any amendments (whether pre-effective or
post-effective) to this registration statement for the same offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
each of said attorney-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or their substitute or substitutes, may do or
cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
MARK K. LEAVITT Chairman of the Board September 17, 1999
----------------------------- and Chief Executive
Mark K. Leavitt, M.D. Officer Principal
Executive Officer
II-8
<PAGE>
Signature Title Date
--------- ----- ----
DAVID C. MOFFENBEIER Chief Operating Officer September 17, 1999
----------------------------- and Director Principal
David C. Moffenbeier Financial and Accounting
Officer
CHARLES D. BURWELL Director September 17, 1999
-----------------------------
Charles D. Burwell
BRUCE M. FRIED Director September 17, 1999
-----------------------------
Bruce M. Fried
RONALD H. KASE Director September 17, 1999
-----------------------------
Ronald H. Kase
Director September 17, 1999
-----------------------------
Neal Moszkowski
MARK A. STEVENS Director September 17, 1999
-----------------------------
Mark A. Stevens
RONALD R. TAYLOR Director September 17, 1999
-----------------------------
Ronald R. Taylor
DAVID W. WROE Director September 17, 1999
-----------------------------
David W. Wroe
II-9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1.1(2) Form of Underwriting Agreement
3.1 1994 Restated Articles of Incorporation, as amended
3.2 Restated Bylaws
4.1 See Article II of Exhibit 3.1 and Article V of Exhibit 3.2
4.2(2) Specimen Stock Certificate
5.1(2) Opinion of Stoel Rives LLP
10.1 1999 Amended and Restated Investor Rights Agreement
10.2 1993 Stock Incentive Plan
10.3 1996 Stock Incentive Plan, as amended
10.4 1999 Stock Incentive Plan
10.5 Form of Incentive Stock Option Agreement
10.6(2) Form of Restricted Stock Purchase Agreement (Performance)
10.7 Form of Restricted Stock Purchase Agreement
10.8 Equipment Financing Agreement between the Company and GE Capital
Financing dated June 5, 1998
10.8.1 Industrial Business Park Lease between the Company and Evergreen
Corporate Center LLC dated January 15, 1997, as amended July 15,
1999
10.8.2 Office Lease between 945 Battery LLC, and the Company, dated May
9, 1999
10.9 Agreement to Issue Shares of Common Stock between the Company and
Baylor College of Medicine dated as of February 16, 1999
10.10 Software Deposit Agreement with Fidex Americas Corporation dated
April 15, 1996
10.11(1) Oracle Alliance Agreement between the Company and Oracle
Corporation dated April 1, 1998, as amended
10.12 Employment Agreement between the Company and Mark Leavitt, dated
August 1, 1985
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2(2) Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
- --------------
(1) Certain portions of this Exhibit have been omitted based on a request for
confidential treatment; such portions have been filed separately with the
Commission.
(2) To be filed by amendment.
CERTIFICATE ACCOMPANYING
1994 RESTATED ARTICLES OF INCORPORATION
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc. (the "Company").
2. The 1994 Restated Articles of Incorporation of the Company attached
hereto do not contain an amendment to the articles of incorporation requiring
shareholder approval.
3. The 1994 Restated Articles of Incorporation were adopted by the board of
directors of the Company on July 1, 1994.
DATED: July 1, 1994.
MEDICALOGIC, INC.
By: MARK LEAVITT
-----------------------------------
Mark Leavitt, President
<PAGE>
1994 RESTATED ARTICLES OF INCORPORATION
OF
MEDICALOGIC, INC.
Pursuant to ORS 60.451, MedicaLogic, Inc. adopts the following 1994
Restated Articles of Incorporation, which shall supersede its heretofore
existing Restated Articles of Incorporation and all amendments thereto.
ARTICLE I
The name of the Corporation is MedicaLogic, Inc.
ARTICLE II
A. Authorized Capital. The Corporation is authorized to issue shares of two
classes of stock: 20,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock.
B. Common Stock. Holders of Common Stock are entitled to one vote per
share. On dissolution of the Corporation, after any preferential amount with
respect to the Preferred Stock has been paid or set aside, the holders of Common
Stock and the holders of any series of Preferred Stock entitled to participate
in the distribution of assets are entitled to receive the net assets of the
Corporation.
C. Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by the Oregon Business Corporation Act, as amended from
time to time (the "Act"), and by the provisions of this Article, to provide for
the issuance of shares of Preferred Stock in series, to establish from time to
time the number of shares to be included in each series and to determine the
designations, relative rights, preferences and limitations of the shares of each
series. The authority of the Board of Directors with respect to each series
includes determination of the following:
1. The number of shares in and the distinguishing designation of that
series;
2. Whether shares of that series shall have full, special,
conditional, limited or no voting rights, except to the extent otherwise
provided by the Act;
3. Whether shares of that series shall be convertible and the terms
and conditions of the conversion, including provision for adjustment of the
conversion rate in circumstances determined by the Board of Directors;
<PAGE>
4. Whether shares of that series shall be redeemable and the terms and
conditions of redemption, including the date or dates upon or after which they
shall be redeemable and the amount per share payable in case of redemption,
which amount may vary under different conditions or at different redemption
dates;
5. The dividend rate, if any, on shares of that series, the manner of
calculating any dividends and the preferences of any dividends;
6. The rights of shares of that series in the event of voluntary or
involuntary dissolution of the Corporation and the rights of priority of that
series relative to the Common Stock and any other series of Preferred Stock on
the distribution of assets on dissolution; and
7. Any other rights, preferences and limitations of that series that
are permitted by law to vary.
D. Series A and A-1 Preferred Stock. This Article II.D. sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series A
Preferred Stock ("Series A Preferred") and the number of shares constituting
such series shall be 3,750,000, and the shares of the second of such series
shall be designated Series A-1 Preferred Stock ("Series A-1 Preferred") and the
number of shares constituting such series shall be 375,000.
1. Dividends. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, no dividend other than a dividend
payable in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation shall be paid on any share of Common
Stock unless dividends have first been paid in the current fiscal year of the
Corporation of $0.10 on each share of Series A Preferred and $1.00 on each share
of Series A-1 Preferred (adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to such shares). Such dividends on
the Series A Preferred and Series A-1 Preferred shall not be cumulative.
2. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
subject to the rights of
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<PAGE>
series of Preferred Stock which may from time to time come into existence,
distributions to the shareholders of the Corporation shall be made in the
following manner:
(a) The holders of Series A Preferred and Series A-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, an amount per share of Series A Preferred (the
"Series A Preference") equal to $1.00 plus all declared but unpaid dividends on
the Series A Preferred, and an amount per share of Series A-1 Preferred (the
"Series A-1 Preference") equal to $10.00 per share plus all declared but unpaid
dividends on the Series A-1 Preferred. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A Preferred
and Series A-1 Preferred shall be insufficient to permit the payment to such
holders of their full preferences, then, subject to the rights of series of
Preferred Stock which may from time to time come into existence, the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred and the
Series A-1 Preferred in proportion to the full preferential amount each such
holder is otherwise entitled to receive.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the remaining assets of the Corporation
available for distribution to shareholders shall be distributed among the
holders of Series A Preferred, Series A-1 Preferred, and Common Stock pro rata
based on the number of shares of Common Stock held or issuable upon conversion
of all such Series A Preferred and Series A-1 Preferred held by such holders.
(c) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
(d) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market
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<PAGE>
value of such property as determined in good faith by the Board of Directors of
the Corporation.
3. Redemption.
(a) Subject to the rights of Preferred Stock which may from time
to time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent (50%) of the then outstanding Series A Preferred and
Series A-1 Preferred (together on an as-converted basis), provided such request
is received after June 30, 1999, the Corporation shall redeem one hundred
percent (100%) of the number of shares of Series A Preferred and Series A-1
Preferred outstanding on the Request Date, or such lesser number of shares as
the Board of Directors shall determine is the maximum number of shares for which
funds are legally available for redemption. The redemption price for these
shares shall be paid in cash and shall be a sum per share equal to the Series A
Preference for Series A Preferred and the Series A-1 Preference for Series A-1
Preferred. If all of the shares of the Series A Preferred or Series A-1
Preferred are not redeemed because of a determination of insufficient funds, the
Corporation shall redeem additional shares only upon receipt of a new request
from the holders as provided in this subsection 3(a).
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred and Series A-1 Preferred, the Corporation
shall effect such redemption pro rata according to the full amount of cash each
holder would receive if all such shares were being redeemed.
(ii) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Preferred Stock (the "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Preferred Stock to be redeemed, at the address last
shown on the records of the Corporation for such holder or given by the holder
to the Corporation for the purpose of notice or if no such address appears or is
given at the place where the principal executive office of the Corporation is
located, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
applicable redemption price, the place at which payment may be obtained and the
date on which such holder's conversion rights as to such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in
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<PAGE>
subsection 3(b)(iii), on or after the Redemption Date each holder of Preferred
Stock to be redeemed shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the applicable redemption price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(iii) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such shares as holders of Preferred Stock (except the right to
receive the applicable redemption price without interest upon surrender of their
certificate or certificates) 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. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred or Series A-1 Preferred, and shall be restored to
the status of authorized but unissued shares of Preferred Stock.
4. Voting Rights.
(a) Except as otherwise required by law, the holders of Series A
Preferred and Series A-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series A Preferred and Series A-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 5 below). Except as otherwise required by law or as
otherwise provided herein, the holders of shares of Series A Preferred and
Series A-1 Preferred shall vote together with the Common Stock as a single
class.
(b) The holders of the Series A Preferred and the Series A-1
Preferred, voting together, shall be entitled to elect two members of the
Corporation's Board of Directors, with each share of Series A Preferred and
Series A-1 Preferred having that number of votes equal to the number of shares
of Common Stock into which it is convertible (as defined in Section 5 below).
The holders of the Common Stock, voting as a
5
<PAGE>
separate class, shall be entitled to elect all members of the Board of Directors
not elected by holders of Preferred Stock.
(c) The Series A Preferred and the Series A-1 Preferred shall not
be entitled under Oregon law to vote separately on a plan of merger, but instead
shall vote together on a plan of merger as provided in Section 6.
5. Conversion Rights. The holders of the Series A Preferred and
Series A-1 Preferred shall have conversion rights as follows (the Conversion
Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of
Series A Preferred and Series A-1 Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price at the time in effect. The
Original Issue Price for the Series A Preferred is $1.00 per share and the
Original Issue Price for the Series A-1 Preferred is $10.00 per share. The
initial Conversion Price for the Series A Preferred and the Series A-1 Preferred
shall be $1.00 per share; provided, however, that the Conversion Prices shall be
subject to adjustment as hereinafter provided.
(ii) In the event of a call for redemption of any shares of
Series A Preferred or Series A-1 Preferred pursuant to Section 3 hereof, the
Conversion Rights shall terminate as to the shares designated for redemption at
the close of business on the Redemption Date, unless default is made in payment
of the applicable redemption price.
(iii) Each share of Series A Preferred and Series A-1
Preferred shall automatically be converted into shares of Common Stock at the
applicable Conversion Price in effect immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.00 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and $7,500,000 in the aggregate.
6
<PAGE>
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Adjustments to Conversion Price of Series A Preferred for
Dilutive Issues; Special Conversion of Series A Preferred:
(i) Special Definitions. For purposes of this Section 5(c),
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series A Issue Date" shall mean the date on which
the first share of Series A Preferred was first issued.
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
7
<PAGE>
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities
outstanding on the Series A Issue Date,
(2) Common Stock issued pursuant to a transaction
described in subsection 5(d) hereof,
(3) shares issued pursuant to the acquisition of
another corporation by the Corporation by merger, purchase of
substantially all of the assets, or other reorganization, or
(4) shares of Common Stock issuable or issued to
directors, employees or other service providers to the Corporation at
any time when the total number of shares of Common Stock so issuable
or issued after the Series A Issue Date (and not repurchased at cost
by the Corporation in connection with the termination of service as a
director, employee or other service provider) does not exceed 328,384
plus (x) the number of shares of Common Stock repurchased at cost by
the Corporation from directors, employees or other service providers
in connection with termination of employment or other service
arrangements pursuant to agreements entered into prior to the Series A
Issue Date and (y) the number of shares of Common Stock subject to
outstanding Options on the Series A Issue Date that subsequently
terminate unexercised.
(E) "Pro Rata Share" with respect to each holder of
Series A Preferred shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance
(ii) multiplied by a fraction, the numerator of which is the number of shares of
Common Stock into which the Series A Preferred then held by such holder is then
convertible, and the denominator of which is the total number of shares of
Common Stock then outstanding plus the number of shares of Common Stock issuable
upon conversion of all Preferred Stock then outstanding.
(F) "Dilutive Issuance" with respect to the Series A
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than
8
<PAGE>
the Conversion Price of such series of Preferred Stock in effect on the date of
and immediately prior to such issue.
(G) "Participating Investor" shall mean any holder of
Series A Preferred that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder
of Series A Preferred that is not a Participating Investor and whose Pro Rata
Share is not purchased by a Substitute Investor.
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance, it shall give each holder of Series A Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series A Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. Each holder of Series A Preferred that
is not an Accredited Investor may, within twenty (20) days from the date of the
Issuance Notice, provide written notice to the Corporation that another holder
of Series A Preferred that is an Accredited Investor (the "Substitute Investor")
will purchase such holder's Pro Rata Share for the price and upon the terms
specified in the Issuance Notice. In the event that such holder fails to give
such notice within the twenty (20) day period, or fails to actually purchase (or
have purchased by the Substitute Investor) its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Refused Percentage") by (or by a Substitute Investor
on behalf of) each Nonparticipating Investor, that number of outstanding shares
of Series A Preferred held by such Nonparticipating Investor equal to the
product of (x) the number of shares of such series held by the Nonparticipating
Investor, times (y) the Refused Percentage, shall be converted automatically on
the date (the "Closing Date") of the applicable Dilutive Issuance (provided
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<PAGE>
that the Corporation gave the Issuance Notice to such holder of Series A
Preferred) into a number of fully-paid and nonassessable shares of Series A-1
Preferred (or such other series as to which shares are then authorized pursuant
to Section 5(c)(ii)(E)) equal to one-tenth of the number of shares of Series A
Preferred so converted. Such Series A-1 Preferred may be issued in tenths of a
share. The Nonparticipating Investor shall be treated for all purposes as the
record holder of such shares of Series A-1 Preferred on the Closing Date. As
provided in Section 5(a)(i), prior to the Closing Date each Nonparticipating
Investor shall have the right to convert its shares of Series A Preferred into
shares of Common Stock at the conversion rate in effect for such series as of
the date of such conversion.
(C) Shares of Series A Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series A Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock. No shares of Series A-1 Preferred shall be issued except as set forth in
this Section 5(c)(ii) upon conversion of shares of Series A Preferred.
(D) No adjustment in the Conversion Price of the
Series A-1 Preferred shall be made in respect of the issuance of Additional
Shares of Common Stock, regardless of the issuance price of such shares, except
for the issuance of such shares as a stock dividend, stock split, or in
connection with such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series A-1
Preferred are issued, effective on the Closing Date, any shares of Series A-1
Preferred that remain unissued after such issuance shall be cancelled, shall not
be available for issuance and shall be restored to the status of authorized but
unissued shares of Preferred Stock. In addition, concurrently with such
issuance, the Corporation shall take all such action as may be required,
including amending these Articles of Incorporation, (1) to evidence the
cancellation of such unissued shares of Series A-1 Preferred, (2) to create and
reserve for issuance upon any subsequent Dilutive Issuance a new series of
Preferred Stock equal in number to the number of shares of Series A-1 Preferred
so cancelled and designated Series A-2 Preferred, with relative rights,
preferences and limitations identical to those then applicable to the Series A-1
Preferred, except that the Conversion Price for the Series A-2 Preferred shall
initially be the Conversion Price then in effect for the Series A Preferred, and
(3) to amend the provisions of this Section 5 to provide that any subsequent
conversion of Series A Preferred upon a Dilutive Issuance will
10
<PAGE>
be into shares of Series A-2 Preferred rather than Series A-1 Preferred. The
Corporation shall take the same actions with respect to the Series A-2 Preferred
and each series of Preferred Stock subsequently authorized under this Section
(5)(c)(ii)(E) upon the initial issuance of shares of such series.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series A
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to
Section 5(c)(v) hereof) of such Additional Shares of Common Stock would be less
than the Conversion Price for the Series A Preferred in effect on the date of
and immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease
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<PAGE>
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
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<PAGE>
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(c)(iii)) after the Series A Issue Date
without consideration or for consideration per share less than the Conversion
Price for the Series A Preferred in effect on the date of and immediately prior
to such issue, then and in such event, the Conversion Price for the Series A
Preferred shall be reduced, concurrently with such issue, to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of such
Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors irrespective of any
accounting treatment; and
(3) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so
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<PAGE>
received, computed as provided in clauses (A) and (B) above, as determined in
good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exercise of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustment of Conversion Price. The Conversion Price of the
Series A Preferred and the Series A-1 Preferred shall be subject to adjustment
from time to time as follows:
(i) If the number of shares of Common Stock outstanding at
any time after the Series A Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series A Preferred and the Series A-1 Preferred shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of shares of such Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the Series A Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall
14
<PAGE>
be appropriately increased so that the number of shares of Common Stock issuable
on conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) In case, at any time after the Series A Issue Date, of
any capital reorganization or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a stock dividend
or subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series A Preferred and Series A-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been entitled if immediately prior to such reorganization or
reclassification such holder had converted its shares of Preferred Stock into
Common Stock. The provisions of this Section 5(d)(iii) shall similarly apply to
successive reorganizations or reclassifications.
(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value for such
Common Stock as determined by the Board of Directors. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price. All calculations under this Section 5 shall
be made to the nearest one hundredth of a cent ($0.0001) or to the nearest one
hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets excluding cash
dividends or options or rights not referred to in subsection 5(d)(i), then in
each such case for the purpose of this subsection 5(g), the holders of Series A
Preferred and Series A-1 Preferred shall be entitled to a proportionate share of
any such
15
<PAGE>
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the Corporation from amending its Articles of
Incorporation in accordance with the Oregon Business Corporation Act.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect for each series of Preferred
Stock, and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Preferred Stock held by such holder.
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion
16
<PAGE>
of the shares of Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of
Series A Preferred or Series A-1 Preferred shall be converted into Common Stock
pursuant to Section 5 hereof, the shares so converted shall not be reissued and
shall no longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(m) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
Corporation.
6. Protective Provisions. Subject to the rights of series of Preferred
Stock which may from time to time come into existence, so long as shares of
Series A Preferred or Series A-1 Preferred are outstanding, the Corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series A Preferred and Series A-1 Preferred (together on an
as-converted basis):
(a) Amend or repeal any provision of these 1994 Restated Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series A Preferred or Series A-1 Preferred;
(b) Except as provided in Section 5(c)(ii)(E), authorize or
result in the issuance of shares of any class of stock having any preference or
priority as to dividends or assets superior to or on a parity with any
preference or priority of the Series A Preferred or Series A-1 Preferred;
(c) Increase the authorized number of shares of Series A
Preferred or Series A-1 Preferred;
17
<PAGE>
(d) Increase the number of directors authorized in the bylaws
above five (5);
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
(g) Take any action that would result in the taxation of the
holders of the Series A Preferred or Series A-1 Preferred under Section 305 of
the Internal Revenue Code of 1986.
ARTICLE III
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for conduct as a director,
provided that this Article shall not eliminate the liability of a director for
any act or omission for which such elimination of liability is not permitted
under the Oregon Business Corporation Act. No amendment to the Oregon Business
Corporation Act that further limits the acts or omissions for which elimination
of liability is permitted shall affect the liability of a director for any act
or omission which occurs prior to the effective date of the amendment.
ARTICLE IV
The Corporation shall indemnify to the fullest extent not prohibited
by law any current or former director of the Corporation who is made, or
threatened to be made, a party to an action, suit or proceeding, whether civil,
criminal, administrative, investigative or other (including an action, suit or
proceeding by or in the right of the Corporation), by reason of the fact that
such person is or was a director, officer, employee or agent of the Corporation
or a fiduciary within the meaning of the Employee Retirement Income Security Act
of 1974 with respect to any employee benefit plan of the Corporation, or serves
or served at the request of the Corporation as a director, officer, employee or
agent, or as a fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust or other enterprise. The Corporation shall pay
for or reimburse the reasonable expenses incurred by any such current or former
director in any such proceeding in advance of the final disposition of the
proceeding if the person sets forth in writing (i) the person's good faith
belief that the person is entitled to indemnification under this Article and
(ii) the person's
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<PAGE>
agreement to repay all advances if it is ultimately determined that the person
is not entitled to indemnification under this Article. No amendment to this
Article that limits the Corporation's obligation to indemnify any person shall
have any effect on such obligation for any act or omission that occurs prior to
the later of the effective date of the amendment or the date notice of the
amendment is given to the person. This Article shall not be deemed exclusive of
any other provisions for indemnification or advancement of expenses of
directors, officers, employees, agents and fiduciaries that may be included in
any statute, bylaw, agreement, general or specific action of the Board of
Directors, vote of shareholders or other document or arrangement.
MEDICALOGIC, INC.
By: MARK LEAVITT
----------------------------------------
Mark Leavitt, President
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<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. Article II.A. of the 1994 Restated Articles of Incorporation of the
corporation is amended (the "Authorization Amendment") to read in its entirety
as follows:
"A. Authorized Capital. The Corporation is authorized
to issue shares of two classes of stock: 100,000,000 shares
of Common Stock and 50,000,000 shares of Preferred Stock."
3. The first paragraph of Article II.D. of the 1994 Restated Articles of
Incorporation of the corporation is amended (the "Designation Amendment") to
read in its entirety as follows:
"Series A and A-1 Preferred Stock. This Article II.D.
sets forth the designation, preferences, limitations and
relative rights of two series of Preferred Stock of the
Corporation as determined by the Board of Directors of the
Corporation pursuant to its authority under ORS 60.134 and
Article II.C. above. The shares of the first of such series
shall be designated Series A Preferred Stock ("Series A
Preferred") and the number of shares constituting such
series shall be 5,750,001, and the shares of the second of
such series shall be designated Series A-1 Preferred Stock
("Series A-1 Preferred") and the number of shares
constituting such series shall be 575,000.1."
4. The amendments to Article II.A. and Article II.D. were adopted by the
shareholders of the corporation on December 30, 1994.
5. 12,243,519 shares of Common Stock and 3,750,000 shares of Series A
Preferred Stock were outstanding on December 19, 1994, the record date for the
meeting at which the amendments were approved. The Common Stock and the Series A
Preferred Stock (on an as-converted basis), voting together as a single class,
were entitled to be voted on the Authorization Amendment and the Designation
Amendment. In addition, the Series A Preferred Stock (on an as-
<PAGE>
converted basis), voting separately as a class, was entitled to be voted on the
Designation Amendment.
6. 8,716,644 shares of Common Stock were voted for, and -0- shares of
Common Stock were voted against, the Authorization Amendment. 3,440,000 shares
of Series A Preferred Stock were voted for, and -0- shares of Series A Preferred
Stock were voted against, the Authorization Amendment.
7. 8,716,644 shares of Common Stock were voted for, and -0- shares of
Common Stock were voted against, the Designation Amendment. 3,440,000 shares of
Series A Preferred Stock were voted for, and -0- shares of Series A Preferred
Stock were voted against, the Designation Amendment.
DATED: December 30, 1994.
MEDICALOGIC, INC.
By MARK LEAVITT
-------------------------------------
Mark Leavitt, President
2
<PAGE>
CERTIFICATE ACCOMPANYING
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc. (the "Company").
2. The Articles of Amendment of the Company attached hereto do not contain
an amendment to the articles of incorporation requiring shareholder approval.
3. Articles of Amendment were adopted by the board of directors of the
Company as of December 30, 1994.
DATED: February 21, 1995.
MEDICALOGIC, INC.
By: MARK LEAVITT
------------------------------------
Mark Leavitt, President
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. The 1994 Restated Articles of Incorporation of the corporation, as
amended, are amended to add a new Article II.E to the end of Article II to read
in its entirety as follows:
"E. Series B and B-1 Preferred Stock. This Article II.E. sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series B
Preferred Stock ("Series B Preferred") and the number of shares constituting
such series shall be 1,200,000, and the shares of the second of such series
shall be designated Series B-1 Preferred Stock ("Series B-1 Preferred") and the
number of shares constituting such series shall be 120,000.
1. Dividends. Subject to the rights of the Series A Preferred, the
Series A-1 Preferred and series of Preferred Stock which may from time to time
come into existence, no dividend other than a dividend payable in Common Stock
or other securities and rights convertible into or entitling the holder thereof
to receive, directly or indirectly, additional shares of Common Stock of this
Corporation shall be paid on any share of Common Stock unless dividends have
first been paid in the current fiscal year of the Corporation of $0.20 on each
share of Series B Preferred and $2.00 on each share of Series B-1 Preferred
(adjusted for any combinations, consolidations, stock distributions or stock
dividends with respect to such shares). Such dividends on the Series B Preferred
and Series B-1 Preferred shall not be cumulative.
2. Liquidation Preference. Notwithstanding any provision to the
contrary in Section 2 of Article II.D. hereof, in the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
subject to the rights of series of Preferred Stock which may from time to time
come into existence, distributions to the shareholders of the Corporation shall
be made in the following manner:
(a) The holders of Series B Preferred and Series B-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, and on a parity with the holders of Series A Preferred
and Series A-1 Preferred, an amount per share of Series B Preferred (the "Series
B Preference") equal to $2.00 plus all declared but unpaid dividends on the
Series B Preferred, and an amount per share of Series B-1 Preferred (the "Series
B-1 Preference") equal to $20.00 per share plus all declared but unpaid
dividends on the Series B-1 Preferred. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A Preferred,
Series A-1 Preferred, Series B Preferred and Series B-1 Preferred shall be
insufficient to permit the payment to such holders of their full preferences,
then, subject to the rights of series of Preferred Stock
<PAGE>
which may from time to time come into existence, the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred, the Series A-1 Preferred, the
Series B Preferred and the Series B-1 Preferred in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the remaining assets of the Corporation
available for distribution to shareholders shall be distributed among the
holders of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series
B-1 Preferred, and Common Stock pro rata based on the number of shares of Common
Stock held or issuable upon conversion of all such Series A Preferred, Series
A-1 Preferred, Series B Preferred and Series B-1 Preferred held by such holders.
(c) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
(d) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3. Redemption. Notwithstanding any provision to the contrary in
Section 3 of Article II.D. hereof:
(a) Subject to the rights of Preferred Stock which may from time
to time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent (50%) of the then outstanding Series A Preferred,
Series A-1 Preferred, Series B Preferred and Series B-1 Preferred (together on
an as-converted basis), provided such request is received after June 30, 1999,
the Corporation shall redeem one hundred percent (100%) of the number of shares
of Series A Preferred, Series A-1 Preferred, Series B Preferred and Series B-1
Preferred outstanding on the Request Date, or such lesser number of shares as
the Board of Directors shall determine is the maximum number of shares for which
funds are legally available for redemption. The redemption price for these
shares shall be paid in cash and shall be a sum per share equal to the Series A
Preference for Series A Preferred, the Series A-1 Preference for Series A-1
Preferred, the Series B Preference for the Series B Preferred and the Series B-1
Preference for the Series B-1 Preferred. If all of the shares of the Series A
Preferred, Series A-1 Preferred, Series B Preferred and Series B-1 Preferred are
not redeemed because of a determination of insufficient funds, the Corporation
shall redeem
2
<PAGE>
additional shares only upon receipt of a new request from the holders as
provided in this subsection 3(a).
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred, Series A-1 Preferred, Series B Preferred
and Series B-1 Preferred, the Corporation shall effect such redemption pro rata
according to the full amount of cash each holder would receive if all such
shares were being redeemed.
(ii) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Preferred Stock (the "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Preferred Stock to be redeemed, at the address last
shown on the records of the Corporation for such holder or given by the holder
to the Corporation for the purpose of notice or if no such address appears or is
given at the place where the principal executive office of the Corporation is
located, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
applicable redemption price, the place at which payment may be obtained and the
date on which such holder's conversion rights as to such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in subsection
3(b)(iii), on or after the Redemption Date each holder of Preferred Stock to be
redeemed shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the applicable redemption price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(iii) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such shares as holders of Preferred Stock (except the right to
receive the applicable redemption price without interest upon surrender of their
certificate or certificates) 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. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred, Series A-1 Preferred, Series B Preferred or
Series B-1 Preferred and shall be restored to the status of authorized but
unissued shares of Preferred Stock.
4. Voting Rights. Notwithstanding any provision to the contrary in
Section 4 of Article II.D hereof:
3
<PAGE>
(a) Except as otherwise required by law, the holders of Series B
Preferred and Series B-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series B Preferred and Series B-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 4 below). Except as otherwise required by law or as
otherwise provided herein, the holders of shares of Series B Preferred and
Series B-1 Preferred shall vote together with the Common Stock, the Series A
Preferred and Series A-1 Preferred as a single class.
(b) The holders of the Series B Preferred, the Series B-1
Preferred and the Common Stock, voting together as a single class, shall be
entitled to elect all members of the Board of Directors not elected by holders
of the Series A Preferred and Series A-1 Preferred.
(c) The Series B Preferred and the Series B-1 Preferred shall not
be entitled under Oregon law to vote separately on a plan of merger, but instead
shall vote together with the Series A Preferred and Series A-1 Preferred on a
plan of merger as provided in Section 6.
5. Conversion Rights. The holders of the Series B Preferred and Series
B-1 Preferred shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of
Series B Preferred and Series B-1 Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price at the time in effect. The
Original Issue Price for the Series B Preferred is $2.00 per share and the
Original Issue Price for the Series B-1 Preferred is $20.00 per share. The
initial Conversion Price for the Series B Preferred and the Series B-1 Preferred
shall be $2.00 per share; provided, however, that the Conversion Prices shall be
subject to adjustment as hereinafter provided.
(ii) Each share of Series B Preferred and Series B-1
Preferred shall automatically be converted into shares of Common Stock at the
applicable Conversion Price in effect immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.00 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $7,500,000 in the aggregate.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage
4
<PAGE>
prepaid, to the Corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offer of securities registered pursuant to the
Securities Act of 1933, the conversion may, at the option of any holder
tendering Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) Adjustments to Conversion Price of Series B Preferred for
Dilutive Issues; Special Conversion of Series B Preferred:
(i) Special Definitions. For purposes of this Section 5(b),
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series B Issue Date" shall mean the date on which
the first share of Series B Preferred Stock is first issued.
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding on the
Series A Issue Date,
(2) Common Stock issued pursuant to a transaction described
in subsection 5(d) hereof,
5
<PAGE>
(3) shares issued pursuant to the acquisition of another
corporation by the Corporation by merger, purchase of substantially
all of the assets, or other reorganization, or
(4) shares of Common Stock issuable or issued to directors,
employees or other service providers to the Corporation at any time
when the total number of shares of Common Stock so issuable or issued
after the Series A Issue Date (and not repurchased at cost by the
Corporation in connection with the termination of service as a
director, employee or other service provider) does not exceed 328,384
plus (x) the number of shares of Common Stock repurchased at cost by
the Corporation from directors, employees or other service providers
in connection with termination of employment or other service
arrangements pursuant to agreements entered into prior to the Series A
Issue Date, and (y) the number of shares of Common Stock subject to
outstanding Options on the Series A Issue Date, that subsequently
terminate unexercised.
(E) "Pro Rata Share" with respect to each holder of
Series B Preferred shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance
(ii) multiplied by a fraction, the numerator of which is the number of shares of
Common Stock into which the Series B Preferred then held by such holder is then
convertible, and the denominator of which is the total number of shares of
Common Stock then outstanding.
(F) "Dilutive Issuance" with respect to the Series B
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
(G) "Participating Investor" shall mean any holder of
Series B Preferred that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder
of Series B Preferred (or holder of the Series B Warrant) that is not a
Participating Investor.
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance, it shall give each holder of Series B Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series B Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. In the event that such holder fails to
give such notice within the twenty
6
<PAGE>
(20) day period, or fails to actually purchase its Pro Rata Share of the
Dilutive Issuance (other than as a result of the Corporation refusing to allow
such holder to so purchase its Pro Rata Share), such holder shall be deemed to
be a Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series B Preferred held by such
Nonparticipating Investor equal to the product of (x) the number of shares of
such series held by the Nonparticipating Investor, times (y) the Refused
Percentage, shall be converted automatically on the date (the "Closing Date") of
the applicable Dilutive Issuance (provided that the Corporation gave the
Issuance Notice to such holder of Series B Preferred) into a number of
fully-paid and nonassessable shares of Series B-1 Preferred (or such other
series as to which shares are then authorized pursuant to Section 5(c)(ii)(E))
equal to one-tenth of the number of shares of Series B Preferred so converted.
Such Series B-1 Preferred may be issued in tenths of a share. The
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series B-1 Preferred on the Closing Date. As provided in
Section 5(a)(i), prior to the Closing Date each Nonparticipating Investor shall
have the right to convert its shares of Series B Preferred, if any, into shares
of Common Stock at the conversion rate in effect for such series as of the date
of such conversion.
(C) Shares of Series B Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series B Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock. No shares of Series B-1 Preferred shall be issued except as set forth in
this Section 5(c)(ii) upon conversion of shares of Series B Preferred.
(D) No adjustment in the Conversion Price of the Series
B- 1 Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except for the
issuance of such shares as a stock dividend, stock split, or in connection with
such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series B-1
Preferred are issued or become subject to issuance or exercise of the Series B
Warrant, effective on the Closing Date, any shares of Series B-1 Preferred that
remain unissued after such issuance shall be cancelled, shall not be available
for issuance and shall be restored to the status of authorized but unissued
shares of Preferred Stock. In addition, concurrently with such issuance, or that
do not become subject to issuance, the Corporation shall take all such action as
may be required, including amending these Articles of Incorporation, (1) to
evidence the cancellation of such unissued shares of Series B-1 Preferred, (2)
to create and reserve for issuance upon any subsequent Dilutive Issuance a new
series of Preferred Stock equal in number to the number of shares of Series B-1
Preferred so cancelled and designated Series B-2 Preferred, with relative
rights, preferences and limitations identical to those then applicable to the
Series B-1 Preferred, except that the Conversion Price for the Series B-2
Preferred shall initially be the Conversion Price then in effect for the Series
B Preferred, and (3) to amend the provisions of this Section 5 to provide that
any subsequent conversion of Series B Preferred upon a Dilutive Issuance will be
into shares of Series B-2 Preferred rather than Series B-1
7
<PAGE>
Preferred. The Corporation shall take the same actions with respect to the
Series B-2 Preferred and each series of Preferred Stock subsequently authorized
under this Section 5(c)(ii)(E) upon the initial issuance of shares of such
series.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series A
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
5(c)(v) hereof) of such Additional Shares of Common Stock would be less than the
Conversion Price for the Series B Preferred in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received
8
<PAGE>
therefor was the consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(c)(iii)) after the Series A Issue Date
without consideration or for consideration per share less than the Conversion
Price for the Series B Preferred in effect on the date of and immediately prior
to such issue, then and in such event, the Conversion Price for the Series B
Preferred shall be reduced, concurrently with such issue, to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of such
Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
9
<PAGE>
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors irrespective of any
accounting treatment; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exercise of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustment of Conversion Price. The Conversion Price of the
Series B Preferred and the Series B-1 Preferred shall be subject to adjustment
from time to time as follows:
(i) If the number of shares of Common Stock outstanding at
any time after the Series A Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series B Preferred and the Series B-1 Preferred shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of shares of such Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
10
<PAGE>
(ii) If the number of shares of Common Stock outstanding at
any time after the Series A Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) In case, at any time after the Series A Issue Date, of
any capital reorganization or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a stock dividend
or subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series B Preferred and Series B-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been entitled if immediately prior to such reorganization or
reclassification such holder had converted its shares of Preferred Stock into
Common Stock. The provisions of this Section 5(d)(iii) shall similarly apply to
successive reorganizations or reclassifications.
(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value for such
Common Stock as determined by the Board of Directors. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price. All calculations under this Section 5 shall
be made to the nearest one hundredth of a cent ($0.0001) or to the nearest one
hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets excluding cash
dividends or options or rights not referred to in subsection 5(d)(i), then in
each such case for the purpose of this subsection 5(g), the holders of Series B
Preferred and Series B-1 Preferred shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation,
11
<PAGE>
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment. This provision shall not restrict
the Corporation from amending its Articles of Incorporation in accordance with
the Oregon Business Corporation Act.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect for each series of Preferred
Stock, and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Preferred Stock held by such holder.
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of Series
B Preferred or Series B-1 Preferred shall be converted into Common Stock
pursuant to Section 5 hereof, the shares so converted shall not be reissued and
shall no longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(m) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock (or holder of
the Series B Warrant) shall be deemed given if deposited in the United States
mail, postage prepaid, and addressed to each holder of record at its address
appearing on the books of the Corporation.
12
<PAGE>
6. Protective Provisions. Notwithstanding any provision to the
contrary in Section 6 of Article II.D. hereof, and subject to the rights of
series of Preferred Stock which may from time to time come into existence, so
long as shares of Series B Preferred or Series B-1 Preferred are outstanding,
the Corporation shall not without first obtaining the approval (by vote or
written consent) of the holders of at least a majority of the then outstanding
shares of Series A Preferred, Series A-1 Preferred, Series B Preferred and
Series B-1 Preferred (together on an as-converted basis):
(a) Amend or repeal any provision of the Corporation's Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series A Preferred, Series A-1 Preferred,
Series B Preferred or Series B-1 Preferred;
(b) Except as provided in Section 5(c)(ii)(E), authorize or
result in the issuance of shares of any class of stock having any preference or
priority as to dividends or assets superior to or on a parity with any
preference or priority of the Series A Preferred, Series A-1 Preferred, Series B
Preferred, or Series B-1 Preferred;
(c) Increase the authorized number of shares of Series A
Preferred, Series A-1 Preferred, Series B Preferred or Series B-1 Preferred;
(d) Increase the number of directors authorized in the bylaws
above five (5);
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
(g) Take any action that would result in the taxation of the
holders of the Series A Preferred, Series A-1 Preferred, Series B Preferred or
Series B-1 Preferred under Section 305 of the Internal Revenue Code of 1986;
Notwithstanding the foregoing, the Corporation shall be required to obtain the
approval (by vote or written consent) of the holders of at least a majority of
the then outstanding shares of Series B Preferred and Series B-1 Preferred
(together on an as-converted basis) if any such foregoing change results in
consequences proportionately less favorable with respect to the Series B
Preferred or Series B-1 Preferred than with respect to the Series A Preferred or
Series A-1 Preferred."
DATED: February 21, 1995.
MEDICALOGIC, INC.
By MARK LEAVITT
------------------------------------
Mark Leavitt, President
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<PAGE>
FOR OFFICE USE ONLY
Submit the original Corporation Division - Business Registry
and one true copy Public Service Building
$10.00 255 Capitol St., NE Ste. 151
Salem, OR 97310-1327
REGISTRY NUMBER: (503) 986-2200 Facsimile (503) 378-4381
209240-15
ARTICLES OF AMENDMENT
Business Corporation
1. Name of the corporation prior to amendment:
MedicaLogic, Inc.
2. State the article number(s) and set forth the article(s) as it is
amended to read, or attach a separate sheet.
See attached.
3. The amendment(s) was adopted on December 28, 1995.
(If more than one amendment was adopted, identify the date of adoption
of each amendment.)
4. Check the appropriate statement:
[X] Shareholder action was required to adopt the amendment(s).
The vote was as follows:
Class or series of shares
Series A Preferred Stock
------------------------
No. of shares outstanding
5,750,001
No. of votes entitled to be cast
5,750,001
No. of votes cast for
5,750,001
No. of votes cast against
0
[ ] Shareholder action was not required to adopt the amendment(s).
The amendment(s) was adopted by the board of directors without
shareholder action.
[ ] The corporation has not issued any shares of stock.
Shareholder action was not required to adopt the amendment(s).
The amendment(s) was adopted by the incorporators or by the
board of directors.
MARK LEAVITT Mark Leavitt, M.D. President
-----------------------------------------------------------------------------
SIGNATURE PRINTED NAME TITLE
Person to contact about this filing: Christopher K. Heuer 503/294-9206
----------------------------------------
NAME DAYTIME PHONE
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TOTHE ABOVE ADDRESS OR INCUDE YOUR VISA OR MASTERCARD NUMBER AND EXPIRATION
DATE [ ] AND FAX.
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. The 1994 Restated Articles of Incorporation of the corporation, as
amended, are amended to add a new Article II.F to the end of Article II to read
in its entirety as follows:
"F. Series C and C-1 Preferred Stock. This Article II.F. sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series C
Preferred Stock ("Series C Preferred") and the number of shares constituting
such series shall be 4,771,267 and the shares of the second of such series shall
be designated Series C-1 Preferred Stock ("Series C-1 Preferred") and the number
of shares constituting such series shall be 477,126.7.
1. Dividends. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, no dividend other than a dividend
payable in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation shall be paid on any share of Common
Stock unless dividends have first been paid in the current fiscal year of the
Corporation of $0.225 on each share of Series C Preferred and $2.25 on each
share of Series C-1 Preferred (adjusted for any combinations, consolidations,
stock distributions or stock dividends with respect to such shares). Such
dividends on the Series C Preferred and Series C-1 Preferred shall not be
cumulative.
2. Liquidation Preference. Notwithstanding any provision to the
contrary in Section 2 of Article II.D. or Section 2 of Article II.E. hereof, in
the event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, subject to the rights of series of Preferred
Stock which may from time to time come into existence, distributions to the
shareholders of the Corporation shall be made in the following manner:
(a) The holders of Series C Preferred and Series C-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of
<PAGE>
any of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, and prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Preferred, Series
A-1 Preferred, Series B Preferred and Series B-1 Preferred, an amount per share
of Series C Preferred (the "Series C Preference") equal to $2.25 plus all
declared but unpaid dividends on the Series C Preferred, and an amount per share
of Series C-1 Preferred (the "Series C-1 Preference") equal to $22.50 per share
plus all declared but unpaid dividends on the Series C-1 Preferred. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series C Preferred and Series C-1 Preferred shall be insufficient
to permit the payment to such holders of their full preferences, then, subject
to the rights of series of Preferred Stock which may from time to time come into
existence, the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series C
Preferred and the Series C-1 Preferred in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the holders of Series A Preferred, Series A-1
Preferred, Series B Preferred and Series B-1 Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Series C Preferred, Series C-1 Preferred and
Common Stock by reason of their ownership thereof (other than the Series C
Preference and the Series C-1 Preference described in subsection 2(a) above),
the Series A Preference, the Series A-1 Preference, the Series B Preference and
the Series B-1 Preference, as set forth in subsection 2(a) of Article II.D. and
subsection 2(a) of Article II.E. hereof.
(c) After the distributions described in subsection 2(a) and
subsection 2(b) above has been made, subject to the rights of series of
Preferred Stock which may from time to time come into existence, the remaining
assets of the Corporation available for distribution to shareholders shall be
distributed among the holders of Series A Preferred, Series A-1 Preferred,
Series B Preferred, Series B-1 Preferred, Series C Preferred, Series C-1
Preferred, and Common Stock pro rata based on the number of shares of Common
Stock held or issuable upon conversion of all such Series A Preferred, Series
A-1 Preferred, Series B Preferred, Series B-1 Preferred, Series C Preferred and
Series C-1 Preferred held by such holders.
(d) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other
2
<PAGE>
property received from the acquiring entity or in a combination thereof, on the
closing of such transaction.
(e) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3. Redemption. Notwithstanding any provision to the contrary in
Section 3 of Article II.D. and Section 3 of Article II.E. hereof:
(a) Subject to the rights of Preferred Stock which may from time
to time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent (50%) of the then outstanding Series A Preferred,
Series A-1 Preferred, Series B Preferred, Series B-1 Preferred, Series C
Preferred and Series C-1 Preferred (together on an as-converted basis), provided
such request is received after June 30, 1999, the Corporation shall redeem one
hundred percent (100%) of the number of shares of Series A Preferred, Series A-1
Preferred, Series B Preferred, Series B-1 Preferred, Series C Preferred and
Series C-1 Preferred outstanding on the Request Date, or such lesser number of
shares as the Board of Directors shall determine is the maximum number of shares
for which funds are legally available for redemption. The redemption price for
these shares shall be paid in cash and shall be a sum per share equal to the
Series A Preference for Series A Preferred, the Series A-1 Preference for Series
A-1 Preferred, the Series B Preference for Series B Preferred, the Series B-1
Preference for Series B-1 Preferred, the Series C Preference for the Series C
Preferred and the Series C-1 Preference for the Series C-1 Preferred. If all of
the shares of the Series A Preferred, Series A-1 Preferred, Series B Preferred,
Series B-1 Preferred, Series C Preferred and Series C-1 Preferred are not
redeemed because of a determination of insufficient funds, the Corporation shall
redeem additional shares only upon receipt of a new request from the holders as
provided in this subsection 3(a).
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred, Series A-1 Preferred, Series B Preferred,
Series B-1 Preferred, Series C Preferred and Series C-1 Preferred requested to
be redeemed because of a determination of insufficient funds, the Corporation
shall effect such redemption with respect to the Series C Preferred and Series
C-1 Preferred requested to be redeemed, prior and in preference to any
redemption with respect to the holders of Series A Preferred, Series A-1
Preferred, Series B Preferred and Series B-1 Preferred.
(ii) In the event of any redemption of only a part of the
then outstanding Series C Preferred and Series C-1 Preferred requested to be
redeemed because of a determination of insufficient funds, the Corporation shall
effect such redemption pro rata according to the full amount of cash each holder
would receive if all such shares were being redeemed.
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(iii) After the redemptions described in subsection (b)(i)
above have been made, the Corporation shall effect such redemption pro rata
among the holders of Series A Preferred, Series A-1 Preferred, Series B
Preferred and Series B-1 Preferred according to the full amount of cash each
holder would receive if all such shares were being redeemed.
(iv) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Preferred Stock (the "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Preferred Stock to be redeemed, at the address last
shown on the records of the Corporation for such holder or given by the holder
to the Corporation for the purpose of notice or if no such address appears or is
given at the place where the principal executive office of the Corporation is
located, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
applicable redemption price, the place at which payment may be obtained and the
date on which such holder's conversion rights as to such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in subsection 3(b)(v),
on or after the Redemption Date each holder of Preferred Stock to be redeemed
shall surrender to the Corporation the certificate or certificates representing
such shares, in the manner and at the place designated in the Redemption Notice,
and thereupon the applicable redemption price of such shares shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be cancelled. In the
event less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
(v) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such shares as holders of Preferred Stock (except the right to
receive the applicable redemption price without interest upon surrender of their
certificate or certificates) 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. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred, Series A-1 Preferred, Series B Preferred, Series
B-1 Preferred, Series C Preferred or Series C-1 Preferred and shall be restored
to the status of authorized but unissued shares of Preferred Stock.
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4. Voting Rights. Notwithstanding any provision to the contrary in
Section 4 of Article II.D or Section 4 of Article II.E hereof:
(a) Except as otherwise required by law, the holders of Series C
Preferred and Series C-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series C Preferred and Series C-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 5 below). Except as otherwise required by law or as
otherwise provided herein, the holders of shares of Series C Preferred and
Series C-1 Preferred shall vote together with the Common Stock, the Series A
Preferred, the Series A-1 Preferred, the Series B Preferred and the Series B-1
Preferred as a single class.
(b) The holders of the Series B Preferred, the Series B-1
Preferred, the Series C Preferred, the Series C-1 Preferred and the Common
Stock, voting together as a single class, shall be entitled to elect all members
of the Board of Directors not elected by holders of the Series A Preferred and
Series A-1 Preferred.
(c) Except as provided in Section 6, the Series C Preferred and
the Series C-1 Preferred shall not be entitled under Oregon law to vote
separately on a plan of merger.
5. Conversion Rights. The holders of the Series C Preferred and Series
C-1 Preferred shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of
Series C Preferred and Series C-1 Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price at the time in effect. The
Original Issue Price for the Series C Preferred is $2.25 per share and the
Original Issue Price for the Series C-1 Preferred is $22.50 per share. The
initial Conversion Price for the Series C Preferred and the Series C-1 Preferred
shall be $2.25 per share; provided, however, that the Conversion Prices shall be
subject to adjustment as hereinafter provided.
(ii) Each share of Series C Preferred and Series C-1
Preferred shall automatically be converted into shares of Common Stock at the
applicable Conversion Price in effect immediately upon the consummation of the
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Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.00 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $7,500,000 in the aggregate.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Adjustments to Conversion Price of Series C Preferred for
Dilutive Issues; Special Conversion of Series C Preferred:
(i) Special Definitions. For purposes of this Section 5(c),
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series C Issue Date" shall mean the date on which
the first share of Series C Preferred Stock is first issued.
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
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(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding on the
Series C Issue Date,
(2) Common Stock issued pursuant to a transaction described
in subsection 5(d) hereof,
(3) shares issued pursuant to the acquisition of another
corporation by the Corporation by merger, purchase of substantially
all of the assets, or other reorganization,
(4) shares of Common Stock issuable or issued to directors,
employees or other service providers to the Corporation at any time
when the total number of shares of Common Stock so issuable or issued
after the Series C Issue Date (and not repurchased at cost by the
Corporation in connection with the termination of service as a
director, employee or other service provider) does not exceed
1,047,684 plus (x) the number of shares of Common Stock repurchased at
cost by the Corporation from directors, employees or other service
providers in connection with termination of employment or other
service arrangements pursuant to agreements entered into prior to the
Series C Issue Date, and (y) the number of shares of Common Stock
subject to outstanding Options on the Series C Issue Date, that
subsequently terminate unexercised, or
(5) shares of Series B Preferred Stock (or other series of
Preferred Stock subsequently authorized under Section 5(c)(ii)(E) of
Article II.E) issued pursuant to that certain stock purchase warrant
dated December 30, 1994 issued by the Corporation to Independent
Investments, Inc.
(E) "Pro Rata Share" with respect to each holder of
Series C Preferred shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance
(ii) multiplied by a fraction, the numerator of which is the number of shares of
Common Stock into which the Series C Preferred then held by such holder is then
convertible, and the denominator of which is the total number of shares of
Common Stock then outstanding.
(F) "Dilutive Issuance" with respect to the Series C
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
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(G) "Participating Investor" shall mean any holder of
Series C Preferred that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder
of Series C Preferred that is not a Participating Investor and whose Pro Rata
Share is not purchased by a Substitute Investor.
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance, it shall give each holder of Series C Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series C Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. Each holder of Series C Preferred that
is not an Accredited Investor may, within twenty (20) days from the date of the
Issuance Notice, provide written notice to the Corporation that another holder
of Series C Preferred that is an Accredited Investor (the "Substitute Investor")
will purchase such holder's Pro Rata Share for the price and upon the terms
specified in the Issuance Notice. In the event that such holder fails to give
such notice within the twenty (20) day period, or fails to actually purchase (or
have purchased by the Substitute Investor) its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Refused Percentage") by (or by a Substitute Investor
on behalf of) each Nonparticipating Investor, that number of outstanding shares
of Series C Preferred held by such Nonparticipating Investor equal to the
product of (x) the number of shares of such series held by the Nonparticipating
Investor, times (y) the Refused Percentage, shall be converted automatically on
the date (the "Closing Date") of the applicable Dilutive Issuance (provided that
the Corporation gave the Issuance Notice to such holder of Series C Preferred)
into a number of fully-paid and nonassessable shares of Series C-1 Preferred (or
such other series as to which shares are then authorized pursuant to Section
5(c)(ii)(E)) equal to one-tenth of the number of shares of Series C Preferred so
converted. Such Series C-1 Preferred may be issued in tenths of a share. The
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series C-1 Preferred on the Closing Date. As provided in
Section 5(a)(i), prior to the Closing Date each Nonparticipating Investor shall
have the
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right to convert its shares of Series C Preferred into shares of Common Stock at
the conversion rate in effect for such series as of the date of such conversion.
(C) Shares of Series C Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series C Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock. No shares of Series C-1 Preferred shall be issued except as set forth in
this Section 5(c)(ii) upon conversion of shares of Series C Preferred.
(D) No adjustment in the Conversion Price of the Series
C-1 Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except for the
issuance of such shares as a stock dividend, stock split, or in connection with
such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series C-1
Preferred are issued, effective on the Closing Date, any shares of Series C-1
Preferred that remain unissued after such issuance shall be cancelled, shall not
be available for issuance and shall be restored to the status of authorized but
unissued shares of Preferred Stock. In addition, concurrently with such
issuance, the Corporation shall take all such action as may be required,
including amending these Articles of Incorporation, (1) to evidence the
cancellation of such unissued shares of Series C-1 Preferred, (2) to create and
reserve for issuance upon any subsequent Dilutive Issuance a new series of
Preferred Stock equal in number to the number of shares of Series C-1 Preferred
so cancelled and designated Series C-2 Preferred, with relative rights,
preferences and limitations identical to those then applicable to the Series C-1
Preferred, except that the Conversion Price for the Series C-2 Preferred shall
initially be the Conversion Price then in effect for the Series C Preferred, and
(3) to amend the provisions of this Section 5 to provide that any subsequent
conversion of Series C Preferred upon a Dilutive Issuance will be into shares of
Series C-2 Preferred rather than Series C-1 Preferred. The Corporation shall
take the same actions with respect to the Series C-2 Preferred and each series
of Preferred Stock subsequently authorized under this Section 5(c)(ii)(E) upon
the initial issuance of shares of such series.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series C
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common
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Stock issued as of the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 5(c)(v) hereof) of
such Additional Shares of Common Stock would be less than the Conversion Price
for the Series C Preferred in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
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consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(c)(iii)) after the Series C Issue Date
without consideration or for consideration per share less than the Conversion
Price for the Series C Preferred in effect on the date of and immediately prior
to such issue, then and in such event, the Conversion Price for the Series C
Preferred shall be reduced, concurrently with such issue, to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of such
Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
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(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors irrespective of any
accounting treatment; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exercise of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustment of Conversion Price. The Conversion Price of the
Series C Preferred and the Series C-1 Preferred shall be subject to adjustment
from time to time as follows:
(i) If the number of shares of Common Stock outstanding at
any time after the Series C Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series C Preferred and the Series C-1 Preferred shall
be appropriately decreased so that the number of shares of
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Common Stock issuable on conversion of shares of such Preferred Stock shall be
increased in proportion to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the Series C Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) In case, at any time after the Series C Issue Date, of
any capital reorganization or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a stock dividend
or subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series C Preferred and Series C-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been entitled if immediately prior to such reorganization or
reclassification such holder had converted its shares of Preferred Stock into
Common Stock. The provisions of this Section 5(d)(iii) shall similarly apply to
successive reorganizations or reclassifications.
(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value for such
Common Stock as determined by the Board of Directors. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price. All calculations under this Section 5 shall
be made to the nearest one hundredth of a cent ($0.0001) or to the nearest one
hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets excluding cash
dividends or options or rights not referred to in subsection 5(d)(i), then in
each such case for the purpose of this subsection 5(g), the holders of Series C
Preferred
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and Series C-1 Preferred shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the Corporation from amending its Articles of
Incorporation in accordance with the Oregon Business Corporation Act.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect for each series of Preferred
Stock, and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Preferred Stock held by such holder.
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to
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increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of Series
C Preferred or Series C-1 Preferred shall be converted into Common Stock
pursuant to Section 5 hereof, the shares so converted shall not be reissued and
shall no longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(m) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
Corporation.
6. Protective Provisions. So long as shares of Series C Preferred or
Series C-1 Preferred are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent) of the holders of at least a
majority of the then outstanding shares of Series C Preferred and Series C-1
Preferred (together on an as-converted basis):
(a) Amend or repeal any provision of the Corporation's Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series C Preferred or Series C-1 Preferred;
(b) Except as provided in Section 5(c)(ii)(E) of each of Articles
II.D, II.E and this II.F, authorize or result in the issuance of shares of any
class of stock having any preference or priority as to dividends or assets
superior to or on a parity with any preference or priority of the Series C
Preferred, or Series C-1 Preferred;
(c) Increase the authorized number of shares of Series C
Preferred or Series C-1 Preferred;
(d) Increase the number of directors authorized in the bylaws
above seven (7);
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
15
<PAGE>
(g) Take any action that would result in the taxation of the
holders of Series C Preferred or Series C-1 Preferred under Section 305 of the
Internal Revenue Code of 1986."
Dated: December 28, 1995
MEDICALOGIC, INC.
By: MARK LEAVITT
------------------------------------
Mark Leavitt, M.D., President
16
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. The first paragraph of Article II.F. of the 1994 Restated Articles of
Incorporation, as amended, of the corporation is amended to read in its entirety
as follows:
"Series C and C-1 Preferred Stock. This Article II.F. sets
forth the designation, preferences, limitations and relative
rights of two series of Preferred Stock of the Corporation as
determined by the Board of Directors of the Corporation pursuant
to its authority under ORS 60.134 and Article II.C. above. The
shares of the first of such series shall be designated Series C
Preferred Stock ("Series C Preferred") and the number of shares
constituting such series shall be 7,425,298, and the shares of
the second of such series shall be designated Series C-1
Preferred Stock ("Series C-1 Preferred") and the number of shares
constituting such series shall be 742,529.8."
3. The amendment to Article II.F. was adopted by the shareholders of the
corporation on May 10, 1996.
4. 13,081,214 shares of Common Stock, 5,750,001 shares of Series A
Preferred Stock and 4,506,667 shares of Series C Preferred Stock were
outstanding on April 29, 1996, the record date for the meeting at which the
amendment was approved. The Common Stock, the Series A Preferred Stock and the
Series C Preferred Stock (on an as-converted basis), voting together as a single
class, were entitled to be voted on the amendment. In addition, the Series A
Preferred Stock (on an as-converted basis), voting separately as a class, and
the Series C Preferred Stock (on an as-converted basis), voting separately as a
class, were each entitled to be voted on the amendment.
5. 9,044,079 shares of Common Stock were voted for, and -0- shares of
Common Stock were voted against, the amendment. 5,750,001 shares of Series A
Preferred Stock were voted for, and -0- shares of Series A Preferred Stock were
voted against, the amendment. 4,357,178 shares of Series C Preferred Stock were
voted for, and -0- shares of Series C Preferred Stock were voted against, the
amendment.
DATED: May 20, 1996.
MEDICALOGIC, INC.
By MARK LEAVITT
-------------------------------------
Mark Leavitt, President
<PAGE>
FOR OFFICE USE ONLY
Submit the original Corporation Division - Business Registry
and one true copy Public Service Building
$10.00 255 Capitol St., NE Ste. 151
Salem, OR 97310-1327
REGISTRY NUMBER: (503) 986-2200 Facsimile (503) 378-4381
209240-15
ARTICLES OF AMENDMENT
Business Corporation
1. Name of the corporation prior to amendment: MedicaLogic, Inc.
2. State the article number(s) and set forth the article(s) as it is amended
to read, or attach a separate sheet. See attached.
3. The amendment(s) was adopted on May 20 , 1996.
4. Check the appropriate statement:
[X] Shareholder action was required to adopt the amendment(s). The vote was
as follows:
Class or series of shares: Series A Preferred Stock
No. of shares outstanding: 5,750,001
No. of votes entitled to be cast: 5,750,001
No. of votes cast for:
No. of votes cast against:
Class or series of shares: Series C Preferred Stock
No. of shares outstanding: 4,506,667
No. of votes entitled to be cast: 4,506,667
No. of votes cast for:
No. of votes cast against:
[ ] Shareholder action was not required to adopt the amendment(s). The
amendment(s) was adopted by the board of directors without shareholder
action.
[ ] The corporation has not issued any shares of stock. Shareholder action
was not required to adopt the amendment(s). The amendment(s) was
adopted by the incorporators or by the board of directors.
MARK LEAVITT, M.D.
----------------------------------------
Mark Leavitt, M.D., President
Person to contact about this filing:
Christopher K. Heuer, Stoel Rives LLP (503) 294-9206
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TO THE ABOVE ADDRESS OR INCLUDE YOUR VISA OR MASTERCARD NUMBER AND
EXIPIRATION DATE [ ] AND FAX.
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. The 1994 Restated Articles of Incorporation of the corporation, as
amended, are amended to add a new Article II.G to the end of Article II to read
in its entirety as follows:
"G. Series D and D-1 Preferred Stock. This Article II.G. sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series D
Preferred Stock ("Series D Preferred") and the number of shares constituting
such series shall be 1,750,000, and the shares of the second of such series
shall be designated Series D-1 Preferred Stock ("Series D-1 Preferred") and the
number of shares constituting such series shall be 175,000.
1. Dividends. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, no dividend other than a dividend
payable in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation shall be paid on any share of Common
Stock unless dividends have first been paid in the current fiscal year of the
Corporation of the Series D Dividend Amount (as defined below) on each share of
Series D Preferred and the Series D-1 Dividend Amount (as defined below) on each
share of Series D-1 Preferred (adjusted for any combinations, consolidations,
stock distributions or stock dividends with respect to such shares). Such
dividends on the Series D Preferred and Series D-1 Preferred shall not be
cumulative. For purposes of this Section 1, the Series D Dividend Amount and the
Series D-1 Dividend Amount shall be $0.30 and $3.00, respectively; provided,
however, that the Series D Dividend Amount and the Series D-1 Dividend Amount
shall be $0.25 and $2.50, respectively, upon and after the occurrence of an
"Adjustment Event" as defined in that certain Series D Warrant issued by the
Corporation to Hewlett- Packard Company, a California corporation, dated
February 28, 1996.
2. Liquidation Preference. Notwithstanding any provision to the
contrary in Section 2 of Article II.D., Section 2 of Article II.E. or Section 2
of Article II.F. hereof, but subject to Section 2(a) of Article II.F. hereof, in
the event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, subject to the rights of series of Preferred
Stock which may from time to time come into existence, distributions to the
shareholders of the Corporation shall be made in the following manner:
<PAGE>
(a) After the distribution described in subsection 2(a) of
Article II.F hereof, the holders of Series D Preferred and Series D-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, and on a parity with the holders of Series A Preferred,
Series A-1 Preferred, Series B Preferred and Series B-1 Preferred, an amount per
share of Series D Preferred equal to the Series D Preference plus all declared
but unpaid dividends on the Series D Preferred, and an amount per share of
Series D-1 Preferred equal to the Series D-1 Preference plus all declared but
unpaid dividends on the Series D-1 Preferred. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A
Preferred, Series A-1 Preferred, Series B Preferred, Series B-1 Preferred,
Series D Preferred and Series D-1 Preferred shall be insufficient to permit the
payment to such holders of their full preferences, then, subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred, the Series A-1 Preferred, Series B Preferred, the Series B-1
Preferred, the Series D Preferred and the Series D-1 Preferred in proportion to
the full preferential amount each such holder is otherwise entitled to receive.
For purposes of this Article II.G., the Series D Preference and the Series D-1
Preference shall be $3.00 and $30.00, respectively; provided, however, that the
Series D Preference and the Series D-1 Preference shall be $2.50 and $25.00,
respectively, upon and after the occurrence of an "Adjustment Event" as defined
in the Series D Warrant.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the remaining assets of the Corporation
available for distribution to shareholders shall be distributed among the
holders of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series
B-1 Preferred, Series C Preferred, Series C-1 Preferred, Series D Preferred,
Series D-1 Preferred, and Common Stock pro rata based on the number of shares of
Common Stock held or issuable upon conversion of all such Series A Preferred,
Series A-1 Preferred, Series B Preferred, Series B-1 Preferred, Series C
Preferred, Series C-1 Preferred, Series D Preferred and Series D-1 Preferred
held by such holders.
(c) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
2
<PAGE>
(d) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3. Redemption. Notwithstanding any provision to the contrary in
Section 3 of Article II.D., Section 3 of Article II.E. and Section 3 of Article
II.F. hereof:
(a) Subject to the rights of Preferred Stock which may from time
to time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent (50%) of the then outstanding Series A Preferred,
Series A-1 Preferred, Series B Preferred, Series B-1 Preferred, Series C
Preferred, Series C-1 Preferred, Series D Preferred and Series D-1 Preferred
(together on an as-converted basis), provided such request is received after
June 30, 1999, the Corporation shall redeem one hundred percent (100%) of the
number of shares of Series A Preferred, Series A-1 Preferred, Series B
Preferred, Series B-1 Preferred, Series C Preferred Series C-1 Preferred, Series
D Preferred and Series D-1 Preferred outstanding on the Request Date, or such
lesser number of shares as the Board of Directors shall determine is the maximum
number of shares for which funds are legally available for redemption. The
redemption price for these shares shall be paid in cash and shall be a sum per
share equal to the Series A Preference for Series A Preferred, the Series A-1
Preference for Series A-1 Preferred, the Series B Preference for Series B
Preferred, the Series B-1 Preference for Series B-1 Preferred, the Series C
Preference for the Series C Preferred, the Series C-1 Preference for the Series
C-1 Preferred, the Series D Preference for the Series D Preferred and the Series
D-1 Preference for the Series D-1 Preferred. If all of the shares of the Series
A Preferred, Series A-1 Preferred, Series B Preferred, Series B-1 Preferred,
Series C Preferred, Series C-1 Preferred, Series D Preferred and Series D-1
Preferred are not redeemed because of a determination of insufficient funds, the
Corporation shall redeem additional shares only upon receipt of a new request
from the holders as provided in this subsection 3(a).
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred, Series A-1 Preferred, Series B Preferred,
Series B-1 Preferred, Series C Preferred, Series C-1 Preferred, Series D
Preferred and Series D-1 Preferred requested to be redeemed because of a
determination of insufficient funds, the Corporation shall effect such
redemption with respect to the Series C Preferred and Series C-1 Preferred
requested to be redeemed, prior and in preference to any redemption with respect
to the holders of Series A Preferred, Series A-1 Preferred, Series B Preferred,
Series B-1 Preferred, Series D Preferred and Series D-1 Preferred.
(ii) In the event of any redemption of only a part of the
then outstanding Series C Preferred and Series C-1 Preferred requested to be
redeemed because of a determination of insufficient funds, the Corporation shall
effect such
3
<PAGE>
redemption pro rata according to the full amount of cash each holder would
receive if all such shares were being redeemed.
(iii) After the redemptions described in subsection (b)(i)
above have been made, the Corporation shall effect such redemption pro rata
among the holders of Series A Preferred, Series A-1 Preferred, Series B
Preferred, Series B-1 Preferred, Series B-1 Preferred, Series D Preferred and
Series D-1 Preferred according to the full amount of cash each holder would
receive if all such shares were being redeemed.
(iv) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Preferred Stock (the "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Preferred Stock to be redeemed, at the address last
shown on the records of the Corporation for such holder or given by the holder
to the Corporation for the purpose of notice or if no such address appears or is
given at the place where the principal executive office of the Corporation is
located, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
applicable redemption price, the place at which payment may be obtained and the
date on which such holder's conversion rights as to such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in subsection 3(b)(v),
on or after the Redemption Date each holder of Preferred Stock to be redeemed
shall surrender to the Corporation the certificate or certificates representing
such shares, in the manner and at the place designated in the Redemption Notice,
and thereupon the applicable redemption price of such shares shall be payable to
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be cancelled. In the
event less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares.
(v) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such shares as holders of Preferred Stock (except the right to
receive the applicable redemption price without interest upon surrender of their
certificate or certificates) 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. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred, Series A-1 Preferred, Series B Preferred, Series
B-1 Preferred, Series C Preferred, Series C-1 Preferred, Series D Preferred or
Series D-1
4
<PAGE>
Preferred and shall be restored to the status of authorized but unissued shares
of Preferred Stock.
4. Voting Rights. Notwithstanding any provision to the contrary in
Section 4 of Article II.D, Section 4 of Article II.E and Section 4 of Article
II.F hereof:
(a) Except as otherwise required by law, the holders of Series D
Preferred and Series D-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series D Preferred and Series D-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 4 below). Except as otherwise required by law or as
otherwise provided herein, the holders of shares of Series D Preferred and
Series D-1 Preferred shall vote together with the Common Stock, the Series A
Preferred, the Series A-1 Preferred, the Series B Preferred, the Series B-1
Preferred, the Series C Preferred, and the Series C-1 Preferred, as a single
class.
(b) The holders of the Series B Preferred, the Series B-1
Preferred, the Series C Preferred, the Series C-1 Preferred, the Series D
Preferred, the Series D-1 Preferred and the Common Stock, voting together as a
single class, shall be entitled to elect all members of the Board of Directors
not elected by holders of the Series A Preferred and Series A-1 Preferred.
(c) Except as provided in Section 6, the Series D Preferred and
the Series D-1 Preferred shall not be entitled under Oregon law to vote
separately on a plan of merger.
5. Conversion Rights. The holders of the Series D Preferred and Series
D- 1 Preferred shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of
Series D Preferred and Series D-1 Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price at the time in effect. The
Original Issue Price for the Series D Preferred is the Series D Preference and
the Original Issue Price for the Series D- 1 Preferred is Series D-1 Preference.
The initial Conversion Price for the Series D Preferred and the Series D-1
Preferred shall be the Series D Preference; provided, however, that the
Conversion Prices shall be subject to adjustment as hereinafter provided.
5
<PAGE>
(ii) Each share of Series D Preferred and Series D-1
Preferred shall automatically be converted into shares of Common Stock at the
applicable Conversion Price in effect immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.00 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $7,500,000 in the aggregate.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Adjustments to Conversion Price of Series D Preferred for
Dilutive Issues; Special Conversion of Series D Preferred:
(i) Special Definitions. For purposes of this Section 5(b),
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series C Issue Date" shall mean the date on which
the first share of Series C Preferred Stock was first issued.
6
<PAGE>
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities outstanding on the
Series C Issue Date,
(2) Common Stock issued pursuant to a transaction
described in subsection 5(d) hereof,
(3) shares issued pursuant to the acquisition of
another corporation by the Corporation by merger, purchase of substantially all
of the assets, or other reorganization,
(4) shares of Common Stock issuable or issued to
directors, employees or other service providers to the Corporation pursuant to
any stock incentive plan of the Corporation, or
(5) shares of Series B Preferred Stock (or other
series of Preferred Stock subsequently authorized under Section 5(c)(ii)(E) of
Article II.E) issued pursuant to that certain stock purchase warrant dated
December 30, 1994 issued by the Corporation to Independent Investments, Inc.
(E) "Pro Rata Share" with respect to each holder of
Series D Preferred shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance
(ii) multiplied by a fraction, the numerator of which is the number of shares of
Common Stock into which the Series D Preferred then held by such holder is then
convertible, and the denominator of which is the total number of shares of
Common Stock then outstanding.
(F) "Dilutive Issuance" with respect to the Series D
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
(G) "Participating Investor" shall mean any holder of
Series D Preferred that purchases at least its Pro Rata Share of a Dilutive
Issuance.
7
<PAGE>
(H) "Nonparticipating Investor" shall mean any holder
of Series D Preferred (or holder of the Series D Warrant) that is not a
Participating Investor.
(I) "Series D Warrant" shall mean that certain warrant
issued by the Corporation to Hewlett-Packard Company, a California corporation,
dated February 28, 1996.
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance, it shall give each holder of Series D Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series D Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. In the event that such holder fails to
give such notice within the twenty (20) day period, or fails to actually
purchase its Pro Rata Share of the Dilutive Issuance (other than as a result of
the Corporation refusing to allow such holder to so purchase its Pro Rata
Share), such holder shall be deemed to be a Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Refused Percentage") by each Nonparticipating
Investor, that number of outstanding shares of Series D Preferred held by such
Nonparticipating Investor equal to the product of (x) the number of shares of
such series held by the Nonparticipating Investor, times (y) the Refused
Percentage, shall be converted automatically on the date (the "Closing Date") of
the applicable Dilutive Issuance (provided that the Corporation gave the
Issuance Notice to such holder of Series D Preferred) into a number of
fully-paid and nonassessable shares of Series D-1 Preferred (or such other
series as to which shares are then authorized pursuant to Section 5(c)(ii)(E))
equal to one-tenth of the number of shares of Series D Preferred so converted.
Such Series D-1 Preferred may be issued in tenths of a share. The
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series D-1 Preferred on the Closing Date. As provided in
Section 5(a)(i), prior to the Closing Date each Nonparticipating Investor shall
have the right to convert its shares of Series D Preferred, if any, into shares
of Common Stock at the conversion rate in effect for such series as of the date
of such conversion.
(C) Shares of Series D Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series D Preferred and
shall be
8
<PAGE>
restored to the status of authorized but unissued shares of Preferred Stock. No
shares of Series D-1 Preferred shall be issued except as set forth in this
Section 5(c)(ii) upon conversion of shares of Series D Preferred.
(D) No adjustment in the Conversion Price of the Series
D-1 Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except for the
issuance of such shares as a stock dividend, stock split, or in connection with
such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series D-1
Preferred are issued, effective on the Closing Date, any shares of Series D-1
Preferred that remain unissued after such issuance shall be cancelled, shall not
be available for issuance and shall be restored to the status of authorized but
unissued shares of Preferred Stock. In addition, concurrently with such
issuance, or that do not become subject to issuance, the Corporation shall take
all such action as may be required, including amending these Articles of
Incorporation, (1) to evidence the cancellation of such unissued shares of
Series D-1 Preferred, (2) to create and reserve for issuance upon any subsequent
Dilutive Issuance a new series of Preferred Stock equal in number to the number
of shares of Series D-1 Preferred so cancelled and designated Series D-2
Preferred, with relative rights, preferences and limitations identical to those
then applicable to the Series B-1 Preferred, except that the Conversion Price
for the Series D-2 Preferred shall initially be the Conversion Price then in
effect for the Series D Preferred, and (3) to amend the provisions of this
Section 5 to provide that any subsequent conversion of Series D Preferred upon a
Dilutive Issuance will be into shares of Series D-2 Preferred rather than Series
D-1 Preferred. The Corporation shall take the same actions with respect to the
Series D-2 Preferred and each series of Preferred Stock subsequently authorized
under this Section 5(c)(ii)(E) upon the initial issuance of shares of such
series.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series C
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
5(c)(v) hereof) of such Additional Shares of Common Stock would be
9
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less than the Conversion Price for the Series D Preferred in effect on the date
of and immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
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(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(c)(iii)) after the Series C Issue Date
without consideration or for consideration per share less than the Conversion
Price for the Series D Preferred in effect on the date of and immediately prior
to such issue, then and in such event, the Conversion Price for the Series D
Preferred shall be reduced, concurrently with such issue, to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of such
Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors irrespective of any
accounting treatment; and
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<PAGE>
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exercise of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustment of Conversion Price. The Conversion Price of the
Series D Preferred and the Series D-1 Preferred shall be subject to adjustment
from time to time as follows:
(i) If the number of shares of Common Stock outstanding at
any time after the Series C Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series D Preferred and the Series D-1 Preferred shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of shares of such Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the Series C Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
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<PAGE>
(iii) In case, at any time after the Series C Issue Date, of
any capital reorganization or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a stock dividend
or subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series D Preferred and Series D-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been entitled if immediately prior to such reorganization or
reclassification such holder had converted its shares of Preferred Stock into
Common Stock. The provisions of this Section 5(d)(iii) shall similarly apply to
successive reorganizations or reclassifications.
(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value for such
Common Stock as determined by the Board of Directors. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price. All calculations under this Section 5 shall
be made to the nearest one hundredth of a cent ($0.0001) or to the nearest one
hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets excluding cash
dividends or options or rights not referred to in subsection 5(d)(i), then in
each such case for the purpose of this subsection 5(g), the holders of Series D
Preferred and Series D-1 Preferred shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or
13
<PAGE>
appropriate in order to protect the Conversion Rights of the holders of
Preferred Stock against impairment. This provision shall not restrict the
Corporation from amending its Articles of Incorporation in accordance with the
Oregon Business Corporation Act.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect for each series of Preferred
Stock, and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Preferred Stock held by such holder.
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of
Series D Preferred or Series D-1 Preferred shall be converted into Common Stock
pursuant to Section 5 hereof, the shares so converted shall not be reissued and
shall no longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
14
<PAGE>
(m) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock (or holder of
the Series D Warrant) shall be deemed given if deposited in the United States
mail, postage prepaid, and addressed to each holder of record at its address
appearing on the books of the Corporation.
6. Protective Provisions. Notwithstanding any provision to the
contrary in Section 6 of Article II.D. and Section 6 of Article II.E. hereof,
and subject to the rights of series of Preferred Stock which may from time to
time come into existence, so long as shares of Series D Preferred or Series D-1
Preferred are outstanding, the Corporation shall not without first obtaining the
approval (by vote or written consent) of the holders of at least a majority of
the then outstanding shares of Series A Preferred, Series A-1 Preferred,
Series B Preferred, Series B-1 Preferred, Series D Preferred and Series D-1
Preferred (together on an as-converted basis):
(a) Amend or repeal any provision of the Corporation's Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series A Preferred, Series A-1 Preferred,
Series B Preferred, Series B-1 Preferred, Series D Preferred or Series D-1
Preferred;
(b) Except as provided in Section 5(c)(ii)(E), authorize or
result in the issuance of shares of any class of stock having any preference or
priority as to dividends or assets superior to or on a parity with any
preference or priority of the Series A Preferred, Series A-1 Preferred, Series B
Preferred, Series B-1 Preferred, Series D Preferred, or Series D-1 Preferred;
(c) Increase the authorized number of shares of Series A
Preferred, Series A-1 Preferred, Series B Preferred, Series B-1 Preferred,
Series D Preferred or Series D- 1 Preferred;
(d) Increase the number of directors authorized in the bylaws
above seven (7);
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
(g) Take any action that would result in the taxation of the
holders of the Series A Preferred, Series A-1 Preferred, Series B Preferred,
Series B-1 Preferred, Series D Preferred or Series D-1 Preferred under Section
305 of the Internal Revenue Code of 1986;
15
<PAGE>
Notwithstanding the foregoing, the Corporation shall be required to obtain the
approval (by vote or written consent) of the holders of at least a majority of
the then outstanding shares of Series D Preferred and Series D-1 Preferred
(together on an as-converted basis) if any such foregoing change results in
consequences proportionately less favorable with respect to the Series D
Preferred or Series D-1 Preferred than with respect to the Series A Preferred,
Series A-1 Preferred, Series B Preferred or Series B-1 Preferred."
16
<PAGE>
FOR OFFICE USE ONLY
Submit the original Corporation Division - Business Registry
and one true copy Public Service Building
$10.00 255 Capitol St., NE Ste. 151
Salem, OR 97310-1327
REGISTRY NUMBER: (503) 986-2200 Facsimile (503) 378-4381
209240-15
ARTICLES OF AMENDMENT
Business Corporation
1. Name of the corporation prior to amendment:
MedicaLogic, Inc.
2. State the article number(s) and set forth the article(s) as it is amended
to read, or attach a separate sheet.
Attached
3. The amendment(s) was adopted on _______________, 19___.
(If more than one amendment was adopted, identify the date of adoption of
each amendment.)
4. Check the appropriate statement:
[X] Shareholder action was required to adopt the amendment(s). The vote was
as follows:
Class or series of shares Series A Preferred
No. of shares outstanding 5,750,001
No. of votes entitled to be cast 5,750,001
No. of votes cast for 5,274,668
No. of votes cast against 0
Class or series of shares Series C Preferred
No. of shares outstanding 7,012,637
No. of votes entitled to be cast 7,012,637
No. of votes cast for 6,651,114
No. of votes cast against 0
[ ] Shareholder action was not required to adopt the amendment(s). The
amendment(s) was adopted by the board of directors without shareholder
action.
[ ] The corporation has not issued any shares of stock. Shareholder action
was not required to adopt the amendment(s). The amendment(s) was
adopted by the incorporators or by the board of directors.
MARK K. LEAVITT, M.D. Mark K. Leavitt, M.D. President
- --------------------------------------------------------------------------------
SIGNATURE PRINTED NAME TITLE
Person to contact about this filing: Christopher K. Heuer 503/294-9206
- --------------------------------------------------------------------------------
NAME DAYTIME PHONE
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TO THE ABOVE ADDRESS OR INCLUDE YOUR VISA OR MASTERCARD NUMBER AND
EXPIRATION DATE [ ] AND FAX.
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. The introductory paragraph of Section 6 of Article II.D of the 1994
Restated Articles of Incorporation of the corporation, as amended, is amended to
read as follows:
"6. Protective Provisions. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, so long as
shares of Series A Preferred or Series A-1 Preferred are outstanding, the
Corporation shall not without first obtaining the approval, by vote or written
consent (which consent need not be unanimous and may be obtained without a
shareholders' meeting), of the holders of at least a majority of the then
outstanding shares of Series A Preferred and Series A-1 Preferred (together on
an as-converted basis):"
3. The introductory paragraph of Article II.F of the 1994 Restated Articles
of Incorporation of the corporation, as amended, is amended to read as follows:
"F. Series C and C-1 Preferred Stock. This Article II.F. sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series C
Preferred Stock ("Series C Preferred") and the number of shares constituting
such series shall be 7,012,637 and the shares of the second of such series shall
be designated Series C-1 Preferred Stock ("Series C-1 Preferred") and the number
of shares constituting such series shall be 701,263.7."
4. Section 5(c)(i)(D)(4) of Article II.F of the 1994 Restated Articles of
Incorporation of the corporation, as amended, is amended to replace "1,047,684"
with "2,047,684."
5. The introductory paragraph of Section 6 of Article II.F of the 1994
Restated Articles of Incorporation of the corporation, as amended, is amended to
read as follows:
<PAGE>
"6. Protective Provisions. So long as shares of Series C Preferred or
Series C-1 Preferred are outstanding, the Corporation shall not without first
obtaining the approval, by vote or written consent (which consent need not be
unanimous and may be obtained without a shareholders' meeting), of the holders
of at least a majority of the then outstanding shares of Series C Preferred and
Series C-1 Preferred (together on an as-converted basis):"
6. Section 3(a) of Article II.D, Section 3(a) of Article II.F, and Section
3(a) of Article II.G of the1994 Restated Articles of Incorporation of the
corporation, as amended, are each amended to replace "June 30, 1999" with
"December 31, 2001."
7. The introductory paragraph of Section 6 of Article II.G of the 1994
Restated Articles of Incorporation of the corporation, as amended, is amended to
read as follows:
"6. Protective Provisions. Notwithstanding any provision to the
contrary in Section 6 of Article II.D. and Section 6 of Article II.E. hereof,
and subject to the rights of series of Preferred Stock which may from time to
time come into existence, so long as shares of Series D Preferred or Series D-1
Preferred are outstanding, the Corporation shall not without first obtaining the
approval, by vote or written consent (which consent need not be unanimous and
may be obtained without a shareholders' meeting), of the holders of at least a
majority of the then outstanding shares of Series A Preferred, Series A-1
Preferred, Series B Preferred, Series B-1 Preferred, Series D Preferred and
Series D-1 Preferred (together on an as-converted basis):"
8. The 1994 Restated Articles of Incorporation of the corporation, as
amended, are amended to add a new Article II.H to the end of Article II to read
in its entirety as follows:
"H. Series E and E-1 Preferred Stock. This Article II.H. sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series E
Preferred Stock ("Series E Preferred") and the number of shares constituting
such series shall be 4,811,669 and the shares of the second of such series shall
be designated Series E-1 Preferred Stock ("Series E-1 Preferred") and the number
of shares constituting such series shall be 481,166.9.
1. Dividends. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, no dividend other than a dividend
payable in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation shall be paid on any share of Common
Stock unless dividends have first been paid in the current fiscal year of the
Corporation of $0.315 on each share of Series E Preferred and
2
<PAGE>
$3.15 on each share ofSeries E-1 Preferred (adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares). Such dividends on the Series E Preferred and Series E-1 Preferred shall
not be cumulative.
2. Liquidation Preference. Notwithstanding any provision to the
contrary in Section 2 of Article II.D., Section 2 of Article II.E., Section 2 of
Article II.F., or Section 2 of Article II.G. hereof, in the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, subject to the rights of series of Preferred Stock which may from
time to time come into existence, distributions to the shareholders of the
Corporation shall be made in the following manner:
(a) The holders of Series E Preferred and Series E-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, and prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Preferred, Series
A-1 Preferred, Series B Preferred, Series B-1 Preferred, Series C Preferred,
Series C-1 Preferred, Series D Preferred and Series D-1 Preferred an amount per
share of Series E Preferred (the "Series E Preference") equal to $3.15 plus all
declared but unpaid dividends on the Series E Preferred, and an amount per share
of Series E-1 Preferred (the "Series E-1 Preference") equal to $31.50 per share
plus all declared but unpaid dividends on the Series E-1 Preferred. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series E Preferred and Series E-1 Preferred shall be insufficient
to permit the payment to such holders of their full preferences, then, subject
to the rights of series of Preferred Stock which may from time to time come into
existence, the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series E
Preferred and the Series E-1 Preferred in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come into existence, Series C Preferred and Series C-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Preferred, Series
A-1 Preferred, Series B Preferred, Series B-1 Preferred, Series D Preferred,
Series D-1 Preferred, Series E Preferred, Series E-1 Preferred and Common Stock
by reason of their ownership thereof (other than the Series E Preference and the
Series E-1 Preference described in subsection 2(a) above), the Series C
Preference and the Series C-1 Preference, as set forth in subsection 2(a) of
Article II.F. hereof.
(c) After the distribution described in subsections 2(a) and 2(b)
above has been made, subject to the rights of series of Preferred Stock which
may from time to time come into existence, the holders of Series A Preferred,
Series A-1 Preferred,
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<PAGE>
Series B Preferred, Series B-1 Preferred, Series D Preferred and Series D-1
Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of Series C
Preferred, Series C-1 Preferred, Series E Preferred, Series E-1 Preferred and
Common Stock by reason of their ownership thereof (other than the Series E
Preference, the Series E-1 Preference, the Series C Preference and Series C-1
Preference described in subsections 2(a) and 2(b) above), the Series A
Preference, the Series A-1 Preference, the Series B Preference, the Series B-1
Preference, the Series D Preference and the Series D-1 Preference, as set forth
in subsection 2(a) of Article II.D., subsection 2(a) of Article II.E., and
subsection 2(a) of Article II.G. hereof.
(d) After the distributions described in subsection 2(a),
subsection 2(b) and subsection 2(c) above has been made, subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the remaining assets of the Corporation available for distribution to
shareholders shall be distributed among the holders of Series A Preferred,
Series A-1 Preferred, Series B Preferred, Series B-1 Preferred, Series C
Preferred, Series C-1 Preferred, Series D Preferred, Series D-1 Preferred,
Series E Preferred, Series E-1 Preferred, and Common Stock pro rata based on the
number of shares of Common Stock held or issuable upon conversion of all such
Series A Preferred, Series A-1 Preferred, Series B Preferred, Series B-1
Preferred, Series C Preferred, Series C-1 Preferred, Series D Preferred, Series
D-1 Preferred, Series E Preferred, Series E-1 Preferred held by such holders.
(e) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
(f) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3. Redemption. Notwithstanding any provision to the contrary in
Section 3 of Article II.D., Section 3 of Article II.E., Section 3 of Article
II.F. and Section 3 of Article II.G. hereof:
(a) Subject to the rights of Preferred Stock which may from time
to time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent
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<PAGE>
(50%) of the then outstanding Series A Preferred, Series A-1 Preferred, Series B
Preferred, Series B-1 Preferred, Series C Preferred, Series C-1 Preferred,
Series D Preferred, Series D-1 Preferred, Series E Preferred and Series E-1
Preferred (together on an as-converted basis), provided such request is received
after December 31, 2001, the Corporation shall redeem one hundred percent (100%)
of the number of shares of Series A Preferred, Series A-1 Preferred, Series B
Preferred, Series B-1 Preferred, Series C Preferred, Series C-1 Preferred,
Series D Preferred, Series D-1 Preferred, Series E Preferred and Series E-1
Preferred outstanding on the Request Date, or such lesser number of shares as
the Board of Directors shall determine is the maximum number of shares for which
funds are legally available for redemption. The redemption price for these
shares shall be paid in cash and shall be a sum per share equal to the Series A
Preference for Series A Preferred, the Series A-1 Preference for Series A-1
Preferred, the Series B Preference for Series B Preferred, the Series B-1
Preference for Series B-1 Preferred, the Series C Preference for the Series C
Preferred, the Series C-1 Preference for the Series C-1 Preferred, the Series D
Preference for the Series D Preferred, the Series D-1 Preference for the Series
D-1 Preferred, the Series E Preference for the Series E Preferred and the Series
E-1 Preference for the Series E-1 Preferred. If all of the shares of the Series
A Preferred, Series A-1 Preferred, Series B Preferred, Series B-1 Preferred,
Series C Preferred, Series C-1 Preferred, Series D Preferred, Series D-1
Preferred, Series E Preferred and Series E-1 Preferred are not redeemed because
of a determination of insufficient funds, the Corporation shall redeem
additional shares only upon receipt of a new request from the holders as
provided in this subsection 3(a).
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred, Series A-1 Preferred, Series B Preferred,
Series B-1 Preferred, Series C Preferred, Series C-1 Preferred, Series D
Preferred, Series D-1 Preferred, Series E Preferred and Series E-1 Preferred
requested to be redeemed because of a determination of insufficient funds, the
Corporation shall effect such redemption with respect to the Series E Preferred
and Series E-1 Preferred requested to be redeemed, prior and in preference to
any redemption with respect to the holders of Series A Preferred, Series A-1
Preferred, Series B Preferred, Series B-1 Preferred, Series C Preferred, Series
C-1 Preferred, Series D Preferred and Series D-1 Preferred.
(ii) In the event of any redemption of only a part of the
then outstanding Series E Preferred and Series E-1 Preferred requested to be
redeemed because of a determination of insufficient funds, the Corporation shall
effect such redemption pro rata according to the full amount of cash each holder
would receive if all such shares were being redeemed.
(iii) After the redemptions described in subsection (b)(i)
above have been made, in the event of any redemption of only a part of the then
outstanding Series A Preferred, Series A-1 Preferred, Series B Preferred, Series
B-1 Preferred, Series C Preferred, Series C-1 Preferred, Series D Preferred and
Series D-1
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Preferred requested to be redeemed because of a determination of insufficient
funds, the Corporation shall effect such redemption with respect to the Series C
Preferred and Series C-1 Preferred requested to be redeemed, prior and in
preference to any redemption with respect to the holders of Series A Preferred,
Series A-1 Preferred, Series B Preferred, Series B-1 Preferred, Series D
Preferred and Series D-1 Preferred.
(iv) In the event of any redemption of only a part of the
then outstanding Series C Preferred and Series C-1 Preferred requested to be
redeemed because of a determination of insufficient funds, the Corporation shall
effect such redemption pro rata according to the full amount of cash each holder
would receive if all such shares were being redeemed.
(v) After the redemptions described in subsections (b)(i)
and (b)(iii) above have been made, the Corporation shall effect such redemption
pro rata among the holders of Series A Preferred, Series A-1 Preferred, Series B
Preferred, Series B-1 Preferred, Series D Preferred and Series D-1 Preferred
according to the full amount of cash each holder would receive if all such
shares were being redeemed.
(vi) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Preferred Stock (the "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Preferred Stock to be redeemed, at the address last
shown on the records of the Corporation for such holder or given by the holder
to the Corporation for the purpose of notice or if no such address appears or is
given at the place where the principal executive office of the Corporation is
located, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
applicable redemption price, the place at which payment may be obtained and the
date on which such holder's conversion rights as to such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in subsection
3(b)(vii), on or after the Redemption Date each holder of Preferred Stock to be
redeemed shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the applicable redemption price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(vii) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such shares as holders of Preferred Stock (except the right to
receive the applicable
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redemption price without interest upon surrender of their certificate or
certificates) 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. The shares of Preferred Stock not
redeemed shall remain outstanding and entitled to all the rights and preferences
provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred, Series A-1 Preferred, Series B Preferred, Series
B-1 Preferred, Series C Preferred, Series C-1 Preferred, Series D Preferred,
Series D-1 Preferred, Series E Preferred or Series E-1 Preferred and shall be
restored to the status of authorized but unissued shares of Preferred Stock.
4. Voting Rights. Notwithstanding any provision to the contrary in
Section 4 of Article II.D, Section 4 of Article II.E, Section 4 of Article II.F
or Section 4 of Article II.G hereof:
(a) Except as otherwise required by law, the holders of Series E
Preferred and Series E-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series E Preferred and Series E-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 5 below). Except as otherwise required by law or as
otherwise provided herein, the holders of shares of Series E Preferred and
Series E-1 Preferred shall vote together with the Common Stock, the Series A
Preferred, the Series A-1 Preferred, the Series B Preferred, the Series B-1
Preferred, the Series C Preferred, the Series C-1 Preferred, the Series D
Preferred and the Series D-1 Preferred as a single class.
(b) The holders of the Series E Preferred and the Series E-1
Preferred, voting together, shall be entitled to elect one member of the
Corporation's Board of Directors, with each share of Series E Preferred and
Series E-1 Preferred having that number of votes equal to the number of shares
of Common Stock into which it is convertible (as defined in Section 5 below).
The holders of the Series B Preferred, the Series B-1 Preferred, the Series C
Preferred, the Series C-1 Preferred, the Series D Preferred and the Series D-1
Preferred, and the Common Stock, voting together as a single class, shall be
entitled to elect all members of the Board of Directors not elected by holders
of the Series A Preferred, the Series A-1 Preferred, the Series E Preferred and
the Series E-1 Preferred.
(c) Except as provided in Section 6, the Series E Preferred and
the Series E-1 Preferred shall not be entitled under Oregon law to vote
separately on a plan of merger.
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5. Conversion Rights. The holders of the Series E Preferred and Series
E-1 Preferred shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of
Series E Preferred and Series E-1 Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price at the time in effect. The
Original Issue Price for the Series E Preferred is $3.15 per share and the
Original Issue Price for the Series E-1 Preferred is $31.50 per share. The
initial Conversion Price for the Series E Preferred and the Series E-1 Preferred
shall be $3.15 per share; provided, however, that the Conversion Prices shall be
subject to adjustment as hereinafter provided.
(ii) Each share of Series E Preferred and Series E-1
Preferred shall automatically be converted into shares of Common Stock at the
applicable Conversion Price in effect immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.00 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $7,500,000 in the aggregate.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the
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underwriter of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock issuable upon such conversion
of Preferred Stock shall not be deemed to have converted such Preferred Stock
until immediately prior to the closing of such sale of securities.
(c) Adjustments to Conversion Price of Series E Preferred for
Dilutive Issues; Special Conversion of Series E Preferred:
(i) Special Definitions. For purposes of this Section 5(c),
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series E Issue Date" shall mean the date on which
the first share of Series E Preferred Stock is first issued.
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding on the
Series E Issue Date,
(2) Common Stock issued pursuant to a transaction described
in subsection 5(d) hereof,
(3) shares issued pursuant to the acquisition of another
corporation by the Corporation by merger, purchase of substantially
all of the assets, or other reorganization,
(4) shares of Common Stock issuable or issued to directors,
employees or other service providers to the Corporation at any time
when the total number of shares of Common Stock so issuable or issued
after the Series E Issue Date (and not repurchased at cost by the
Corporation in connection with the termination of service as a
director, employee or other service provider) does not exceed
1,360,684 plus (x) the number
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<PAGE>
of shares of Common Stock repurchased at cost by the Corporation from directors,
employees or other service providers in connection with termination of
employment or other service arrangements pursuant to agreements entered into
prior to the Series E Issue Date, and (y) the number of shares of Common Stock
subject to outstanding Options on the Series E Issue Date, that subsequently
terminate unexercised, or
(5) shares of Series D Preferred Stock (or other series of
Preferred Stock subsequently authorized under Section 5(c)(ii)(E) of
Article II.G) issued pursuant to that certain stock purchase warrant
dated February 28, 1996 issued by the Corporation to Hewlett-Packard
Company.
(E) "Pro Rata Share" with respect to each holder of
Series E Preferred shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance
(ii) multiplied by a fraction, the numerator of which is the number of shares of
Common Stock into which the Series E Preferred then held by such holder is then
convertible, and the denominator of which is the total number of shares of
Common Stock then outstanding.
(F) "Dilutive Issuance" with respect to the Series E
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
(G) "Participating Investor" shall mean any holder of
Series E Preferred that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder
of Series E Preferred that is not a Participating Investor and whose Pro Rata
Share is not purchased by a Substitute Investor.
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance, it shall give each holder of Series E Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series E Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. Each holder of Series E Preferred that
is
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<PAGE>
not an Accredited Investor may, within twenty (20) days from the date of the
Issuance Notice, provide written notice to the Corporation that another holder
of Series E Preferred that is an Accredited Investor (the "Substitute Investor")
will purchase such holder's Pro Rata Share for the price and upon the terms
specified in the Issuance Notice. In the event that such holder fails to give
such notice within the twenty (20) day period, or fails to actually purchase (or
have purchased by the Substitute Investor) its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Refused Percentage") by (or by a Substitute Investor
on behalf of) each Nonparticipating Investor, that number of outstanding shares
of Series E Preferred held by such Nonparticipating Investor equal to the
product of (x) the number of shares of such series held by the Nonparticipating
Investor, times (y) the Refused Percentage, shall be converted automatically on
the date (the "Closing Date") of the applicable Dilutive Issuance (provided that
the Corporation gave the Issuance Notice to such holder of Series E Preferred)
into a number of fully-paid and nonassessable shares of Series E-1 Preferred (or
such other series as to which shares are then authorized pursuant to Section
5(c)(ii)(E)) equal to one-tenth of the number of shares of Series E Preferred so
converted. Such Series E-1 Preferred may be issued in tenths of a share. The
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series E-1 Preferred on the Closing Date. As provided in
Section 5(a)(i), prior to the Closing Date each Nonparticipating Investor shall
have the right to convert its shares of Series E Preferred into shares of Common
Stock at the conversion rate in effect for such series as of the date of such
conversion.
(C) Shares of Series E Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series E Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock. No shares of Series E-1 Preferred shall be issued except as set forth in
this Section 5(c)(ii) upon conversion of shares of Series E Preferred.
(D) No adjustment in the Conversion Price of the Series
E- 1 Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except for the
issuance of such shares as a stock dividend, stock split, or in connection with
such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series E-1
Preferred are issued, effective on the Closing Date, any shares of Series E-1
Preferred that remain unissued after such issuance shall be cancelled, shall not
be available for issuance and shall be restored to the status of authorized but
unissued shares of Preferred Stock. In
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addition, concurrently with such issuance, the Corporation shall take all such
action as may be required, including amending these Articles of Incorporation,
(1) to evidence the cancellation of such unissued shares of Series E-1
Preferred, (2) to create and reserve for issuance upon any subsequent Dilutive
Issuance a new series of Preferred Stock equal in number to the number of shares
of Series E-1 Preferred so cancelled and designated Series E-2 Preferred, with
relative rights, preferences and limitations identical to those then applicable
to the Series E-1 Preferred, except that the Conversion Price for the Series E-2
Preferred shall initially be the Conversion Price then in effect for the Series
E Preferred, and (3) to amend the provisions of this Section 5 to provide that
any subsequent conversion of Series E Preferred upon a Dilutive Issuance will be
into shares of Series E-2 Preferred rather than Series E-1 Preferred. The
Corporation shall take the same actions with respect to the Series E-2 Preferred
and each series of Preferred Stock subsequently authorized under this Section
5(c)(ii)(E) upon the initial issuance of shares of such series.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series E
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
5(c)(v) hereof) of such Additional Shares of Common Stock would be less than the
Conversion Price for the Series E Preferred in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with
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respect thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be
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issued pursuant to Section 5(c)(iii)) after the Series E Issue Date without
consideration or for consideration per share less than the Conversion Price for
the Series E Preferred in effect on the date of and immediately prior to such
issue, then and in such event, the Conversion Price for the Series E Preferred
shall be reduced, concurrently with such issue, to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of such
Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors irrespective of any
accounting treatment; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
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(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exercise of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustment of Conversion Price. The Conversion Price of the
Series E Preferred and the Series E-1 Preferred shall be subject to adjustment
from time to time as follows:
(i) If the number of shares of Common Stock outstanding at
any time after the Series E Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series E Preferred and the Series E-1 Preferred shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of shares of such Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the Series E Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) In case, at any time after the Series E Issue Date, of
any capital reorganization or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a stock dividend
or subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series E Preferred and Series E-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been entitled if immediately prior to such reorganization or
reclassification such holder had converted its shares of Preferred Stock into
Common Stock. The provisions of this Section 5(d)(iii) shall similarly apply to
successive reorganizations or reclassifications.
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(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value for such
Common Stock as determined by the Board of Directors. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price. All calculations under this Section 5 shall
be made to the nearest one hundredth of a cent ($0.0001) or to the nearest one
hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets excluding cash
dividends or options or rights not referred to in subsection 5(d)(i), then in
each such case for the purpose of this subsection 5(g), the holders of Series E
Preferred and Series E-1 Preferred shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the Corporation from amending its Articles of
Incorporation in accordance with the Oregon Business Corporation Act.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written
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request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price at the time in effect for each
series of Preferred Stock, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of the Preferred Stock held by such holder.
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of Series
E Preferred or Series E-1 Preferred shall be converted into Common Stock
pursuant to Section 5 hereof, the shares so converted shall not be reissued and
shall no longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(m) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
Corporation.
6. Protective Provisions. So long as shares of Series E Preferred or
Series E-1 Preferred are outstanding, the Corporation shall not without first
obtaining the approval, by vote or written consent (which consent need not be
unanimous and may be obtained without a shareholders' meeting), of the holders
of at least a majority of the then outstanding shares of Series E Preferred and
Series E-1 Preferred (together on an as-converted basis):
17
<PAGE>
(a) Amend or repeal any provision of the Corporation's Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series E Preferred or Series E-1 Preferred;
(b) Except as provided in Section 5(c)(ii)(E) of each of Articles
II.D, II.E, II.F, II.G and this II.H authorize or result in the issuance of
shares of any class of stock having any preference or priority as to dividends
or assets superior to or on a parity with any preference or priority of the
Series E Preferred or Series E-1 Preferred;
(c) Increase the authorized number of shares of Series E
Preferred or Series E-1 Preferred;
(d) Increase the number of directors authorized in the bylaws
above seven (7);
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
(g) Take any action that would result in the taxation of the
holders of Series E Preferred or Series E-1 Preferred under Section 305 of the
Internal Revenue Code of 1986."
Dated: December 31, 1996
MEDICALOGIC, INC.
By: DAVID C. MOFFENBEIER
-------------------------------------
David C. Moffenbeier, Chief Operating
Officer and Secretary
18
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FOR OFFICE USE ONLY
Submit the original Corporation Division - Business Registry
and one true copy Public Service Building
$10.00 255 Capitol St., NE Ste. 151
Salem, OR 97310-1327
REGISTRY NUMBER: (503) 986-2200 Facsimile (503) 378-4381
209240-15
ARTICLES OF AMENDMENT
Business Corporation
1. Name of the corporation prior to amendment:
MedicaLogic, Inc.
2. State the article number(s) and set forth the article(s) as it is amended
to read, or attach a separate sheet. Attached
3. The amendment(s) was adopted on November 10, 1997.
(If more than one amendment was adopted, identify the date of adoption of
each amendment.)
4. Check the appropriate statement:
[ ] Shareholder action was required to adopt the amendment(s). The vote
was as follows:
Class or series of shares
No. of shares outstanding
No. of votes entitled to be cast
No. of votes cast for
No. of votes cast against
[X] Shareholder action was not required to adopt the amendment(s). The
amendment(s) was adopted by the board of directors without
shareholder action.
[ ] The corporation has not issued any shares of stock. Shareholder
action was not required to adopt the amendment(s). The amendment(s)
was adopted by the incorporators or by the board of directors.
GUY E. FIELD Guy E. Field Controller
- --------------------------------------------------------------------------------
SIGNATURE PRINTED NAME TITLE
Person to contact about this filing: Kurt E. Scheuerman 503/294-9187
- --------------------------------------------------------------------------------
NAME DAYTIME PHONE
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TO THE ABOVE ADDRESS OR INCLUDE YOUR VISA OR MASTERCARD NUMBER AND
EXPIRATION DATE [ ] AND FAX.
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. Article II.E of the 1994 Restated Articles of Incorporation of the
corporation, as amended, is amended to read as follows:
"E. Series B and B-1 Preferred Stock. The two series of Preferred
Stock of the Corporation previously designated Series B Preferred Stock ("Series
B Preferred") and Series B-1 Preferred Stock ("Series B-1 Preferred") are hereby
eliminated.
3. Article II.G of the 1994 Restated Articles of Incorporation of the
corporation, as amended, is amended to read as follows:
"G. Series D and D-1 Preferred Stock. The two series of Preferred
Stock of the Corporation previously designated Series D Preferred Stock ("Series
D Preferred") and Series D-1 Preferred Stock ("Series D-1 Preferred") are hereby
eliminated.
4. The 1994 Restated Articles of Incorporation of the corporation, as
amended, are amended to add new Articles II.I, II.J and II.K to the end of
Article II to read in their entirety as follows:
"I. Series F and F-1 Preferred Stock. This Article II.I. sets forth
the designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series F
Preferred Stock ("Series F Preferred") and the number of shares constituting
such series shall be 4,000,000 and the shares of the second of such series shall
be designated Series F-1 Preferred Stock ("Series F-1 Preferred") and the number
of shares constituting such series shall be 400,000.
1. Dividends. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, no dividend other than a dividend
payable in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation shall be paid on any share of Common
Stock unless dividends have first been paid in the
<PAGE>
current fiscal year of the Corporation of $0.340 on each share of Series F
Preferred and $3.40 on each share of Series F-1 Preferred (adjusted for any
combinations, consolidations, stock distributions or stock dividends with
respect to such shares). Such dividends on the Series F Preferred and Series F-1
Preferred shall not be cumulative.
2. Liquidation Preference. Notwithstanding any provision to the
contrary in Section 2 of Article II.D., Section 2 of Article II.F., or Section 2
of Article II.H. hereof, in the event of any liquidation, dissolution or winding
up of the Corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock which may from time to time come into existence,
distributions to the shareholders of the Corporation shall be made in the
following manner:
(a) The holders of Series F Preferred and Series F-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, and prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Preferred, Series
A-1 Preferred, Series C Preferred, and Series C-1 Preferred, and on a parity
with the holders of the Series E Preferred and Series E-1 Preferred, an amount
per share of Series F Preferred (the "Series F Preference") equal to $3.40 plus
all declared but unpaid dividends on the Series F Preferred, and an amount per
share of Series F-1 Preferred (the "Series F-1 Preference") equal to $34.00 per
share plus all declared but unpaid dividends on the Series F-1 Preferred. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series E Preferred, Series E-1 Preferred, Series F Preferred
and Series F-1 Preferred shall be insufficient to permit the payment to such
holders of their full preferences, then, subject to the rights of series of
Preferred Stock which may from time to time come into existence, the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series E Preferred, Series E-1
Preferred, Series F Preferred and the Series F-1 Preferred in proportion to the
full preferential amount each such holder is otherwise entitled to receive.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the holders of the Series C Preferred and
Series C-1 Preferred shall be entitled to receive, prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
Series A Preferred, Series A-1 Preferred, Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred and Common Stock by reason
of their ownership thereof (other than the Series E Preference, Series E-1
Preference, Series F Preference and the Series F-1 Preference described in
subsection 2(a) above and subsection 2(a) of Article II.H hereof), the Series C
Preference and the Series C-1 Preference, as set forth in subsection 2(a) of
Article II.F. hereof.
(c) After the distribution described in subsections 2(a) and 2(b)
above has been made, subject to the rights of series of Preferred Stock which
may from time to
2
<PAGE>
time come into existence, the holders of Series A Preferred and Series A-1
Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of Series C
Preferred, Series C-1 Preferred, Series E Preferred, Series E-1 Preferred,
Series F Preferred, Series F-1 Preferred and Common Stock by reason of their
ownership thereof (other than the Series E Preference, the Series E-1
Preference, Series F Preference, the Series F- 1 Preference, the Series C
Preference and Series C-1 Preference described in subsections 2(a) and 2(b)
above), the Series A Preference, the Series A-1 Preference, as set forth in
subsection 2(a) of Article II.D. hereof.
(d) After the distributions described in subsection 2(a),
subsection 2(b) and subsection 2(c) above have been made, subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the remaining assets of the Corporation available for distribution to
shareholders shall be distributed among the holders of Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred, and
Common Stock pro rata based on the number of shares of Common Stock held or
issuable upon conversion of all such Series A Preferred, Series A-1 Preferred,
Series C Preferred, Series C-1 Preferred, Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred held by such holders.
(e) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
(f) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3. Redemption. Notwithstanding any provision to the contrary in
Section 3 of Article II.D., Section 3 of Article II.F. or Section 3 of Article
II.H. hereof:
(a) Subject to the rights of Preferred Stock which may from time
to time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent (50%) of the then outstanding Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred and Series F-1 Preferred
(together on an as-converted basis), provided such request is received after
December 31, 2001, the Corporation shall redeem one hundred percent (100%) of
the
3
<PAGE>
number of shares of Series A Preferred, Series A-1 Preferred, Series C
Preferred, Series C-1 Preferred, Series E Preferred, Series E-1 Preferred,
Series F Preferred and Series F-1 Preferred outstanding on the Request Date, or
such lesser number of shares as the Board of Directors shall determine is the
maximum number of shares for which funds are legally available for redemption.
The redemption price for these shares shall be paid in cash and shall be an
amount per share equal to the Series A Preference for Series A Preferred, the
Series A-1 Preference for Series A-1 Preferred, the Series C Preference for the
Series C Preferred, the Series C-1 Preference for the Series C-1 Preferred, the
Series E Preference for the Series E Preferred, the Series E-1 Preference for
the Series E-1 Preferred, the Series F Preference for the Series F Preferred and
the Series F-1 Preference for the Series F-1 Preferred. If all of the shares of
the Series A Preferred, Series A-1 Preferred, Series C Preferred, Series C-1
Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred and
Series F-1 Preferred are not redeemed because of a determination of insufficient
funds, the Corporation shall redeem additional shares only upon receipt of a new
request from the holders as provided in this subsection 3(a).
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred, Series A-1 Preferred, Series C Preferred,
Series C-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F
Preferred and Series F-1 Preferred requested to be redeemed because of a
determination of insufficient funds, the Corporation shall effect such
redemption with respect to the Series E Preferred, Series E-1 Preferred, Series
F Preferred and Series F-1 Preferred requested to be redeemed, prior and in
preference to any redemption with respect to the holders of Series A Preferred,
Series A-1 Preferred, Series C Preferred, and Series C-1 Preferred.
(ii) In the event of any redemption of only a part of the
then outstanding Series E Preferred, Series E-1 Preferred, Series F Preferred
and Series F-1 Preferred requested to be redeemed because of a determination of
insufficient funds, the Corporation shall effect such redemption pro rata
according to the full amount of cash each holder would receive if all such
shares were being redeemed.
(iii) After the redemptions described in subsection (b)(i)
above have been made, in the event of any redemption of only a part of the then
outstanding Series A Preferred, Series A-1 Preferred, Series C Preferred, and
Series C-1 Preferred, requested to be redeemed because of a determination of
insufficient funds, the Corporation shall effect such redemption with respect to
the Series C Preferred and Series C-1 Preferred requested to be redeemed, prior
and in preference to any redemption with respect to the holders of Series A
Preferred, and Series A-1 Preferred.
(iv) In the event of any redemption of only a part of the
then outstanding Series C Preferred and Series C-1 Preferred requested to be
redeemed because of a determination of insufficient funds, the Corporation shall
effect such redemption pro rata according to the full amount of cash each holder
would receive if all such shares were being redeemed.
4
<PAGE>
(v) After the redemptions described in subsections (b)(i)
and (b)(iii) above have been made, the Corporation shall effect such redemption
pro rata among the holders of Series A Preferred and Series A-1 Preferred
according to the full amount of cash each holder would receive if all such
shares were being redeemed.
(vi) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Preferred Stock (the "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Preferred Stock to be redeemed, at the address last
shown on the records of the Corporation for such holder or given by the holder
to the Corporation for the purpose of notice or if no such address appears or is
given at the place where the principal executive office of the Corporation is
located, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
applicable redemption price, the place at which payment may be obtained and the
date on which such holder's conversion rights as to such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in subsection
3(b)(vii), on or after the Redemption Date each holder of Preferred Stock to be
redeemed shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the applicable redemption price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(vii) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such shares as holders of Preferred Stock (except the right to
receive the applicable redemption price without interest upon surrender of their
certificate or certificates) 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. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred, Series A-1 Preferred, Series C Preferred, Series
C-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred or
Series F-1 Preferred and shall be restored to the status of authorized but
unissued shares of Preferred Stock.
4. Voting Rights. Notwithstanding any provision to the contrary in
Section 4 of Article II.D, Section 4 of Article II.F or Section 4 of Article
II.H hereof:
5
<PAGE>
(a) Except as otherwise required by law, the holders of Series F
Preferred and Series F-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series F Preferred and Series F-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 5 below). Except as otherwise required by law or as
otherwise provided herein, the holders of shares of Series F Preferred and
Series F-1 Preferred shall vote together with the Common Stock, the Series A
Preferred, the Series A-1 Preferred, the Series C Preferred, the Series C-1
Preferred, the Series E Preferred and the Series E-1 Preferred as a single
class.
(b) The holders of the Series F Preferred and the Series F-1
Preferred shall have voting rights with respect to the election of the
Corporation's Board of Directors set forth in Section 7 of this Article II.I.
(c) Except as provided in Section 6, the Series F Preferred and
the Series F-1 Preferred shall not be entitled under Oregon law to vote
separately on a plan of merger.
5. Conversion Rights. The holders of the Series F Preferred and Series
F-1 Preferred shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of
Series F Preferred and Series F-1 Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price at the time in effect. The
Original Issue Price for the Series F Preferred is $3.40 per share and the
Original Issue Price for the Series F-1 Preferred is $34.00 per share. The
initial Conversion Price for the Series F Preferred and the Series F-1 Preferred
shall be $3.40 per share; provided, however, that the Conversion Prices shall be
subject to adjustment as hereinafter provided.
(ii) Each share of Series F Preferred and Series F-1
Preferred shall automatically be converted into shares of Common Stock at the
applicable Conversion Price in effect immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.40 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $7,500,000 in the aggregate.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the
6
<PAGE>
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock, and shall give
written notice by mail, postage prepaid, to the Corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Adjustments to Conversion Price of Series F Preferred for
Dilutive Issues; Special Conversion of Series F Preferred:
(i) Special Definitions. For purposes of this Section 5(c),
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series F Issue Date" shall mean the date on which
the first share of Series F Preferred Stock is first issued.
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding on the
Series F Issue Date,
7
<PAGE>
(2) Common Stock issued pursuant to a transaction described
in subsection 5(d) hereof,
(3) shares issued pursuant to the acquisition of another
corporation by the Corporation by merger, purchase of substantially
all of the assets, or other reorganization,
(4) shares of Common Stock issuable or issued to directors,
employees or other service providers to the Corporation at any time
when the total number of shares of Common Stock so issuable or issued
after the Series F Issue Date (and not repurchased at cost by the
Corporation in connection with the termination of service as a
director, employee or other service provider) does not exceed 391,174
plus (x) the number of shares of Common Stock repurchased at cost by
the Corporation from directors, employees or other service providers
in connection with termination of employment or other service
arrangements pursuant to agreements entered into prior to the Series F
Issue Date, and (y) the number of shares of Common Stock subject to
outstanding Options on the Series F Issue Date, that subsequently
terminate unexercised, or
(5) shares of Series G Preferred Stock (or other series of
Preferred Stock subsequently authorized under Section 5(c)(ii)(J) of
Article II.J) issued pursuant to that certain Series G Preferred Stock
Option Agreement dated November 10, 1997 issued by the Corporation to
Continental Casualty Company.
(E) "Pro Rata Share" with respect to each holder of
Series F Preferred shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance
(ii) multiplied by a fraction, the numerator of which is the number of shares of
Common Stock into which the Series F Preferred then held by such holder is then
convertible, and the denominator of which is the total number of shares of
Common Stock then outstanding.
(F) "Dilutive Issuance" with respect to the Series F
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
(G) "Participating Investor" shall mean any holder of
Series F Preferred that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder
of Series F Preferred that is not a Participating Investor and whose Pro Rata
Share is not purchased by a Substitute Investor.
8
<PAGE>
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance, it shall give each holder of Series F Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series F Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. Each holder of Series F Preferred that
is not an Accredited Investor may, within twenty (20) days from the date of the
Issuance Notice, provide written notice to the Corporation that another holder
of Series F Preferred that is an Accredited Investor (the "Substitute Investor")
will purchase such holder's Pro Rata Share for the price and upon the terms
specified in the Issuance Notice. In the event that such holder fails to give
such notice within the twenty (20) day period, or fails to actually purchase (or
have purchased by the Substitute Investor) its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Refused Percentage") by (or by a Substitute Investor
on behalf of) each Nonparticipating Investor, that number of outstanding shares
of Series F Preferred held by such Nonparticipating Investor equal to the
product of (x) the number of shares of such series held by the Nonparticipating
Investor, times (y) the Refused Percentage, shall be converted automatically on
the date (the "Closing Date") of the applicable Dilutive Issuance (provided that
the Corporation gave the Issuance Notice to such holder of Series F Preferred)
into a number of fully-paid and nonassessable shares of Series F-1 Preferred (or
such other series as to which shares are then authorized pursuant to Section
5(c)(ii)(E)) equal to one-tenth of the number of shares of Series F Preferred so
converted. Such Series F-1 Preferred may be issued in tenths of a share. The
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series F-1 Preferred on the Closing Date. As provided in
Section 5(a)(i), prior to the Closing Date each Nonparticipating Investor shall
have the right to convert its shares of Series F Preferred into shares of Common
Stock at the conversion rate in effect for such series as of the date of such
conversion.
(C) Shares of Series F Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series F Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock. No shares of Series F-1 Preferred shall be issued except as set forth in
this Section 5(c)(ii) upon conversion of shares of Series F Preferred.
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(D) No adjustment in the Conversion Price of the Series
F-1 Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except for the
issuance of such shares as a stock dividend, stock split, or in connection with
such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series F-1
Preferred are issued, effective on the Closing Date, any shares of Series F-1
Preferred that remain unissued after such issuance shall be cancelled, shall not
be available for issuance and shall be restored to the status of authorized but
unissued shares of Preferred Stock. In addition, concurrently with such
issuance, the Corporation shall take all such action as may be required,
including amending these Articles of Incorporation, (1) to evidence the
cancellation of such unissued shares of Series F-1 Preferred, (2) to create and
reserve for issuance upon any subsequent Dilutive Issuance a new series of
Preferred Stock equal in number to the number of shares of Series F-1 Preferred
so cancelled and designated Series F-2 Preferred, with relative rights,
preferences and limitations identical to those then applicable to the Series F-1
Preferred, except that the Conversion Price for the Series F-2 Preferred shall
initially be the Conversion Price then in effect for the Series F Preferred, and
(3) to amend the provisions of this Section 5 to provide that any subsequent
conversion of Series F Preferred upon a Dilutive Issuance will be into shares of
Series F-2 Preferred rather than Series F-1 Preferred. The Corporation shall
take the same actions with respect to the Series F-2 Preferred and each series
of Preferred Stock subsequently authorized under this Section 5(c)(ii)(E) upon
the initial issuance of shares of such series.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series F
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
5(c)(v) hereof) of such Additional Shares of Common Stock would be less than the
Conversion Price for the Series F Preferred in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
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(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
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(E) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(c)(iii)) after the Series F Issue Date
without consideration or for consideration per share less than the Conversion
Price for the Series F Preferred in effect on the date of and immediately prior
to such issue, then and in such event, the Conversion Price for the Series F
Preferred shall be reduced, concurrently with such issue, to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of such
Additional Shares of Common Stock so issued.
(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors irrespective of any
accounting treatment; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
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(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exercise of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustment of Conversion Price. The Conversion Price of the
Series F Preferred and the Series F-1 Preferred shall be subject to adjustment
from time to time as follows:
(i) If the number of shares of Common Stock outstanding at
any time after the Series F Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series F Preferred and the Series F-1 Preferred shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of shares of such Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the Series F Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) In case, at any time after the Series F Issue Date, of
any capital reorganization or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a stock dividend
or subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series F Preferred and Series F-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been
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entitled if immediately prior to such reorganization or reclassification such
holder had converted its shares of Preferred Stock into Common Stock. The
provisions of this Section 5(d)(iii) shall similarly apply to successive
reorganizations or reclassifications.
(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value for such
Common Stock as determined by the Board of Directors. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price. All calculations under this Section 5 shall
be made to the nearest one hundredth of a cent ($0.0001) or to the nearest one
hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets excluding cash
dividends or options or rights not referred to in subsection 5(d)(i), then in
each such case for the purpose of this subsection 5(g), the holders of Series F
Preferred and Series F-1 Preferred shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the Corporation from amending its Articles of
Incorporation in accordance with the Oregon Business Corporation Act.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in
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accordance with the terms hereof and prepare and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect for each series of Preferred Stock, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of the
Preferred Stock held by such holder.
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of Series
F Preferred or Series F-1 Preferred shall be converted into Common Stock
pursuant to Section 5 hereof, the shares so converted shall not be reissued and
shall no longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(m) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
Corporation.
6. Protective Provisions. So long as shares of Series F Preferred or
Series F-1 Preferred are outstanding, the Corporation shall not without first
obtaining the approval, by vote or written consent (which consent need not be
unanimous and may be obtained without a shareholders' meeting), of the holders
of at least a majority of the then outstanding shares of Series F Preferred and
Series F-1 Preferred (together on an as-converted basis):
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(a) Amend or repeal any provision of the Corporation's Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series F Preferred or Series F-1 Preferred;
(b) Except as provided in Section 5(c)(ii)(E) of each of Articles
II.D, II.F, II.H, this II.I and II.J, authorize or result in the issuance of
shares of any class of stock having any preference or priority as to dividends
or assets superior to or on a parity with any preference or priority of the
Series F Preferred or Series F-1 Preferred;
(c) Increase the authorized number of shares of Series F
Preferred or Series F-1 Preferred;
(d) Except in accordance with Section 7(b) of Article II.I of
these Articles, increase the number of directors authorized in the bylaws above
nine (9);
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
(g) Take any action that would result in the taxation of the
holders of Series F Preferred or Series F-1 Preferred under Section 305 of the
Internal Revenue Code of 1986.
7. Special Protective Provisions. Subject to Section 8 of this Article
II.I, and so long as all of the shares of Series F Preferred or Series F-1
Preferred initially issued to Continental Casualty Company ("CCC") continue to
be held by CCC, the following provisions (the "Special Protective Provisions")
shall apply.
(a) The holders of the Series F Preferred and the Series F-1
Preferred, voting together, shall be entitled to elect one member of the
Corporation's Board of Directors reasonably acceptable to the Corporation's
Board of Directors, with each share of Series F Preferred and Series F-1
Preferred having that number of votes equal to the number of shares of Common
Stock into which it is convertible (as defined in Section 5 above). The holders
of the Series C Preferred, the Series C-1 Preferred and the Common Stock, voting
together as a single class, shall be entitled to elect all members of the Board
of Directors not elected by holders of the Series A Preferred, the Series A-1
Preferred, the Series E Preferred, the Series E-1 Preferred, the Series F
Preferred and the Series F-1 Preferred.
(b) On a quarterly basis, the Corporation shall prepare a cash
and cash flow projection for the subsequent four quarters (the "Projection") to
be delivered to CCC with the financial statements required to be delivered as
provided in Section 2.1 of the 1997 Amended and Restated Investors Rights
Agreement. If any such Projection indicates that within 90 days the Corporation
will not have a cash balance sufficient to meet its cash needs
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(not including capital expenditures) for 60 days (the "Working Capital Test"),
CCC may deliver a notice to the Corporation ("First Notice") stating that the
Corporation is failing to meet the Working Capital Test. If CCC delivers a First
Notice to the Corporation, the Corporation will then have 30 days from the date
the First Notice was delivered to the Corporation (the "First Cure Period") to
take any such action necessary for the Corporation to satisfy the Working
Capital Test. If at any time after the First Cure Period CCC determines that the
Corporation fails to satisfy the Working Capital Test, CCC may deliver a notice
to the Corporation ("Second Notice") that the Corporation has failed to satisfy
the Working Capital Test. If CCC delivers a Second Notice to the Corporation,
CCC shall, on the first day following delivery of the Second Notice, loan to the
Corporation $5 million, secured by a first priority (except with respect to
collateral subject to a purchase money security interest covering the purchase
obligation or equipment subject to financing leases) lien on all of the asssets
of the Corporation (the "Loan"). If at any time after CCC makes the Loan CCC
determines that the Corporation fails to satisfy the Working Capital Test, CCC
may deliver a notice to the Corporation ("Third Notice") that the Corporation
has failed to satisfy the Working Capital Test. If CCC delivers a Third Notice
to the Corporation, the Corporation will then have 30 days from the date of such
Third Notice (the "Third Cure Period") to take any such action necessary for the
Corporation to satisfy the Working Capital Test. If the Corporation fails to
satisfy the Working Capital Test by the 30th day of the Third Cure Period, CCC
shall have the option, on or after the first day following the Third Cure
Period, to invest in one share of Series H Preferred Stock (the "Series H
Preferred"). Such investment in Series H Preferred must be sufficient to enable
the Corporation to maintain cash and cash equivalents equal to 180 days of cash
requirements (not including capital expenditures) as of the end of each fiscal
quarter for a period of at least 12 months, according to the most recent
Projection; provided, however, that if the Corporation reasonably establishes,
either prior to the end of the Third Cure Period or prior to CCC's purchase of
Series H Preferred, that it will be able to meet the Working Capital Test within
an additional 30 days from the end of the Third Cure Period, the Corporation can
extend the Third Cure Period for such additional 30-day period. In the event
that CCC exercises its option to purchase the Series H Preferred, the size of
the Board of Directors shall be increased by the number of directors (the
"Additional Directors") necessary to provide that the Additional Directors,
together with any other directors that CCC has the right to elect, constitute a
majority of the directors, and CCC shall have the right to nominate and elect,
voting as a separate voting group, a majority of the Corporation's Board of
Directors. Commencing at the end of the 12-month period following the date of
issuance of the Series H Preferred, the Corporation, upon demonstration that it
has satisfied the Working Capital Test for a period of 180 days (without giving
effect to the capital provided by the Series H Preferred) shall have the right
to redeem the Series H Preferred for an amount equal to the original purchase
price for the Series H Preferred plus accrued and unpaid dividends thereon
through the date of Series H Preference (as defined below). If the Corporation
redeems the Series H Preferred, CCC shall automatically relinquish its right
under this paragraph to nominate and elect a majority of the Corporation's Board
of Directors.
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(c) These Special Protective Provisions shall terminate upon (i)
the consummation of any Transfer (as defined in Section 8 of this Article II.I),
(ii) the consummation of a firm commitment underwritten public offering of the
Company's common stock resulting in aggregate net proceeds to the Company of not
less than $20,000,000, or (iii) the termination of that certain Marketing and
Licensing Agreement between the Corporation and CCC (the "Marketing Agreement")
(A) as scheduled by its terms, (B) by mutual agreement of the parties, or (C) by
the Corporation for material breach by TSO (as defined in the Marketing
Agreement), which breach is acknowledged by CCC or determined following
application of the dispute resolution mechanisms provided for in Article 24 of
the Marketing Agreement.
8. Restrictions on Transfer. The shares of Series F Preferred Stock or
Series F-1 Preferred Stock, any beneficial or record interest therein, or the
right to vote the same, may not be transferred, sold, assigned or conveyed to
any person, other than a corporation at least 80% owned, directly or indirectly,
by CNA Financial Corporation (collectively, a "Transfer") except in compliance
with the provisions of this Section 8.
(a) If a holder of Series F or Series F-1 Preferred Stock desires
to make a Transfer of any or all of his shares to any person or to any entity
such holder shall submit to the Corporation a written notice (the "Offer
Notice") informing the Corporation the holder's intent to sell. The Offer Notice
shall specify the number of shares of Series F or Series F-1 Preferred Stock to
be sold.
(b) Upon receipt of an Offer Notice, the Corporation shall take
all such action as may be required, including amending these Articles of
Incorporation, to create and reserve for issuance a new series of Preferred
Stock equal in number to the number of shares of Series F or Series F-1
Preferred to be transferred, with relative rights, preferences and limitations
identical to those then applicable to the Series F or F-1 Preferred, as the case
may be, except that the rights and preferences of the new series of Preferred
Stock shall not include the Special Protective Provisions set forth in Section 7
of this Article II.I, or the restrictions on transfer set forth in this Section
8 of Article II.I.
(c) Upon consummation of a Transfer, the shares of Series F or
Series F-1 Preferred to be automatically transferred shall be converted into the
new series of Preferred Stock designated pursuant to paragraph (b) of this
Section 8.
J. Series G and G-1 Preferred Stock. This Article II.J. sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series G
Preferred Stock ("Series G Preferred") and the number of shares constituting
such series shall be 4,129,665 and the shares of the second of such series shall
be designated Series G-1 Preferred Stock ("Series G-1 Preferred") and the number
of shares constituting such series shall be 412,966.5.
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1. Dividends. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, no dividend other than a dividend
payable in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation shall be paid on any share of Common
Stock unless dividends have first been paid in the current fiscal year of the
Corporation of $0.365 on each share of Series G Preferred and $3.65 on each
share of Series G-1 Preferred (adjusted for any combinations, consolidations,
stock distributions or stock dividends with respect to such shares). Such
dividends on the Series G Preferred and Series G-1 Preferred shall not be
cumulative.
2. Liquidation Preference. Notwithstanding any provision to the
contrary in Section 2 of Article II.D., Section 2 of Article II.F., Section 2 of
Article II.H., and Section 2 of Article II.I. hereof, in the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, subject to the rights of series of Preferred Stock which may from
time to time come into existence, distributions to the shareholders of the
Corporation shall be made in the following manner:
(a) The holders of Series G Preferred and Series G-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, and prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Preferred, Series
A-1 Preferred, Series C Preferred and Series C-1 Preferred and on a parity with
the Series E Preferred, Series E-1 Preferred, Series F Preferred and Series F-1
Preferred an amount per share of Series G Preferred (the "Series G Preference")
equal to $3.65 plus all declared but unpaid dividends on the Series G Preferred,
and an amount per share of Series G-1 Preferred (the "Series G-1 Preference")
equal to $36.50 per share plus all declared but unpaid dividends on the Series
G-1 Preferred. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series E Preferred, Series E-1 Preferred,
Series F Preferred, Series F-1 Preferred, Series G Preferred and Series G-1
Preferred shall be insufficient to permit the payment to such holders of their
full preferences, then, subject to the rights of series of Preferred Stock which
may from time to time come into existence, the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series E Preferred, Series E-1 Preferred, Series F
Preferred, Series F-1 Preferred, Series G Preferred and the Series G-1 Preferred
in proportion to the full preferential amount each such holder is otherwise
entitled to receive.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come into existence, Series C Preferred and Series C-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Preferred, Series
A-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred,
Series F-1 Preferred, Series G Preferred, Series G-1 Preferred and Common Stock
by reason of their ownership thereof (other than the Series E Preference,
Series E-1
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Preference, Series F Preference, Series F-1 Preference, Series G Preference and
the Series G-1 Preference described in subsection 2(a) above), the Series C
Preference and the Series C-1 Preference, as set forth in subsection 2(a) of
Article II.F. hereof.
(c) After the distribution described in subsections 2(a) and 2(b)
above has been made, subject to the rights of series of Preferred Stock which
may from time to time come into existence, the holders of Series A Preferred and
Series A-1 Preferred shall be entitled to receive, prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
Series C Preferred, Series C-1 Preferred, Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred, Series G Preferred, Series
G-1 Preferred and Common Stock by reason of their ownership thereof (other than
the Series E Preference, Series E-1 Preference, Series F Preference, Series F-1
Preference, Series G Preference, the Series G-1 Preference, the Series C
Preference and Series C-1 Preference described in subsections 2(a) and 2(b)
above), the Series A Preference and the Series A-1 Preference, as set forth in
subsection 2(a) of Article II.D.
(d) After the distributions described in subsection 2(a),
subsection 2(b) and subsection 2(c) above has been made, subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the remaining assets of the Corporation available for distribution to
shareholders shall be distributed among the holders of Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series G Preferred, Series G-1 Preferred, and Common Stock pro rata based on the
number of shares of Common Stock held or issuable upon conversion of all such
Series A Preferred, Series A- 1 Preferred, Series C Preferred, Series C-1
Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred, Series
F-1 Preferred, Series G Preferred, Series G-1 Preferred held by such holders.
(e) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
(f) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
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3. Redemption. Notwithstanding any provision to the contrary in
Section 3 of Article II.D., Section 3 of Article II.F., Section 3 of Article
II.H. or Section 3 of Article II.I. hereof:
(a) Subject to the rights of Preferred Stock which may from time
to time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent (50%) of the then outstanding Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series G Preferred and Series G-1 Preferred (together on an as-converted basis),
provided such request is received after December 31, 2001, the Corporation shall
redeem one hundred percent (100%) of the number of shares of Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series G Preferred and Series G-1 Preferred outstanding on the Request Date, or
such lesser number of shares as the Board of Directors shall determine is the
maximum number of shares for which funds are legally available for redemption.
The redemption price for these shares shall be paid in cash and shall be an
amount per share equal to the Series A Preference for Series A Preferred, the
Series A-1 Preference for Series A-1 Preferred, the Series C Preference for
Series C Preferred, the Series C-1 Preference for Series C-1 Preferred, the
Series E Preference for the Series E Preferred, the Series E-1 Preference for
the Series E-1 Preferred, the Series F Preference for the Series F Preferred,
the Series F-1 Preference for the Series F-1 Preferred, the Series G Preference
for the Series G Preferred and the Series G-1 Preference for the Series G-1
Preferred. If all of the shares of the Series A Preferred, Series A-1 Preferred,
Series C Preferred, Series C-1 Preferred, Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred, Series G Preferred and
Series G-1 Preferred are not redeemed because of a determination of insufficient
funds, the Corporation shall redeem additional shares only upon receipt of a new
request from the holders as provided in this subsection 3(a).
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred, Series A-1 Preferred, Series C Preferred,
Series C-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F
Preferred, Series F-1 Preferred, Series G Preferred and Series G-1 Preferred
requested to be redeemed because of a determination of insufficient funds, the
Corporation shall effect such redemption with respect to the Series E Preferred,
the Series E-1 Preferred, the Series F Preferred, the Series F-1 Preferred, the
Series G Preferred and Series G-1 Preferred requested to be redeemed, prior and
in preference to any redemption with respect to the holders of Series A
Preferred, Series A-1 Preferred, Series C Preferred and Series C-1 Preferred.
(ii) In the event of any redemption of only a part of the
then outstanding Series E Preferred, the Series E-1 Preferred, the Series F
Preferred, the Series F-1 Preferred, Series G Preferred and Series G-1 Preferred
requested to be redeemed because of a determination of insufficient funds, the
Corporation shall effect such redemption
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pro rata according to the full amount of cash each holder would receive if all
such shares were being redeemed.
(iii) After the redemptions described in subsection (b)(i)
above have been made, in the event of any redemption of only a part of the then
outstanding Series A Preferred, Series A-1 Preferred, Series C Preferred and
Series C-1 Preferred requested to be redeemed because of a determination of
insufficient funds, the Corporation shall effect such redemption with respect to
the Series C Preferred and Series C-1 Preferred requested to be redeemed, prior
and in preference to any redemption with respect to the holders of Series A
Preferred and Series A-1 Preferred.
(iv) In the event of any redemption of only a part of the
then outstanding Series C Preferred and Series C-1 Preferred requested to be
redeemed because of a determination of insufficient funds, the Corporation shall
effect such redemption pro rata according to the full amount of cash each holder
would receive if all such shares were being redeemed.
(v) After the redemptions described in subsections (b)(i)
and (b)(iii) above have been made, the Corporation shall effect such redemption
pro rata among the holders of Series A Preferred and Series A-1 Preferred
according to the full amount of cash each holder would receive if all such
shares were being redeemed.
(vi) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Preferred Stock (the "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Preferred Stock to be redeemed, at the address last
shown on the records of the Corporation for such holder or given by the holder
to the Corporation for the purpose of notice or if no such address appears or is
given at the place where the principal executive office of the Corporation is
located, notifying such holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
applicable redemption price, the place at which payment may be obtained and the
date on which such holder's conversion rights as to such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as provided in subsection
3(b)(vii), on or after the Redemption Date each holder of Preferred Stock to be
redeemed shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the applicable redemption price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
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(vii) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such shares as holders of Preferred Stock (except the right to
receive the applicable redemption price without interest upon surrender of their
certificate or certificates) 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. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred, Series A-1 Preferred, Series B Preferred, Series
B-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E Preferred,
Series E-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F
Preferred, Series F-1 Preferred, Series G Preferred or Series G-1 Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock.
4. Voting Rights. Notwithstanding any provision to the contrary in
Section 4 of Article II.D, Section 4 of Article II.F, Section 4 of Article II.H
or Section 4 of Article II.I hereof:
(a) Except as otherwise required by law, the holders of Series G
Preferred and Series G-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series G Preferred and Series G-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 5 below). Except as otherwise required by law or as
otherwise provided herein, the holders of shares of Series G Preferred and
Series G-1 Preferred shall vote together with the Common Stock, the Series A
Preferred, the Series A-1 Preferred, the Series C Preferred, the Series C-1
Preferred, the Series E Preferred, the Series E-1 Preferred, the Series F
Preferred and the Series F-1 Preferred as a single class.
(b) The holders of the Series G Preferred and the Series G-1
Preferred, voting together, shall be entitled to elect one member of the
Corporation's Board of Directors reasonably acceptable to the Corporation's
Board of Directors, with each share of Series G Preferred and Series G-1
Preferred having that number of votes equal to the number of shares of Common
Stock into which it is convertible (as defined in Section 5 below). The holders
of the Series C Preferred, the Series C-1 Preferred, and the Common Stock,
voting together as a single class, shall be entitled to elect all members of the
Board of Directors not elected by holders of the Series A Preferred, the Series
A-1 Preferred, the Series E Preferred, the Series E-1 Preferred, the Series F
Preferred, the Series F-1 Preferred, the Series G Preferred and the Series G-1
Preferred.
(c) Except as provided in Section 6, the Series G Preferred and
the Series G-1 Preferred shall not be entitled under Oregon law to vote
separately on a plan of merger.
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5. Conversion Rights. The holders of the Series G Preferred and Series
G-1 Preferred shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of
Series G Preferred and Series G-1 Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price at the time in effect. The
Original Issue Price for the Series G Preferred is $3.65 per share and the
Original Issue Price for the Series G-1 Preferred is $36.50 per share. The
initial Conversion Price for the Series G Preferred and the Series G-1 Preferred
shall be $3.65 per share; provided, however, that the Conversion Prices shall be
subject to adjustment as hereinafter provided.
(ii) Each share of Series G Preferred and Series G-1
Preferred shall automatically be converted into shares of Common Stock at the
applicable Conversion Price in effect immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.79 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $7,500,000 in the aggregate.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to
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have converted such Preferred Stock until immediately prior to the closing of
such sale of securities.
(c) Adjustments to Conversion Price of Series G Preferred for
Dilutive Issues; Special Conversion of Series G Preferred:
(i) Special Definitions. For purposes of this Section 5(c),
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series G Issue Date" shall mean the date on which
the first share of Series G Preferred Stock is first issued.
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding on the
Series G Issue Date,
(2) Common Stock issued pursuant to a transaction described
in subsection 5(d) hereof,
(3) shares issued pursuant to the acquisition of another
corporation by the Corporation by merger, purchase of substantially
all of the assets, or other reorganization, or
(4) shares of Common Stock issuable or issued to directors,
employees or other service providers to the Corporation at any time
when the total number of shares of Common Stock so issuable or issued
after the Series F Issue Date (as defined in Article II.I hereof) (and
not repurchased at cost by the Corporation in connection with the
termination of service as a director, employee or other service
provider) does not exceed 391,174 plus (x) the number of shares of
Common Stock repurchased at cost by the Corporation from directors,
employees or other service providers in connection with termination of
employment or other service arrangements pursuant to agreements
entered into prior to the Series F Issue Date, and (y) the number of
shares of Common Stock subject to
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outstanding Options on the Series F Issue Date, that subsequently terminate
unexercised.
(E) "Pro Rata Share" with respect to each holder of
Series G Preferred shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance
(ii) multiplied by a fraction, the numerator of which is the number of shares of
Common Stock into which the Series G Preferred then held by such holder is then
convertible, and the denominator of which is the total number of shares of
Common Stock then outstanding.
(F) "Dilutive Issuance" with respect to the Series G
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
(G) "Participating Investor" shall mean any holder of
Series G Preferred that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder
of Series G Preferred that is not a Participating Investor and whose Pro Rata
Share is not purchased by a Substitute Investor.
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance, it shall give each holder of Series G Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series G Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. Each holder of Series G Preferred that
is not an Accredited Investor may, within twenty (20) days from the date of the
Issuance Notice, provide written notice to the Corporation that another holder
of Series G Preferred that is an Accredited Investor (the "Substitute Investor")
will purchase such holder's Pro Rata Share for the price and upon the terms
specified in the Issuance Notice. In the event that such holder fails to give
such notice within the twenty (20) day period, or fails to actually purchase (or
have purchased by the Substitute Investor) its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
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(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Refused Percentage") by (or by a Substitute Investor
on behalf of) each Nonparticipating Investor, that number of outstanding shares
of Series G Preferred held by such Nonparticipating Investor equal to the
product of (x) the number of shares of such series held by the Nonparticipating
Investor, times (y) the Refused Percentage, shall be converted automatically on
the date (the "Closing Date") of the applicable Dilutive Issuance (provided that
the Corporation gave the Issuance Notice to such holder of Series G Preferred)
into a number of fully-paid and nonassessable shares of Series G-1 Preferred (or
such other series as to which shares are then authorized pursuant to Section
5(c)(ii)(E)) equal to one-tenth of the number of shares of Series G Preferred so
converted. Such Series G-1 Preferred may be issued in tenths of a share. The
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series G-1 Preferred on the Closing Date. As provided in
Section 5(a)(i), prior to the Closing Date each Nonparticipating Investor shall
have the right to convert its shares of Series G Preferred into shares of Common
Stock at the conversion rate in effect for such series as of the date of such
conversion.
(C) Shares of Series G Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series G Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock. No shares of Series G-1 Preferred shall be issued except as set forth in
this Section 5(c)(ii) upon conversion of shares of Series G Preferred.
(D) No adjustment in the Conversion Price of the Series
G-1 Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except for the
issuance of such shares as a stock dividend, stock split, or in connection with
such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series G-1
Preferred are issued, effective on the Closing Date, any shares of Series G-1
Preferred that remain unissued after such issuance shall be canceled, shall not
be available for issuance and shall be restored to the status of authorized but
unissued shares of Preferred Stock. In addition, concurrently with such
issuance, the Corporation shall take all such action as may be required,
including amending these Articles of Incorporation, (1) to evidence the
cancellation of such unissued shares of Series G-1 Preferred, (2) to create and
reserve for issuance upon any subsequent Dilutive Issuance a new series of
Preferred Stock equal in number to the number of shares of Series G-1 Preferred
so cancelled and designated Series G-2 Preferred, with relative rights,
preferences and limitations identical to those then applicable to the Series G-1
Preferred, except that the Conversion Price for the Series G-2 Preferred shall
initially be the Conversion Price then in effect for the Series G Preferred, and
(3) to amend the provisions of this Section 5 to provide that any subsequent
conversion of Series G Preferred upon a Dilutive Issuance will be into shares of
Series G-2 Preferred rather than Series G-1 Preferred. The Corporation shall
take the same actions with respect to the Series G-2
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Preferred and each series of Preferred Stock subsequently authorized under this
Section 5(c)(ii)(E) upon the initial issuance of shares of such series.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series G
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
5(c)(v) hereof) of such Additional Shares of Common Stock would be less than the
Conversion Price for the Series G Preferred in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion
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or exchange of such Convertible Securities and the consideration received
therefor was the consideration actually received by the Corporation for the
issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(c)(iii)) after the Series G Issue Date
without consideration or for consideration per share less than the Conversion
Price for the Series G Preferred in effect on the date of and immediately prior
to such issue, then and in such event, the Conversion Price for the Series G
Preferred shall be reduced, concurrently with such issue, to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue (including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of such
Additional Shares of Common Stock so issued.
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(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors irrespective of any
accounting treatment; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exercise of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustment of Conversion Price. The Conversion Price of the
Series G Preferred and the Series G-1 Preferred shall be subject to adjustment
from time to time as follows:
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(i) If the number of shares of Common Stock outstanding at
any time after the Series G Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series G Preferred and the Series G-1 Preferred shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of shares of such Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the Series G Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) In case, at any time after the Series G Issue Date, of
any capital reorganization or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a stock dividend
or subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series G Preferred and Series G-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been entitled if immediately prior to such reorganization or
reclassification such holder had converted its shares of Preferred Stock into
Common Stock. The provisions of this Section 5(d)(iii) shall similarly apply to
successive reorganizations or reclassifications.
(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value for such
Common Stock as determined by the Board of Directors. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price. All calculations under this Section 5 shall
be made to the nearest one hundredth of a cent ($0.0001) or to the nearest one
hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the
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Corporation or other persons, assets excluding cash dividends or options or
rights not referred to in subsection 5(d)(i), then in each such case for the
purpose of this subsection 5(g), the holders of Series G Preferred and Series
G-1 Preferred shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the Corporation from amending its Articles of
Incorporation in accordance with the Oregon Business Corporation Act.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect for each series of Preferred
Stock, and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Preferred Stock held by such holder.
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take
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<PAGE>
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of Series
G Preferred or Series G-1 Preferred shall be converted into Common Stock
pursuant to Section 5 hereof, the shares so converted shall not be reissued and
shall no longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(m) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
Corporation.
6. Protective Provisions. So long as shares of Series G Preferred or
Series G-1 Preferred are outstanding, the Corporation shall not without first
obtaining the approval, by vote or written consent (which consent need not be
unanimous and may be obtained without a shareholders' meeting), of the holders
of at least a majority of the then outstanding shares of Series G Preferred and
Series G-1 Preferred (together on an as-converted basis):
(a) Amend or repeal any provision of the Corporation's Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series G Preferred or Series G-1 Preferred;
(b) Except as provided in Section 5(c)(ii)(E) of each of Articles
II.D, II.F, II.H, II.I and this II.J authorize or result in the issuance of
shares of any class of stock (other than Series H Preferred Stock) having any
preference or priority as to dividends or assets superior to or on a parity with
any preference or priority of the Series G Preferred or Series G-1 Preferred;
(c) Increase the authorized number of shares of Series G
Preferred or Series G-1 Preferred;
(d) Increase the number of directors authorized in the bylaws
above ten (10), except as provided in Section 4 of Article II.K hereof;
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
33
<PAGE>
(g) Take any action that would result in the taxation of the
holders of Series G Preferred or Series G-1 Preferred under Section 305 of the
Internal Revenue Code of 1986.
K. Series H Preferred Stock. This Article II.K sets forth the
designation, preferences, limitations and relative rights of one series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The share of such series shall be designated Series H Preferred Stock
("Series H Preferred") and the number of shares constituting such series shall
be one (1).
1. Dividends. The Series H Preferred shall accrue dividends at an
annual rate equal to the original purchase price of the Series H Preferred
multiplied by the rate of interest per annum (as of the issue date of the Series
H Preferred) for deposits in U.S. dollars in the approximate amount of the
purchase price for a period equal to the date of purchase through the date of
redemption which appears on the display designated on the Telerate System for
London Interbank offered rates. Accrual of dividends on the Series H Preferred
and shall be cumulative, and such dividends shall be paid only upon the
redemption of the Series H Preferred or the liquidation, dissolution or winding
up of the Corporation. Except as provided in this paragraph, so long as the
share of Series H Preferred is outstanding, no dividend other than a dividend
payable in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation shall be paid on any share of Common
Stock or any share Preferred Stock.
2. Liquidation Preference. Notwithstanding any provision to the
contrary in Section 2 of Article II.D., Section 2 of Article II.F., Section 2 of
Article II.H., Section 2 of Article II.I. or Section 2 of Article II.J. hereof,
in the event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, subject to the rights of series of Preferred
Stock which may from time to time come into existence, distributions to the
shareholders of the Corporation shall be made in the following manner:
(a) The holders of Series H Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Common Stock by reason of their ownership thereof,
and prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Series A Preferred, Series A-1 Preferred, Series C
Preferred, Series C-1 Preferred, Series E Preferred, Series E-1 Preferred,
Series F Preferred, Series F-1 Preferred, Series G Preferred and Series G-1
Preferred an amount per share of Series H Preferred (the "Series H Preference")
equal to the purchase price paid to the Corporation for such share plus accrued
and unpaid dividends.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come
34
<PAGE>
into existence, the Series E Preferred, Series E-1 Preferred, Series F
Preferred, Series F-1 Preferred, Series G Preferred, and Series G-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Preferred, Series
A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series H Preferred and
Common Stock by reason of their ownership thereof (other than the Series H
Preference described in subsection 2(a) above), the Series E Preference, Series
E-1 Preference, Series F Preference, Series F-1 Preference, Series G Preference,
and Series G-1 Preference.
(c) After the distribution described in subsections 2(a) and 2(b)
above have been made, subject to the rights of series of Preferred Stock which
may from time to time come into existence, Series C Preferred and Series C-1
Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of Series A
Preferred, Series A-1 Preferred, Series E Preferred, Series E-1 Preferred,
Series F Preferred, Series F-1 Preferred, Series G Preferred, Series G-1
Preferred, Series H Preferred and Common Stock by reason of their ownership
thereof (other than the Series E Preference, Series E-1 Preference, Series F
Preference, Series F-1 Preference, Series G Preference, Series G-1 Preference
and Series H Preference described in subsections 2(a) and 2(b) above), the
Series C Preference and the Series C-1 Preference.
(d) After the distribution described in subsections 2(a), 2(b)
and 2(c) above have been made, subject to the rights of series of Preferred
Stock which may from time to time come into existence, the holders of Series A
Preferred and Series A-1 Preferred shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Series C Preferred, Series C-1 Preferred, Series E Preferred,
Series E-1 Preferred, Series F Preferred, Series F-1 Preferred, Series G
Preferred, Series G-1 Preferred Series H Preferred and Common Stock by reason of
their ownership thereof (other than the Series E Preference, Series E-1
Preference, Series F Preference, Series F-1 Preference, Series G Preference, the
Series G-1 Preference, the Series H Preference, the Series C Preference and
Series C-1 Preference described in subsections 2(a), 2(b) and 2(c) above), the
Series A Preference and the Series A-1 Preference.
(e) After the distributions described in subsection 2(a),
subsection 2(b), subsection 2(c), and 2(d) above have been made, subject to the
rights of series of Preferred Stock which may from time to time come into
existence, the remaining assets of the Corporation available for distribution to
shareholders shall be distributed among the holders of Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series G Preferred, Series G-1 Preferred, and Common Stock pro rata based on the
number of shares of Common Stock held or issuable upon conversion of all such
Series A Preferred, Series A-1 Preferred, Series C Preferred, Series C-1
Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred, Series
F-1 Preferred, Series G Preferred, Series G-1 Preferred held by such holders.
35
<PAGE>
(f) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
(g) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3. Redemption. Notwithstanding any provision to the contrary in
Section 3 of Article II.D., Section 3 of Article II.F., Section 3 of Article
II.H, Section 3 of Article II.I or Section 3 of Article II.J. hereof:
(a) Mandatory Redemption. Commencing at the end of the 12-month
period following the date of issuance of the Series H, the Corporation, upon
demonstration that it has satisfied the Working Capital Test (as defined in
Section 8(b) of Article II.I hereof) for a period of 180 days (without giving
effect to the capital provided by the Series H Preferred) shall have the right
to redeem the Series H Preferred for an amount equal to the Series H Preference,
and the Additional Directors (as defined below) will not have the right to
participate in, other than to permit a quorum to be present, or otherwise
inhibit the Corporation's decision to effect such redemption. If the Corporation
redeems the Series H Preferred, the right of the holder of the Series H
Preferred to elect the Additional Directors (as defined below) shall
automatically terminate.
(b) (i) At least 7 but no more than 30 days prior to the date
fixed for any redemption of Series H Preferred (the "Redemption Date"), written
notice shall be mailed, first class postage prepaid, to the holder of record (at
the close of business on the business day next preceding the day on which notice
is given) of the Series H Preferred to be redeemed, at the address last shown on
the records of the Corporation for such holder or given by the holder to the
Corporation for the purpose of notice or if no such address appears or is given
at the place where the principal executive office of the Corporation is located,
notifying such holder of the redemption to be effected, specifying the
Redemption Date, the applicable redemption price, the place at which payment may
be obtained and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except as provided in
subsection 3(b)(ii), on or after the Redemption Date each holder of Preferred
Stock to be redeemed shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the applicable redemption price of such
shares shall
36
<PAGE>
be payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled.
(ii) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such share as holders of Series H Preferred Stock (except the
right to receive the applicable redemption price without interest upon surrender
of their certificate or certificates) shall cease with respect to such share,
and such share shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(c) Any share redeemed pursuant to this Section 3 shall not be
reissued as Series H and shall be restored to the status of authorized but
unissued shares of Preferred Stock.
4. Additional Directors. Notwithstanding any other provision of these
Articles or the Corporation's Bylaws, upon the issuance of the Series H
Preferred, the size of the Corporation's Board of Directors shall automatically
be increased by the number of directors (the "Additional Directors") necessary
to provide that the Additional Directors, together with any other directors that
Continental Casualty Company, a stock insurance company organized and licensed
pursuant to the laws of Illinois ("CCC") has the right to elect, constitute a
majority of the directors. Upon the redemption of the Series H Preferred
pursuant to Section 3 of this Article II.K, the size of the Corporation's Board
of Directors shall automatically be reduced in size by the number of Additional
Directors, and the terms of the Additional Directors shall immediately expire.
5. Voting Rights. Notwithstanding any provision to the contrary in
Section 4 of Article II.D, Section 4 of Article II.F, Section 4 of Article II.H
or Section 4 of Article II.I or Section 4 of Article II.J hereof:
(a) Except as otherwise required by law, the holder of Series H
Preferred shall be entitled to notice of shareholder meetings.
(b) Upon the issuance of the Series H Preferred, the holder of
the Series H Preferred shall be entitled to elect, voting as a single class, the
Additional Directors. The holders of the Series C Preferred, the Series C-1
Preferred, and the Common Stock, voting together as a single class, shall be
entitled to elect all other members of the Board of Directors not elected by
holders of the Series A Preferred, the Series A-1 Preferred, the Series E
Preferred, the Series E-1 Preferred, the Series F Preferred, the Series F-1
Preferred, the Series G Preferred, the Series G-1 Preferred and the Series H
Preferred. An Additional Director shall be subject to removal upon shareholders
vote only if the Series H Preferred votes in favor of removal. The foregoing
limitation on removal of the Additional Directors does not apply to an
expiration of the terms of the Additional Directors under Section 4 above.
37
<PAGE>
(c) Except as provided in subparagraph (b) above or otherwise
required by law, the holder of the Series H Preferred shall not be entitled to
vote upon any other matter submitted to shareholders for a vote.
(d) Except as provided in Section 6, the Series H Preferred shall
not be entitled under Oregon law to vote separately on a plan of merger.
5. Conversion Rights. The Series H Preferred is not convertible into
Common Stock.
6. Protective Provisions. So long the share of Series H Preferred is
outstanding, the Corporation shall not without first obtaining the written
consent of the holder of the then outstanding share of Series H Preferred:
(a) Amend or repeal any provision of the Corporation's Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series H Preferred;
(b) Authorize or result in the issuance of shares of any class of
stock having any preference or priority as to dividends or assets superior to or
on a parity with any preference or priority of the Series H Preferred;
(c) Increase the authorized number of shares of Series H;
(d) Increase the number of directors authorized in the bylaws;
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
(g) Take any action that would result in the taxation of the
holders of Series H Preferred under Section 305 of the Internal Revenue Code of
1986.
7. Restrictions on Transfer. The shares of Series H Preferred Stock
any beneficial or record interest therein, or the right to vote the same, may
not be transferred, sold, assigned or conveyed except to a corporation at least
80% owned, directly or indirectly, by CNA Financial Corporation."
38
<PAGE>
Dated: November 10, 1997.
MEDICALOGIC, INC.
By: MARK LEAVITT
-----------------------------------------
Printed Name: Mark Leavitt, M.D.
Title: President
39
<PAGE>
FOR OFFICE USE ONLY
Submit the original Corporation Division - Business Registry
and one true copy Public Service Building
$10.00 255 Capitol St., NE Ste. 151
Salem, OR 97310-1327
REGISTRY NUMBER: (503) 986-2200 Facsimile (503) 378-4381
209240-15
ARTICLES OF AMENDMENT
Business Corporation
1. Name of the corporation prior to amendment:
MedicaLogic, Inc.
2. State the article number(s) and set forth the article(s) as it is amended
to read, or attach a separate sheet. Attached
3. The amendment(s) was adopted on April 17, 1998.
(If more than one amendment was adopted, identify the date of adoption of
each amendment.)
4. Check the appropriate statement:
[X] Shareholder action was required to adopt the amendment(s). The vote
was as follows:
Class or series of shares Common Stock
No. of shares outstanding 13,348,511
No. of votes entitled to be cast 13,348,651
No. of votes cast for 8,994,079
No. of votes cast against -0-
Class or series of shares Series A Preferred Stock
No. of shares outstanding 5,750,001
No. of votes entitled to be cast 5,750,001
No. of votes cast for 5,734,558
No. of votes cast against -0-
Cash or series of shares Series C Preferred Stock
No. of shares outstanding 7,012,637
No. of votes entitled to be cast 7,012,637
No. of votes cast for 4,602,224
No. of votes cast against -0-
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TO THE ABOVE ADDRESS OR INCLUDE YOUR VISA OR MASTERCARD NUMBER AND
EXPIRATION DATE [ ] AND FAX
<PAGE>
Class or series of shares Series E Preferred Stock
No. of shares outstanding 4,761,907
No. of votes entitled to be cast 4,761,907
No. of votes cast for 4,489,113
No. of votes cast against -0-
Class or series of shares Series F Preferred Stock
No. of shares outstanding 4,000,000
No. of votes entitled to be cast 4,000,000
No. of votes cast for 4,000,000
No. of votes cast against -0-
[ ] Shareholder action was not required to adopt the amendment(s). The
amendment(s) was adopted by the board of directors without shareholder
action.
[ ] The corporation has not issued any shares of stock. Shareholder
action was not required to adopt the amendment(s). The amendment(s)
was adopted by the incorporators or by the board of directors.
DAVID C. MOFFENBEIER David C. Moffenbeier COO
- --------------------------------------------------------------------------------
SIGNATURE PRINTED NAME TITLE
Person to contact about this filing: Kurt E. Scheuerman 503/294-9187
-------------------------------------------
NAME DAYTIME PHONE
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TO THE ABOVE ADDRESS OR INCLUDE YOUR VISA OR MASTERCARD NUMBER AND
EXPIRATION DATE [ ] AND FAX.
2
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. Section 5(c)(i)(D)(4) of Article II.F of the 1994 Restated Articles of
Incorporation of the corporation, as amended, is amended to replace "2,047,684"
with "2,747,684."
3. Section 5(c)(i)(D)(4) of Article II.H of the 1994 Restated Articles of
Incorporation of the corporation, as amended, is amended to replace "1,360,684"
with "2,060,684."
4. Section 5(c)(i)(D)(4) of Article II.I of the 1994 Restated Articles of
Incorporation of the corporation, as amended, is amended to replace "391,174"
with "1,091,174."
5. Section 5(c)(i)(D)(4) of Article II.J of the 1994 Restated Articles of
Incorporation of the corporation, as amended, is amended to replace "391,174"
with "1,091,174."
6. The first paragraph of Article II.J of the 1994 Restated Articles of
Incorporation of the corporation, as amended, is amended to read as follows:
"J. Series G and G-1 Preferred Stock. This Article II.J sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors
of the Corporation pursuant to its authority under ORS 60.134 and Article
II.C above. The shares of the first of such series shall be designated
Series G Preferred Stock ("Series G Preferred") and the number of shares
constituting such series shall be 5,000,000 and the shares of the second of
such series shall be designated Series G-1 Preferred Stock ("Series G-1
Preferred") and the number of shares constituting such series shall be
500,000."
7. The 1994 Restated Articles of Incorporation of the corporation, as amended,
are amended to add new Articles II.L to the end of Article II to read in their
entirety as follows:
"L. Series I and I-1 Preferred Stock. This Article II.L sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors
of the Corporation pursuant to its authority under ORS 60.134 and Article
II.C
<PAGE>
above. The shares of the first of such series shall be designated Series I
Preferred Stock ("Series I Preferred") and the number of shares
constituting such series shall be 5,000,000 and the shares of the second of
such series shall be designated Series I-1 Preferred Stock ("Series I- 1
Preferred") and the number of shares constituting such series shall be
500,000. No shares of Series I Preferred or Series I-1 Preferred shall be
issued if any shares of Series G Preferred or Series G-1 Preferred are
outstanding.
1. Dividends. Subject to the rights of series of Preferred Stock which may
from time to time come into existence, no dividend other than a dividend payable
in Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of this Corporation shall be paid on any share of Common Stock unless
dividends have first been paid in the current fiscal year of the Corporation of
$0.380 on each share of Series I Preferred and $3.80 on each share of Series I-1
Preferred (adjusted for any combinations, consolidations, stock distributions or
stock dividends with respect to such shares). Such dividends on the Series I
Preferred and Series I-1 Preferred shall not be cumulative.
2. Liquidation Preference. Notwithstanding any provision to the contrary in
Section 2 of Article II.D, Section 2 of Article II.F, Section 2 of Article II.H,
and Section 2 of Article II.I hereof, in the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
subject to the rights of series of Preferred Stock which may from time to time
come into existence, distributions to the shareholders of the Corporation shall
be made in the following manner:
(a) The holders of Series I Preferred and Series I-1 Preferred shall
be entitled to receive, prior and in preference to any distribution of any of
the assets of the Corporation to the holders of Common Stock by reason of their
ownership thereof, and prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Series A Preferred, Series A-1
Preferred, Series C Preferred and Series C-1 Preferred and on a parity with the
Series E Preferred, Series E-1 Preferred, Series F Preferred and Series F-1
Preferred an amount per share of Series I Preferred (the "Series I Preference")
equal to $3.80 plus all declared but unpaid dividends on the Series I Preferred,
and an amount per share of Series I-1 Preferred (the "Series I-1 Preference")
equal to $38.00 per share plus all declared but unpaid dividends on the Series
I-1 Preferred. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series E Preferred, Series E-1 Preferred,
Series F Preferred, Series F-1 Preferred, Series I Preferred and Series I-1
Preferred shall be insufficient to permit the payment to such holders of their
full preferences, then, subject to the rights of series of Preferred Stock which
may from time to time come into existence, the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series E Preferred,
2
<PAGE>
Series E-1 Preferred, Series F Preferred, Series F-1 Preferred, Series I
Preferred and the Series I-1 Preferred in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
(b) After the distribution described in subsection 2(a) above has been
made, subject to the rights of series of Preferred Stock which may from time to
time come into existence, Series C Preferred and Series C-1 Preferred shall be
entitled to receive, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of Series A Preferred, Series A-1
Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred, Series
F-1 Preferred, Series I Preferred, Series I-1 Preferred and Common Stock by
reason of their ownership thereof (other than the Series E Preference,
Series E-1 Preference, Series F Preference, Series F-1 Preference, Series I
Preference and the Series I-1 Preference described in subsection 2(a) above),
the Series C Preference and the Series C-1 Preference, as set forth in
subsection 2(a) of Article II.F hereof.
(c) After the distribution described in subsections 2(a) and 2(b)
above has been made, subject to the rights of series of Preferred Stock which
may from time to time come into existence, the holders of Series A Preferred and
Series A-1 Preferred shall be entitled to receive, prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
Series C Preferred, Series C-1 Preferred, Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred, Series I Preferred,
Series I-1 Preferred and Common Stock by reason of their ownership thereof
(other than the Series E Preference, Series E-1 Preference, Series F Preference,
Series F-1 Preference, Series I Preference, the Series I-1 Preference, the
Series C Preference and Series C-1 Preference described in subsections 2(a) and
2(b) above), the Series A Preference and the Series A-1 Preference, as set forth
in subsection 2(a) of Article II.D.
(d) After the distributions described in subsection 2(a),
subsection 2(b) and subsection 2(c) above has been made, subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the remaining assets of the Corporation available for distribution to
shareholders shall be distributed among the holders of Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series I Preferred, Series I-1 Preferred, and Common Stock pro rata based on the
number of shares of Common Stock held or issuable upon conversion of all such
Series A Preferred, Series A-1 Preferred, Series C Preferred, Series C-1
Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred,
Series F-1 Preferred, Series I Preferred, Series I-1 Preferred held by such
holders.
(e) A merger, consolidation or sale of all or substantially all of the
assets of the Corporation which will result in the Corporation's
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shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
(f) Whenever a distribution of assets provided for in this Section 2
shall be payable in property other than cash, the value of such distribution
shall be the fair market value of such property as determined in good faith by
the Board of Directors of the Corporation.
3. Redemption. Notwithstanding any provision to the contrary in Section 3
of Article II.D, Section 3 of Article II.F, Section 3 of Article II.H or
Section 3 of Article II.I hereof:
(a) Subject to the rights of Preferred Stock which may from time to
time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent (50%) of the then outstanding Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series I Preferred and Series I-1 Preferred (together on an as-converted basis),
provided such request is received after December 31, 2001, the Corporation shall
redeem one hundred percent (100%) of the number of shares of Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series I Preferred and Series I-1 Preferred outstanding on the Request Date, or
such lesser number of shares as the Board of Directors shall determine is the
maximum number of shares for which funds are legally available for redemption.
The redemption price for these shares shall be paid in cash and shall be an
amount per share equal to the Series A Preference for Series A Preferred, the
Series A-1 Preference for Series A-1 Preferred, the Series C Preference for
Series C Preferred, the Series C-1 Preference for Series C-1 Preferred, the
Series E Preference for the Series E Preferred, the Series E-1 Preference for
the Series E-1 Preferred, the Series F Preference for the Series F Preferred,
the Series F-1 Preference for the Series F-1 Preferred, the Series I Preference
for the Series I Preferred and the Series I-1 Preference for the Series I-1
Preferred. If all of the shares of the Series A Preferred, Series A-1 Preferred,
Series C Preferred, Series C-1 Preferred, Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred, Series I Preferred and
Series I-1 Preferred are not redeemed because of a determination of insufficient
funds, the Corporation shall redeem additional shares only upon receipt of a new
request from the holders as provided in this subsection 3(a).
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(b) (i) In the event of any redemption of only a part of the then
outstanding Series A Preferred, Series A-1 Preferred, Series C Preferred, Series
C-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred,
Series F-1 Preferred, Series I Preferred and Series I-1 Preferred requested to
be redeemed because of a determination of insufficient funds, the Corporation
shall effect such redemption with respect to the Series E Preferred, the Series
E-1 Preferred, the Series F Preferred, the Series F-1 Preferred, the Series I
Preferred and Series I-1 Preferred requested to be redeemed, prior and in
preference to any redemption with respect to the holders of Series A Preferred,
Series A-1 Preferred, Series C Preferred and Series C-1 Preferred.
(ii) In the event of any redemption of only a part of the then
outstanding Series E Preferred, the Series E-1 Preferred, the Series F
Preferred, the Series F-1 Preferred, Series I Preferred and Series I-1 Preferred
requested to be redeemed because of a determination of insufficient funds, the
Corporation shall effect such redemption pro rata according to the full amount
of cash each holder would receive if all such shares were being redeemed.
(iii) After the redemptions described in subsection (b)(i) above
have been made, in the event of any redemption of only a part of the then
outstanding Series A Preferred, Series A-1 Preferred, Series C Preferred and
Series C-1 Preferred requested to be redeemed because of a determination of
insufficient funds, the Corporation shall effect such redemption with respect to
the Series C Preferred and Series C-1 Preferred requested to be redeemed, prior
and in preference to any redemption with respect to the holders of Series A
Preferred and Series A-1 Preferred.
(iv) In the event of any redemption of only a part of the then
outstanding Series C Preferred and Series C-1 Preferred requested to be redeemed
because of a determination of insufficient funds, the Corporation shall effect
such redemption pro rata according to the full amount of cash each holder would
receive if all such shares were being redeemed.
(v) After the redemptions described in subsections (b)(i) and
(b)(iii) above have been made, the Corporation shall effect such redemption pro
rata among the holders of Series A Preferred and Series A-1 Preferred according
to the full amount of cash each holder would receive if all such shares were
being redeemed.
(vi) At least 30 but no more than 60 days prior to the date fixed
for any redemption of Preferred Stock (the "Redemption Date"), written notice
shall be mailed, first class postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of the Preferred Stock to be redeemed, at the address last shown on the
records of the Corporation for such holder or given by the holder to the
Corporation for the purpose of notice or if no such address
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appears or is given at the place where the principal executive office of the
Corporation is located, notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder, the Redemption
Date, the applicable redemption price, the place at which payment may be
obtained and the date on which such holder's conversion rights as to such shares
terminate and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except as provided in
subsection 3(b)(vii), on or after the Redemption Date each holder of Preferred
Stock to be redeemed shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the applicable redemption price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(vii) From and after the Redemption Date, unless there shall have
been a default in payment of the applicable redemption price, all rights of the
holders of such shares as holders of Preferred Stock (except the right to
receive the applicable redemption price without interest upon surrender of their
certificate or certificates) 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. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred, Series A-1 Preferred, Series B Preferred, Series
B-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E Preferred,
Series E-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F
Preferred, Series F-1 Preferred, Series I Preferred or Series I-1 Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock.
4. Voting Rights. Notwithstanding any provision to the contrary in Section
4 of Article II.D, Section 4 of Article II.F, Section 4 of Article II.H or
Section 4 of Article II.I hereof:
(a) Except as otherwise required by law, the holders of Series I
Preferred and Series I-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series I Preferred and Series I-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 5 below). Except as otherwise required by law or as
otherwise provided herein, the holders of
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shares of Series I Preferred and Series I-1 Preferred shall vote together with
the Common Stock, the Series A Preferred, the Series A-1 Preferred, the Series C
Preferred, the Series C-1 Preferred, the Series E Preferred, the Series E-1
Preferred, the Series F Preferred and the Series F-1 Preferred as a single
class.
(b) The holders of the Series I Preferred and the Series I-1
Preferred, voting together, shall be entitled to elect one member of the
Corporation's Board of Directors reasonably acceptable to the Corporation's
Board of Directors, with each share of Series I Preferred and Series I-1
Preferred having that number of votes equal to the number of shares of Common
Stock into which it is convertible (as defined in Section 5 below). The holders
of the Series C Preferred, the Series C-1 Preferred, and the Common Stock,
voting together as a single class, shall be entitled to elect all members of the
Board of Directors not elected by holders of the Series A Preferred, the Series
A-1 Preferred, the Series E Preferred, the Series E-1 Preferred, the Series F
Preferred, the Series F-1 Preferred, the Series I Preferred and the Series I-1
Preferred.
(c) Except as provided in Section 6, the Series I Preferred and the
Series I-1 Preferred shall not be entitled under Oregon law to vote separately
on a plan of merger.
5. Conversion Rights. The holders of the Series I Preferred and Series I-1
Preferred shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of Series I
Preferred and Series I-1 Preferred shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share and prior
to the close of business on any Redemption Date as may have been fixed in any
Redemption Notice with respect to such share, at the office of the Corporation
or any transfer agent for the Preferred Stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Issue Price by the Conversion Price at the time in effect. The Original
Issue Price for the Series I Preferred is $3.80 per share and the Original Issue
Price for the Series I-1 Preferred is $38.00 per share. The initial Conversion
Price for the Series I Preferred and the Series I-1 Preferred shall be $3.80 per
share; provided, however, that the Conversion Prices shall be subject to
adjustment as hereinafter provided.
(ii) Each share of Series I Preferred and Series I-1 Preferred
shall automatically be converted into shares of Common Stock at the applicable
Conversion Price in effect immediately upon the consummation of the
Corporation's sale of its Common Stock in a bona fide, firm commitment
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underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.79 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $7,500,000 in the aggregate.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Adjustments to Conversion Price of Series I Preferred for Dilutive
Issues; Special Conversion of Series I Preferred:
(i) Special Definitions. For purposes of this Section 5(c), the
following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series I Issue Date" shall mean the date on which the
first share of Series I Preferred Stock is first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
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(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding on the Series I
Issue Date,
(2) Common Stock issued pursuant to a transaction
described in subsection 5(d) hereof,
(3) shares issued pursuant to the acquisition of
another corporation by the Corporation by merger, purchase of substantially all
of the assets, or other reorganization, or
(4) shares of Common Stock issuable or issued to
directors, employees or other service providers to the Corporation at any time
when the total number of shares of Common Stock so issuable or issued after the
Series F Issue Date (as defined in Article II.I hereof) (and not repurchased at
cost by the Corporation in connection with the termination of service as a
director, employee or other service provider) does not exceed 1,091,174 plus (x)
the number of shares of Common Stock repurchased at cost by the Corporation from
directors, employees or other service providers in connection with termination
of employment or other service arrangements pursuant to agreements entered into
prior to the Series F Issue Date, and (y) the number of shares of Common Stock
subject to outstanding Options on the Series F Issue Date, that subsequently
terminate unexercised.
(E) "Pro Rata Share" with respect to each holder of Series I
Preferred shall mean that portion of the total dollar amount of the Dilutive
Issuance equal to (i) the amount of the Dilutive Issuance (ii) multiplied by a
fraction, the numerator of which is the number of shares of Common Stock into
which the Series I Preferred then held by such holder is then convertible, and
the denominator of which is the total number of shares of Common Stock then
outstanding.
(F) "Dilutive Issuance" with respect to the Series I
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
(G) "Participating Investor" shall mean any holder of Series
I Preferred that purchases at least its Pro Rata Share of a Dilutive Issuance.
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(H) "Nonparticipating Investor" shall mean any holder of
Series I Preferred that is not a Participating Investor and whose Pro Rata Share
is not purchased by a Substitute Investor.
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake a
Dilutive Issuance, it shall give each holder of Series I Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series I Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. Each holder of Series I Preferred that
is not an Accredited Investor may, within twenty (20) days from the date of the
Issuance Notice, provide written notice to the Corporation that another holder
of Series I Preferred that is an Accredited Investor (the "Substitute Investor")
will purchase such holder's Pro Rata Share for the price and upon the terms
specified in the Issuance Notice. In the event that such holder fails to give
such notice within the twenty (20) day period, or fails to actually purchase (or
have purchased by the Substitute Investor) its Pro Rata Share of the Dilutive
Issuance (other than as a result of the Corporation refusing to allow such
holder to so purchase its Pro Rata Share), such holder shall be deemed to be a
Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata Share
not purchased (the "Refused Percentage") by (or by a Substitute Investor on
behalf of) each Nonparticipating Investor, that number of outstanding shares of
Series I Preferred held by such Nonparticipating Investor equal to the product
of (x) the number of shares of such series held by the Nonparticipating
Investor, times (y) the Refused Percentage, shall be converted automatically on
the date (the "Closing Date") of the applicable Dilutive Issuance (provided that
the Corporation gave the Issuance Notice to such holder of Series I Preferred)
into a number of fully-paid and nonassessable shares of Series I-1 Preferred (or
such other series as to which shares are then authorized pursuant to Section
5(c)(ii)(E)) equal to one-tenth of the number of shares of Series I Preferred so
converted. Such Series I-1 Preferred may be issued in tenths of a share. The
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series I-1 Preferred on the Closing Date. As provided in
Section 5(a)(i), prior to the Closing Date each Nonparticipating Investor shall
have the right to convert its shares of Series I Preferred into shares of Common
Stock at the conversion rate in effect for such series as of the date of such
conversion.
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(C) Shares of Series I Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series I Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock. No shares of Series I-1 Preferred shall be issued except as set forth in
this Section 5(c)(ii) upon conversion of shares of Series I Preferred.
(D) No adjustment in the Conversion Price of the Series I-1
Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except for the
issuance of such shares as a stock dividend, stock split, or in connection with
such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series I-1 Preferred are
issued, effective on the Closing Date, any shares of Series I-1 Preferred that
remain unissued after such issuance shall be canceled, shall not be available
for issuance and shall be restored to the status of authorized but unissued
shares of Preferred Stock. In addition, concurrently with such issuance, the
Corporation shall take all such action as may be required, including amending
these Articles of Incorporation, (1) to evidence the cancellation of such
unissued shares of Series I-1 Preferred, (2) to create and reserve for issuance
upon any subsequent Dilutive Issuance a new series of Preferred Stock equal in
number to the number of shares of Series I-1 Preferred so cancelled and
designated Series I-2 Preferred, with relative rights, preferences and
limitations identical to those then applicable to the Series I-1 Preferred,
except that the Conversion Price for the Series I-2 Preferred shall initially be
the Conversion Price then in effect for the Series I Preferred, and (3) to amend
the provisions of this Section 5 to provide that any subsequent conversion of
Series I Preferred upon a Dilutive Issuance will be into shares of Series I-2
Preferred rather than Series I-1 Preferred. The Corporation shall take the same
actions with respect to the Series I-2 Preferred and each series of Preferred
Stock subsequently authorized under this Section 5(c)(ii)(E) upon the initial
issuance of shares of such series.
(iii) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the Series I Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common Stock
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issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 5(c)(v) hereof) of
such Additional Shares of Common Stock would be less than the Conversion Price
for the Series I Preferred in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(A) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, or in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(2) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and
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the consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities with respect to which
such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their terms
not more than 90 days after the date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock. In the event the Corporation shall issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 5(c)(iii)) after the Series I Issue Date without
consideration or for consideration per share less than the Conversion Price for
the Series I Preferred in effect on the date of and immediately prior to such
issue, then and in such event, the Conversion Price for the Series I Preferred
shall be reduced, concurrently with such issue, to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
(including all shares of Common Stock issuable upon conversion of the
outstanding Preferred Stock and all shares of Common Stock reserved for future
issuance by the Board of Directors of the Corporation) plus the number of such
Additional Shares of Common Stock so issued.
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(v) Determination of Consideration. For purposes of this Section
5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors irrespective of any accounting
treatment; and
(3) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5(c)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
(1) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exercise
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
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(d) Adjustment of Conversion Price. The Conversion Price of the Series
I Preferred and the Series I-1 Preferred shall be subject to adjustment from
time to time as follows:
(i) If the number of shares of Common Stock outstanding at any
time after the Series I Issue Date is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series I Preferred and the Series I-1 Preferred shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of shares of such Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at any
time after the Series I Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) In case, at any time after the Series I Issue Date, of any
capital reorganization or any reclassification of the stock of the Corporation
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series I Preferred and Series I-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been entitled if immediately prior to such reorganization or
reclassification such holder had converted its shares of Preferred Stock into
Common Stock. The provisions of this Section 5(d)(iii) shall similarly apply to
successive reorganizations or reclassifications.
(e) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the fair market value for such Common Stock
as determined by the Board of Directors. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price need be
made if such adjustment would result in a change in a Conversion Price of less
than $0.01. Any adjustment of less than $0.01 which is not made shall be carried
forward and shall be made at the time of and
15
<PAGE>
together with any subsequent adjustment which, on a cumulative basis, amounts to
an adjustment of $0.01 or more in a Conversion Price. All calculations under
this Section 5 shall be made to the nearest one hundredth of a cent ($0.0001) or
to the nearest one hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets excluding cash dividends or
options or rights not referred to in subsection 5(d)(i), then in each such case
for the purpose of this subsection 5(g), the holders of Series I Preferred and
Series I- 1 Preferred shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the Corporation from amending its Articles of
Incorporation in accordance with the Oregon Business Corporation Act.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect for each series of Preferred
Stock, and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Preferred Stock held by such holder.
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
16
<PAGE>
shall mail to each holder of Preferred Stock at least twenty (20) days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Preferred Stock, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of Series I
Preferred or Series I-1 Preferred shall be converted into Common Stock pursuant
to Section 5 hereof, the shares so converted shall not be reissued and shall no
longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(m) Notices. Any notice required by the provisions of this Section 5
to be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at its address appearing on the books of the Corporation.
6. Protective Provisions. So long as shares of Series I Preferred or Series
I-1 Preferred are outstanding, the Corporation shall not without first obtaining
the approval, by vote or written consent (which consent need not be unanimous
and may be obtained without a shareholders' meeting), of the holders of at least
a majority of the then outstanding shares of Series I Preferred and Series I-1
Preferred (together on an as-converted basis):
(a) Amend or repeal any provision of the Corporation's Articles of
Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series I Preferred or Series I-1 Preferred;
(b) Except as provided in Section 5(c)(ii)(E) of each of Articles
II.D, II.F, II.H, II.I and this II.L authorize or result in the issuance of
shares of any class of stock (other than Series H Preferred Stock) having any
preference or priority as to dividends or assets superior to or on a parity with
any preference or priority of the Series I Preferred or Series I-1 Preferred;
17
<PAGE>
(c) Increase the authorized number of shares of Series I Preferred or
Series I-1 Preferred;
(d) Increase the number of directors authorized in the bylaws above
ten (10), except as provided in Section 4 of Article II.K hereof;
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or substantially
all of the assets, recapitalization or reorganization of the Corporation; or
(g) Take any action that would result in the taxation of the holders
of Series I Preferred or Series I-1 Preferred under Section 305 of the Internal
Revenue Code of 1986."
Dated: March 31, 1998.
MEDICALOGIC, INC.
By: MARK LEAVITT
-----------------------------------------
Printed Name: Mark Leavitt
Title: President
18
<PAGE>
FOR OFFICE USE ONLY
Submit the original Corporation Division - Business Registry
and one true copy Public Service Building
$10.00 255 Capitol St., NE Ste. 151
Salem, OR 97310-1327
REGISTRY NUMBER: (503) 986-2200 Facsimile (503) 378-4381
209240-15
ARTICLES OF AMENDMENT
Business Corporation
1. Name of the corporation prior to amendment:
MedicaLogic, Inc.
2. State the article number(s) and set forth the article(s) as it is
amended to read, or attach a separate sheet.
Attached
3. The amendment(s) was adopted on June 2, 1998.
(If more than one amendment was adopted, identify the date of adoption
of each amendment.)
4. Check the appropriate statement:
[X] Shareholder action was required to adopt the amendment(s). The
vote was as follows:
Class or series of shares Common Stock
No. of shares outstanding 13,348,551
No. of votes entitled to be cast 13,348,551
No. of votes cast for 7,621,556
No. of votes cast against -0-
Class or series of shares Series A Preferred Stock
No. of shares outstanding 6,750,001
No. of votes entitled to be cast 6,750,001
No. of votes cast for 5,290,001
No. of votes cast against -0-
Class or series of shares Series C Preferred Stock
No. of shares outstanding 7,012,637
No. of votes entitled to be cast 7,012,637
No. of votes cast for 4,477,081
No. of votes cast against -0-
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TO THE ABOVE ADDRESS OR INCLUDE YOUR VISA OR MASTERCARD NUMBER AND
EXPIRATION DATE [ ] AND FAX.
<PAGE>
Class or series of shares Series E Preferred Stock
No. of shares outstanding 4,761,907
No. of votes entitled to be cast 4,761,907
No. of votes cast for 2,901,811
No. of votes cast against -0-
Class or series of shares Series F Preferred Stock
No. of shares outstanding 4,000,000
No. of votes entitled to be cast 4,000,000
No. of votes cast for 4,000,000
No. of votes cast against -0-
[ ] Shareholder action was not required to adopt the amendment(s).
The amendment(s) was adopted by the board of directors without
shareholder action.
[ ] The corporation has not issued any shares of stock. Shareholder
action was not required to adopt the amendment(s). The
amendment(s) was adopted by the incorporators or by the board of
directors.
DAVID C. MOFFENBEIER David C. Moffenbeier COO
- --------------------------------------------------------------------------------
SIGNATURE PRINTED NAME TITLE
Person to contact about this filing: Kurt E. Scheuerman 503/294-9187
- --------------------------------------------------------------------------------
NAME DAYTIME PHONE
MAKE CHECKS PAYABLE TO THE CORPORATION DIVISION. SUBMIT THE COMPLETED FORM AND
FEE TO THE ABOVE ADDRESS OR INCLUDE YOUR VISA OR MASTERCARD NUMBER AND
EXPIRATION DATE [ ] AND FAX.
2
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. Section 5(c)(i)(D)(4) of each of Articles II.F, II.H and II.I of
the 1994 Restated Articles of Incorporation of the Corporation (the "Restated
Articles") is amended to delete the word "or" from the end of such clause.
3. Section 5(c)(i)(D)(5) of each of Articles II.F, II.H and II.I of
the Restated Articles is amended to replace "." with ", or" at the end of such
clause.
4. Section 5(c)(i)(D) of each of Articles II.F, II.H and II.I of the
Restated Articles is amended to add a new clause (6) reading as follows:
"(6) up to 550,000 shares of Common Stock issued
to Enterprise Partners, provided such stock is issued by the
Corporation for consideration not less than $2.00 per
share."
5. Section 5(c)(i)(D)(3) of each of Articles II.J and II.L of the
Restated Articles is amended to delete the word "or" from the end of such
clause.
6. Section 5(c)(i)(D)(4) of each of Articles II.J and II.L of the
Restated Articles is amended to replace "." with ", or" at the end of such
clause.
7. Section 5(c)(i)(D) of each of Articles II.J and II.L of the
Restated Articles is amended to add a new clause (5) reading as follows:
"(6) up to 550,000 shares of Common Stock issued
to Enterprise Partners, provided such stock is issued by the
Corporation for consideration not less than $2.00 per
share."
Dated: June 2, 1998
MEDICALOGIC, INC.
By: DAVID C. MOFFENBEIER
------------------------------------
Printed Name: David C. Moffenbeier
Title: COO
<PAGE>
ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. Article II.D.5(c)(i)(D) of the 1994 Restated Articles of
Incorporation of the corporation, as amended (the "Articles"), is amended to add
a new subparagraph which shall read as follows:
(5) Common Stock issued to Baylor College of
Medicine ("BCM") or its assignees in connection with the
sale of software licenses by the Company to BCM and other
customers in the Houston, Texas market.
3. Article II.F.5(c)(i)(D) of the Articles is amended to add a new
subparagraph which shall read as follows:
(6) Common Stock issued to Baylor College of
Medicine ("BCM") or its assignees in connection with the
sale of software licenses by the Company to BCM and other
customers in the Houston, Texas market.
4. Article II.H.5(c)(i)(D) of the Articles is amended to add a new
subparagraph which shall read as follows:
(6) Common Stock issued to Baylor College of
Medicine ("BCM") or its assignees in connection with the
sale of software licenses by the Company to BCM and other
customers in the Houston, Texas market.
5. Article II.I.5(c)(i)(D) of the Articles is amended to add a new
subparagraph which shall read as follows:
(6) Common Stock issued to Baylor College of
Medicine ("BCM") or its assignees in connection with the
sale of software licenses by the Company to BCM and other
customers in the Houston, Texas market.
6. Article II.J.5(c)(i)(D) of the Articles is amended to add a new
subparagraph which shall read as follows:
(5) Common Stock issued to Baylor College of
Medicine ("BCM") or its assignees in connection with the
sale of software licenses by the Company to BCM and other
customers in the Houston, Texas market.
<PAGE>
7. The amendments to the Articles were adopted by the shareholders of
the corporation on January 28, 1999.
8. The amendments to the Articles were approved by the Board of
Directors of the corporation on December 31, 1998.
9. The amendments to the Articles were approved by holders of the
capital stock of the corporation on January 28, 1998 as follows:
(i) Class or series of shares: Common Stock
No. of shares outstanding: 14,255,112
No. of votes entitled to be cast: 14,255,112
No. of votes cast for: 8,625,079
No. of votes cast against: 0
(ii) Class or series of shares: Series A Preferred Stock
No. of shares outstanding: 5,750,001
No. of votes entitled to be cast: 5,750,001
No. of votes cast for: 5,290,001
No. of votes cast against: 0
(iii) Class or series of shares: Series C Preferred Stock
No. of shares outstanding: 7,012,637
No. of votes entitled to be cast: 7,012,637
No. of votes cast for: 3,588,191
No. of votes cast against: 0
(ii) Class or series of shares: Series E Preferred Stock
No. of shares outstanding: 4,761,907
No. of votes entitled to be cast: 4,761,907
No. of votes cast for: 2,868,621
No. of votes cast against: 0
(ii) Class or series of shares: Series F Preferred Stock
No. of shares outstanding: 4,000,000
No. of votes entitled to be cast: 4,000,000
No. of votes cast for: 4,000,000
No. of votes cast against: 0
2
<PAGE>
Dated: January 31, 1999
MEDICALOGIC, INC.
By: DAVID MOFFENBEIER
--------------------------------------
David Moffenbeier
Chief Operating Officer and Secretary
3
<PAGE>
ARTICLES OF CORRECTION
OF
THE 1994 RESTATED ARTICLES OF INCORPORATION
OF
MEDICALOGIC, INC.
(1) The name of the corporation is MedicaLogic, Inc.
(2) The document to be corrected is the Articles of Amendment of
MedicaLogic, Inc. filed in the office of the Secretary of State of the State of
Oregon on February 12, 1999; Registry Number 209240-15 (the "Articles of
Amendment").
(3) Paragraphs 2, 3, 4, 5 and 6 of the Articles of Amendment are deleted
and replaced with the following, and paragraphs 7, 8 and 9 of the Articles of
Amendment are renumbered accordingly.
2. Section 5(c)(i)(D)(5) of each of Articles II.F, II.H and II.I of
the 1994 Restated Articles of Incorporation of the Corporation (the "Restated
Articles") is amended to delete the word "or" from the end of such clause.
3. Section 5(c)(i)(D)(6) of each Article II.F, II.H and II.I of the
Restated Articles is amended to replace "." with ", or" at the end of such
clause.
4. Section 5(c)(i)(D) of each Articles II.F, II.H and II.I of the
Restated Articles is amended to add a new clause (7) reading as follows:
"(7) Common Stock issued to Baylor College of Medicine
("BCM") or its assignees in connection with the sale of software
licenses by the Company to BCM and other customers in the Houston,
Texas market."
5. Section 5(c)(i)(D)(4) of each of Articles II.J and II.L of the
Restated Articles is amended to delete the word "or" from the end of such
clause.
6. Section 5(c)(i)(D)(5) of each of Articles II.J and II.L of the
Restated Articles is amended to replace "." with ", or" at the end of such
clause.
7. Section 5(c)(i)(D) of each of Articles II.J and II.L of the
Restated Articles is amended to add a new clause (6) reading as follows:
"(6) Common Stock issued to Baylor College of Medicine
("BCM") or its assignees in connection with the sale of software
licenses by the Company to BCM and other customers in the Houston,
Texas market."
<PAGE>
(4) The effective date of the correction shall be February 12, 1999.
Dated: April 29, 1999
MEDICALOGIC, INC.
By: DAVID MOFFENBEIER
-------------------------------------
David Moffenbeier
Chief Operating Officer and Secretary
2
<PAGE>
ARTICLES OF AMENDMENT
TO
THE 1994 RESTATED ARTICLES OF INCORPORATION OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. The 1994 Restated Articles of Incorporation of the corporation, as
amended, are amended to add a new Article II.M to the end of Article II to read
in its entirety as follows:
"M. Series J and J-1 Preferred Stock. This Article II.M sets forth the
designation, preferences, limitations and relative rights of two series of
Preferred Stock of the Corporation as determined by the Board of Directors of
the Corporation pursuant to its authority under ORS 60.134 and Article II.C.
above. The shares of the first of such series shall be designated Series J
Preferred Stock ("Series J Preferred") and the number of shares constituting
such series shall be 8,421,050 and the shares of the second of such series shall
be designated Series J-1 Preferred Stock ("Series J-1 Preferred") and the number
of shares constituting such series shall be 842,105.
1. Dividends. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, no dividend other than a dividend
payable in Common Stock or other securities and rights convertible into or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock of this Corporation shall be paid on any share of Common
Stock unless dividends have first been paid in the current fiscal year of the
Corporation of $0.475 on each share of Series J Preferred and $4.75 on each
share of Series J-1 Preferred (adjusted for any combinations, consolidations,
stock distributions or stock dividends with respect to such shares). Such
dividends on the Series J Preferred and Series J-1 Preferred shall not be
cumulative.
2. Liquidation Preference. Notwithstanding any provision to the
contrary in Section 2 of Article II.D., Section 2 of Article II.F., Section 2 of
Article II.H., Section 2 of Article II.I, Section 2 of Article II.J, Section 2
of Article II.K, or Section 2 of Article II.L hereof, in the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, subject to the rights of series of Preferred Stock which may from
<PAGE>
time to time come into existence, distributions to the shareholders of the
Corporation shall be made in the following manner:
(a) The holders of Series J Preferred and Series J-1 Preferred
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, and prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Series A Preferred, Series
A-1 Preferred, Series C Preferred, and Series C-1 Preferred, and on a parity
with the holders of the Series E Preferred and Series E-1 Preferred, the Series
F Preferred and Series F-1 Preferred, the Series G Preferred and G-1 Preferred,
the Series H Preferred, the Series I Preferred and Series I-1 Preferred an
amount per share of Series J Preferred (the "Series J Preference") equal to
$4.75 plus all declared but unpaid dividends on the Series J Preferred, and an
amount per share of Series J-1 Preferred (the "Series J-1 Preference") equal to
$47.50 per share plus all declared but unpaid dividends on the Series J-1
Preferred. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series E Preferred, Series E-1 Preferred,
Series F Preferred, Series F-1 Preferred, Series G Preferred, Series G-1
Preferred, Series H Preferred, Series I Preferred, Series I-1 Preferred, Series
J Preferred and Series J-1 Preferred shall be insufficient to permit the payment
to such holders of their full preferences, then, subject to the rights of series
of Preferred Stock which may from time to time come into existence, the entire
assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred, Series G Preferred, Series
G-1 Preferred, Series H Preferred, Series I Preferred, Series I-1 Preferred,
Series J Preferred and the Series J-1 Preferred in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
(b) After the distribution described in subsection 2(a) above has
been made, subject to the rights of series of Preferred Stock which may from
time to time come into existence, the holders of the Series C Preferred and
Series C-1 Preferred shall be entitled to receive, prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
Series A Preferred, Series A-1 Preferred, Series E Preferred, Series E- 1
Preferred, Series F Preferred, Series F-1 Preferred, Series G Preferred, Series
G-1 Preferred, Series H Preferred, Series I Preferred, Series I-1 Preferred,
Series J Preferred, Series J-1 Preferred and Common Stock by reason of their
ownership thereof (other than the Series E Preference, Series E-1 Preference,
Series F Preference, Series F-1 Preference, Series G Preference, Series G-1
Preference, Series H Preference, Series I Preference, Series I-1 Preference,
Series J Preference and the Series J-1 Preference described in subsection 2(a)
above, subsection 2(a) of Article II.H, subsection 2(a) of Article II.I,
subsection 2(a) of Article II.J, subsection 2(a) of Article II.K, subsection
2(a) of Article II.L hereof), the Series C Preference and the Series C-1
Preference, as set forth in subsection 2(a) of Article II.F. hereof.
2
<PAGE>
(c) After the distribution described in subsections 2(a) and 2(b)
above has been made, subject to the rights of series of Preferred Stock which
may from time to time come into existence, the holders of Series A Preferred and
Series A-1 Preferred shall be entitled to receive, prior and in preference to
any distribution of any of the assets of the Corporation to the holders of
Series C Preferred, Series C-1 Preferred, Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred, Series G Preferred, Series
G-1 Preferred, Series H Preferred, Series I Preferred, Series I-1 Preferred,
Series J Preferred, Series J-1 Preferred and Common Stock by reason of their
ownership thereof (other than the Series E Preference, the Series E-1
Preference, Series F Preference, Series F-1 Preference, Series G Preference,
Series G-1 Preference, Series H Preference, Series I Preference, Series I-1
Preference, Series J Preference, the Series J-1 Preference, the Series C
Preference and Series C-1 Preference described in subsections 2(a) and 2(b)
above), the Series A Preference, the Series A-1 Preference, as set forth in
subsection 2(a) of Article II.D. hereof.
(d) After the distributions described in subsection 2(a),
subsection 2(b) and subsection 2(c) above have been made, subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the remaining assets of the Corporation available for distribution to
shareholders shall be distributed among the holders of Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series G Preferred, Series G-1 Preferred, Series H Preferred, Series I
Preferred, Series I-1 Preferred, Series J Preferred, Series J-1 Preferred, and
Common Stock pro rata based on the number of shares of Common Stock held or
issuable upon conversion of all such Series A Preferred, Series A-1 Preferred,
Series C Preferred, Series C-1 Preferred, Series E Preferred, Series E-1
Preferred, Series F Preferred, Series F-1 Preferred, Series G Preferred, Series
G-1 Preferred, Series H Preferred, Series I Preferred, Series I-1 Preferred,
Series J Preferred, Series J-1 Preferred held by such holders.
(e) A merger, consolidation or sale of all or substantially all
of the assets of the Corporation which will result in the Corporation's
shareholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving, continuing or purchasing entity, shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 2; provided, however, that any payments made may be made in cash or in
securities or other property received from the acquiring entity or in a
combination thereof, on the closing of such transaction.
(f) Whenever a distribution of assets provided for in this
Section 2 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
3
<PAGE>
3. Redemption. Notwithstanding any provision to the contrary in
Section 3 of Article II.D., Section 3 of Article II.F., Section 3 of Article
II.H., Section 3 of Article II.I., Section 3 of Article II.J., Section 3 of
Article II.K. or Section 3 of Article II.L. hereof:
(a) Subject to the rights of Preferred Stock which may from time
to time come into existence, within sixty (60) days after the date (the "Request
Date") of the receipt by the Corporation of the written request of the holders
of more than fifty percent (50%) of the then outstanding Series A Preferred,
Series A-1 Preferred, Series C Preferred, Series C-1 Preferred, Series E
Preferred, Series E-1 Preferred, Series F Preferred, Series F-1 Preferred,
Series G Preferred, Series G-1 Preferred, Series H Preferred, Series I
Preferred, Series I-1 Preferred, Series J Preferred and Series J-1 Preferred
(together on an as-converted basis), provided such request is received after
December 31, 2001, the Corporation shall redeem one hundred percent (100%) of
the number of shares of Series A Preferred, Series A-1 Preferred, Series C
Preferred, Series C-1 Preferred, Series E Preferred, Series E-1 Preferred,
Series F Preferred, Series F-1 Preferred, Series G Preferred, Series G-1
Preferred, Series H Preferred, Series I Preferred, Series I-1 Preferred, Series
J Preferred and Series J-1 Preferred outstanding on the Request Date, or such
lesser number of shares as the Board of Directors shall determine is the maximum
number of shares for which funds are legally available for redemption. The
redemption price for these shares shall be paid in cash and shall be an amount
per share equal to the Series A Preference for Series A Preferred, the Series
A-1 Preference for Series A-1 Preferred, the Series C Preference for the Series
C Preferred, the Series C-1 Preference for the Series C-1 Preferred, the Series
E Preference for the Series E Preferred, the Series E-1 Preference for the
Series E-1 Preferred, Series F Preferred, Series F-1 Preferred, Series G
Preferred, Series G-1 Preferred, Series H Preferred, Series I Preferred, Series
I-1 Preferred, the Series J Preference for the Series J Preferred and the Series
J-1 Preference for the Series J-1 Preferred. If all of the shares of the Series
A Preferred, Series A-1 Preferred, Series C Preferred, Series C-1 Preferred,
Series E Preferred, Series E-1 Preferred, Series F Preferred, Series F-1
Preferred, Series G Preferred, Series G-1 Preferred, Series H Preferred, Series
I Preferred, Series I-1 Preferred, Series J Preferred and Series J-1 Preferred
are not redeemed because of a determination of insufficient funds, the
Corporation shall redeem additional shares only upon receipt of a new request
from the holders as provided in this subsection 3(a).
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred, Series A-1 Preferred, Series C Preferred,
Series C-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F
Preferred, Series F-1 Preferred, Series J Preferred and Series J-1 Preferred
because of a determination of insufficient funds, the Corporation shall effect
such redemption with respect to the Series E Preferred, Series E-1 Preferred,
Series F Preferred, Series F-1 Preferred, Series G Preferred, Series G-1
Preferred, Series H Preferred, Series I Preferred, Series I-1 Preferred, Series
J Preferred and Series J-1 Preferred, prior and in preference to any redemption
with respect to the holders of Series A Preferred, Series A-1 Preferred, Series
C Preferred and Series C-1 Preferred.
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(ii) In the event of any redemption described in Section
3(b)(i), the Corporation shall effect such redemption pro rata among the holders
of the Series E Preferred, Series E-1 Preferred, Series F Preferred, Series F-1
Preferred, Series J Preferred and Series J-1 Preferred in proportion to the full
preferential amount of cash each holder would be entitled to receive if all such
shares were being redeemed.
(iii) After the redemptions described in subsections (b)(i)
and (b)(ii) above have been made, in the event of any redemption of only a part
of the then outstanding Series A Preferred, Series A-1 Preferred, Series C
Preferred, and Series C-1 Preferred, because of a determination of insufficient
funds, the Corporation shall effect such redemption with respect to the Series C
Preferred and Series C-1 Preferred requested to be redeemed, prior and in
preference to any redemption with respect to the holders of Series A Preferred,
and Series A-1 Preferred.
(iv) In the event of any redemption of only a part of the
then outstanding Series C Preferred and Series C-1 Preferred requested to be
redeemed because of a determination of insufficient funds, the Corporation shall
effect such redemption pro rata according to the full amount of cash each holder
would receive if all such shares were being redeemed.
(v) After the redemptions described in subsections (b)(i),
(b)(ii) and (b)(iii) above have been made, the Corporation shall effect such
redemption pro rata among the holders of Series A Preferred and Series A-1
Preferred according to the full amount of cash each holder would receive if all
such shares were being redeemed.
(vi) At least 30 but no more than 60 days prior to the date
fixed for any redemption of Preferred Stock (the "Redemption Date"), written
notice shall be mailed by the Corporation, first class postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is given) of the Preferred Stock to be redeemed, at the
address last shown on the records of the Corporation for such holder or given by
the holder to the Corporation for the purpose of notice or if no such address
appears or is given at the place where the principal executive office of the
Corporation is located, notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder, the Redemption
Date, the applicable redemption price, the place at which payment may be
obtained and the date on which such holder's conversion rights as to such shares
terminate and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except as provided in
subsection 3(b)(vii), on or after the Redemption Date each holder of Preferred
Stock to be redeemed shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the applicable redemption price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
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certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(vii) From and after the Redemption Date, unless there shall
have been a default in payment of the applicable redemption price, all rights of
the holders of such shares as holders of Preferred Stock (except the right to
receive the applicable redemption price without interest upon surrender of their
certificate or certificates) 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. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(c) Any shares redeemed pursuant to this Section 3 shall not be
reissued as Series A Preferred, Series A-1 Preferred, Series C Preferred, Series
C-1 Preferred, Series E Preferred, Series E-1 Preferred, Series F Preferred,
Series F-1 Preferred, Series G Preferred, Series G-1 Preferred, Series H
Preferred, Series I Preferred, Series I-1 Preferred, Series J Preferred or
Series J-1 Preferred and shall be restored to the status of authorized but
unissued shares of Preferred Stock.
4. Voting Rights. Notwithstanding any provision to the contrary in
Section 4 of Article II.D, Section 4 of Article II.F, Section 4 of Article II.H,
Section 4 of Article II.I, Section 4 of Article II.J, Section 4 of Article II.K
or Section 4 of Article II.L hereof:
(a) Except as otherwise required by law, the holders of Series J
Preferred and Series J-1 Preferred shall be entitled to notice of shareholder
meetings and to vote upon any matter submitted to shareholders for a vote, with
each share of Series J Preferred and Series J-1 Preferred having that number of
votes equal to the number of shares of Common Stock into which it is convertible
(as defined in Section 5 below). Except as otherwise required by law or as
otherwise provided herein, the holders of shares of Series J Preferred and
Series J-1 Preferred shall vote together with the Common Stock, the Series A
Preferred, the Series A-1 Preferred, the Series C Preferred, the Series C-1
Preferred, the Series E Preferred, the Series E-1 Preferred, the Series F
Preferred, the Series F-1 Preferred, the Series G Preferred, the Series G-1
Preferred, the Series H Preferred, the Series I Preferred and the Series I-1
Preferred as a single class.
(b) A majority of the holders of the Series J Preferred and the
Series J-1 Preferred, voting together, shall be entitled to elect one member of
the Corporation's Board of Directors reasonably acceptable to the Corporation's
Board of Directors.
(c) Except as provided in Section 6, the Series J Preferred and
the Series J-1 Preferred shall not be entitled under Oregon law to vote
separately on a plan of merger.
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5. Conversion Rights. The holders of the Series J Preferred and Series
J-1 Preferred shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsections 5(c) and 5(d), each share of
Series J Preferred and Series J-1 Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of the
Corporation or any transfer agent for the Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Original Issue Price by the Conversion Price at the time in effect. In the
event less than all of the then outstanding shares of Series J Preferred or
Series J-1 Preferred are redeemed on a Redemption Date, the holder's right to
convert such remaining shares shall continue until the close of business on a
Redemption Date on which such shares are actually redeemed. The Original Issue
Price for the Series J Preferred is $4.75 per share and the Original Issue Price
for the Series J-1 Preferred is $47.50 per share. The initial Conversion Price
for the Series J Preferred and the Series J-1 Preferred shall be $4.75 per
share; provided, however, that the Conversion Prices shall be subject to
adjustment as hereinafter provided.
(ii) Each share of Series J Preferred and Series J-1
Preferred shall automatically be converted into shares of Common Stock at the
applicable Conversion Price in effect immediately prior to the consummation of
the Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $5.40 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $7,500,000 in the aggregate.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, the
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conversion may, at the option of any holder tendering Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of Preferred Stock shall
not be deemed to have converted such Preferred Stock until immediately prior to
the closing of such sale of securities.
(c) Adjustments to Conversion Price of Series J Preferred for
Dilutive Issues; Special Conversion of Series J Preferred:
(i) Special Definitions. For purposes of this Section 5(c),
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Series J Issue Date" shall mean the date on which
the first share of Series J Preferred Stock is first issued.
(C) "Convertible Securities" shall mean any evidences
of indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(iii), deemed to be
issued) by the Corporation, other than:
(1) any shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding on the
Series J Issue Date,
(2) Common Stock issued pursuant to a transaction described
in subsection 5(d) hereof,
(3) shares issued pursuant to the acquisition of another
corporation by the Corporation by merger, purchase of substantially
all of the assets, or other reorganization, or
(4) shares of Common Stock issuable or issued to directors,
employees or other service providers to the Corporation at any time
when the total number of shares of Common Stock so issuable or issued
after the Series J Issue Date (and not repurchased at cost by the
Corporation in connection with the termination of service as a
director, employee or other service provider) does not exceed
4,891,174 plus (x) the number of shares of Common Stock repurchased at
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<PAGE>
cost by the Corporation from directors, employees or other service
providers in connection with termination of employment or other
service arrangements pursuant to agreements entered into prior to the
Series J Issue Date, and (y) the number of shares of Common Stock
subject to outstanding Options on the Series J Issue Date, that
subsequently terminate unexercised, or
(5) Up to 5,454,545 shares of Common Stock issued to Baylor
College of Medicine ("BCM") or its assignees in connection with the
sale of software licenses by the Company to BCM and other customers in
the Houston, Texas market.
(E) "Pro Rata Share" with respect to each holder of
Series J Preferred shall mean that portion of the total dollar amount of the
Dilutive Issuance equal to (i) the amount of the Dilutive Issuance (ii)
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock into which the Series J Preferred then held by such holder is then
convertible, and the denominator of which is the total number of shares of
Common Stock then outstanding.
(F) "Dilutive Issuance" with respect to the Series J
Preferred shall mean an issuance of Additional Shares of Common Stock for a
consideration per share less than the Conversion Price of such series of
Preferred Stock in effect on the date of and immediately prior to such issue.
(G) "Participating Investor" shall mean any holder of
Series J Preferred that purchases at least its Pro Rata Share of a Dilutive
Issuance.
(H) "Nonparticipating Investor" shall mean any holder
of Series J Preferred that is not a Participating Investor and whose Pro Rata
Share is not purchased by a Substitute Investor.
(ii) Shadow Preferred.
(A) In the event the Corporation proposes to undertake
a Dilutive Issuance, it shall give each holder of Series J Preferred a written
notice (the "Issuance Notice") of its intention, describing the type of new
securities, the price and number of shares and the general terms upon which the
Corporation proposes to issue such new securities, at least thirty (30) days
prior to the date of such Dilutive Issuance. Each holder of Series J Preferred
that is an accredited investor as defined in Rule 501(a) under the Securities
Act of 1933 (an "Accredited Investor") may, within twenty (20) days from the
date of the Issuance Notice, provide written notice to the Corporation that such
holder agrees to become a Participating Investor for the price and upon the
terms specified in the Issuance Notice. Each holder of Series J Preferred that
is not an Accredited Investor may, within twenty (20) days from the date of the
Issuance Notice, provide written notice to the Corporation that another
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holder of Series J Preferred that is an Accredited Investor (the "Substitute
Investor") will purchase such holder's Pro Rata Share for the price and upon the
terms specified in the Issuance Notice. In the event that such holder fails to
give such notice within the twenty (20) day period, or fails to actually
purchase (or have purchased by the Substitute Investor) its Pro Rata Share of
the Dilutive Issuance (other than as a result of the Corporation refusing to
allow such holder to so purchase its Pro Rata Share), such holder shall be
deemed to be a Nonparticipating Investor.
(B) To the extent of the percentage of the Pro Rata
Share not purchased (the "Refused Percentage") by (or by a Substitute Investor
on behalf of) each Nonparticipating Investor, that number of outstanding shares
of Series J Preferred held by such Nonparticipating Investor equal to the
product of (x) the number of shares of such series held by the Nonparticipating
Investor, times (y) the Refused Percentage, shall be converted automatically on
the date (the "Closing Date") of the applicable Dilutive Issuance (provided that
the Corporation gave the Issuance Notice to such holder of Series J Preferred)
into a number of fully-paid and nonassessable shares of Series J-1 Preferred (or
such other series as to which shares are then authorized pursuant to Section
5(c)(ii)(E)) equal to one-tenth of the number of shares of Series J Preferred so
converted. Such Series J-1 Preferred may be issued in tenths of a share. The
Nonparticipating Investor shall be treated for all purposes as the record holder
of such shares of Series J-1 Preferred on the Closing Date. As provided in
Section 5(a)(i), prior to the Closing Date each Nonparticipating Investor shall
have the right to convert its shares of Series J Preferred into shares of Common
Stock at the conversion rate in effect for such series as of the date of such
conversion.
(C) Shares of Series J Preferred that are converted as
provided in Section 5(c)(ii)(B) shall not be reissued as Series J Preferred and
shall be restored to the status of authorized but unissued shares of Preferred
Stock. No shares of Series J-1 Preferred shall be issued except as set forth in
this Section 5(c)(ii) upon conversion of shares of Series J Preferred.
(D) No adjustment in the Conversion Price of the Series
J-1 Preferred shall be made in respect of the issuance of Additional Shares of
Common Stock, regardless of the issuance price of such shares, except for the
issuance of such shares as a stock dividend, stock split, or in connection with
such other transactions as are provided in Section 5(d) hereof.
(E) In the event that any shares of Series J-1
Preferred are issued, effective on the Closing Date, any shares of Series J-1
Preferred that remain unissued after such issuance shall be cancelled, shall not
be available for issuance and shall be restored to the status of authorized but
unissued shares of Preferred Stock. In addition, concurrently with such
issuance, the Corporation shall take all such action as may be required,
including amending these Articles of Incorporation, (1) to evidence the
cancellation of such unissued shares of Series J-1 Preferred, (2) to create and
reserve for issuance upon any subsequent
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Dilutive Issuance a new series of Preferred Stock equal in number to the number
of shares of Series J-1 Preferred so cancelled and designated Series J-2
Preferred, with relative rights, preferences and limitations identical to those
then applicable to the Series J-1 Preferred, except that the Conversion Price
for the Series J-2 Preferred shall initially be the Conversion Price then in
effect for the Series J Preferred, and (3) to amend the provisions of this
Section 5 to provide that any subsequent conversion of Series J Preferred upon a
Dilutive Issuance will be into shares of Series J-2 Preferred rather than Series
J-1 Preferred. The Corporation shall take the same actions with respect to the
Series J-2 Preferred and each series of Preferred Stock subsequently authorized
under this Section 5(c)(ii)(E) upon the initial issuance of shares of such
series.
(iii) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the Series J
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto assuming the
satisfaction of any conditions to exercisability, including, without limitation,
the passage of time and without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall, unless
otherwise excluded under Section 5(c)(i)(D), be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
5(c)(v) hereof) of such Additional Shares of Common Stock would be less than the
Conversion Price for the Series J Preferred in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
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(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 90 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(c)(iii)) after the Series J Issue Date
without consideration or for consideration per share less than the Conversion
Price for the Series J Preferred in effect on the date of and immediately prior
to such issue, then and in such event, the Conversion Price for the Series J
Preferred shall be reduced, concurrently with such issue, to a price determined
by multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of
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Common Stock outstanding immediately prior to such issue (including all shares
of Common Stock issuable upon conversion of the outstanding Preferred Stock and
all shares of Common Stock reserved for future issuance by the Board of
Directors of the Corporation) plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue (including all shares of
Common Stock issuable upon conversion of the outstanding Preferred Stock and all
shares of Common Stock reserved for future issuance by the Board of Directors of
the Corporation) plus the number of such Additional Shares of Common Stock so
issued.
(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors irrespective of any
accounting treatment; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(c)(iii), relating
to Options and Convertible Securities, shall be determined by dividing
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exercise of such Convertible Securities, or in the case of
Options for Convertible
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Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(d) Adjustment of Conversion Price. The Conversion Price of the
Series J Preferred and the Series J-1 Preferred shall be subject to adjustment
from time to time as follows:
(i) If the number of shares of Common Stock outstanding at
any time after the Series J Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, on the date such payment is made or such change is effective, the
Conversion Price for the Series J Preferred and the Series J-1 Preferred shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of shares of such Preferred Stock shall be increased in proportion
to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at
any time after the Series J Issue Date is decreased by a combination or reverse
stock split of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Conversion Price for such series shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of shares of such series shall be decreased in proportion to such
decrease in outstanding shares.
(iii) In the case, at any time after the Series J Issue
Date, of any capital reorganization or any reclassification of the stock of the
Corporation (other than a change in par value or as a result of a stock dividend
or subdivision, split-up, reverse stock split, or combination of shares), the
shares of Series J Preferred and Series J-1 Preferred shall, after such
reorganization or reclassification, be convertible into the kind and number of
shares of stock or other securities or property of the Corporation to which the
holder would have been entitled if immediately prior to such reorganization or
reclassification such holder had converted its shares of Preferred Stock into
Common Stock. The provisions of this Section 5(d)(iii) shall similarly apply to
successive reorganizations or reclassifications.
(e) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the fair market value for such
Common Stock as determined by the Board of Directors. Whether or not fractional
shares are issuable upon such conversion shall be determined on the basis of the
total number of shares of Preferred Stock the holder is at the
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time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(f) Adjustment Threshold. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price. All calculations under this Section 5 shall
be made to the nearest one hundredth of a cent ($0.0001) or to the nearest one
hundredth (1/100) of a share, as the case may be.
(g) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets excluding cash
dividends or options or rights not referred to in subsection 5(d)(i), then in
each such case for the purpose of this subsection 5(g), the holders of Series J
Preferred and Series J-1 Preferred shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(h) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of Preferred Stock against impairment. This
provision shall not restrict the Corporation from amending its Articles of
Incorporation in accordance with the Oregon Business Corporation Act; provided
that the Corporation shall, if practicable, provide reasonable notice to the
holders of the Preferred Stock of any such amendment.
(i) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect for each series of Preferred
Stock, and (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of the
Preferred Stock held by such holder.
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<PAGE>
(j) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, the Corporation
shall mail to each holder of Preferred Stock at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(k) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(l) Status of Converted Stock. In the event any shares of Series
J Preferred or Series J-1 Preferred shall be converted into Common Stock
pursuant to Section 5 hereof, the shares so converted shall not be reissued and
shall no longer constitute authorized shares of Preferred Stock. The Articles of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
(m) Notices. Any notice required by the provisions of this
Section 5 to be given to the holders of shares of Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
Corporation.
6. Protective Provisions. So long as shares of Series J Preferred or
Series J-1 Preferred are outstanding, the Corporation shall not without first
obtaining the approval, by vote or written consent (which consent need not be
unanimous and may be obtained without a shareholders' meeting), of the holders
of at least a majority of the then outstanding shares of Series J Preferred and
Series J-1 Preferred (together on an as-converted basis):
(a) Amend or repeal any provision of the Corporation's Articles
of Incorporation if such action would adversely affect the relative rights,
preferences and privileges of the Series J Preferred or Series J-1 Preferred;
(b) Except as provided in Section 5(c)(ii)(E) of each of Articles
II.D, II.F, II.H, II.I, II.J, II.K, II.L and this II.M, authorize or result in
the issuance of shares of any class of stock having any preference or priority
as to dividends, redemption or other
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<PAGE>
distribution of assets superior to or on a parity with any preference or
priority of the Series J Preferred or Series J-1 Preferred;
(c) Increase the authorized number of shares of Series J
Preferred or Series J-1 Preferred;
(d) Increase the number of directors authorized in the bylaws
above nine (9);
(e) Pay or declare any dividend on the Common Stock;
(f) Authorize a merger, consolidation, sale of all or
substantially all of the assets, recapitalization or reorganization of the
Corporation; or
(g) Take any action that would result in the taxation of the
holders of Series J Preferred or Series J-1 Preferred under Section 305 of the
Internal Revenue Code of 1986.
3. The amendment to the Articles was approved by the Board of
Directors of the corporation on May 26, 1999. Shareholder approval was not
required.
Dated: May 28th, 1999.
MEDICALOGIC, INC.
By: MARK LEAVITT
------------------------------------
Printed Name: Mark Leavitt, M.D.
Title: President
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ARTICLES OF AMENDMENT
OF
MEDICALOGIC, INC.
1. The name of the corporation is MedicaLogic, Inc.
2. The first paragraph of Article II.M. of the 1994 Restated Articles
of Incorporation of the corporation is amended to read in its entirety as
follows:
"Series J and J-1 Preferred Stock. This Article II.M.
sets forth the designation, preferences, limitations
and relative rights of two series of Preferred Stock of
the Corporation as determined by the Board of Directors
of the Corporation pursuant to its authority under ORS
60.134 and Article II.C. above. The shares of the first
of such series shall be designated Series J Preferred
Stock ("Series J Preferred") and the number of shares
constituting such series shall be 10,376,843, and the
shares of the second of such series shall be designated
Series J-1 Preferred Stock ("Series J-1 Preferred") and
the number of shares constituting such series shall be
1,037,684.3."
3. The amendment to Article II.M. was approved by the Board of
Directors of the corporation effective July 22, 1999.
4. The amendment to Article II.M. was approved by holders of the
capital stock of the corporation on August 2, 1999 as follows:
(i) Class or series of shares: Common Stock
No. of shares outstanding: 17,542,412
No. of votes entitled to be cast: 17,542,412
No. of votes cast for: 9,137,875
No. of votes cast against: 0
(ii) Class or series of shares: Series A Preferred Stock
No. of shares outstanding: 5,750,001
No. of votes entitled to be cast: 5,750,001
No. of votes cast for: 5,116,427
No. of votes cast against: 0
<PAGE>
(iii) Class or series of shares: Series C Preferred Stock
No. of shares outstanding: 7,012,637
No. of votes entitled to be cast: 7,012,637
No. of votes cast for: 6,651,114
No. of votes cast against: 0
(iv) Class or series of shares: Series E Preferred Stock
No. of shares outstanding: 4,761,907
No. of votes entitled to be cast: 4,761,907
No. of votes cast for: 2,983,128
No. of votes cast against: 0
(v) Class or series of shares: Series F Preferred Stock
No. of shares outstanding: 4,000,000
No. of votes entitled to be cast: 4,000,000
No. of votes cast for: 4,000,000
No. of votes cast against: 0
(vi) Class or series of shares: Series J Preferred Stock
No. of shares outstanding: 7,326,316
No. of votes entitled to be cast: 7,326,316
No. of votes cast for: 7,326,316
No. of votes cast against: 0
Dated: August 2, 1999
MEDICALOGIC, INC.
By: GUY E. FIELD
------------------------------------
Guy Field, Vice President, Finance
2
Bylaws
of
MedicaLogic, Inc.
ARTICLE I
SHAREHOLDERS MEETINGS
1.1 Annual Meeting. The annual meeting of the shareholders shall be held on
the second Tuesday in May of each year at 10 a.m., unless a different date or
time is fixed by the Board of Directors and stated in the notice of the meeting.
1.2 Special Meetings. Special meetings of the shareholders, for any
purposes, unless otherwise prescribed by statute, may be called by the Chief
Executive Officer or the Board of Directors.
1.3 Place of Meetings. Meetings of the shareholders shall be held at any
place in or out of Oregon designated by the Board of Directors.
1.4 Meeting by Telephone Conference. Shareholders may participate in an
annual or special meeting by, or conduct the meeting through, use of any means
of communications by which all shareholders participating may simultaneously
hear each other during the meeting, except that no meeting for which a written
notice is sent to shareholders may be conducted by this means unless the notice
states that participation in this manner is permitted and describes how any
shareholder desiring to participate in this manner may notify the Corporation.
1.5 Notice of Shareholder Business and Nominations.
(a) Annual Meetings of Shareholders.
(1) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders only (i) pursuant
to the Corporation's notice of meeting or any supplement thereto, (ii) by or at
the direction of the Board of Directors or (iii) by any shareholder of the
Corporation who (A) was a shareholder of record of the Corporation when the
notice provided for in this Section 1.5 is delivered to the Secretary of the
Corporation, (B) is entitled to vote at the meeting and (C) complies with the
notice procedures set forth in subparagraphs (2) and (3) of this paragraph (a)
in this Section 1.5.
<PAGE>
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (iii) of paragraph (a)(1) of
this Section 1.5, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for shareholder action as determined by the Board
of Directors. To be timely, a notice shall be delivered to the Secretary at the
principal executive offices of the Corporation at least 90 days, and no earlier
than 120 days, before the first anniversary of the date of the proxy statement
for the preceding year's annual meeting (provided, however, that if the date of
the annual meeting is more than 30 days before or more than 70 days after the
anniversary date, notice by the shareholder must be delivered no earlier than
120 days before the annual meeting and no later than the later of 90 days before
the annual meeting or 10 days following the day on which public announcement of
the date of the meeting is first made by the Corporation). The public
announcement of an adjournment or postponement of an annual meeting of
shareholders shall not commence a new time period (or extend any time period)
for the giving of a shareholder's notice as described above. The shareholder's
notice shall set forth the information required by paragraph (c) of this Section
1.5.
(3) Notwithstanding anything in the second sentence of paragraph
(a)(2) of this Section 1.5 to the contrary, if the number of directors to be
elected to the Board of Directors of the Corporation at an annual meeting is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 100 days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice required by this Section 1.5 shall
also be considered timely, but only with respect to nominees for any new
positions created by the increase, if it is delivered to the Secretary at the
principal executive offices of the Corporation not later than 10 days following
the day on which the public announcement is first made by the Corporation.
(b) Special Meetings of Shareholders.
(1) The only business that may be conducted at a special meeting of
shareholders is the business described in the Corporation's notice of meeting.
If directors are to be elected at a special meeting, nominations of persons for
election to the Board of Directors may be made at a special meeting of
shareholders only (i) by or at the direction of the Board of Directors or the
Chairman of the Board or (ii) by any shareholder of the Corporation who (A) is a
shareholder of record at the time the notice provided for in this Section 1.5(b)
is delivered to the Secretary of the Corporation, (B) is entitled to vote at the
special meeting and (C) complies with the notice procedures set forth in
paragraph (b)(2) of this Section 1.5. If a special meeting of shareholders is
called to elect one or more directors to the Board of Directors, any shareholder
entitled to vote in the election of directors may nominate a person or persons
(as the case may be) for election to such position(s) as specified in the
Corporation's notice of meeting, if the shareholder's notice containing the
information and as otherwise required by paragraph (b)(2) of this Section 1.5 is
delivered to the Secretary at the principal
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<PAGE>
executive offices of the Corporation not later than 10 days following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at the meeting.
The public announcement of an adjournment or postponement of a special meeting
shall not commence a new time period (or extend any time period) for the giving
of a shareholder's notice as described above.
(2) For nominations to be properly brought before a special meeting by
a shareholder pursuant to clause (ii) of paragraph (b)(1) of this Section 1.5,
the shareholder's notice must contain the information required by paragraph (c)
of this Section 1.5. For any other business to be properly brought before a
special meeting by a shareholder, the other business must be a proper matter for
shareholder action and the shareholder's demand for the special meeting pursuant
to the Oregon Business Corporation Act must contain the information required by
paragraph (c) of this Section 1.5.
(c) Information Required in Shareholder Notice. A shareholder notice given
pursuant to paragraph (a) or (b) of this Section 1.5 shall contain the following
information:
(1) As to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act and Rule 14a-11 thereunder
(and be accompanied by such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected);
(2) as to any other business the shareholder proposes to bring before
the special meeting, a brief description of the business desired to be brought
before the special meeting, the text of the proposal or business (including the
text of any resolutions proposed for consideration and, if the business includes
a proposal to amend the bylaws of the Corporation, the language of the proposed
amendment), the reasons for conducting the business at the special meeting and
any material interest in the business of such shareholder and any beneficial
owner on whose behalf the proposal is made; and
(3) as to the shareholder giving the notice and any beneficial owner
on whose behalf the nomination or proposal is made, (A) the name and address of
the shareholder, as they appear on the Corporation's books, and of the
beneficial owner, (B) the class and number of shares of capital stock of the
Corporation which are owned beneficially and of record by the shareholder and
the beneficial owner, (C) a representation that the shareholder is a holder of
record of stock of the Corporation entitled to vote at the special meeting and
intends to appear in person or by proxy at the special meeting to propose such
business or nomination, and (D) a representation as to whether the shareholder
or the beneficial owner, if any, intends or is part of a group which intends to
(1) deliver a proxy statement and/or form of proxy to holders of at least the
percentage of the Corporation's outstanding capital stock required to approve or
adopt the proposal or elect the nominee and/or (2) otherwise solicit
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<PAGE>
proxies from shareholders in support of such proposal or nomination. The
Corporation may require any proposed nominee to furnish any other information it
reasonably requires to determine the eligibility of the proposed nominee to
serve as a director of the Corporation.
(d) General.
(1) Only persons nominated in accordance with the procedures set forth
in this Section 1.5 shall be eligible to be elected at an annual or special
meeting of shareholders of the Corporation to serve as directors and only such
business shall be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 1.5. Except as otherwise provided by law, the chairman of the meeting
shall have the power and duty to (i) determine whether a nomination or any
business proposed to be brought before an annual or special meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 1.5 and (ii) if any proposed nomination or business is not in
compliance with this Section 1.5 (including whether the shareholder or any
beneficial owner on whose behalf the nomination or proposal is made solicits (or
is part of a group which solicits), or fails to so solicit (as the case may be),
proxies in support of such shareholder's nominee or proposal in compliance with
such shareholder's representation as required by clause (iii)(D) of Section
(a)(2) or clause (iii)(D) of Section (b)(2) of this Section 1.5), to declare
that such nomination shall be disregarded or that such proposed business shall
not be transacted.
(2) For purposes of this Section 1.5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press, PR Newswire or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) A shareholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 1.5. Nothing in this Section 1.5 shall be
deemed to affect any rights of shareholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
1.6 Conduct of Meetings.
(a) Meetings of shareholders shall be presided over by the Chief Executive
Officer, if that position is filled, or, if there is no Chief Executive Officer,
the President or, in any event, by another chairman designated by the Board of
Directors. The date and time of the opening and the closing of the polls for
each matter upon which the shareholders will vote at a meeting shall be
determined by the chairman of the meeting and announced at the meeting.
4
<PAGE>
(b) The Board of Directors may adopt by resolution any rules and
regulations for the conduct of the meeting of shareholders as it deems
appropriate. Except to the extent inconsistent with rules and regulations as
adopted by the Board of Directors, the chairman of any meeting of shareholders
shall have the exclusive right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of the
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to shareholders of record of the Corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
determines; (iv) restrictions on entry to the meeting after the time fixed for
the commencement thereof; and (v) limitations on the time allotted to questions
or comments by participants. Unless and to the extent otherwise determined by
the Board of Directors or the chairman of the meeting, meetings of shareholders
are not required to be held in accordance with the rules of parliamentary
procedure.
(c) Any annual or special meeting of shareholders may be adjourned only by
the chairman of the meeting from time to time to reconvene at the same or some
other time, date and place, and notice need not be given of any such adjourned
meeting if the time, date and place are announced at the meeting at which the
adjournment occurs. The shareholders present at a meeting shall not have
authority to adjourn the meeting. At the adjourned meeting at which a quorum is
present, the shareholders may transact any business which might have been
transacted at the original meeting. If after the adjournment a new record date
is fixed for the adjourned meeting, notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the meeting.
ARTICLE II
BOARD OF DIRECTORS
2.1 Number and Term.
(a) Number. The number of directors constituting the entire Board of
Directors of the Corporation shall be not less than seven nor more than nine
as fixed from time to time by the Board of Directors, provided, however, that
the number of directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the number of
directors constituting the entire Board of Directors shall be nine until
otherwise fixed by the Board of Directors.
(b) Election, Qualification and Term of Office of Directors. The Board of
Directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or
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<PAGE>
resolutions adopted by the Board of Directors. At the first annual meeting of
shareholders following the date hereof, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three years. At the second annual meeting of shareholders following the date
hereof, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of shareholders following the date hereof, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three years. At each succeeding annual meeting of shareholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Section 2.1(b), each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
2.2 Regular Meetings. A regular meeting of the Board of Directors shall be
held without notice other than this Bylaw immediately after, and at the same
place as, the annual meeting of shareholders.
2.3 Special Meetings. Special meetings of the Board of Directors may be
called by the Chief Executive Officer or any two directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place in or out of Oregon as the place for holding any special meeting of
the Board of Directors called by them.
2.4 Notice. Notice of the date, time and place of any special meeting of
the Board of Directors shall be given at least 24 hours prior to the meeting by
notice communicated in person, by telephone, telegraph, teletype, other form of
wire or wireless communication, mail or private carrier. If written, notice
shall be effective at the earliest of (a) when received, (b) three days after
its deposit in the United States mail, as evidenced by the postmark, if mailed
postpaid and correctly addressed, or (c) on the date shown on the return
receipt, if sent by registered or certified mail, return receipt requested and
the receipt is signed by or on behalf of the addressee. Notice by all other
means shall be deemed effective when received by or on behalf of the director.
ARTICLE III
OFFICERS
3.1 Appointment. The Board of Directors at its first meeting following its
election each year shall appoint a Chief Executive Officer and a Secretary. At
this meeting, or at any other time, the Board of Directors may appoint one of
its members as Chairman of the Board. The Board of Directors may appoint any
other officers, assistant officers and agents. Any two or more offices may be
held by the same person.
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<PAGE>
3.2 Compensation. The Corporation may pay its officers reasonable
compensation for their services as fixed from time to time by the Board of
Directors.
3.3 Term. The term of office of all officers commences upon their
appointment and continues until their successors are appointed or until their
resignation or removal.
3.4 Removal. Any officer or agent appointed by the Board of Directors may
be removed by the Board of Directors at any time with or without cause.
3.5 Chairman of the Board. The Chairman of the Board, if that office is
filled, shall preside at all meetings of the Board of Directors and shall
perform any duties and responsibilities prescribed from time to time by the
Board of Directors.
3.6 Chief Executive Officer. Unless otherwise determined by the Board of
Directors, the Chief Executive Officer shall be responsible for the day-to-day
operation of the Corporation. The Chief Executive Officer shall have any other
duties and responsibilities prescribed by the Board of Directors.
3.7 Vice Presidents. Each Vice President shall perform duties and
responsibilities prescribed by the Board of Directors or the Chief Executive
Officer. The Board of Directors or the Chief Executive may confer a special
title upon a Vice President.
3.8 Secretary. The Secretary shall record and keep the minutes of all
meetings of the directors and shareholders in one or more books provided for
that purpose and perform any duties prescribed by the Board of Directors or the
Chief Executive Officer.
ARTICLE IV
ISSUANCE OF SHARES
4.1 Adequacy of Consideration. The authorization by the Board of Directors
of the issuance of shares for stated consideration shall evidence a
determination by the Board that such consideration is adequate.
4.2 Certificates for Shares. Certificates representing shares of the
Corporation shall be signed, either manually or in facsimile, by two officers of
the Corporation, at least one of whom shall be the Chief Executive Officer or a
Vice President.
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ARTICLE V
AMENDMENTS
These Bylaws may be amended or repealed and new Bylaws may be adopted
by the Board of Directors or the shareholders of the Corporation.
Adopted: September 2, 1999.
8
1999 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS 1999 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT is made as of
the 28th day of May 1999, by and among MedicaLogic, Inc., an Oregon corporation
(the "Company"), and the investors listed on Schedule A attached hereto
(collectively, the "Series A Investors"), the investors listed on Schedule C
attached hereto (the "Series C Investors"), the investors listed on Schedule E
attached hereto (the "Series E Investors") the investor listed on Schedule F
hereto (the "Series F Investor") and the investors listed on Schedule J hereto
(the "Series J Investors"). The Series A Investors, the Series C Investors, the
Series E Investors, the Series F Investor and the Series J Investors are
sometimes collectively referred to herein as the "Investors" and individually as
an "Investor."
RECITALS
WHEREAS, the Company, the Series A Investors, the Series C Investors,
the Series E Investors and the Series F Investor are parties to the 1997 Amended
and Restated Investor Rights Agreement (the "1997 Agreement") dated as of
November 10, 1997, as amended;
WHEREAS, Section 3.7 of the 1997 Agreement provides that the 1997
Agreement may be amended only with the written consent of the Company and the
holders of more than 50 percent of the Series A Preferred Stock, the holders of
more than 50 percent of the Series C Preferred Stock, the holders of more than
50 percent of the Series E Preferred Stock, the holders of more than 50 percent
of the Series E Preferred Stock and the holders of more than 50 percent of the
Series F Preferred Common Stock (including the Common Stock issued upon
conversion thereof) then outstanding;
WHEREAS, the undersigned include the Company and the holders of more
than 50 percent of the Series A Preferred Stock, more than 50 percent of the
Series C Preferred Stock, the holders of more than 50 percent of the Series E
Preferred Stock and the holders of more than 50 percent of the Series F
Preferred Stock (including the Common Stock issued upon conversion thereof)
outstanding and there are no shares of Series G Preferred Stock outstanding.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree to amend and restate the 1997
Agreement (a) to waive any rights of first offer arising under section 2.3 of
the 1997 Agreement and Section 2.3 of this Agreement in connection with the
issuance of shares of the Company's Series J Preferred Stock, to the extent the
holders of such rights are not purchasing their pro rata portion of such
<PAGE>
shares, (b) to consent to providing registration rights to the Series J
Investors and (c) to further provide as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(e) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act and the declaration or
ordering of effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, Series
A-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock,
Series E Preferred Stock, Series E-1 Preferred Stock, Series F Preferred Stock,
Series F-1 Preferred Stock, Series J Preferred Stock, Series J-1 Preferred
Stock, or any series of Preferred Stock subsequently authorized and issued under
Section 5(c)(ii)(E) of Article II.D., Section 5(c)(ii)(E) of Article II.F.,
Section 5(c)(ii)(E) of Article II.H., Section 5(c)(ii)(E) of Article II.I. or
Section 5(c)(ii)(E) of Article II.M. of the Company's 1994 Restated Articles of
Incorporation, as amended; (ii) the Common Stock of the Company purchased
pursuant to the Common Stock Purchase Agreement by and among the Company, Mark
A. Leavitt, Richard Samco, Sequoia Capital Growth Fund, Sequoia Technology
Partners III, New Enterprise Associates VI, Limited Partnership and Stanford
University, dated August 3, 1994; and (iii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of the shares referenced in (i) or (ii)
above, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his rights
2
<PAGE>
under this Section 1 are not assigned or assignable and any Registrable
Securities sold to the public or sold pursuant to Rule 144 promulgated under the
Act.
(g) The number of shares of "Registrable Securities then
outstanding" shall be the aggregate number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after December 31,
1999, a written request from (i) the Holders of at least fifteen percent (15%)
of the Registrable Securities then outstanding, or (ii) the holders of at least
thirty percent (30%) of the Company's Series J Preferred Stock then outstanding,
that the Company file a registration statement under the Act covering the
registration of the Registrable Securities then outstanding, then the Company
shall, within ten (10) days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of subsection
1.2(b), use its best efforts to effect as soon as practicable, and in any event
within 120 days of the receipt of such request, the registration under the Act
of all Registrable Securities that the Holders request to be registered within
twenty (20) days of the mailing of such notice by the Company in accordance with
paragraph 3.5, provided that the Registrable Securities requested by the Holders
to be registered pursuant to such request must either (i) be at least fifteen
percent (15%) of all Registrable Securities then outstanding or (ii) have an
anticipated aggregate public offering price of not less than $5,000,000.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders, provided that
such underwriter shall be of nationally recognized standing and shall agree to
firmly underwrite such offering. In such event, the right of any Holder to
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company as provided in
subsection 1.4(e)) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting. Notwithstanding
any other provisions of this Section 1.2, if
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the underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting. In a registration pursuant to Section 1.2(a)(ii), if Registrable
Securities held by a Series J Investor are excluded from the registration
pursuant to the previous sentence as a result of election of Holders other than
Series J Investors to participate in the registration, then that registration
will not be deemed to be a registration requested by the Series J Investors for
the purposes of Section 1.2(d)(ii).
(c) Notwithstanding the foregoing:
(i) If the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 1.2, a certificate signed by the
Chief Executive Officer of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
the Company shall have the right to defer taking action with respect to such
filing for a period of not more than 90 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve-month period.
(ii) Upon written notice by the Company to Holders
requesting a registration statement pursuant to this Section 1.2 stating that in
the good faith judgment of the Board of Directors of the Company it would be
advantageous to the Company to raise capital in the proposed registration, then
the Company may offer shares for its own account in the proposed registration.
If any underwriter in connection with the proposed registration advises the
Initiating Holders and the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders and the Company shall so advise all Holders of Registrable Securities
which would otherwise be underwritten pursuant hereto, and the number of shares
of Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
owned by each Holder; provided, however, that the number of shares to be offered
for the account of the Company in such underwriting shall not be reduced unless
all other securities are first entirely excluded from the underwriting; and,
provided, further, however, that the number of shares of Registrable Securities
to be included in such underwriting shall not be reduced unless all other
securities (other than shares to be offered for the account of the Company) are
first entirely excluded from the underwriting. In a registration pursuant to
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Section 1.2(a)(ii), if Registrable Securities held by a Series J Investor are
excluded from the registration pursuant to this Section 1.2(c)(ii), then that
registration will not be deemed to be a registration requested by the Series J
Investors for the purposes of Section 1.2(d)(ii), and if Registrable Securities
held by Holders other than Series J Investors are excluded from the registration
pursuant to this Section 1.2(c)(ii), then that registration will not be deemed
to be a registration requested by the Holders for the purposes of Section
1.2(d)(i).
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect,
(i) Any registration pursuant to this Section 1.2(a)(i)
after the Company has effected one registration pursuant to that subsection and
such registration has been declared or ordered effective;
(ii) Any registration pursuant to this Section 1.2(a)(ii)
after the Company has effected two registration pursuant to that subsections and
such registrations have been declared or ordered effective; or
(iii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date sixty (60) days after the effective date of, a registration
subject to Section 1.3 hereof, provided that the Company is actively employing
in good faith all reasonable efforts to cause such registration statement to
become effective.
1.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for shareholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.5, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
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(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its diligent efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred eighty
(180) days provided, however, that (i) such 180-day period shall be extended for
a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 180-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (I) includes any prospectus required by Section 10(a)(3) of the
Act or (II) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
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(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2 (which right
may be assigned as provided in Section 1.13), including (without limitation) all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company (including fees and disbursements of
counsel for the Company in its capacity as counsel to the selling Holders
hereunder; if Company counsel does not make itself available for this purpose,
the Company will pay the reasonable fees and
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disbursements of one counsel for the selling Holders) shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their demand
registration rights pursuant to Section 1.2; provided further, however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing,
qualification, printers' and accounting fees, fees and disbursements of counsel
for the Company (including fees and disbursements of counsel for the Company in
its capacity as counsel to the selling Holders hereunder; if Company counsel
does not make itself available for this purpose, the Company will pay the
reasonable fees and disbursements of one counsel for the selling Holders) but
excluding underwriting discounts and commissions relating to Registrable
Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between a majority of the Registrable Securities that indicated
they would like to be included in the underwriting, the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders) but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced below
thirty percent (30%) of the total amount of securities included in such
offering, unless such offering is the initial
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public offering of the Company's securities in which case the selling
shareholders may be excluded if the underwriters make the determination
described above and no other shareholder's securities are included or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right granted in Section 1.2 be excluded from such offering.
For purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder," and any pro-rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements made therein not misleading, or (iii) any violation or
alleged violation by the Company of the Act, the 1934 Act, any state securities
law, or any rule or regulation promulgated under the Act, and the Company will
pay to each such Holder, underwriter or controlling person, as incurred, any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided; however, that the indemnity agreement contained in this subsection
1.10(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
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expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person or any such underwriter or Holder, against any losses, claims, damages,
or liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided,
however, that in no event shall any indemnity under this subsection 1.10(b)
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
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(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying parry, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
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(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act, and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 15 days after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.12: (1) if
Form S-3 is not available for offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 150 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period, (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected one registration on Form S-3 for the
Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
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(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. The Company shall bear and pay all expenses
incurred in connection with a registration requested pursuant to Section 1.12,
including (without limitation) all registration, filing, qualification,
printer's and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holder or Holders hereunder; if Company counsel does not
make itself available for this purpose, the Company will pay the reasonable fees
and disbursements of one counsel for the selling Holder or Holders) but
excluding underwriting discounts and commissions relating to Registrable
Securities; provided, however, that the Company shall not be obligated to pay
registration expenses under this paragraph if the Company has already effected
two registrations on Form S-3 pursuant to this Section 1.12. Registrations
effected pursuant to this Section 1.12 shall not be counted as registrations
effected pursuant to Sections 1.2 or 1.3.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided: (a) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee acquires
from the Holder more than 100,000 shares; (c) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.15 below;
and (d) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
1.14 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company following the date of the first
sale to the public pursuant to
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a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company, all other persons
with registration rights (whether or not pursuant to this Agreement) and all
shareholders who hold greater than 1% of the Company's outstanding stock enter
into similar agreements;
(c) such market stand-off time period shall not exceed 90 days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of the period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.16 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right provided
for in this Section 1 after ten (10) years following the consummation of the
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the initial firm commitment underwritten
offering of its securities to the general public.
(b) In addition, the right of any Holder to request registration
or inclusion in any registration pursuant to Section 1 shall terminate on such
date, after the closing of the first registered public offering of Common Stock
of the Company, that all shares of Registrable Securities held or entitled to be
held upon conversion by such Holder may immediately be sold under Rule 144
during any 90-day period; provided, however, that the provisions of this Section
1.16(b) shall not apply to any Holder who owns at least one percent (1%) of the
Company's outstanding stock.
14
<PAGE>
2. Covenants of the Company.
2.1 Delivery of Financial Statements.
(a) The Company shall deliver to each Investor who holds any
shares of Preferred Stock or the shares issued or issuable upon conversion
thereof:
(i) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with Generally Accepted Accounting Principles ("GAAP"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(ii) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement,
statement of cash flows for such fiscal quarter and an unaudited balance sheet
as of the end of such fiscal quarter;
(b) The Company shall deliver to each Investor who holds at
least 100,000 shares of Series A Preferred Stock, Series C Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock or Series J Preferred Stock
(or Common Stock issued or issuable upon conversion thereof, as adjusted for
stock splits, stock dividends, and the like):
(i) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
statements of cash flows for such months (the "Annual Financial Plan") and, as
soon as prepared, any other budgets or revised budgets prepared by the Company;
(ii) within twenty (20) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, in reasonable detail, and comparing the results to
the Annual Financial Plan and to the prior year comparable period;
(iii) with respect to the financial statements called for in
subsections (a)(ii) and (b)(ii) of this Section 2.1, an instrument executed by
the Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment; and
15
<PAGE>
(iv) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as any of
such Investors or any assignee of any of such Investors may from time to time
request; provided, however, that the Company shall not be obligated under this
subsection (b)(iv) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information.
2.2 Inspection. The Company shall permit each of the Investors who
holds at least 100,000 shares of Series A Preferred Stock, Series C Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock or Series J Preferred
Stock (or the Common Stock issuable upon conversion thereof, as adjusted for
stock splits, stock dividends and the like), at such Investors' expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by such Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
2.3 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.3, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.3, "Investor" includes
any general partners, affiliates, immediate family members (or a trust for the
benefit therefor) to whom shares of Preferred Stock or the Common Stock issuable
upon conversion thereof, were gifted or transferred and any trust for the
benefit of an Investor (collectively, "All Related Parties"). Each of the
Investors shall be entitled to apportion the right of first offer hereby granted
it among itself and its partners and affiliates in such proportions as it deems
appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor (provided that the Company shall not be obligated to offer Shares
to any Investor or other party that is not an accredited investor as defined in
Rule 501(a) under the Act) in accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to each
Investor stating (i) its bona fide intention to offer such Shares, (ii) the
number of such Shares to be offered and (iii) the price and terms, if any, upon
which it proposes to offer such Shares.
(b) By written notification received by the Company, within 30
calendar days after receiving the Notice, an Investor may elect to purchase or
obtain, at the price and on the terms specified in the Notice, up to that
portion of such Shares which equals the proportion that the number of shares of
Common Stock issued and held, or issuable upon
16
<PAGE>
conversion of the Series A Preferred Stock, Series A-1 Preferred Stock, Series C
Preferred Stock, Series C-1 Preferred Stock, Series E Preferred Stock, Series
E-1 Preferred Stock, Series F Preferred Stock, Series F-1 Preferred Stock,
Series J Preferred Stock or Series J-1 Preferred Stock then held, by such
Investor bears to the total number of shares of Common Stock outstanding, or
issuable upon conversion of outstanding Series A Preferred Stock, Series A-1
Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock, Series E
Preferred Stock, Series E-1 Preferred Stock, Series F Preferred Stock, Series
F-1 Preferred Stock, Series J Preferred Stock or Series J-1 Preferred Stock.
(c) If all Shares that the Investors are entitled to obtain
pursuant to subsection 2.3(b) are not elected to be obtained as provided in
subsection 2.3(b) hereof, the Company may, during the 60-day period following
the expiration of the period provided in subsection 2.3(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more materially favorable to the offeree
than those specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such agreement is
not consummated within 30 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.3 shall not be
applicable to (i) the shares of Common Stock issuable or issued to directors,
employees or other service providers to the Company at any time when the total
number of shares of Common Stock so issuable or issued after the date of this
Agreement (and not repurchased at cost by the Company in connection with the
termination of service as a director, employee or other service provider) does
not exceed 4,891,174 plus (x) the number of shares of Common Stock repurchased
at cost by the Company from directors, employees or other service providers in
connection with termination of employment or other service arrangements pursuant
to agreements entered into prior to or on the date of this Agreement and (y) the
number of shares of Common Stock subject to outstanding options on the date of
this Agreement that subsequently terminate unexercised, (ii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, (iii) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise, (iv) up to 550,000
shares of Common Stock issued to Enterprise Partners, provided such stock is
issued by the Corporation for not less than $2.00 per share, or (v) Common Stock
issued to Baylor College of Medicine ("BCM") or its assignees in connection with
the sale of software licenses by the Company to BCM and other customers in the
Houston, Texas market.
(e) The right of first offer set forth in this Section 2.3 may
not be assigned or transferred.
17
<PAGE>
2.4 IRC Section 305. So long as any shares of Series A Preferred
Stock, Series A-1 Preferred Stock, Series C Preferred Stock, Series C-1
Preferred Stock, Series E Preferred Stock, Series E-1 Preferred Stock, Series F
Preferred Stock, Series F-1 Preferred Stock, Series J Preferred Stock, or Series
J-1 Preferred Stock remain outstanding, the Company will not, without approval
of holders of a majority of the Series A Preferred Stock, Series A-1 Preferred
Stock, Series C Preferred Stock, Series C-1 Preferred Stock, Series E Preferred
Stock, Series E-1 Preferred Stock, Series F Preferred Stock, Series F-1
Preferred Stock, Series J Preferred Stock, or Series J-1 Preferred Stock then
outstanding (together on an as-converted basis) do any act or thing which the
Company knows would result in taxation of the holders of shares of the Series A
Preferred Stock, Series A-1 Preferred Stock, Series C Preferred Stock, Series
C-1 Preferred Stock, Series E Preferred Stock, Series E-1 Preferred Stock,
Series F Preferred Stock, Series F-1 Preferred Stock, Series J Preferred Stock,
or Series J-1 Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
2.5 Directors' Expenses. The Company shall pay all reasonable expenses
of members of the Company's Board of Directors when such members are acting on
behalf of the Company, including attending meetings of the Board of Directors.
2.6 Company Right of First Refusal. The Company covenants that, unless
otherwise approved by (i) unanimous vote of the Company's Board of Directors or
(ii) holders of a majority of the outstanding shares of Series A Preferred
Stock, Series C Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock or Series J Preferred Stock (voting together on an as-converted basis), as
to any stock of the Company issued after June 30, 1993 to employees, directors,
officers or consultants of the Company ("Affiliates") or issuable pursuant to
stock options granted under an employee stock option plan (collectively,
"Affiliate Stock"),
(a) the Affiliate Stock shall vest over a three-year period with
no shares vesting during the first six months and 1/30 of the shares vesting
each month thereafter, with the unvested shares subject to repurchase by the
Company at cost in the event of termination of such individual's services to the
Company for any reason;
(b) the Company shall have a right of first refusal to purchase
any such Affiliate Stock offered for sale upon the same terms the Affiliate
offers to sell such Affiliate Stock to any third party; and
(c) should the Company decline to exercise its right of first
refusal, the Series A Investors, Series C Investors, Series E Investors, Series
F Investors and Series J Investors shall have a right of first refusal to
purchase on a pro rata basis (according to the total shares of Common Stock
issued or issuable upon conversion of Series A Preferred Stock, Series C
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series J
18
<PAGE>
Preferred Stock) any such Affiliate Stock offered for sale upon the same terms
the Affiliate offers to sell such Affiliate Stock to any third party.
2.7 Encumbering Assets. The Company shall not encumber all or
substantially all of its assets without the unanimous approval of its Board of
Directors.
2.8 Salary Increases. The Company shall not increase the compensation
of directors, officers or management employees (including any such increase
pursuant to any bonus, pension, profit sharing or other plan or commitment)
without the unanimous approval of its Board of Directors.
2.9 Issuance of Stock. Except for shares of the Company's Common Stock
issuable on the exercise of options outstanding as of the date of this
agreement, the Company shall not issue any shares of the Company's capital stock
to Mark Leavitt, Richard Samco or David Moffenbeier without the unanimous
consent of its Board of Directors.
2.10 Loans; Insider Transactions. The Company shall not, without the
unanimous approval of its Board of Directors, (i) make, or permit any subsidiary
to make, any loan or advance to or guarantee, directly or indirectly, any
indebtedness of, any person, including, without limitation, any employee or
director of the Company or any subsidiary, except advances and similar
expenditures in the ordinary course of business or under the terms of an
employee stock or option plan approved by the Board of Directors or (ii) enter
into any material transaction with any officer, director or holder of more than
five percent (5%) of the outstanding stock of the Company, including any
contract or agreement providing for the employment of, furnishing of goods or
services by, or the rental of real or personal property from such person.
2.11 Termination of Covenants. The covenants set forth in Sections 2.1
through 2.10 shall terminate and be of no further force or effect upon the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with a firm commitment
underwritten offering of its securities to the general public.
2.12 Board Observation Rights. Each Investor who holds at least
100,000 shares of Series A Preferred Stock, Series C Preferred Stock, Series E
Preferred Stock, Series F Preferred Stock or Series J Preferred Stock (or Common
Stock issued or issuable upon conversion thereof, as adjusted for stock splits,
stock dividends, and the like) shall have the right to send a nonvoting observer
to attend meetings of the Board of Directors of the Company. Such observers
shall have the right to receive notice of all such meetings and to receive all
information and materials provided by the Company to the Board of Directors;
provided, however, that such observer shall agree to hold in confidence all
information so provided and shall not use such information other than for
purposes of its investment in the Company; and, provided, further, that the
Company reserves the right to withhold any
19
<PAGE>
information and to exclude such observer from any meeting or portion thereof if
access to such information or attendance at such meeting could reasonably be
expected to adversely affect the attorney-client privilege between the Company
and its counsel or if such access or attendance would reasonably be expected to
result in disclosure of trade secrets to a direct competitor of the Company.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid or upon delivery to a recognized courier service and addressed
to the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or
20
<PAGE>
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of more than fifty percent
(50%) of the Series A Preferred Stock, the holders of more than fifty percent
(50%) of the Series C Preferred Stock, the holders of more than fifty percent
(50%) of the Series E Preferred Stock, the holders of more than fifty percent
(50%) of the Series F Preferred Common Stock and the holders of more than fifty
percent (50%) of the Series J Preferred Stock (including the Common Stock issued
upon conversion thereof) then outstanding (together on an as-converted basis).
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Registrable Securities, or shares of Series A
Preferred Stock, Series A-1 Preferred Stock, Series C Preferred Stock, Series
C-1 Preferred Stock, Series E Preferred Stock, Series E-1 Preferred Stock,
Series F Preferred Stock, Series F-1 Preferred Stock, Series J Preferred Stock,
Series J-1 Preferred Stock or any series of Preferred Stock subsequently
authorized and issued under Section 5(c)(ii)(E) of Article II.D., Section
5(c)(ii)(E) of Article II.F., Section 5(c)(ii)(E) of Article II.H., Section
5(c)(ii)(E) of Article II.I. or Section 5(c)(ii)(E) of Article II.M. of the
Company's 1994 Restated Articles of Incorporation, as amended (including the
Common Stock issued or issuable upon conversion thereof), as applicable, then
outstanding, each further holder of all such Registrable Securities, shares of
Series A Preferred Stock, Series C Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock or Series J Preferred Stock (including the Common Stock
issued or issuable upon conversion thereof) as applicable, and the Company.
3.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities or
Series A Preferred Stock, Series C Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock or Series J Preferred Stock (including the Common Stock
issuable upon conversion thereof), as applicable, held or acquired by an
Investor and All Related Parties of such Investor shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
3.10 Entire Agreement; Amendment; Waiver. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and supersedes the 1997 Agreement.
3.11 Additional Parties. In the event of a subsequent closing with an
investor as provided for in Section 1.3 of the Stock Purchase Agreement between
the Company and the Series J Investors, such investor shall become a party to
this Agreement as an "Investor" upon receipt from such investor of a fully
executed signature page hereto.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MEDICALOGIC, INC.
By: MARK LEAVITT
-------------------------------------
Printed Name: Mark Leavitt, M.D.
Title: President
INVESTORS: VHA INC.
By: CHARLES BURWELL
-------------------------------------
Its: Sr. VP
------------------------------------
Printed name: Charles Burwell
---------------------------
APPLEWOOD ASSOCIATES, L.P.
By:
-------------------------------------
Its:
------------------------------------
Printed name:
---------------------------
21ST CENTURY COMMUNICATIONS
PARTNERS, L.P.
By:
-------------------------------------
Its:
------------------------------------
Printed name:
---------------------------
21ST CENTURY COMMUNICATIONS
T-E PARTNERS, L.P.
By:
-------------------------------------
Its:
------------------------------------
Printed name:
---------------------------
22
<PAGE>
21ST CENTURY COMMUNICATIONS
FOREIGN PARTNERS, L.P.
By:
-------------------------------------
Its:
------------------------------------
Printed name:
---------------------------
BOSTON SAFE DEPOSIT & TRUST CO.,
TRUSTEE FOR US WEST PENSION TRUST
By:
-------------------------------------
Its:
------------------------------------
Printed name:
---------------------------
BOSTON SAFE DEPOSIT & TRUST CO.,
TRUSTEE FOR US WEST BENEFIT
ASSURANCE
By:
-------------------------------------
Its:
------------------------------------
Printed name:
---------------------------
PILGRIM, BAXTER HYBRID PARTNERS I,
L.P.
By: Pilgrim Baxter Hybrid Partners
General Partners L.P.
By: Pilgrim Baxter & Associates, Ltd.,
Its General Partner
By: SAMUEL H. BAER
-------------------------------------
Its: Executive Officer
------------------------------------
Printed name: Samuel H. Baer
---------------------------
NEW ENTERPRISE ASSOCIATES VI, LIMITED
PARTNERSHIP
By: NEA Partners VI, Limited Partnership
- its General Partner
By: RONALD H. KASE
-------------------------------------
Printed name: Ronald H. Kase
---------------------------
Title: General Partner
----------------------------------
23
<PAGE>
SEQUOIA CAPITAL VI
SEQUOIA TECHNOLOGY PARTNERS VI
SEQUOIA 1995
By: MARK STEVENS
-------------------------------------
Printed name: Mark Stevens
---------------------------
Title: Partner
----------------------------------
SEQUOIA CAPITAL GROWTH FUND
SEQUOIA TECHNOLOGY PARTNERS III
By: MARK STEVENS
-------------------------------------
Printed name: Mark Stevens
---------------------------
Title: Partner
----------------------------------
OMEGA VENTURES II, L.P.
By: Omega Ventures II Management, L.L.C.
Its General Partner
By: MICHAEL J. STARK
-------------------------------------
Its Managing Member
Printed name: Michael J. Stark
---------------------------
OMEGA VENTURES II CAYMAN, L.P.
By: Omega Ventures II Management, L.L.C.
Its Investment General Partner
By: MICHAEL J. STARK
-------------------------------------
Its Managing Member
Printed name: Michael J. Stark
---------------------------
24
<PAGE>
CROSSOVER FUND II, L.P.
By: Crossover Investment Management,
L.L.C.
Its General Partner
By: MICHAEL J. STARK
-------------------------------------
Its Managing Member
Printed name: Michael J. Stark
---------------------------
CROSSOVER FUND IIA, L.P.
By: Crossover Investment Management,
L.L.C.
Its General Partner
By: MICHAEL J. STARK
-------------------------------------
Its Managing Member
Printed name: Michael J. Stark
---------------------------
BAYVIEW INVESTORS, LTD.
By: Robertson, Stephens & Company Private
Equity Group, L.L.C.
Its General Partner
By: MICHAEL J. STARK
-------------------------------------
Its Managing Member
Printed name: Michael J. Stark
---------------------------
FRANKLIN CAPITAL ASSOCIATES III L.P.
By: Franklin Ventures III L.P.
Its General Partner
By:
-------------------------------------
Its Managing Member
Printed name:
---------------------------
25
<PAGE>
CONTINENTAL CASUALTY COMPANY
By: DAVID WILSON
-------------------------------------
Its: Sr. V.P.
------------------------------------
Printed name: David Wilson
---------------------------
QUANTUM INDUSTRIAL PARTNERS LDC
By: MICHAEL E. NEUS
-------------------------------------
Its: Attorney-in-Fact
------------------------------------
Printed name: Michael E. Neus
---------------------------
SFM DOMESTIC INVESTMENTS LLC
By: MICHAEL E. NEUS
-------------------------------------
Its: Attorney-in-Fact
------------------------------------
Printed name: Michael E. Neus
---------------------------
SEQUOIA CAPITAL FRANCHISE FUND
By: MARK STEVENS
-------------------------------------
Its: Partner
------------------------------------
Printed name: Mark Stevens
---------------------------
SEQUOIA CAPITAL FRANCHISE PARTNERS
By: MARK STEVENS
-------------------------------------
Its: Partner
------------------------------------
Printed name: Mark Stevens
---------------------------
26
<PAGE>
FRANKLIN CAPITAL ASSOCIATES III L.P.
By: FRANKLIN VENTURES III L.P.,
its General Partner
By: W. DAVID SWENSON
-------------------------------------
W. David Swenson
its General Partner
COLEMAN SWENSON HOFFMAN BOOTH IV L.P.
By: CSHB VENTURES IV L.P.,
its General Partner
By: W. DAVID SWENSON
-------------------------------------
W. David Swenson
its General Partner
CROSSOVER FUND II, L.P.
By: Crossover Investment Management,
L.L.C.
its General Partner
By: MICHAEL STARK
-------------------------------------
Michael J. Stark, Managing Member
CROSSOVER FUND IIA, L.P.
By: Crossover Investment Management,
L.L.C.
its General Partner
By: MICHAEL STARK
-------------------------------------
Michael J. Stark, Managing Member
27
<PAGE>
OMEGA VENTURES II, L.P.
By: Omega Ventures II Management, L.L.C.
its General Partner
By: MICHAEL STARK
-------------------------------------
Michael J. Stark, Managing Member
OMEGA VENTURES II CAYMAN, L.P.
By: Omega Ventures II Management, L.L.C.
its General Partner
By: MICHAEL STARK
-------------------------------------
Michael J. Stark, Managing Member
BAYVIEW INVESTORS, LTD.
By: JOHN J. SANDERS
-------------------------------------
John J. Sanders, Authorized Signatory
DELL USA L.P.
By: Dell Gen. P. Corp.,
Its General Partner
By: THOMAS H. WELCH, JR.
---------------------------------
Name: Thomas H. Welch, Jr.
-------------------------------
Title: Vice President and
Assistant Secretary
------------------------------
28
<PAGE>
SUPPLEMENTAL SIGNATURE PAGE
(1999 Amended and Restated Investor Rights Agreement)
This Supplemental Signature Page to the MedicaLogic, Inc. 1999 Amended and
Restated Investor Rights Agreement dated as of May 28, 1999 (the "Investor
Rights Agreement") is executed and delivered as of the date set forth below.
For and in consideration of the mutual promises contained in the Investor
Rights Agreement, the undersigned hereby agrees to be designated as a party to,
and agrees to be bound by each and all terms of, the Investor Rights Agreement.
Dated as of the 3rd day of August, 1999.
GARY J. SHEMANO
---------------------------------
Gary J. Shemano
MICHAEL JACKS
---------------------------------
Michael Jacks
MART BAILEY
---------------------------------
Mart Bailey
29
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
SCHEDULE OF SERIES A INVESTORS
------------------------------
Total
Purchaser Number of Shares Purchase Price
--------- ---------------- --------------
<S> <C> <C>
Glynn Ventures III, L.P. 460,000 $ 460,000.00
3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
Attn: John Glynn
Sequoia Capital Growth Fund 1,479,093 $ 1,479,093.00
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attn: Mark A. Stevens
Sequoia Technology Partners III 158,241 $ 158,241.00
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attn: Mark A. Stevens
New Enterprise Associates VI, 2,637,334 $ 2,637,334.00
Limited Partnership
2490 Sand Hill Road
Menlo Park, CA 94025
Attn: Ronald L. Kase
Charles M. Linehan 15,333 $ 15,333.00
New Enterprise Associates
1119 St. Paul Street
Baltimore, MD 21202
Total: 5,750,001 $ 5,750,001.00
</TABLE>
30
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
SCHEDULE OF SERIES C INVESTORS
------------------------------
Purchaser Number of Shares Purchase Price
--------- ---------------- --------------
<S> <C> <C>
Omega Ventures II, L.P. 1,140,391 $ 2,565,879.75
555 California Street
San Francisco, CA 94104
Attn: Sy Kaufman
Omega Ventures II Cayman, L.P. 281,831 $ 634,119.75
555 California Street
San Francisco, CA 94104
Attn: Sy Kaufman
Crossover Fund II, L.P. 499,051 $ 1,122,864.75
555 California Street
San Francisco, CA 94104
Attn: Sy Kaufman
Crossover Fund IIA, L.P. 71,528 $ 160,938.00
555 California Street
San Francisco, CA 94104
Attn: Sy Kaufman
Bayview Investors, Ltd. 184,978 $ 416,200.50
555 California Street
San Francisco, CA 94104
Attn: Sy Kaufman
Amerindo Technology 133,333 $ 299,999.25
Growth Fund II
43 Upper Grosvenor Street
London, England W1X9PG
Franklin Capital Associates III, L.P. 1,222,222 $ 2,749,999.50
237 Second Avenue South
Franklin, TN 37064
Attn: Dave Swenson
Furman Selz SBIC L.P. 888,890 $ 2,000,002.50
230 Park Avenue
New York, NY 10169
Attn: Brian P. Friedman
<PAGE>
Purchaser Number of Shares Purchase Price
--------- ---------------- --------------
<S> <C> <C>
New Enterprise Associates VI, 1,181,112 $ 2,657,502.00
Limited Partnership
2490 Sand Hill Road
Menlo Park, CA 94025
Attn: Ronald H. Kase
Sequoia Capital VI 716,541 $ 1,612,217.25
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attn: Mark A. Stevens
Sequoia Technology 39,370 $ 88,582.50
Partners VI
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attn: Mark A. Stevens
Sequoia 1995 31,497 $ 70,868.25
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attn: Mark A. Stevens
Sequoia Capital Growth Fund 370,082 $ 832,684.50
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attn: Mark A. Stevens
Sequoia Technology 23,621 $ 53,147.25
Partners III
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Attn: Mark A. Stevens
Glynn Ventures III, L.P. 128,889 $ 290,000.25
3000 Sand Hill Road
Building 4, Suite 235
Menlo Park, CA 94025
Attn: John Glynn
2
<PAGE>
Purchaser Number of Shares Purchase Price
--------- ---------------- --------------
<S> <C> <C>
Tom Hodapp 28,889 $ 65,000.25
Robertson, Stephens & Company
555 California Street, Suite 2600
San Francisco, CA 94104
Michael Boxer 11,111 $ 24,999.75
Furman Selz Investments Inc.
One Embarcadero Center, Suite 1020
San Francisco, CA 94111-3682
Paul Felton 11,111 $ 24,999.75
Furman Selz Investments Inc.
One Embarcadero Center, Suite 1020
San Francisco, CA 94111-3682
Cathy Klema 11,111 $ 24,999.75
Furman Selz Investments Inc.
230 Park Avenue
New York, NY 10169
Leopold Swergold 11,111 $ 24,999.75
Furman Selz Investments Inc.
230 Park Avenue
New York, NY 10169
Paul Ellwood, M.D 6,667 $ 15,000.75
Jackson Hole Group
6700 Ellencreek Road
PO Box 350
Teton Village, WY 93025
William Slattery 4,445 $ 10,001.25
399 Park Avenue, 18th Floor
New York, NY 10022
Sarah Gordon-Wild 4,444 $ 9,999.00
399 Park Avenue, 18th Floor
New York, NY 10022
Thomas H. Cato 4,444 $ 9,999.00
803 Timber Lane
Nashville, TN 37215
3
<PAGE>
Purchaser Number of Shares Purchase Price
--------- ---------------- --------------
<S> <C> <C>
Charles M. Linehan 3,746 $ 8,428.50
New Enterprise Associates
2490 Sand Hill Road
Menlo Park, CA 94025
Dr. Hugh Y. Rienhoff, Jr. 2,222 $ 4,999.50
New Enterprise Associates
1119 St. Paul Street
Baltimore, MD 21202
Total 7,012,637.00 $15,778,433.25
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE E
SCHEDULE OF SERIES E INVESTORS
------------------------------
Number of Total
Investor Shares Purchase Price
-------- ----------- --------------
<S> <C> <C>
VHA Inc. 1,587,302 $ 5,000,001.30
Applewood Associates, L.P. 317,461 $ 1,000,002.15
21st Century Communications Partners, L.P. 430,480 $ 1,356,012.00
21st Century Communications T-E Partners,
L.P. 146,480 $ 461,412.00
21st Century Communications Foreign
Partners, L.P. 57,960 $ 182,574.00
Boston Safe Deposit & Trust Co., Trustee for 714,286 $ 2,250,000.90
US West Pension Trust
Boston Safe Deposit & Trust Co., Trustee for 238,095 $ 749,999.25
US West Benefit Assurance
Pilgrim, Baxter Hybrid Partners I, L.P. 634,921 $ 2,000,001.15
New Enterprise Associates VI, Limited 142,720 $ 449,568.00
Partnership
Sequoia Capital VI 85,285 $ 268,647.75
Sequoia Technology Partners VI 4,686 $ 14,760.90
Sequoia 1995 3,749 $ 11,809.35
Sequoia Capital Growth Fund 44,049 $ 138,754.35
Sequoia Technology Partners III 2,811 $ 8,854.65
Omega Ventures II, L.P. 42,582 $ 134,133.30
Omega Ventures II Cayman, L.P. 10,524 $ 33,150.60
Crossover Fund II, L.P. 18,634 $ 58,697.10
Crossover Fund IIA, L.P. 2,670 $ 8,410.50
Bayview Investors, Ltd. 6,907 $ 21,757.05
Franklin Capital Associates III, L.P. 45,638 $ 143,759.70
Furman Selz SBIC, L.P. 33,190 $ 104,548.50
Clayton Associates, L.L.C. 31,747 $ 100,003.05
German American Capital 111,111 $ 349,999.65
DMG Technology Partners 47,619 $ 149,999.85
Paul M. Ellwood, Jr., M.D. 1,000 $ 3,150.00
----------- --------------
4,761,907 $15,000,007.05
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE F
SCHEDULE OF SERIES F INVESTORS
------------------------------
Number of Total
Investor Shares Purchase Price
-------- ----------- --------------
<S> <C> <C>
Continental Casualty Company 4,000,000 $13,600,000.00
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE J
SCHEDULE OF SERIES J INVESTORS
------------------------------
Number of Total
Investor Shares Purchase Price
-------- ----------- --------------
<S> <C> <C>
Quantum Industrial Partners LDC 3,136,842 $14,900,000.00
SFM Domestic Investments LLC 3,136,842 $14,900,000.00
Sequoia Capital Franchise Fund 894,737 $ 4,250,000.00
Sequoia Capital Franchise Partner 157,895 $ 750,000.00
INITIAL SERIES J CLOSING 7,326,316 $34,800,000.00
Franklin Capital Associates III L.P. 105,263 $ 500,000.00
Coleman Swenson Hoffman Booth IV L.P. 421,053 $ 2,000,000.00
Crossover Fund II, L.P. 78,535 $ 373,043.00
Crossover Fund IIA, L.P. 11,256 $ 53,467.00
Omega Ventures II, L.P. 67,893 $ 322,492.00
Omega Ventures II Cayman, L.P. 23,732 $ 112,727.00
Bayview Investors, Ltd. 29,110 $ 138,272.00
Dell Computer Corporation 1,052,632 $ 5,000,000.00
SECOND CLOSING TOTAL 1,789,474 $ 8,500,000.00
GRAND TOTAL 9,115,790 $43,300,000.00
</TABLE>
7
MEDICALOGIC, INC.
STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
enable MedicaLogic, Inc. (the "Company") to attract and retain experienced and
able directors, officers, employees and other key contributors and to provide an
additional incentive to these individuals to exert their best efforts for the
Company and its shareholders.
2. Administration. The Plan shall be administered by the board of directors
of the Company (the "Board of Directors"), which shall determine and designate
from time to time the persons to whom grants and awards shall be made and the
amounts, terms and conditions of those grants and awards. Subject to the
provisions of the Plan, the Board of Directors may from time to time adopt or
amend rules and regulations relating to administration of the Plan, and the
interpretation and construction of the provisions of the Plan and any stock
bonus, stock purchase and option agreements under the Plan by the Board of
Directors shall be final and conclusive. Whenever the operation of the Plan
requires that the fair market value of the Company's common stock ("Stock") be
determined, the fair market value shall be determined by, or in a manner
approved by, the Board of Directors.
3. Eligibility. Grants and awards may be made under the Plan to directors,
officers, and key employees of the Company or any parent or subsidiary of the
Company, and other key individuals such as consultants to the Company who the
Board of Directors believes have made or will make an essential contribution to
the Company; provided, however, that only employees of the Company shall be
eligible to receive Incentive Stock Options under the Plan.
<PAGE>
4. Shares Subject to the Plan. Except as provided in Section 9, the total
number of shares of Stock that may be issued (i) upon exercise of all options
and stock appreciation rights granted under the Plan, (ii) as bonuses under the
Plan and (iii) pursuant to sales under the Plan, shall not exceed in the
aggregate 4,494,384 shares. If any option under the Plan or stock appreciation
right granted without a related option expires or is cancelled or terminated and
is unexercised in whole or in part, the shares allocable to the unexercised
portion shall again become available for awards under the Plan, except that
shares that are issued on exercise of a stock appreciation right that were
allocable to an option, or portion thereof, surrendered in connection with
exercise of the stock appreciation right shall not again become available for
awards under the Plan. If Stock sold or awarded as a bonus under the Plan is
forfeited to the Company or repurchased by the Company pursuant to applicable
restrictions, the number of shares forfeited or repurchased shall again be
available under the Plan. Stock issued under the Plan may be subject to such
restrictions on transfer, repurchase rights, or other restrictions as are
determined by the Board of Directors. The certificates representing such Stock
shall bear such legends as are determined by the Board of Directors.
5. Effective Date and Duration of Plan.
5.1 Effective Date. The Plan shall become effective when adopted by
the Board of Directors (the "Effective Date"), but no option shall become
exercisable until the Plan is approved by a vote of the shareholders of the
Company entitled to vote thereon. Subject to this limitation, options and stock
appreciation rights may be granted and Stock
2
<PAGE>
may be awarded as bonuses or sold under the Plan at any time after the Effective
Date and before termination of the Plan.
5.2 Duration of the Plan. The Plan shall continue until, in the
aggregate, options and stock appreciation rights have been granted and exercised
and Stock has been awarded as bonuses or sold and the restrictions on any such
Stock have lapsed with respect to all shares subject to the Plan under Section 4
(subject to any adjustments under Section 9), provided, however, that unless
sooner terminated by the Board of Directors, the Plan shall terminate on, and no
option or stock appreciation right or bonus right shall be granted and no Stock
shall be awarded as a bonus or sold under the Plan on or after, the tenth
anniversary of the Effective Date. The Board of Directors may suspend or
terminate the Plan at any time except with respect to options, stock
appreciation rights and bonus rights, and Stock subject to restrictions then
outstanding under the Plan. Termination shall not affect any right of the
Company to repurchase shares or the forfeitability of shares issued under the
Plan.
6. Grants, Awards and Sales.
6.1 Type of Security. The Board of Directors may, from time to time,
take the following actions, separately or in combination, under the Plan: (i)
grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"); (ii) grant options other than Incentive
Stock Options (hereinafter "Non-Statutory Stock Options"); (iii) grant stock
appreciation rights or bonus rights; (iv) award bonuses of Stock; and (v) sell
Stock subject to restrictions. The Board of Directors shall specify the action
taken with respect to each
3
<PAGE>
person granted, awarded, or sold any option or Stock under the Plan and shall
specifically designate each option granted under the Plan as an Incentive Stock
Option or a Non-Statutory Stock Option.
6.2 General Rules Relating to Options.
6.2.1 Time of Exercise. Except as provided in Section 8, options
granted under the Plan may be exercised over the period stated in each option in
amounts and at times prescribed by the Board of Directors and stated in the
option, provided that options shall not be exercised for fractional shares. If
the optionee does not exercise an option in any period with respect to the full
number of shares to which the optionee is entitled in that period, the
optionee's rights shall be cumulative and the optionee may purchase those shares
in any subsequent period during the term of the option.
6.2.2 Purchase of Shares. Shares may be purchased or acquired
pursuant to an option granted under the Plan only on receipt by the Company of
notice in writing from the optionee of the optionee's intention to exercise,
specifying the number of shares the optionee desires to purchase and the date on
which the optionee desires to complete the transaction, which may not be more
than 30 days after receipt of the notice, and, unless in the opinion of counsel
for the Company such a representation is not required to comply with the
Securities Act of 1933, as amended, containing a representation that the
optionee intends to acquire the shares for investment and not with a view to
distribution. On or before the date specified for completion of the purchase,
the optionee must have paid the Company the full purchase price in cash,
including cash that may be the proceeds of a loan from the Company, in shares of
Stock
4
<PAGE>
previously acquired by the optionee valued at fair market value, or in any
combination of cash and shares of Stock. No shares shall be issued until full
payment therefor has been made. Each optionee who has exercised an option shall,
on notification of the amount due, if any, and prior to or concurrently with
delivery of the certificates representing the shares for which the option was
exercised, pay to the Company amounts necessary to satisfy any applicable
federal, state, and local withholding tax requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the optionee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
optionee, including salary, subject to applicable law.
6.3 Incentive Stock Options. Incentive Stock Options shall be subject
to the following additional terms and conditions:
6.3.1 Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan such that the aggregate fair market
value, on the date of grant, of the Stock with respect to which Incentive Stock
Options are exercisable for the first time by that employee during any calendar
year, under the Plan and under any other incentive stock option plan (within the
meaning of Section 422 of the Code) of the Company or any parent or subsidiary
of the Company, exceeds $100,000.
6.3.2 Exercise Price. The exercise price per share under each
option granted under the Plan shall be determined by the Board of Directors, but
the exercise price with respect to an Incentive Stock
5
<PAGE>
Option shall be not less than 100 percent of the fair market value of the shares
covered by the option on the date the option is granted.
6.3.3 Duration of Options. Subject to Sections 6.3.4 and 8, each
option granted under the Plan shall continue in effect for the period fixed by
the Board of Directors, except that no Incentive Stock Option shall be
exercisable after the expiration of 10 years from the date it is granted.
6.3.4 Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company, or of any parent or subsidiary of the Company, only if the
exercise price is at least 110 percent of the fair market value of the Stock
subject to the option on the date it is granted, and the option by its terms is
not exercisable after the expiration of five years from the date it is granted.
6.4 Non-Statutory Stock Options. Non-Statutory Stock Options shall be
subject to the following additional terms and conditions:
6.4.1 Exercise Price. The exercise price per share under each
option granted under the Plan shall be determined by the Board of Directors, but
the exercise price shall be not less than 85 percent of the fair market value of
the shares covered by the option on the date the option is granted.
6.4.2 Duration of Options. Non-Statutory Stock Options granted
under the Plan shall continue in effect for the period fixed by the Board of
Directors.
6
<PAGE>
6.5 Stock Bonuses. Stock awarded as a bonus shall be subject to
the terms, conditions, and restrictions determined by the Board of Directors at
the time the Stock is awarded as a bonus. The Board of Directors may require the
recipient to sign an agreement as a condition of the award, but may not require
the recipient to pay any money consideration except as provided in the last
sentence of this Section 6.5. The agreement may contain such terms, conditions,
representations, and warranties as the Board of Directors may require. The
Company may require any recipient of a Stock bonus to pay to the Company amounts
necessary to satisfy any applicable federal, state, or local tax withholding
requirements prior to delivery of certificates. If additional withholding
becomes required beyond any amount deposited before delivery of the
certificates, the employee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
employee, including salary, subject to applicable law.
6.6 Restricted Stock. The Board of Directors may issue shares of
Stock under the Plan for such consideration (including promissory notes and
services) as determined by the Board of Directors in accordance with the law and
with such restrictions concerning transferability, repurchase by the Company, or
forfeiture as determined by the Board of Directors. All shares of Stock issued
pursuant to this Section 6.6 shall be subject to a purchase agreement, which
shall be executed by the Company and the prospective recipient of the Stock
prior to the delivery of certificates representing such shares to the recipient.
The purchase agreement shall contain such terms and conditions and
representations and
7
<PAGE>
warranties as the Board of Directors shall require. Each employee to whom shares
of stock are issued pursuant to this paragraph 6.6 shall, on notification of the
amount due, if any, and before or concurrently with delivery of the certificates
representing the shares, pay to the Company amounts necessary to satisfy any
applicable federal, state, and local withholding tax requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the employee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
employee, including salary, subject to applicable law.
6.7 Stock Appreciation Rights.
6.7.1 Description. Each stock appreciation right shall entitle
the holder, on exercise, to receive from the Company in exchange therefor an
amount equal in value to the excess of the fair market value on the date of
exercise of one share of Stock over its fair market value on the date of grant
(or, in the case of a stock appreciation right granted in connection with an
option, the exercise price per share under the option to which the stock
appreciation right relates), multiplied by the number of shares covered by the
stock appreciation right or the option, or portion thereof, that is surrendered.
6.7.2 Exercise. A stock appreciation right shall be exercisable
only at the time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, then it shall be
exercisable only to the extent and on the same conditions that the related
option is exercisable. Upon exercise of a
8
<PAGE>
stock appreciation right, any option or portion thereof to which the stock
appreciation right relates must be surrendered unexercised.
6.7.3 Payment. Payment by the Company upon exercise of a stock
appreciation right may be made in shares of Stock valued at fair market value,
or in cash, or partly in Stock and partly in cash, as determined by the Board of
Directors. No fractional shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal to the
value of the fraction or, in the discretion of the Board of Directors, the
number of shares may be rounded to the next whole share.
6.7.4 Withholding. If payment by the Company of the stock
appreciation right is in cash, or partly in cash, the Company shall have the
right to withhold the amount of cash necessary to satisfy any applicable
federal, state or local withholding tax requirements. If payment by the Company
of the stock appreciation right is solely in shares of Stock or if the amount of
the payment in cash is insufficient to satisfy the withholding requirements, the
employee shall, on notification of the amount due, and before or concurrently
with delivery of the certificates representing the shares, pay to the Company
the amounts necessary to satisfy the withholding requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the employee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
employee, including salary, subject to applicable law.
9
<PAGE>
6.7.5 Adjustment. In the event of any adjustment pursuant to
Section 9 in the number of shares of Stock subject to an option granted under
the Plan, any stock appreciation right granted hereunder in connection with such
option shall be proportionately adjusted.
6.8 Cash Bonus Rights.
6.8.1 Grant. The Board of Directors may grant bonus rights under
the Plan in connection with (i) an option or stock appreciation right granted or
previously granted, (ii) Stock awarded, or previously awarded, as a bonus, and
(iii) Stock sold, or previously sold, under the Plan. Bonus rights will be
subject to rules, terms, and conditions as the Board of Directors may prescribe.
6.8.2 Bonus Rights in Connection with Options and Stock
Appreciation Rights. A bonus right granted in connection with an option will
entitle an optionee to a cash bonus when the related option is exercised (or is
surrendered in connection with exercise of a stock appreciation right related to
the option) in whole or in part. A bonus right granted in connection with a
stock appreciation right will entitle the holder to a cash bonus when the stock
appreciation right is exercised. Upon exercise of an option, the amount of the
bonus shall be determined by multiplying the excess of the total fair market
value of the shares to be acquired upon the exercise over the total exercise
price for the shares by the applicable bonus percentage. Upon exercise of a
stock appreciation right, the bonus shall be determined by multiplying the total
fair market value of the shares or cash received pursuant to the exercise of the
stock appreciation right by the applicable bonus percentage. The bonus
10
<PAGE>
percentage applicable to a bonus right shall be determined from time to time by
the Board of Directors but shall in no event exceed 100 percent.
6.8.3 Bonus Rights in Connection with Stock Bonus. A bonus right
granted in connection with Stock awarded as a bonus will entitle the person
awarded such Stock to a cash bonus either at the time the Stock is awarded or at
such time as restrictions, if any, to which the Stock is subject lapse. If Stock
awarded is subject to restrictions and is repurchased by the Company or
forfeited by the holder, the bonus right granted in connection with such Stock
shall terminate and may not be exercised. The amount of any cash bonus to be
awarded and the time such cash bonus is to be paid shall be determined from time
to time by the Board of Directors.
6.8.4 Bonus Rights in Connection with Stock Purchase. A bonus
right granted in connection with Stock purchased hereunder (excluding Stock
purchased pursuant to an option) shall terminate and may not be exercised in the
event the Stock is repurchased by the Company or forfeited by the holder
pursuant to restrictions applicable to the Stock. The amount of any cash bonus
to be awarded and the time such cash bonus is to be paid shall be determined
from time to time by the Board of Directors.
6.8.5 Withholding. The Company shall have the right to withhold
from the bonus the amount of cash necessary to satisfy any applicable federal,
state and local withholding tax requirements. If the amount of the payment in
cash is insufficient to satisfy the withholding requirements, the employee
shall, on notification of the amount due, and before or concurrently with
delivery of any stock certificates, pay to the Company the amounts necessary to
satisfy the withholding requirements. If
11
<PAGE>
additional withholding becomes required beyond any amount deposited before
delivery of the certificates, the employee shall pay such amount to the Company
on demand. If the employee fails to pay the amount demanded, the Company shall
have the right to withhold that amount from other amounts payable by the Company
to the employee, including salary, subject to applicable law.
7. Nontransferability. Each option, stock appreciation right, or cash bonus
right granted under the Plan by its terms shall be nonassignable and
nontransferable by the holder except by will or by the laws of descent and
distribution of the state or country of the holder's domicile at the time of
death, and each option, stock appreciation right, or cash bonus right by
its terms shall be exercisable during the holder's lifetime
only by the holder.
8. Termination of Employment.
8.1 Retirement or General Termination. If an employee's employment by
the Company or any parent or subsidiary of the Company is terminated by
retirement or for any reason other than in the circumstances specified in
Section 8.2 below, any option, stock appreciation right or cash bonus right held
by the employee may be exercised at any time prior to its expiration date or the
expiration of three months after the date of the termination, whichever is the
shorter period, but only if and to the extent the employee was entitled to
exercise the option, stock appreciation right or cash bonus right on the date of
termination. Transfer of an employee by the Company or any parent or subsidiary
of the Company to the Company or any parent or subsidiary of the Company shall
not be considered a termination for purposes of the Plan.
12
<PAGE>
8.2 Death or Disability. If an employee's employment by the Company or
any parent or subsidiary of the Company is terminated because of death or
physical disability (within the meaning of Section 22(e)(3) of the Code), any
option, stock appreciation right or cash bonus right held by the employee may be
exercised at any time prior to its expiration date or the expiration of one year
after the date of termination, whichever is the shorter period, for the greater
of (a) the number of remaining shares for which the employee was entitled to
exercise the option, stock appreciation right or cash bonus right on the date of
termination or (b) the number of remaining shares for which the employee would
have been entitled to exercise the option, stock appreciation right or cash
bonus right if such option or right had been 50 percent exercisable on the date
of termination. If an employee's employment is terminated by death, any option,
stock appreciation right or cash bonus right held by the employee shall be
exercisable only by the person or persons to whom the employee's rights under
the option, stock appreciation right or cash bonus right pass by the employee's
will or by the laws of descent and distribution of the state or country of the
employee's domicile at the time of death.
8.3 Termination of Unexercised Rights. To the extent an option, stock
appreciation right or cash bonus right held by any deceased employee or by any
employee whose employment is terminated is not exercised within the limited
periods provided above, all further rights to exercise the option, stock
appreciation right or cash bonus right shall terminate at the expiration of such
periods.
8.4 Termination of Non-Employees. With respect to options, stock
appreciation rights and cash bonus rights granted to persons who are
13
<PAGE>
not employees of the Company, the Board of Directors may establish provisions
relating to the termination of those persons' status with the Company.
9. Changes in Capital Structure. If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of any reorganization, merger, consolidation, plan of exchange,
recapitalization, reclassification, stock split, combination of shares, or
dividend payable in shares, appropriate adjustment shall be made by the Board of
Directors in the number and kind of shares for the purchase of which options or
stock appreciation rights may be granted and for which Stock may be awarded as
bonuses or sold subject to restrictions under the Plan. In addition, the Board
of Directors shall make appropriate adjustments in the number and kind of shares
as to which outstanding options, or portions thereof then unexercised, shall be
exercisable, and the number and kind of shares covered by outstanding stock
appreciation rights. Adjustments in outstanding options shall be made without
change in the total price applicable to the unexercised portion of any option
and with a corresponding adjustment in the exercise price per share; provided,
however, that with respect to Incentive Stock Options, (i) the excess of the
aggregate fair market value of the shares subject to the option immediately
after the adjustment over the aggregate exercise price of those shares shall not
be more than the excess of the aggregate fair market value of the shares subject
to the option immediately before the adjustment over the aggregate exercise
price of those shares, (ii) the adjusted option
14
<PAGE>
shall not give the optionee additional benefits that the optionee did not have
before the adjustment, and (iii) on a share-by-share comparison, the ratio of
the exercise price to the fair market value of the shares subject to the option
immediately after the adjustment shall be no more favorable to the optionee than
the ratio of the exercise price to the fair market value of the shares subject
to the option immediately before the adjustment. Adjustments in outstanding
stock appreciation rights shall be made without change in their total value. Any
such adjustment made by the Board of Directors shall be conclusive. In the event
of dissolution or liquidation of the Company or a merger, consolidation, or plan
of exchange affecting the Company, in lieu of making adjustments as provided for
above in this Section 9, the Board of Directors may, in its sole discretion,
provide a 30-day period prior to such event during which optionees shall have
the right to exercise options or stock appreciation rights.
10. Corporate Mergers, Acquisitions, Etc. The Board of Directors may also
grant options and stock appreciation rights having terms and provisions which
vary from those specified in this Plan provided that any options and stock
appreciation rights granted pursuant to this section are granted in substitution
for, or in connection with assumption of, existing options and stock
appreciation rights granted by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation to which the Company or a
subsidiary is a party.
11. Amendment of Plan. The Board of Directors may at any time and from time
to time modify or amend the Plan in such respects as it deems
15
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advisable because of changes in the law while the Plan is in effect or for any
other reason. After the Plan has been approved by the shareholders and except as
provided in Section 9, however, no change in an option or stock appreciation
right already granted to any person shall be made without the written consent of
such person. Furthermore, unless approved at an annual meeting or a special
meeting by the shareholders of the Company entitled to vote thereon, no
amendment or change shall be made in the Plan (a) increasing the total number of
shares that may be issued under the Plan, or (b) changing the class of persons
eligible to receive options under the Plan.
12. Approvals. The Company's obligations under the Plan are subject to the
approval of state and federal authorities or agencies with jurisdiction in the
matter. The Company will use its best efforts to take steps required by state or
federal law or applicable regulations, including rules and regulations of the
Securities and Exchange Commission in connection with the granting of any option
or the issuance or sale of any shares under the Plan. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver shares
of Stock under the Plan if the Company is advised by its legal counsel that such
issuance or delivery would violate applicable state or federal laws.
13. Employment Rights. Nothing in the Plan or any grant pursuant to the
Plan shall confer on any employee any right to be continued in the employment of
the Company or any parent or subsidiary of the Company or shall interfere in any
way with the right of the Company or any parent or subsidiary of the Company by
whom such employee is employed to terminate such employee's employment at any
time, with or without cause.
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14. Rights as a Shareholder. A holder of an option or a stock appreciation
right, a recipient of Stock awarded as a bonus, or a purchaser of Stock shall
have no rights as a shareholder with respect to any shares covered by any
option, stock appreciation right, bonus award, or stock purchase agreement until
the date of issue of a stock certificate to him or her for such shares. Except
as otherwise provided in the Plan, no adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued.
Effective Date: February 9, 1993.
Shareholder Approval: February 9, 1993.
October 19, 1993.
February 1, 1994.
June 30, 1994.
October 13, 1994.
May 22, 1995.
January 23, 1996.
17
MEDICALOGIC, INC.
1996 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this 1996 Stock Incentive Plan (the "Plan") is
to enable MedicaLogic, Inc. (the "Company") to attract and retain experienced
and able directors, officers, employees and other key contributors and to
provide an additional incentive to these individuals to exert their best efforts
for the Company and its shareholders.
2. Administration. The Plan shall be administered by the board of directors
of the Company (the "Board of Directors"), which shall determine and designate
from time to time the persons to whom grants and awards shall be made and the
amounts, terms and conditions of those grants and awards. Subject to the
provisions of the Plan, the Board of Directors may from time to time adopt or
amend rules and regulations relating to administration of the Plan, and the
interpretation and construction of the provisions of the Plan and any stock
bonus, stock purchase and option agreements under the Plan by the Board of
Directors shall be final and conclusive. Whenever the operation of the Plan
requires that the fair market value of the Company's common stock ("Stock") be
determined, the fair market value shall be determined by, or in a manner
approved by, the Board of Directors.
3. Eligibility. Grants and awards may be made under the Plan to directors,
officers, and key employees of the Company or any parent or subsidiary of the
Company, and other key individuals such as consultants to the Company who the
Board of Directors believes have made or will make an essential contribution to
the Company; provided, however, that only employees of the Company shall be
eligible to receive Incentive Stock Options under the Plan.
4. Shares Subject to the Plan. Except as provided in Section 9, the total
number of shares of Stock that may be issued (i) upon exercise of all options
and stock appreciation rights granted under the Plan, (ii) as bonuses under the
Plan and (iii) pursuant to sales under the Plan, shall not exceed in the
aggregate 1,000,000 shares. If any option under the Plan or stock appreciation
right granted without a related option expires or is cancelled or terminated and
is unexercised in whole or in part, the shares allocable to the unexercised
portion shall again become available for awards under the Plan, except that
shares that are issued on exercise of a stock appreciation right that were
allocable to an option, or portion thereof, surrendered in connection with
exercise of the stock appreciation right shall not again become available for
awards under the Plan. If Stock sold or awarded as a bonus under the Plan is
forfeited to the Company or repurchased by the Company pursuant to applicable
restrictions, the number of shares forfeited or repurchased shall again be
<PAGE>
available under the Plan. Stock issued under the Plan may be
subject to such restrictions on transfer, repurchase rights, or other
restrictions as are determined by the Board of Directors. The certificates
representing such Stock shall bear such legends as are determined by the Board
of Directors.
5. Limitation on Number of Shares. No employee who is a Covered Employee
may be granted stock options or stock appreciation rights with respect to
greater than 500,000 shares during any calendar year. For purposes of this
paragraph, a "Covered Employee" means any employee of the Company if (i) as of
the close of the taxable year, such employee is the chief executive officer of
the Company, or is a person acting in such capacity, or (ii) the total
compensation of such employee for the taxable year is required to be reported to
shareholders under the Securities Exchange Act of 1934 by reason of such
employee being among the four highest compensated officers for the taxable year
(other than the chief executive officer).
6. Effective Date and Duration of Plan.
6.1 Effective Date. The Plan shall become effective when adopted by
the Board of Directors (the "Effective Date"). The Plan shall not be considered
as adopted by the Board of Directors until the Plan is approved by a majority
vote of the shareholders of the Company entitled to vote thereon at a duly held
shareholders' meeting at which a quorum is present or by any other method that
satisfies applicable state law requirements regarding approval of actions
requiring shareholder voting. Subject to this limitation, options and stock
appreciation rights may be granted and Stock may be awarded as bonuses or sold
under the Plan at any time after the Effective Date and before termination of
the Plan.
6.2 Duration of the Plan. The Plan shall continue until, in the
aggregate, options and stock appreciation rights have been granted and exercised
and Stock has been awarded as bonuses or sold and the restrictions on any such
Stock have lapsed with respect to all shares subject to the Plan under Section 4
(subject to any adjustments under Section 9), provided, however, that unless
sooner terminated by the Board of Directors, the Plan shall terminate on, and no
option or stock appreciation right or bonus right shall be granted and no Stock
shall be awarded as a bonus or sold under the Plan on or after, the tenth
anniversary of the date the plan was adopted by the Board of Directors or
approved by the shareholders in accordance with 5.1, whichever occurs earlier.
The Board of Directors may suspend or terminate the Plan at any time except with
respect to options, stock appreciation rights and bonus rights, and Stock
subject to restrictions then outstanding under the Plan. Termination shall not
affect any right of the Company to repurchase shares or the forfeitability of
shares issued under the Plan.
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7. Grants, Awards and Sales.
7.1 Type of Security. The Board of Directors may, from time to time,
take the following actions, separately or in combination, under the Plan: (i)
grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"); (ii) grant options other than Incentive
Stock Options (hereinafter "Non-Statutory Stock Options"); (iii) grant stock
appreciation rights or bonus rights; (iv) award bonuses of Stock; and (v) sell
Stock subject to restrictions. The Board of Directors shall specify the action
taken with respect to each person granted, awarded, or sold any option or Stock
under the Plan and shall specifically designate each option granted under the
Plan as an Incentive Stock Option or a Non-Statutory Stock Option.
7.2 General Rules Relating to Options.
7.2.1 Time of Exercise. Except as provided in Section 8, options
granted under the Plan may be exercised over the period stated in each option in
amounts and at times prescribed by the Board of Directors and stated in the
option, provided that options shall not be exercised for fractional shares. If
the optionee does not exercise an option in any period with respect to the full
number of shares to which the optionee is entitled in that period, the
optionee's rights shall be cumulative and the optionee may purchase those shares
in any subsequent period during the term of the option.
7.2.2 Purchase of Shares. Shares may be purchased or acquired
pursuant to an option granted under the Plan only on receipt by the Company of
notice in writing from the optionee of the optionee's intention to exercise,
specifying the number of shares the optionee desires to purchase and the date on
which the optionee desires to complete the transaction, which may not be more
than 30 days after receipt of the notice, and, unless in the opinion of counsel
for the Company such a representation is not required to comply with the
Securities Act of 1933, as amended, containing a representation that the
optionee intends to acquire the shares for investment and not with a view to
distribution. On or before the date specified for completion of the purchase,
the optionee must have paid the Company the full purchase price in cash,
including cash that may be the proceeds of a loan from the Company, in shares of
Stock previously acquired by the optionee valued at fair market value, or in any
combination of cash and shares of Stock. No shares shall be issued until full
payment therefor has been made. Each optionee who has exercised an option shall,
on notification of the amount due, if any, and prior to or concurrently with
delivery of the certificates representing the shares for which the option was
exercised, pay to the Company amounts necessary to satisfy any applicable
federal, state, and local withholding tax requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the optionee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
optionee, including salary, subject to applicable law.
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<PAGE>
7.3 Incentive Stock Options. Incentive Stock Options shall be subject
to the following additional terms and conditions:
7.3.1 Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan such that the aggregate fair market
value, on the date of grant, of the Stock with respect to which Incentive Stock
Options are exercisable for the first time by that employee during any calendar
year, under the Plan and under any other incentive stock option plan (within the
meaning of Section 422 of the Code) of the Company or any parent or subsidiary
of the Company, exceeds $100,000.
7.3.2 Exercise Price. The exercise price per share under each
option granted under the Plan shall be determined by the Board of Directors, but
the exercise price with respect to an Incentive Stock Option shall be not less
than 100 percent of the fair market value of the shares covered by the option on
the date the option is granted.
7.3.3 Duration of Options. Subject to Sections 6.3.4 and 8, each
option granted under the Plan shall continue in effect for the period fixed by
the Board of Directors, except that no Incentive Stock Option shall be
exercisable after the expiration of 10 years from the date it is granted.
7.3.4 Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee who owns
(within the meaning of Section 424(d) of the Code) more than 10 percent of the
total combined voting power of all classes of stock of the Company, or of any
parent or subsidiary of the Company, only if the exercise price is at least 110
percent of the fair market value of the Stock subject to the option on the date
it is granted, and the option by its terms is not exercisable after the
expiration of five years from the date it is granted.
7.4 Non-Statutory Stock Options. Non-Statutory Stock Options shall be
subject to the following additional terms and conditions:
7.4.1 Exercise Price. The exercise price per share under each
option granted under the Plan shall be determined by the Board of Directors, but
the exercise price shall be not less than 85 percent of the fair market value of
the shares covered by the option on the date the option is granted.
7.4.2 Duration of Options. Non-Statutory Stock Options granted
under the Plan shall continue in effect for the period fixed by the Board of
Directors.
7.5 Stock Bonuses. Stock awarded as a bonus shall be subject to the
terms, conditions, and restrictions determined by the Board of Directors at the
time the Stock is awarded as a bonus. The Board of Directors may require the
recipient to sign an
4
<PAGE>
agreement as a condition of the award, but may not require the recipient to pay
any money consideration except as provided in this Section 6.5. The agreement
may contain such terms, conditions, representations, and warranties as the Board
of Directors may require. The Company may require any recipient of a Stock bonus
to pay to the Company amounts necessary to satisfy any applicable federal,
state, or local tax withholding requirements prior to delivery of certificates.
If additional withholding becomes required beyond any amount deposited before
delivery of the certificates, the employee shall pay such amount to the Company
on demand. If the employee fails to pay the amount demanded, the Company shall
have the right to withhold that amount from other amounts payable by the Company
to the employee, including salary, subject to applicable law.
7.6 Restricted Stock. The Board of Directors may issue shares of Stock
under the Plan for such consideration (including promissory notes and services)
as determined by the Board of Directors in accordance with the law and with such
restrictions concerning transferability, repurchase by the Company, or
forfeiture as determined by the Board of Directors. All shares of Stock issued
pursuant to this Section 6.6 shall be subject to a purchase agreement, which
shall be executed by the Company and the prospective recipient of the Stock
prior to the delivery of certificates representing such shares to the recipient.
The purchase agreement shall contain such terms and conditions and
representations and warranties as the Board of Directors shall require. Each
employee to whom shares of stock are issued pursuant to this paragraph 6.6
shall, on notification of the amount due, if any, and before or concurrently
with delivery of the certificates representing the shares, pay to the Company
amounts necessary to satisfy any applicable federal, state, and local
withholding tax requirements. If additional withholding becomes required beyond
any amount deposited before delivery of the certificates, the employee shall pay
such amount to the Company on demand. If the employee fails to pay the amount
demanded, the Company shall have the right to withhold that amount from other
amounts payable by the Company to the employee, including salary, subject to
applicable law.
7.7 Stock Appreciation Rights.
7.7.1 Description. Each stock appreciation right shall entitle
the holder, on exercise, to receive from the Company in exchange therefor an
amount equal in value to the excess of the fair market value on the date of
exercise of one share of Stock over its fair market value on the date of grant
(or, in the case of a stock appreciation right granted in connection with an
option, the exercise price per share under the option to which the stock
appreciation right relates) (the "Spread"), multiplied by the number of shares
covered by the stock appreciation right or the option, or portion thereof, that
is surrendered. If the stock appreciation right is granted in conjunction with
an incentive stock option, the stock appreciation right may be for no more than
100 percent of the Spread multiplied by the number of shares covered by the
option or portion thereof that is surrendered.
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<PAGE>
7.7.2 Exercise. A stock appreciation right shall be exercisable
only at the time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, then it shall be
exercisable only to the extent and on the same conditions that the related
option is exercisable. Upon exercise of a stock appreciation right, any option
or portion thereof to which the stock appreciation right relates must be
surrendered unexercised. If the stock appreciation right is issued in
conjunction with an incentive stock option, the stock appreciation right may be
exercised with respect to the shares of stock covered by the incentive stock
option only if the Spread with respect to those shares is a positive number.
7.7.3 Payment. Payment by the Company upon exercise of a stock
appreciation right may be made in shares of Stock valued at fair market value,
or in cash, or partly in Stock and partly in cash, as determined by the Board of
Directors. No fractional shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal to the
value of the fraction or, in the discretion of the Board of Directors, the
number of shares may be rounded to the next whole share.
7.7.4 Withholding. If payment by the Company of the stock
appreciation right is in cash, or partly in cash, the Company shall have the
right to withhold the amount of cash necessary to satisfy any applicable
federal, state or local withholding tax requirements. If payment by the Company
of the stock appreciation right is solely in shares of Stock or if the amount of
the payment in cash is insufficient to satisfy the withholding requirements, the
employee shall, on notification of the amount due, and before or concurrently
with delivery of the certificates representing the shares, pay to the Company
the amounts necessary to satisfy the withholding requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the employee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
employee, including salary, subject to applicable law.
7.7.5 Adjustment. In the event of any adjustment pursuant to
Section 9 in the number of shares of Stock subject to an option granted under
the Plan, any stock appreciation right granted hereunder in connection with such
option shall be proportionately adjusted.
7.8 Cash Bonus Rights.
7.8.1 Grant. The Board of Directors may grant bonus rights under
the Plan in connection with (i) an option or stock appreciation right granted or
previously granted, (ii) Stock awarded, or previously awarded, as a bonus, and
(iii) Stock sold, or previously sold, under the Plan. Bonus rights will be
subject to rules, terms, and conditions as the Board of Directors may prescribe.
6
<PAGE>
7.8.2 Bonus Rights in Connection with Options and Stock
Appreciation Rights. A bonus right granted in connection with an option will
entitle an optionee to a cash bonus when the related option is exercised (or is
surrendered in connection with exercise of a stock appreciation right related to
the option) in whole or in part. A bonus right granted in connection with a
stock appreciation right will entitle the holder to a cash bonus when the stock
appreciation right is exercised. Upon exercise of an option, the amount of the
bonus shall be determined by multiplying the excess of the total fair market
value of the shares to be acquired upon the exercise over the total exercise
price for the shares by the applicable bonus percentage. Upon exercise of a
stock appreciation right, the bonus shall be determined by multiplying the total
fair market value of the shares or cash received pursuant to the exercise of the
stock appreciation right by the applicable bonus percentage. The bonus
percentage applicable to a bonus right shall be determined from time to time by
the Board of Directors but shall in no event exceed 100 percent.
7.8.3 Bonus Rights in Connection with Stock Bonus. A bonus right
granted in connection with Stock awarded as a bonus will entitle the person
awarded such Stock to a cash bonus either at the time the Stock is awarded or at
such time as restrictions, if any, to which the Stock is subject lapse. If Stock
awarded is subject to restrictions and is repurchased by the Company or
forfeited by the holder, the bonus right granted in connection with such Stock
shall terminate and may not be exercised. The amount of any cash bonus to be
awarded and the time such cash bonus is to be paid shall be determined from time
to time by the Board of Directors.
7.8.4 Bonus Rights in Connection with Stock Purchase. A bonus
right granted in connection with Stock purchased hereunder (excluding Stock
purchased pursuant to an option) shall terminate and may not be exercised in the
event the Stock is repurchased by the Company or forfeited by the holder
pursuant to restrictions applicable to the Stock. The amount of any cash bonus
to be awarded and the time such cash bonus is to be paid shall be determined
from time to time by the Board of Directors.
7.8.5 Withholding. The Company shall have the right to withhold
from the bonus the amount of cash necessary to satisfy any applicable federal,
state and local withholding tax requirements. If the amount of the payment in
cash is insufficient to satisfy the withholding requirements, the employee
shall, on notification of the amount due, and before or concurrently with
delivery of any stock certificates, pay to the Company the amounts necessary to
satisfy the withholding requirements. If additional withholding becomes required
beyond any amount deposited before delivery of the certificates, the employee
shall pay such amount to the Company on demand. If the employee fails to pay the
amount demanded, the Company shall have the right to withhold that amount from
other amounts payable by the Company to the employee, including salary, subject
to applicable law.
7
<PAGE>
8. Nontransferability. Each option, stock appreciation right, or cash bonus
right granted under the Plan by its terms shall be nonassignable and
nontransferable by the holder except by will or by the laws of descent and
distribution of the state or country of the holder's domicile at the time of
death, and each option, stock appreciation right, or cash bonus right by its
terms shall be exercisable during the holder's lifetime only by the holder.
9. Termination of Employment.
9.1 Retirement or General Termination. If an employee's employment by
the Company or any parent or subsidiary of the Company is terminated by
retirement or for any reason other than in the circumstances specified in
Section 8.2 below, any option, stock appreciation right or cash bonus right held
by the employee may be exercised at any time prior to its expiration date or the
expiration of three months after the date of the termination, whichever is the
shorter period, but only if and to the extent the employee was entitled to
exercise the option, stock appreciation right or cash bonus right on the date of
termination. Transfer of an employee by the Company or any parent or subsidiary
of the Company to the Company or any parent or subsidiary of the Company shall
not be considered a termination for purposes of the Plan.
9.2 Death or Disability. If an employee's employment by the Company or
any parent or subsidiary of the Company is terminated because of death or
physical disability (within the meaning of Section 22(e)(3) of the Code), any
option, stock appreciation right or cash bonus right held by the employee may be
exercised at any time prior to its expiration date or the expiration of one year
after the date of termination, whichever is the shorter period, for the greater
of (a) the number of remaining shares for which the employee was entitled to
exercise the option, stock appreciation right or cash bonus right on the date of
termination or (b) the number of remaining shares for which the employee would
have been entitled to exercise the option, stock appreciation right or cash
bonus right if such option or right had been 50 percent exercisable on the date
of termination. If an employee's employment is terminated by death, any option,
stock appreciation right or cash bonus right held by the employee shall be
exercisable only by the person or persons to whom the employee's rights under
the option, stock appreciation right or cash bonus right pass by the employee's
will or by the laws of descent and distribution of the state or country of the
employee's domicile at the time of death.
9.3 Termination of Unexercised Rights. To the extent an option, stock
appreciation right or cash bonus right held by any deceased employee or by any
employee whose employment is terminated is not exercised within the limited
periods provided above, all further rights to exercise the option, stock
appreciation right or cash bonus right shall terminate at the expiration of such
periods.
9.4 Termination of Non-Employees. With respect to options, stock
appreciation rights and cash bonus rights granted to persons who are not
employees of the
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Company, the Board of Directors may establish provisions relating to the
termination of those persons' status with the Company.
10. Changes in Capital Structure. If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of any reorganization, merger, consolidation, plan of exchange,
recapitalization, reclassification, stock split, combination of shares, or
dividend payable in shares, appropriate adjustment shall be made by the Board of
Directors in the number and kind of shares for the purchase of which options or
stock appreciation rights may be granted and for which Stock may be awarded as
bonuses or sold subject to restrictions under the Plan. In addition, the Board
of Directors shall make appropriate adjustments in the number and kind of shares
as to which outstanding options, or portions thereof then unexercised, shall be
exercisable, and the number and kind of shares covered by outstanding stock
appreciation rights. Adjustments in outstanding options shall be made without
change in the total price applicable to the unexercised portion of any option
and with a corresponding adjustment in the exercise price per share; provided,
however, that with respect to Incentive Stock Options, (i) the excess of the
aggregate fair market value of the shares subject to the option immediately
after the adjustment over the aggregate exercise price of those shares shall not
be more than the excess of the aggregate fair market value of the shares subject
to the option immediately before the adjustment over the aggregate exercise
price of those shares, (ii) the adjusted option shall not give the optionee
additional benefits that the optionee did not have before the adjustment, and
(iii) on a share-by-share comparison, the ratio of the exercise price to the
fair market value of the shares subject to the option immediately after the
adjustment shall be no more favorable to the optionee than the ratio of the
exercise price to the fair market value of the shares subject to the option
immediately before the adjustment. Adjustments in outstanding stock appreciation
rights shall be made without change in their total value. Any such adjustment
made by the Board of Directors shall be conclusive. In the event of dissolution
or liquidation of the Company or a merger, consolidation, or plan of exchange
affecting the Company, in lieu of making adjustments as provided for above in
this Section 9, the Board of Directors may, in its sole discretion, provide a
30-day period
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<PAGE>
prior to such event during which optionees shall have the right to exercise
options or stock appreciation rights.
11. Corporate Mergers, Acquisitions, Etc. The Board of Directors may also
grant options and stock appreciation rights having terms and provisions which
vary from
those specified in this Plan provided that any options and stock appreciation
rights granted pursuant to this section are granted in substitution for, or in
connection with assumption of, existing options and stock appreciation rights
granted by another corporation and assumed or otherwise agreed to be provided
for by the Company pursuant to or by reason of a transaction involving a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or a subsidiary is a party.
12. Amendment of Plan. The Board of Directors may at any time and from time
to time modify or amend the Plan in such respects as it deems advisable because
of changes in the law while the Plan is in effect or for any other reason. After
the Plan has been approved by the shareholders and except as provided in Section
9, however, no change in an option or stock appreciation right already granted
to any person shall be made without the written consent of such person.
Furthermore, unless approved at an annual meeting or a special meeting by the
shareholders of the Company entitled to vote thereon, no amendment or change
shall be made in the Plan (a) increasing the total number of shares that may be
issued under the Plan, or (b) changing the class of persons eligible to receive
options under the Plan.
13. Approvals. The Company's obligations under the Plan are subject to the
approval of state and federal authorities or agencies with jurisdiction in the
matter. The Company will use its best efforts to take steps required by state or
federal law or applicable regulations, including rules and regulations of the
Securities and Exchange Commission in connection with the granting of any option
or the issuance or sale of any shares under the Plan. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver shares
of Stock under the Plan if the Company is advised by its legal counsel that such
issuance or delivery would violate applicable state or federal laws.
14. Employment Rights. Nothing in the Plan or any grant pursuant to the
Plan shall confer on any employee any right to be continued in the employment of
the Company or any parent or subsidiary of the Company or shall interfere in any
way with the right of the Company or any parent or subsidiary of the Company by
whom such employee is employed to terminate such employee's employment at any
time, with or without cause.
15. Rights as a Shareholder. A holder of an option or a stock appreciation
right, a recipient of Stock awarded as a bonus, or a purchaser of Stock shall
have no rights as a shareholder with respect to any shares covered by any
option, stock appreciation right, bonus award, or stock purchase agreement until
the date of issue of a stock certificate to him or her for such shares. Except
as otherwise provided in the Plan, no adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued.
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16. Information. Financial statements of the Company will be provided
annually to each optioneee under the Plan.
Effective Date: December 27, 1996
Shareholder Approval: December 27, 1996
11
MEDICALOGIC, INC.
1999 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this 1999 Stock Incentive Plan (the "Plan") is
to enable MedicaLogic, Inc. (the "Company") to attract and retain experienced
and able directors, officers, employees and other key contributors and to
provide an additional incentive to these individuals to exert their best efforts
for the Company and its shareholders.
2. Administration. The Plan shall be administered by the board of directors
of the Company (the "Board of Directors"), which shall determine and designate
from time to time the persons to whom grants and awards shall be made and the
amounts, terms and conditions of those grants and awards. Subject to the
provisions of the Plan, the Board of Directors may from time to time adopt or
amend rules and regulations relating to administration of the Plan, and the
interpretation and construction of the provisions of the Plan and any stock
bonus, stock purchase and option agreements under the Plan by the Board of
Directors shall be final and conclusive. Whenever the operation of the Plan
requires that the fair market value of the Company's common stock ("Stock") be
determined, the fair market value shall be determined by, or in a manner
approved by, the Board of Directors. If the Stock is not publicly traded, the
Board of Directors may consider any valuation methods it deems appropriate and
may, but is not required to, obtain one or more independent appraisals of the
Company. If the Stock is publicly traded, the fair market value of Stock shall
be the closing price of the Stock as reported in The Wall Street Journal on the
last trading day preceding the date an award is granted or exercised, as
applicable, or such other reported value of the Stock as shall be specified by
the Board of Directors.
3. Eligibility. Grants and awards may be made under the Plan to directors,
officers, and employees of the Company or any parent or subsidiary of the
Company, and other key individuals such as consultants to the Company who the
Board of Directors believes have made or will make an essential contribution to
the Company; provided, however, that only employees of the Company shall be
eligible to receive Incentive Stock Options under the Plan.
4. Shares Subject to the Plan. Except as provided in Section 9, the total
number of shares of Stock that may be issued (i) upon exercise of all options
and stock appreciation rights granted under the Plan, (ii) as bonuses under the
Plan and (iii) pursuant to sales under the Plan, shall not exceed in the
aggregate 4,000,000 shares. If any option under the Plan or stock appreciation
right granted without a related option expires or is cancelled or terminated and
is unexercised in whole or in part, the shares allocable to the unexercised
portion shall again become available for awards under the Plan, except that
shares that are issued on exercise of a stock appreciation right that were
allocable to an
<PAGE>
option, or portion thereof, surrendered in connection with exercise of the stock
appreciation right shall not again become available for awards under the Plan.
If Stock sold or awarded as a bonus under the Plan is forfeited to the Company
or repurchased by the Company pursuant to applicable restrictions, the number of
shares forfeited or repurchased shall again be available under the Plan. Stock
issued under the Plan may be subject to such restrictions on transfer,
repurchase rights, or other restrictions as are determined by the Board of
Directors. The certificates representing such Stock shall bear such legends as
are determined by the Board of Directors.
5. Limitation on Number of Shares. No employee may be granted stock options
or stock appreciation rights under the Plan for more than an aggregate of
200,000 shares of Stock in connection with the hiring of the employee or 500,000
shares in any calendar year thereafter.
6. Effective Date and Duration of Plan.
6.1 Effective Date. The Plan shall become effective when adopted by
the Board of Directors (the "Effective Date"). The Plan shall not be considered
as adopted by the Board of Directors until the Plan is approved by a majority
vote of the shareholders of the Company entitled to vote thereon at a duly held
shareholders' meeting at which a quorum is present or by any other method that
satisfies applicable state law requirements regarding approval of actions
requiring shareholder voting. Subject to this limitation, options and stock
appreciation rights may be granted and Stock may be awarded as bonuses or sold
under the Plan at any time after the Effective Date and before termination of
the Plan.
6.2 Duration of the Plan. The Plan shall continue until, in the
aggregate, options and stock appreciation rights have been granted and exercised
and Stock has been awarded as bonuses or sold and the restrictions on any such
Stock have lapsed with respect to all shares subject to the Plan under Section 4
(subject to any adjustments under Section 10), provided, however, that unless
sooner terminated by the Board of Directors, the Plan shall terminate on, and no
option or stock appreciation right or bonus right shall be granted and no Stock
shall be awarded as a bonus or sold under the Plan on or after, the tenth
anniversary of the date the plan was adopted by the Board of Directors or
approved by the shareholders in accordance with Section 6.1, whichever occurs
earlier. The Board of Directors may suspend or terminate the Plan at any time
except with respect to options, stock appreciation rights and bonus rights, and
Stock subject to restrictions then outstanding under the Plan. Termination shall
not affect any right of the Company to repurchase shares or the forfeitability
of shares issued under the Plan.
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<PAGE>
7. Grants, Awards and Sales.
7.1 Type of Security. The Board of Directors may, from time to time,
take the following actions, separately or in combination, under the Plan: (i)
grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"); (ii) grant options other than Incentive
Stock Options (hereinafter "Non-Statutory Stock Options"); (iii) grant stock
appreciation rights or bonus rights; (iv) award bonuses of Stock; and (v) sell
Stock subject to restrictions. The Board of Directors shall specify the action
taken with respect to each person granted, awarded, or sold any option or Stock
under the Plan and shall specifically designate each option granted under the
Plan as an Incentive Stock Option or a Non-Statutory Stock Option.
7.2 General Rules Relating to Options.
7.2.1 Time of Exercise. Except as provided in Section 8, options
granted under the Plan may be exercised over the period stated in each option in
amounts and at times prescribed by the Board of Directors and stated in the
option, provided that options shall not be exercised for fractional shares and
provided further that the right to exercise shall be at least 20% per year over
five years from the date the option is granted, subject to the provisions of
Section 9. If the optionee does not exercise an option in any period with
respect to the full number of shares to which the optionee is entitled in that
period, the optionee's rights shall be cumulative and the optionee may purchase
those shares in any subsequent period during the term of the option.
7.2.2 Purchase of Shares. Shares may be purchased or acquired
pursuant to an option granted under the Plan only on receipt by the Company of
notice in writing from the optionee of the optionee's intention to exercise,
specifying the number of shares the optionee desires to purchase and the date on
which the optionee desires to complete the transaction, which may not be more
than 30 days after receipt of the notice, and, unless in the opinion of counsel
for the Company such a representation is not required to comply with the
Securities Act of 1933, as amended, containing a representation that the
optionee intends to acquire the shares for investment and not with a view to
distribution. On or before the date specified for completion of the purchase,
the optionee must have paid the Company the full purchase price in cash,
including cash that may be the proceeds of a loan from the Company, in shares of
Stock previously acquired by the optionee valued at fair market value, or in any
combination of cash and shares of Stock. No shares shall be issued until full
payment therefor has been made. Each optionee who has exercised an option shall,
on notification of the amount due, if any, and prior to or concurrently with
delivery of the certificates representing the shares for which the option was
exercised, pay to the Company amounts necessary to satisfy any applicable
federal, state, and local withholding tax requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the optionee shall pay such amount to
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<PAGE>
the Company on demand. If the employee fails to pay the amount demanded, the
Company shall have the right to withhold that amount from other amounts payable
by the Company to the optionee, including salary, subject to applicable law.
7.3 Incentive Stock Options. Incentive Stock Options shall be subject
to the following additional terms and conditions:
7.3.1 Limitation on Amount of Grants. No employee may be granted
Incentive Stock Options under the Plan such that the aggregate fair market
value, on the date of grant, of the Stock with respect to which Incentive Stock
Options are exercisable for the first time by that employee during any calendar
year, under the Plan and under any other incentive stock option plan (within the
meaning of Section 422 of the Code) of the Company or any parent or subsidiary
of the Company, exceeds $100,000.
7.3.2 Exercise Price. The exercise price per share under each
option granted under the Plan shall be determined by the Board of Directors, but
the exercise price with respect to an Incentive Stock Option shall be not less
than 100 percent of the fair market value of the shares covered by the option on
the date the option is granted.
7.3.3 Duration of Options. Subject to Sections 7.3.4 and 8, each
option granted under the Plan shall continue in effect for the period fixed by
the Board of Directors, except that no Incentive Stock Option shall be
exercisable after the expiration of 10 years from the date it is granted.
7.3.4 Limitations on Grants to 10 Percent Shareholders. An
Incentive Stock Option may be granted under the Plan to an employee who owns
(within the meaning of Section 424(d) of the Code) more than 10 percent of the
total combined voting power of all classes of stock of the Company, or of any
parent or subsidiary of the Company, only if the exercise price is at least 110
percent of the fair market value of the Stock subject to the option on the date
it is granted, and the option by its terms is not exercisable after the
expiration of five years from the date it is granted.
7.4 Non-Statutory Stock Options. Non-Statutory Stock Options shall be
subject to the following additional terms and conditions:
7.4.1 Exercise Price. The exercise price per share under each
option granted under the Plan shall be determined by the Board of Directors, but
the exercise price shall be not less than 85 percent of the fair market value of
the shares covered by the option on the date the option is granted.
7.4.2 Duration of Options. Non-Statutory Stock Options granted
under the Plan shall continue in effect for the period fixed by the Board of
Directors, not to exceed 10 years.
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<PAGE>
7.5 Stock Bonuses. Stock awarded as a bonus shall be subject to the
terms, conditions, and restrictions determined by the Board of Directors at the
time the Stock is awarded as a bonus. The Board of Directors may require the
recipient to sign an agreement as a condition of the award, but may not require
the recipient to pay any money consideration except as provided in this Section
7.5. The agreement may contain such terms, conditions, representations, and
warranties as the Board of Directors may require. The Company may require any
recipient of a Stock bonus to pay to the Company amounts necessary to satisfy
any applicable federal, state, or local tax withholding requirements prior to
delivery of certificates. If additional withholding becomes required beyond any
amount deposited before delivery of the certificates, the employee shall pay
such amount to the Company on demand. If the employee fails to pay the amount
demanded, the Company shall have the right to withhold that amount from other
amounts payable by the Company to the employee, including salary, subject to
applicable law.
7.6 Restricted Stock. The Board of Directors may issue shares of Stock
under the Plan for such consideration (including promissory notes and services)
as determined by the Board of Directors in accordance with the law and with such
restrictions concerning transferability, repurchase by the Company, or
forfeiture as determined by the Board of Directors. All shares of Stock issued
pursuant to this Section 7.6 shall be subject to a purchase agreement, which
shall be executed by the Company and the prospective recipient of the Stock
prior to the delivery of certificates representing such shares to the recipient.
The purchase agreement shall contain such terms and conditions and
representations and warranties as the Board of Directors shall require. Each
employee to whom shares of stock are issued pursuant to this paragraph 7.6
shall, on notification of the amount due, if any, and before or concurrently
with delivery of the certificates representing the shares, pay to the Company
amounts necessary to satisfy any applicable federal, state, and local
withholding tax requirements. If additional withholding becomes required beyond
any amount deposited before delivery of the certificates, the employee shall pay
such amount to the Company on demand. If the employee fails to pay the amount
demanded, the Company shall have the right to withhold that amount from other
amounts payable by the Company to the employee, including salary, subject to
applicable law.
7.7 Stock Appreciation Rights.
7.7.1 Description. Each stock appreciation right shall entitle
the holder, on exercise, to receive from the Company in exchange therefor an
amount equal in value to the excess of the fair market value on the date of
exercise of one share of Stock over its fair market value on the date of grant
(or, in the case of a stock appreciation right granted in connection with an
option, the exercise price per share under the option to which the stock
appreciation right relates) (the "Spread"), multiplied by the number of shares
covered by the stock appreciation right or the option, or portion thereof, that
is surrendered. If the stock appreciation right is granted in conjunction with
an incentive stock option, the stock appreciation right may be for no more than
100 percent of the
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<PAGE>
Spread multiplied by the number of shares covered by the option or portion
thereof that is surrendered.
7.7.2 Exercise. A stock appreciation right shall be exercisable
only at the time or times established by the Board of Directors. If a stock
appreciation right is granted in connection with an option, then it shall be
exercisable only to the extent and on the same conditions that the related
option is exercisable. Upon exercise of a stock appreciation right, any option
or portion thereof to which the stock appreciation right relates must be
surrendered unexercised. If the stock appreciation right is issued in
conjunction with an incentive stock option, the stock appreciation right may be
exercised with respect to the shares of stock covered by the incentive stock
option only if the Spread with respect to those shares is a positive number.
7.7.3 Payment. Payment by the Company upon exercise of a stock
appreciation right may be made in shares of Stock valued at fair market value,
or in cash, or partly in Stock and partly in cash, as determined by the Board of
Directors. No fractional shares shall be issued upon exercise of a stock
appreciation right. In lieu thereof, cash may be paid in an amount equal to the
value of the fraction or, in the discretion of the Board of Directors, the
number of shares may be rounded to the next whole share.
7.7.4 Withholding. If payment by the Company of the stock
appreciation right is in cash, or partly in cash, the Company shall have the
right to withhold the amount of cash necessary to satisfy any applicable
federal, state or local withholding tax requirements. If payment by the Company
of the stock appreciation right is solely in shares of Stock or if the amount of
the payment in cash is insufficient to satisfy the withholding requirements, the
employee shall, on notification of the amount due, and before or concurrently
with delivery of the certificates representing the shares, pay to the Company
the amounts necessary to satisfy the withholding requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, the employee shall pay such amount to the Company on demand. If
the employee fails to pay the amount demanded, the Company shall have the right
to withhold that amount from other amounts payable by the Company to the
employee, including salary, subject to applicable law.
7.7.5 Adjustment. In the event of any adjustment pursuant to
Section 10 in the number of shares of Stock subject to an option granted under
the Plan, any stock appreciation right granted hereunder in connection with such
option shall be proportionately adjusted.
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<PAGE>
7.8 Cash Bonus Rights.
7.8.1 Grant. The Board of Directors may grant bonus rights under
the Plan in connection with (i) an option or stock appreciation right granted or
previously granted, (ii) Stock awarded, or previously awarded, as a bonus, and
(iii) Stock sold, or previously sold, under the Plan. Bonus rights will be
subject to rules, terms, and conditions as the Board of Directors may prescribe.
7.8.2 Bonus Rights in Connection with Options and Stock
Appreciation Rights. A bonus right granted in connection with an option will
entitle an optionee to a cash bonus when the related option is exercised (or is
surrendered in connection with exercise of a stock appreciation right related to
the option) in whole or in part. A bonus right granted in connection with a
stock appreciation right will entitle the holder to a cash bonus when the stock
appreciation right is exercised. Upon exercise of an option, the amount of the
bonus shall be determined by multiplying the excess of the total fair market
value of the shares to be acquired upon the exercise over the total exercise
price for the shares by the applicable bonus percentage. Upon exercise of a
stock appreciation right, the bonus shall be determined by multiplying the total
fair market value of the shares or cash received pursuant to the exercise of the
stock appreciation right by the applicable bonus percentage. The bonus
percentage applicable to a bonus right shall be determined from time to time by
the Board of Directors but shall in no event exceed 100 percent.
7.8.3 Bonus Rights in Connection with Stock Bonus. A bonus right
granted in connection with Stock awarded as a bonus will entitle the person
awarded such Stock to a cash bonus either at the time the Stock is awarded or at
such time as restrictions, if any, to which the Stock is subject lapse. If Stock
awarded is subject to restrictions and is repurchased by the Company or
forfeited by the holder, the bonus right granted in connection with such Stock
shall terminate and may not be exercised. The amount of any cash bonus to be
awarded and the time such cash bonus is to be paid shall be determined from time
to time by the Board of Directors.
7.8.4 Bonus Rights in Connection with Stock Purchase. A bonus
right granted in connection with Stock purchased hereunder (excluding Stock
purchased pursuant to an option) shall terminate and may not be exercised in the
event the Stock is repurchased by the Company or forfeited by the holder
pursuant to restrictions applicable to the Stock. The amount of any cash bonus
to be awarded and the time such cash bonus is to be paid shall be determined
from time to time by the Board of Directors.
7.8.5 Withholding. The Company shall have the right to withhold
from the bonus the amount of cash necessary to satisfy any applicable federal,
state and local withholding tax requirements. If the amount of the payment in
cash is insufficient to satisfy the withholding requirements, the employee
shall, on notification of the amount due,
7
<PAGE>
and before or concurrently with delivery of any stock certificates, pay to the
Company the amounts necessary to satisfy the withholding requirements. If
additional withholding becomes required beyond any amount deposited before
delivery of the certificates, the employee shall pay such amount to the Company
on demand. If the employee fails to pay the amount demanded, the Company shall
have the right to withhold that amount from other amounts payable by the Company
to the employee, including salary, subject to applicable law.
8. Nontransferability. Each option, stock appreciation right, or cash bonus
right granted under the Plan by its terms shall be nonassignable and
nontransferable by the holder except by will or by the laws of descent and
distribution of the state or country of the holder's domicile at the time of
death, and each option, stock appreciation right, or cash bonus right by its
terms shall be exercisable during the holder's lifetime only by the holder.
9. Termination of Employment.
9.1 Retirement or General Termination. If an employee's employment by
the Company or any parent or subsidiary of the Company is terminated by
retirement or for any reason other than in the circumstances specified in
Section 9.2 below, any option, stock appreciation right or cash bonus right held
by the employee may be exercised at any time prior to its expiration date or the
expiration of three months after the date of the termination, whichever is the
shorter period, but only if and to the extent the employee was entitled to
exercise the option, stock appreciation right or cash bonus right on the date of
termination. Transfer of an employee by the Company or any parent or subsidiary
of the Company to the Company or any parent or subsidiary of the Company shall
not be considered a termination for purposes of the Plan.
9.2 Death or Disability. If an employee's employment by the Company or
any parent or subsidiary of the Company is terminated because of death or
physical disability (within the meaning of Section 22(e)(3) of the Code), any
option, stock appreciation right or cash bonus right held by the employee may be
exercised at any time prior to its expiration date or the expiration of one year
after the date of termination, whichever is the shorter period, for the greater
of (a) the number of remaining shares for which the employee was entitled to
exercise the option, stock appreciation right or cash bonus right on the date of
termination or (b) the number of remaining shares for which the employee would
have been entitled to exercise the option, stock appreciation right or cash
bonus right if such option or right had been 50 percent exercisable on the date
of termination. If an employee's employment is terminated by death, any option,
stock appreciation right or cash bonus right held by the employee shall be
exercisable only by the person or persons to whom the employee's rights under
the option, stock appreciation right or cash bonus right pass by the employee's
will or by the laws of descent and distribution of the state or country of the
employee's domicile at the time of death.
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<PAGE>
9.3 Termination of Unexercised Rights. To the extent an option, stock
appreciation right or cash bonus right held by any deceased employee or by any
employee whose employment is terminated is not exercised within the limited
periods provided above, all further rights to exercise the option, stock
appreciation right or cash bonus right shall terminate at the expiration of such
periods.
9.4 Termination of Non-Employees. With respect to options, stock
appreciation rights and cash bonus rights granted to persons who are not
employees of the Company, the Board of Directors may establish provisions
relating to the termination of those persons' status with the Company.
9.5 Repurchase of Options. The Board of Directors may establish
provisions relating to the repurchase of any shares acquired upon the exercise
of options, in the event of termination of employment or termination of service
of non-employees for any reason other than in circumstances specified in Section
9.2. The repurchase price may be stated in each option as prescribed by the
Board of Directors, provided that such repurchase price shall not be an amount
less than (i) the fair market value at the time of purchase, or (ii) the
original purchase price, whichever is less, and further provided that the right
to repurchase lapses with respect to at least 20% of the number of shares per
year over five years from the date the option is granted, and the repurchase
right is exercised within 90 days after termination of employment or service.
10. Changes in Capital Structure. If the outstanding shares of Stock are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of any reorganization, merger, consolidation, plan of exchange,
recapitalization, reclassification, stock split, combination of shares, or
dividend payable in shares, appropriate adjustment shall be made by the Board of
Directors in the number and kind of shares for the purchase of which options or
stock appreciation rights may be granted and for which Stock may be awarded as
bonuses or sold subject to restrictions under the Plan. In addition, the Board
of Directors shall make appropriate adjustments in the number and kind of shares
as to which outstanding options, or portions thereof then unexercised, shall be
exercisable, and the number and kind of shares covered by outstanding stock
appreciation rights. Adjustments in outstanding options shall be made without
change in the total price applicable to the unexercised portion of any option
and with a corresponding adjustment in the exercise price per share; provided,
however, that with respect to Incentive Stock Options, (i) the excess of the
aggregate fair market value of the shares subject to the option immediately
after the adjustment over the aggregate exercise price of those shares shall not
be more than the excess of the aggregate fair market value of the shares subject
to the option immediately before the adjustment over the aggregate exercise
price of those shares, (ii) the adjusted option shall not give the optionee
additional benefits that the optionee did not have before the adjustment, and
(iii) on a share-by-share comparison, the ratio of the exercise price to the
fair market value of the shares subject to the option immediately after the
adjustment
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<PAGE>
shall be no more favorable to the optionee than the ratio of the exercise price
to the fair market value of the shares subject to the option immediately before
the adjustment. Adjustments in outstanding stock appreciation rights shall be
made without change in their total value. Any such adjustment made by the Board
of Directors shall be conclusive. In the event of dissolution or liquidation of
the Company or a merger, consolidation, or plan of exchange affecting the
Company, in lieu of making adjustments as provided for above in this Section 10,
the Board of Directors may, in its sole discretion, provide a 30-day period
prior to such event during which optionees shall have the right to exercise
options or stock appreciation rights.
11. Corporate Mergers, Acquisitions, Etc. The Board of Directors may also
grant options and stock appreciation rights having terms and provisions which
vary from those specified in this Plan provided that any options and stock
appreciation rights granted pursuant to this section are granted in substitution
for, or in connection with assumption of, existing options and stock
appreciation rights granted by another corporation and assumed or otherwise
agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation to which the Company or a
subsidiary is a party.
12. Amendment of Plan. The Board of Directors may at any time and from time
to time modify or amend the Plan in such respects as it deems advisable because
of changes in the law while the Plan is in effect or for any other reason. After
the Plan has been approved by the shareholders and except as provided in Section
10, however, no change in an option or stock appreciation right already granted
to any person shall be made without the written consent of such person.
Furthermore, unless approved at an annual meeting or a special meeting by the
shareholders of the Company entitled to vote thereon, no amendment or change
shall be made in the Plan (a) increasing the total number of shares that may be
issued under the Plan, or (b) changing the class of persons eligible to receive
options under the Plan.
13. Approvals. The Company's obligations under the Plan are subject to the
approval of state and federal authorities or agencies with jurisdiction in the
matter. The Company will use its best efforts to take steps required by state or
federal law or applicable regulations, including rules and regulations of the
Securities and Exchange Commission in connection with the granting of any option
or the issuance or sale of any shares under the Plan. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver shares
of Stock under the Plan if the Company is advised by its legal counsel that such
issuance or delivery would violate applicable state or federal laws.
14. Employment Rights. Nothing in the Plan or any grant pursuant to the
Plan shall confer on any employee any right to be continued in the employment of
the Company or any parent or subsidiary of the Company or shall interfere in any
way with the right of the Company or any parent or subsidiary of the Company by
whom such employee is employed to terminate such employee's employment at any
time, with or without cause.
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<PAGE>
15. Rights as a Shareholder. A holder of an option or a stock appreciation
right, a recipient of Stock awarded as a bonus, or a purchaser of Stock shall
have no rights as a shareholder with respect to any shares covered by any
option, stock appreciation right, bonus award, or stock purchase agreement until
the date of issue of a stock certificate to him or her for such shares. Except
as otherwise provided in the Plan, no adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificate is issued.
16. Information. Financial statements of the Company will be provided
annually to each optionee under the Plan.
Effective Date: September 2, 1999
11
//Name//
--------
MEDICALOGIC, INC. STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made between MedicaLogic,
Inc., an Oregon corporation (the "Company"), and //Name// ("Optionee"), pursuant
to the Company's Stock Incentive Plan (the "Plan"). The Company and Optionee
agree as follows:
1. Option Grant. The Company hereby grants to Optionee, on the terms and
subject to the conditions of this Agreement, the right and the option (the
"Option") to purchase all or any part of //Stock// shares of the Company's
common stock at a purchase price of $//Price// per share. The Option is intended
to be an Incentive Stock Option, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Grant Date. The Grant Date for this Option is //Grant Date//. The Option
shall continue in effect until the date ten years after the Grant Date (the
"Expiration Date"), unless earlier terminated as provided in Section 5 or
Section 8 of this Agreement.
3. Vesting Reference Date. The Vesting Reference Date for this Option is
//Vest_Date//.
4. Time of Exercise of Option. Until it expires or is terminated as
provided in Section 5 or Section 8, this Option may be exercised from time to
time to purchase up to the number of shares that have vested as of the time of
exercise. One sixth (1/6) of the shares under the Option shall vest on the
six-month anniversary of the Vesting Reference Date and the remaining five
sixths (5/6) of the shares under the Option shall vest ratably over a period of
30 months beginning on the seven-month anniversary of the Vesting Reference Date
so that 1/36th of the shares under the Option shall vest on each of the seventh
through the thirty-sixth monthly anniversaries of the Vesting Reference Date;
provided, however, that all Shares shall vest immediately in the event
Optionee's employment with the Company is terminated by the Company without
cause. For purposes of the preceding sentence, the circumstances in which the
Company will have cause to terminate Optionee shall include, without limitation,
(i) any misappropriation by Optionee of funds or property of the Company; (ii)
the conviction of or plea of guilty or nolo contendere by Optionee of a felony
or of any crime involving moral turpitude; (iii) Optionee's engagement in
illegal, immoral or similar conduct tending to place Optionee or the Company, by
association with Optionee, in disrepute; and (iv) Optionee's nonperformance or
gross dereliction of duty.
5. Termination of Employment.
5.1 Termination Not Involving Death or Disability. If Optionee's
employment by the Company is terminated due to retirement or for any reason
other than death or physical disability, the Option may be exercised at any time
prior to the Expiration Date or the expiration of three months after the date of
termination of employment, whichever is the shorter period, but only if and to
the extent Optionee was entitled under Section 4 of this Agreement to exercise
the Option on the date of termination of employment.
5.2 Termination Involving Death or Disability. If Optionee's
employment by the Company is terminated because of death or physical disability
(within the meaning of Section 22(e) (3) of the Code), the Option may be
exercised at any time prior to the Expiration Date or the expiration of one year
after the date of termination, whichever is the shorter period, for the greater
of (i) the number of remaining shares for which Optionee was entitled under
Section 4 to exercise the Option on the date of termination or (ii) the number
of remaining shares for which Optionee would have been entitled to exercise the
Option if the Option had been 50 percent exercisable on the date of termination.
If Optionee's employment is terminated by death, the Option shall be exercisable
only by the person or persons to whom Optionee's rights under the Option pass by
Optionee's will or by the laws of descent and distribution of the state or
country of Optionee's domicile at the time of death.
<PAGE>
6. Method of Exercise of Option.
6.1 Notice of Exercise; Payment for Shares. The Option may be
exercised only by notice in writing from Optionee to the Company of Optionee's
intention to exercise, specifying the number of shares Optionee desires to
purchase and the date on which Optionee desires to complete the transaction,
which may not be more than 30 days after receipt of the notice, and, unless in
the opinion of counsel for the Company such a representation is not required to
comply with the Securities Act of 1933, as amended, containing a representation
that it is Optionee's intention to acquire the shares for investment and not
with a view to resale or distribution. On or before the date specified for
completion of the purchase, Optionee must have paid the Company the full
purchase price in cash, including cash that may be the proceeds of a loan from
the Company, in shares of Company common stock previously acquired by Optionee
valued at fair market value, or in any combination of cash and shares of the
Company's common stock. No shares shall be issued until full payment therefore
has been made.
6.2 Withholding. Upon notification of the amount due, if any, and
prior to or concurrently with delivery of the certificates representing the
shares for which the Option was exercised, Optionee shall pay to the Company
amounts necessary to satisfy any applicable federal, state, and local
withholding tax withholding tax requirements. If additional withholding becomes
required beyond any amount deposited before delivery of the certificates,
Optionee shall pay such amount to the Company on demand. If Optionee fails to
pay any amount demanded, the Company shall have the right to withhold that
amount from other amounts payable by the Company to Optionee, including salary,
subject to applicable law.
7. Non transferabilitv of Option. The Option may not be assigned or
transferred by Optionee except by will or by the laws of descent and
distribution of the state or country of his or her domicile at the time of
death, and during Optionee's lifetime the Option may be exercised only by
Optionee.
8. Changes in Capital Structure.
8.1 If during the term of the Option the outstanding shares of common
stock of the Company are increased or decreased or changed into or exchanged for
a different number or kind of shares or other securities of the Company or of
another corporation, by reason of any reorganization, merger, consolidation,
plan of exchange, re capitalization, reclassification, stock split, combination
of shares, or dividend payable in shares, appropriate adjustment shall be made
by the Board of Directors of the Company in the number and kind of shares
subject to the Option. Such adjustments shall be made without change in the
total price application to the unexercised portion of the Option and with a
corresponding adjustment in the exercise price per share. Any such adjustment
made by the Board of Directors shall be conclusive.
8.2 In the event of dissolution or liquidation of the Company or a
merger, consolidation, or plan of exchange affecting the Company, in lieu of
making any adjustments that may be provided for above in this Section 8 or in
lieu of having the Option continue unchanged, the Board of Directors may, in its
sole discretion, provide a 30-day period prior to such event during which the
Option will be exercisable for 100 percent of the shares subject to the Option
and after which the Option will terminate.
9. Conditions on Obligations. The Company shall not be obligated to issue
shares upon exercise of the Option if the Company is advised by its legal
counsel that such issuance would violate applicable state or federal laws,
including securities laws. The Company will use its best efforts to take any
steps required by state or federal law or applicable regulations in connection
with issuance of shares upon exercise of the Option.
10. Transferability of Shares Acquired Upon Exercise of Option. Prior to
issuance of any shares pursuant to this Agreement, Optionee shall become a party
to the Company's Shareholders Agreement, as
<PAGE>
then in effect including all amendments and supplements thereto, by delivering a
signature page or supplemental signature page thereto, and all shares acquired
upon exercise of the Option and all shares issued in respect of such shares in
connection with a stock dividend, stock split, reverse stock split, re
capitalization or other corporate change shall be held by Optionee subject to
the transfer restrictions contained in such Shareholders Agreement.
11. Specific Performance. Optionee acknowledges and agrees that the Company
will suffer irreparable hardship if Optionee fails to comply with this
Agreement, and that monetary damages will be inadequate to compensate the
Company for such failure. Accordingly, Optionee agrees that this Agreement may
be enforced by specific performance or other injunctive relief, in addition to
any other remedies available at law or in equity.
12. Legend. All certificates representing Exercise Shares shall be endorsed
with a legend, substantially in the following form, in addition to any other
legends required by law:
"Transfer of the shares represented by this certificate is
restricted by the terms of an agreement between the corporation and
the record holder hereof, a copy of which can be obtained by the
record holder from the Secretary of the corporation."
13. Notices. Any required or permitted notice shall be given in writing and
shall be deemed given upon personal delivery or upon deposit in the United
States mail by registered or certified mail, postage prepaid. Any notice to
Optionee shall be addressed to Optionee at Optionee's address shown on the
corporate records, and any notice to the Company shall be addressed to the
Company at its registered office.
14. No Right to Employment. Nothing in the Plan or this Agreement shall
confer upon the Optionee any right to be continued in the employment of the
Company or to interfere in any way with the right of the Company to terminate
the Optionee's employment at any time for any reason.
15. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof and may be
amended only by written agreement between the Company and Optionee.
16. Successors of Company. This Agreement shall be binding upon and shall
inure to the benefit of any successor or successors of the Company.
17. Governing Law, Severability. This Agreement shall be governed by and
construed in accordance with the laws of Oregon, without regard to the choice of
law rules applied in the courts of such state. If any provision or provisions of
this Agreement are found to be unenforceable, the remaining provisions shall
nevertheless be enforceable and shall be construed as if the unenforceable
provisions were deleted.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
written above.
THE COMPANY: MEDICALOGIC, INC.
By:
GUY E. FIELD
Title: VP of Finance
20500 NW Evergreen Parkway
Hillsboro, OR 97124
OPTIONEE: _______________________________________
[Signature]
MEDICALOGIC, INC. STOCK INCENTIVE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement ("Agreement") is entered into as
of _____, 1999 between MedicaLogic, Inc., an Oregon corporation (the "Company"),
and _______ ("Purchaser") and is made pursuant to the Company's Stock Incentive
Plan. In consideration of the mutual agreements contained in this Agreement, the
parties agree as follows:
1. Purchase.
1.1 Purchase Agreement. The Company hereby agrees to sell to
Purchaser, and Purchaser hereby agrees to purchase from the Company, ______
(______) shares of the Company's common stock (the "Shares") at a purchase price
of $____ per share, all on the terms and subject to the conditions of this
Agreement.
1.2 Payment of Purchase Price. Purchaser shall pay for the Shares by
delivering to the Company a duly executed note (the "Purchase Note"),
substantially in the form of Exhibit A hereto.
1.3 Delivery of Stock. The Company will issue in Purchaser's name, as
promptly after receipt of the Purchase Note as practicable, one or more
certificates representing the Shares. To secure its rights under the Repurchase
Option described in Section 2, the Company will retain the certificate or
certificates representing the Shares. Purchaser will deliver to the Company
executed blank stock powers covering the Shares subject to the Repurchase
Option, substantially in the form of Exhibit B hereto.
2. Repurchase Option.
2.1 Option on Termination of Employment. If Purchaser ceases to be
employed by the Company for any reason, or no reason, with or without cause,
including death or disability (a "Termination"), the Company shall have an
irrevocable, exclusive option (the "Repurchase Option") for a period of 60 days
from the date of Termination to purchase all or any portion of the Shares held
by Purchaser on the date of the Termination that have not been released from the
Repurchase Option as provided in Section 2.3. The right of the Company under the
Repurchase Option to purchase any part of the Shares may be assigned in whole or
in part to any person or persons designated by the Board of Directors of the
Company.
2.2 Exercise of Option. The Repurchase Option shall be exercised by
the Company by delivering to Purchaser (or to Purchaser's executors or
administrators, if applicable) a written notice of exercise and a check in the
amount of the exercise price set forth in Section 2.4. Notwithstanding the
foregoing, the Company may, at its option, elect to reduce the amount payable to
Purchaser (or Purchaser's estate, if applicable) upon exercise of a Repurchase
Option by an
<PAGE>
amount not in excess of sum of the unpaid principal, if any, and the accrued but
unpaid interest, if any, then due on the Purchase Note. Upon delivery of such
notice and payment of the exercise price, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interest
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being repurchased without further action by
Purchaser.
2.3 Release from Repurchase Option. The Shares shall be released from
the Repurchase Option ratably over a period of 36 months beginning on the date
six months from March 31, 1999 (the "Vesting Reference Date"), so that on sixth
(1/6) of the Shares will be released from the Repurchase Option on the sixth
month anniversary of the Vesting Reference Date and the remaining five sixths
(5/6) of the Shares shall be released from the Repurchase Option ratably over a
period of 30 months beginning on the seventh month anniversary of the Vesting
Reference Date so that 1/36 of the Shares under the Option shall vest on each
monthly anniversary of the Vesting Reference Date beginning on the date seventh
month after the Vesting Reference Date; provided, however, that all Shares shall
be released immediately from the Repurchase Option in the event (a) Optionee's
employment with the Company is terminated by the Company without cause
including, without limitation, termination resulting from a reduction in the
workforce of the Company, or (b) a Change of Control (as defined below) occurs.
For purposes of the preceding paragraph, the circumstances in which the
Company will have cause to terminate Optionee shall include, without limitation,
(i) any misappropriation by Optionee of funds or property of the Company; (ii)
the conviction of or plea of guilty or nolo contendere by Optionee of a felony
or any crime involving moral turpitude; (iii) Optionee's engagement in illegal,
immoral or similar conduct tending to place Optionee or the Company, by
association with Optionee, in disrepute; and (iv) Optionee's nonperformance or
gross dereliction of duty which continues after notice from the Company and a
reasonable opportunity to cure. For purposes of the preceding paragraph, "Change
of Control" means the occurrence of any of the following: (i) the sale,
conveyance, or other disposition of all or substantially all of the property or
business of the Company, (ii) the merger or consolidation of the Company with
any other entity (other than a wholly-owned subsidiary corporation), or the
completion of any other transaction or series of related transactions not
involving a public offering, in which more than fifty percent (50%) of the
voting power of the Company is disposed of, or (iii) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors. For purposes of this provision, "Continuing Directors"
means, as of any date of determination, any member of the Board of Directors of
the Company who (a) was a member of such Board of Directors on the date of this
agreement or (b) was nominated for election or elected or appointed to such
Board of Directors by the Board of Directors at a time when a majority of the
Board consisted of Continuing Directors.
As Shares are released from the Repurchase Option, the Company shall
deliver to Purchaser a certificate representing the Shares released; provided,
however, that the parties agree that for administrative convenience the Company
shall deliver certificates representing the Shares in
2
<PAGE>
increments of 29,166 2/3 Shares; and provided, further, that in the event that
(i) one or more Shares but fewer than 29,166 2/3 Shares have been released from
the Repurchase Option and (ii) it is expected that no more Shares will be
released from the Repurchase Option, then the Company shall deliver to Purchaser
one or more certificates representing all Shares then released from the
Repurchase Option but for which certificates have not been delivered. If, during
the time the Company is holding certificates to secure its rights under the
Repurchase Option, the outstanding shares of common stock of the Company are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of any reorganization, merger, consolidation, plan of exchange,
recapitalization, reclassification, stock split, combination of shares, or
dividend payable in shares, appropriate adjustment shall be made by the Board of
Directors of the Company in the number and kind of shares the Company shall
deliver to Purchaser as Shares are released from the Repurchase Option.
2.4 Exercise Price. The price to be paid by the Company for the Shares
upon exercise of the Repurchase Option shall be $_______ per Share.
3. Withholding. Upon notification of the amount due, if any, and prior to
or concurrently with delivery of the certificates representing the Shares,
Purchaser shall pay to the Company amounts necessary to satisfy any applicable
federal, state, and local withholding tax requirements. If additional
withholding becomes required beyond any amount deposited before delivery of the
certificates, Purchaser shall pay such amount to the Company on demand. If
Purchaser fails to pay any amount demanded, the Company shall have the right to
withhold such amount from other amounts payable by the Company to Purchaser,
including salary, subject to applicable law.
4. Limitations on Transfer.
4.1 While Subject to Repurchase Option. Without the written consent of
the Company, Purchaser shall not sell, assign, encumber, dispose of or transfer
(including transfer by operation of law) any interest in any Shares that have
not been released from the Repurchase Option.
4.2 Stock Transfer Agreement. Upon release from the Repurchase Option,
the Shares shall be subject to the terms of any shareholders agreement then in
effect, including any amendments or supplements thereto, among the Company and
any of its shareholders (a "Shareholders Agreement"), including the transfer
restrictions contained therein, and Purchaser agrees that the transfer
restrictions and purchase options of any such Shareholders Agreement shall apply
to the Shares and agrees to be bound from the date of this Agreement onward by
all of the terms and conditions of any such Shareholders Agreement.
3
<PAGE>
5. Investment Intent; Restricted Securities. Purchaser represents, warrants
and covenants to the Company that the Shares are being acquired by Purchaser for
investment for Purchaser's own account only and not with a view to, or resale in
connection with, any distribution thereof within the meaning of the Securities
Act of 1993, as amended (the "Act"). Purchaser understands and acknowledges that
the sale of the Shares has not been registered under the Act or applicable state
securities laws, that the Shares must be held indefinitely unless subsequently
registered under the Act and applicable state securities laws or unless an
exemption from such registration requirement is available, that the Company is
under no obligation to register the Shares, and that the certificate or
certificates representing the Shares will be stamped with legends substantially
in the form specified in Section 7 of this Agreement. Purchaser agrees to comply
with the transfer restrictions specified in the legends set forth in Section 7
and on the Share Certificates.
6. Acknowledgment of Access to Information. Purchaser acknowledges that he,
through his position with the Company, has had access to sufficient information
regarding the Company's business and financial condition to enable him to make
an investment decision regarding the purchase of the Shares. Purchaser
acknowledges that he has been provided an opportunity to ask questions of, and
receive answers from, the Company concerning the terms and conditions of this
offering and to obtain additional information concerning the Company and this
offering.
7. Legend. All certificates representing the Shares shall be endorsed with
legends substantially in the following form, in addition to any other legends
required by law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE SUBJECT TO
CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET
FORTH IN A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE CORPORATION
AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION. "
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT
OR LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED."
"TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY A SHAREHOLDERS AGREEMENT AMONG THE CORPORATION AND ITS
SHAREHOLDERS, WHICH AGREEMENT BY THIS REFERENCE, IS INCORPORATED
HEREBY AND MADE A PART HEREOF AS IF FULLY SET FORTH, AND WHICH
AGREEMENT, BY ACCEPTANCE OF DELIVERY OF THIS
4
<PAGE>
CERTIFICATE, IS ACCEDED TO BY THE HOLDER HEREOF. A COPY OF THE
SHAREHOLDERS AGREEMENT IS ON FILE WITH THE SECRETARY OF THE
CORPORATION."
8. Specific Performance. Purchaser acknowledges and agrees that the Company
will suffer irreparable harm if Purchaser fails to comply with the terms of this
Agreement, and that monetary damages will be inadequate to compensate the
Company for such failure. Accordingly, Purchaser agrees that this Agreement may
be enforced by specific performance or other injunctive relief, in addition to
any other remedies available at law or in equity.
9. Notices. Any required or permitted notice shall be given in writing and
shall be deemed given upon personal delivery or upon deposit in the United
States mail by registered or certified mail, postage prepaid. Any notice to
Purchaser shall be addressed to Purchaser at Purchaser's address shown on the
corporate records of the Company, and any notice to the Company shall be
addressed to the Company at its registered office.
10. No Right to Employment. Nothing in the Company's Stock Incentive Plan
or in this Agreement shall confer upon Purchaser any right to be continued in
the employment of the Company or to interfere in any way with the right of the
Company to terminate Purchaser's employment at any time for any reason.
11. Entire Agreement; Amendment; Counterparts. This Agreement constitutes
the entire agreement of the parties with regard to the subject matter hereof and
may be amended only by written agreement between the Company and Purchaser. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute but one and
the same instrument.
12. Successors of Company. This Agreement shall be binding upon and shall
inure to the benefit of any successor or successors of the Company and, subject
to the restrictions on transfer of this Agreement, shall be binding upon and
shall inure to the benefit of Purchaser's heirs, executors, administrators,
successors and assigns.
13. Governing Law, Severability. This Agreement shall be governed by and
construed in accordance with the laws of Oregon, without regard to the choice of
law rules applied in the courts of such state. If any provisions or provision of
this Agreement are found to be unenforceable, the remaining provisions shall
nevertheless be enforceable and shall be construed as if the unenforceable
provisions were deleted.
14. Further Action. The parties agree to execute such further instruments
and to take such actions as may reasonably be necessary to carry out the intent
of this Agreement.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
written above.
THE COMPANY: MEDICALOGIC, INC.
By:
-------------------------------------
Title:
----------------------------------
Address: 20500 NW Evergreen Parkway
Hillsboro, OR 97124
PURCHASER:
-----------------------------------------
Address:
--------------------------------
--------------------------------
6
MetLife Capital Loan and Security Agreement
THIS LOAN AND SECURITY AGREEMENT entered into as of the 5th day of June, 1998,
by and between MetLife Capital Corporation, a Delaware corporation, whose
address is 10900 NE 4th Street, Suite 500, Bellevue, WA 98004 ("Lender") and
MedicaLogic, Inc., an Oregon Corporation, whose address is 20500 NW Evergreen
Parkway, Hillsboro, OR 97124 ("Borrower").
WHEREAS, Lender has agreed to make a commercial loan or loans to Borrower;
and
WHEREAS, as a condition to making the loans, and in order to secure the
repayment thereof, Lender has required Borrower to execute and deliver to Lender
this Loan and Security Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Borrower and Lender agree as follows:
1. Creation of Security Interest. As security for the due and punctual
payment of any and all of the present and future obligations of the Borrower to
Lender, whether direct or contingent or joint or several, Borrower hereby
conveys, assigns and grants to Lender a continuing security interest in all of
Borrower's rights, title and interests in and to the equipment described in the
Supplemental Security Agreement(s) entered into pursuant to this Loan and
Security Agreement from time to time ("Equipment") including all present and
future additions, attachments and accessories thereto, all substitutions
therefor and replacement thereof and all proceeds thereof, including all
proceeds of insurance (such Equipment and property hereinafter called
"Collateral").
2. The Loans. (a) Subject to the terms and conditions of this Loan and
Security Agreement, Lender agrees to make a loan or loans to Borrower. The
maximum principal amount of any loan or loans to be made by Lender to Borrower
shall be within Lender's discretion, subject to the exercise of Lender's
reasonable business judgment, and shall be as stated in the loan commitment
letter issued by Lender to Borrower, or in the event a commitment letter is not
issued by Lender, in Lender's internal credit approval (each such loan or loans
shall be referred to as the "Loan Amount").
(b) The Loan Amount shall be repaid by Borrower as a term loan or term
loans ("Term Loan"). The Term Loan shall be evidenced by a promissory
note or notes in the form attached hereto as Exhibit "A" ("Term
Note"). The payment provisions of each Term Note shall be stated
therein.
(c) If requested by Borrower, and in accordance with the terms and
conditions of Section 3 hereof, Lender shall make interim fundings to
Borrower of a Term Loan as partial advances of the Loan Amount
("Interim Loans"). The Interim Loans shall either be for the payment
of the acquisition cost of any items of Equipment delivered and
accepted by Borrower prior to the expiration date of Lender's loan
commitment to Borrower ("Commitment Expiration Date") or to fund
progress payments to the vendor or manufacturer of the Equipment, if
the making of progress payments was agreed to by Lender in its
commitment or approval to make the loan or loans to Borrower. The
Interim Loans shall be evidenced by promissory notes in the form
attached hereto as Exhibit "B" ("Interim Note"). Interest on all
Interim Loans shall be payable as provided therein. The principal
amount due under the Interim Loans shall be due as provided in the
Interim Notes, at which time, provided no Event of Default hereunder
has occurred and is continuing or event which with the passing of time
or giving of notice or both would become an Event of Default hereunder
has occurred and is continuing, Lender shall consolidate all Interim
Loans and convert them to a Term Loan evidenced by a Term Note or
Notes. Whether or not a Term Loan is evidenced by one or more Term
Notes shall be as agreed between Lender and Borrower, or in the
absence of such an agreement, as decided by Lender, in the exercise of
its reasonable business judgment.
(d) In the event that the amount loaned pursuant to the Interim Loans is
less than the Loan Amount, subject to Borrower's compliance with the
terms and conditions of this Loan and Security Agreement (including
the satisfaction of the conditions of borrowing set forth in Section 7
of this Loan and Security Agreement, including but not limited to
providing Lender with a description of the items of Equipment), Lender
shall disburse to Borrower the balance of the Loan Amount on the same
date that the Interim Loans are converted into a term loan.
3. Method For Borrowing On Interim Loan. Borrower shall give Lender at
least five (5) business days written notice of a request for the disbursement of
an Interim Loan ("Request"), specifying the date on which the Interim Loan is to
be disbursed. Such Request shall be in the form attached hereto as Exhibit "C".
Such Request shall be accompanied by an original copy of the invoice or invoices
to be paid from the Interim Loan. Such Request shall constitute a representation
and warranty by the Borrower that (i) as of the date of the Request no Event of
Default or event which with the passing of time or the giving of notice or both
would constitute an Event of Default hereunder has occurred and is continuing
and (ii) in the event items of Equipment have been delivered to the Borrower,
Borrower has unconditionally accepted the Equipment from the vendor thereof.
Subject to the conditions of this Loan and Security Agreement, Lender shall
disburse the Interim Loan to the invoicing party, or if Borrower shall have paid
the amount of such invoice, Lender shall reimburse Borrower, upon receipt of
proof of payment from Borrower.
4. Cross Collateral/Cross Default. All Collateral shall secure the payment
and performance of all of Borrower's liabilities and obligations to Lender
hereunder and under any of the loan documents relating hereto including, but not
limited to, all Interim Notes and all Term Notes (the Loan and Security
Agreement, the Interim Notes, the Term Notes, the Supplemental Security
Agreement(s) and all other loan documents may be referred to herein collectively
as the "Loan Documents"). Lender's security interest in the Collateral shall not
be terminated until and unless all of Borrower's obligations to Lender under any
of the Loan Documents are fully paid and performed. The occurrence of an event
of default under any other of the Loan Documents shall be deemed to be an Event
of Default hereunder and an Event of Default hereunder shall be deemed to be an
event of default under any other of the Loan Documents.
5. Representations And Warranties. Borrower hereby represents and warrants
as follows:
(a) Power and Authorization. Borrower has the full power and (corporate)
authority to execute, deliver and perform Borrower's obligations under
the Loan Documents. The execution and delivery of the Loan Documents
have been authorized by all requisite corporate (or partnership)
action on the part of Borrower. The execution, delivery and
performance of the Loan Documents have not constituted and will not
constitute a breach, default, or violation of or under Borrower's
articles of incorporation, bylaws (partnership agreement), or any
other agreement, indenture, contract, lease, law, order, decree,
judgment, or injunction to which Borrower is a party or may be bound
and have not resulted and will not result in the creation of any lien
upon the Equipment pursuant to any agreement, indenture, lease,
contract or other instrument to which Borrower is a party, except the
lien created by this Loan and Security Agreement.
(b) Existence. If Borrower is a corporation, Borrower (i) is duly
incorporated, validly existing and in good standing under the laws of
its state of incorporation, (ii) has all corporate powers and all
governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted, and (iii) is duly qualified
to transact business as a foreign corporation in each jurisdiction
where the Equipment will be located and in the jurisdiction where its
principal place of business is located. If Borrower is a partnership,
Borrower (i) has been duly formed as a (limited or general)
partnership under the laws of the state of its organization, (ii) is
comprised of the general partner(s) listed on the Schedule of Partners
attached to this Loan and Security Agreement, and (iii) is in good
standing under the laws of the state of its formation.
<PAGE>
(c) Binding Effect. This Loan and Security Agreement constitutes the valid
and binding agreement of the Borrower; the Interim Notes and the Term
Note, when executed and delivered, will constitute the valid and
binding obligations of the Borrower; and the Loan Documents are
enforceable in accordance with their terms except as (i) the
enforceability thereof may be limited by the bankruptcy laws, and (ii)
rights of acceleration and the availability of equitable remedies may
be limited by equitable principles of general applicability.
(d) Litigation. There is no action, suit or proceeding pending against, or
to the knowledge of the Borrower, threatened against or affecting the
Borrower, before any court or arbitrator or any governmental body,
agency or official which has not been previously disclosed to the
Lender in writing and in which there is a reasonable possibility of an
adverse decision which could materially adversely affect the business,
financial condition or results of operations of the Borrower or which
would in any manner draw into question the validity of any of the Loan
Documents.
(e) Filing of Tax Returns. The Borrower has filed all tax returns required
to have been filed and has paid all taxes shown to be due and payable
on such returns, including interest and penalties, and all other taxes
which are payable by it, to the extent the same have become due and
payable. The Borrower knows of no proposed tax assessment against it
and all tax liabilities of the Borrower are adequately provided for.
(f) Title. The Borrower has or shall have at the time it executes the Term
Note good and indefeasible title to the Collateral free and clear of
all liens other than the Lender's lien.
(g) Compliance with Law. The business and operations of the Borrower have
been and are being conducted in accordance with all applicable laws,
rules and regulations, other than violations which could not (either
individually or collectively) have a material adverse effect on the
financial condition or operations of the Borrower.
(h) Full Disclosure. All documents, records, instruments, certificates,
statements (including, but not by way of limitation, financial
statements of Borrower) and information provided to Lender by Borrower
in connection with this Loan and Security Agreement are true and
accurate in all material respects and do not contain any untrue
statement, or fail to contain any statement of a material fact
necessary to make the statements contained herein or therein not
misleading. There is no fact known to the Borrower that Borrower has
not disclosed in writing which could materially and adversely affect
the financial condition or operations of Borrower.
(i) Security Interest. The security interest granted to Lender hereunder
is a valid, first priority security interest in the Collateral and has
been or promptly after the execution of the Supplemental Security
Agreement describing the Collateral will be, perfected in accordance
with the requirements of all states in which any item of the
Collateral is located.
(j) Personal Property. Under the laws of the state(s) in which the
Collateral is to be located, the Collateral is deemed to consist
solely of personal property.
(k) Pollution and Environmental Control. Borrower has obtained all
permits, licenses and other authorizations which are required under,
and is in material compliance with, all federal, state, and local laws
and regulations relating to pollution, reclamation, or protection of
the environment, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials or wastes into air, water, or land, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants or hazardous or toxic materials or wastes. Borrower shall
maintain all such permits, licenses, and authorizations current.
6. Covenants. Borrower hereby agrees and covenants as follows:
(a) Payment. Borrower shall pay the indebtedness secured hereby as
provided herein and in the Interim Notes and Term Notes.
(b) Location of Collateral. Borrower will keep the Collateral located at
the location or locations stated on the Supplemental Security
Agreements, provided, however, that Borrower may change the location
of the collateral with Lender's prior written consent.
(c) No Liens. Except for the security interest granted hereby or under any
other agreement under which Lender is the secured party, whether as
mortgagee, beneficiary or otherwise, Borrower shall keep the
Collateral free and clear of any security interest, lien or
encumbrance of any kind and Borrower shall not sell, assign (by
operation of law or otherwise) exchange or otherwise dispose of any of
the Collateral.
(d) Insurance. Borrower shall procure and continuously maintain and pay
for (a) all risk physical damage and property insurance covering loss
or damage to the equipment for not less than the full replacement
value thereof naming Lender as loss payee and (b) bodily injury and
property damage combined single limit liability insurance, all in such
amounts and against such risks and hazards as are reasonably required
by Lender, with insurance companies and pursuant to contracts or
policies and with deductibles satisfactory to Lender. All contracts
and policies shall include provisions for the protection of Lender
notwithstanding any act or neglect of or breach or default by
Borrower, shall provide for payment of insurance proceeds to Lender,
shall provide that they may not be modified, terminated or cancelled
unless Lender is given at least thirty (30) days' advance written
notice thereof, and shall provide that the coverage is "primary
coverage" for the protection of Borrower or Lender notwithstanding any
other coverage carried by Lender protecting against similar risks.
Borrower shall promptly notify any appropriate insurer and Lender of
each and every occurrence, which may become the basis of a claim or
cause of action against the insured and provide Lender with all data
pertinent to such occurrence. Borrower shall furnish Lender with
certificates of such insurance or copies of policies upon request and
shall furnish Lender with renewal certificates not less than thirty
(30) days prior to the renewal date. Proceeds of all insurance are
payable first to Lender to the extent of its interest.
(e) Financing Statements. At the request of Lender, Borrower will join
Lender in executing one or more financing statements pursuant to the
Uniform Commercial Code and other documents deemed necessary by Lender
under applicable law to record or perfect its security interest in the
Collateral, including continuation statements, in form satisfactory to
Lender and will pay the cost of filing the same in all public offices
wherever filing is deemed by Lender to be necessary or desirable.
Borrower hereby authorizes Lender, in such jurisdictions where such
action is authorized by law, to effect any such recordation or filing
of financing statements or other documents without Borrower's
signature thereto.
(f) Change of Name or Address. Borrower will immediately notify Lender in
writing of any change in its place of business or the adoption or
change of any tradename or fictitious business name, and will upon
request of Lender, execute any additional financing statements or
other similar documents necessary to perfect or maintain its security
interest.
(g) Use of Equipment, Maintenance. Borrower will cause the Equipment to be
used in a careful and proper manner, will comply with and conform to
all governmental laws, rules and regulations relating thereto, and
will cause the Equipment to be operated in accordance with the
manufacturer's or supplier's instructions or manuals and only by
competent and duly qualified personnel. Borrower will cause the
Equipment to be kept and maintained in good repair, condition and
working order and will furnish all parts, replacements, mechanisms,
devices and servicing required therefor so that the value, condition
and operating efficiency thereof will at all times be maintained and
preserved, normal wear and tear excepted. All such repairs, parts,
mechanisms, devices and replacements shall immediately, without
further act, become part of the Equipment and subject to the security
interest created by this Loan and Security Agreement. Borrower will
not make any improvement, change, addition or alteration to the
Equipment if such improvement, change, addition or alteration will
impair the originally intended function or use of the Equipment or
impair the value of the Equipment as it existed immediately prior to
such improvement, change, addition or alteration. Any part added to
the Equipment in connection with any improvement, change, addition or
alteration shall immediately, without further act, become part of the
Equipment and subject to the security interest created by this Loan
and Security Agreement.
(h) Inspection. Lender may at any reasonable time or times inspect the
Equipment and may at any reasonable time or times inspect the books
and records of Borrower.
(i) Taxes. Borrower shall promptly pay, when due, all charges, fees,
assessments and taxes (excluding all taxes measured by Lender's
income) which may now or hereafter be imposed upon the ownership,
leasing, possession, sale or use of the Collateral.
(j) Performance by Lender. If Borrower fails to perform any agreement or
obligation contained herein, Lender may itself perform, or cause the
performance of such agreement or obligation. Borrower will pay, or
reimburse Lender, on demand, for any and all fees, including
attorneys' fees, costs and expenses of whatever kind or nature
incurred by Lender in connection with (i) the creation, preservation
and protection of Lender's security interest in the Collateral,
including, without limitation, all fees and taxes in connection with
the recording or filing of instruments and documents in public
offices, (ii) payments or discharge of any taxes or liens upon or in
respect of the Collateral, (iii) premiums for insurance with respect
to the Equipment and (iv) this Loan and Security Agreement and with
protecting, maintaining or preserving the Collateral and Lender's
interests therein, whether through judicial proceedings or otherwise,
or in connection with defending or prosecuting any actions, suits or
proceedings arising out of or related to the Loan and Security
Agreement and the Loan Documents or in connection with any debt
restructuring, loan workout negotiations or bankruptcy or insolvency
case or proceedings. All such amounts shall constitute obligations of
Borrower secured by the
<PAGE>
Collateral. In the event that Borrower fails to perform any of its
agreements contained herein, Borrower will, on demand, reimburse
Lender for all such expenditures, together with interest thereon from
the date of such expenditure until fully reimbursed at the rate of two
percent (2%) per month on the outstanding balance of such expenditures
or the highest rate permitted by law, whichever is less.
(k) Power of Attorney. Borrower hereby irrevocably appoints Lender
Borrower's attorney-in-fact, with full authority in the place and
stead of Borrower and in the name of Borrower or otherwise, from time
to time in the Lender's discretion, to take any action and to execute
any instrument which Lender may deem necessary or advisable to
accomplish the purposes of this Loan and Security Agreement,
including, without limitation: (i) to obtain compromise and adjust
insurance required to be paid to Lender; (ii) to ask, demand, collect,
sue for, recover, receive, and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Collateral; (iii) to receive, endorse, and collect any drafts or other
instruments, documents, and chattel paper in connection with clause
(i) or (ii) above; and (iv) to file any claims or take any action or
institute any proceedings which Lender may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce
the rights of Lender with respect to any of the Collateral.
(l) No Duties. The powers conferred on Lender hereunder are solely to
protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of
any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Lender shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any
Collateral.
(m) Financial Data. Borrower will furnish to Lender and will cause any
guarantor of Borrower's obligations to furnish to Lender on request
(i) annual balance sheet and profit and loss statements prepared in
accordance with generally accepted accounting principles and practices
consistently applied and, if Lender so requires, accompanied by the
annual audit report of an independent certified public accountant
reasonably acceptable to Lender, and (ii) all other financial
information and reports that Lender may from time to time reasonably
request, including, if Lender so requires, income tax returns of
Borrower and any guarantor of Borrower's obligations hereunder.
7. Conditions of Borrowing. Lender shall not be obligated to make any loan
hereunder unless:
(a) The Interim Notes or Term Notes evidencing such loan shall have been
duly executed and delivered to Lender;
(b) Borrower shall have executed and delivered to Lender the Supplemental
Security Agreement describing the Collateral and stating, except with
respect to progress payment fundings, the location thereof;
(c) Except with respect to progress payment fundings, Lender shall have
received evidence (as described in Section 6d hereof) that insurance
has been obtained in accordance with the provisions of this Loan and
Security Agreement;
(d) Lender shall have received any and all third party consents, waivers
or releases deemed necessary or desirable by it in connection with the
loan and the Collateral being financed, including, without limitation,
Uniform Commercial Code lien releases and the consent and waiver, in
form and substance satisfactory to Lender, of each and every realty
owner, landlord and mortgagee holding an interest in or encumbrance on
the real property where any of the Collateral is to be located;
(e) All filings, recordings and other actions deemed necessary or
desirable by Lender in order to establish, protect, preserve and
perfect its security interest in the Collateral being financed by such
loan as a valid perfected first priority security interest shall have
been duly effected, including, without limitation, the filing of
financing statements and the recordation of landlord (owners) and/or
mortgagee waivers or disclaimers, all in form and substance
satisfactory to Lender, and all fees, taxes and other charges relating
to such filings and recordings shall have been paid by Borrower.
(f) The representations and warranties contained in this Loan and Security
Agreement shall be true and correct in all respects on and as of the
date of the making of any loan hereunder with the same effect as the
date of the making of any loan hereunder with the same effect as if
made on and as of such date;
(g) In the sole judgment of Lender, there shall have been no material
adverse change in the financial condition, business or operations of
Borrower from the earliest date of any financial statement, credit
report, business report or similar document submitted to Lender for
its review;
(h) All Loan Documents shall be satisfactory to Lender's attorneys; and
(i) Lender shall have received, in form and substance satisfactory to
Lender, such other documents as Lender shall require including, but
not limited to a Request, proof of payment, vendor invoices and
certificates of authority and incumbency.
8. Default. The occurrence of any of the following events, following the
giving of any required notice and/or the expiration of any applicable period of
grace, shall constitute an event of default ("Event of Default") hereunder:
(a) Borrower's default in payment of any installment of the principal of
or interest on any Interim Note or Term Note when and after the same
shall become due and payable, whether at the due date thereof or by
acceleration or otherwise, which default shall continue unremedied for
ten (10) days; or
(b) The failure by Borrower to make payment of any other amount payable
hereunder or under any Interim Note or Term Note, and the continuance
of such failure for more than ten (10) days after written notice
thereof by Lender to Borrower; or
(c) The failure by Borrower to perform or observe any covenant, condition,
obligation or agreement to be performed or observed by it hereunder,
which failure shall continue unremedied for thirty (30) days after
written notice thereof by Lender to Borrower; or
(d) The occurrence of a default described in Section 4 hereof; or
(e) Any warranty, representation or statement made or furnished with
respect to the Borrower or the Collateral to Lender by or on behalf of
Borrower, in connection with this Loan and Security Agreement, or the
indebtedness secured hereby, shall prove to have been false in any
adverse, material respect when made or furnished; or
(f) Borrower shall become insolvent or bankrupt or make an assignment for
the benefit of creditors or consent to the appointment of a trustee or
receiver; or a trustee or a receiver shall be appointed for Borrower
or for a substantial part of its property without its consent and
shall not be dismissed for a period of sixty (60) days; or bankruptcy,
reorganization, liquidation, insolvency or dissolution proceedings
shall be instituted by or against Borrower and, if instituted against
Borrower, shall be consented to or be pending and not dismissed for a
period of sixty (60) days; or any execution or writ of process shall
be issued under any action or proceeding against Borrower in such
capacity whereby any of the Collateral may be taken or restrained;
Borrower shall cease doing business as a going concern; or, without
the prior written consent of Lender, Borrower shall sell, transfer or
dispose of all or substantially all of its assets or property; or
(g) The liquidation, merger, consolidation, reorganization, conversion to
an "S" status or dissolution, if Borrower is a corporation or
partnership, of Borrower, if in Lender's reasonable opinion, such act
shall materially and adversely affect Borrower's ability to perform
under any of the Loan Documents; or (h) Any item of Collateral is
seized or levied on under legal or governmental process or for any
reason Lender deems itself insecure. Lender shall be entitled to deem
itself insecure when some event occurs, fails to occur or is
threatened or some objective condition exists or is threatened which
significantly impairs the prospects that any of Borrower's obligations
to Lender will be paid when due, which significantly impairs the value
of the Collateral to Lender or which significantly affects the
financial or business condition of Borrower.
The occurrence of an Event of Default shall terminate any
commitment or obligation by Lender to make any of the loans
contemplated by this Loan and Security Agreement.
9. Remedies Upon Default. Upon the occurrence of an Event of Default
hereunder, Lender may, at its option, do any one or more of the following:
(a) Declare all obligations of Borrower to Lender to be immediately due
and payable, whereupon all unpaid principal of and interest on said
indebtedness and other amounts declared due and payable shall be and
become immediately due and payable;
(b) Take possession of all or any of the Collateral and exclude therefrom
Borrower and all others claiming under Borrower, and thereafter hold,
store, use, operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to and exercise
all rights and powers of Borrower in respect to the Collateral or any
part thereof. In the event Lender demands, or attempts to take
possession of the Collateral in the exercise of any rights under this
Loan and Security Agreement, Borrower promises and agrees to promptly
turn over and deliver complete possession thereof to Lender;
(c) Require Borrower to assemble the Collateral, or any portion thereof,
at a place designated by Lender and reasonably convenient to both
parties, and promptly to deliver such Collateral to Lender, or an
agent or representative designated by it;
(d) Sell, lease or otherwise dispose of the Collateral at public or
private sale, without having the Collateral at the place of sale, and
upon terms and in such manner as Lender may determine (and Lender may
be a purchaser at any sale); and
(e) Exercise any remedies of a secured party under the Uniform Commercial
Code as adopted in the state where the Collateral is located or any
other applicable law.
Except as to portions of the Collateral which are perishable or
threaten to decline speedily in value or are of a type customarily
sold on a recognized market, Lender shall give Borrower at least ten
(10)
<PAGE>
days' prior written notice of the time and place of any public or
private sale of the Collateral or other intended disposition thereof
to be made. Such notice may be mailed to Borrower at the address set
forth in the first paragraph of this Loan and Security Agreement.
Borrower hereby specifically agrees (to the extent that applicable law
and public policy allows it to effectively do so) that any public or
private sale held in accordance with the terms of this Loan and
Security Agreement shall, for the purpose of the Uniform Commercial
Code as adopted in the state where the Collateral is located and for
all other purposes, be deemed to have been conducted in a commercially
reasonable manner and in good faith.
The proceeds of any sale under Section 9(d) shall be applied as
follows:
(i) To the repayment of the costs and expenses of retaking,
holding and preparing for the sale and the selling of the
Collateral (including legal expenses and attorneys' fees)
and the discharge of all assessments, encumbrances, charges
or liens, if any, on the Collateral prior to the lien hereof
(except any taxes, assessments, encumbrances, charges or
liens subject to which such sale shall have been made);
(ii) To the payment of the whole amount then due and unpaid of
the indebtedness of Borrower to Lender;
(iii) To the payment of other amounts then secured hereunder; and
(iv) The surplus, if any, shall be paid to the Borrower or to
whomsoever may be lawfully entitled to receive the same.
Lender shall have the right to enforce one or more remedies
hereunder, successively or concurrently, and such action shall not
operate to estop or prevent Lender from pursuing any further remedy
which it may have, and any repossession or retaking or sale of the
Collateral pursuant to the terms hereof shall not operate to release
Borrower until full payment of any deficiency has been made in cash.
10. Limitation on Interest: It is the intent of the parties to this Loan
and Security Agreement to contract in strict compliance with applicable usury
laws from time to time in effect. In furtherance thereof, the parties stipulate
and agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay for the use, forbearance or
detention of money at a rate in excess of the maximum interest rate permitted to
be charged by applicable law from time to time in effect.
11. Personal Property/Tags. No item of Equipment will be attached or
affixed to realty or any building without Lender's prior knowledge and written
consent and waiver of the landlord and the mortgagee, if any, of the real
property. If so requested by Lender, Borrower will affix tags supplied by
Lender, reflecting Lender's security interest in the Equipment.
12. Loss and Damage. Borrower shall bear the risk of damage, loss, theft,
or destruction, partial or complete of the Equipment, whether or not such loss
or damage is covered by insurance, except that while Borrower is not in default,
Lender agrees to apply toward payment of obligations of Borrower insurance
proceeds payable to Lender by reason of such damage, loss, theft, or
destruction. In the event of any damage, loss, theft, or destruction, partial or
complete, of any item of Equipment, Borrower shall promptly notify Lender in
writing and at the option of Lender (a) repair or restore the Equipment to good
condition and working order, or (b) replace the Equipment with similar equipment
in good repair, condition and working order, or (c) pay Lender, in cash, an
amount equal to the unamortized equipment cost for the item or if the Equipment
was not purchased with the loan proceeds, the pro rata portion of the
outstanding principal balance due under the Interim Note or Term Note, as the
case may be, and all other amounts relating to that item of Equipment then due
and owing hereunder, and upon payment of that amount, Lender's lien shall be
terminated with respect to that item of Equipment only, and Lender will release
its interest in that item of Equipment.
13. Assignment. Borrower may not assign or transfer any rights under this
Loan and Security Agreement or to the Collateral without Lender's prior written
consent.
14. Indemnification. Borrower shall indemnify and hold harmless Lender from
and against any and all claims, losses, liabilities, causes of action, costs and
expenses (including the fees of Lender's attorneys) ("Claims") in any way
relating to or arising out of this Loan and Security Agreement, the other Loan
Documents or the Collateral, except for any Claims resulting solely and directly
from Lender's gross negligence or willful misconduct.
15. Notices. Whenever Borrower or Lender shall desire to give or serve any
notice, demand, request or other communication with respect to this Loan and
Security Agreement, each such notice, demand, request or communication shall be
in writing and shall be effective only if the same is physically delivered or is
by certified mail, postage prepaid, return receipt requested, or by overnight
courier, postage prepaid, mailed to the parties at the addresses set forth in
the first paragraph of this Loan and Security Agreement, with a copy to Lender's
Vice President of Credit. Any party hereto may change its address for such
notices by delivering or mailing to the other parties hereto, as aforesaid, a
notice of such change.
16. No Waiver by Lender. By exercising or failing to exercise any of its
rights, options or elections hereunder, Lender shall not be deemed to have
waived any breach or default on the part of Borrower or to have released
Borrower from any of the obligations secured hereby, unless such waiver or
release is in writing and is signed by Lender. In addition, the waiver by Lender
of any breach hereof for default in payment of an indebtedness secured hereby
shall not be deemed to constitute a waiver of any succeeding breach or default.
17. Further Agreements. From time to time, Borrower will execute such
further instruments as Lender may reasonably require, in order to protect,
preserve, and maintain the security interest granted hereby.
18. Binding upon Successors. All agreements, covenants, conditions and
provisions of this Loan and Security Agreement shall apply to and bind the
successors and assigns of all parties hereto.
19. Governing Laws. This Loan and Security Agreement shall be governed by
the laws of the State of Washington.
20. Amendment. This Loan and Security Agreement can be modified or
rescinded only by a writing expressly referring to this Loan and Security
Agreement, signed by both of the parties hereto.
21. Invalidity of Provisions. Every provision of this Loan and Security
Agreement is intended to be severable. In the event that any term or provision
hereof is declared by a court to be illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the balance of the
terms and provisions hereof, which terms and provisions shall remain binding and
enforceable, then to the extent possible all of the other provisions shall
nonetheless remain in full force and effect.
IN WITNESS WHEREOF, Borrower and Lender have duly executed this Loan and
Security Agreement the day and year first above written.
Lender: MetLife Capital Corporation Borrower: MedicaLogic, Inc.
---------------------------- ----------------------------
By: By:
-------------------------------- ----------------------------------
(Print Name): Mitchell J. Stevens (Print Name): Guy E. Fields
---------------------- ------------------------
Title: Vice President Title: Vice President of Finance
----------------------------- -------------------------------
Social Security Number: _______________
(If Borrower is an individual)
Federal Tax Identification
Number: 930890696
-----------------------------
Standard Form of INDUSTRIAL/BUSINESS PARK LEASE Developed by
PORTLAND METROPOLITAN ASSOCIATION OF BUILDING OWNERS AND MANAGERS
INDUSTRIAL/BUSINESS PARK LEASE
(NNN)
1.1 BASIC LEASE TERMS.
a. REFERENCE DATE: January 15, 1997
b. TENANT: MedicaLogic, Inc., an Oregon corporation
20500 NW Evergreen Parkway
Address (Leased Premises): Hillsboro, OR 97124
Address (For Notices): MedicaLogic, Inc.
15400 NW Greenbrier Parkway, Suite 400
Beaverton, OR 97006
c. LANDLORD: Evergreen Corporate Center LLC, an Oregon
limited liability company
Address (For Notices): 111 SW Columbia Street, Suite 1380
Portland, OR 97201
d. TENANT'S USE OF PREMISES: General Office Purposes
e. PREMISES AREA: Approximately 75,010 Square Feet in
Evergreen Corporate Center RIDER NO. 1
f. RIDER NO. 2
g.
h. TERM OF LEASE: Anticipated Commencement Date: December 15, 1997
Expiration: December 14, 2007 RIDER
NO. 3
Number of Months: 120
i. BASE MONTHLY RENT:
j.
Time Period Base Monthly Rent
----------- -----------------
Commencement Date through 12th month $60,000
13th month through 24th month $67,500
25th month through 60th month $78,750
61st month through 120th month $87,000
k. ANNUAL EXPENSES:
Note: See Section 4.3 below for the method of computing Expenses. The
number set forth above for Annual Expenses is only an estimate. The
actual Annual Expenses shall be determined pursuant to Section 4.3c
below.
l. PREPAID RENT: $60,000
m. TOTAL SECURITY DEPOSIT: $87,000
n. BROKER(S): Melvin Mark Brokerage Company, representing Landlord, and
Norris, Beggs & Simpson, representing Tenant
2.1 PREMISES. Landlord leases to Tenant the premises described in Section 1.1
and in Exhibit A (the "Premises"), located in the project described on
Exhibit B (the "Project"). Landlord shall modify Tenant's percentage of the
Project as set forth in Section 1.1 if the Project size is increased or
decreased, as the case may be, through the development of additional
Page 1 Please Initial
3/95 MM KN MKL GEF
-------- --------
<PAGE>
property or the deletion of a portion of the Project. RIDER NO. 2 Landlord
shall give Tenant notice when the Premises are ready for occupancy. RIDER
NO. 4 Within five (5) days after Tenant receives Landlord's notice that the
Premises are ready for occupancy, Landlord and Tenant shall inspect the
Premises and prepare a "punchlist" of items to be completed. The existence
of "punchlist" items shall not postpone the commencement date of this Lease
Agreement. By taking occupancy of the Premises, Tenant acknowledges that it
has examined the Premises and accepts the Premise in their then present
condition, subject only to any work which Landlord has agreed to perform as
set forth on the "punchlist." RIDER NO. 5
(1) Landlord shall deliver the Premises to Tenant clean and free of debris
on the commencement date and Landlord warrants to Tenant that the
Premises shall be in good operating condition on the commencement
date. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Landlord, after receipt
of written notice from Tenant setting forth with specificity the
nature of the violation, to promptly, at Landlord's sole cost, rectify
such violation. Tenant's failure to give such written notice to
Landlord with sixty (60) days after the commencement date shall be
deemed that Landlord has complied with all of Landlord's obligations
hereunder.
(2) Landlord warrants to Tenant that the Premises, in the state existing
on the date that the term commences, but without regard to the use for
which Tenant will occupy the Premises, does not violate any covenants
or restrictions of record, or any applicable Laws (as hereinafter
defined) in effect on RIDER NO. 6. In the event it is determined that
this warranty has been violated, then it shall be the obligation of
the Landlord, after written notice from Tenant, to promptly, at
Landlord's sole cost and expense, rectify any such violation. In the
event Tenant does not give to Landlord written notice of the violation
of this warranty within 180 days from the date the term commences, the
correction of same shall be the obligation of the Tenant at Tenant's
sole cost. RIDER NO. 7
3.1 TERM The term of this Lease is for the period set forth in Section 1.1,
commencing on the date in Section 1.1. If Landlord, for any reason, cannot
deliver possession of the Premises to Tenant upon the scheduled
commencement date set forth in Section 1.1, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting from such delay. In that event, however, Landlord shall deliver
possession of the Premises as soon as practicable and the commencement date
shall be the date of such delivery with the term of the Lease remaining
unchanged, and all other terms and conditions of this Lease remaining in
full force and effect. However, if Landlord is delayed in delivering
possession to Tenant for any reason attributable to Tenant, this Lease
(including the obligation to pay all rents) shall commence RIDER NO. 8
4.1 RENT Base Monthly Rent. Tenant shall pay to Landlord base monthly rent in
the initial amount in Section 1.1 which shall be payable monthly in advance
on the first day of each and every calendar month ("Base Monthly Rent");
provided, however, the Base Monthly Rent for the first month of the term
shall be paid upon the Commencement Date. All charges and sums due from
Tenant to Landlord hereunder shall be deemed rent.
4.2 RENT ADJUSTMENT If Section 1.1j is applicable, Base Monthly Rent shall be
increased periodically to the amounts and at the times set forth in Section
1.1j.
4.3 EXPENSES The purpose of this Section is to ensure that Tenant bears a share
of all Expenses reasonably related to the use, maintenance, ownership,
repair or replacement, and insurance of the Project. Accordingly, beginning
on the commencement date, Tenant shall commence the payment of Expenses.
(1) Expenses Defined The term "Expenses" shall mean all costs and expenses
reasonably incurred by Landlord with respect to the ownership,
operation, maintenance, repair or replacement, and insurance of the
Project, including without limitation, the following costs:
a. All supplies, materials, labor, equipment, and utilities used in
or related to the operation and maintenance of the Project;
b. All management, janitorial, legal, accounting, insurance, and
service agreement costs related to the Project; RIDER NO. 9
c. All maintenance, replacement and repair costs relating to the
areas within or around the Project, including, without
limitation, air conditioning systems, sidewalks, landscaping,
service areas, driveways, parking areas (including resurfacing
and restriping parking areas) walkways, building exteriors
(including painting), signs and directories, repairs and
replacing roofs, walls and other structural elements of the
Premises, the Building and the Project. RIDER NO. 10
d. Amortization (along with reasonable financing charges) of capital
improvements over the useful life of such capital improvements
made to the Project which may be required by any government
authority or which will improve the operating efficiency of the
Project
e. All Real Property Taxes, which shall mean and include all taxes,
assessments (general and special) and other impositions or
charges which may be taxed, charged, levied, assessed or imposed
upon all or any portion of or in relation to the Project or any
portion thereof, any leasehold estate in the Premises or measured
by rent from the Premises, including any increase caused by the
transfer, sale or encumbrance of the Project or any portion
thereof. "Real Property Taxes" shall also include any form of
assessment, levy, penalty, charge or tax (other than estate,
inheritance, net income or franchise taxes) imposed by any
authority having a direct or indirect power to tax or charge,
including, without limitation, any city, county, state, federal
or any improvement or other district, whether such tax is (1)
determined by the area of the Project or the rent or other sums
payable under this lease; (2) upon or with respect to any legal
or equitable interest of Landlord in the Project or any part
thereof; (3) upon this transaction or any document to which
Tenant is a party creating a transfer in any interest in the
Project; (4) in lieu of or as a direct substitute in whole or in
part of or in addition to any real property taxes on the Project;
(5) based on any parking spaces or parking facilities provided in
the Project; (6) in consideration for services, such as police
protection, fire protection, street, sidewalk and roadway
maintenance, refuse removal or other services that may be
provided by any governmental or quasi-governmental agency from
time to time which were formerly provided without charge or with
less charge to property owners or occupants. "Real Property
Taxes" shall also include all assessments under recorded
covenants or master plans and/or by owner's associations. RIDER
NO. 11
RIDER NO. 12
(2) Annual Estimate of Expenses On the commencement date or as soon
thereafter as practical, Landlord shall estimate Tenant's portion of
Expenses for the remainder of the calendar year based on the Tenant's
portion of the Project Area set forth in Section 1.1. At the
commencement of each calendar year thereafter or as soon thereafter as
practical, Landlord shall estimate Tenant's portion of Expenses for
the coming year based on the Tenant's portion of the Project Area set
forth in Section 1.1.
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(3) Monthly Payment of Expenses RIDER NO. 13 As soon as practical
following each calendar year, Landlord shall prepare an accounting of
actual Expenses incurred during the prior calendar year and such
accounting (the "Notice") shall reflect Tenant's share of Expenses. If
the additional rent paid by Tenant under this Section during the
preceding calendar year was less than the actual amount of Tenant's
share of Expenses, Landlord shall so notify Tenant and Tenant shall
pay such amount to Landlord within 30 days of receipt of such Notice.
Such amount shall be deemed to have accrued during the prior calendar
year and shall be due and payable from Tenant even though the term of
this Lease has expired or this Lease has been terminated prior to
Tenant's receipt of this Notice. Tenant shall have RIDER NO. 13a
contest the amount due; failure to so notify Landlord shall represent
final determination of Tenant's share of expenses. If Tenant's
payments were greater than the actual amount, then such overpayment
shall be credited by Landlord to all present rent due under this
Section or if this Lease has terminated, said amount shall be paid
directly to Tenant. RIDER NO. 14
(4) Rent Without Offset and Late Charge All rent shall be paid by Tenant
to Landlord monthly in advance on the first day of every calendar
month, at the address shown in Section 1.1, or such other place as
Landlord may designate in writing from time to time. All rent shall be
paid without prior demand or notice and without any deduction or
offset whatsoever. All rent shall be paid in lawful currency of the
United States of America. All rent due for any partial month shall be
prorated at the rate of 1/30th of the total monthly rent per day.
Tenant acknowledges that late payment by Tenant to Landlord of any
rent or other sums due under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such costs
being extremely difficult and impracticable to ascertain. Such costs
include, without limitation, processing and accounting charges and
late charges that may be imposed on Landlord by the terms of any
encumbrance or note secured by the Premises. Therefore, if any rent or
other sum due from Tenant is not received RIDER NO. 15 due, Tenant
shall pay to Landlord an additional sum equal to 5% of such overdue
payment. Landlord and Tenant hereby agree that such late charge
represents a fair and reasonable estimate of the costs that Landlord
will incur by reason of any such late payment and that the late charge
is in addition to any and all remedies available to the Landlord and
that the assessment and/or collection of the late charge shall not be
deemed a waiver of any default. Additionally, all such delinquent rent
or other sums, plus this late charge, shall bear interest at the prime
rate of Key Bank of Oregon or its successor, plus 2%, on a fully
floating basis (herein the "Default Rate"), from the date first due
until the date paid in full. Any payments of any kind returned for
insufficient funds will be subject to an additional handling charge of
$25.00, and thereafter, Landlord may require Tenant to pay all future
payments of rent or other sums due by money order or cashier's check.
5.1 PREPAID RENT On the Commencement Date, Tenant shall pay to Landlord the
prepaid rent set forth in Section 1.1, and if Tenant is not in default of
any provisions of this Lease, such prepaid rent shall be applied toward the
Base Monthly Rent due for the first month of the term (or the first month
following any Base Monthly Rent abatement period, if applicable). Upon a
default by Tenant prior to such application, Landlord shall have the right,
without waiver of the default or prejudice to other remedies, to use the
prepaid rent or any of it to cure the default or to compensate Landlord for
all or any damages resulting from the default. Landlord's obligations with
respect to the prepaid rent are those of a debtor and not of a trustee, and
landlord can commingle the prepaid rent with Landlord's general funds.
Landlord shall not be required to pay Tenant interest on the prepaid rent.
Landlord shall be entitled to immediately endorse and cash Tenant's prepaid
rent; however, such endorsement and cashing shall not constitute Landlord's
acceptance of this Lease. In the event Landlord does not accept this Lease,
Landlord shall return said prepaid rent.
6.1 DEPOSIT Upon execution of this Lease, Tenant shall deposit the security
deposit set forth in Section 1.1 with Landlord as security for the
performance by Tenant of the provisions of this Lease. Upon a default by
Tenant, Landlord shall have the right, without waiver of the default or
prejudice to other remedies, to use the security deposit or any portion of
it to cure the default or to compensate Landlord for any damages resulting
from Tenant's default. Upon demand, Tenant shall immediately pay to
Landlord a sum equal to the portion of the security deposit expended or
applied by Landlord to maintain the security deposit in the amount
initially deposited with Landlord. In no event will Tenant have the right
to apply any part of the security deposit to any rent or other sums due
under this Lease. If Tenant is not in default at the expiration or
termination of this Lease, Landlord shall return the entire security
deposit to Tenant, except for the portion designated in Section 1.1, if
any, which Landlord shall retain as a non-refundable cleaning fee.
Landlord's obligations with respect to the deposit are those of a debtor
and not of a trustee, and Landlord can commingle the security deposit with
Landlord's general funds. Landlord shall not be required to pay Tenant
interest on the deposit. Landlord shall be entitled to immediately endorse
and cash Tenant's security deposit; however, such endorsement and cashing
shall not constitute Landlord's acceptance of this Lease. In the event
Landlord does not accept this Lease, Landlord shall return said security
deposit. If Landlord sells its interest in the Premises during the term
hereof and deposits with or credits to the purchaser the unapplied portion
of the security deposit, thereupon Landlord shall be discharged from any
further liability or responsibility with respect to the security deposit.
7.1 USE OF PREMISES AND PROJECT FACILITIES Tenant shall use the Premises solely
for the purposes set forth in Section 1.1 and for no other purpose without
obtaining the prior written consent of Landlord. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the Premises or with respect to the suitability of
the Premises or the Project for the conduct of Tenant's business, nor has
Landlord agreed to undertake any modification, alteration or improvement to
the Premises or the Project, except as provided in writing in this Lease.
RIDER NO. 16 Tenant acknowledges that Landlord may from time to time, at
its sole discretion, make such modifications, alterations, deletions or
improvements to the Project as Landlord may deem necessary or desirable,
without compensation or notice to Tenant. RIDER NO. 17 Tenant shall
promptly and at all times comply with all federal, state and local
statutes, laws, ordinances, orders and regulations affecting the Premises
and the Project (herein "Laws"), as well as all master plans, restrictive
covenants, and also any rules and regulations that Landlord may adopt from
time to time. RIDER NO. 18 Tenant shall not do or permit anything to be
done in or about the Premises or bring or keep anything in the Premises
that will in any way increase the premiums paid by Landlord on its
insurance related to the Project or which will in any way increase the
premiums for fire or casualty insurance carried by other tenants in the
Project. Tenant will not perform any act or carry on any practices that may
injure the Premises or the Project; that may be a nuisance or menace to
other tenants in the Project; or that shall in any way interfere with the
quiet enjoyment of such other tenants. Tenant shall not use the Premises
for sleeping, washing
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clothes, cooking or the preparation, manufacture or mixing of anything that
might emit any objectionable odor, noises, vibrations or lights onto such
other tenants. If sound insulation is required to muffle noise produced by
Tenant on the Premises, Tenant at its own cost shall provide all necessary
insulation. Tenant shall not do anything on the Premises which will
overload any existing parking or service to the Premises. Pets and/or
animals of any type shall not be kept on the Premises.
8.1 SIGNAGE All signage shall comply with rules and regulations set forth by
Landlord as may be modified from time to time. Current rules and
regulations relating to signs are described on Exhibit F. Tenant shall
place no window covering (e.g., shades, blinds, curtains, drapes, screens
or tinting materials), stickers, signs, lettering, banners or advertising
or display material on or near exterior windows or doors if such materials
are visible from the exterior of the Premises, without Landlord's prior
written consent. Similarly, Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without
Landlord's prior written consent. Any material violating this provision may
be destroyed by Landlord without compensation to Tenant.
9.1 PERSONAL PROPERTY TAXES Tenant shall pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed
upon its business operations as well as upon all trade fixtures, leasehold
improvements, merchandise and other personal property in or about the
Premises.
10.1 PARKING Landlord grants to Tenant and Tenant's customers, suppliers,
employees and invitees, a nonexclusive license to use the designated
parking areas in the Project for the use of motor vehicles during the term
of this Lease. RIDER NO. 19 Landlord reserves the right at any time to
grant similar nonexclusive use to other tenants, to make rules and
regulations relating to the use of such parking areas, including reasonable
restrictions on parking by tenants and employees, to designate specific
spaces for the use of any tenant and to make changes in the parking layout
from time to time. RIDER NO. 20
11.1 UTILITIES Tenant shall pay for all water, gas, heat, light, power, sewer,
electricity, telephone, garbage or other service metered, chargeable or
provided to the Premises. RIDER NO. 21
12.1 MAINTENANCE RIDER NO. 22 electrical, plumbing and sewerage systems lying
outside the Premises ; provided, however, the cost of all such maintenance
shall be considered "Expenses" for purposes of Section 4.3. Except as
provided above, Tenant shall maintain the Premises in good condition,
including, without limitation, maintaining and repairing all walls, floors,
ceilings, interior doors, exterior and interior windows and fixtures as
well as damage caused by Tenant, its agents, employees or invitees. RIDER
NO. 23 Upon expiration or termination of this Lease, Tenant shall surrender
the Premises to Landlord in the same condition as existed at the
commencement of the term, except for reasonable wear and tear or damage
caused by fire or other casualty . Nothing herein shall excuse Tenant from
financial responsibility for property damage caused by Tenant or Tenant's
agents. RIDER NO. 24
13.1 ALTERATIONS
(1) Tenant shall not make any alterations to the Premises without
Landlord's prior written consent in each instance. If Landlord gives
its consent to such alterations, Landlord may post notices in
accordance with the laws of the state in which the Premises are
located. Any alterations made shall remain on and be surrendered with
the Premises upon expiration or termination of this Lease, except that
Landlord may, within 30 days before or 30 days after the expiration or
termination of this Lease or the termination of Tenant's right of
possession, elect to require Tenant to remove any alterations which
Tenant may have made to the Premises. RIDER NO. 25 If Landlord so
elects, at its own cost Tenant shall restore the Premises to the
condition designated by Landlord in its election, before the last day
of the term or within 30 days after notice of its election is given,
whichever is later.
(2) Any request for Landlord's consent to alterations shall be made at
least thirty (30) days before any work may be commenced and shall be
accompanied by (i) detailed and costed plans and specifications for
all alterations, and (ii) Tenant's written agreement to provide, upon
completion of work, a complete set of as-built plans and
specifications. Landlord may withhold consent, in its reasonable
discretion and may issue such consent subject to conditions. All
alterations shall be constructed only after obtaining Landlord's prior
written consent and only in conformity with all Laws. The issuance of
Landlord's consent shall not be a waiver of Tenant's obligation to
comply with all Laws, nor Landlord's opinion that such alterations are
in compliance with all Laws.
(3) Should Landlord consent in writing to Tenant's alteration of the
Premises, Tenant shall contract with a contractor approved by Landlord
for the construction of such alterations, shall secure all appropriate
governmental approvals and permits, and shall complete such
alterations with due diligence in compliance with the plans and
specifications approved by Landlord. All such construction shall be
performed in a manner which will not interfere with the quiet
enjoyment of other tenants of the Project.
(4) Tenant shall pay all costs for construction of alterations and shall
keep the Premises and the Project free and clear of all liens which
may result from work by third parties authorized by Tenant. If any
such lien is filed, the same shall be an event of default hereunder if
Tenant fails to remove such lien within ten (10) days of the filing
thereof.
14.1 RELEASE AND INDEMNITY As material consideration to Landlord, Tenant agrees
that Landlord and Landlord's partners, shareholders, officers, directors,
employees and agents (collectively, the "Protected Parties") shall not be
liable to Tenant for any damage to Tenant or Tenant's property from any
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cause, RIDER NO. 26 and Tenant waives all claims against Landlord for
damage to persons or property arising for any reason, except for damage
resulting directly from Landlord's breach of its express obligations under
this Lease which Landlord has not cured within a reasonable time after
receipt of written notice of such breach from Tenant. Tenant shall defend,
indemnify and hold Landlord and all other Protected Parties harmless from
all claims, losses, causes of action, costs and expenses, and damages
arising out of (a) any damage to any person or property occurring in, on or
about the Premises, (b) use by Tenant or its agents of the Premises and/or
the Project or other properties of Landlord, and/or (c) Tenant's breach or
violation of any term of this Lease. RIDER NO. 27
15.1 INSURANCE Tenant, at its cost, shall maintain public liability and property
damage insurance and products liability insurance with a single combined
liability limit of $1,000,000, insuring against all liability of Tenant and
its authorized representatives arising out of or in connection with
Tenant's use or occupancy of the Premises. Public liability insurance,
products liability insurance and property damage insurance shall insure
performance by Tenant of the indemnity provisions of Section 14.1. Landlord
shall be named as an additional insured and the policy shall contain
cross-liability endorsements. On all its personal property, at its cost,
Tenant shall maintain a policy of standard fire and extended coverage
insurance with vandalism and malicious mischief endorsements and "all risk"
coverage on all Tenant's improvements and alterations in or about the
Premises, to the extent of at least 100% of their full replacement value.
The proceeds from any such policy shall be used by Tenant for the
replacement of personal property and the restoration of Tenant's
improvements or alterations. All insurance required to be provided by
Tenant under this Lease shall release Landlord and the other Protected
Parties from any claims for damage to any person or the Premises and the
Project, and to Tenant's fixtures, personal property, improvements and
alterations in or on the Premises or the Project, caused by or resulting
from risks insured against under any insurance policy carried by Tenant and
in force at the time of such damage. All insurance required to be provided
by Tenant under this Lease: (a) shall be issued by insurance companies
authorized to do business in the state in which the Premises are located;
(b) be reasonably acceptable to Landlord; (c) shall be issued as a primary
policy; and (d) shall contain an endorsement requiring at least 30 days
prior written notice of cancellation to Landlord and Landlord's lender,
before cancellation or change in coverage, scope or amount of any policy.
Tenant shall deliver a certificate or copy of such policy together with
evidence of payment of all current premiums to Landlord within 10 days of
execution of this Lease. Tenant's failure to provide evidence of such
coverage to Landlord may, in Landlord's sole discretion, constitute a
default under this Lease. RIDER NO. 28
16.1 DESTRUCTION If during the term, the Premises or Project is more than 25%
destroyed (based upon replacement cost) from any cause, or rendered
inaccessible or unusable from any cause, Landlord may, in its sole
discretion, terminate this Lease by delivery of notice to Tenant within 30
days of such event without compensation to Tenant. If Landlord does not
elect to terminate this Lease, and if, in Landlord's estimation, the
Premises cannot be restored within 270 days following such destruction,
RIDER NO. 29 then Landlord shall commence to restore the Premises in
compliance with then existing laws and shall complete such restoration with
due diligence. In such event, this Lease shall remain in full force and
effect, but there shall be an abatement of Base Monthly Rent between the
date of destruction and the date of completion of restoration, based on the
extent to which destruction interferes with Tenant's use of the Premises;
provided, there shall be no abatement if such damage is the result of
Tenant's negligence or wrongdoing. Tenant shall not be entitled to any
damages or compensation for loss of use or any inconvenience occasioned by
damage or any repair or restoration.
17.1 CONDEMNATION
(1) Definitions. The following definitions shall apply: (1) "Condemnation"
means (a) the exercise of any governmental power of eminent domain,
whether by legal proceedings or otherwise by condemnor and (b) the
voluntary sale or transfer by landlord to any condemnor either under
threat of condemnation or while legal proceedings for condemnation are
proceeding; (2) "Date of Taking" means the date the condemnor has the
right to possession of the property being condemned; (3) "Award" means
all compensation, sums or anything of value awarded, paid or received
on a total or partial condemnation; and (4) "Condemnor" means any
public or quasi-public authority, or private corporation or
individual, having a power of condemnation.
(2) Obligations to Be Governed by Lease. If during the term of the Lease
there is any taking of all or any part of the Premises or the Project,
the rights and obligations of the parties shall be determined pursuant
to this Lease.
(3) Total or Partial Taking. If the Premises are totally taken by
condemnation, this Lease shall terminate on the Date of Taking. If any
portion of the Premises is taken by Condemnation, this Lease shall
terminate as to the part so taken as of the Date of Taking, but shall
in all other respects remain in effect, except that Tenant can elect
to terminate this Lease if the remaining portion of the Premises is
rendered unsuitable for Tenant's continued use of the Premises. If
Tenant elects to terminate this Lease, Tenant must exercise its right
to terminate by giving notice to Landlord within 30 days after the
nature and extent of the Condemnation have been finally determined. If
Tenant elects to terminate this Lease, Tenant shall also notify
Landlord of the date of termination, which date shall not be earlier
than 30 days nor later than 90 days after Tenant has notified Landlord
of its election to terminate; except that this Lease shall terminate
on the Date of Taking if the Date of Taking falls on a date before the
date of termination as designated by Tenant. If any portion of the
Premises is taken by condemnation and this Lease remains in full force
and effect, on the Date of Taking the Base Monthly Rent shall be
reduced by an amount in the same ratio as the total number of square
feet in the Premises taken bears to the total number of square feet in
the Premises immediately before the Date of Taking.
(4) Landlord's Election. Notwithstanding anything herein to the contrary,
if the Project or any portion thereof is taken by Condemnation and the
portion taken does not, in Landlord's sole judgment, feasiblely permit
the continuation of the operation of the Project by Landlord, then
landlord shall have the right to terminate this Lease by written
notice given within thirty (30) days following the Date of Taking.
RIDER NO. 30
(5) Award. Tenant shall have no right or claim to all or any portion of
the Award; provided this shall not limit Tenant's right to seek and to
receive compensation for relocation expenses or the value of its
personal property taken, so long as receipt of such compensation does
not decrease the Award otherwise payable to Landlord.
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18.1 ASSIGNMENT OR SUBLEASE Tenant shall not assign or encumber its interest in
this Lease or the Premises or sublease all or any part of the Premises or
allow any other person or entity (except Tenant's authorized
representatives, employees, invitees, or guests) to occupy or use all or
any part of the Premises without first obtaining Landlord's consent. RIDER
NO. 31 Any assignment, encumbrance or sublease without Landlord's written
consent shall be voidable and at Landlord's election, shall constitute a
default. If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law of any partner, or the dissolution of
the partnership, shall be deemed a voluntary assignment. If Tenant consists
of more than one person, a purported assignment, voluntary or involuntary
or by operation of law from one person to the other or to a third party
shall be deemed a voluntary assignment. If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of Tenant, or
sale or other transfer of a controlling percentage of the capital stock of
Tenant, or the sale of at least 25% of the value of the assets of Tenant
shall be deemed a voluntary assignment. The phrase "controlling percentage"
means ownership of and right to vote stock possessing at least 50% of the
total combined voting power of all classes of Tenant's capital stock
issued, outstanding and entitled to vote for election of directors. RIDER
NO. 32 The preceding two sentences shall not apply to corporations the
stock of which is traded through an exchange or over the counter. RIDER NO.
33 All rent received by Tenant from its subtenants in excess of the rent
payable by Tenant to Landlord under this Lease (allocated on a square
footage basis in cases of partial subleasing) shall be paid to Landlord,
and any sums to be paid by an assignee to Tenant in consideration of the
assignment of this Lease shall be paid to Landlord. If Tenant requests
Landlord to consent to a proposed assignment or subletting, Tenant shall
pay to Landlord, whether or not consent is ultimately given, $100 or
Landlord's reasonable attorneys' fees incurred in connection with such
request, whichever is greater. No interest of Tenant in this Lease shall be
assignable by involuntary assignment through operation of law (including
without limitation the transfer of this Lease by testacy or intestacy).
Each of the following acts shall be considered an involuntary assignment:
(a) if Tenant is or becomes bankrupt or insolvent, makes an assignment for
the benefit of creditors, or institutes proceedings under the Bankruptcy
Act in which Tenant is the bankrupt; or if Tenant is a partnership or
consists of more than one person or entity, if any partner of the
partnership or other person or entity is or becomes bankrupt or insolvent,
or makes an assignment for the benefit of creditors; or (b) if a writ of
attachment or execution is levied on this Lease; or (c) if in any
proceeding or action to which Tenant is a party, a receiver is appointed
with authority to take possession of the Premises. An involuntary
assignment shall constitute a default by Tenant and landlord shall have the
right to elect to terminate this Lease, in which case this Lease shall not
be treated as an asset of Tenant.
19.1 DEFAULT The occurrence of any of the following shall constitute a default
by Tenant: (a) A failure to pay rent or other charge RIDER NO. 34
20.1 LANDLORD'S REMEDIES
(1) Landlord shall have the following remedies if Tenant is in default.
These remedies are not exclusive; they are cumulative and in addition
to any remedies now or later allowed by law. Landlord may terminate
this Lease and/or Tenant's right to possession of the Premises at any
time. No act by Landlord other than giving notice to Tenant shall
terminate this Lease. Acts of maintenance, efforts to relet the
Premises, or the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this lease shall not constitute a
termination of this Lease. Upon termination of this Lease or of
Tenant's right to possession, Landlord has the right to recover from
Tenant: (1) The worth of the unpaid rent that had been earned at the
time of such termination; (2) The worth of the amount of the unpaid
rent that would have been earned after the date of such termination;
and (3) Any other amount, including court, attorney and collection
costs, necessary to compensate Landlord for all detriment proximately
caused by Tenant's default. "The Worth," as used for Item 20.1(1) in
this Paragraph is to be computed by allowing interest at the Default
Rate. "The Worth" as used for Item 20.1(2) in this Paragraph is to be
computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of termination of Tenant's
right of possession. RIDER NO. 35
(2) All covenants and assignments to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole
cost and expense and without any abatement of rent. If Tenant shall
fail to pay any sum of money owed to any party other than Landlord,
for which it is liable hereunder, or if Tenant shall fail to perform
any other act on its part to be performed hereunder, and such failure
shall continue for RIDER NO. 36 Landlord may, without waiving such
default or any other right or remedy, but shall not be obligated to,
make any such payment or perform any such other act to be made or
performed by Tenant. All sums so paid by Landlord and all necessary
incidental costs, together with interest thereon at the Default Rate
from the date of expenditure by Landlord, shall be payable to Landlord
on demand.
21.1 ENTRY ON PREMISES Landlord and its authorized representatives shall have
the right to enter the Premises at all reasonable times RIDER NO. 37 for
any of the following purposes: (a) To determine whether the Premises are in
good condition and whether Tenant is complying with its obligations under
this Lease; (b) To do any necessary maintenance and to make any restoration
to the Premises or the Project that Landlord has the right or obligation to
perform; (c) To post "for sale" signs at any time during the term, to post
"for rent" or "for lease" signs during the last 90 days of the term, or
during any period while Tenant is in default; (d) To show the Premises to
prospective brokers, agents, buyers, tenants or persons interested in
leasing or purchasing the Premises, at any time during the term; or (e) To
repair, maintain or improve the Project and to erect scaffolding and
protective barricades around and about the Premises but not so as to
prevent entry to the Premises and to do any other act or thing necessary
for the safety or preservation of the Premises or the Project. Landlord
shall not be liable in any manner for any inconvenience, disturbance, loss
of business, nuisance or other damage arising out of Landlord's entry onto
the Premises as provided in this Section. Landlord shall conduct its
activities on the Premises as provided herein in a manner that will cause
the least inconvenience, annoyance or disturbance to Tenant. For each of
these purposes, Landlord shall at all times have and retain a key with
which to unlock all the doors in, upon and about the Premises, excluding
Tenant's vaults and safes. Tenant shall not alter any lock or install a new
or additional lock or bolt on any door of the Premises without prior
written consent of Landlord. If Landlord gives its consent, Tenant shall
furnish Landlord with a key for any such lock.
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22.1 SUBORDINATION Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or any beneficiary of a Deed of Trust
with a lien on the Project or any ground lessor with respect to the
Project, this Lease shall be subject and subordinate at all time to (a) all
ground leases or underlying leases which may now exist or hereafter be
executed affecting the Project, and (b) the lien of any mortgage or deed of
trust which may now exist or hereafter be executed in any amount for which
the Project, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. In the event that any
ground lease or underlying lease terminates for any reason or any mortgage
or Deed of Trust is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Tenant shall, notwithstanding any subordination,
attorn to and become the Tenant of the successor in interest to Landlord,
at the option of such successor in interest. Tenant covenants and agrees to
execute and deliver, upon demand by Landlord and in the form requested by
Landlord any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground lease or underlying leases or
the lien of any such mortgage or Deed of Trust. Tenant hereby irrevocably
appoints Landlord as attorney-in-fact of Tenant to execute, deliver and
record any such document in the name and on behalf of Tenant. RIDER NO. 38
Tenant, within ten days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this
Lease is not in default, is unmodified and in full force and effect, or in
full force and effect as modified, and stating the modifications. This
certificate should also state the amount of current monthly rent, the dates
to which rent has been paid in advance, the amount of any security deposit
and prepaid rent, and such other matters as Landlord may request. In
addition, in connection with any sale or financing involving the Premises,
Tenant shall deliver to Landlord, within twenty (20) days of request by
Landlord, a current audited financial statement of Tenant and of each
guarantor. RIDER NO. 39
23.1 NOTICE Any notice, demand, request, consent, approval or communication
desired by either party or required to be given, shall be in writing and
either served personally or sent by prepaid certified first class mail,
addressed as set forth in Section 1.1. RIDER NO. 40 Either party may change
its address by notification to the other party. Notice shall be deemed to
be communicated 48 hours from the time of such mailing, or upon the time of
service as provided in this Section.
24.1 WAIVER No delay or omission in the exercise of any right or remedy by
Landlord shall impair such right or remedy or be construed as a waiver. No
act or conduct of Landlord, including without limitation, acceptance of the
keys to the Premises, shall constitute an acceptance of the surrender of
the Premises by Tenant before the expiration of the term. Only written
notice from Landlord to Tenant shall constitute acceptance of the surrender
of the Premises and accomplish termination of the Lease. Landlord's consent
to or approval of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's
consent to or approval of any subsequent act by Tenant. Any waiver by
Landlord of any default must be in writing and shall not be a waiver of any
other default concerning the same or any other provision of the Lease.
25.1 SURRENDER OF PREMISES; HOLDING OVER Upon expiration of the term or the
termination of this Lease or of Tenant's right of possession, Tenant shall
surrender to Landlord the Premises and all tenant improvements and
alterations (except alterations which Tenant has the right or obligation to
remove) in good condition, except for ordinary wear and tear. RIDER NO. 41
Tenant shall remove all personal property including, without imitation, all
wallpaper, paneling and other decorative improvements or fixtures and shall
perform all restoration made necessary by the removal of any alterations or
Tenant's personal property before the expiration of the term, including for
example, restoring all wall surfaces to their condition prior to the
commencement of this Lease. RIDER NO. 42 Landlord can elect to retain or
dispose of in any manner Tenant's personal property not removed from the
Premises by Tenant prior to the expiration of the term. Tenant waives all
claims against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of Tenant's personal property. Tenant shall be
liable to Landlord for Landlord's costs for storage, removal or disposal of
Tenant's personal property. If Tenant fails to surrender the Premises upon
the expiration of the term, or upon the termination of this Lease or of
Tenant's right of possession, Tenant shall defend, indemnify and hold
Landlord harmless from all resulting loss or liability, including without
limitation, any claim made by any succeeding tenant founded on or resulting
from such failure.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration of this Lease, such possession by Tenant shall be deemed
to be a month-to-month tenancy terminable on written 30-day notice at any
time, by either party. All provisions of this Lease, except those
pertaining to term and rent, shall apply to the month-to-month tenancy.
Tenant shall pay Base Monthly Rent in an amount equal to 150% of the Base
Monthly Rent for the last full calendar month during the regular term plus
100% of said last month's estimate of Tenant's share of Expenses pursuant
to Section 4.3(3).
26.1 LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant agrees that, regarding any claim against Landlord and/or
any other Protected Party, including in the event of any actual or alleged
failure, breach or default by Landlord:
a. The sole and exclusive remedy of Tenant shall be against the interest
of Landlord in the Project, and neither Landlord nor any other
Protected Party shall have any other liability whatsoever.
b. If Landlord is a partnership, the following provisions of this item b.
shall also apply: (i) No partner of Landlord shall be sued or named as
a party in any suit or action; (ii) No service of process shall be
made against any partner of Landlord (except as may be necessary to
secure jurisdiction of the partnership); (iii) No partner of Landlord
shall be required to answer or otherwise plead to any service or
process; (iv) No judgement may be taken against any partner of
Landlord; (v) Any judgment taken against any partner of Landlord may
be vacated and set aside at any time without hearing; and (vi) No writ
of execution will ever be levied against the assets of any partner of
Landlord.
c. These covenants and agreements contained in this Section are
enforceable both by Landlord and also by any other Protected Party.
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d. Tenant agrees that each of the foregoing provisions shall be
applicable to any and all liabilities, claims and causes of action
whatsoever, including those based on any provision of this Lease, any
implied covenant, and/or any statute or common law principle.
27.1 MISCELLANEOUS PROVISIONS
(1) Time of Essence. Time is of the essence of each provision of this
Lease.
(2) Successor. This Lease shall be binding on and inure to the benefit of
the parties and their successors, except as provided in Section 18.1
herein.
(3) Landlord's Consent. Any consent required by Landlord under this Lease
must be granted in writing. No such consent shall be unreasonably
withheld, but any consent may be issued subject to reasonable
conditions. As a condition to any consent, Landlord may require that
any other party or parties with a right of consent issue such consent
on terms acceptable to Landlord.
(4) Commissions. Each party represents that it has not had dealings with
any real estate broker, finder or other person with respect to this
Lease in any manner, except for the broker identified in Section 1.1,
who shall be compensated by Landlord.
(5) Other Charges. If Landlord becomes a party to any litigation
concerning this lease, the premises or the project, by reason of any
act or omission of Tenant or any agent, guest or invitee of Tenant,
Tenant shall be liable to Landlord for all attorneys fees and costs
incurred by Landlord in connection with such litigation, including any
appeal or review.
In the event of litigation RIDER NO. 43 between Tenant and Landlord
and/or any other Protected Party, the prevailing party shall be
entitled to recover from the losing party all costs and attorneys fees
incurred both at and in preparation for trial and any appeal or
review. If Landlord employs a collection agency to recover delinquent
charges, Tenant agrees to pay all collection agency and attorneys'
fees charged to Landlord in addition to rent, late charges, interest
and other sums payable under this Lease. Tenant shall pay a charge of
$75 to Landlord for preparation of a demand for delinquent rent.
(6) Landlord's Successors. In the event of a sale or conveyance by
Landlord of the Project or a portion thereof including the Premises,
or of Landlord's interest in the foregoing, the same shall operate to
release Landlord from any liability under this Lease, and in such
event Landlord's success in interest shall be solely responsible for
all obligations of Landlord under this Lease.
(7) Interpretation. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the Premises are
located. This Lease constitutes the entire agreement between the
parties with respect to the Premises and the Project, except for such
guarantees or modifications as may be executed in writing by the
parties from time to time. When required by the content of this Lease,
the singular shall include the plural, and the masculine shall include
the feminine and/or neuter. "Party" shall mean Landlord or Tenant. If
more than one person or entity constitutes Tenant, the obligations
imposed on Tenant shall be joint and several. The enforceability,
invalidity or illegality of any provision shall not render the other
provisions unenforceable, invalid or illegal.
(8) Third Parties. The Protected Parties shall have the right to enforce
the provisions of this Lease which reference them. Except for the
foregoing, there are no third parties benefitted hereby, this Lease
being intended solely for the benefit of Landlord and Tenant.
Notwithstanding the foregoing, the beneficiary under a trust deed, or
a mortgagee, holding a security interest in the Project shall be a
third party beneficiary of the Tenant's obligations set forth in
Sections 30.1 and 31.1 hereof and shall have the right to enforce such
provisions.
(9) Survival. The release and indemnity covenants of Tenant, the right of
Landlord to enforce its remedies hereunder, the attorneys fees
provisions hereof, the provisions of Section 26.1 hereof, as well as
all provisions of this Lease which contemplate performance after the
expiration or termination hereof or the termination of Tenant's right
to possession hereunder, shall survive any such expiration or
termination.
28.1 EMISSIONS Tenant shall not:
a. Discharge, emit or permit to be discharged or emitted, any liquid,
solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water, which matter, as
reasonably determined by Lessor or any governmental entity does, or
may, pollute or contaminate the same, or is, or may become,
radioactive or does, or may, adversely affect the (1) health or safety
of persons, wherever located, whether on the Premises or anywhere
else, (2) condition, use or enjoyment of the Premises or any other
real or personal property, whether on the Premises or anywhere else,
or (3) Premises or any of the improvements thereto, or thereon
including buildings, foundations, pipes, utility lines, landscaping or
parking areas;
b. Produce, or permit to be produced, any intense glare, light or heat
except within an enclosed or screened area and then only in such
manner that the glare, light or heat shall not be discernible from
outside the Premises;
c. Create, or permit to be created, any sound pressure level which will
interfere with the quiet enjoyment of any real property outside the
Premises; or which will create a nuisance or violate any Law, rule,
regulation or requirement;
d. Create, or permit to be created, any ground vibration that is
discernible outside the Premises;
e. Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation which is harmful or
hazardous to any person or property in, on or about the Premises, or
anywhere else.
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28.2 STORAGE AND USE
(1) Storage. Subject to the uses permitted and prohibited to Tenant under
this lease, Tenant shall store in appropriate leak proof containers
all solid, liquid, or gaseous matter, or any combination thereof,
which matter, if discharged or emitted into the atmosphere, the ground
or any body of water, does or may (1) pollute or contaminate the same,
or (2) adversely affect the (i) health or safety of persons, whether
on the Premises or anywhere else, (ii) condition, use or enjoyment of
the Premises or any real or personal property, whether on the Premises
or anywhere else, or (iii) Premises or any of the improvements thereto
or thereon.
(2) Use. In addition, without Landlord's prior written consent, Tenant
shall not use, store or permit to remain on the Premises any solid,
liquid or gaseous matter which is, or may become, radioactive. If
Landlord does give its consent, Tenant shall store the materials in
such a manner that no radioactivity will be detectable outside a
designated storage area and Tenant shall use the materials in such a
manner that (1) no real or personal property outside the designated
storage area shall become contaminated thereby or (2) there are and
shall be no adverse effects on the (i) health or safety of persons,
whether on the Premises or anywhere else, (ii) condition, use or
enjoyment of the Premises or any real or personal property thereon or
therein, or (iii) Premises or any of the improvements thereto or
thereon.
28.3 DISPOSAL OF WASTE
(1) Refuse Disposal. Tenant shall not keep an trash, garbage, waste or
other refuse on the Premises except in sanitary containers and shall
regularly and frequently remove same from the Premises. Tenant shall
keep all incinerators, containers or other equipment used for the
storage or disposal of such materials in a clean and sanitary
condition.
(2) Sewage Disposal. Tenant shall properly dispose of all sanitary sewage
and shall not use the sewage system (1) for the disposal of anything
except sanitary sewage or (2) in excess of the lesser of the amount
(a) reasonably contemplated by the uses permitted under this Lease or
(b) permitted by any governmental entity. Tenant shall keep the sewage
disposal system free of all obstructions and in good operating
condition.
(3) Disposal of Other Waste. Tenant shall properly dispose of all other
waste or other matter delivered to, stored upon, located upon or
within, used on, or removed from, the premises in such a manner that
it does not, and will not, adversely affect the (1) health or safety
of persons, wherever located, whether on the Premises or elsewhere,
(2) condition, use or enjoyment of the Premises or any other real or
personal property, wherever located, whether on the Premises or
anywhere else, or (3) Premises or any of the improvements thereto or
thereon including buildings, foundations, pipes, utility lines,
landscaping or parking areas.
29.1 COMPLIANCE WITH LAW Notwithstanding any other provision in the Lease to the
contrary, Tenant shall comply with all Laws in complying with its
obligations under this Lease, and in particular, Laws relating to the
storage, use and disposal of hazardous or toxic matter.
30.1 INDEMNIFICATION Tenant shall defend, indemnify and hold Landlord, the other
Protected Parties, the Project and the beneficiary under a trust deed, or
mortgagee, holding a security interest in the Project harmless from any
loss, claim, liability or expense, including, without limitation, attorneys
fees and costs, at trial and/or on appeal and review, arising out of or in
connection with its failure to observe or comply with the provisions of
this Section. This indemnity shall survive the expiration or earlier
termination of the term of the Lease or the termination of Tenant's right
to possession and be fully enforceable thereafter.
31.1 ADDITIONAL PROVISIONS The following covenants and agreements shall in no
way diminish or limit the foregoing provisions of this Section. No use may
be made of, on or from the Premises relating to the handling, storage,
disposal, transportation or discharge of Hazardous Substances (as defined
below). All of such use which does occur shall be in strict conformance
with all Laws. Tenant shall give prior written notice to Landlord of any
use, whether incidental or otherwise, of Hazardous Substances on the
Premises, or of any notice of any violation of any Law with respect to such
use. Landlord and any ground lessor or master lessor of the Premises and/or
the Project shall have the right to request and to receive information with
respect to use of Hazardous Substances on the Premises in writing.
In addition to the indemnity obligations contained elsewhere herein, Tenant
shall indemnify, defend and hold harmless Landlord, the other Protected
Parties, the Premises, the Project, and the beneficiary under a trust deed,
or a mortgagee, holding a security interest in the Project, from and
against all claims, losses, damages, costs, response costs and expenses,
liabilities, and other expenses caused by, arising out of, or in connection
with, the generation, release, handling, storage, discharge,
transportation, deposit or disposal in, on, under or about he Premises by
Tenant or any of Tenant's Agents of the following (collectively referred to
as "Hazardous Substances"): hazardous materials, hazardous substances,
toxic wastes, toxic substances, pollutants, petroleum products, underground
tanks, oils, pollution, asbestos, PCB's, materials, or contaminants, as
those terms are commonly used or as defined by federal, state and/or local
law or regulation related to protection of health or the environment,
including but not limited to, the Resource Conservation and Recovery Act
(RCRA) (42 U.S.C. ss. 6901 et seq.); the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA) (42 U.S.C.ss. 9601, et
seq.); the Toxic Substances Control Act (15 U.S.C. ss. 2601, et seq.); the
Clean Water Act (33 U.S.C. ss. 1251, et seq.); the Clean Air Act (42 U.S.C.
ss. 7401, et seq.); and ORS Chapters 453, 465 and 466 as any of the same
may be amended from time to time, and/or by any rules and regulations
promulgated thereunder. Such damages, costs, liabilities, and expenses
shall include such as are claimed by any regulating and/or administering
ground lessor or master lessor of the Project, the holder of any Mortgage
or Deed of Trust on the Project, and/or any successor of the Landlord named
herein. This indemnity shall include (a) claims of third parties, including
governmental agencies, for damages, fines, penalties, response costs,
monitoring costs, injunctive or other relief; (b) the costs, expenses or
losses resulting from any injunctive relief, including preliminary or
temporary injunctive relief; (c) the expenses, including fees of attorneys
and experts, of reporting the existence of Hazardous Substances to an
agency of the State of Oregon or of the United States as required by
applicable laws and regulations; (d) any and all expenses or obligations,
including attorney's and paralegal fees, incurred
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at, before and after any trial or appeal therefrom or review thereof, or an
administrative proceeding or appeal therefrom or review thereof, whether or
not taxable as costs, including, without limitation, attorney's fees,
paralegal fees, witness fees (expert and otherwise), deposition costs,
photocopying and telephone charges and other expenses related to the
foregoing, all of which shall be paid by Tenant to Landlord when such
expenses are accrued. This indemnity shall survive the expiration or
earlier termination of the term of the Lease or the termination of Tenant's
right to possession and be fully enforceable thereafter. RIDER NO. 44
32.1 INFORMATION Tenant shall provide Landlord with any and all information
regarding Hazardous Substances in the Premises, including contemporaneous
copies of all filings and reports to governmental entities, and any other
information requested by Landlord. In the event of any accident, spill or
other incident involving Hazardous Substances, Tenant shall immediately
report the same to Landlord and supply Landlord with all information and
reports with respect to the same. All information described herein shall be
provided to Landlord regardless of any claim by Tenant that it is
confidential or privileged.
33.1
RIDER NO. 45
Tenant: MEDICALOGIC, INC., an Oregon corporation
MARK LEAVITT GUY E. FIELD
--------------------------------------------------
By: Mark K. Leavitt Guy E. Field
By: President Controller
Landlord: EVERGREEN CORPORATE CENTER LLC, an Oregon limited
liability company
By: Marzer Venture, an Oregon general partnership
By: MELVIN MARK
---------------------------------------------------
Its: Partner
--------------------------------------------------
By: Schnitzer Investment Corp., an Oregon corporation
By: KEN NOVACK
---------------------------------------------------
Its:
--------------------------------------------------
Exhibits
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A - Premises A-1 Measurement Standards for each floor
B - Project
C - Landlord's Work Plans
D - Work Agreement
E - Rules and Regulations
F - Sign Regulations
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ADDENDUM TO LEASE
DATED: January 15, 1997
BETWEEN: EVERGREEN CORPORATE CENTER LLC,
an Oregon limited liability company ("Landlord")
AND: MEDICALOGIC, INC., an Oregon corporation ("Tenant")
The following modifications and insertions, numbered Rider No. 1 to
and including Rider No. 45, are hereby incorporated into the Lease and shall be
deemed made at the respective places indicated throughout the Lease. Any
reference to the Lease in the following provisions of this Addendum shall be
deemed to include this Addendum, unless otherwise specified in such reference.
The capitalized terms used in this Addendum which are defined in the Lease shall
have the meanings given to them in the Lease.
Rider No. 1. Insert Section 1.1(e), Page 1:
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The Premises will be in a two story building to be constructed by
Landlord and are outlined on the attached Exhibit A. Both floors in the Premises
shall be measured in accordance with Portland NAIOP measurement standards, a
copy of which is attached as Exhibit A-1.
Rider No. 2. Insert Section 1.1(f), Page 1:
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At the time this Lease is executed, the Project is under construction.
The current conceptual plan for the Project is attached as Exhibit B. The
location and size of the buildings shown on Exhibit B may change from time to
time. Also, the total amount of square footage in the Project shall vary over
the Term of the Lease. Tenant's percent of the Project for purposes of
determining Tenant's share of Expenses pursuant to Section 4.3 of the Lease
shall be determined by multiplying the Expenses by a fraction, the numerator of
which shall be the number of square feet in the Premises from time to time
(initially 75,010) and the denominator which shall be the total number of square
feet of completed and leasable space in the Project from time to time. The
remaining development of the Project shall be compatible with that portion of
the Project which is constructed as of the date of this Lease and the portion to
be constructed as provided in this Lease. That is, the structures, landscaping
and parking shall be similar and no special or materially different amenities in
the common areas (such as water fountains, for example) are contemplated and, if
Landlord constructs such a special or materially different amenity in the common
area, the costs thereof shall not be included in Expenses payable by Tenant
unless Tenant first consents to the construction of such amenity.
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Rider No. 3. Insert Section 1.1(h), Page 1:
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The term of the Lease (the "Term") shall commence on the earlier of
(a) the date on which Tenant first takes occupancy of the Premises; or (b) the
date on which Landlord's Work (as defined below) is substantially completed as
certified by Landlord's architect, a temporary certificate of occupancy is
received, access to the Premises is completed as required by Laws, and parking
areas are completed consistent with the provisions of Section 10.1 (the
"Commencement Date"). The Term shall expire, unless sooner terminated or
extended pursuant to the provisions of the Lease, 120 months after the
Commencement Date. If the Lease is fully executed and delivered by January 17,
1997 and all information and approvals as requested by Landlord regarding
details, colors, finishes or other issues relating to Landlord's Work (as
defined below) are received by Landlord in writing from Tenant on or before
March 15, 1997, then the anticipated substantial completion date of Landlord's
Work shall be December 15, 1997, subject to delays caused by Tenant, delays
caused by Tenant's requested changes to any plans related to Landlord's Work, or
to delays caused by forces and events outside of Landlord's control, such as
delays caused by abnormally adverse weather, labor dispute, strike, civil
commotion, rebellion, hostilities, military or other usurped power, sabotage,
governmental regulations or controls, delay in issuance of any permit beyond 30
days after an application therefor (which is, to the best of Landlord's
knowledge, a completed application) is submitted, inability, due to reasons
beyond Landlord's control, to obtain labor, services or materials, or acts of
God (collectively, "Force Majeure"). If substantial completion of Landlord's
Work is delayed past March 31, 1998, as extended, day for day, for days of delay
caused by Tenant, by Tenant's requested changes to any plans related to
Landlord's Work, or by Force Majeure, then for each day of delay in substantial
completion of Landlord's Work beyond March 31, 1998 except for days of delay
caused by Tenant, by Tenant's requested changes to any plans related to
Landlord's Work, or by delays caused by Force Majeure, Tenant shall receive a
credit against Base Rent payable under this Lease in an amount equal to $653.47
per day. Tenant hereby accepts the Landlord's Work Plans (defined below) as
complete and as comprising the totality of Landlord's Work. Tenant shall be
permitted to enter the Premises approximately 45 days prior to the Commencement
Date for the purpose of rough-wiring Tenant's telephone, alarm, and data systems
to perimeter walls. Such work shall be in compliance with the provisions of
Section 2.7, 2.8 and 2.9 of the Work Agreement attached as Exhibit D. Tenant
shall provide promptly upon Landlord's request information regarding details,
colors, finishes and other issues relating to Landlord's Work so that Landlord
may apply for applicable permits by March 15, 1997.
Rider No. 4. Insert Section 2.1, Page 1:
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Landlord shall give Tenant notice when the Premises are ready
for occupancy.
Rider No. 5. Insert Section 2.1, Page 1:
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, and subject to latent defects but only to the extent the costs of
correction of such latent defects are paid for under any applicable guaranty,
warranty or contractual commitment provided by Baugh Construction Oregon, Inc.
(the "Contractor"). Landlord agrees to use commercially reasonable efforts to
enforce applicable guaranties, warranties and the construction
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contract with the contractor (the "Construction Contract") related to correction
of latent defects at Tenant's cost and expense. The limitation on Landlord's
liability in this Lease related to the Building and Landlord's Work shall not
limit the Contractor's liability. The Construction Contract shall contain
substantially the same warranty as that which is set forth in AIA Form A201-1976
or terms more favorable to landlord. "Punchlist items" shall mean minor items
which do not interfere with Tenant's use of the Premises for its intended
purpose. Landlord shall complete all punchlist items within 60 days of the date
of Tenant's and Landlord's agreement as to the items on the punchlist, subject
to additional time needed to complete warranty items and delays due to Force
Majeure including additional time needed to obtain materials.
Rider No. 6. Insert Section 2.1(2), Page 2:
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the date on which the building permits for Landlord's Work are issued.
Rider No. 7. Insert Section 2.1(2), Page 2:
- ------------------------------------------
However, Landlord agrees to use commercially reasonable efforts to
enforce any applicable guaranties, warranties or Construction Contract claims
related to the correction of the violation at Tenant's cost and expense.
Landlord represents to Tenant that the Premises are zoned MP by the City of
Hillsboro, which zoning designation permits office use.
Rider No. 8. Insert Section 3.1, Page 2:
- ---------------------------------------
one day earlier than the date of substantial completion of Landlord's
Work for each day of delay caused by any reason attributable to Tenant (each a
"Tenant Delay Day"). Tenant acknowledges that Landlord shall not be obligated to
engage overtime labor in order to reduce delay due to Force Majeure unless
Tenant requests such overtime labor and pays for such overtime labor.
Rider No. 9. Insert Section 4.3(1)(b), Page 2:
- ---------------------------------------------
excluding janitorial costs related to the interior of buildings in the
Project;
Rider No. 10. Insert Section 4.3(1)(c), Page 2:
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; provided, however, that Expenses shall not include maintenance,
replacement or repair costs relating to individual tenant premises which
maintenance, replacement or repair is in excess of the type of maintenance,
replacement or repair required to be provided by Landlord to Tenant under this
Lease.
Rider No. 11. Insert Section 4.3(1)(e), Page 2:
- ----------------------------------------------
Real Property Taxes shall not include assessments (such as local
improvement districts) for construction of improvements in the initial
development of the Project but Real Property Taxes will include ad valorem taxes
assessed on such improvements.
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Rider No. 12. Insert Section 4.3(1), Page 2:
- -------------------------------------------
The term "Expenses" shall not include the following:
(i) Ground lease rental.
(ii) Amortization and interest pay1ments on Landlord's mortgage
financing.
(iii) Depreciation.
(iv) Costs incurred in the initial development and construction of the
Project.
(v) The costs of correcting defects in construction which are paid by
enforcement of applicable guaranties or warranties.
(vi) The cost of tenant improvements provided inside buildings.
(vii) Leasing commissions or brokerage commissions.
(viii) Legal expenses for disputes with other tenants.
(ix) Legal, auditing, and consulting fees other than those incurred in
connection with operation, maintenance, repair or replacement of the Project.
(x) Costs incurred in performing maintenance and repairs or furnishing
services for individual tenants which work or services is in excess of the type
of maintenance and repair or services required to be provided by Landlord to
Tenant under this Lease.
(xi) Expenses incurred in leasing transactions or procuring new
tenants.
(xii) Expenses for repair or replacement paid by proceeds of
condemnation awards and costs due to casualty (other than commercially
reasonable deductible amounts under insurance policies which shall be included
in Expenses).
(xiii) Wages, costs and salaries associated with offsite employees of
Landlord other than services provided by such employees which would otherwise be
provided by outside persons, and wages, costs and salaries attributable to
persons above the level of property manager; provided, however, that Tenant
acknowledges the right of Landlord to charge (a) a management fee not to exceed
four percent of gross rents and revenues of the Project, (b) construction
management fees not to exceed ten percent of the costs, fees and expenses in
connection with construction, and (c) an additional charge on costs of labor and
personnel not to exceed fifteen percent thereof.
(xiv) Any costs representing an amount paid to any entity related to
Landlord which is in excess of the amount which would have been paid in the
absence of such relationship subject to the proviso regarding the fees and
charges set forth in paragraph (xiii) above.
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(xv) Damages payable by Landlord due to a default by Landlord under
any lease or fines, penalties or interest charged by a governmental entity
arising from Landlord's violation of any governmental laws, rules, regulations,
or ordinances applicable to the Project.
Rider No. 13. Insert Section 4.3(3), Page 3:
- -------------------------------------------
Tenant shall pay its annual share of estimated Expenses in monthly
installments of one-twelfth (1/12) each beginning on the Commencement Date and
continuing thereafter on the first day of each calendar month, in advance,
throughout the Term. Landlord may revise its estimate of Tenant's share of
Expenses from time to time. When Landlord revises its estimate of Tenant's share
of Expenses, and Landlord gives written notice to Tenant of such revised
estimate, Tenant shall make revised payments of Expenses pursuant to such notice
commencing on the first day of the calendar month following Landlord's notice of
the revised estimate and continuing on the first day of each calendar month
until the estimated payments are again revised.
Rider No. 13a. Insert Section 4.3(3), Page 3:
- --------------------------------------------
until the earlier of (a) 365 days following the date of receipt of the
Notice, or (b) the date Landlord issues its accounting for Expenses for the next
succeeding calendar year (the "Objection Deadline") to
Rider No. 14. Insert Section 4.3(3), Page 3:
- -------------------------------------------
No later than on the Objection Deadline, Tenant's employee or Tenant's
authorized representative (which must be a certified public accountant paid on
an hourly basis and not on a contingent fee basis) may, at Tenant's expense,
after reasonable prior notice to Landlord, and at a reasonable time, audit
Landlord's books and records for the calendar year pertaining to the Notice for
the purpose of verifying Landlord's calculation of the Expenses for the year in
question. If such audit reveals any errors, and if Landlord does not dispute the
audit, appropriate adjustments shall be made. If Landlord disputes the results
of the audit and Landlord and Tenant are unable to agree on the appropriate
adjustment to be made, if any, then the dispute shall be resolved by a
nationally recognized accounting firm not then employed by Landlord or Tenant
selected by Tenant from a list of three names given by Landlord to Tenant (the
"Arbitrator"). The decision by the Arbitrator shall be binding on the parties
and any adjustment required by the Arbitrator's decision shall promptly be made
after receipt of the Arbitrator's decision. The parties shall share equally the
cost of the Arbitrator. Tenant shall give Landlord a copy of the audit results.
The fact of the audit itself, the results of the audit, and any adjustments made
to Expenses shall be kept confidential by Tenant.
Rider No. 15. Insert Section 4.3(4), Page 3:
- -------------------------------------------
within five days after it is
5
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Rider No. 16. Insert Section 7.1, Page 3:
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Landlord shall build the base building in which the Premises are
located (the "Building") and Landlord shall provide certain tenant improvements
in the Premises, all as specifically described in the scope narrative, the
plans, and the specifications prepared by Zimmer Gunsul Frasca, the partition
plan, and the electrical plan, all attached as Exhibit C (collectively, the
"Landlord's Work Plans"). Landlord shall obtain all permits and approvals
required for Landlord's Work. Landlord shall perform all of Landlord's Work in a
good and workmanlike manner using new materials. The work specified in the
Landlord's Work plans is collectively referred to in this lease as "Landlord's
Work". All other improvements, alterations, and modifications to the Premises,
additional finish items, all changes to Landlord's Work, and all changes to
Landlord's Work plans, if any (collectively and individually, the "Additional
Work") shall be first approved in writing by Landlord and the costs, fees, and
expenses thereof, including without limitation, the costs, fees, and expenses of
obtaining all necessary permits and approvals of design, construction, and
installation thereof, together with supervision fees by the manager of the
Project and any costs, fees, or expenses incurred due to corresponding changes
to other items of Landlord's Work required as a result thereof (collectively,
the "Additional TI Costs") shall be paid in full by Tenant prior to the
Commencement Date of the Lease (except to the extent payable by Tenant as a
First TI Loan or a Second TI Loan pursuant to Section 36.1 of the Lease). The
Work Agreement attached as Exhibit D is incorporated in this Lease by this
reference.
Rider No. 17. Insert Section 7.1, Page 3:
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; provided, however, that (unless required by any Laws) no such
modifications, alterations, deletions, or improvements shall reduce the parking
ratio for the Project below the ratio set forth in Section 10.1 or materially
adversely restrict access to the Premises from N.W. Evergreen Parkway.
Rider No. 18. Insert Section 7.1, Page 3:
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The current rules and regulations pertaining to the Project with which
Tenant shall comply are attached to this Lease as Exhibit E.
Rider No. 19. Insert Section 10.1, Page 4:
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Tenant shall not park nor allow its employees, invitees, and customers
collectively to park in excess of four automobiles for every 1,000 square feet
leased by tenant in the center at any point in time.
Rider No. 20. Insert Section 10.1, Page 4:
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; provided, however, that (unless required by any laws), landlord
shall not have the right to reduce the parking available to tenant below the
ratio set forth in this Section.
6
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Rider No. 21. Insert Section 11.1, Page 4:
- -----------------------------------------
Tenant shall pay its share of utilities used in or related to the
operation and maintenance of the Project as part of Expenses as described in
Section 4.3(1).
Rider No. 22. Insert Section 12.1, Page 4:
- -----------------------------------------
Landlord shall maintain, in good condition, the structural parts of
the building which shall include only the foundation, the structural parts of
the bearing and exterior walls (excluding glass), the structural parts of the
subflooring and the structural portions of the roof (excluding skylights), and
the unexposed portions of the
Rider No. 23. Insert Section 12.1, Page 4:
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Except as expressly set forth in the first sentence of Section 12.1
and below in this paragraph, from and after the Commencement Date, Tenant shall
be fully responsible for the maintenance, repair, replacement, and operation, in
good operating order and condition, of the interior and exterior of the
Building, and its systems and equipment including without limitation the
heating, ventilating and air conditioning systems and equipment ("HVAC"), the
roof, and the elevator. Landlord's sole obligations are set forth in the first
sentence of Section 12.1. However, so long as (a) Landlord's designated Project
property manager ("Landlord's Property Manager") manages the maintenance and
repair of the Building and its systems pursuant to a written property management
contract between Tenant and Landlord's Property Manager containing a scope of
work reasonably satisfactory to Landlord, and (b) such contract is in full force
and effect, then Landlord agrees to be responsible to maintain, repair, and
replace the roof and any leaking windows. As of the date of this Lease, Melvin
Mark Brokerage Company is Landlord's Property Manager. Tenant shall provide its
own janitorial services and, in all respects, maintain the Building in good and
clean operating condition throughout the Term of the Lease. Tenant shall provide
regular service and maintenance of the HVAC, the elevator, the electrical
system, and all other Building systems and equipment, and regular pest control
services throughout the Term using contractors first approved by Landlord, which
approval shall not be unreasonably withheld. Landlord shall also have the right
to approve the scope of work to be provided under each such contract so that
Landlord is reasonably satisfied that the Building and its systems and equipment
will be properly maintained and inspected throughout the Term.
Rider No. 24. Insert Section 12.1, Page 4:
- -----------------------------------------
Landlord shall use its commercially reasonable efforts to enforce on
Tenant's behalf and at Tenant's expense all applicable construction and
equipment warranties.
Rider No. 25. Insert Section 13.1, Page 4:
- -----------------------------------------
either without Landlord's permission or alterations as to which
Landlord required removal in connection with Landlord's approval of the
alteration. Whenever Tenant requests Landlord's consent to any alteration,
Tenant shall also request Landlord's decision at that time whether Landlord will
require the alteration in question to be removed at the end of the Term. If
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Tenant does not request such decision at that time, or if Landlord responds to
such request with a requirement that Tenant remove the alteration in question,
then Landlord shall be free to require Tenant to remove such alteration at the
end of the Term as provided in this Section 13.1.
Rider No. 26. Insert Section 14.1, Page 5:
- -----------------------------------------
(except as expressly provided below)
Rider No. 27. Insert Section 14.1, Page 5:
- -----------------------------------------
Landlord shall indemnify, defend, and hold Tenant harmless from all
claims, losses, causes of action, costs and expenses, and damages arising out of
(a) Landlord's or its agents' negligence or willful misconduct and/or (b)
Landlord's default or violation of any term of this Lease which is not corrected
within a reasonable time after Tenant's notice to Landlord thereof. However,
Landlord shall never be liable for consequential damages such as lost profits.
Rider No. 28. Insert Section 15.1, Page 5:
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Neither party shall be liable to the other party for any loss or
damage caused by any of the risks covered by "all risk" insurance coverage, and
there shall be no subrogated claim by one party's insurance carrier against the
other party arising out of any such loss.
Rider No. 29. Insert Section 16.1, Page 5:
- -----------------------------------------
Then Landlord shall give Tenant a notice as to Landlord's estimate of
the time period reasonably required to complete the restoration (the "Damage
Assessment"). If the Damage Assessment shall state that the reconstruction shall
require more than 270 days to complete following receipt of governmental
approvals required therefor, then this Lease may be terminated by Landlord or
Tenant by its giving to the other party written notice of such termination
within 30 days after Tenant's receipt of the Damage Assessment. In the event of
the giving of such notice of termination, this Lease shall expire as of the date
of such notice given in accordance with the terms of this paragraph, with the
same effect as if such date were the Expiration Date. In the event that Landlord
fails to substantially complete the repairs by the date specified in the Damage
Assessment, Tenant shall have the right to terminate this Lease with written
notice given no later than 15 days after the date specified in the Damage
Assessment if Landlord's failure to complete such repairs on the date specified
in the Damage Assessment is not caused in whole or in part by delays due to
Force Majeure or delays caused by Tenant. If the Lease is not terminated
pursuant to this Section 16.1,
Rider No. 30. Insert Section 17.1(4), Page 5:
- --------------------------------------------
; provided, however, Landlord shall not use this termination provision
in bad faith.
8
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Rider No. 31. Insert Section 18.1(4), Page 6:
- --------------------------------------------
Which consent shall not be unreasonably withheld or delayed. Landlord
may condition its consent on reasonable conditions. Should Landlord withhold its
consent to a proposed assignment or subletting or any other transfer of Tenant's
rights under this Lease (each a "Transfer") for any of the following reasons,
the withholding of consent shall be deemed reasonable: (A) conflict or
incompatibility of the proposed use with uses appropriate in a professional
business park; (b) financial inadequacy of the proposed transferee as reasonably
determined by Landlord; (c) any proposed change in use which would diminish the
professional nature of the Project or of the other businesses located in the
Project; (d) the proposed use would adversely impact the use of the common
facilities by other tenants of the Project; (5) Tenant is then in default of the
Lease beyond any applicable cure period; and (6) any other reasonable criteria.
Landlord shall not be required to consent to a Transfer to any person or entity
with whom Landlord or its agents is then negotiating the terms of a lease of any
other portion of the Project; provided, however, that with respect to a sublease
of no more than 30 percent of the Premises entered into during the initial two
years of the Term, (x) Landlord shall not be allowed to withhold its consent to
the sublease to a person or entity based solely on the fact that Landlord or its
agents is then negotiating the terms of a lease of another portion of the
Project with that same person or entity, and (y) Landlord shall not use
financial ability of the proposed subtenant as a criterion for withholding its
consent to the sublease. Landlord shall not be required to consent to any
Transfer at any time to an existing tenant or occupant of the Project. No
Transfer shall result in Tenant being released from any obligation under this
Lease. As a condition to Landlord's prior written consent as provided in this
Section 18.1, the transferee shall agree in writing to comply with and be bound
by all of the terms, covenants, conditions, provisions, and agreements of this
Lease and Tenant shall deliver to Landlord promptly after execution an executed
copy of all agreements of such compliance by each transferee.
Rider No. 32. Insert Section 18.1, Page 6:
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; provided, however, if the net worth of Tenant after the transfer at
issue would be less than either (x) the net worth of Tenant as of the date of
this Lease, or (y) the net worth of Tenant prior to the transfer, then Landlord
may refuse its consent to the transfer at issue.
Rider No. 33. Insert Section 18.1, Page 6:
- -----------------------------------------
or to transfers to shareholders of record on the date of this Lease or
to transfers by shareholders of record on the date of this Lease to family
members or trusts for the benefit of family members of such shareholders. Tenant
shall have the right to assign this Lease or sublease all or part of the
Premises to any entity which is controlled by, under the control of, or under
common control with Tenant, or any corporation into which Tenant may be merged
or consolidated, or which purchases all or substantially all of the assets of
Tenant (each an "Affiliate of Tenant"); provided, however, (a) Tenant shall not
be released from its obligations under this Lease, (b) Landlord shall be given
at least 15 days prior written notice of the assignment or sublease, (c)
Landlord shall be given a copy of the document effecting the assignment or
sublease at least 15 days prior to the date on which the assignment or sublease
9
<PAGE>
shall occur, and (d) from and after the date of the assignment or sublease,
Tenant shall be jointly and severally liable with the Affiliate of Tenant with
respect to all obligations of Tenant under this Lease.
Rider No. 34. Insert Section 19.1, Page 6:
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within ten days after written notice that it is due; provided,
however, that Landlord shall not be obligated to give a ten day notice and
opportunity to cure more than once during any single twelve-month period. If
Tenant fails to pay rent or any other charge on the date it is due a second time
within any twelve-month period, such failure to pay rent or other charge shall
be an automatic event of default at Landlord's option without need for further
notice or opportunity to cure;
(b) failure to comply with Laws which failure materially affects the
operations or quality of the Project or may result in a claim, fine or penalty
against Landlord, failure to carry the insurance required of Tenant under this
Lease, or the failure of Tenant to deliver a subordination agreement or estoppel
certificate within the time required by Section 22.1 of this Lease within five
days after written notice by Landlord. No notice and no opportunity to cure
shall be required if Landlord has previously given Tenant notice of failure to
comply with the same provision of this Lease;
(c) failure to comply with the provisions of Section 10.1 of the Lease
within five days after written notice by Landlord; provided, however, that
Landlord shall not be obligated to give a five day notice and opportunity to
cure more than once during any single twelve-month period. If Tenant fails to
comply with the provisions of Section 10.1 of the Lease a second time within any
twelve-month period, such failure to comply shall be an automatic event of
default at Landlord's option without need for further notice or opportunity to
cure;
(d) failure of Tenant to comply with any other term or condition of
this Lease or to fulfill any other obligation of this Lease within 30 days after
written notice from Landlord specifying the nature of the failure or, if such
failure cannot be cured within such 30 day period, Tenant shall not be in
default if, promptly after Landlord's notice to Tenant, Tenant begins its cure
of the failure and diligently prosecutes such cure to completion. Landlord shall
not be obligated to give written notice for the same type of failure more than
once during any single twelve-month period; at Landlord's option, a failure to
perform an obligation again after the first notice during any twelve-month
period shall be an automatic event of default, without notice or any opportunity
to cure.
Rider No. 35. Insert Section 20.1, Page 6:
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Notwithstanding any provisions in this Section to the
contrary, Landlord shall have the duty to exercise its reasonable efforts to
mitigate damages in accordance with Oregon law.
10
<PAGE>
Rider No. 36. Insert Section 20.1, Page 6:
- -----------------------------------------
after notice thereof by Landlord beyond the cure period set forth in
Section 19.1,
Rider No. 37. Insert Section 21.1, Page 6:
- -----------------------------------------
after reasonable oral notice in non-emergency situations
Rider No. 38. Insert Section 22.1, Page 7:
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Landlord shall deliver to Tenant within 30 days after execution of
this Lease or such additional time as may be reasonably required by Landlord to
obtain such agreement, a nondisturbance agreement in form and substance
reasonably acceptable to Tenant from any existing mortgagee or beneficiary of a
deed of trust with a lien on the Project or any existing ground lessor with
respect to the Project. The commencement of Tenant's obligation to pay rent
shall be contingent upon Landlord's compliance with the terms of this Section
22.1. Tenant's subordination to any future mortgage, trust deed or ground lease
shall be contingent upon the delivery of a non-disturbance agreement in form and
substance reasonably acceptable to Tenant from any future mortgagee, beneficiary
or ground lessor.
Rider No. 39. Insert Section 22.1, Page 7:
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Tenant's obligation under the last sentence of this section 22.1 shall
be to deliver its most recent audited financial statement (which shall be
current at least to the most recently ended fiscal year) and its most recent
unaudited financial statement which shall be current at least to the most
recently ended calendar quarter of tenant's fiscal year. Landlord agrees to keep
confidential any such financial statements which are not already public
information except that landlord may disclose all financial statements to its
advisors, prospective and current lenders, and prospective and current
purchasers.
Rider No. 40. Insert Section 23.1, Page 7:
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In order for any notices given to Landlord to be effective, such
notices must be addressed to Landlord and delivered to the following addresses
(or to such other addresses as Landlord may designate in writing from time to
time in accordance with the notice provisions of Section 23.1 of the Lease):
Melvin Mark Companies
Attn: Mr. Daniel J. Petrusich
Suite 1380
111 SW Columbia Street
Portland, OR 97201
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With a copy to:
Schnitzer Investment Corp.
Attn: Mr. Kenneth M. Novack
3200 NW Yeon Street
Portland, OR 97210
Rider No. 41. Insert Section 25.1, Page 7:
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and damage by fire or other casualty
Rider No. 42. Insert Section 25.1, Page 7:
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to the extent required pursuant to the provisions of Section 13.1 of
this Lease. Restoration of wall surfaces shall not include repainting of wall
surfaces but shall include patching and preparing such wall surfaces for paint
Rider No. 43. Insert Section 25.1(5), Page 8:
- --------------------------------------------
concerning this Lease, the Premises or the Project
Rider No. 44. Insert Section 31.1, Page 10:
- ------------------------------------------
Landlord represents and warrants to Tenant that, to the best of
Landlord's actual and present knowledge, without inquiry except for the review
of a Phase I Environmental Property Assessment prepared by PBS Environmental
dated December 1995, no hazardous substances have been generated, released,
handled, stored, discharged, transported, deposited or disposed in, on, or under
or about the Premises or the Project.
Rider No. 45. Insert Page 10: The following provisions are hereby added to the
- ----------------------------
Lease:
33.1 Option to Extend.
----------------
33.1.1 If the Lease is not then in default and if Tenant has not
assigned the Lease or subleased more than 50% of the Premises, Tenant shall have
the right to extend the term of the Lease for two successive periods of five
years each (the "Options to Extend"). Tenant shall exercise each Option to
Extend by delivering written notice of such exercise not less than 365 days
prior to the last day of the then expiring Term. The giving of such notice shall
be sufficient to make the Lease binding on the parties for the extended term in
question without further action of the parties. The extended term shall commence
on the day following the date of expiration of the immediately preceding term.
The terms and conditions of the Lease for the extended term shall be identical
to the immediately preceding term except for Base Monthly Rent. During the
extended term, Base Monthly Rent shall be adjusted to equal the greater of
(a) the Base Monthly Rent in effect at the end of the immediately preceding
term, or (b) the fair market rental value of the premises for the extended term,
determined as hereinafter provided. Within 30 days after the exercise of an
Option to Extend, Landlord shall notify Tenant of its determination of the fair
market rental value. Within 30 days after the effective date of such notice,
Tenant shall either
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(x) notify Landlord of Tenant's acceptance of Landlord's determination of the
fair market rental value, in which event Base Monthly Rent for the extended term
shall be as so determined by Landlord; or (y) notify Landlord of Tenant's
rejection of Landlord's determination of the fair market rental value, in which
event the fair market rental value shall be determined in accordance with
Section 33.1.2 below. The failure of Tenant to give any notice within the
required time period shall be deemed an acceptance by Tenant of Landlord's
determination of the fair market rental value.
33.1.2 Within ten days after Tenant's rejection of Landlord's
determination of fair market rental value as provided in Section 33.1.1 above,
each party shall designate a representative who is either an Oregon licensed MAI
appraiser skilled in determining rental rates for office buildings in western
suburban areas of Portland, Oregon, or a real estate broker experienced in
leasing office space in office buildings located in the western suburbs of
Portland, Oregon. If the two representatives cannot agree within 30 days after
their selection on the fair market rental value, then the two representatives so
chosen shall select an arbitrator having the above qualifications or, if they
cannot agree, the presiding judge of the Circuit Court of Multnomah County or
Washington County, Oregon, shall, upon application by either party, select an
arbitrator having the above qualifications. Within 90 days prior to the
commencement of the extended term, each party's representative shall submit to
the arbitrator a written report stating such representative's opinion of the
fair market rental value of the Premises for the extended term in question,
based on a consideration of all factors appropriate to determining fair market
rental value for the extended term in question including without limitation
rental rates then being charged (under the most recently executed leases) in
space comparable to the Premises in buildings comparable to the Building and
concessions available to comparable tenants for comparable space. Within 30 days
after receipt of such reports, the arbitrator shall accept one or the other of
the reports. The determination of the fair market rental value in the report so
accepted shall be binding on the parties; provided, however, that Base Monthly
Rent during any extended term shall not in any event be less than Base Monthly
Rent payable during the immediately preceding term. The cost of the
determination of the fair market rental value pursuant to this Section 33.1.2
shall be shared equally by Landlord and Tenant. If the arbitrator does not
decide the fair market rental value prior to the commencement date of the
renewal term in question, Base Monthly Rent shall continue to be payable in the
amount previously in effect, and retroactive adjustment shall be made when the
arbitrator reaches a decision.
34.1 Satellite Dish
--------------
34.1.1 Grant of License. Landlord hereby grants Tenant a
nonexclusive license to install on the roof of the building a satellite dish of
no more than three feet in diameter and the nonexclusive right to run connecting
lines to such satellite dish from the Premises (such satellite dish and such
connecting lines and equipment are herein referred to as the "Equipment").
Tenant shall not penetrate the roof in connection with any installation or
reinstallation of the Equipment if such penetration may void or adversely affect
any applicable guaranty or warranty. The plans and specifications for all the
Equipment shall be approved by Landlord in writing prior to any installation.
Tenant shall be responsible for any damage to the roof or conduit systems as a
result of Tenant's installation, maintenance and/or removal of the Equipment.
13
<PAGE>
34.1.2 Location. The location of the satellite dish and the rest
of the Equipment shall be subject to Landlord's prior written approval. Tenant
shall not change the location of, or alter or install additional Equipment or
paint the satellite dish or the other Equipment without Landlord's prior written
consent.
34.1.3 Compliance with Law. Tenant, at Tenant's sole expense,
shall comply with all Laws regarding the installation, construction, operation,
maintenance and removal of the Equipment and shall be solely responsible for
obtaining and maintaining in force all permits, licenses and approvals necessary
for such operations.
34.1.4 Taxes. Tenant shall be responsible for and promptly shall
pay when due all taxes, assessments, charges, fees and other governmental
impositions levied or assessed on the Equipment or based on the operation
thereof.
34.1.5 Relocation. Landlord may require Tenant to relocate the
Equipment during the term of the Lease to a location approved by Tenant, which
approval shall not be unreasonably withheld or delayed. Landlord shall reimburse
Tenant for any direct third party expenses reasonably incurred by Tenant in so
relocating the Equipment upon receipt of invoices evidencing Tenant's incurring
of such expenses.
34.1.6 Interference. Operation of the Equipment shall not
interfere in any manner with equipment systems or utility systems of other
tenants, including without limitation, telephones, dictation equipment,
lighting, heat and air conditioning, computers, electrical systems, and
elevators. If operation of the Equipment causes such interference, Tenant
immediately shall suspend operation of the Equipment until such interference is
eliminated.
34.1.7 Maintenance and Repair. Tenant shall maintain the
Equipment in good condition and repair, at Tenant's cost and expense. Landlord
may from time to time require that Tenant repaint the satellite dish at Tenant's
expense to keep the same in an attractive condition.
34.1.8 Indemnity and Insurance. Tenant shall indemnify, defend,
protect and hold harmless Landlord pursuant to the Lease from and against any
and all claims related to the Equipment or operation of the same as if the
Equipment were located wholly within the Premises. Tenant shall provide evidence
satisfactory to Landlord that Tenant's property and liability insurance policies
required under the Lease include coverage for the Equipment and any claim, loss,
damage, or liability relating to the Equipment.
34.1.9 No Landlord Responsibility. Landlord shall have no
responsibility or liability whatsoever relating to (i) maintenance or repair of
the Equipment; (ii) damage to the Equipment; (iii) damage to persons or property
relating to the Equipment or the operation thereof; or (iv) interference with
use of the Equipment arising out of utility the interruption or any other cause.
Upon installation of the Equipment, Tenant shall accept the area where the
Equipment is located in its "as is" condition. Tenant acknowledges that the roof
location of the Equipment is suitable for Tenant's needs, and acknowledges that
Landlord shall have no
14
<PAGE>
obligation whatsoever to improve, maintain or repair the area in which the
Equipment will be installed.
34.1.10 Use. Tenant shall use the Equipment solely for operations
within the Premises and shall not use or allow use of the Equipment, for
consideration or otherwise, for the benefit of other tenants in the project or
any other person or entity.
34.1.11 Removal. Tenant shall, at Tenant's sole expense, remove
the satellite dish and such other portions of the Equipment as Landlord may
designate, and restore the affected areas to their condition prior to
installation of the Equipment (i) immediately upon request of Landlord, if
Tenant fails to perform any of its obligations under this Section 34.1, (ii)
immediately if such removal is required by any governmental agency having
jurisdiction over the Equipment, and (iii) in any event, no later than 30 days
after expiration or earlier termination of the Lease. If Tenant fails to remove
the Equipment when and as required under this Section 34.1, Landlord reserves
the right to do so, and the expense of the same shall be immediately due and
payable from Tenant to Landlord as additional rent, together with interest and
late charges as provided in the Lease.
34.1.12 Survival. The covenants, obligations and indemnities of
Tenant under this Section 34.1 shall survive expiration or earlier termination
of the Lease for any reason.
35.1 Communication Regarding Available Expansion.
-------------------------------------------
In the event Tenant informs Landlord that Tenant desires to lease
additional space in the Project, Landlord shall inform Tenant of the available
space, if any, which is not subject to prior rights held by other tenants or
prospective tenants of the Project and of the terms under which Landlord would
be willing to lease such available space to Tenant.
36.1 Tenant Improvement Loans.
------------------------
36.1.1 First Tenant Improvement Loan. As provided in Section 7.1,
Rider 16, and the Work Agreement, Tenant is required to pay the Additional TI
Costs in full prior to the Commencement Date of this Lease. If Tenant desires to
borrow funds from Landlord for such excess amount, Landlord agrees to loan funds
to Tenant in an amount not to exceed $75,010.00 solely for costs, fees, and
expenses to design and construct improvements in the Premises (the "First TI
Loan"). The First TI Loan shall accrue interest at the rate of 11 percent per
annum. Tenant shall repay the First TI Loan with monthly payments sufficient to
amortize the First TI Loan over the ten year term of the Lease beginning on the
Commencement Date and ending on the expiration date of the initial term of the
Lease, taking into account interest at the rate of 11 percent per annum.
Payments on the First TI Loan will begin on the Commencement Date and shall
continue on the first day of each month throughout the remainder of the initial
term of the Lease and shall be paid in full on or before the expiration date of
the initial term of the Lease or any earlier termination date. Landlord shall
inform Tenant of the monthly amount to be paid under the First TI Loan as soon
as practicable after substantial completion of the Tenant improvements. If the
amount is not determined prior to the Commencement Date, then Tenant's first
payment under the First TI Loan shall be sufficient to pay the monthly payments
15
<PAGE>
due from the Commencement Date to the date on which Tenant is informed of the
monthly payment amount. At Landlord's option, Landlord may prepare a promissory
note which Tenant shall execute and deliver to Landlord, setting forth the terms
of Tenant's obligation to repay the First TI Loan.
36.1.2 Second Tenant Improvement Loan. Landlord further agrees to
loan additional funds to be applied toward the Additional TI Costs in an amount
not to exceed $75,010.00 solely for costs, fees, and expenses to design and
construct improvements in the Premises (the "Second TI Loan"). The Second TI
Loan shall accrue interest at the rate of 11 percent per annum. Tenant shall
repay the Second TI Loan with monthly payments sufficient to amortize the Second
TI Loan over the initial two years of the Term beginning on the Commencement
Date and ending on the last day of the 24th month of the Term, taking into
account interest at the rate of 11 percent per annum. Payments on the Second TI
Loan will begin on the Commencement Date and shall continue on the first day of
each month thereafter and shall be paid in full on or before the end of the 24th
month of the Term or any earlier lease termination date. Landlord shall inform
Tenant of the monthly amount to be paid under the Second TI Loan as soon as
practicable after substantial completion of the Tenant improvements. If the
amount is not determined prior to the Commencement Date, then Tenant's first
payment under the Second TI Loan shall be sufficient to pay the monthly payments
due from the Commencement Date to the date on which Tenant is informed of the
monthly payment amount. At Landlord's option, Landlord may prepare a promissory
note which Tenant shall execute and deliver to Landlord, setting forth the terms
of Tenant's obligation to repay the Second TI Loan.
37.1 Force Majeure.
-------------
Whenever a period of time is prescribed in this Lease for action to be
taken by Landlord or for performance of any obligation of Landlord under this
Lease, Landlord shall not be responsible for, and there shall be excluded from
the computation of such period of time, any delays due to Force Majeure.
Whenever a period of time is prescribed in this Lease for action to be taken by
Tenant (except for the obligation to pay rent and other expenses or charges) or
for performance of any obligation of Tenant under this Lease (except for the
obligation to pay rent and other expenses or charges), Tenant shall not be
responsible for, and there shall be excluded from the computation of such period
of time, any delays due to Force Majeure.
38.1 Publicity.
---------
Neither Landlord nor Tenant will issue a press release regarding this
Lease without the prior written consent of the other party.
39.1 Authority.
---------
The person signing this Lease by Tenant represents that he has been
duly authorized by Tenant's board of directors to execute and deliver this Lease
which shall be binding on Tenant.
16
<PAGE>
Effect of Addendum. The Lease is modified only in the specific
respects set forth in this Addendum. Except as expressly modified, the Lease
remains in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Addendum as part of
the Lease as of the date first set forth above.
LANDLORD: EVERGREEN CORPORATE CENTER LLC
By: Marzer Venture, an Oregon general
partnership
By: Mark Group Partnership No. 4
By: MELVIN MARK
---------------------------
Title: Partner
------------------------
By: Schnitzer Investment Corp., an
Oregon corporation
By: KEN NOVACK
---------------------------
Title: President
------------------------
TENANT: MEDICALOGIC, INC., an Oregon corporation
By: MARK K. LEAVITT GUY E. FIELD
-------------------------------------
Title: President Controller
----------------------------------
17
<PAGE>
Maps and
exhibits omitted.
<PAGE>
AMENDMENT TO LEASE
DATED: July 15, 1999
BETWEEN: EVERGREEN CORPORATE CENTER LLC,
an Oregon limited liability company ("Landlord")
AND: MEDICALOGIC, INC., an Oregon corporation ("Tenant")
A. Landlord and Tenant are parties to an Industrial Business Park
Lease dated January 15, 1997 (the "Lease Agreement"), as amended by an Addendum
to Lease dated January 15, 1997 (the "Addendum"). The Lease Agreement and the
Addendum are collectively referred to in this Amendment to Lease (the
"Amendment") as the "Lease." The capitalized terms used in this Amendment which
are defined in the Lease shall have the meanings given to them in the Lease.
B. After the Lease was executed, the Project was reconfigured.
Attached, as Exhibit A, is a current site plan of the Project. Landlord and
Tenant desire to expand the Premises by adding to them approximately 27,652
square feet in Building 3 (20540 N.W. Aloclek), as described in this Amendment.
NOW, THEREFORE, in consideration of the mutual promises of the parties
set forth in this Amendment, Landlord and Tenant agree as follows:
1. Expansion. Commencing on September 1, 1999, approximately 27,652 square
feet of space in Building 3 in the area which is crosshatched on the attached
Exhibit B (the "Expansion Space") shall be added to the Premises for the Term.
Commencing on September 1, 1999, and continuing throughout the Term, the
Expansion Space shall be a part of the Premises and subject to all terms and
conditions of the Lease except as otherwise provided in this Amendment. The
Expansion Space was measured in accordance with Portland NAIOP measurement
standards, a copy of which is attached as Exhibit A-I to the Lease Agreement.
2. Rent. Commencing on September 1, 1999, and continuing throughout the
Term, Base Monthly Rent shall increase by the following amounts in accordance
with the following schedule:
Time Period Monthly Base Rent Increase
----------- --------------------------
September 1, 1999 through February 28, 2000 $0
March 1, 2000 through April 30, 2000 $21,569.00
May 1, 2000 through April 30, 2003 $28,482.00
1
<PAGE>
Time Period Monthly Base Rent Increase
----------- --------------------------
May 1, 2003 through April 30, 2006 $31,045.00
May 1, 2006 through December 14, 2007 $33,839.00
3. Additional Rent. Commencing on May 1, 2000, and continuing throughout
the Term, Tenant's percent of the Project for purposes of determining Tenant's
share of Expenses pursuant to Section 4.3 of the Lease Agreement shall be
increased. In addition to the Expenses Tenant pays for the Premises, Tenant
shall also pay Tenant's share of Expenses for the Expansion Space which shall be
a fraction of the Expenses, the numerator of which shall be 27,652, and the
denominator of which shall be the total number of square feet of completed and
leasable space in the Project from time to time.
4. Improvements to Expansion Space. The provisions of Rider No. I through
Rider No. 6 of the Addendum, Rider No. 8 of the Addendum, Rider No. 16 of the
Addendum, Rider No. 36.1 of the Addendum, Exhibit C to the Lease and Exhibit D
to the Lease shall not apply to the Expansion Space. The provisions of this
Section 4 shall control the condition of the Expansion Space and Landlord's work
in the Expansion Space. The Expansion Space shall be leased in its AS IS
condition except for the work to be performed pursuant to the Work Agreement
attached as Exhibit C to this Amendment (the "Expansion Space Work Agreement").
5. Security Deposit. Contemporaneously with the execution of this
Amendment, Tenant shall pay Landlord $33,839.00 as an increased security deposit
which shall be held and disbursed in accordance with the provisions of Section
6.1 of the Lease Agreement.
6. First Opportunity to Lease. Throughout the Term, so long as Tenant is
not in default of the Lease, Tenant shall have the right of first offer to lease
the remainder of space in Building 3 (the "First Offer Space'), in accordance
with the terms of this Section 6. In the event that Landlord desires to make a
written offer (the "Offer) to a third party to lease all or any portion of the
First Offer Space, Landlord shall first present the Offer to Tenant and give
Tenant three business days within which to determine whether Tenant will accept
the Offer. If Tenant gives Landlord written notice within such three business
day period that Tenant elects to accept the Offer, then Tenant shall be bound to
enter into a written lease agreement in accordance with the terms of the Offer.
If Tenant does not give Landlord such written notice within the three business
day period, then Landlord shall be free to lease the First Offer Space to any
party on the terms of the Offer or on substantially similar terms. If Landlord
does not so lease the First Offer Space, Tenant's right of first offer with
respect to the First Offer Space shall revive and continue throughout the Term.
7. Brokerage Commissions. Landlord agrees to pay Tenant's broker, Norris
Beggs & Simpson Northwest Limited Partnership ("NBS") a fee in the amount
described in a letter addressed to NBS from Melvin Mark Brokerage Company dated
June 18, 1999. One half of the commission shall be payable upon full execution
of this Amendment by Landlord and Tenant, and the remainder shall be paid when
Tenant begins paying rent for the Expansion Space at the rate of $1.03 per
square foot.
2
<PAGE>
8. Effect of Amendment. The Lease is modified only in the specific respects
set forth in this Amendment. Except as expressly modified, the Lease remains in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as part
of the Lease as of the date first set forth above.
LANDLORD: EVERGREEN CORPORATE CENTER LLC
By: Marzer Venture, an Oregon general partnership
By: Mark Group Partnership No. 4
By: MELVIN MARK
----------------------------------------
Title: Partner
-------------------------------------
By: Schnitzer Investment Corp., an Oregon
corporation
By: KENNETH NOVACK
----------------------------------------
Title: President
-------------------------------------
TENANT: MEDICALOGIC, INC., an Oregon corporation
By: GUY E. FIELD
-------------------------------------------------------
Its: VP Finance
--------------------------------------------------
3
<PAGE>
EXHIBIT A
(Current Site Plan)
[GRAPHIC OMITTED-Evergreen Corporate Center Site Plan]
<PAGE>
EXHIBIT B
(Expansion Space)
[GRAPHIC OMITTED-Evergreen Corporate Center Building Three]
<PAGE>
EXHIBIT C
EXPANSION SPACE WORK AGREEMENT
------------------------------
SECTION 1 GENERAL
1.1 Landlord agrees to provide certain improvements in the Expansion Space
in accordance with this Expansion Space Work Agreement. Landlord shall pay up to
$774,256.00 ($28.00 per square foot in the Expansion Space) (the "TI Allowance")
towards the cost of designing and constructing the improvements in the Expansion
Space subject to and in accordance with the terms and conditions of this
Expansion Space Work Agreement. At least $553,040.00 ($20.00 per square foot in
the Expansion Space) of the TI Allowance must be used for improvements made to
the Expansion Space on or before May 31, 2000 (the "Initial Improvements") or
else the TI Allowance shall be reduced as follows. If $553,040.00 is not spent
for improvements made to the Expansion Space on or before May 31, 2000, the TI
Allowance shall be reduced by the difference between $774,256.00, and the amount
spent for improvements made to the Expansion Space on or before May 31, 2000.
Tenant acknowledges that the availability of the TI Allowance is conditioned on
Tenant accepting Landlord's work in the Expansion Space on or before May 31,
2000, as described in the certificate attached as Exhibit D (the "Teachers
Certificate") to be executed and delivered by Tenant on or before May 31, 2000.
If such conditions are fulfilled then, on or before May 31, 2000, Tenant shall
execute the Teachers Certificate and send the original and a copy thereof to
Landlord. If at least $553,040.00 of the TI Allowance is spent for improvements
made to the Expansion Space on or before May 31, 2000, then any remaining amount
of the TI Allowance may be spent at any time during the Term.
1.2 All costs, fees, and expenses in connection with the design and
construction of the improvements in the Expansion Space in excess of the TI
Allowance paid in accordance with Section 1. 1 shall be paid for by Tenant
within twenty (20) days after billing therefor. If Tenant desires to borrow
funds from Landlord for such excess amount, Landlord agrees to loan funds to
Tenant in an amount not to exceed $138,260.00 ($5.00 per square foot in the
Expansion Space) solely for costs, fees, and expenses to design and construct
improvements in the Expansion Space (the "Expansion TI Loan"). The Expansion TI
Loan shall accrue interest at the rate of 11 percent per annum, commencing on
the date of the first advance on the Expansion TI Loan (the "First Advance
Date') and continuing until such time as the entire Expansion TI Loan and all
accrued interest are paid in full. Tenant shall repay the Expansion TI Loan with
monthly payments sufficient to amortize the Expansion TI Loan over the period of
time beginning on the first Advance Date and ending on December 14, 2007, taking
into account interest at the rate of 11 percent per annum. Payments on the
Expansion TI Loan will begin on the first day of the first calendar month
following the First Advance Date and shall continue on the first day of each
month through December 1, 2007 and shall be paid in full on or before December
1, 2007 or any earlier termination date of the Lease. Landlord shall inform
Tenant of the monthly amount to be paid under the Expansion TI Loan as soon as
practicable after substantial completion of the tenant improvements for which
the Expansion TI Loan is used. If the amount is not determined
1
<PAGE>
prior to May 1, 2000, then Tenant's first payment under the Expansion TI Loan
shall be sufficient to pay the monthly payments due from May 1, 2000 to the date
on which Tenant is informed of the monthly payment amount. Upon Landlord's
request, Tenant shall execute and deliver to Landlord a promissory note, setting
forth the terms of Tenant's obligation to repay the Expansion TI Loan, in the
form attached as Exhibit E.
1.3 Throughout the process of design and construction of the Tenant
improvements, Patty Sullivan ("Tenant's Construction Representative") shall be
available for onsite and telephone consultations and decisions as necessary.
Tenant's Construction Representative's address is 20500 N.W. Evergreen Parkway,
Hillsboro, Oregon 97124 and her telephone number is 531-7000. Tenant's
Construction Representative shall have the authority to bind Tenant as to all
matters relating to the tenant improvements.
SECTION 2 DESIGN OF TENANT IMPROVEMENTS
2.1 Landlord shall retain the services of a space planner or architect (the
"Planner") to prepare the necessary drawings, including without limitation Basic
Plans and Working Plans as described below for construction of the tenant
improvements (the "Pl1ans"). Promptly after the Planner's requests, Tenant's
Construction Representative will meet with the Planner to provide information to
the Planner as needed to prepare the Plans and to modify the Plans, as provided
in this Expansion Space Work Agreement.
2.2 Within ten business days after Landlord delivers to Tenant a copy of
the Basic Plans, Tenant shall either approve the Basic Plans or shall set out
the revisions requested by Tenant to the Basic Plans. Also, Tenant shall, within
such ten business day period, clearly identify and locate on the Basic Plans (i)
any equipment requiring special plumbing or mechanical systems, areas subject to
above normal loads, special openings in the floor, ceiling, or walls, and other
major or special features; and (ii) locations of telephone and electrical
receptacles, outlets, and other items requiring electrical power (for special
conditions and equipment, power requirements, and manufacturer's model numbers
must be included)
2.3 Landlord shall review any revisions made to the Basic Plans and shall,
in writing within five business days after receipt, either approve the revised
Basic Plans or reject them, in which case Landlord shall specify in reasonable
detail the deficiencies in the Basic Plans as submitted. If the Basic Plans are
rejected, Tenant shall resubmit required changes to the Basic Plans as soon as
practicable until Landlord's approval has been obtained. Following Landlord's
approval of the Basic Plans, the Planner shall produce full working drawings for
construction sufficient to obtain all necessary permits and with sufficient
detail to construct the improvements, including specifications for every item
included thereon (the "Working Plans"). Landlord shall have the right to stop
the design process at any point and terminate the Lease if it appears to
Landlord that the cost, timing, or some other issue related to the tenant
improvements will not be resolved between the parties.
2.4 Tenant must approve the Working Plans for the Initial Improvements to
the Premises no later than on December 31, 1999. Tenant shall be responsible for
delays and additional costs in completion of the design and construction of
Tenant's improvements caused
2
<PAGE>
by delays in approving the Working Plans, by changes made to the Working Plans
after Landlord delivers them to Tenant or by delays in delivery of special
materials requiring long lead times. For any construction of improvements other
than the Initial Improvements in the Premises, the Working Plans for such
improvements must be completed and approved by Landlord and Tenant at least five
months prior to the anticipated substantial completion date of such
improvements.
SECTION 3 CONSTRUCTION OF TENANT IMPROVEMENTS
3.1 Upon completion of the Working Plans and at the request of Tenant,
Landlord and its contractor shall provide to Tenant in writing an estimate of
the cost of improvements to be provided at Tenant's expense pursuant to Section
1 of this Expansion Space Work Agreement. Within five days after Tenant's
receipt of such estimated cost, Tenant shall delete any items which Tenant
elects not to have constructed. Landlord and Tenant shall work together to
establish a construction budget reasonably acceptable to both parties. Tenant
shall authorize in writing the agreed upon construction budget. In the absence
of such written authorization, Landlord shall not be obligated to commence work
on the Expansion Space and Tenant shall be responsible for any costs due to any
resulting delay in completion of the Expansion Space.
3.2 If Tenant desires any change to its improvements, Tenant shall submit a
written request for such change to Landlord, together with all plans and
specifications necessary to show and explain changes from the approved Working
Plans. Any such change shall be subject to Landlord's approval. Landlord or
Landlord's contractor shall notify Tenant in writing of the amount, if any,
which will be charged or credited to Tenant to reflect the cost of such change.
3.3 Tenant's entry into the Expansion Space for any purpose, prior to
September 1, 1999, shall be subject to all the terms and conditions of the
Lease, including without limitation the provisions of the Lease relating to the
maintenance of insurance, but excluding the provisions of the Lease relating to
the payment of rent. Tenant's entry shall mean entry by Tenant, its officers,
contractors, licensees, agents, servants, employees, guests, invitees, or
visitors (the "Tenant Parties"). Tenant shall indemnify and hold harmless
Landlord from and against any and all claims, losses, liabilities, and expenses
(including without limitation attorneys' fees) arising out of or in any way
related to the activities of Tenant or the Tenant Parties in the Expansion Space
or the Project.
3
<PAGE>
EXHIBIT D
STATEMENT OF TENANT IN RE: LEASE
--------------------------------
Date: May 31, 2000
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 100 17
Attn: ______________________
RE: TIAA Appl. #OR- 108
TIAA Mtge. #000447000
Name of Project: Evergreen Corporate Center
Address: 20540 NW Aloclek
Hillsboro, Oregon 97124
Ladies and Gentlemen:
It is our understanding that you have a mortgage upon the subject premises
and as a condition precedent thereof have required this certification of the
undersigned.
The undersigned, as tenant, under that certain lease dated January 15,
1997, as amended by an Amendment to Lease dated July 15, 1999, made with
Evergreen Corporate Center LLC, as landlord, hereby ratifies said lease and
certifies that:
1. the "Commencement Date" of said lease is December 15, 1997; and
2. the undersigned is presently solvent and free from reorganization and/or
bankruptcy; and
3. the operation and use of the premises do not involve the generation,
treatment, storage, disposal or release of a hazardous substance or a
solid waste into the environment other than to the extent necessary to
conduct its ordinary course of business in the premises and in
accordance with all applicable environmental laws, and that the premises
are being operated in accordance with all applicable environmental laws,
zoning ordinances and building codes; and
4. the current base rental payable pursuant to the terms of said lease is
$107,232 per month; and further, additional rental pursuant to said
lease is payable as provided in the Lease; and
5. said lease is in full force and effect and has not been assigned,
modified, supplemented or amended in any way (except as set forth above)
and the undersigned is not in default thereunder; and
1
<PAGE>
6. the lease described above represents the entire agreement between the
parties as to the leasing of the premises; and
7. the term of said lease expires on December 14, 2007; and
8. Landlord has spent at least $553,040 of the TI Allowance, as defined in
the Amendment to Lease, and the work performed by landlord to date in
the Expansion Space is acceptable to the undersigned.
9. no rental has been paid in advance and no security (except the security
deposit in the amount of $120,839) has been deposited with landlord; and
10. tenant's floor area is 102,662 rentable square feet; and
11. the most recent payment of current basic rental was for the payment due
on May 1, 2000, and all basic rental and additional rental payable
pursuant to the terms of the lease have been paid up to said date; and
12. the undersigned acknowledges notice that landlord's interest under the
lease and the rent and all other sums due thereunder will be assigned to
you as part of the security for a mortgage loan by you to landlord. In
the event that Teachers Insurance and Annuity Association of America, as
lender, notifies the undersigned of a default under the mortgage and
demands that the undersigned pay its rent and all other sums due under
the lease to lender, tenant agrees that it shall pay its rent and all
such other sums to lender.
Very truly yours,
MEDICALOGIC, INC.
By:
-------------------------------------
Its:
------------------------------------
2
<PAGE>
EXHIBIT E
PROMISSORY NOTE
---------------
$__________ __________, 1999
Portland, Oregon
FOR VALUE RECEIVED, the undersigned, MEDICALOGIC, Inc., an Oregon
corporation ("Borrower"), promises to pay to the order of EVERGREEN CORPORATE
CENTER LLC, an Oregon limited liability company, at 111 SW Columbia Street,
Suite 1380, Portland, Oregon 97201, or such other place as may be designated
from time to time in writing by the holder of this Note ("Holder"), the
principal sum of ________________________________ Dollars ($____________) in
lawful money of the United States of America, plus interest and other charges as
provided herein.
1 . Interest Rate. Interest shall accrue on the unpaid principal balance of
this Note, from ________________ until paid in full, at a fixed rate of eleven
percent (11%) per annum.
2. Payment Schedule. Commencing on _____________________ and continuing on
the first day of each calendar month thereafter until and through December 1,
2007 (the "Maturity Date"), Borrower shall make constant equal monthly payments
of principal and interest sufficient to amortize fully the principal balance of
this Note over a period of time from the date of this Note to December 14, 2007,
taking into account interest at the rate of 11 percent per annum. Such payments
shall equal $_______ per month. The entire principal balance of and all unpaid
accrued interest on this Note shall be due and payable on the Maturity Date.
3. Prepayment. The indebtedness evidenced by this Note may be prepaid in
whole or in part at any time without penalty.
4. Time of Essence. Time is of the essence of the performance of Borrower's
obligations under this Note. If Borrower fails to make any payment required
hereunder within five days after written notice that such payment is due, or if
Borrower is in default of its lease between Holder and Borrower dated January
15, 1997, as amended (the "Lease"), such event shall constitute an event of
default (an "Event of Default"). Upon the occurrence of an Event of Default, the
entire unpaid principal balance of and all unpaid accrued interest on this Note
shall become immediately due and payable at Holder's option. Holder's failure to
exercise or delay in exercising such option, or any other remedy provided
herein, shall not constitute a waiver of the right to do so upon the occurrence
of any subsequent Event of Default.
5. Late Fee. If any payment required under this Note is not received by
Holder within ten (10) days after the date such payment was due, Borrower shall
pay to Holder on demand a late charge in an amount equal to five percent (5%)
of the overdue payment. Borrower and Holder agree that the late charge is
intended to be a reasonable approximation of actual damages incurred by such
overdue payment, which damages are difficult to estimate. The
1
<PAGE>
imposition or collection of a late charge is in addition to and not in lieu of
any other rights or remedies Holder may have as a result of late payment.
6. Application of Payments. All payments on this Note shall be applied
first to the payment of attorneys' fees, costs, and other charges to the extent,
if any, provided herein; then to interest accruing hereon; and then to
principal. The unpaid principal balance of this Note shall continue to bear
interest until and including the date of collection.
7. Attorneys' Fees. If either Holder or Borrower shall institute legal or
other proceedings to interpret or enforce this Note, the prevailing party shall
recover from the nonprevailing party all costs, attorneys' fees, and expenses
incurred by it in connection with such proceedings, whether at trial, on appeal,
or on review, in addition to all other amounts allowed by law.
8. Default Interest. All late payments shall bear interest at the Default
Rate (as defined in the Lease) from the due date of such payment until paid in
full.
9. Miscellaneous. In any provision of this Note is held invalid by a court
of competent jurisdiction, the remainder of this Note shall not be affected
thereby and shall remain in full force and effect. Borrower hereby waives
presentment, demand for payment, notice of dishonor, protest, and notice of
protest.
BORROWER: MEDICALOGIC, INC., an Oregon corporation
By:
------------------------------------
Its:
-----------------------------------
2
- --------------------------------------------------------------------------------
OFFICE LEASE
BETWEEN
945 BATTERY LLC,
a California limited liability company
AND
MEDICALOGIC, INC.,
an Oregon corporation
945 Battery Street
San Francisco, California
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions............................................................. 1
2. Term.................................................................... 1
3. Rental.................................................................. 2
4. Letter of Credit as Security............................................ 2
5. Use..................................................................... 3
6. Services................................................................ 4
7. Impositions Payable by Lessee........................................... 5
8. Work to be Performed by Lessor Prior to
Commencement of Term; Tenant Improvements; Allowance.................. 5
9. Alterations............................................................. 6
10. Liens................................................................... 7
11. Repairs................................................................. 8
12. Destruction or Damage................................................... 8
13. Insurance............................................................... 9
14. Waiver of Subrogation...................................................10
15. Indemnification.........................................................10
16. Compliance with Legal Requirements......................................10
17. Assignment and Subletting...............................................11
18. Entry by Lessor.........................................................14
19. Events of Default.......................................................14
20. Termination Upon Default................................................15
21. Continuation After Default..............................................16
22. Other Relief............................................................16
23. Lessor's Right to Cure Defaults.........................................16
24. Attorneys' Fees.........................................................16
25. Eminent Domain..........................................................17
26. Subordination...........................................................17
27. No Merger...............................................................17
28. Sale....................................................................18
29. Estoppel Certificate....................................................18
30. No Light, Air or View Easement..........................................18
31. Holding Over............................................................18
32. Abandonment.............................................................18
33. Security Deposit........................................................18
34. Waiver..................................................................19
35. Notices.................................................................19
36. Complete Agreement......................................................19
37. Corporate Authority.....................................................19
38. Miscellaneous...........................................................19
39. Limitation of Liability.................................................20
40. Option to Extend Lease..................................................20
41. Brokerage Commissions...................................................21
42. Lessee's Grant to Lessor of Option to Purchase Stock of Lessee .........21
-i-
<PAGE>
OFFICE LEASE
THIS LEASE, dated May 9, 1999, for purposes of reference only, is made and
entered into by and between 945 BATTERY LLC., a California limited liability
company ("Lessor") and MEDICALOGIC, INC., an Oregon corporation ("Lessee").
WITNESSETH:
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
premises described in paragraph 1(b) below for the term and subject to the
terms, covenants, agreements and conditions hereinafter set forth, to each and
all of which Lessor and Lessee hereby mutually agree.
1. Definitions. Unless the context otherwise specifies or requires, the
following terms shall have the meanings herein specified.
(a) The term "Building" shall mean the building located at 945 Battery
Street, San Francisco, California.
(b) The term "Premises" shall mean the second floor, third floor,
mezzanine, and penthouse of the Building.
(c) The term "Lessee's percentage share" shall mean Fifty-Seven and 34/100
percent (57.34%). Lessor and Lessee acknowledge that Lessee's percentage share
has been obtained by dividing the rentable area of the Premises by the total
rentable area of the Building, and multiplying such quotient by 100. In the
event Lessee's percentage share is changed during a calendar year by reason of a
change in the rentable area of the Premises and/or a change in the total
rentable area of the Building, Lessee's percentage share shall thereafter mean
the result obtained by dividing the then rentable area of the Premises by the
then total rentable area of the Building, and multiplying such quotient by 100,
and for the purposes of paragraph 3, Lessee's percentage share shall be
determined on the basis of the number of days during such calendar year at each
such percentage share. The parties hereto agree that the total rentable area of
the Building for purposes of this paragraph (c) is currently 65,540 square feet.
(d) The term "lease year" shall mean the first 12 full calendar months
during the term hereof together with any partial month at the commencement of
the term, and each successive 12-month period thereafter, provided that the last
lease year of the term may be a partial lease year.
2. Term. The term of this Lease shall commence on the earlier of the date
Lessor delivers possession of the Premises to Lessee, provided temporary or
permanent certificate of occupancy is issued for the Premises, and Lessor's work
is substantially completed unless sooner terminated as hereinafter provided,
shall continue thereafter for a period of ten (10) years. Notwithstanding the
foregoing, in the event that Lessee selects a general contractor other than
Birmingham Builders, Inc. to perform tenant improvements at the Premises as
provided herein, the term of this Lease shall commence on September 1, 1999
regardless of the date of completion of drawings for tenant improvements to the
Premises, the completion of construction
-1-
<PAGE>
of tenant improvements to the Premises, or the date Lessee commences occupancy
of the Premises.
3. Rental.
(a) Lessee shall pay to Lessor throughout the term of this Lease as rental
for the Premises the following sums as the Base Rent:
Years 1-5 $133,096.00 per month
Years 6-10 $155,017.50 per month
(b) Rental shall be paid to Lessor on or before the first day of the term
hereof and on or before the first day of each and every successive calendar
month thereafter during the term hereof. In the event the term of this Lease
commences on a day other than the first day of a calendar month or ends on a day
other than the last day of a calendar month, then the monthly rental for the
first and last fractional months of the term hereof shall be appropriately
prorated.
(c) Lessee hereby acknowledges that late payment by Lessee to Lessor of
rent and other sums due hereunder after the expiration of any applicable grace
period will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Premises. Accordingly, if any installment of rent or any other
sums due from Lessee shall not be received by Lessor when due or, if a grace or
cure period is applicable, shall not be received by Lessor prior to the
expiration of the applicable grace or cure period, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount nor prevent Lessor from exercising any of the other
rights and remedies available to Lessor hereunder or at law.
(d) Rental and all other payments to be made by Lessee hereunder shall be
paid to Lessor without deduction or offset, in lawful money of the United States
of America at Lessor's address for notices hereunder or to such other person or
at such other place as Lessor may from time to time designate in writing. All
amounts of money payable by Lessee to Lessor hereunder, if not paid within ten
days of the date when due, shall bear interest from the due date until paid at
the highest rate legally permitted.
(e) All sums of money or charges required to be paid by Lessee hereunder
shall be deemed rental for the Premises and may be designated as such in any
statutory notice to pay rent or quit the Premises.
4. Letter of Credit as Security. In lieu of making a cash security deposit to
Lessor, Lessee shall, within ten (10) days after execution of this lease,
deliver to Lessor and cause to be in effect during the term hereof an
unconditional, irrevocable letter of credit ("LC") in a form reasonably
acceptable to Lessor. The initial amount of the LC shall be $1,750,000.00.
Provided that Lessee
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is not then in default under this lease, the LC shall remain in place until such
time as Lessee can demonstrate a minimum of $75,000,000 in cash on its month-end
balance sheet, at which point the LC shall be reduced to zero, provided,
however, that if at any time during the term of the Lease, the cash amount on
Lessee's month-end balance sheet falls below $75,000,000, Lessor shall have the
right to require reinstatement of the LC in the full amount of $1,750,000.00. In
the event that the LC is ever reduced to zero pursuant to the preceding
sentence, Lessee shall thereafter provide Lessor with copies of Lessee's
month-end balance sheets on a monthly basis by no later than the fifteenth
(15th) day of each month, or as soon thereafter as such balance sheets have been
prepared for Lessee's internal use.
The LC shall be issued by a bank that accepts deposits, maintains accounts, has
a San Francisco Bay area office that will negotiate a letter of credit, and the
deposits of which are insured by the Federal Deposit Insurance Corporation.
Lessee shall pay all expenses, points, or fees incurred by Lessee in obtaining
the LC. Lessor shall hold the LC as security for the performance of Lessee's
obligations under this lease. If, after notice and failure to cure within any
applicable cure period, Lessee defaults under any provision of this lease,
Lessor may, upon delivery to the issuing bank a statement that Lessee is in
default hereunder beyond the expiration of applicable cure period, without
prejudice to any other remedy it has, draw on that portion of the LC necessary
to pay any rent or other sum in default or to compensate Lessor for any expense,
loss, or damage (including reasonable attorneys' fees) that Lessor may suffer as
a result of Lessee's default. If Lessor draws on any portion of the LC, Lessee
shall, within five (5) business days after written demand by Lessor, either (a)
deposit cash with Lessor in an amount that, when added to the amount remaining
under the LC, shall equal the amount of the LC then required under this
paragraph, or (b) deliver written documentation executed by the bank issuing the
LC confirming that the LC has been reinstated to the amount then required under
this paragraph.
5. Use. The Premises shall be used for general office purposes and for no
other purpose whatsoever. Any kitchenette facilities installed in the Premises
shall be ancillary to the office use and shall consist of no more than a sink,
dishwasher, refrigerator, microwave, and other UL-rated countertop cooking
equipment such as, for example, only, and not by way of limitation, a toaster
oven or coffeemaker. Lessee shall not do or permit to be done in or about the
Premises, nor bring or keep or permit to be brought or kept therein, anything
which is prohibited by or will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated, or which is prohibited by the standard form of fire
insurance policy, or will in any way increase the existing rate of or affect any
fire or other insurance upon the Building or any of its contents, or cause a
cancellation of any insurance policy covering the Building or any part thereof
or any of its contents. Lessee shall not use, store, or dispose of in the
Premises any hazardous at toxic substances, with the sole exception of such
substances as are ordinarily used in the course of normal office operations
(such as copier fluids), provided that such substances are kept in only such
quantities as are reasonably required for normal office operations and are used,
handled, stored, and disposed of in accordance with all applicable laws. Losses
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other tenants of the
Building, or injure or annoy them, or use or allow the Premises to be used for
any unlawful purpose, nor shall Lessee cause, maintain or permit any nuisance
in, on, or about the Premises or commit or suffer to be committed any waste in,
on, or about the Premises.
Notwithstanding anything to the contrary in this paragraph, Lessor understands
and agrees that Lessee intends to locate computers, servers, and other equipment
in a secure climate-controlled portion of the Premises in a
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manner similar to other web hosting services. Lessee also requires sufficient
electrical capacity to the Premises for the operation of normal office equipment
as well as the computer equipment and air conditioning equipment for the
climate-controlled room in the Premises. Lessor hereby consents to Lessee's use
of the Premises and installation of the equipment as described in this paragraph
and agrees that Lessee shall not be liable for any additional costs, other than
electricity which shall be separately metered to the Premises.
6. Services.
(a) Lessor shall, during the term of this Lease and at its sole cost and
expense, be responsible for conforming the Building and all Building systems
outside the Premises (including, without limitation, elevators and fire, safety,
and security systems) to applicable governmental requirements, including those
of environmental laws and regulations and the Americans With Disabilities Act.
(b) Lessor shall maintain the public and common areas of the Buildings
including the lobbies, stairs, elevators, corridors and restrooms, the exterior
windows of the Building, the heating, ventilating and air-conditioning systems,
the mechanical, plumbing and electrical equipment serving the Building, and the
structure itself in a manner and condition suitable for comparable office
buildings in downtown San Francisco, except for damage caused by the willful or
grossly negligent act of Lessee, which damage shall be repaired by Lessor at
Lessee's expense.
(c) The Premises shall be separately metered for all utilities, including
water and electricity, provided to the Premises. Lessee shall be responsible for
providing and paying for all utilities and services to the Premises, including,
without limitation, electricity, gas, and water. Lessee shall during the term of
this Lease contract directly for, and pay for, garbage disposal, janitorial, and
window cleaning services. Notwithstanding the foregoing, it is agreed that there
are certain utility costs related to the central air conditioning system and the
common areas of the building (including elevators and lighting for the common
area lobby) that are impossible or impractical to meter separately, and Lessee
agrees to pay Lessee's percentage share of such costs within ten (10) days after
receipt of a billing therefor from Lessor.
(d) Lessor shall not be in default hereunder or be liable for any damages
directly or indirectly resulting from, nor shall the rental herein reserved be
abated by reason of, (i) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services,
(ii) failure to furnish or delay in furnishing any such services when such
failure or delay is caused by accident or any condition beyond the reasonable
control of Lessor or by the reasonable making of repairs or improvements to the
Premises or to the Building, or (iii) the limitation, curtailment, rationing or
restrictions on use of water, electricity, gas or any other form of energy
serving the Premises or the Building. None of the foregoing events shall be
construed as a constructive or other eviction of Lessee. Lessor shall use
reasonable efforts diligently to remedy any interruption in the furnishing of
such services.
(e) Lessee shall not install or use heat-generating machines, lighting
other than building standard or other equipment which may affect the temperature
otherwise maintained by the heating, air conditioning and ventilation system,
office machines using more than 220 volts, or equipment causing the connected
electrical load in the Premises to exceed 15 watts per square
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foot, without the prior consent of Lessor, not to be unreasonably withheld or
delayed. Lessor makes no representation with respect to the adequacy or fitness
of the electrical, heating, air conditioning or ventilation equipment in the
Building to accommodate or maintain temperatures which may be required for any
equipment other than ordinary office equipment, or for any equipment exceeding
the maximum voltage or wattage referred to above, and Lessor shall have no
liability for loss or damage suffered by Lessee or others in connection
therewith, except as provided in Paragraph 5 above. If Lessee installs lighting
requiring power in excess of that required for normal office use in the Building
or if Lessee installs equipment requiring power in excess of that required for
normal office equipment or normal copying equipment, Lessee shall pay for the
cost of such excess power as additional rent, together with the cost of
installing any additional risers or other facilities that may be necessary to
furnish such excess power to the Premises; which cost shall include, without
limitation.
7. Impositions Payable by Lessee. In addition to the monthly rental and other
charges to be paid by Lessee hereunder, Lessee shall pay before delinquency or
reimburse Lessor for any and all of the following, whether or not now customary
or in the contemplation of the parties hereto (collectively, the "Impositions"):
taxes (other than local, state and federal personal or corporate income taxes
measured by the net income of Lessor from all sources), assessments (including,
without limitation, all assessments for public improvements, services or
benefits, irrespective of when commenced or completed), excises, levies,
business taxes, license permit, inspection and other authorization fees, transit
development fees assessments or charges for housing funds, service payments in
lieu of taxes and any other fees or charges of any kind, which are levied,
assessed, confirmed or imposed by any public authority, but only to the extent
the Impositions are: (a) upon, measured by or reasonably attributable to the
cost or value of Lessee's equipment, furniture, fixtures and other personal
property located in the Premises or by the cost or any leasehold improvements
made in or to the Premises by or for Lessee, regardless of whether title to such
improvements shall be in Lessee or Lessor, (b) upon or measured by the monthly
rental or other charges payable hereunder including, without limitation, any
gross income tax or excise tax levied by the City and County of San Francisco,
the State of California the Federal Government or any other governmental body
with respect to the receipt of such rental; (c) upon with respect to or by
reason of the development, possession, leasing operation, management,
maintenance, alteration, repair, use or occupancy by Lessee of the Premises or
any portion thereof; (d) upon this, transaction or any document to which Lessee
is a party creating or transferring an interest or an estate in the Premises. In
the event that it shall not be lawful for Lessee to reimburse Lessor for all or
any part of such Impositions, the monthly rental payable to Lessor under this
Lease shall be revised to net Lessor the same net rental after imposition of any
such Impositions by Lessor as would have been payable to Lessor prior to the
payment of any such Imposition.
8. Work to be Performed by Lessor Prior to Commencement of Term; Tenant
Improvements; Allowance.
(a) Prior to the commencement of the term of this Lease, Lessor shall, at
Lessor's sole cost and expense, have performed the base building work described
in Exhibit "A" hereto.
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(b) In the event that Lessee selects Birmingham Builders, Inc. to perform
tenant improvements at the Premises as provided herein, Lessee shall, at its
sole cost and expense, cause to be prepared and submit to Lessor by no later
than May 31, 1999 fully scaled, dimensioned, and integrated architectural and
engineering drawings for tenant improvements to the Premises which have been
approved by Lessee and which are of sufficient detail and quality as to be ready
for immediate submission to the City and County of San Francisco Building
Inspection Department. Failure by Lessee to deliver such plans to Lessor by May
31, 1999 shall result in a penalty of one day's rent for each day that the plans
are delayed. This penalty, if incurred, shall be paid in a lump sum at the
commencement date of the lease.
(c) In the event that a contractor other than Birmingham Builders is
selected by Lessee as contractor for the tenant improvements, rent shall
commence September 1, 1999 regardless of the date of completion of drawings for
the tenant improvements, the completion of construction of the tenant
improvements, or the date Lessee takes occupancy of the space.
(d) Lessor agrees, upon written request by Lessee made no later than one
hundred eighty (180) days following the commencement date of this lease, to
reimburse Lessee an amount not to exceed $1,503,200.00 for the exclusive purpose
of Lessee's payment of costs of architectural, engineering, and permit fees,
cabling the Premises, Lessee's move into the Premises, and tenant improvements
to the Premises in addition to the base building work to be performed by Lessor.
Lessee shall support its request for such reimbursement by providing Lessor with
documentation evidencing Lessee's obligation to pay such costs, and if Lessee
fails to provide Lessor with such documentation Lessor shall be under no
obligation to provide Lessee with such reimbursement. Lessee shall use such
reimbursement for no purpose other than paying such costs.
9. Alterations.
(a) All of Lessee's trade fixtures, furniture, furnishings, equipment and
other movable personal property not permanently affixed to the Premises shall,
subject to the provisions hereof, remain the property of Lessee.
(b) Lessee shall not make or offer to be made any alterations, additions or
improvements (collectively "alterations") to or of the Premises or any part
thereof, or attach any fixtures or equipment thereto, or cause a building permit
to be issued for any alterations without Lessor's prior consent, which consent
shall not be unreasonably withhold or delayed; provided that, with prior notice
to Lessor but without the necessity of Lessor's consent, Lessee shall have the
right to make non-structural alterations not affecting Building systems and for
which a general construction building permit is not required. Any alterations to
the Premises shall be made by Lessee at Lessee's sole cost and expense. The
contractor selected by Lessee to make any alterations to the Premises must be
reasonably approved in writing by Lessor prior to commencement of any work and
such contractor shall at all times be subject to Lessor's reasonable control
while in the Building. Lessee shall be responsible for any additional
alterations required by law to be made by Lessor to or in the Building as a
result of any alterations to the Premises made by or for Lessee. All alterations
and fixtures, including, but not limited to, carpeting, other affixed floor
coverings, paneling, and cabling for built-in security systems made in or upon
the Premises either by or for Lessee and affixed to or forming a part of
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the Premises, shall immediately upon installation or construction become
Lessor's property free and clear of all liens and encumbrances.
(c) Lessee shall have the right to place and maintain a neat and
appropriate sign of the name of Lessee's business on the Green Street facade of
the building, provided Lessor consents in writing to the shape, size, color and
location thereof. Lessor shall not unreasonably withhold or delay such consent.
Lessee upon request of Lessor shall immediately remove any sign or decoration
which Lessee has placed or permitted to be placed upon the exterior of the
premises or upon the windows facing any street upon which the premises abut
without the consent of Lessor and which, in the opinion of Lessor, is
inappropriate or objectionable and, if Lessee fails so to do, Lessor, in
addition to any rights it may have hereunder, may enter upon the premises and
remove such sign without liability whatsoever. Lessee agrees that its signage
will comply with all applicable governmental requirements. Lessor expressly
reserves the exclusive right to the use of the exterior side walls, rear walls,
and roof of the demised premises and Lessee shall not be permitted to place any
sign or advertisement thereon or any other matter or property without the
written consent of Lessor.
(d) Upon the expiration or any sooner termination of this Lease, Lessee
shall remove or cause to be removed at its expense (i) all of Lessee's personal
property described in paragraph 8(a) above, (ii) all telephone, data processing,
audio and video, security, and electrical (other than Building standard)
improvements installed by or for Lessee, and (iii) any alterations, additions,
fixtures, or improvements installed in the Premises by or for Lessee; provided
that, in the case of an item described in clause (ii) or (iii) above, Lessor
shall have notified Lessee at the time Lessor consented to its installation that
Lessor would require removal of the item. Lessee shall repair at its expense all
damage to the Premises and the Building caused by the removal of any of the
items described in this paragraph, reasonable wear and tear and damage by fire
or other casualty (other than damage caused by the willful or grossly negligent
act of Lessee) excepted. Lessee shall not remove any fixtures from the Premises
without Lessor's prior written consent if such removal would impair any
structural elements of the Building or would damage any improvements within the
Premises. Any personal property described in this paragraph not removed from the
Premises by Lessee upon the expiration or sooner termination of this Lease,
shall, at Lessor's option, become the property of Lessor, or Lessor may remove
or cause to be removed such property for Lessee's account, and Lessee shall
reimburse Lessor for the cost of removal (including the reasonable cost of
repairing any damage to the Premises or the Building caused by removal) and
storage and a reasonable charge for Lessor's overhead, within ten (10) days
after receipt of a statement therefor. Lessee's obligations under this paragraph
shall survive the termination of this Lease.
10. Liens. Lessee shall keep the Premises and the Building free from any liens
arising out of any work performed, materials furnished or obligations incurred
by Lessee. In the event that Lessee shall not, within 10 business days following
notice to Lessee of the imposition of any such lien, cause the same to be
released of record (whether by means of posting a bond or otherwise), Lessor
shall have, in addition to all other remedies provided herein and by law, the
right but not the obligations to cause the same to be released by means of
posting a bond or causing the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Lessor for such purposes, and all expenses incurred by it in connection
therewith, shall be payable to Lessor by Lessee immediately upon
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demand. Lessor shall have the right to post and keep posted on the Premises any
notices that may be provided by law or which Lessor may deem to be proper for
the protection of Lessor, the Premises and the Building from such liens, and
Lessee shall give Lessor at least five (5) days' prior notice of the date of
commencement of any construction on the Premises in order to permit the posting
of such notices.
11. Repairs. By entry hereunder Lessee accepts the Premises as being in the
condition in which Lessor is obligated to deliver the Premises, subject only to
latent or seasonal defects of which Lessee notifies Lessor within 12 months
following the date Lessee takes occupancy of the Premises. Lessee shall, at all
times during the term hereof and at Lessee's sole cost and expense, keep the
Premises and every part thereof in good condition and repair, ordinary wear and
tear and damage thereto by fire, earthquake, act of God or the elements
excepted, Lessee hereby waiving all rights to make repairs at the expense of
Lessor or in lieu thereof to vacate the Premises as provided by California Civil
Code Section 1942 or any other similar law, statute or ordinance now or
hereafter in affect. All repairs and replacements made by or on behalf of Lessee
hereunder shall be made and performed at Lessee's cost and expense and at such
time and in such manner as Lessor may reasonably designate by contractors or
mechanics reasonably approved by Landlord and so that the same shall be at least
equal in quality, value, character and utility to the original work or
installation being repaired or replaced. Lessee shall at the end of the term
hereof surrender to Lessor the Premises and all alterations, additions and
improvements thereto in the same condition as when received, ordinary wear and
tear and damage by fire, earthquake, act of God or the elements excepted. Lessor
has no obligation and has made no promise to alter, remodel, improve, repair,
decorate or paint the Premises or any part thereof, except as specifically
herein set forth. No representations respecting the condition of the Premises or
the Building have been made by Lessor to Lessee.
12. Destruction or Damage.
(a) In the event the Premises or the portion of the Building necessary for
Lessee's occupancy are damaged by first earthquake, act of God, the elements or
other casualty, Lessor shall forthwith repair the same, subject to the
provisions of this paragraph 10 hereinafter set forth, if such repairs can, in
Lessor's reasonable opinion, be made within 90 days and if insurance proceeds
are available to pay the full replacement cost thereof. This Lease shall remain
in full force and effect except that, if and to the extent that such damage is
not the result of the gross negligence or willful misconduct of Lessee or
Lessee's employees or invitees, an abatement of rental shall be allowed Lessee
for such part of the Premises as shall be rendered unusable by Lessee in the
conduct of its business during the time such part is so unusable.
(b) If such repairs cannot, in Lessor's reasonable opinion, be made within
90 days, or if sufficient insurance proceeds are not available to pay the full
replacement cost thereof, Lessor may elect upon notice to Lessee within 30 days
after the date of such fire or other casualty, to repair or restore such damage,
in which event this Lease shall continue in full force and effect, but the rent
shall be abated as provided above in this paragraph. If in the reasonable
opinion of Lessor's contractor, which opinion shall be rendered within 45 days
of the date of damage or destruction, the damage or destruction cannot be
repaired so as to allow Lessee to reoccupy the Premises within 120 days after
such damage or destruction occurs (without regard to the issuance of a building
permit or any governmental delays), either Lessor or Lessee may terminate this
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Lease by notice to the other given within 30 days after receiving notice of such
determination. If Lessor does not elect to make such repairs, this Lease shall
terminate as of the date of such fire or other casualty.
(c) A total destruction of the Building shall automatically terminate this
Lease. Lessee waives California Civil Code Sections 1932(2) and 1933(4)
providing for termination of hiring upon destruction of the thing hired.
(d) If the Premises are to be repaired under this paragraph, Lessor shall
repair at its cost any injury or damage to the structural portions of the
Building, Building systems, and all leasehold improvements, in the Premises
other then alterations, additions or improvements made by or for Lessee. Lessee
shall pay the cost of repairing any alterations, additions or improvements made
by or for Lessee and the cost of repairing or replacing Lessee's fixtures and
personal property in the Premises.
13. Insurance.
(a) Lessee shall obtain and maintain during the term of this Lease
commercial general liability insurance with a combined single limit for bodily
injury and property damage in an amount not less than $2,000,000, and employer's
liability and workers' compensation insurance as required by law. If Lessee's
insurance contains a split limit of liability the liability limit shall be not
less than $2,000,000 for bodily injury and $1,000,000 for property damage. Such
insurance policy shall also cover Lessee's indemnity obligations set forth
below. Lessee's commercial general liability insurance policy shall be an
occurrence basis and shall be endorsed to provide that (i) it may not be
cancelled or altered in such a manner as adversely to affect the coverage
afforded thereby without 30 days' prior written notice to Lessor, (ii) Lessor is
named as additional insured, (iii) such insurance is primary with respect to
Lessor and that any other insurance maintained by Lessor is excess and
noncontributing with such insurance, (iv) it shall contain cross-liability
endorsements and (v) it shall contain a waiver of subrogation as provided below.
Lessee shall insure all personal property and fixtures of Lessee and all
improvements made by or for Lessee to the Premises. If, in the reasonable
opinion of Lessor's insurance advisor, based on a substantial increase in
recovered liability claims generally, the specified amounts of coverage are no
longer adequate, such coverage shall be appropriately increased to an amount
comparable to that required by prudent owners of comparable, similarly situated
buildings in the San Francisco area. Prior to the commencement of the term, a
duplicate of such policy or a duplicate certificate thereof shall be delivered
to Lessor for retention by it. If Lessee fails to obtain such insurance or to
furnish Lessor any such duplicate policy or certificate as herein required,
Lessor may, at its election, with not less than 10 days' prior notice to Lessee
but without any obligation so to do, procure and maintain such coverage and
Lessee shall reimburse Lessor on demand as additional rent for any premium so
paid by Lessor. The insurance required under this paragraph and all renewals
thereof shall be issued by such good and responsible insurance companies
qualified to do and doing business in the State of California as may be approved
by Lessor, which approval shall not be unreasonably withheld. Lessee shall have
the right to provide all insurance required herein pursuant to blanket policies
so long as the coverage applicable to the Premises or afforded Lessor will not
be reduced or diminished by reason of the use of such blanket, policies and so
long as all other requirements of this paragraph are satisfied.
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(b) Lessor shall obtain and keep in force during the term of this Lease a
policy of Combined Single Limit Bodily Injury and Broad Form Property Damage
insurance plus coverage against such other risks Lessor deems advisable from
time to time, insuring Lessor, but not Lessee, against liability arising out of
the ownership, use, occupancy or maintenance of the Building in amounts
customary for properties comparable to the Building in downtown San Francisco.
The policy required herein shall contain such deductibles as Lessor or the
aforesaid lender may determine.
14. Waiver of Subrogation. Notwithstanding anything to the contrary contained
herein, to the extent of insurance proceeds received with respect to the loss,
Lessee and Lessor each hereby waive any right of recovery against the other
party for any loss or damage maintained by such other party with respect to the
Building, the Premises, the contents of same or any operation therein, whether
or not such loss is caused by the fault or negligence of such other party.
Lessor and Lessee shall each obtain from their respective insurers under all
policies of fire, theft, public liability, and other insurance maintained by
either of them (excluding worker's compensation) at any time during the term
hereof insuring or covering the Building, the Premises or any portion thereof or
operations therein, a waiver of all rights of subrogation which the insurer of
one party might have against the other party, and Lessor and Lessee shall each
indemnify the other against any loss or expense, including reasonable attorneys'
fees, resulting from the failure to obtain such waiver.
15. Indemnification. Lessee hereby waives all claims against Lessor for damage
to any property or injury or death of any person in, upon or about the Premises
arising at any time and from any cause other than by reason of the gross
negligence or willful act of Lessor, its contractors, employees or agents, and
Lessee shall indemnify and hold Lessor harmless from any damage to any property
or injury to or death of any person arising from the use of the Premises or the
Building by Lessee, its agents, employees, contractors and invitees, except to
the extent caused by the gross negligence or willful act of Lessor, its
contractors, employees or agents. Lessor hereby waives all claims against Lessee
for damage to or destruction of any property or injury to or death of any person
in, on, or about the areas of the Building other than the Premises arising at
any time and from any cause other than by reason of the gross negligence or
willful act of Lessee or any of its employees, agents, or contractors, and
Lessor shall indemnify and hold Lessee harmless against all liability for death
or injury to person and damage to property caused by the gross negligence or
willful act of Lessor or any of its employees, agents, or contractors. The
foregoing indemnity obligations shall include reasonable attorneys' fees,
investigation costs and all other reasonable costs and expenses incurred by the
indemnified party from the first notice that any claim or demand is to be made
or may be made. The provisions of this paragraph shall survive the termination
of this Lease with respect to any damage, injury or death occurring prior to
such termination.
16. Compliance with Legal Requirements. Lessee shall at its sole cost and
expense promptly comply with all laws, statutes, ordinances and governmental
rules regulations or requirements which may hereafter be in force, with the
requirements of any governmental body now or hereafter constituted prescribing
fire protection standards, with any direction or occupancy certificate issued
pursuant to any law by any public officer or officers, as well as the provisions
of all recorded documents affecting the Premises, insofar as any thereof relate
to or affect the condition, use or occupancy of the Premises by Lessee,
excluding alterations or improvements to
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the Building as a whole or the premises of tenants generally that are not by law
the responsibility of tenants to comply with and are not required as a result of
Lessee's particular use of the Premises (as opposed to general office use).
Lessee shall indemnify and hold Lessor harmless from any and all demands,
claims, losses or damages suffered by Lessor as a result of Lessee's failure to
perform the foregoing covenant.
17. Assignment and Subletting.
(a) Lessee shall not, without the prior written consent of Lessor (which
consent shall not be unreasonably withheld or delayed), assign this Lease or any
interest herein, sublet the Premises or any part thereof, permit the use or
occupancy of the Premises by any person other than Lessee, or hypothecate this
Lease or any interest herein. Any of the foregoing acts without such consent
shall be void and shall, at the option of Lessor, constitute a default that
shall entitle Lessor to terminate this Lease. Notwithstanding the foregoing,
Lessee shall be permitted to assign all or a portion of its interest in this
Lease or sublet all or a portion of the Premises to an affiliate of Lessee (as
defined below), with notice to Lessor but without the necessity of Lessor's
consent, provided (i) Lessee is not then in default under the terms of this
Lease beyond the expiration of the applicable grace or cure period, if any, and
(ii) in the event of an assignment, only, any such affiliate agrees to assume
all of Lessee's obligations under this Lease. For purposes of the immediately
preceding sentence, an affiliate of Lessee shall mean (1) a corporation which
controls Lessee, is controlled by Lessee or its principals, or is under common
control with Lessee or its principals or (2) any entity merged into or merging
with Lessee or into which Lessee is merged or which acquires all of Lessee's
assets as a going concern of the business that is being conducted on the
Premises. Any such consent by Lessor shall not release Lessee from any of
Lessee's obligations hereunder or be deemed to be a consent to any subsequent
hypothecation, assignment, subletting, occupation or use by another person. This
Lease shall not, nor shall any interest herein, be assignable as to the interest
of Lessee involuntarily or by operation of law without the prior written consent
of Lessor. Lessee agrees that the instrument by which any assignment or
subletting consented to by Lessor is accomplished shall be in a form reasonably
satisfactory to Lessor and shall expressly provide that the assignee or
subtenant will perform and observe all the agreements, covenants, conditions and
provisions arising from and after such assignment or sublease to be performed
and observed by Lessee under this Lease as and when performance and observance
in due, that no assignee or subtenant shall have the further right to assign or
sublet with Lessor's prior consent, not to be unreasonably withheld, and that
Lessor shall have the right to enforce such agreements, covenants, conditions
and provisions directly against such assignee or subtenant. Lessee shall in all
cases remain responsible for the performance by any subtenant or assignee as
indicated thereon of all such agreements, covenants, conditions and provisions.
Any assignment or subletting without an instrument containing the foregoing
provision shall be void and shall, at the option of Lessor, constitute a default
that entitles Lessor to terminate this Lease.
(b) Notwithstanding the foregoing, before entering into any assignment of
this Lease or into a sublease of all or part of the Premises, Lessee shall give
written notice to Lessor identifying the intended assignee or subtenant by name
and address, the terms of the intended assignment or sublease, and the nature of
the business of the proposed assignee or sublessee, together with current
audited or reviewed financial statements for the proposed assignee or sublessee
to the extent available, and, thereafter, any other information which Lessor
shall
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reasonably request that is readily available to the proposed subtenant or
assignee in the ordinary course of business. For a period of 15 days after such
notice is given, Lessor shall have the right by written notice to Lessee (but
not in the case of an assignment or subletting to an affiliate pursuant to
subparagraph (a) above for which Lessor's consent is not required) to (i) in the
case of a proposed sublease of one floor or more of the Premises, either (A)
sublet from Lessee any portion of the Premises proposed to be sublet for the
term for which such portion is proposed to be sublet but at the same rent as
Lessee is required to pay to Lessor under this Lease for the same spaces
computed on a pro rata square footage basis, or (B) if the proposed subletting
is for substantially the remaining period of the term of this Lease, terminate
this Lease, or terminate this Lease as it pertains to the portion of the
Premises so proposed by Lessee to be sublet, or (ii) in the case of a proposed
assignment, terminate this Lease. If Lessor so terminates this Lease, such
termination shall be as of the date specified in such notice. If Lessor so
terminates this Lease, Lessor may, if it elects, enter into a new lease covering
the Premises or a portion thereof with the intended assignee or subtenant on
such terms as Lessor and such person may agree, or enter into a new lease
covering the Premises or a portion thereof with any other person; in such event,
Lessee shall not be entitled to any portion of the profit, if any, which lessor
may realize on account of such termination and reletting. Lessor's exercise of
its aforesaid option shall not be construed to impose any liability upon Lessor
with respect to any real estate brokerage commission(s) or any other costs or
expenses incurred by Lessee in connection with its proposed subletting or
assignment.
(c) If Lessee complies with the foregoing provisions of this paragraph, and
Lessor does not exercise an option provided to Lessor under subparagraph (b) of
this paragraph, Lessor's consent to a proposed assignment or sublet shall not be
unreasonably withheld and shall be given, or the specific reasons for denial
thereof shall be stated, within 15 days following Lessee's request therefor.
Without limiting the other instances in which it may be reasonable for Lessor to
withhold its consent to an assignment or subletting, Lessor and Lessee
acknowledge that it shall be reasonable for Lessor to withhold its consent in
the following instances:
(1) the proposed assignee or sublessee is a governmental agency;
(2) in Lessor's reasonable judgment, the use of the Premises by the
proposed assignee or sublessee would involve occupancy by other than
primarily general office personnel or otherwise be in violation of this
Lease, would entail any alterations which would lessen materially the value
of the leasehold improvements in the Premises, or would require materially
increased services by Lessor;
(3) in Lessor's reasonable judgment, the financial worth of the
proposed assignee or sublessee does not meet the credit standards applied
by Lessor for other tenants under leases with comparable terms;
(4) in Lessor's reasonable judgment, the proposed assignee or
sublessee does not have a good reputation as a tenant of property;
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(5) Lessor has experienced previous repeated, material defaults by or
is in litigation with the proposed assignee or subtenant;
(6) in Lessor's reasonable judgment, the Premises, or the relevant
part thereof, will be used in a manner that will violate any pre-existing
negative covenant as to use contained in any other lease of space in the
Building;
(7) the use of the Premises by the proposed assignee or subtenant will
violate any applicable law, ordinance or regulation;
(8) the proposed assignment or sublease will create a vacancy
elsewhere in the Building with respect to comparable space in the Building;
(9) the proposed assignee or subtenant is a person with whom Lessor is
negotiating to lease space in the Building;
(10) the proposed assignment or sublease fails to include all of the
terms and provisions required to be included therein pursuant to this
paragraph 16;
(11) Lessee is in default of any obligation of Lessee under this Lease
beyond the expiration of the applicable grace or cure period, if any, or
Lessee has defaulted under this Lease beyond the expiration of the
applicable grace or cure period, if any, an two or more occasions during
the IS months preceding the date that Lessee shall request consent; or
(12) in the case of a subletting of less then the entire Premises if
the subletting would result in the division of any floor of the Premises
into two or more subparcels or would require access to be provided through
space leased or held for lease to another tenant or improvements to be made
outside of the Premises.
(d) In the case of an assignment, one-half of any sums or other economic
consideration received by Lessee as a result of such assignment shall be paid to
Lessor after first deducting the unamortized cost of leasehold improvements paid
for by Lessee (including demising costs), and the cost of any attorneys' fees,
advertising expenses, and real estate commissions incurred in connection with
such assignment. In the case of a subletting, one-half of any, sum or economic
consideration received by Lessee as a result of such subletting shall be paid to
Lessor after first deducting (1) the rental due hereunder, prorated to reflect
only rental allocable to the sublet portion of the Premises, (2) the cost of
leasehold improvements (including demising costs) made to the sublet portion of
the Premises at Lessee's cost, amortized over the term of this Lease, except for
leasehold improvements made for the specific benefit of the sublessee, which
shall be amortized over the term of the sublease, and (3) the cost of any
attorneys' fees, advertising expenses, and real estate commissions incurred in
connection with such subletting, amortized over the term of the sublease.
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(e) If Lessee shall assign or sublet the Premises, or request the consent
of Lessor to any assignment or subletting, or if Lessee shall request the
consent of Lessor for any act that Lessee proposes to do, then Lessee shall pay
Lessor's reasonable attorneys' fees incurred in connection therewith.
18. Entry by Lessor. Lessor may enter the Premises at reasonable hours and,
except in case of emergency or the provision of routine janitorial services,
upon reasonable prior notice (which, notwithstanding anything to the contrary
contained herein, may be oral), in order to (a) inspect the same, (b) exhibit
the same to prospective purchasers, lenders or, during the last 12 months of the
term hereof, tenants, (c) determine whether Lessee is complying with all its
obligations hereunder, (d) supply janitorial service and any other service to be
provided by Lessor to Lessee hereunder, (e) post notices of nonresponsibility,
(f) post "to Lease" signs of reasonable size upon the Premises during the final
90 days of the term hereof, and (g) make repairs required of Lessor under the
terms hereof or repairs to any adjoining space or utility services or to make
repairs, alterations or improvements to any other portion of the Building;
provided, however, that all such work shall be done as promptly as is reasonably
possible and so as to cause as little interference to Lessee as is reasonably
possible, and provided further that Lessor shall not store materials within the
Premises for more than 2 business days in any 12-month period. Lessee hereby
waives any claims for damages for any injury or inconvenience to or interference
with Lessee's business, any loss of occupancy or quiet enjoyment of the Premises
or any other loss occasioned by such reasonable entry. Lessor shall at all times
have and retain a key with which to unlock all of the doors in, on or about the
Premises (excluding Lessee's vaults, safes and similar areas designated by
Lessee); and Lessor shall have the right to use any and all means which Lessor
may deem proper to open said doors in an emergency only in order to obtain entry
to the Premises, and any emergency entry to the Premises obtained by Lessor by
any of said means, or otherwise, shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into or a detainer of the Premises
or an eviction, actual or constructive, of Lessee from the Premises, or any
portion thereof.
19. Events of Default. The occurrence of any one or more of the following
events ("Events of Default") shall constitute a breach of this Lease by Lessee:
(a) if Lessee shall fail to pay rental or any other sum due hereunder when and
as the same becomes due and payable and such failure shall continue for more
than five (5) days after notice by Lessor, provided that if Lessee shall have
failed twice or more in any calendar year to pay rent when due and notice of
such default shall have been given by Lessor in two or more such instances, no
notice by Lessor shall thereafter be required hereunder for the remainder of
such calendar year; or (b) if Lessee shall fail to perform or observe any other
term hereof to be performed or observed by Lessee, and such failure shall
continue for more than 30 days after notice thereof by Lessor, or, if the
failure is not susceptible of cure within 30 days, 90 days provided that Lessee
commences to cure within 30 days following Lessor's notice and prosecutes with
due diligence and dispatch the curing of such default; or (c) if Lessee shall
make a general assignment for the benefit of creditors, shall become insolvent
or shall admit in writing its inability to pay its debts as they become due or
shall file a petition in bankruptcy, or shall be adjudicated as bankrupt or
insolvent, or shall file a petition in any proceeding seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute law or regulation, or
shall file an answer admitting or fail timely to contest the material
allegations of a petition filed against it in any such proceeding, or shall seek
or consent to or
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acquiesce in the appointment of any trustee, receiver or liquidation of Lessee
or any material part of its properties; or (d) if within 90 days after the
commencement of any proceeding against Lessee seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such proceeding
shall not have been dismissed, or if, within 90 days after the appointment
without the consent or acquiescence of Lessee, of any trustee, receiver or
liquidator of Lessee or of any material part of its properties, such appointment
shall not have been vacated; or (e) if this Lease or any estate of Lessee
hereunder shall be levied upon under any attachment or execution and such
attachment or execution is not vacated within 10 days after notice thereof to
Lessee; or (f) Lessee shall vacate or abandon the Premises without payment of
rent.
20. Termination Upon Default.
(a) If an Event of Default shall occur, Lessor at any time thereafter may
give a written termination notice to Lessee, and on the date specified in such
notice Lessee's right to possession shall terminate and this Lease shall
terminate, unless on or before such date all arrears of rental and all other
sums payable by Lessee under this Lease and all costs and expenses incurred by
or on behalf of Lessor hereunder shall have been paid by Lessee and all other
breaches of this Lease by Lessee at the time existing shall have been fully
remedied to the satisfaction of Lessor. Upon such termination, Lessor may
recover from Lessee: (a) the worth at the time of award of the unpaid rental
which had been earned at the time of termination; (b) the worth at the time of
award of the amount by which the unpaid rental which would have been earned
after termination until the time of award exceeds the amount of such rental loss
that Lessee proves could have been reasonably avoided; (c) the worth at the time
of award of the amount by which the unpaid rental for the balance of the term of
this Lease after the time of award exceeds the amount of such rental loss that
Lessee proves could be reasonably avoided; and (d) any other amount necessary to
compensate Lessor for all the detriment proximately caused by Lessee's failure
to perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom. The "worth at the time of award" of
the amounts referred to in clauses (a) and (b) above is computed by allowing
interest at the rate of 10% per annum or, if a higher rate is legally
permissible, at the highest rate legally permitted. The "worth at the time of
award" of the amount referred to in clause (c) above is computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus 1%. For purposes of this paragraph, all rental sums shall
be computed an the basis of the average monthly amount thereof accruing during
the 24-month period immediately preceding the occurrence of an event of default
unless a 24-month period of this Lease has not elapsed, in which case the
average monthly amount shall be based upon the entire period of Lessee's
occupancy of the Premises. As used herein, the "time of the award" shall be
deemed to be the time of entry of judgment on Lessor's claim or the similar
point of determination if the matter is determined by a tribunal other than a
court. The amount recoverable by Lessor pursuant to subsection (d) above shall
include, but shall not be limited to, any reasonable costs or expenses incurred
by Lessor in maintaining or preserving the Premises after such default,
preparing the Premises for reletting to a new tenant, accomplishing any repairs
or alterations to the Premises for the purpose of such reletting, rectifying any
damage thereto occasioned by the act or omission of Lessee and any other cost
reasonably necessary or appropriate to relet the Premises.
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(b) Lessee hereby waives all rights under California Code of Civil
Procedure Section 1179 and California Civil Code Section 3275 providing for
relief from forfeiture, and any other right now or hereafter existing to redeem
the Premises or reinstate this Lease after termination pursuant to this
paragraph or by order or judgment of any court or by any legal process.
(c) IT IS MUTUALLY AGREED BY AND BETWEEN LESSOR AND LESSEE THAT THE
RESPECTIVE PARTIES HERETO SHALL AND THEY HEREBY DO WAIVE TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HEREBY
AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LESSOR AND LESSEE, LESSEE'S USE OR OCCUPANCY OF THE PREMISES,
AND ANY STATUTORY OR ANY OTHER STATUTORY REMEDY.
21. Continuation After Default. Even though Lessee has breached this Lease and
abandoned the Premises without payment of rent, this Lease shall continue in
effect for so long as Lessor does not terminate Lessee's right to possession,
and Lessor may enforce all its rights and remedies under this Lease, including
the right to recover the rental as it becomes due under this Lease. Acts of
maintenance or preservation or efforts to relet the Premises or the appointment
of a receiver upon initiative of Lessor to protect Lessor's interest under this
Lease shall not constitute a termination of Lessee's right to possession.
22. Other Relief. The remedies provided to Lessor in this Lease shall be
cumulative and are in addition to any other remedies available to Lessor at law
or in equity by statute or otherwise.
23. Lessor's Right to Cure Defaults. All agreements and provisions to be
performed by Lessee under any of the terms of this Lease shall be at its sole
cost and expense and without any abatement of rental. If Lessee shall fail to
pay any sum of money, other than rental, required to be paid by it hereunder or
shall fail to perform any other act on its part to be performed hereunder and
such failure shall continue for 30 days after notice thereof by Lessor, Lessor
may, but shall not be obligated so to do, and without waiving or releasing
Lessee from any obligations of Lessee, make any such payment or perform any such
other act on Lessee's part to be made or performed as in this Lease provided.
All reasonable sums so paid by Lessor and all necessary incidental costs shall
be deemed additional rent hereunder and shall be payable to Lessor on demand,
and Lessor shall have (in addition to any other right or remedy of Lessor) the
same rights and remedies in the event of the nonpayment thereof by Lessee as in
the case of default by Lessee in the payment of rental.
24. Attorneys' Fees. If either party commences an action or proceeding against
the other party arising out of or in connection with this Lease, or institutes
any proceeding in a bankruptcy or similar court which has jurisdiction over the
other party or any or all of its property or assets, the prevailing party in
such action or proceeding and in any appeal in connection therewith shall be
entitled to have and recover from the unsuccessful party reasonable attorneys'
fees, court costs, expenses and other costs of investigation and preparation. If
such prevailing party recovers a judgment in any such action, proceeding, or
appeal, such attorneys' fees, court costs and expenses shall be included in and
as a part of such judgment.
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25. Eminent Domain. If all or any part of the Premises shall be taken as a
result of the exercise of the power of eminent domain, this Lease shall
terminate as to the part so taken as of the date of taking. In the case of a
partial taking, either Lessor or Lessee shall have the right to terminate this
Lease as to the balance of the Premises by delivering a written notice to the
other within 30 days after the date of taking, provided, however, that a
condition to the exercise by Lessee of such right to terminate shall be that the
portion of the Premises taken shall be of such extent and nature as to render
the remaining portion thereof untenantable and unusable by Lessee. The Lease
shall terminate as of the date thirty (30) days after delivery by either party
of a termination notice. In the event of any taking, Lessor shall be entitled to
any and compensation, damages, income, rent, awards, or any interest therein
whatsoever which may be paid or made in connection therewith, and Lessee shall
have no claim against Lessor for the value of any unexpired term of this Lease
or otherwise. In the event of a partial taking of the Premises which does not
result in a termination of this Lease, the monthly rental thereafter to be paid
shall be abated in proportion to the percentage of the Premises taken or
substantially impaired by such taking.
26. Subordination. This Lease shall be subject and subordinated at all times to
(1) all ground or underlying leases which may hereafter be executed affecting
the Building, and (2) the lien of all mortgages and deeds of trust in any amount
or amounts whatsoever now or hereafter placed on or against the Building or on
or against Lessor's interest or estate therein or on or against all such ground
or underlying leases, all without the necessity of having further instruments
executed on the part of Lessee to effectuate such subordination. Notwithstanding
the foregoing, (i) in the event of termination for any reason whatsoever of any
such ground or underlying lease, this Lease shall not be barred, terminated, cut
off or foreclosed nor shall the rights and possession of Lessee hereunder be
disturbed if Lessee shall not then be in default in the payment of rental or
other sums beyond the expiration of the applicable grace or cure period or be
otherwise in default beyond the expiration of the applicable grace or cure
period under the terms of this Lease, and Lessee shall attorn to the lessor of
any such ground or underlying lease, or, if requested, enter into a new lease
for the balance of the original or extended term hereof then remaining upon the
same terms and provisions as are in this Lease contained; (ii) in the event of a
foreclosure of any such mortgage or deed of trust or of any other action or
proceeding for the enforcement thereof, or of any sale thereunder, this Lease
will not be barred, terminated, cut off or foreclosed nor will the rights and
possession of Lessee thereunder be disturbed if Lessee shall not then be in
default in the payment of rental or other sums beyond the expiration of the
applicable grace or cure period or be otherwise in default beyond the expiration
of the applicable grace or cure period under the terms of this Lease, and Lessee
shall attorn to the purchaser at such foreclosure, sale or other action or
proceeding; and (iii) Lessee agrees to execute and deliver upon demand such
further instruments evidencing such subordination of this Lease to said deed, to
such ground or underlying leases, and to the lien of any such mortgages or deeds
of trust as may reasonably be required by Lessor. Lessee's covenant to
subordinate this Lease to ground or underlying leases and/or mortgages or deeds
of trust hereafter executed is conditioned upon each such senior instrument
containing the commitments specified in the preceding clauses (i) and (ii) and
the receipt by Lessee of an agreement from the holder of each such senior
instrument confirming such commitments in a form acceptable to such holder.
27. No Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, shall not work a merger, and shall, at the option
of Lessor terminate all or
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any existing subleases or subtenancies, or may, at the option of Lessor, operate
as an assignment to it of any or all such subleases or subtenancies.
28. Sale. In the event the original Lessor hereunder, or any successor owner of
the Building, shall sell or convey the Building, all liabilities and obligations
on the part of the original Lessor, or such successor owner, under this Lease
accruing thereafter shall terminate, and thereupon all such liabilities and
obligations shall be binding upon the new owner. Lessee agrees to attorn to such
new owner.
29. Estoppel Certificate. At any time and from time to time but on not less
than 10 days' prior written request by either party, the other party will
execute, acknowledge and deliver to the requesting party, promptly upon request,
a certificate certifying (a) that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that this Lease is in full force
and effect, as modified, and stating the date and nature of each modification),
(b) the date, if any, to which rental and other sums payable hereunder have been
paid, (c) that no notice has been received by the certifying party of any
default which has not been cured, except as to defaults specified in said
certificate, and (d) such other matters as may be reasonably requested by the
requesting party. Any such certificates may be relied upon by an prospective
purchaser, mortgagee or beneficiary under any deed of trust on the Building or
any part thereof.
30. No Light, Air or View Easement. Any diminution or shutting off of light,
air or view by any structure which may be erected on lands adjacent to the
Building shall in no way affect this Lease or impose any liability on Lessor.
31. Holding Over. If, without the express consent of Lessor, Lessee holds
possession of the Premises after expiration of the term of this Lease, Lessee
shall become a tenant from month to month upon the terms herein specified but at
a monthly rental equivalent to 150% of the then prevailing monthly rental paid
by Lessee at the expiration of the term of this Lease, payable in advance on or
before the first day of each month. Each party shall give the other notice at
least one month prior to the date of termination of such monthly tenancy of its
intention to terminate such tenancy.
32. Abandonment. Lessee shall not at any time during the term hereof vacate or
abandon the Premises without payment of rent, and if Lessee shall abandon or
surrender the Premises, or be dispossessed by process of law or otherwise, any
personal property belonging to Lessee and left on the Premises shall be deemed
to be abandoned, at the option of Lessor, except such property as may be
mortgaged to Lessor.
33. Security Deposit. Upon execution of this Lease, Lessee shall deposit with
Lessor a security deposit (the "Deposit") in the amount of $82,300.00. The
Deposit shall be held by Lessor as security for the faithful performance by
Lessee of all the provisions of this Lease to be performed or observed by
Lessee. If Lessee fails to pay rent or other sums due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of the Deposit for the payment of any rent or other
sum in default or for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of the Deposit, then within 10 days after demand therefor
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Lessee shall deposit cash with Lessor in an amount sufficient to restore the
Deposit to the full amount thereof, and Lessee's failure to do so shall be a
material breach of this Lease. Lessor shall not be required to keep the Deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, the Deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned without payment of interest for its
use, to Lessee (or, at Lessor's option, to the last approved assignee, if any,
of Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to the Deposit.
34. Waiver. The waiver by either party of any agreement, condition or provision
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or any other agreement, condition or provision herein contained, nor
shall any custom or practice which may grow up between the parties in the
administration of the terms hereof be construed to waive or to lessen the right
of either party to insist upon performance in strict accordance with said terms.
The subsequent acceptance of rental hereunder by Lessor shall not be deemed to
be a waiver of any preceding breach by Lessee of any agreement, condition or
provision of this Lease other than the failure of Lessee to pay the particular
rental so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rental.
35. Notices. All notices, consents, and demands given by either party to the
other hereunder shall be in writing and shall be deemed to have been fully given
when personally delivered (which shall be deemed to include, without limitation
delivery by means of overnight courier service) or deposited in the United
States mail, certified or registered, postage prepaid, and addressed as follows:
to Lessee at the Premises, or to such other place as Lessee may from time to
time designate in a written notice to Lessor; to Lessor at Birmingham Builders,
Inc., 1475 Folsom Street, Suite 400, San Francisco, CA 94103, or to such other
place as Lessor may from time to time designate in a written notice to Lessee.
36. Complete Agreement. There are no oral agreements between Lessor and Lessee
affecting this Lease and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings, if any,
between Lessor and Lessee or displayed by Lessor to Lessee with respect to the
subject matter of this Lease or the Building. There are no representations
between Lessor and Lessee other than those contained in this Lease and all
reliance with respect to any representations is solely upon such
representations.
37. Corporate Authority. The persons executing this Lease on behalf of Lessee
do hereby covenant and warrant that Lessee is a duly authorized and existing
corporation, has and is qualified to do business in California, that such
corporation has full right and authority to enter into this Lease, and that each
and both of the persons signing on behalf of such corporation were authorized to
do so.
38. Miscellaneous. The words "Lessor" and "Lessee" as used herein shall include
the plural as well as the singular. If there be more than one Lessee, the
obligations hereunder imposed upon Lessee shall be joint and several. Time is of
the essence of this Lease and each and all of its provisions. Submission of this
instrument for examination of signature by Lessee does not constitute a
reservation of or option for lease, and it is not effective as a lease or
otherwise until execution and delivery by both Lessor and Lessee. The
agreements, conditions and provisions
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herein contained shall, subject to the provisions as to assignment, apply to and
bind the heirs, executors, administrators, successors and assigns of the parties
hereto. If any provision of this Lease shall be determined to be illegal or
unenforceable, such determination shall not affect any other provision of this
Lease and all such other provisions shall remain in full force and effect. This
Lease shall be governed by and construed pursuant to the laws of the State of
California. No amendments or modifications of this Lease or any agreements in
connection therewith shall be valid unless in writing and duly executed by the
party to be charged therewith.
39. Limitation of Liability. The liability of Lessor under this Lease shall be
and is hereby limited to Lessor's interest in the Building, and no other assets
of Lessor shall be affected by reason of any liability which Lessor may have to
Lessee or to any other person by reason of this Lease.
40. Option to Extend Lease. Provided that Lessee has not been in default under
any of the provisions of this Lease beyond any cure period specified herein and
is not in default hereunder at the time it exercises this option, Lessee shall
have one (1) option to extend the term of this Lease for an additional term of
five (5) years (the "extended term") following the expiration of this Lease,
upon all of the same terms and conditions as this Lease, provided that such
option shall be exercised by written notice to Lessor not more than twelve (12)
months nor less than nine (9) months prior to expiration of the original term of
this Lease. The rent for the extended term shall be 100% of the fair market
rental for the Premises, taking into account any concessions to tenants of
comparable size and credit in buildings of similar age and quality in the
immediate submarket. Within thirty (30) days following the date Lessee exercises
its option, Lessor and Lessee shall use their reasonable best efforts to agree
on the rent for the extended term. If Lessor and Lessee are unable to agree on
the rent for the extended term within said thirty (30) day period, then within
ten (10) days after said period, Lessor and Lessee shall each submit to the
other in writing their good faith estimate of the rent for the extended term. If
the higher of said estimates is not more than one hundred ten percent (110%) of
the lower of such estimates, the rent for the extended term shall be the average
thereof. If otherwise, then within five (5) days after submission of said
estimates, either party may submit the question to appraisal in accordance with
the following procedure. Within twenty (20) days after either party requests
appraisal, the parties shall select a mutually acceptable commercial real estate
broker with experience in the leasing of comparable space in the vicinity of the
premises, who shall determine the rent for the extended term. If the parties
cannot agree on such a commercial real estate broker within said twenty (20) day
period, then within five (5) days thereafter, each party shall select an
independent commercial real estate broker meeting the criteria set forth above.
If one party shall fail to make such appointment within said five (5) day
period, then the broker chosen by the other party shall determine the rent for
the extended term. Within twenty (20) days thereafter, each such broker shall
independently determine his or her opinion of the rent for the extended term,
and shall provide a report to Lessor and Lessee stating the basis for such
opinion. If Lessor and Lessee cannot agree upon the rent for the extended term
within twenty (20) days thereafter, the two brokers shall within such twenty
(20) day period select a third commercial real estate broker meeting the above
criteria and the third broker shall select the rent for the extended term
determined by one of the two brokers. If the two brokers selected by Lessor and
Lessee cannot agree on the third broker, the third broker shall be selected by
Lessor and Lessee within five (5) days after the expiration of said twenty (20)
day period. If Lessor and Lessee cannot agree on the third broker, the third
broker shall be selected by the then presiding judge of the
-20-
<PAGE>
Superior Court of California in and for the City and County of San Francisco. If
the foregoing process does not result in the selection of a third broker, the
parties shall equally share the costs associated with the selection process. The
amount selected in accordance with this paragraph shall be deemed to be the rent
for the extended term and such determination shall be final and binding on both
Lessor and Lessee. The cost of the appraisal shall be borne by the nonprevailing
party, as determined by the third broker. In no event shall the rent for the
extended term be less than the rent in effect during the last month of the
original term of this Lease.
41. Brokerage Commissions. Lessee and Lessor each represents and warrants to
the other that it has dealt with no broker, agent or other person in connection
with this transaction and that no broker, agent or other person brought about
this transaction other than Colliers International, and Lessee and Lessor each
agrees to indemnify and hold the other harmless from and against any claims by
any other broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with the indemnifying party with regard
to this leasing transaction. The provisions of this paragraph shall survive the
termination of this Lease. Any broker's fee or commission payable to Colliers
International in connection with this Lease shall be paid by Lessor pursuant to
a separate agreement.
42. Lessee's Grant to Lessor of Option to Purchase Stock of Lessee. In
consideration of Lessor's agreement to enter into this Lease, Lessee hereby
irrevocably grants to Lessor the option to purchase any number of shares of the
common stock of Lessee, in a quantity not to exceed fifty thousand (50,000)
shares, at the price of $3.25 per share. Lessor shall exercise this option by
giving Lessee written notice of such exercise at any time within three years of
Lessee's initial public offering ("IPO"). Upon receipt of such notice and tender
of the purchase price for the shares to be acquired by Lessor, Lessee shall take
all actions necessary to effect the prompt transfer of such shares to Lessor.
Within thirty (30) days after execution of this Lease by Lessor and Lessee, the
parties shall enter into a written agreement (in a form substantially similar to
that previously used by Lessee for grants to third parties (including Lessee's
employees) of options to purchase Lessee's stock) setting forth additional terms
and conditions relating to the option hereby granted. Such agreements shall
contain commercially reasonable anti-dilution provisions. The parties agree to
use their best, good-faith efforts to agree upon the terms and conditions of
such agreement. In the event that the parties are unable to agree upon the terms
and conditions of such agreement, the matter shall be resolved by way of binding
arbitration conducted under the auspices of Judicial Arbitration and Mediation
Services of San Francisco, California, with the award of the arbitrator in such
arbitration to be rendered by no later than ninety (90) days after execution of
this Lease by Lessor and Lessee. In the event either party fails to comply with
the award of the arbitrator, such award shall be confirmed in the Superior Court
of the State of California for the City and County of San Francisco. In addition
to the foregoing, at the time of the IPO Lessor shall have the right to purchase
the greater of one hundred thousand (100,000) shares or one percent (1.0%) of
the number of shares offered, at the initial offering price.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease on the respective
dates indicated below:
LESSOR: LESSEE:
945 BATTERY LLC, a California MEDICALOGIC, INC., an Oregon
limited liability company corporation
By: PAUL F. PELOSI By: DAVID C. MOFFENBEIER
------------------------------ ------------------------------
Paul F. Pelosi, Member Name: David C. Moffenbeier
------------------------
Title: COO
By: THOMAS G. STUBBS -----------------------
------------------------------
Thomas G. Stubbs, Member
By: MARK K. LEAVITT
------------------------------
Name: Mark K. Leavitt
------------------------
Date of Execution by Lessor: 8/1/99 Title: CEO & President
-----------------------
Date of Execution by Lessee: _____
-22-
<PAGE>
945 Battery Street
Base Building Work
Notes: Building shall be provided in its existing condition (unless otherwise
referenced in this exhibit) which is ready for Tenant Improvements and available
for inspection by Lessee or Lessee's consultants. Any reference in this Exhibit
to "at Lessee's expense" means that it shall be paid for in cash by Lessee or
included in the Tenant Improvement allowance referenced in the letter of intent.
Lessee will be permitted to engage an outside contractor subject to Lessor's
reasonable approval right. Lessee will also be permitted to engage its own
architect and all fees associated therewith shall be paid by Lessee or included
in Lessee's allowance.
1) Lessor to provide a complete weathertight exterior, including new roof and
windows repainted, repaired and reglazed where necessary. Lessor will
provide legal handrail around perimeter of roof. Lessee will be responsible
for any decking on the roof plus any handrails, lighting or landscaping
associated therewith.
2) Lessor to provide washrooms on third and penthouse floor but not mezzanine.
Washrooms are ADA accessible and are finished and available for Lessee's
inspection. Lessor also to provide one drinking fountain per floor, except
mezzanine, per code.
3) Lessor to provide complete elevator system (two elevators) serving all
levels of the building which are ADA accessible and will be furnished with
stone tile floor and wood paneled walls or other material of equal quality.
4) Lessor to provide an electrical meter dedicated to Lessee's space as well
as primary electrical transformer and panel connected to a sub-panel. All
electrical distribution from the sub panel shall be at Lessee's expense.
5) Lessee to provide mechanical systems to the floors, including plumbing,
heating ventilation and air conditioning. Chillers, boilers,, condensers,
risers have been installed and stubbed to each floor. HVAC is distributed
to a point of connection on each floor and HVAC distribution within
Lessee's space to be at Lessee's expense. Fire sprinklers per code have
been installed by Lessor including pumps, risers, panels and tamper
switches, main and branch distribution and drops for light hazard
occupancy. Any modification to this system required for the Tenant
Improvement is at Lessee's expense.
6) Lessor will provide one phone closet with phone board in the premises and
all other phone work will be at Lessee's expense.
7) Walls, ceilings and columns have been sandblasted and will be delivered to
Lessee in their existing condition. Any sheetrock in the space will be
delivered sanded and ready for painting by Lessee.
8) Lessor has provided a new seismic upgrade system in compliance with
building code which is available for inspection by Lessee or its
consultants.
9) The building is in full compliance with ADA in all the public spaces in the
building.
Exhibit A
<PAGE>
10) Lessor has installed a skylight on the roof of the penthouse. Any
modifications to this skylight will be at Lessee's expense.
11) Lessor has installed two legal firestairs connecting all floors. Walls of
stairways will be painted, eggshell finish. Any additional stairways
connecting the floors shall be at Lessee's expense.
12) Lessor will provide code complaint steel pipe handrail along mezzanine
floor and around the opening in the Penthouse floor below the skylight
(both currently open) and any upgrades to these handrails will be at
Lessee's expense.
13) Lessor will improve the Green Street lobby in a manner consistent with
other first class renovations in the North Waterfront Area. Any upgrades
from Lessor's design will be paid by Lessee.
14) Lessor will provide a security card reader at the Green Street entry lobby.
Any other upgrades to the security system, including but not limited to
card readers in the elevator cabs or on individual floors, will be at
Lessee's expense.
15) Penthouse and mezzanine ceilings will be delivered "as is" and any new
ceiling will be installed at Lessee's expense.
16) All floor surfaces shall be delivered in their existing condition. Any
surface preparation or leveling shall be at Lessee's expense.
Exhibit A
AGREEMENT TO ISSUE SHARES OF COMMON STOCK
DATED AS OF: February 16, 1999
BETWEEN: Baylor College of Medicine "BCM"
One Baylor Plaza
Houston, Texas 77030
AND: MedicaLogic, Inc. "MLI"
20500 NW Evergreen Parkway
Hillsboro, OR 97124
RECITALS
A. BCM is a shareholder of PrimaCis Health Information Technology, Inc., a
Delaware corporation ("PrimaCis").
B. Pursuant to the terms of an Agreement of Reorganization and Merger dated
as of December 31, 1998 (the "Merger Agreement") between MLI, PC Merger Corp., a
Texas corporation which is a wholly-owned subsidiary of MLI ("Merger Corp.") and
PrimaCis, PrimaCis was merged with and into Merger Corp. (the "Merger").
AGREEMENT
In consideration of the mutual covenants contained herein, and as a
condition to the performance by PrimaCis of its obligations under the Merger
Agreement, the parties agree as follows:
1.0 Purchase Order. BCM agrees to place an order with MLI (the "Purchase
Order") for 1,500 licenses of MLI's Logician software (the "Software"), at a
price of $3,000 a license.
2.0 License of Software. MLI agrees to offer licenses of the Software
through December 31, 2002, to BCM or any of its affiliated institutions or
affiliated health care providers in the Houston, Texas metropolitan statistical
area (the "Houston MSA"), at a price of $3,000 a license.
3.0 Issuance of Shares of MLI Common Stock. For each license sold by MLI to
BCM from the date of this Agreement through December 31, 2002 other than
pursuant to the Purchase Order, MLI will issue to BCM shares of MLI Common Stock
("Shares") as follows:
3.1 MLI will issue to BCM Shares according to the following formula:
N = R divided by P
<PAGE>
where: N = the number of Shares to be issued by MLI to BCM
R = 50 percent of the license fees received by MLI
from the sale of licenses for the Software to BCM from
the date of this Agreement through December 31, 2002
other than pursuant to the Purchase Order
P = the fair market value of MLI's Common Stock
For the purposes of this Section 3.1, the "fair market value" of MLI's
Common Stock (which is currently $2.20 per share) shall mean: (i) prior to an
initial public offering, the fair market value of MLI's Common Stock as of the
last day of a particular quarter for which a calculation pursuant to this
Section 3.1 is being made, as determined in good faith by MLI's Board of
Directors and in accordance with generally accepted accounting principles; and
(ii) after an initial public offering, the average of the closing sale prices of
MLI Common Stock reported on the securities exchange or other principal
securities market on which the MLI Common Stock may be listed or traded for the
last 20 business days of a particular quarter for which a calculation pursuant
to this Section 3.1 is being made.
3.2 For the purposes of this Section 3, any sales of licenses for the
Software in the Houston MSA subsequent to the date of this Agreement other than
pursuant to the Purchase Order shall be credited as if such licenses were sold
to BCM.
3.3 MLI shall calculate the number of Shares to be issued to BCM
quarterly. Within 45 days after the end of each quarter, with the final quarter
ending on December 31, 2002, MLI shall transmit to BCM certificates representing
the Shares, if any, earned in that quarter. MLI shall include in each such
transmittal a written statement in reasonable detail showing MLI's calculation
of the number of shares that BCM is entitled to receive for that quarter
pursuant to this Section 3.
3.4 Notwithstanding anything to the contrary in this Agreement, MLI
shall have no obligation to issue any additional Shares pursuant to this
Agreement when the license fees received by MLI from the sale of licenses of the
Software for the purpose of applying the formula set forth in Section 3.1
exceeds $24,000,000.
4.0 Term. This Agreement shall expire on December 31, 2002.
5.0 Press Releases. The parties shall use their respective best efforts to
draft and release, promptly after the execution of this Agreement, a jointly
drafted and previously agreed upon press release disclosing the terms of this
Agreement and the Purchase Order, the importance of BCM's decision to
standardize on the Software as a single ambulatory electronic medical records
system and the expected use of the Software in Texas Children's Hospital Cancer
Center once oncology content is available.
<PAGE>
6.0 Investment Representations. BCM represents that it will be acquiring
the Shares pursuant to this Agreement for investment for its own account, and
not with a view to, or for resale in connection with, any distribution of the
Shares. The Shares are being offered and sold pursuant to this Agreement without
registration under the Securities Act of 1933 (the "1933 Act") or any state
securities law based on exemptions provided under such laws, and that the Shares
are "restricted securities" under federal securities laws and as such may not be
sold or disposed of unless they are registered under the 1933 Act and all
applicable state securities laws or unless, in the opinion of counsel acceptable
to MLI, exemptions from the registration requirements of the 1933 Act and all
applicable state securities laws are available. BCM is an "accredited investor"
as defined in Rule 501 of the Securities and Exchange Commission.
7.0 Stock Certificate Legends. BCM understands that there will be placed on
the certificates for the Shares, or any substitution therefor, the following
legends:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED
UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
INVESTOR SHOULD BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS
IN COMPLIANCE WITH THE ACT, UNLESS THE SECURITIES ARE RESOLD
IN COMPLIANCE WITH RULE 144, AND ANY APPLICABLE STATE
SECURITIES LAWS."
"A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES AND LIMITATIONS OF THE SHARES OF EACH CLASS OF
STOCK OF THE ISSUER, THE VARIATIONS IN THE RELATIVE RIGHTS
AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF
PREFERRED STOCK SO FAR AS FIXED AND DETERMINED, AND THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS
FOR FUTURE SERIES MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE RECORD HOLDER
<PAGE>
OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER AT ITS
PRINCIPAL OFFICE."
"TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED BY THE TERMS OF AN AGREEMENT BETWEEN THE
CORPORATION AND CERTAIN OF ITS SHAREHOLDERS, A COPY OF WHICH
CAN BE OBTAINED BY THE RECORD HOLDER OF THIS CERTIFICATE
FROM THE SECRETARY OF THE CORPORATION."
8.0 Supplemental Signature Page - (Shareholders Agreement); Restrictive
Agreement (VHA). Concurrently with the execution and delivery of this Agreement,
BCM shall execute and deliver to MLI a supplemental signature page to the
MedicaLogic, Inc. Shareholders Agreement dated as of February 1, 1994, as
amended, and a supplemental signature page to the Restrictive Agreement (VHA) by
and between the Company and VHA.
9.0 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof.
10.0 Assignment. This agreement shall not be assignable by either party
without the prior written consent of the other.
11.0 Binding Effect; No Third Party Benefit. This agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns, subject to the restrictions on assignment contained in
Section 10. Nothing express or implied in this agreement is intended or shall be
construed to confer upon or give to a person, firm or corporation other than the
parties hereto any rights or remedies under or by reason of this Agreement or
any transaction contemplated hereby.
12.0 Amendment and Modification. Subject to applicable law, this agreement
may be amended or modified only by a writing signed by the party against whom
enforcement is sought.
13.0 Counterparts. For the convenience of the parties hereto, this
agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
14.0 Captions. The article, section and paragraph captions herein are for
convenience of reference only, do not constitute a part of this agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
15.0 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or facsimile (in each case with evidence of confirmed transmission) as
set forth in the Merger Agreement.
<PAGE>
16.0 Choice of Law. This agreement shall be governed by and construed in
accordance with the laws of the State of Texas, exclusive of choice of law
rules.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first written above.
BAYLOR COLLEGE OF MEDICINE
By J. ROBERT BECK
--------------------------------------
Name: J. Robert Beck, M.D.
Title: Vice President for Information
Technology
MEDICALOGIC, INC.
By GUY E. FIELD
--------------------------------------
Name: Guy E. Field
Title: VP Finance
FIDEX AMERICAS CORPORATION
ONE-TO-MANY
SOFTWARE DEPOSIT AGREEMENT
1. FIDEX AMERICAS CORPORATION ("FIDEX"), an Idaho corporation, agrees to allow
MedicaLogic, Inc. ("DEVELOPER") to DEPOSIT for potential delivery to certain
third parties ("LICENSEES"), the Software, Documentation and/or Other Material
deposited herewith, subject to DEVELOPER meeting and continuing to meet all the
terms in this Agreement. "LICENSEE" shall be used throughout this Agreement to
refer to each LICENSEE who becomes a third party beneficiary of this agreement
by meeting the terms and conditions for becoming one. FIDEX and DEVELOPER, IN
EXCHANGE FOR THE MUTUAL CONSIDERATION CONTAINED HEREIN, AGREE AS FOLLOWS:
2. LIMITED SCOPE OF AGREEMENT. This Agreement only defines the responsibility of
FIDEX relative to the Software deposited and the disposition thereof, and does
not define any other terms between LICENSEE and DEVELOPER, and does not waive
any rights, legal or otherwise, LICENSEE and DEVELOPER may have against one
another.
3. THIRD PARTY BENEFICIARIES. It is contemplated that there will be one or more
third party beneficiaries to this Agreement, referred to herein as LICENSEE.
Possession by a third party of a copy of this agreement bearing the notarized
signatures of both DEVELOPER and FIDEX shall be sufficient proof that said third
party participates in this agreement as LICENSEE.
4. "SOFTWARE" AND "DOCUMENTATION". The Software is the source code and related
computer files (such as executable program files, compiler, linker, third-party
libraries, etc.) used by DEVELOPER to create the software deposited herewith and
further identified in Exhibit A, and the Documentation is all documentation
agreed to between the parties as necessary to utilize and understand the
Software, and as described in Exhibit A. The Software is the proprietary and
confidential information of DEVELOPER and DEVELOPER desires to protect such
ownership and confidentiality.
5. INSPECTION. FIDEX will allow the inspection of the Software, Documentation
and other Materials (other than withdrawal of the Software, Documentation, and
other Materials in accordance with the terms hereof) only upon written
authorization from DEVELOPER, including the authorization set forth in paragraph
11 of this Agreement, or as otherwise directed by the final order of a court of
competent jurisdiction.
6. VERIFICATION. DEVELOPER will be entitled, at reasonable times during normal
business hours and upon reasonable notice to FIDEX during the term of this
agreement, to inspect the records of FIDEX with respect to the physical status
and condition of the Software, Documentation and other Materials.
7. RECEIPT BY FIDEX. DEVELOPER will furnish to FIDEX, at the time of deposit of
any Software, a packing list describing all Software, Documentation, or other
Materials deposited hereunder. FIDEX will issue a receipt for all Software,
Documentation, or other Materials deposited and forward copies of such receipts
and packing lists to DEVELOPER.
8. INITIATION OF DELIVERY OF THE SOFTWARE/DOCUMENTATION. In order for the
Software and/or Documentation to be delivered by FIDEX to LICENSEE in executable
or source code form, each of the following must occur: (1) Receipt by FIDEX of
written notification that an event causing delivery has occurred, explaining in
detail the basis for the assertion that such an event has occurred; (2) FIDEX
confirming that an event causing delivery has occurred; and (3) Prepayment of
Fidex's release processing fees. No delivery will occur until FIDEX can confirm
to its satisfaction that an event has occurred.
9. RELEASE PROCESSING FEES. The release processing fee is currently $750 when
the release is made at LICENSEE's request, and $100 when release is made at
DEVELOPER's request. If release is made at
Fidex Americas Corporation Escrow #000-877 Software Deposit Agreement, Page 1
<PAGE>
LICENSEE's request the fee also includes referral to programmers competent with
regards to both the programming language and type of application. The release
fee is not subject to change during the first three years of the escrow account.
10. RIGHTS LICENSEE RECEIVES WITH SOFTWARE DELIVERED. DEVELOPER and LICENSEE
agree that when and if FIDEX delivers the Software to LICENSEE, LICENSEE only
obtains the following rights in the Software, and nothing more: (1) if the
Software is delivered in executable form, DEVELOPER grants and LICENSEE receives
a complete copy of the Software in executable form, and receives the same
license and right to use or otherwise deal with the Software as it had with the
original Software it received from DEVELOPER, (2) if the Software is delivered
as source code, DEVELOPER hereby grants and LICENSEE receives the license and
right to utilize the source code only to maintain and update the Software
licensed under the original license/agreement between LICENSEE and DEVELOPER.
11. EVENTS CAUSING DELIVERY OF SOFTWARE Upon occurrence of one or more of the
following events ("Release Events"), FIDEX agrees and is hereby specifically
authorized and instructed to provide the Software, Documentation, or other
Materials to LICENSEE upon written instruction by DEVELOPER or request by
LICENSEE. Prior to such request, however (i) LICENSEE must have given written
notice to FIDEX of the occurrence of the Release Event (the "Notice of Release
Event"); (ii) FIDEX or LICENSEE must have transmitted a copy of the Notice of
Release Event to DEVELOPER; and (iii) fifteen (15) days must have elapsed after
receipt of Notice of Release Event by DEVELOPER. The following are release
events:
11.1 DEVELOPER agrees in writing to the delivery.
11.2 DEVELOPER cannot be located by LICENSEE or by FIDEX as described in
paragraph 12 of this Agreement.
11.3 DEVELOPER is unwilling or unable to support the SOFTWARE pursuant to
the terms of a valid and existing license agreement with LICENSEE.
11.4 DEVELOPER files for protection under Chapter 7 of the U.S. Bankruptcy
Code and such proceeding has not been dismissed within sixty (60)
days after it has begun.
Notwithstanding the foregoing, the acquisition, merger or reorganization of
DEVELOPER shall not be deemed a Release Event provided the successor to
DEVELOPER assumes the obligations of DEVELOPER under the License Agreement and
this Agreement.
12. DEVELOPER'S DUTY AS TO WHEREABOUTS. It is DEVELOPER'S burden to keep FIDEX
fully and timely apprised of its current telephone, telefacsimile and mailing
address. Failure to do so may result in a proper transfer of the Software under
paragraph 11.2, above, if DEVELOPER cannot be located by FIDEX. Should LICENSEE
request delivery of the Software, FIDEX shall immediately attempt to contact
DEVELOPER by telephone, telefacsimile, overnight express, and certified mail,
return receipt requested. Should FIDEX be unable to contact DEVELOPER within 30
days of notice by certified mail, DEVELOPER will be considered to have ceased to
do business for the purposes of this agreement.
13. DISPUTES BETWEEN DEVELOPER AND LICENSEE. If at any time during the life of
this escrow any dispute shall arise between DEVELOPER and LICENSEE, FIDEX or any
other entity, as to the delivery by FIDEX of the Software, Documentation and
other Materials deposited hereunder or as to the ownership or right of
possession thereto, FIDEX shall not release the Software, Documentation, and
other Materials until: (a) both parties agree to such a release; or (b) a court
of competent jurisdiction orders FIDEX to release the Software, Documentation,
and other Materials. FIDEX may hold and retain in its possession without
liability, any or all of the Software, Documentation and other Materials
referred to in this Agreement, until such dispute shall have been settled, or it
may at its option, deposit the Software, Documentation and other Materials with
the Clerk of the District Court Bonner County Idaho, under the appropriate
statutory provisions for interpleader, and thereupon,
Fidex Americas Corporation Escrow #000-877 Software Deposit Agreement, Page 2
<PAGE>
FIDEX shall be relieved of all liability with respect thereto. FIDEX shall be
entitled to all reasonable costs and attorneys' fees incurred therein from
LICENSEE and/or DEVELOPER.
14. LICENSE TO FIDEX. DEVELOPER hereby grants to FIDEX the following rights and
license to the Software Documentation and other Materials: For any and all
purposes consistent with this Agreement, including, without limitation, to copy,
use and display the Software and the Documentation: to copy the source code; to
use the Software to produce executable copies of the Software; to provide
verification services; to deliver copies of the Software (source code and/or
executable copies) and/or Documentation and other Materials, to the LICENSEE,
consistent with the terms of this Agreement.
14.1 CERTAINTY. If FIDEX is uncertain of its duties or rights hereunder, it
will refrain from taking any action other than to retain the Software,
Documentation, and other Materials safely until it is directed otherwise in
writing by DEVELOPER and LICENSEE jointly or by final order of a court of
competent jurisdiction. Except as expressly provided in this agreement,
FIDEX agrees that it will not divulge or disclose or otherwise make
available to third parties whatsoever, or make any use whatsoever, of the
Software or of any information deposited with it by DEVELOPER in connection
with this Agreement, without the express prior written consent of
DEVELOPER.
14.2 RESTRICTION ON ACCESS. Except as required to carry out its duties
hereunder, FIDEX shall not permit any FIDEX employee, LICENSEE or any other
person access to the Software, Documentation, and other Materials unless
consented to in writing by DEVELOPER. FIDEX shall use its best efforts to
avoid unauthorized access to the Software by its employees or any other
person.
15. LICENSEE BEARS RISK OF DEFICIENT DEPOSIT. LICENSEE agrees that FIDEX makes
no representations or warranties as to what it receives and performs no testing
or verification to determine what it has received, whether what it received is
what DEVELOPER says it is, or anything other than it has received something from
DEVELOPER. Between LICENSEE and FIDEX, LICENSEE bears the entire risk that the
escrowed Software is what LICENSEE expects it to be.
16. LICENSEE'S RESPONSIBILITY TO LICENSE THIRD-PARTY FILES. FIDEX, DEVELOPER,
and LICENSEE agree that if the escrowed Software includes copyrighted computer
files which are not the property of DEVELOPER, such as compiler, linker, and
third-party programming libraries, FIDEX shall not release said copyrighted
computer files to LICENSEE until one of the following occurs: (1) LICENSEE
demonstrates to FIDEX'S satisfaction that LICENSEE or LICENSEE'S agent is
licensed to use said copyrighted computer files, or (2) LICENSEE demonstrates to
FIDEX'S satisfaction that LICENSEE is unable to obtain said license because the
owner of said copyrighted computer files cannot be located.
17. DEVELOPER REPRESENTATIONS/WARRANTIES. DEVELOPER represents and warrants: (a)
It is depositing with FIDEX the exact Software, Documentation and other
Materials stated in Exhibit A; and (b) To DEVELOPER'S knowledge, there is
nothing in the deposited Software which will in any way disable, hinder or
interfere with its use by LICENSEE should it later have to be delivered to
LICENSEE.
18. PAYMENT/COMPLIANCE. DEVELOPER or LICENSEE agree to pay FIDEX all fees and
charges at the rates in effect at the time of the service or charge, including
applicable sales tax. DEVELOPER and LICENSEE understand and agree that the
applicable fees and charges may be changed by FIDEX from time to time. FIDEX'S
costs, expenses, charges and attorney's fees in connection with this Agreement
are hereby made a first and paramount lien upon: the Software, Documentation and
other Materials deposited. All of FIDEX'S obligations are all strictly
conditioned upon FIDEX being paid its fees.
19. FIDEX NOT PART OF ANY TRANSACTION. DEVELOPER and LICENSEE agree that FIDEX
HAS NO INVOLVEMENT OR LIABILITY RELATING TO ANY UNDERLYING SOFTWARE LICENSING
AGREEMENTS, SERVICE CONTRACTS OR ANY OTHER AGREEMENT BETWEEN DEVELOPER AND
LICENSEE, OR ANY OTHER ENTITY. DEVELOPER and LICENSEE further agree that this
Fidex Americas Corporation Escrow #000-877 Software Deposit Agreement, Page 3
<PAGE>
Agreement creates no obligation on the part of FIDEX, other than to receive,
hold, and release the Software, Documentation and other Materials as agreed
herein.
20. DISCLAIMER AND LIMITATION OF FIDEX LIABILITY. DEVELOPER and LICENSEE agree
that FIDEX shall not be liable: (a) For its acts or omissions in good faith not
resulting from gross negligence; (b) For any indirect, special or consequential
damages, including, without limitation, lost business or profits; (c) For any
direct damages in excess of the amount paid by DEVELOPER or LICENSEE, to FIDEX
for the deposit or maintenance fees for the Software in question. Without
limiting the foregoing, FIDEX shall not be liable for any of the following: Any
obligations between LICENSEE and DEVELOPER; The correctness, completeness or
sufficiency of Software, Documentation or other Materials held pursuant to this
Agreement; For failure to notify any party of non-payment or declaration of
default in any of the terms set forth herein; For the deposit, procurement or
renewal of insurance policies or any riders or additional clauses; For payment
of insurance premiums or taxes of any kind; or For the performance of any act
not expressly set forth in this Agreement even though contained in the documents
or materials deposited.
21. TERMINATION. FIDEX may terminate this Agreement at any time for any reason,
with 30 days written notice, and without further obligation or liability, by
sending DEVELOPER and LICENSEE notice of termination and a pro-rated refund of
annual fees. No other fees will be refunded. DEVELOPER may terminate this
agreement upon termination of DEVELOPER'S mainenance obligations. Even if
terminated, DEVELOPER remains liable to FIDEX for all fees, charges and services
provided up to the time of termination. In the event of termination of this
Agreement, FIDEX agrees to redeliver to DEVELOPER all Software, Documentation
and other Materials deposited hereunder and this agreement will thereupon
terminate.
22. DISCHARGE OF FIDEX. FIDEX may be discharged by DEVELOPER at any time for any
reason, with thirty (30) days written notice specifying a date when such
discharge will take effect. Prior to the effective date of such termination of
this Agreement, DEVELOPER will arrange for the services of a new escrow agent
reasonably acceptable to LICENSEE. DEVELOPER and LICENSEE agree to execute and
deliver another escrow agreement with such new escrow agent having substantially
the same terms as this agreement. Upon DEVELOPER'S notifying FIDEX of the name
and address of the new escrow agent, FIDEX, agrees to forward the Software,
Documentation and other Materials to such new escrow agent.
23. COSTS, ATTORNEYS' FEES. That if any party has to enforce any terms of this
Agreement, the prevailing party shall be entitled to all costs and disbursements
incurred by that party, including reasonable attorneys' fees.
24. INDEMNIFICATION. DEVELOPER and LICENSEE jointly and severally agree to fully
indemnify, defend and hold FIDEX harmless if FIDEX incurs any damage or loss of
any kind, as a result of DEVELOPER'S or LICENSEE's conduct, and in the event
FIDEX must in any way become involved in a dispute between them. This
indemnification includes all FIDEX' damages and losses of any kind, including
all costs and attorneys' fees.
25. ARBITRATION/APPLICABLE LAW/JURISDICTION/VENUE. If a dispute arises which
involves FIDEX, it is agreed that the exclusive method to resolve the dispute
shall be by arbitration in accordance with the State of Idaho's Arbitration Act,
unless later agreed in writing by FIDEX. The laws of the State of Idaho shall
govern the construction and interpretation of this Agreement and all disputes
between the parties, and each party agrees that the trial/arbitration of all
disputes involving FIDEX shall be in the State of Idaho, County of Bonner and
each agrees to the jurisdiction of the Idaho courts. Each may conduct discovery
pursuant to Idaho civil rules. Any action against FIDEX must be brought within
one year from the event or action disputed, or it is forever barred.
Notwithstanding the foregoing, any party to this agreement may seek injunctive,
including preliminary, relief in the U.S. District Court for Eastern Washington,
in Spokane, Washington, or in the First District Court of the State of Idaho in
Sandpoint, Idaho. Anything other than injunctive relief is subject to the
limitations of this section regarding arbitration, applicable law, jurisdiction,
and venue if FIDEX is a party to the dispute.
26. MODIFICATION, COMPLETE AGREEMENT. This Agreement contains the entire and
final agreement
Fidex Americas Corporation Escrow #000-877 Software Deposit Agreement, Page 4
<PAGE>
involving FIDEX (not necessarily between LICENSEE and DEVELOPER) and supersedes
all prior discussions, negotiations, correspondence and discussion of any kind,
and can only be modified in a writing signed by the party against whom
enforcement is sought. However, the FIDEX Current Prices and Charges are subject
to subsequent unilateral modification by FIDEX with thirty (30) days prior
written notice.
27. HEADINGS/TITLES NOT GOVERNING. The headings and titles used herein are for
descriptive purposes only and should not be used to construe or interpret the
meaning of any paragraphs, sentences or statements made herein.
28. SIGNATURE IN PARTS. This agreement may be executed in several parts and its
validity if so executed shall be the same as if all signatures were to appear on
one sheet.
29. DEVELOPER AND LICENSEE HAVE FULLY READ AND UNDERSTAND THE TERMS OF THIS
AGREEMENT AND AGREE TO BE BOUND BY ALL OF THEM.
DATED this 15th day of April, 1996.
SOFTWARE DEVELOPER: FIDEX AMERICAS CORPORATION:
MedicaLogic, Inc.
STEVEN OLSON
GUY E. FIELD ----------------------------------
- ---------------------------------- Authorized Signature
Authorized Signature Name (Printed): Steven Olson
Name (Printed): Guy E. Field -------------------
------------------ Position: President
Position: Controller -------------------------
------------------------
Notice Address: STATE OF IDAHO )
------------------ COUNTY OF BONNER ) ss.
Telephone: ( )
---------------------- On this 23 day of April , 19 96 ,
Telefacsimile: ( ) before me, a Notary Public in and
------------------- for said state, personally appeared
Steven Olson, who, being by me
STATE OF OR ) first duly sworn, declared that he
-------------- is the President of Fidex Americas
COUNTY OF WASH ) ss. Corporation, that he signed the
------------- foregoing document as President of
the corporation, and that the
On this 15 day of April, 1996, statements contained therein are
before me, a Notary Public in and true.
for said state, personally appeared
Guy E. Field , who, being by me JENNIFER FAUBEOTHER, Notary Public
first duly sworn, declared that he -------------------
is the of , that he signed the Residing at 11121 Cedar, ID
foregoing document as Controller of ---------------
the corporation, and that the My commission expires 11/15/00
statements contained therein are --------
true.
MARY EVERS ZOUCHA, Notary Public
- -----------------
Residing at Beaverton, OR
-------------
My commission expires 3/27/99.
-------
OFFICIAL SEAL
[SEAL] MARY EVERS ZOUCHA
NOTARY PUBLIC - OREGON
COMMISSION NO. 042533
MY COMMISSION EXPIRES MARCH 27, 1999
Exhibits: Exhibit A: Description of Software and Documentation Submitted for
Escrow
Exhibit B: LICENSEE registration and signature page.
Fidex Americas Corporation Escrow #000-877 Software Deposit Agreement, Page 5
<PAGE>
EXHIBIT A
DESCRIPTION OF SOFTWARE AND DOCUMENTATION
SUBMITTED FOR ESCROW
Software Program Name: Logician version 4.6.1_7
E&M Advisor
Merge/Delete Patient
Encounter Form Editor version 1.6.3
Software Developer MedicaLogic, Inc.
20500 NW Evergreen Parkway
Hillsboro, OR 97124
Brief Description of Program: Package of Electronic Medical Record (EMR)
products, including scheduling (ScheduLogic),
data exchange (LinkLogic), and EMR (Logician)
Programming Language and Tools: Compiler, Linker, Import Library Manager,
Resource Compiler, Make, Debugger:
Microsoft C++
version 4.2b
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Database: Multi User Server: Oracle
version 7.3
Oracle Corporation
500 Oracle Pkwy
Redwood City, CA 94065
Single User Server: Watcom
version 4.0
Sybase, Inc.
6475 Christie Avenue
Emeryville, CA 94608
Client Network Interface:
SQLNet SPX/IPX for Windows
SQLNET TCP/IP for Windows
version 2.3
Oracle Corporation
500 Oracle Pkwy
Redwood City, CA 94065
Client: Windows Libraries
version 7.1
Oracle Corporation
500 Oracle Pkwy
Redwood City, CA 94065
DB Admin Tools: SQLPLUS
version 3.1
Revised 3/4/99
<PAGE>
Oracle Corporation
500 Oracle Pkwy
Redwood City, CA 94065
Single User Admin Tools: ISQL
version 3.2
Sybase, Inc.
6475 Christie Avenue
Emeryville, CA 94608
Schema Tools: S-Designer
version 4.1
Sybase, Inc.
6475 Christie Avenue
Emeryville, CA 94608
Installation: Installation Software: InstallShield
version 3
InstallShield Corporation
P.O. Box 74904
Chicago, IL 60675-4904
Third-Party Libraries: Database Driver: Watcom ODBC Driver
version 3.2
Sybase, Inc.
6475 Christie Avenue
Emeryville, CA 94608
Database Driver: ODBC Driver Manager
version 2.0
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Report Software: Crystal Reports Print Engine
version 4.0
Crystal A. Seagate Software Company
1095 West Pender St., 4th Floor
Vancouver, B.C., V6E 2M6 Canada
Spell Checker: Visual Spell Checker
version 1.01
VisualTools, Inc.
15721 College Blvd.
Lenexa, KS 66219
Memory Management: Smartheap
version 3.0
MicroQuill Software Publishing Inc.
10500 Valley View Rd.
Bothell, WA 98011
Charting/Graphics: ChartFX
version 3.0
SoftwareFX, Inc.
7100 West Camino Real, Ste 117
Boca Raton, FL 33433
Imaging: Image Gear
Accusoft Corp.
Revised 3/4/99
<PAGE>
2 Westborough Business Park
Suite 3013
Westborough, MA 01581
Third-Party Data: HealthLogic Patient Educational Handouts
version: updated annually
Clinical Reference Systems
7100 E. Belleview Ave, Suite 208
Greenwood Village, CO 80111
ICD9, CPT4 Coding Superhelp
version: updated annually
Context Software Systems, Inc.
241 Sourth Frontage Road, Suite 38-39
Burr Ridge, IL 60521
Pharmacologic Medications, Interactions, Drug
Handouts
version: update quarterly
Medi-Span
8425 Woodfield Crossing Blvd.
P.O. Box 40930
Indianapolis, IN 46240-0930
SNOMED Coding Superhelp
version: updated semi-annually
College of American Pathologists
325 Waukegan Road
Northfield, IL 60093-2750
Source Code Revision Control:
MKS RCS
version 2.0
Mortice Kern Systems, Inc.
35 King Street
North Waterloo, ONT, N2J 2W9 Canada
Documentation: Using Logician Manual
Managing Logician Manual
Learning Logician Manual
LinkLogic Interface Developer's Manual
QA Tools: QA Partner
version 4.0
Seque Software, Inc.
1320 Center St.
Newton Centre, MA 02159
Winrunner
version 4.01
Mercury Interactive Corp.
470 Potrero Ave.
Sunnyvale, CA 94086
Revised 3/4/99
ORACLE ALLIANCE AGREEMENT
Oracle Alliance Agreement (the "Agreement") is between Oracle Corporation
("Oracle") and the Alliance Member identified below. The terms of this Agreement
shall apply to each Program license granted and to all services provided by
Oracle under this Agreement, which will be identified on one or more Order
Forms.
1. DEFINITIONS
1.1 "Commencement Date" means the date on which the Programs are delivered by
Oracle, or if no delivery is necessary, the Effective Date set forth on
the relevant Order Form.
1.2 "Designated System" shall mean the computer hardware and operating system
designated on the relevant Order Form or Sublicense report for use in
conjunction with a Sublicensed Program, Development License, or Marketing
Support License.
1.3 "Documentation" means the user guides and manuals for installation and use
of the Program software. Documentation is provided in CD-ROM or bound
form, whichever is generally available.
1.4 "Order Form" shall mean the document in hard copy or electronic form by
which the Alliance Member orders Program licenses, Sublicenses, and
services, and which is agreed to by the parties. The Order Form shall
reference the Effective Date of this Agreement.
1.5 "Program" shall mean the software in object code form distributed by
Oracle for which the Alliance Member is granted a license or grants a
Sublicense pursuant to this Agreement; and the media, Documentation, and
Updates therefor.
1.6 "Sublicense Addenda" shall mean the addenda to this Agreement specifying
additional Sublicense terms and Sublicense rates and fees for the various
types of Sublicenses which may be granted by the Alliance Member.
1.7 "Sublicense" shall mean a nonexclusive, nontransferable right granted by
or through the Alliance Member to an end user to use an object code copy
of the Programs with the Value-Added Package under authority of a
Sublicense Addendum. "Sublicensee" shall mean a third party who is granted
a Sublicense of the Programs with the Value-Added Package for such party's
own internal data processing purposes and not for purposes of any further
distribution.
1.8 "Technical Support" means Program support provided under Oracle's policies
in effect on the date Technical Support is ordered.
1.9 "Update" shall mean a subsequent release of a Program which Oracle makes
generally available for Program Licenses at no additional license fee
other than media and handling charges, provided the Alliance Member has
ordered Technical Support for such licenses for the relevant time period.
Updates shall not include any release, option or future product which
Oracle licenses separately.
2. RIGHTS GRANTED
2.1 Development Licenses and Trial Licenses
A. Oracle grants to the Alliance Member a nonexclusive license to use the
Development Licenses the Alliance Member obtains under this Agreement and
applicable Sublicense Addenda, as follows:
1. to develop or prototype the Value-Added Package on the Designated
System or on a backup system if the Designated System is inoperative, up
to any applicable maximum number of designated Users or other such
limitation as may be applicable;
2. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value-Added Package;
3. to provide training and technical support to employees and to customers
solely in conjunction with the Value-Added Package;
4. to use the Documentation provided with the Programs in support of the
Alliance Member's authorized use of the Programs; and
5. to copy the Programs for archival or backup purposes; no other copies
shall be made without Oracle's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be
reproduced in such copies. All archival and backup copies of the Programs
are subject to the terms of this Agreement.
B. The Alliance Member may order temporary trial licenses ("Trial
Licenses") for its evaluation purposes only, and not for development or
prototype purposes, for use during a period specified in the Order Form.
Each Order Form for Trial Licenses shall clearly state the trial period
and shall identify that the order is for a Trial License.
2.2 Marketing Support Licenses
Oracle grants to the Alliance Member a nonexclusive license to use
the Marketing Support Licenses the Alliance Member obtains under this
Agreement and applicable Sublicense Addenda, as follows:
A. to demonstrate the Programs to potential Sublicensees solely in
conjunction with the Value-Added Package, up to any applicable maximum
number of designated Users or other such limitation as may be applicable;
B. to develop customized prototypes of the Value-Added Package for
prospective Sublicensees on the Designated System if the Alliance Member
does not receive any fees related to the development of such customized
prototypes;
C. to use the Documentation provided with the Programs in support of the
Alliance Member's authorized use of the Programs; and
D. to copy the Programs for archival or backup purposes; no other copies
shall be made without Oracle's prior written consent. All titles,
trademarks, and copyright and restricted rights notices shall be
reproduced in such copies. All archival and backup copies of the Programs
are subject to the terms of this Agreement.
2.3 Sublicensing
A. License to Sublicense Programs
[*] Confidential Treatment Requested.
<PAGE>
As further set forth in the applicable Sublicense Addenda, Oracle
hereby grants the Alliance Member a nonexclusive, nontransferable license
to market and grant Sublicenses as set forth in such Sublicense Addenda
and at the rates and fees set forth in such Sublicense Addenda. The
Alliance Member shall only have the right to Sublicense Programs pursuant
to an effective Sublicense Addendum between the parties hereto.
The Alliance Member shall Sublicense the Programs solely through a
written Sublicense agreement as provided under Section 2.3.B. Upon
Oracle's request, the Alliance Member shall provide Oracle with a copy of
the Alliance Member's standard Sublicense agreement.
B. Sublicense Agreement
Every Sublicense agreement shall include, at a minimum, contractual
provisions which:
1. Restrict use of the Programs to object code, subject to the
restrictions provided under the applicable Sublicense Addenda and
consistent with the Sublicense fees payable to Oracle;
2. prohibit (a) transfer of the Programs except for temporary transfer in
the event of computer malfunction; (b) assignment, timesharing and rental
of the Programs; and (c) title to the Programs from passing to the
Sublicensee or any other party;
3. Prohibit the reverse engineering, disassembly or decompilation of the
Programs and prohibit duplication of the Programs except for a single
backup or archival copy;
4. Disclaim, to the extent permitted by applicable law, Oracle's liability
for any damages, whether direct, indirect, incidental or consequential,
arising from the use of the Programs;
5. Require the Sublicensee, at the termination of the Sublicense, to
discontinue use and destroy or return to the Alliance Member all copies of
the Programs and Documentation;
6. Prohibit publication of any results of benchmark tests run on the
Programs;
7. Require the Sublicensee to comply fully with all relevant export laws
and regulations of the United States to assure that neither the Programs,
nor any direct product thereof, are exported, directly or indirectly, in
violation of United States law; and
8. Specify Oracle as a third party beneficiary of the Sublicense agreement
to the extent permitted by applicable law.
C. Marketing/Sublicensing Practices
In marketing and Sublicensing the Programs, the Alliance Member
shall:
1. Not engage in any deceptive, misleading, illegal, or unethical
practices that may be detrimental to Oracle or to the Programs;
2. Not make any representations, warranties, or guarantees to Sublicensees
concerning the Programs that are inconsistent with or in addition to those
made in this Agreement or by Oracle; and
3. Comply with all applicable federal, state, and local laws and
regulations in performing its duties with respect to the Programs.
2.4 Limitations on Use
The Alliance Member shall not use or duplicate the Programs
(including the Documentation) for any purpose other than as specified in
this Agreement or make the Programs available to unauthorized third
parties. The Alliance Member shall not (a) use the Programs for its
internal data processing or for processing customer data; (b) rent,
electronically distribute, or timeshare the Programs or market the
Programs by interactive cable or remote processing services or otherwise
distribute the Programs other than as specified in this Agreement; or (c)
cause or permit the reverse engineering, disassembly, or decompilation of
the Programs, except to the extent required to obtain interoperability
with other independently created software or as specified by law.
2.5 Title
Oracle shall retain all title, copyright, and other proprietary
rights in the Programs and any modifications or translations thereof. The
Alliance Member and its Sublicensees do not acquire any rights in the
Programs other than those specified in this Agreement.
2.6 Transfer of Programs
The Alliance Member may transfer a Development License or Marketing
Support License within its organization upon notice to Oracle; transfers
are subject to the terms and fees specified in Oracle's transfer policy in
effect at the time of the transfer.
2.7 Use of Programs by Third Parties
The Alliance Member and each Sublicensee (as the case may be) shall
have the right to allow third parties to use each such party's licensed
Programs for the licensee's operations so long as the applicable licensee
ensures that use of the Programs is in accordance with the terms of this
Agreement or the applicable Sublicense agreement.
3. TECHNICAL SERVICES
3.1 Technical Support Services
Technical Support services ordered by the Alliance Member will be
provided under Oracle's Technical Support policies in effect on the date
Technical Support is ordered.
3.2 Training Services
Oracle will provide training services agreed to by the parties under
the terms of this Agreement. For any on-site services requested by the
Alliance Member, the Alliance Member shall reimburse Oracle for actual,
reasonable travel and out-of-pocket expenses incurred.
4. FEES AND PAYMENTS
4.1 License Fees and Sublicense Fees
The Alliance Member may order Development Licenses or Marketing
Support Licenses at the standard Program license fees set forth in the
Price List or at the fees otherwise provided in a Sublicense Addendum. For
each Sublicense granted by the Alliance Member, the Alliance Member agrees
to pay Oracle a Sublicense fee as set forth in the applicable Sublicense
Addenda. The Alliance Member shall not be relieved of its obligation to
pay Sublicense fees owed to Oracle by the nonpayment of such fees by the
Sublicensee.
The Alliance Member is free to determine unilaterally its own
license fees to its Sublicensees. If the Alliance Member or a Sublicensee
upgrades the Programs to a larger computer, transfers the Programs outside
the United States and/or to another operating system, or increases the
licensed number of Users, the Alliance Member will pay additional
Sublicense fees to Oracle as provided under Oracle's transfer policies and
rates in effect at the time the Program is upgraded or transferred.
4.2 Technical Support Fees
[*] Confidential Treatment Requested.
2
<PAGE>
Technical Support services ordered by the Alliance Member for
Development Licenses and Marketing Support Licenses will be provided under
Oracle's Technical Support policies and rates in effect on the date
Technical Support is ordered.
4.3 General Payment Terms
Except as otherwise provided in a Sublicense Addendum, all fees
shall be due and payable 30 days from the invoice date. Fees due by the
Alliance Member shall not be subject to set off for any claims against
Oracle. All payments made shall be in United States currency and shall be
made without deductions based on any taxes or withholdings, except where
such deduction is based on Oracle's gross income. Any amounts payable by
the Alliance Member hereunder which remain unpaid after the due date shall
be subject to a late charge equal to 1.5% per month from the due date
until such amount is paid. The Alliance Member agrees to pay applicable
media and shipping charges. The Alliance Member shall issue a purchase
order, or alternative document acceptable to Oracle, on or before the
Effective Date of the applicable Order Form.
4.4 Taxes
The fees listed in this Agreement do not include taxes; if Oracle is
required to pay sales, use, property, value-added, or other taxes based on
the licenses, Sublicenses or services granted under this Agreement or on
the Alliance Member's or a Sublicensee's use of Programs or services, then
such taxes shall be billed to and paid by the Alliance Member. This shall
not apply to taxes based on Oracle's income.
5. RECORDS
5.1 Records Inspection
The Alliance Member shall maintain adequate books and records in
connection with activity under this Agreement. Such records shall include,
without limitation, executed Sublicense agreements, the information
required in or related to the Sublicense reports required under a
Sublicense Addendum, the number of copies of Programs used or Sublicensed
by the Alliance Member, the computers on which the Programs are installed,
and the number of Users using the Programs. Oracle may audit the relevant
books and records of the Alliance Member and Alliance Member's use of the
programs. Any such audit shall be conducted during regular business hours
at the Alliance Member's offices and shall not interfere unreasonably with
the Alliance Member's business activities. If an audit reveals that the
Alliance Member has underpaid fees to Oracle, the Alliance Member shall be
invoiced for such underpaid fees.
Audits shall be made no more than once annually.
5.2 Notice of Claim
The Alliance Member will notify the Oracle legal department promptly
in writing of: (a) any claim or proceeding involving the Programs that
comes to its attention; and (b) any material change in the management or
control of the Alliance Member.
6. TERM AND TERMINATION
6.1 Term
This Agreement shall become effective on the Effective Date and
shall be valid until the expiration or termination of all Sublicense
Addenda hereunder, unless terminated earlier as set forth herein. If not
otherwise specified on the Order Form, each Program license granted under
this Agreement shall remain in effect perpetually under the terms of this
Agreement unless the licenses or this Agreement is terminated as provided
in this Article 6. The term of each Sublicense Addendum hereunder shall be
as set forth in each such Addendum.
6.2 Termination by the Alliance Member
The Alliance Member may terminate any Program license or any
Sublicense Addenda at any time; however, termination shall not relieve the
Alliance Member's obligations specified in Section 6.5.
6.3 Termination by Oracle
Oracle may terminate any Program license, any Sublicense Addenda, or
this Agreement upon written notice if the Alliance Member materially
breaches this Agreement and fails to correct the breach within 30 days
following written notice specifying the breach.
6.4 Force Majeure
Neither party shall be liable to the other for failure or delay in
the performance of a required obligation if such failure or delay is
caused by strike, riot, fire, flood, natural disaster, or other similar
cause beyond such party's control, provided that such party gives prompt
written notice of such condition and resumes its performance as soon as
possible, and provided further that the other party may terminate this
Agreement if such condition continues for a period of one hundred eighty
(180) days.
6.5 Effect of Termination
Upon expiration or termination of a Sublicense Addendum or this
Agreement, all of the Alliance Member's rights to market and Sublicense
the Programs as set forth in such Sublicense Addendum or this Agreement
shall cease.
The termination of this Agreement, a Sublicense Addendum, or any
license shall not limit either party from pursuing any other remedies
available to it, including injunctive relief, nor shall such termination
relieve the Alliance Member's obligation to pay all fees that have accrued
or that are owed by the Alliance Member under a Sublicense Addendum or any
Order Form, or that appear in a Sublicense report. The parties' rights and
obligations under Sections 2.4, 2.5, 2.6 and Articles 4, 5, 6, 7, and 8
shall survive termination of this Agreement. Upon termination, the
Alliance Member shall cease using, and shall return or destroy, all copies
of the applicable Programs.
7. INDEMNITY, WARRANTIES, REMEDIES
7.1 Infringement Indemnity
Oracle will defend and indemnify the Alliance Member against a claim
that Programs infringe a copyright or patent or other intellectual
property right, provided that: (a) the Alliance Member notifies Oracle in
writing within 30 days of the claim; (b) Oracle has sole control of the
defense and all related settlement negotiations; and (c) the Alliance
Member provides Oracle with the assistance, information and authority
necessary to perform Oracle's obligations under this Section. Reasonable
out-of-pocket expenses incurred by the Alliance Member in providing such
assistance will be reimbursed by Oracle. Oracle shall have no liability
for any claim of infringement based on use of a superseded or altered
release of Programs if the infringement would have been avoided by the use
of a
[*] Confidential Treatment Requested.
3
<PAGE>
current unaltered release of the Programs which Oracle provides to the
Alliance Member.
In the event the Programs are held or are believed by Oracle to
infringe, Oracle shall have the option, at its expense, to (a) modify the
Programs to be noninfringing; or (b) obtain for the Alliance Member a
license to continue using the Programs. If it is not commercially
reasonable to perform either of the above options, then Oracle may
terminate the license for the infringing Programs and refund the license
fees paid for those Programs. This Section 7.1 states Oracle's entire
liability and the Alliance Member's exclusive remedy for infringement.
7.2 Warranties and Disclaimers
A. Program Warranty
Oracle warrants for a period of one year from the Commencement Date
that each unmodified Program will perform the functions described in the
Documentation.
B. Media Warranty
Oracle warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for 90 days from
the Commencement Date.
C. Services Warranty
Oracle warrants that its Technical Support and training services
will be performed consistent with generally accepted industry standards.
This warranty shall be valid for 90 days from performance of service.
D. Disclaimers
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
Oracle does not warrant that the Programs will operate in
combinations other than as specified in the Documentation or that the
operation of the Programs will be uninterrupted or error free.
Pre-Production releases of Programs and computer-based training products
are distributed "As Is."
The Alliance Member shall not make any warranty on Oracle's behalf.
7.3 Exclusive Remedies
For any breach of the warranties contained in Section 7.2 above, the
Alliance Member's exclusive remedy, and Oracle's entire liability, shall
be:
A. For Programs
The correction of Program errors that cause breach of the warranty,
or if Oracle is unable to make the Program operate as warranted, the
Alliance Member shall be entitled to recover the fees paid to Oracle for
the Program license.
B. For Media
The replacement of defective media returned within 90 days of the
Commencement Date.
C. For Services
The reperformance of the services, or if Oracle is unable to perform
the services as warranted, the Alliance Member shall be entitled to
recover the fees paid to Oracle for the unsatisfactory services.
7.4 Indemnification of Oracle
The Alliance Member agrees to enforce the terms of its Sublicense
agreements required by this Agreement so as to effect a timely cure of any
Sublicense breach, and to notify Oracle of any known breach of such terms.
The Alliance Member will defend and indemnify Oracle against: A. All
claims and damages to Oracle arising from any use by the Alliance Member
or its Sublicensees of any product not provided by Oracle but used in
combination with the Programs if such claims would have been avoided by
the exclusive use of the Programs; and B. All claims and damages to Oracle
caused by the Alliance Member's failure to include the required
contractual terms set forth in Section 2.3.B hereof in each Sublicense
agreement.
7.5 Equitable Relief
The Alliance Member acknowledges that any breach of its obligations
with respect to proprietary rights of Oracle will cause Oracle irreparable
injury for which there are inadequate remedies at law and that Oracle
shall be entitled to equitable relief in addition to all other remedies
available to it.
8. GENERAL TERMS AND CONDITIONS
8.1 Nondisclosure
By virtue of this Agreement, the parties may have access to
information that is confidential to one another ("Confidential
Information"). Confidential information shall be limited to the Programs,
the terms and pricing under this Agreement, and all information clearly
identified as confidential.
A party's Confidential Information shall not include information
that: (a) is or becomes a part of the public domain through no act or
omission of the other party; (b) was in the other party's lawful
possession prior to the disclosure and had not been obtained by the other
party either directly or indirectly from the disclosing party; (c) is
lawfully disclosed to the other party by a third party without restriction
or disclosure; or (d) is independently developed by the other party. The
Alliance Member shall not disclose the results of any benchmark tests of
the Programs to any third party without Oracle's prior written approval.
The parties agree to hold each other's Confidential Information in
confidence during the term of this Agreement and for a period of two years
after termination of this Agreement. The parties agree, unless required by
law, not to make each other's Confidential Information available in any
form to any third party for any purpose other than the implementation of
this Agreement. Each party agrees to take all reasonable steps to ensure
that Confidential Information is not disclosed or distributed by its
employees or agents in violation of the terms of this Agreement.
8.2 Copyrights
The Programs are copyrighted by Oracle. The Alliance Member shall
retain all Oracle copyright notices on the Programs used by the Alliance
Member under its Development Licenses or Marketing Support Licenses. The
Alliance Member shall include the following on all copies of the Programs
in software Value-Added Packages incorporating the Programs distributed by
the Alliance Member:
A. A reproduction of Oracle's copyright notice; or
B. A copyright notice indicating that the copyright is vested in the
Alliance Member containing the following
1. A "c" in a circle and the word "copyright";
2. The Alliance Member's name;
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3. The date of copyright; and
4. The words "All Rights Reserved."
Such notices shall be placed on the Documentation, the sign-on
screen for any software Value-Added Package incorporating the Programs,
and the diskette or tape labels. Notwithstanding any copyright notice by
the Alliance Member to the contrary, the copyright to the Program included
in any such application package shall remain in Oracle. Other than as
specified above, on any reproduction or translation of any Programs,
Documentation, or promotional material, the Alliance Member agrees to
reproduce Oracle's copyright notices intact.
8.3 Trademarks
"Oracle" and any other trademarks and service marks adopted by
Oracle to identify the Programs and other Oracle products and services
belong to Oracle; the Alliance Member will have no rights in such marks
except as expressly set forth herein and as specified in writing from time
to time. The Alliance Member's use of Oracle's trademarks shall be under
Oracle's trademark policies and procedures in effect from time-to-time.
The Alliance Member agrees not to use the trademark "ORACLE," or any mark
beginning with the letters "Ora," or any other mark likely to cause
confusion with the trademark "ORACLE" as any portion of the Alliance
Member's tradename, trademark for the Alliance Member's Value-Added
Package, or trademark for any other products of the Alliance Member. The
Alliance Member shall have the right to use the trademark "ORACLE" and
other Oracle trademarks solely to refer to Oracle's Programs, products and
services.
The Alliance Member agrees with respect to each registered trademark
of Oracle, to include in each advertisement, brochure, or other such use
of the trademark, the trademark symbol "circle R" and the following
statement:
_______________ is a registered trademark of Oracle Corporation, Redwood
City, California.
Unless otherwise notified in writing by Oracle, the Alliance Member
agrees, with respect to every other trademark of Oracle, to include in
each advertisement, brochure, or other such use of the trademark, the
symbol "TM" and the following statement:
____________ is a trademark of Oracle Corporation, Redwood City,
California.
The Alliance Member shall not market the Oracle Programs in any way
which implies that the Oracle Programs are the proprietary product of the
Alliance Member or of any party other than Oracle. Oracle shall not have
any liability to the Alliance Member for any claims made by third parties
relating to the Alliance Member's use of Oracle's trademarks.
8.4 Relationships Between Parties
In all matters relating to this Agreement, the Alliance Member will
act as an independent contractor. The relationship between Oracle and the
Alliance Member is that of licensor/licensee. Neither party will represent
that it has any authority to assume or create any obligation, express or
implied, on behalf of the other party, nor to represent the other party as
agent, employee, franchisee, or in any other capacity. Nothing in this
Agreement shall be construed to limit either party's right to
independently develop or distribute software which is functionally similar
to the other party's product, so long as proprietary information of the
other party is not included in such software.
8.5 Assignment
The Alliance Member may not assign or otherwise transfer any rights
under this Agreement without Oracle's prior written consent.
8.6 Notice
All notices, including notices of address change, required to be
sent hereunder shall be in writing and shall be deemed to have been given
when mailed by first class mail to the first address listed in the
relevant Order Form (if to the Alliance Member) or to the Oracle address
on the Order Form (if to Oracle).
To expedite order processing, the Alliance Member agrees that Oracle
may treat documents faxed by the Alliance Member to Oracle as original
documents; nevertheless, either party may require the other to exchange
original signed documents.
8.7 Governing Law/Jurisdiction
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the substantive and procedural laws of the
State of California and shall be deemed to be executed in any state or
federal court in San Francisco or San Mateo County, California. Oracle and
the Alliance Member agree to submit to the jurisdiction of, and agree that
venue is proper in, these courts in any such legal action or proceeding.
8.8 Severability
In the event any provision of this Agreement is held to be invalid
or unenforceable, the remaining provisions of this Agreement will remain
in full force and effect.
8.9 Export
The Alliance Member agrees to comply fully with all relevant export
laws and regulations of the United States ("Export Law") to assure that
neither the Programs, nor any direct product thereof, are (a) exported,
directly or indirectly, in violation of Export Laws; or (b) are intended
to be used for any purposes prohibited by the Export Laws, including,
without limitation, nuclear, chemical, or biological weapons
proliferation.
8.10 Limitation of Liability
In no event shall either party be liable for any indirect,
incidental, special or consequential damages, or damages for loss of
profits, revenue, data or use, incurred by either party or any third
party, whether in an action in contract or tort, even if the other party
or any other person has been advised of the possibility of such damages.
Oracle's liability for damages hereunder shall in no event exceed the
amount of fees paid by the Alliance Member under this Agreement, and if
such damages result from the Alliance Member's or Sublicensee's use of the
Program or services, such liability shall be limited to fees paid for the
relevant Program or services giving rise to the liability.
The provisions of this Agreement allocate the risks between Oracle
and the Alliance Member. Oracle's pricing
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reflects this allocation of risk and the limitation of liability specified
herein.
8.11 Federal Government Sublicenses
If the Alliance Member grants a Sublicense to the United States
government, the Programs shall be provided with "Restricted Rights" and
the Alliance Member will place a legend, in addition to the applicable
copyright notices, on the documentation, and on the tape or diskette
label, substantially similar to the following:
RESTRICTED RIGHTS LEGEND
"Programs delivered subject to the DOD FAR Supplement are "commercial
computer software" and use, duplication and disclosure of the Programs
shall be subject to the licensing restrictions set forth in the applicable
license agreement. Otherwise, Programs delivered subject to the Federal
Acquisition Regulations are "restricted computer software" and use,
duplication and disclosure of the Programs shall be subject to the
restrictions in FAR 52.227-14, Rights in Data--General, including
Alternate III (June 1987)."
8.12 Waiver
The waiver by either party of any default or breach of this
Agreement shall not constitute a waiver of any other or subsequent default
or breach. Except for actions for nonpayment or breach of Oracle's
proprietary rights in the Programs, no action, regardless of form, arising
out of this Agreement may be brought by either party more than two years
after the cause of action has accrued.
8.13 Entire Agreement
This Agreement constitutes the complete agreement between the
parties and supersedes all prior or contemporaneous agreements or
representations, written or oral, concerning the subject matter of this
Agreement. This Agreement may not be modified or amended except in a
writing signed by a duly authorized representative of each party; no other
act, document, usage or custom shall be deemed to amend or modify this
Agreement.
It is expressly agreed that the terms of this Agreement and any
Order Form shall supersede the terms in any Alliance Member purchase order
or other ordering document. This Agreement shall also supersede the terms
of any unsigned or "shrinkwrap" license included in any package, media, or
electronic version of Oracle-furnished software and any such software
shall be licensed under the terms of this Agreement, provided that the use
limitations contained in an unsigned ordering document shall be effective
for the specified licenses.
The Effective Date of this Agreement shall be April 1, 1998.
Executed by the Alliance Member:
MedicaLogic Executed by Oracle Corporation:
- ----------------------------------
Authorized Signature: RACHEL ROLLINS
Authorized Signature: GUY E. FIELD --------------
------------ Name: Rachel E. Rollins
Name: Guy E. Field ------------------------------
---------------------------- Title: Contract Specialist
Title: Controller -----------------------------
---------------------------
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation.
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AMENDMENT ONE
to the
ORACLE ALLIANCE AGREEMENT
between
MEDICALOGIC INC.
and
ORACLE CORPORATION
This document ("Amendment One") shall serve to amend the Oracle Alliance
Agreement and any amendments and addenda thereto between Medicalogic Inc. (the
"Alliance Member") and Oracle Corporation ("Oracle") dated April 1, 1998 (the
"Agreement") and any amendments or addenda thereto.
The Agreement is amended as follows:
1. Add the following to the end of Section 2.3 B 2(a) of the Agreement:
"However, the Alliance Member may permit a Sublicensee to transfer its
rights under a Sublicense Agreement to: (i) any company controlling,
controlled by, or under, control with Sublicensee; (ii) wholly owned
subsidiary of such Sublicensee; (iii) the surviving entity of a merger
involving Sublicensee or the purchaser of all or substantially all of the
assets of sublicensee or the purchaser of the portion of the business in
which the Software is used; or (iv) a management services company that
provides management for a Sublicensee's day-to-day operations, provided
that Sublicensee notifies Oracle in writing and the transferee remains
subject to all limitations of the Sublicense."
2. Notwithstanding the restrictions in the Agreement and the Runtime
Sublicense Addendum to the Agreement (the "Addendum") with respect to
restrictions on Sublicensee use, including in particular Section 2.3 B of
the Agreement, and Section [.] of the Addendum, the Alliance Member may
grant Sublicenses, pursuant to the Agreement and the Addendum, to
management service companies or others who provide electronic medical
record services to third parties, as long as Alliance Member charges such
Sublicensees a Sublicense fee based on the number of Concurrent Users and
pays to Oracle the applicable Sublicense fees as set forth in the Addendum.
3. Notwithstanding the restrictions in the Agreement with respect to the
rental of the Programs, including in particular Section 2.3(B)(2)(b) and
Section 2.4(b), the Alliance Member may rent its Value Added package, which
includes the Programs for use only as Runtime Programs as described in
Section 1.2 of the Runtime Sublicense Addendum, to up to five (5) customers
of the Alliance
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Member, provided the Alliance Member charges such customers a Sublicense
fee based on the number of Concurrent Users and pays to Oracle a one-time
fee in advance for such Program Sublicenses in the rented Value Added
Package. Such Value Added Packages may only be rented once to one customer
and may not be rented again to a different customer. Any additional rental
arrangements shall require additional fees and approval by Oracle.
Other than the modifications set forth above, the terms and conditions of the
Agreement remain unchanged and in full force and effect.
The Effective Date of this Amendment One is April 1, 1998.
MEDICALOGIC INC. ORACLE CORPORATION
By: GUY E. FIELD By: NICK MARQUIS
------------------------------ -----------------------------------
Name: Guy E. Field Name: Nick Marquis
---------------------------- ---------------------------------
Title: Controller Title: Manager, Alliances Sales Support
--------------------------- --------------------------------
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RUNTIME SUBLICENSE ADDENDUM
This document (the "Addendum") is between Oracle Corporation ("Oracle") and
Medicalogic Inc. (the "Alliance Member") and shall be governed by the terms of
the Oracle Alliance Agreement between the Alliance Member and Oracle effective
April 1, 1998 (the "Agreement") and the terms set forth below.
1. SUBLICENSES
1.1 Sublicense Programs and Terms
The Alliance Member may only Sublicense Runtime Programs for which
the Alliance member has previously acquired a Supported Development
License for the applicable Designated System. Notwithstanding any other
provision of this Agreement, the Alliance member shall have no right to
Sublicense Programs designated as Oracle Applications Programs, Oracle
Express Programs, Limited Production Programs, or other Programs specified
by Oracle from time-to-time without the prior written consent of Oracle.
The Alliance Member shall have the right to market and grant
Sublicenses of Runtime Programs under the conditions set forth in the
Agreement and under the following restrictions:
A. Sublicense Runtime Programs with the Application Program in the
Application Package for use on Designated Systems to Sublicensees. Each
copy of the Runtime Programs distributed shall be for the Sublicensee's
own internal use in the Territory only on a single Designated System
limited to a maximum number of Users; and
B. Make and deliver to the Sublicensee a single copy of the Runtime
Programs in the Application Package for each Sublicense granted.
The Alliance member shall use all practical means available, both
contractual and technical, to control the restricted use of each Runtime
Program Sublicense. If a Sublicensee uses the Runtime Program beyond the
limited functionality described in Section 1.2 hereof, the Alliance member
or Distributor shall immediately notify the Sublicensee of such
unauthorized use and if the Sublicensee fails to discontinue such
unauthorized use following notification either terminate the Sublicense or
forward to Oracle one hundred percent (100%) of the applicable Full Use
standard Program license fees in effect at the time the payment is made to
Oracle together with a written request by the Sublicensee for a Full Use
Program license from Oracle. Oracle must approve, in writing, the
Sublicensee's request before continued use of the Programs by the
Sublicensee shall be deemed authorized.
1.2 Runtime Programs
For the purposes of this Addendum, "Runtime Program(s)" shall mean
Programs which shall be limited to use solely for the purpose of executing
an unmodified standard version of the Alliance Member's Application
Program. Runtime Programs may not be use to build or modify reports or
applications. "Full Use Programs" shall mean unaltered versions of the
Programs with all functions intact.
1.3 Value-Added Package
For the purposes of this Addendum, "Application Program(s)" shall
mean the Alliance Member's value-added application software, described in
the attached Application Package Attachment with which the Runtime
Programs are to be coupled. "Application Package(s)" shall mean the
Runtime Programs coupled with the Application Programs. For purposes of
the Agreement, the Application Program shall be regraded as the Alliance
member's Value-Added Package.
1.4 Trial Sublicenses
The Alliance Member and its Distributors shall be entitled to grant,
at no charge, up to a maximum combined total of ten (10) temporary Trial
Sublicenses of the Application Package at any one time. Such Sublicenses
shall be for evaluation purposes only and shall be for a period not to
exceed thirty (30) days. The Alliance Member shall pay Oracle Sublicense
fees for any Trial Sublicenses in excess of thirty (30) days. Each such
Trial Sublicense shall be Sublicensed under a Sublicense agreement which
provides for such trial use.
1.5 Distributors
Oracle grants the Alliance Member the right to appoint third parties
("Distributors") to market and Sublicense the Runtime Programs in the
Territory, under the terms of the Agreement and this Addendum. However,
Distributors shall have no right to make copies of the Programs for
Sublicensing and shall obtain all such Programs from the Alliance Member.
Each Distributor shall execute a written agreement with the Alliance
Member binding the Distributor to provisions substantially similar to
those contained in Sections 2.3, 2.4, 2.5, 5.1, 5.2, 6.1, 6.3, 6.4, 6.5,
7.2.D, 7.5, 8.1, 8.2, 8.3, 8.5, 8.7, 8.9, 8.10, and 8.11 of the Agreement
and to those contained in Sections 1 (except 1.5), 3, 4, 5, and 6 of this
Addendum. Each obligation of the Alliance Member under such provisions
shall also be applicable to each Distributor. Each Distributor agreement
shall also contain any other provisions necessary for the Alliance Member
to satisfy its commitments under the Agreement. The Alliance Member shall
notify Oracle promptly in writing of the appointment of each such
Distributor.
In addition, the Alliance Member shall keep executed Distributor
agreements and records of the Distributor information required under the
Alliance Member's Sublicense reports, and shall allow Oracle to inspect
such information as specified under the Agreement. The Alliance Member
will defend and indemnify Oracle against all damages to Oracle caused by
the Distributors' failure to include the
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required contractual terms set forth in Section 2.3.B of the Agreement in
each Sublicense agreement. The Alliance Member agrees to enforce the terms
of its Distributor agreements required under this Section so as to effect
a timely cure of any Distributor breach, and to notify Oracle of any known
breach of such terms.
1.6 Documentation
The Alliance Member shall be responsible for providing documentation
for Sublicensees. The Alliance Member shall have the right to incorporate
portions of the Documentation into the Alliance Member's documentation,
subject to the provisions of Section 8.2 of the Agreement.
2. SUBLICENSE FEES
2.1 Sublicense Fees and Rate
For each copy of the Programs Sublicensed by the Alliance Member or
its Distributor in the Application package, the Alliance Member agrees to
pay Oracle a Sublicense fee equal to [*] percent ([*]%) of the applicable
license fee for each such Program, as specified in the applicable Price
List and Alliance Member Price List supplement to such Price List in
effect at the time the applicable Programs are Sublicensed.
As further specified in Section 6 of this Addendum, Sublicense fees
shall be due and payable within twenty (20) days of the last day of each
month. The Alliance Member shall not be relieved of its obligation to pay
Sublicense fees owed to Oracle by the nonpayment of such fees by the
Sublicensee.
On or after each anniversary during the Term of this Addendum,
Oracle may amend the Sublicense fee percentage rate set forth above based
on Oracle's then-current standard Sublicense fee percentage rate schedule
and the actual amount of Sublicense fees received by Oracle hereunder.
2.2 Price List for Sublicenses
Notwithstanding any other provision of the Agreement, the applicable
Price List for determining Sublicense fees shall be the standard Price
List in effect at the time the Application Package is Sublicensed.
Notwithstanding any other provision of this Agreement, if the
Alliance Member issues a written Sublicense quote and such quote is
accepted by the applicable Sublicensee, for a period of ninety (90) days
after the date of submission of the quote to the Sublicensee, the
Sublicense fee applicable to the Programs identified in the quote shall be
based on the Price List in effect on such date.
2.3 Users
The Sublicense fees for a Program shall be based and priced on the
applicable User Level for the maximum number of Users for such Program, as
specified in the Price List. The Alliance Member shall have the right to
Sublicense Programs on any User basis specified in the Price List in
effect at the time the applicable Program is Sublicensed.
TERM
This Addendum shall become effective on the Effective Date of this
Addendum and shall be valid for three (3) years (the "Term") from the
Effective Date, unless terminated as provided in the Agreement. Any
renewal of this Addendum shall be subject to renegotiation of terms and
fees.
Unless the expiration or termination is for default by the Alliance
Member, the Alliance Member may continue using the release of the Programs
then in the Alliance Member's possession on the Designated Systems for
which Development Licenses were granted, solely for the purpose of
continuing technical support for Sublicenses granted prior to termination.
Such continued use of the Programs shall be subject to all the provisions
of this Agreement, including, without limitation, payment of the Technical
Support Fees specified herein.
4. TERRITORY
The Alliance Member shall have the right to market and grant
Sublicenses of Programs in the United States only (the "Territory").
5. TECHNICAL SUPPORT
5.1 Technical Support for Sublicensees
A. Installation
The Alliance Member or its Distributors will be responsible for any
assistance needed to install the Application Package at Sublicensee sites.
B. Sublicensing Support
The Alliance Member is responsible for providing all technical
support, training and consultations to its Sublicensees and Distributors.
In consideration of the payments specified in Section 5.2, the Alliance
Member shall have the right to use the Oracle Technical Support services
acquired for its Supported Development Licenses to provide technical
support services to its Sublicensees as further set forth in the
Agreement. The Alliance Member shall continuously maintain Oracle
Technical Support services for the Development Licenses during the period
during which the Alliance Member provides technical support services to
any Sublicensees. Any questions from the Alliance Member's Alliance
Member's Sublicensees or Distributors will be referred by Oracle to the
Alliance Member.
5.2 Technical Support Fees
For Technical Support services for Sublicensees, each year the
Alliance Member agrees to pay Oracle annual Technical Support Fees for
each Runtime Program Sublicensed under this Addendum, a previous Alliance
Member Addendum, or previous distribution agreement between the parties
hereto where the Sublicensee received technical support services for such
Runtime Program during the applicable support period from the Alliance
Member. Annual Technical Support Fees for a Program shall be equal to the
applicable Technical Support Percentage Rate specified below,
corresponding to the highest Technical Support Services level specified
below for any Development License used under this Addendum, of the
cumulative Sublicense fees accrued to Oracle for a Sublicensed Program
supported by the Alliance Member.
Technical Support Technical Support
Services Level Percentage Rate
-------------- ---------------
Bronze [*]%
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Silver [*]%
Gold [*]%
Upon December 31 of each year, the Alliance Member shall provide
Oracle a report setting forth all of the Alliance Members' Sublicenses and
those Sublicensed Programs which were supported by the Alliance Member
during the calendar year. The report shall also include the applicable
Technical Support Fees due and payable to Oracle for such calendar year.
The Alliance Member shall provide Oracle with payment of all Technical
Support Fees for such calendar year required under the applicable December
31 report with such report in the form of a check made out in the amount
of such fees. All Technical Support Fees paid to Oracle are noncancelable
and nonrefundable.
On or after each anniversary during the Term of this Addendum,
Oracle may amend the Technical Support Percentage Rates set forth above
based on Oracle's then-current standard Technical Support percentage rate
schedule.
6. SUBLICENSE REPORTS
Within twenty (20) days of the last day of each and every month, the
Alliance Member shall send Oracle a report detailing for that month:
A. For each Sublicensed Application Package shipped during the prior
month, Sublicensee name, address, make/model and operating system of the
Designated System, date of shipment, Runtime Programs shipped, maximum
number of licensed Users, whether the Sublicense is a Trial Sublicense,
and total Sublicense fees and Technical Support Fees due to Oracle;
B. For each Application Program licensed to end-users to be used with
previously installed software licensed by Oracle in conjunction with the
Application Program, Sublicensee name, address, make/model and operating
system of the computer, and date of installation; and
C. The Distributor agreements executed during the prior month, including
names and addresses of the Distributors.
The Alliance Member shall require its Distributors to report this
information to the Alliance Member on a monthly basis and will include it
in the report for the month in which the Alliance Member received the
information. The Alliance Member shall provide Oracle with payment of all
fees required under the monthly report with such report in the form of a
check made out in the amount of such fees.
7. ADDITIONAL LICENSES
During the Term, the Alliance Member may order production release
versions of Oracle off-the-shelf Programs available as production release
as of the Effective Date of this Addendum and listed on the Price List in
effect as of such date. The license fee for Development Licenses shall be
equal to Oracle's standard list license fees in effect when an order is
placed. The Alliance Member shall have the right to order Programs for use
as Marketing Support Licenses at no further charge to the Alliance Member.
The Alliance Member may obtain Technical Support services from Oracle for
such Programs under Oracle's applicable Technical Support fees and
policies in effect when such services are ordered.
The Effective Date of this Addendum shall be April 1, 1998.
Executed by the Alliance Member: Executed by Oracle Corporation:
Medicalogic, Inc.
Authorized Signature: GUY E. FIELD Authorized Signature: RACHEL ROLLINS
------------ --------------
Name: Guy E. Field Name: Rachel E. Rollins
---------------------------- ------------------------------
Title: Controller Title: Contract Specialist
--------------------------- -----------------------------
ORACLE
Oracle Corporation
500 Oracle Parkway
Redwood Shores, CA 94065
(415) 506-7000
Oracle is a registered trademark of Oracle Corporation.
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APPLICATION PACKAGE ATTACHMENT
Name of Application Program and Application Package which the Alliance Member
will be Sublicensing under the Agreement (may not contain the trademarks
"Oracle" or "Ora" or any portion thereof):
Logician
Description of Application Package:
Logician is an Electronic Medical Records program which runs under Microsoft
Windows. It supports the entry and retrieval of patient medical information
within a single medical clinic or across separate clinics within a healthcare
organization.
Modules:
Registration -- supports the entry of patient demographic information. Chart --
supports the entry and retrieval of patient medical records. Desktop -- supports
the workflow tasks of a clinic's staff. Scheduling -- supports the scheduling of
patient appointments. Inquiry/Reports -- supports general queries and reports
across a set of patient records. LinkLogic -- used for the import and export of
data through Electronic
** see Modules continued below Functions and Objectives
Functions and Objectives:
Logician supports all the clinical data and workflow needs of a medical clinic.
** Modules continued:
Data Interfaces (EDI).
ClinicLink -- permits Logician databases at separate clinics to be accessed as a
single logical, organization-wide database of patient and configuration
information.
Setup -- used to configure Logician's features.
Various knowledgebases -- datasets and associated rules to aid in the delivery
of healthcare. For example, ConsultLogic is a knowledgebase module which aids in
determining what medical tests need to be performed in a given situation.
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AMENDMENT ONE
to the
RUNTIME SUBLICENSE ADDENDUM
to the
ORACLE ALLIANCE AGREEMENT
between
MEDICALOGIC INC
and
ORACLE CORPORATION
This document ("Amendment One") shall serve to amend the Runtime Sublicense
Addendum dated April 1, 1998 (the "Addendum") to the Oracle Alliance Agreement
between Medicalogic Inc. (the "Alliance Member") and Oracle Corporation
("Oracle") dated April 1, 1998 (the "Agreement").
The parties agree to amend the Addendum as follows:
1. In the first sentence of Section 1.4, delete the words "ten (10)" and
replace them with the words "one hundred (100)."
2. Notwithstanding any provision to the contrary in Section 2.1 of the
Addendum, for each copy of the Oracle Server Program Sublicensed by the
Alliance or its Distributor as part of the Logician Application Package,
the Alliance Member agrees to pay Oracle the applicable Sublicense fee,
stated in the table below, of the applicable license fee for each such
Program, as specified in the applicable Price List in effect at the time
the applicable Programs are Sublicensed.
Program Rate
------- ----
Oracle Server [*]%
Oracle Server-Enterprise Edition, NT platform [*]%
Oracle Server-Enterprise Edition, Unix platform [*]%
3. In addition to the Sublicense rights granted under the Addendum and
notwithstanding any other provision of the Agreement and the Addendum, the
parties agree to grant the below Sublicensees the one time right to
transfer the Sublicensed Programs to another Designated System on which
such Sublicensed Programs are available in production release as of the
Effective Date of the Amendment. Such transfer shall be at no additional
charge provided: (i) the Sublicensee has maintained Oracle Technical
Support services for the Sublicensed Programs from the Effective Date of
the Order Form; and (ii) the Sublicensee maintains the same user level on
the new Designated System. All transfers of the Sublicensed Programs shall
take place prior to
[*] Confidential Treatment Requested.
<PAGE>
December 31, 1999 and all subsequent transfer after such date shall be
subject to Oracle's transfer fees and policies in effect at the time of
transfer.
Sublicensees
Alligns - Minneapolis, MN
North Memorial - Minneapolis, MN
Providence Health Systems - Portland, OR
Riverside Physicians Services - Norfolk, VA
New York University - NY, NY
Sentara - Richmond, VA
Arizona Medical Clinic - Phoenix, AZ
Wakeforest University - Wakeforest, NC
Merrit Care - Fargo, ND
Memorial - Houston, TX
4. In Section 2.1, delete the word "month" and insert the word "Quarter" and
delete the word "monthly" and insert the word "Quarterly" in each instance
in which such words occur.
5. Delete the first sentence of Section 3 and insert the following:
"This Addendum shall become effective on the Effective Date of this
Addendum and shall be valid till December 31, 1999, unless terminated as
provided in the Agreement."
6. In Section 5, delete the word "month" and insert the word "Quarter" and
delete the word "monthly" and insert the word "Quarterly" in each instance
in which such words occur.
7. Delete the first sentence of Section 6 and insert the following:
"Within thirty (30) days of the last day of each quarterly period ending in
the months of January, April, July and October (each such period, a
"Quarter"), the Alliance Member shall send to Oracle a report detailing for
that Quarter."
8. In Section 6, delete the word "month" and insert the word "Quarter" and
delete the word "monthly" and insert the word "Quarterly" in each instance
in which such words occur.
9. During the Term of the Addendum, if Oracle changes the CPU requirements for
Sublicensing of Oracle Server as listed in the applicable Alliance Price
List, the Alliance Member shall have the right to Sublicense the Oracle
Server Program at its current rate of [*] percent ([*]%) of Net license
fees, as stated in Section 2.1 of the Addendum.
[*] Confidential Treatment Requested.
1
<PAGE>
Other than the modifications set forth above, the terms and conditions of the
Agreement shall remain unchanged and in full force and effect.
The Effective Date of this Amendment One is April 1, 1998.
MEDICALOGIC INC. ORACLE CORPORATION
By: GUY E. FIELD By: NICK MARQUIS
------------------------------ -----------------------------------
Name: Guy E. Field Name: Nick Marquis
---------------------------- ---------------------------------
Title: Controller Title: Manager, Alliances Sales Support
--------------------------- --------------------------------
[*] Confidential Treatment Requested.
1
<PAGE>
MedicaLogic(R) and Logician(R) are registered trademarks and LinkLogic(TM) is a
trademark of MedicaLogic, Inc. Copyright (C) 1999 MedicaLogic, Inc. All Rights
Reserved.
This Manual has been created by MedicaLogic, Inc. ("MedicaLogic") for use with
the Software and/or Databases ("Software") described in this Manual. The
Software and Databases are subject to the terms of the Customer License
Agreement accompanying the Software and may be used or copied only in accordance
with the Customer License Agreement. Federal law prohibits the copying of the
Software or the Manual except as specifically allowed in the Customer License
Agreement. No part of the Software or this Manual may be reproduced or
transmitted in any form or by any means, electronic or mechanical, except as
provided in the Customer License Agreement or with the express written
permission of MedicaLogic, Inc.
Oracle(R) is a registered trademark and Oracle7(TM) is a trademark of the Oracle
Corporation. Copyright (C) 1994 Oracle Corporation. All Rights Reserved.
ORACLE RESTRICTED RIGHTS LEGEND: Use, duplication, or disclosure by the
Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of
the Department of Defense Regulations Supplement ("DFARS") 252.227-7013. Rights
in Technical Data and Computer Software (October 1988) and Federal Acquisition
Regulation ("FAR") 52.227-14, Rights in Data-General, including Alternate III
(June 1987), as applicable. Oracle Corporation, 500 Oracle Parkway, Redwood
City, CA 94065.
Microsoft, Windows, and Windows NT are registered trademarks of Microsoft
Corporation. Copyright (C) 1994 Microsoft Corporation. All Rights Reserved.
Portions of this software were designed and developed for MedicaLogic by Indius,
Inc. C++ framework libraries (C) 1993-1995 Indius, Inc. All Rights Reserved.
Norton pcANYWHERE(TM) is a trademark and Symantec(R) is a registered trademark
of Symantec Corporation. Copyright (C) 1994 Symantec Corporation. All Rights
Reserved.
Women's Health Advisor(TM), Adult Health Advisor(TM), Arthritis Health
Advisor(TM), Pediatric Advisor(TM), Spanish/English Pediatric Advisor(TM),
Behavioral Health Advisor(TM), and Senior Health Advisor(TM) are trademarks of
Clinical Reference Systems, Ltd. Copyright (C) 1995 Clinical Reference Systems,
Ltd. All Rights Reserved.
CPT-4 and ICD-9 Databases included with this software are licensed from Context
Software Systems, Inc. Copyright (C) 1994 Context Software Systems, Inc. All
Rights Reserved.
This software incorporates SNOMED International--The Systematized Nomenclature
of Human and Veterinary Medicine, used by permission of the College of American
Pathologists. Copyright (C) 1995 College of American Pathologists. All Rights
Reserved.
The Medication Reference databases included with this software are licensed from
MediSpan, Inc. Copyright (C) 1995 Medi-Span, Inc. All Rights Reserved.
Portions of this software are copyright (C) 1994 by VISUALTOOLS, INC. All Rights
Reserved. These are supplied for run-time use only, and are subject to the terms
of the VISUALTOOLS, INC. License Agreement.
Portions of this software are copyright (C) 1991-1994 by Arthur D. Applegate.
Portions of this software are owned by Software Fx, Inc. and are protected by
United States copyright laws and international treaty provisions. They are
supplied for run-time use only and may not be used for development purposes.
Portions of the imaging technology of this product are copyright (C) AccuSoft
Corporation.
Referral Guidelines text included with Logician is licensed from Dr. Paul
Ladenson. Copyright (C) 1995-1997 Dr. Paul Ladenson. All Rights Reserved.
Printed in the United States of America
[*] Confidential Treatment Requested.
MEDICALOGIC, INC.
EMPLOYMENT AGREEMENT
PARTIES
The parties to this Agreement are MEDICALOGIC, INC. An Oregon corporation
(Corporation) and MARK LEAVITT (Employee).
DECLARATIONS
Corporation was organized for the purpose of developing computer products
for the medical industry and any other lawful activity for which corporations
may be organized under the Oregon Business Corporations Act.
TERMS
The parties agree:
1. Employment.
(a) Corporation shall hire Employee, and Employee shall work for
Corporation as employee.
(b) The employment period shall continue until it is ended. The
employment period may be ended only by dissolution of the corporation, the death
or retirement of Employee, or by one party with or without cause mailing to the
other party a written notice causing termination which states the employment
ending date, except that in the cause of such written notice the ending date
cannot be earlier than sixty (60) days after the date the notice was mailed.
(c) Employee shall work exclusively for Corporation, except that
Employee may engage in any non-related work outside of its employ with
Corporation. The exception stated in the
1
<PAGE>
preceeding sentence shall not apply to the extent any non-related work conflicts
or interferes with the services required of employee by Corporation; and the
exception stated in the preceeding sentence shall not apply if the time required
by such non-related work exceeds in any calendar quarter the time required of
Employee by Corporation in such calendar quarter. If Employee exceeds either of
the limitations stated in the preceeding sentence, Corporation may,
notwithstanding Section (b), end the employment period of Employee immediately.
2. Compensation.
Corporation shall pay to Employees such amounts as are agreed upon by
Employees and the board of directors of Corporation.
3. Supervision
Corporation shall direct and supervise the work of Employee; Employee
shall at all times conform to the working rules and standards imposed by
Corporation.
4. Schedule
Employee shall conform to the working schedule required by the demands
of Corporation's business, except that at no time shall Employee by compelled to
more than 12 hours per day or more than 72 hours per week, or more than 265
hours per month - unless, in such case Employee consents to the additional
service time and is paid additional compensation accordingly.
2
<PAGE>
5. Competition
Except as provided in subsection 1(c), Employee shall at no time
during the employment period engage in any endeavor whether for profit or not,
which competes with the business of the Corporation.
6. Benefits
Corporation shall provide Employee with insurance and medical fringe
benefits that are in accord with benefits available to other employees in
Oregon.
7. Miscellaneous
(a) This written agreement is the entire contract between the parties
and may be modified only by a write signed by all parties.
(b) This Agreement shall be binding on the parties according to its
terms and shall likewise be binding on their guardians, conservators, heirs,
successors and assigns.
(c) If legal fees or costs are incurred by any party in enforcing this
Agreement, then the non-prevailing party shall be liable for and shall pay the
same in full.
DATED this 1st day of August, 1985.
MARK LEAVITT
-----------------------------------------
MARK LEAVITT
Employee
MEDICALOGIC, INC.
MARK LEAVITT
-----------------------------------------
MARK LEAVITT
President
Secretary/Treasurer/Director
3
Exhibit 21.1
MEDICALOGIC, INC.
SUBSIDIARIES
Jurisdiction of
Name Incorporation
- ---- ---------------
MedicaLogic of Texas, Inc. Delaware
MedicaLogic SA Switzerland
Consent of Independent Accountants
The Board of Directors
MedicaLogic Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
KPMG LLP
Portland, Oregon
September 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 JUN-30-1999
<CASH> 4,924 4,718 9,922
<SECURITIES> 7,116 7,030 31,277
<RECEIVABLES> 8,515 11,444 7,733
<ALLOWANCES> (852) (1,360) (1,514)
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 19,966 22,377 48,797
<PP&E> 4,726 5,832 10,690
<DEPRECIATION> (2,757) (4,028) (4,071)
<TOTAL-ASSETS> 22,072 24,308 59,203
<CURRENT-LIABILITIES> 5,096 6,286 10,373
<BONDS> 0 0 0
42,593 49,387 83,687
0 0 0
<COMMON> 3,202 5,139 14,211
<OTHER-SE> (29,097) (37,183) (50,052)
<TOTAL-LIABILITY-AND-EQUITY> 22,072 24,308 59,203
<SALES> 7,617 10,410 5,787
<TOTAL-REVENUES> 12,807 16,160 8,975
<CGS> 7,756 6,754 3,418
<TOTAL-COSTS> 7,756 6,754 3,418
<OTHER-EXPENSES> 15,451 16,639 14,293
<LOSS-PROVISION> 829 756 437
<INTEREST-EXPENSE> 240 187 93
<INCOME-PRETAX> (10,670) (7,035) (7,993)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (10,670) (7,035) (7,993)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (10,670) (7,035) (7,993)
<EPS-BASIC> (0.80) (0.51) (.47)
<EPS-DILUTED> (0.80) (0.51) (.47)
</TABLE>
