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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
MEDICALOGIC, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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</TABLE>
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[LOGO]
MEDICALOGIC, INC.
20500 NW Evergreen Parkway
Hillsboro, OR 97124
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 9, 2000
To the Shareholders of MedicaLogic:
The 2000 annual meeting of shareholders of MedicaLogic will be held on
May 9, 2000 at 10:00 a.m. local time, at the Hotel Vintage Plaza, 422 SW
Broadway, Portland, Oregon, 97205, for the following purposes:
1. To consider and vote on a proposal to amend the MedicaLogic 1999 Stock
Incentive Plan to increase the number of shares of MedicaLogic common
stock reserved for issuance under the plan from 2,000,000 to 8,000,000;
2. To consider and vote on a proposal to amend the MedicaLogic 1999
Employee Stock Purchase Plan to increase the number of shares of
MedicaLogic common stock reserved for issuance under the plan from
1,000,000 to 2,500,000;
3. To elect (a) four Class I directors, (b) two Class II directors and
(c) one Class III director of MedicaLogic, each to serve for the terms
and, in some cases, subject to certain events described in the
accompanying proxy statement and until their successors are duly elected
and qualified, or until their earlier resignation or removal; and
4. To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
Only MedicaLogic shareholders of record at the close of business on
March 31, 2000 are entitled to vote at the annual meeting. A form of proxy and a
proxy statement containing more detailed information about the matters to be
considered at the annual meeting accompany this notice. We urge you to give this
material your careful attention.
Whether or not you expect to attend the meeting, you are respectfully
requested to complete, date and sign the enclosed proxy form and promptly return
it in the enclosed postage-prepaid envelope. You may attend the meeting in
person even though you have sent in your proxy; retention of the proxy is not
necessary for admission to the meeting.
By Order of the Board of Directors,
David C. Moffenbeier
PRESIDENT AND SECRETARY
Hillsboro, Oregon
April 6, 2000
YOUR VOTE IS IMPORTANT.
TO VOTE YOUR SHARES, PLEASE COMPLETE, SIGN, DATE
AND MAIL THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
MEDICALOGIC, INC.
PROXY STATEMENT
2000 ANNUAL MEETING OF SHAREHOLDERS
------------------------
This document is being furnished to shareholders of MedicaLogic as part of
the solicitation of proxies by the MedicaLogic board of directors for use at the
annual meeting of shareholders to be held on May 9, 2000 at 10:00 a.m. local
time, at the Hotel Vintage Plaza, 422 SW Broadway, Portland, Oregon, 97205. This
proxy statement and the enclosed form of proxy are first being mailed to
shareholders on or about April 6, 2000.
Shareholders will receive under separate cover a Joint Proxy
Statement/Prospectus relating to MedicaLogic's proposed mergers with
Medscape, Inc. and Total eMed, Inc. A special meeting with respect to those
mergers is scheduled to be held on May 10, 2000.
UPON WRITTEN REQUEST ADDRESSED TO MEDICALOGIC'S CORPORATE SECRETARY, DAVID
C. MOFFENBEIER, 20500 NW EVERGREEN PARKWAY, HILLSBORO, OREGON 97124, ANY PERSON
WHOSE PROXY IS SOLICITED BY THIS PROXY STATEMENT WILL BE PROVIDED, WITHOUT
CHARGE, A COPY OF MEDICALOGIC'S ANNUAL REPORT ON FORM 10-K.
SOLICITATION, VOTING SECURITIES AND REVOCABILITY OF PROXIES
The cost of soliciting proxies for the annual meeting will be borne by
MedicaLogic. In addition to soliciting proxies by mail, proxies may be solicited
personally or by telephone, facsimile, or other means of communication by
directors, officers and employees of MedicaLogic. These persons will not be
specifically compensated for these activities, but they may be reimbursed for
reasonable out-of-pocket expenses in connection with this solicitation.
Arrangements may also be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of shares held of record by these persons. MedicaLogic will reimburse
these brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection with this solicitation.
The board has fixed the close of business on March 31, 2000 as the record
date to determine the shareholders entitled to receive notice of, and to vote
at, the annual meeting. Each holder of record of MedicaLogic common stock on the
record date is entitled to cast one vote per share on all matters properly
submitted to a vote at the annual meeting. As of the close of business on
March 31, 2000, 32,010,397 shares of common stock were outstanding and entitled
to vote, held by approximately 300 holders of record. For purposes of the votes
on all proposals set forth below, the holders of at least a majority of the
shares entitled to vote, represented in person or by proxy, will constitute a
quorum at our annual meeting, which is necessary for the transaction of
business. Abstentions and broker non-votes (the submission of a proxy by a
broker or nominee specifically indicating the lack of discretionary authority to
vote on the matter) will be counted as present for purposes of determining the
presence or absence of a quorum for the transaction of business.
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The following table shows the votes required to approve each proposal.
<TABLE>
<CAPTION>
PROPOSAL VOTE REQUIRED
- -------- ---------------------------------------------
<S> <C>
- - Amendment to the 1999 Stock Incentive A majority of the votes cast must vote in
Plan....................................... favor of the proposal.
- - Amendment to the 1999 Employee Stock
Purchase Plan.............................. A majority of the votes cast must vote in
favor of the proposal.
- - Election of directors...................... The directors are elected by a plurality of
the votes cast. The Oregon statutory term
"plurality" means that the director nominees
who receive the most votes will be elected.
</TABLE>
The shareholders present at the annual meeting may continue to transact
business until adjournment, notwithstanding the subsequent withdrawal of enough
shareholders to leave less than a quorum or the refusal of any shareholder
present in person or by proxy to vote or participate in the annual meeting. If
the annual shareholders meeting is adjourned for any reason, the approval of any
of the proposals may be considered and voted upon by shareholders at the
subsequent reconvened meeting. All proxies will be voted in the same manner as
they would have been voted at the original meeting, except for any proxies that
have been properly withdrawn or revoked.
Any person giving a proxy in the form accompanying this proxy statement has
the power to revoke it at any time before its exercise. The proxy may be revoked
by:
- filing with the Secretary, David C. Moffenbeier, at or before the vote at
the annual meeting, a written notice of revocation dated after the date of
the proxy;
- signing a later proxy relating to the same shares and delivering it to the
Secretary before the annual meeting; or
- attending the annual meeting and voting in person.
Attendance at the annual meeting, however, will not in and of itself
constitute a revocation of a proxy. All valid, unrevoked proxies will be voted
at the annual meeting in accordance with the instructions given.
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PROPOSAL TO APPROVE AND ADOPT AMENDMENT
TO THE MEDICALOGIC STOCK INCENTIVE PLAN
MedicaLogic maintains the 1999 Stock Incentive Plan (the "Plan") for the
benefit of its employees and others who provide services to MedicaLogic. The
board of directors believes the availability of stock incentives is an important
factor in MedicaLogic's ability to attract and retain experienced and competent
employees and to provide an incentive for them to exert their best efforts on
behalf of MedicaLogic. As of March 15, 2000, out of a total of 2,000,000 shares
reserved for issuance under the Plan, only 246,968 shares remained available for
grant. The board of directors believes additional shares will be needed under
the Plan to provide appropriate incentives to employees. Accordingly, the board
of directors has approved an amendment to the Plan, subject to shareholder
approval, to reserve an additional 6,000,000 shares under the Plan. The total
number of shares reserved for issuance under the Plan would thus be increased
from 2,000,000 to 8,000,000 shares.
Key provisions of the Plan are described below. The complete text of the
Plan, marked to show the proposed amendment, is attached to this document as
APPENDIX A. We urge MedicaLogic shareholders to read the amendment to the Plan
carefully.
DESCRIPTION OF THE PLAN
SHARES RESERVED FOR THE PLAN
A total of 2,000,000 shares of MedicaLogic common stock have been reserved
for issuance under the Plan. If this proposal to amend the Plan is approved, the
number of shares reserved for issuance under the Plan will be increased to
8,000,000. The board of directors may adjust the number and kind of shares
available for grants under the Plan if the outstanding capital stock of
MedicaLogic is subsequently increased or decreased or changed for a different
number or kind or by reason of any reorganization, merger, consolidation, plan
of exchange, recapitalization, reclassification, reverse or forward stock split,
combination of shares, or dividend payable in shares.
If any option under the Plan expires or is canceled or terminated and is
unexercised in whole or in part, the shares allocable to the unexercised portion
will again become available for awards under the Plan.
ADMINISTRATION
The board of directors has the authority to administer the Plan, including
the designation of grant or award recipients. Subject to the provisions of the
Plan, the board may from time to time adopt and amend rules and regulations
relating to its administration. 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 will be final and conclusive. Whenever
the operation of the Plan requires that the fair market value of MedicaLogic's
common stock be determined, the fair market value will be determined by, or in a
manner approved by, the board. While the common stock is publicly traded, the
fair market value of the common stock will be the closing price of the common
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 common stock as may be specified by the board.
PARTICIPATION AND TYPES OF GRANTS
The Plan offers the following types of grants, awards, and sales:
(i) incentive stock options, as defined in Section 422 of the Internal Revenue
Code (the "Code"); (ii) non-statutory stock options; (iii) stock appreciation
rights or bonus rights; (iv) stock bonuses; and (v) restricted stock, to
directors, officers, and employees of MedicaLogic or any parent or subsidiary of
MedicaLogic, and other key individuals such as consultants to MedicaLogic who
the board believes have made or will make an
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essential contribution to MedicaLogic. Only employees of MedicaLogic are
eligible to receive incentive stock options under the Plan.
At the time of an option grant, the board will specify the action taken with
respect to each person granted, awarded, or sold any option or stock under the
Plan and will designate each option granted under the Plan as an incentive stock
option or a non-statutory stock option. No employee may be granted stock options
or stock appreciation rights under the Plan for more than an aggregate of
200,000 shares of common stock in connection with the hiring of the employee or
500,000 shares in any calendar year thereafter.
STOCK OPTIONS
Options granted under the Plan may be exercised over the period stated in
each option agreement in amounts and at times prescribed by the board and stated
in the option agreement. However, options may not be exercised in fractional
shares, and the right to exercise will be at least 20 percent per year over five
years from the date the option is granted. 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 may purchase those shares in
any subsequent period during the term of the option. An optionee must give
written notice to MedicaLogic of the optionee's intention to exercise. The
optionee must have paid MedicaLogic the full purchase price in cash, shares of
stock previously acquired, or in any combination of cash and shares on or before
the date specified for completion of the purchase. Optionees must also pay to
MedicaLogic any amount necessary to satisfy any applicable federal, state, and
local withholding tax requirements. MedicaLogic has the right to withhold any
amounts due from other amounts payable by MedicaLogic to the optionee, including
salary, subject to applicable law.
INCENTIVE STOCK OPTIONS. 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 MedicaLogic or any parent or subsidiary of MedicaLogic, exceeds
$100,000. The board will determine the exercise price per share of each
incentive stock option granted under the Plan. However, the exercise price may
not be less than 100 percent of the fair market value of the shares covered by
the incentive stock option on the date the incentive stock option is granted.
The board will determine the duration of the options up to a maximum of ten
years.
If an employee owns more than 10 percent of the total combined voting power
of all classes of stock of MedicaLogic, or of any parent or subsidiary of
MedicaLogic, an incentive stock option may only be granted 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. This option must be exercised within five
years from the date it is granted.
NON-STATUTORY STOCK OPTIONS. The board will determine the exercise price
per share of each option granted under the Plan. However, the exercise price of
non-statutory stock options may not be less than 85 percent of the fair market
value of the shares covered by the option on the date the option is granted. The
board will determine the duration of the option, not to exceed 10 years.
STOCK APPRECIATION RIGHTS
Stock appreciation rights ("SARs") may be granted under the Plan. SARs may,
but need not, be granted in connection with an option grant or an outstanding
option previously granted under the Plan. A SAR gives the holder the right to
payment from the company of an amount equal in value to the excess of fair
market value on the date of exercise of a share of common stock of the company
over its fair market value on the date of the grant, or if granted in connection
with an option, the option price per share under the option to which the SAR
relates.
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A SAR is exercisable only at the time or times established by the board. If
a SAR is granted in connection with an option, it is exercisable only to the
extent and on the same conditions that the related option is exercisable.
Payment by the company upon exercise of a SAR may be made in common stock of the
company valued at its fair market value, in cash, or partly in stock and partly
in cash, as determined by the board. To date, no SARs have been granted under
the Plan.
The existence of SARs, as well as certain bonus rights described below,
would require charges to income over the life of the right based upon the amount
of appreciation, if any, in the market value of the common stock of the company
over the exercise price of shares subject to exercisable SARs or bonus rights.
STOCK BONUS AWARDS
The board may also award common stock of the company as a stock bonus under
the Plan. The board may determine the recipients of the awards, the number of
shares to be awarded and the time of the award. Stock received as a stock bonus
is subject to the terms, conditions and restrictions determined by the board at
the time the stock is awarded.
RESTRICTED STOCK
The Plan also provides that the company may issue restricted stock in
amounts, for consideration, subject to restrictions, and on terms, determined by
the board.
CASH BONUS RIGHTS
The board may grant cash bonus rights under the Plan in connection with
(i) options or SARs granted or previously granted, (ii) stock bonuses awarded or
previously awarded and (iii) shares sold or previously sold under the Plan.
Bonus rights granted in connection with options entitle the optionee to a cash
bonus when the related option is exercised in whole or in part. The amount of
the bonus is 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. The bonus percentage applicable
to any bonus right is determined by the board but may in no event exceed 100%.
Bonus rights granted in connection with stock bonuses or restricted stock
purchases entitle the recipient to a cash bonus, in an amount determined by the
board, when the stock is awarded or purchased or any restrictions to which the
stock is subject lapse. To date, no cash bonus rights have been granted under
the Plan.
TRANSFERABILITY
Each option granted under the Plan by its terms will 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 by its terms will be exercisable during the holder's lifetime only by
the holder.
TERMINATION OF EMPLOYMENT
If an employee is terminated by retirement or for any reason other than
death or disability, any option held by the employee may be exercised at any
time before its expiration date or the expiration of three months after the date
of termination, whichever is the shorter period. Subject to the restrictions in
the Plan, if an employee's employment by MedicaLogic or any parent or subsidiary
of MedicaLogic is terminated because of death or physical disability, within the
meaning of Section 22(e)(3) of the Code, any option held by the employee may be
exercised at any time before its expiration date or the expiration of one year
after the date of termination, whichever is the shorter
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period. All rights to exercise the option will cease upon the expiration of the
limited periods provided above.
The board may establish provisions relating to the termination of persons
who are not employees of MedicaLogic with respect to options. Subject to
limitations specified in the Plan, the board may also 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 for
non-employees for any reason other than death or disability.
AMENDMENT OF THE PLAN
The board may modify or amend the Plan as it deems advisable. However, no
change in an option already granted to any person may be made without the
written consent of that person. The board may not increase the total number of
shares that may be issued under the Plan or change the class of persons eligible
to receive options under the Plan unless approved by MedicaLogic's shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
considerations concerning non-statutory stock options and incentive stock
options. The discussion does not describe any tax consequences of stock bonuses,
stock appreciation rights, restricted stock or cash bonus rights, nor does the
discussion describe any tax consequences under the tax laws of any state,
locality or foreign jurisdiction. Furthermore, the discussion is based on the
provisions of the Code and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed or
modified retroactively so as to result in federal income tax consequences
different from those discussed below. THE DISCUSSION BELOW DOES NOT DISCUSS ALL
FEDERAL TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR OPTIONEE, AND IS
NOT INTENDED AS TAX ADVICE. FOR EXAMPLE, THE DISCUSSION BELOW GENERALLY IS
APPLICABLE ONLY IF SHARES ACQUIRED PURSUANT TO EXERCISE OF OPTIONS ARE HELD BY
OPTIONEES AS CAPITAL ASSETS. ALSO, THE DISCUSSION BELOW GENERALLY IS APPLICABLE
ONLY IF SHARES ACQUIRED PURSUANT TO EXERCISE OF OPTIONS ARE NOT SUBJECT TO
REPURCHASE BY MEDICALOGIC.
NON-STATUTORY STOCK OPTIONS
GENERAL. No income is realized by the grantee of a non-statutory stock
option until the option is exercised. When a non-statutory stock option is
exercised, the optionee recognizes ordinary compensation income, and MedicaLogic
generally becomes entitled to a deduction, in the amount by which the market
value of the shares subject to the non-statutory stock option at the time of
exercise exceeds the exercise price. With respect to options exercised by
certain executive officers, MedicaLogic's deduction could in certain
circumstances be limited by the $1,000,000 cap on deductibility set forth in
Section 162(m) of the Code. MedicaLogic is required to withhold income and
employment taxes on all amounts treated as ordinary income to optionees who are
employees of MedicaLogic. Upon the sale of shares acquired by exercise of a
non-statutory stock option, the amount by which the sale proceeds exceed the
market value of the shares on the date of exercise will constitute capital gain.
In general, capital gain will be taxed at favorable rates if the optionee holds
the shares for more than one year, and will be taxed at even more favorable
rates in certain circumstances if the optionee holds the shares for more than
five years.
EXERCISE USING PREVIOUSLY ACQUIRED SHARES. If an optionee exercises a
non-statutory stock option using previously acquired shares (the "exercise
shares"), the tax results of the option exercise generally will be as set forth
above, except that for purposes of determining the tax consequences upon
disposition of the shares acquired upon exercise of the option (the "option
shares") the option shares will be divided into two groups. The first group,
consisting of the number of option shares equal to the number of exercise
shares, will have a tax basis equal to the tax basis of the exercise shares
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immediately before the exercise of the option. The second group, consisting of
the balance of the option shares, will have a tax basis equal to the market
value of the shares on the date of exercise of the option. The gain upon
disposition of option shares will be the excess of the sales proceeds over the
tax basis of the shares. If the exercise shares were acquired on exercise of an
incentive stock option, the option shares in the first group generally will be
treated for tax purposes as if acquired at the same time as the exercise shares.
The use of shares previously acquired on exercise of an incentive stock option
to exercise a non-statutory stock option will not be treated as an early
disposition of the exercise shares even though the applicable holding periods
have not been satisfied. Before exercising a non-statutory stock option using
previously acquired shares, optionees should consult their individual tax
advisers.
EXERCISE BY "INSIDERS". The tax consequences described above also apply to
an optionee who is an "insider" for purposes of Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), unless both (a) the grant
of the option was not approved by either the board of directors or a committee
composed solely of two or more non-employee directors and (b) the insider
exercises the option within six months of the date of grant. Optionees who are
insiders should consult their individual tax advisers before exercising a
non-statutory stock option in such cases.
INCENTIVE STOCK OPTIONS
GENERAL. No income will be recognized by an optionee upon either grant or
exercise of an incentive stock option. The amount by which the market value of
shares issued upon exercise of an incentive stock option exceeds the exercise
price, however, is included in the optionee's alternative minimum taxable income
and may, under certain conditions, be taxed under the alternative minimum tax.
If the optionee holds shares acquired upon exercise of an incentive stock option
for two years after the date of grant and one year after the date of exercise
(the "holding periods"), and if the optionee has been an employee of MedicaLogic
(or of any parent or subsidiary of MedicaLogic) at all times from the date of
grant to the date three months (or longer in cases of death or disability)
before exercise, then any gain realized by the optionee upon sale or exchange of
the shares will be capital gain. In general, capital gain will be taxed at
favorable rates if the optionee holds the shares for more than one year, and
will be taxed at even more favorable rates in certain circumstances if the
optionee holds the shares for more than five years.
Generally, if an optionee disposes of shares acquired upon exercise of an
incentive stock option within the holding periods and all requirements other
than the holding period rules are met (an "early disposition"), the optionee
generally will recognize ordinary compensation income for the year of
disposition equal to the lesser of (i) the excess of the market value of the
shares on the date of exercise over the exercise price or (ii) the excess of the
amount realized on disposition of the shares over the exercise price. The
remainder of the gain realized upon the early disposition, if any, will be
capital gain. In general, capital gain will be taxed at favorable rates if the
optionee holds the shares for more than one year, and will be taxed at even more
favorable rates in certain circumstances if the optionee holds the shares for
more than five years. If shares acquired upon exercise of an incentive stock
option are disposed of in an early disposition, MedicaLogic generally will be
entitled to a deduction in the year of disposition equal to the amount of
ordinary compensation income recognized by the optionee. With respect to shares
purchased by certain executive officers, MedicaLogic's deduction could in
certain circumstances be limited by the $1,000,000 cap on deductibility under
Section 162(m) of the Code.
EXERCISE USING PREVIOUSLY ACQUIRED SHARES. If an optionee exercises an
incentive stock option using previously acquired shares (the "exercise shares")
to acquire new shares (the "option shares"), the tax results generally will be
as set forth above, with the following exceptions. If the exercise shares were
acquired on exercise of an incentive stock option and the applicable holding
periods have not been satisfied with respect to the exercise shares, the
optionee will be treated as having made an early
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disposition of the exercise shares, and accordingly will have ordinary
compensation income for the year of disposition as discussed above.
In addition, regulations proposed by the Internal Revenue Service divide the
option shares into two groups for purposes of determining the tax consequences
upon their disposition. The first group, consisting of the number of option
shares equal to the number of exercise shares, will have a tax basis equal to
the tax basis of the exercise shares immediately before exercise of the option,
increased by any amount recognized as ordinary compensation income on the
disposition of the exercise shares. The second group, consisting of the balance
of the option shares, will have a tax basis of zero. The gain upon disposition
of option shares will be the excess of the sales proceeds over the tax basis of
the shares. If the exercise shares were acquired on exercise of an incentive
stock option and the applicable holding periods had been satisfied with respect
to the exercise shares, the option shares in the first group generally will be
treated for tax purposes as if acquired at the same time as the exercise shares.
Only shares in the second group will effectively be subject to the incentive
stock option holding periods, and on an early disposition of those shares an
amount equal to their market value on the date of exercise will be treated as
ordinary compensation income. The disposition of any option share, however, will
be treated as the disposition of a share in the second group until either all of
the shares in the second group have been disposed of or the holding periods have
been satisfied. Before exercising an incentive stock option using previously
acquired shares, optionees should consult their individual tax advisers.
EXERCISE BY "INSIDERS". The tax consequences described above also apply to
an optionee who is an "insider" for purposes of Section 16(b) of the Exchange
Act, unless both (a) the grant of the incentive stock option was not approved by
either the board of directors or a committee composed solely of two or more
non-employee directors and (b) the insider exercises the incentive stock option
within six months of the date of grant. Optionees who are insiders should
consult their individual tax advisers before exercising an incentive stock
option in such cases.
RESTRICTIONS ON TRANSFERABILITY OF SHARES
Section 16(b) of the Exchange Act requires corporate "insiders" to pay to
MedicaLogic any "profit" realized through any "purchase and sale" or "sale and
purchase" of MedicaLogic's securities within any period of less than six months.
Neither the grant nor the exercise of an option under the Plan is treated as a
purchase for purposes of creating liability under Section 16(b) if either
(a) the grant of the option is approved by either the board of directors or a
committee composed solely of two or more non-employee directors, (b) the grant
is approved or ratified by MedicaLogic's shareholders no later than the date of
the next annual meeting of shareholders or (c) at least six months elapse
between the grant of the option and the sale of shares acquired upon exercise of
the option. The sale of shares acquired upon exercise of an option, however, is
subject to Section 16(b) and may be matched with a purchase subject to
Section 16(b) to result in liability. MedicaLogic may not waive the violation,
permit rescission of a transaction with it or settle for less than the entire
"profit" realized, unless recovery on the merits is in serious doubt.
Section 16(b) applies to transactions by beneficial owners of more than
10 percent of the common stock and to directors and executive officers of
MedicaLogic. The liability to MedicaLogic arising under Section 16(b) may limit
the ability of such owners, executive officers and directors to dispose of any
common stock acquired upon exercise of options granted under the Plan within
less than six months of an acquisition of shares in a transaction that is not
exempt from the provisions of Section 16(b).
In addition, sales of MedicaLogic's securities by affiliates of MedicaLogic
are subject to the registration requirements of the Securities Act of 1933 (the
"Securities Act"). As a result, affiliates must sell shares acquired upon
exercise of options pursuant to an effective registration statement or pursuant
to an exemption from registration. In this regard, Rule 144 under the Securities
Act may be
8
<PAGE>
available for the resale of such shares provided that all the conditions of
Rule 144 are met at the time of resale.
STOCK OPTION GRANTS TO INDEPENDENT DIRECTORS
Each individual who becomes an independent director receives a non-statutory
option to purchase 30,000 shares of MedicaLogic common stock when the individual
becomes a director.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO
AMEND THE PLAN AS DESCRIBED ABOVE. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
OUTSTANDING SHARES PRESENT AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THIS
PROPOSAL. ABSTENTIONS HAVE THE SAME EFFECT AS "NO" VOTES IN DETERMINING WHETHER
THE AMENDMENT IS APPROVED. BROKER NON-VOTES HAVE NO EFFECT ON THE RESULTS OF THE
VOTE. THE PROXIES WILL BE VOTED FOR OR AGAINST THE PROPOSAL OR AS AN ABSTENTION,
IN ACCORDANCE WITH THE INSTRUCTIONS SPECIFIED ON THE PROXY FORM. IF NO
INSTRUCTIONS ARE GIVEN, PROXIES WILL BE VOTED FOR THE PROPOSAL.
9
<PAGE>
PROPOSAL TO AMEND THE 1999 EMPLOYEE STOCK PURCHASE PLAN
The MedicaLogic 1999 Employee Stock Purchase Plan, or the ESPP, provides a
convenient and practical means by which employees may participate in stock
ownership of MedicaLogic. The board of directors believes that the opportunity
to acquire a proprietary interest in the success of MedicaLogic through the
acquisition of shares of common stock pursuant to the ESPP is an important
aspect of MedicaLogic's ability to attract and retain highly qualified and
motivated employees. The board of directors believes additional shares will be
needed under the ESPP to provide appropriate incentive to the growing number of
key employees and others as a result of MedicaLogic's recent acquisitions.
Accordingly, the board has approved an amendment to the ESPP, subject to
shareholder approval, to reserve an additional 1,500,000 shares for the ESPP,
and thus increase the total number of shares reserved for issuance under the
ESPP from 1,000,000 to 2,500,000 shares.
Key provisions of the ESPP are described below. The complete text of the
ESPP, marked to show the proposed amendment, is attached to this document as
APPENDIX B.
SHARES RESERVED FOR ESPP
MedicaLogic has reserved a total of 1,000,000 shares of common stock for
issuance under the ESPP. If this proposal to amend the ESPP is approved, the
number of shares reserved for issuance under the ESPP will be increased to
2,500,000. The number of shares issuable under the ESPP is subject to adjustment
in the event of stock dividends, reverse or forward stock splits, combinations
of shares, recapitalizations or other changes in the outstanding common stock.
ADMINISTRATION
The ESPP is administered by MedicaLogic's board of directors. The board has
the power to make and interpret all rules and regulations it deems necessary to
administer the ESPP. Any determination, decision or act of the board with
respect to any action in connection with the construction, interpretation,
administration or application of the ESPP will be final, conclusive and binding
upon all participants. The board may delegate administration of the ESPP to the
compensation committee of the board.
ELIGIBILITY
Except as described below, all full-time employees, as defined in the ESPP,
of MedicaLogic and its participating subsidiaries are eligible to participate in
the ESPP. Any employee who would, immediately after an offering and after
including the number of shares that could be purchased in the offering, own or
be considered to own five percent or more of the voting power or value of all
classes of stock of MedicaLogic, or any parent or subsidiary of MedicaLogic, is
ineligible to participate in that offering.
ESPP OFFERINGS
The initial offering under the ESPP began on December 10, 1999, the first
day that MedicaLogic's common stock was publicly traded on the Nasdaq National
Market and will end on February 15, 2002. A series of one year offerings will
commence on February 15 of each year beginning with February 15, 2002 and ending
on February 15 of the following year. The first day of each offering is an
"offering date" for the applicable offering.
The initial offering includes four purchase periods, the first of which
commenced on December 10, 1999 and will end on August 15, 2000 and others of
which after the initial purchase period will be consecutive six-month periods
ending on February 15, 2001, August 15, 2001 and February 15, 2002. Each
subsequent offering will include two six-month purchase periods ending on
August 15 and February 15 of that offering. The last day of each purchase period
is a "purchase date" for the
10
<PAGE>
applicable offering. An employee may participate in only one offering at a time
and may purchase shares only through payroll deductions permitted under the
ESPP.
No employee may purchase more than 10,000 shares in any offering, and an
employee's right to purchase shares under the ESPP may not accrue at a rate that
exceeds $25,000 of the fair market value of shares, as determined on the date of
grant, for each calendar year of an offering.
PROCEDURE FOR PARTICIPATION AND PAYROLL DEDUCTIONS
Each eligible employee may elect to participate in the ESPP by filing a
subscription and payroll deduction authorization on a form furnished by
MedicaLogic. In the payroll deduction authorization, the employee must specify
the percentage of his or her cash compensation to be deducted under the ESPP.
Payroll deductions must be a whole percentage of not less than one percent or
more than 15 percent of a participant's gross amount of base pay plus
commissions, if any. The ESPP also includes rules pursuant to which persons who
become eligible employees after commencement of an offering may begin
participation in the offering after the next purchase date.
PURCHASE OF SHARES
Shares of common stock are purchased for employees' accounts under the ESPP
on each purchase date. The price at which shares may be purchased on any
purchase date in an offering will be the lower of (a) 85 percent of the fair
market value of a share of common stock on the offering date of the offering or
(b) 85 percent of the fair market value of a share of common stock on the
purchase date. The fair market value of a share of common stock on any date will
be the closing price on the immediately preceding trading day as reported by the
Nasdaq National Market or, if the common stock is not reported on the Nasdaq
National Market, such other reported value of the common stock as may be
specified by the board of directors.
CUSTODIAN
Shares purchased under the ESPP are delivered to and held in the custody of
the custodian, which will be an investment or financial firm appointed by the
board of directors. As soon as practicable after each purchase date, MedicaLogic
delivers to the custodian the full number of shares purchased for each
employee's account.
TERMINATION AND AMENDMENT OF ESPP
The board may at any time amend the ESPP in any and all respects, provided
that without shareholder approval, the board may not (i) increase the number of
shares reserved for the ESPP, except for those adjustments authorized by the
ESPP, or (ii) decrease the purchase price of shares offered pursuant to the
ESPP. The ESPP will terminate when all of the shares reserved for purposes of
the ESPP have been purchased, provided that the board of directors in its sole
discretion may at any time terminate the ESPP.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
considerations concerning the ESPP. This discussion does not purport to discuss
all tax considerations that may be relevant to a particular participant's
circumstances, including applicable state, local or foreign tax consequences.
Furthermore, the discussion is based on the provisions of the Code and
regulations, administrative rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed or modified retroactively so
as to result in federal income tax consequences different from those discussed
below. The discussion below is not intended as tax advice to participants. Each
participant is urged to consult his or her individual tax adviser.
11
<PAGE>
In the discussion below, if an employee becomes an ESPP participant on an
interim offering date, corresponding references to offering date are deemed to
refer to the interim offering date.
The ESPP is intended to qualify as an "employee stock purchase plan" within
the meaning of Section 423 of the Code. Under the Code, employees will not
recognize taxable income or gain with respect to shares purchased under the ESPP
either at the offering date of, or at any purchase date in, an offering. If a
current or former employee disposes of shares purchased under the ESPP more than
two years after the offering date and more than one year after the purchase
date, or in the event of the employee's death at any time, the employee or the
employee's estate generally will be required to report as ordinary compensation
income for the taxable year of disposition or death an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time of
disposition or death over the applicable purchase price, or (2) 15 percent of
the fair market value of the shares on the offering date. In the case of such a
disposition or death, MedicaLogic will not be entitled to any deduction from
income. Any gain on the disposition in excess of the amount treated as ordinary
compensation income generally will be capital gain.
If a current or former employee disposes of shares purchased under the ESPP
within two years after the offering date or within one year after the purchase
date, the employee generally will be required to report the excess of the fair
market value of the shares on the purchase date over the applicable purchase
price as ordinary compensation income for the year of disposition. If the
disposition is by sale, any difference between the fair market value of the
shares on the purchase date and the disposition price generally will be capital
gain or loss. In the event of a disposition within two years after the offering
date or within one year after the purchase date, subject to certain limitations
such as the $1,000,000 cap on deductibility under Section 162(m) of the Code,
MedicaLogic generally will be entitled to a deduction from income in the year of
such disposition equal to the amount the employee is required to report as
ordinary compensation income.
Under the terms of the ESPP, participants are required to pay to MedicaLogic
any amounts necessary to satisfy any tax withholding determined by MedicaLogic
to be required in connection with either the purchase or sale of shares acquired
under the ESPP.
Under the Code, MedicaLogic is required to track the disposition of all
shares acquired under the ESPP. In order to facilitate compliance with
MedicaLogic's reporting obligations, the custodian periodically provides
MedicaLogic with summaries of transactions in participants' accounts.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO
AMEND THE ESPP AS DESCRIBED ABOVE. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE
OUTSTANDING SHARES PRESENT AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THIS
PROPOSAL. ABSTENTIONS HAVE THE SAME EFFECT AS "NO" VOTES IN DETERMINING WHETHER
THE AMENDMENT IS APPROVED. BROKER NON-VOTES HAVE NO EFFECT ON THE RESULTS OF THE
VOTE. THE PROXIES WILL BE VOTED FOR OR AGAINST THE PROPOSAL OR AS AN ABSTENTION,
IN ACCORDANCE WITH THE INSTRUCTIONS SPECIFIED ON THE PROXY FORM. IF NO
INSTRUCTIONS ARE GIVEN, PROXIES WILL BE VOTED FOR THE PROPOSAL.
12
<PAGE>
PROPOSAL TO ELECT DIRECTORS
MedicaLogic's bylaws currently authorize no fewer than seven and no more
than eleven directors. The board of directors presently consists of seven
directors. The bylaws divide the board into three classes: Class I, Class II and
Class III, with members of each class serving staggered three-year terms. One
class of directors is elected by the shareholders at each annual meeting,
starting with the 2000 annual meeting, to serve a three-year term and until
their successors are duly elected and qualified.
Because the 2000 annual meeting is the first to be held under the company's
amended bylaws, the directors have, by resolution, appointed certain directors
to serve in specific classes, both in accordance with the bylaws and with
MedicaLogic's merger agreements relating to Medscape and Total eMed. Those
merger agreements also provide for the appointment of certain affiliates of each
of Total eMed and Medscape to the MedicaLogic board, subject to the consummation
of such pending mergers (the "Merger Closings"). THE ELECTIONS OF MR. SHEILS,
MR. REYNOLDS AND MS. DYSON ARE SUBJECT TO THE CONSUMMATION OF THE MERGER
TRANSACTION WITH MEDSCAPE AND THE ELECTIONS OF DRS. HARRIS AND REHM ARE SUBJECT
TO THE CONSUMMATION OF THE MERGER TRANSACTION WITH TOTAL EMED. THE ELECTIONS OF
DR. LEAVITT AND MR. FRIED, HOWEVER, ARE NOT SUBJECT TO THE MERGER CLOSINGS.
Accordingly, your approval is sought for the following:
- the election of four Class I directors, each to hold office until the 2003
annual meeting of shareholders;
- the election of two Class II directors, each to hold office for a one-year
term, until the 2001 annual meeting of shareholders; and
- the election of one Class III director, to hold office for a two-year
term, until the 2002 annual meeting of shareholders.
In each case, such directors will serve until a successor has been elected
and qualified. Two of the nominees are presently directors, as indicated with an
"*" below. The remaining nominees are currently directors of Medscape or Total
eMed and their election to the board is subject to completion of the respective
merger agreements with those companies.
Messrs. Kase (Class II), Stevens (Class II), Moszkowski (Class III) and
Moffenbeier (Class III) will continue to serve as directors in accordance with
their prior elections. The board of directors expects that all of these nominees
will be available for election, but if any of these nominees is not so available
at the time of the annual meeting, proxies received will be voted for a
substitute nominee to be designated by the board of directors. The board of
directors unanimously recommends a vote for election of all of the nominees as
directors.
The names of the nominees, their ages, the year each first became a
director, their principal occupations during at least the last five years and
other directorships held by each are set forth below:
NOMINEES FOR ELECTION OF DIRECTORS TO SERVE IN CLASS I
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
- ---- -------- --------
<S> <C> <C>
Bruce M. Fried*............................................. 49 1998
C. Martin Harris, M.D....................................... 43 N/A
Mark K. Leavitt*............................................ 50 1993
Paul T. Sheils.............................................. 45 N/A
</TABLE>
- ------------------------
* = Nominee is present MedicaLogic director.
13
<PAGE>
BRUCE M. FRIED. Mr. Fried is a partner and chair of the health law group at
Shaw Pittman, an international law firm based 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 president of federal affairs at FHP International
Corporation, then one of the nation's largest managed care organizations.
Mr. Fried received a B.A. and a J.D. from the University of Florida.
C. MARTIN HARRIS, M.D. Since July 1999, Dr. Harris has been a director of
Total eMed. Since 1996, Dr. Harris has served as a staff physician at the
Cleveland Clinic Hospital and at the Cleveland Clinic Foundation as well as the
chief information officer and the chairman of the information technology
division for the Cleveland Clinic Foundation, all in Cleveland, Ohio. From 1987
to 1996, Dr. Harris served as attending physician for the Hospital of the
University of Pennsylvania and as an assistant professor of Medicine at the
University of Pennsylvania School of Medicine where he previously worked as an
instructor of clinical medicine. From 1990 to 1993, Dr. Harris served as the
associate vice-president of information systems and technology at the University
of Pennsylvania Medical Center. Dr. Harris currently serves as a member of the
boards of directors for Care Management Sciences Corporation and United Way
Services. Dr. Harris is a graduate of the University of Pennsylvania with a B.S.
He received his M.D. from the University of Pennsylvania School of Medicine and
received his M.B.A. from the Wharton School of the University of Pennsylvania.
MARK K. LEAVITT. Dr. 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.
PAUL T. SHEILS. Prior to joining Medscape as president, chief executive
officer and director in February 1998, Mr. Sheils was vice president of Dow
Jones Interactive Publishing from 1994 to 1998 and was executive director from
1993 to 1994. Mr. Sheils was responsible for all of Dow Jones' corporate and
consumer online businesses, including THE WALL STREET JOURNAL INTERACTIVE
EDITION, the largest subscription-based publication on the web, and Dow Jones
Interactive, an award-winning online business intelligence and research service.
Mr. Sheils holds a B.A. from Williams College and a J.D. from Fordham Law
School.
NOMINEES FOR ELECTION OF DIRECTORS TO SERVE IN CLASS II
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
- ---- -------- --------
<S> <C> <C>
Esther Dyson................................................ 47 N/A
Richard D. Rehm, M.D........................................ 54 N/A
</TABLE>
ESTHER DYSON. Ms. Dyson has been the chairman of EDventure Holdings,
publisher of the newsletter RELEASE 1.0, since 1982. Ms. Dyson is the author of
RELEASE 2.0, an acclaimed book about cyberspace. Ms. Dyson joined the Medscape
board in June 1996. She is also interim chairman of the Internet Corporation for
Assigned Names and Numbers and is a director of three software companies--Accent
Software, Graphisoft and Scala Business Solutions. She also sits on the boards
of
14
<PAGE>
directors of Uproar.com, an online game company, and PRT Group, a systems
integrator. Ms. Dyson holds a B.A. from Harvard College.
RICHARD D. REHM, M.D. Since April 1, 1999, Dr. Rehm has been a director and
the president and chief executive officer of Total eMed. From May 1, 1998 to
April 1, 1999, Dr. Rehm served as the chief operating officer of Total eMed.
From 1990 to 1997, Dr. Rehm served as chairman of the board of
OccuSystems, Inc., a company he founded in 1990. From 1978 to 1980, Dr. Rehm
served as program director and acting associate director of the Family Practice
Residency Program for Texas Tech Medical School. Dr. Rehm earned his B.A. and
B.S. from the University of North Dakota and an M.D. from the University of
Texas, Southwestern Medical School.
NOMINEE FOR ELECTION OF DIRECTOR TO SERVE IN CLASS III
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
- ---- -------- --------
<S> <C> <C>
Fredric G. Reynolds......................................... 48 N/A
</TABLE>
FREDRIC G. REYNOLDS. Mr. Reynolds has been executive vice president and
chief financial officer of CBS Corporation since December 1997. Earlier,
Mr. Reynolds had served as executive vice president and chief financial officer
of Westinghouse Electric Corporation since February 1994 and, additionally, as
chief financial officer of CBS, Inc., since April 1996. Prior to joining
Westinghouse in 1994, Mr. Reynolds spent 13 years at PepsiCo Inc. in various
financial positions, including senior vice president and chief financial officer
for PepsiCo Foods International, PepsiCo's Frito-Lay unit, and chief financial
officer of several other units, including Kentucky Fried Chicken, Pepsi-Cola
International and Pizza Hut. Mr. Reynolds joined the Medscape board in
July 1999. Mr. Reynolds holds a B.A. from the University of Miami.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING IN 2001 (CLASS II)
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 boards of directors of
Data Critical Corporation, a wireless healthcare data products company, 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.
MARK A. STEVENS has been a director since 1994. Mr. Stevens joined Sequoia
Capital in 1989 and has been a general partner since 1993. Mr. Stevens serves on
the boards of directors of MP3.com, Inc., an online music Internet company,
NVidia Corp., a supplier of graphics processors and software and Terayon
Communication Systems, Inc., a cable modem system supplier, and several
privately held Internet and semiconductor companies. 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.
TERM EXPIRING IN 2002 (CLASS III)
DAVID C. MOFFENBEIER is the president of MedicaLogic and served as chief
operating officer until February 2000 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 as its 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
15
<PAGE>
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.
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
private equity investment affiliate of Soros Fund Management, L.L.C. and
currently is an employee of Soros Private Funds Management L.L.C. Before Soros,
Mr. Moszkowski was an executive director in the principal investment area of
Goldman, Sachs International and a vice president of Goldman, Sachs & Co., which
he joined in 1993. Mr. Moszkowski serves on the board of directors of Integra
Life Sciences Holdings Corporation, a developer and marketer of medical
products, implants and biomaterials, 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.
DIRECTOR COMPENSATION
Generally, directors do not receive any cash compensation from MedicaLogic
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 MedicaLogic's stock incentive plan, non-employee
directors are granted a one-time option to purchase 30,000 shares of
MedicaLogic's common stock upon initial election to the board. In addition,
MedicaLogic has entered into an arrangement under which it pays Enterprise
Partners, of which Ronald R. Taylor (a director who is not standing for
re-election) serves as a general partner, $2,000 for each director's meeting
attended by Mr. Taylor. Directors' fees totaling $4,000 were paid to Enterprise
Partners in 1999 for Mr. Taylor's attendance at board meetings. MedicaLogic
carries an insurance policy for the protection of its officers and directors
against any liability asserted against them in their official capacities.
INFORMATION ON THE BOARD OF DIRECTORS AND ITS COMMITTEES
The board of directors has an audit committee and a compensation committee.
The audit committee reviews and makes recommendations to the board of directors
concerning MedicaLogic's internal accounting procedures, reviews and consults
with its independent accountants on the accounting principles and auditing
practices used for its 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 the 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 MedicaLogic's officers and managerial employees.
The compensation committee advises and consults with its officers about
personnel policies. The current members of the compensation committee are Ronald
H. Kase and Mark A. Stevens.
The board of directors held 11 meetings during 1999. The audit committee
held one meeting, and the compensation committee held one meeting. Each current
director attended, in person or by teleconference, at least 75 percent of the
aggregate of (i) the total number of meetings of the board, and (ii) the number
of meetings held by all the committees of the board on which he or she served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before 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 MedicaLogic.
16
<PAGE>
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
MedicaLogic's 1999 restated articles of incorporation eliminate, to the
fullest extent permitted by Oregon law, personal 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.
MedicaLogic's articles of incorporation require it to indemnify its
directors to the fullest extent not prohibited by law. MedicaLogic believes that
the limitation of liability, and indemnity, provisions in its articles of
incorporation enhance its ability to attract and retain qualified individuals to
serve as directors.
MedicaLogic carries an insurance policy for the protection of its officers
and directors against any liability asserted against them in their official
capacities.
To the extent that indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or controlling persons of
MedicaLogic under the above provisions, MedicaLogic has been advised that in the
opinion of the Securities and Exchange Commission, this indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
RECOMMENDATION OF THE BOARD
THE BOARD OF DIRECTORS RECOMMENDS THE SHAREHOLDERS VOTE FOR THE SLATE OF
DIRECTOR NOMINEES NAMED ABOVE IN THIS PROXY STATEMENT. IF A QUORUM IS PRESENT AT
THE ANNUAL MEETING, DIRECTORS WILL BE ELECTED BY A VOTE OF A PLURALITY OF THE
SHARES CAST IN PERSON OR BY PROXY. ACCORDINGLY, THE NOMINEES RECEIVING THE MOST
VOTES AT THE ANNUAL MEETING WILL BE ELECTED. ABSTENTIONS AND BROKER NON-VOTES
WILL HAVE NO EFFECT ON THE RESULTS OF THE VOTE.
17
<PAGE>
MEDICALOGIC EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table includes the total compensation paid or accrued, during
the fiscal years ended December 31, 1998 and 1999, for services rendered to
MedicaLogic in all capacities by its chief executive officer and its four other
most highly compensated executive officers whose salary and bonus exceeded
$100,000 in 1999 and were serving as executive officers at the end of 1999. The
individuals named in this table will subsequently be referred to as the named
executive officers.
MEDICALOGIC SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------------
------------------------------------------- RESTRICTED
OTHER STOCK SECURITIES
NAME AND PRINCIPAL SALARY BONUS ANNUAL AWARD(S) UNDERLYING
POSITION YEAR ($) ($) COMPENSATION(1)(2) ($) OPTIONS (#)
- ------------------ -------- -------- --------- ------------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Leavitt.................. 1999 210,000 100,000 -- 66,000(3) --
Chairman of the Board and Chief 1998 208,333 -- -- 60,000(3) --
Executive Officer
David C. Moffenbeier............. 1999 190,000 100,000 -- 66,000(3) --
President 1998 238,333 50,000 -- 60,000(3) --
Blackford Middleton.............. 1999 160,000 15,000(4) 125,516 33,000(3) --
Senior Vice President, 1998 158,333 15,000(5) 53,621 30,000(3)(6) --
Clinical Informatics
Richard L. Samco................. 1999 185,711 -- -- 66,000(3) --
Senior Vice President and Chief 1998 183,333 -- -- 60,000(3) --
Technology Officer(7)
Thomas M. Watson................. 1999 150,000 107,574 -- 66,000(3) --
Senior Vice President, 1998 150,000 75,559(8) -- 60,000(3)(9) --
Worldwide Sales and
Professional Services
</TABLE>
- --------------------------
(1) Comprised of commission payments, unless otherwise noted.
(2) See "Long term incentive plans--awards" below.
(3) These shares had been subject to a right of repurchase by MedicaLogic that
has terminated. 1998 dollar values were calculated based on $4.00 per
restricted share, and 1999 values were calculated based on $4.40 per
restricted share.
(4) Includes $5,000 paid in 2000 for 1999 performance.
(5) Includes $5,000 paid in 1999 for 1998 performance.
(6) Does not include 12,500 shares of restricted stock issued to Mr. Middleton
on July 1, 1998 upon his surrender of 12,500 outstanding options to purchase
common stock. Of these 12,500 shares of restricted stock, 5,556 were not
subject to a right of repurchase, and 6,945 shares were subject to a right
of repurchase by MedicaLogic and are being released from the repurchase
option ratably over a period of 20 months beginning July 1, 1998.
(7) Mr. Samco is on a leave of absence from MedicaLogic.
(8) Includes $20,000 paid in 1998 for 1997 performance.
(9) Does not include 75,000 shares of restricted stock issued to Mr. Watson on
July 1, 1998 upon his surrender of 75,000 outstanding options to purchase
common stock. Of these 75,000 shares of restricted stock, 33,334 shares were
not subject to a right of repurchase, and 41,667 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.
18
<PAGE>
STOCK OPTION OR SAR GRANTS IN LAST FISCAL YEAR
There were no grants of stock options or SARs to the named executive
officers in 1999.
MEDICALOGIC OPTION EXERCISES AND YEAR-END OPTION VALUES
As of the end of 1999, there were no exercised options and no unexercised
options held by the named executive officers.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1999, there has not been nor is there currently proposed
any transaction or series of similar transactions to which MedicaLogic or any of
its subsidiaries was or is to be a party in which the amount involved exceeds
$60,000 and in which any director, executive officer, holder of more than five
percent of the common stock of MedicaLogic or any member of the immediate family
of any of the foregoing persons had or will have a direct or indirect material
interest other than (1) compensation agreements and other arrangements, which
are described under "Executive Compensation" and (2) the transactions described
below.
Since January 1, 1999, MedicaLogic has accepted promissory notes from the
following persons in the amounts listed below as consideration for restricted
stock issued to them:
<TABLE>
<CAPTION>
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
Harvey J. Anderson......................... 750,000 November 18, 1999
Mark K. Leavitt............................ 66,000 March 31, 1999
Blackford F. Middleton..................... 33,000 March 31, 1999
David C. Moffenbeier....................... 66,000 March 31, 1999
Richard L. Samco........................... 66,000 March 1, 1999
Frank J. Spina............................. 1,187,500 October 20, 1999
Thomas M. Watson........................... 66,000 March 1, 1999
</TABLE>
All of the above non-negotiable promissory notes accrue interest at an
annual rate of 6 percent 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.
MedicaLogic loaned Harvey J. Anderson $103,800 to pay for relocation
expenses in the form of an unsecured promissory note. The promissory note
accrued interest at an annual rate of 6 percent on the unpaid principal balance
from the date of the note until the principal was paid in full. In
September 1999, MedicaLogic entered into a separate agreement with Mr. Anderson
in consideration of Mr. Anderson relocating to San Francisco, California.
MedicaLogic agreed to reimburse Mr. Anderson $7,930 for improvements to his
Portland, Oregon residence and any shortfall between the sales price on his
Portland, Oregon residence and the original purchase price of $520,000 paid by
Mr. Anderson and any transaction costs not covered by the sales price of this
residence, unless the sales price was greater than the purchase price.
MedicaLogic also agreed to forgive the interest accrued on the unsecured
promissory note referred to above, which was repaid from the proceeds of the
sale of the Portland, Oregon residence and to pay the mortgage payment on
Mr. Anderson's residence in Portland, Oregon until it was sold. In aggregate,
MedicaLogic made payments totaling $65,595 on behalf of Mr. Anderson with
respect to his relocation expenses.
In August 1998, MedicaLogic 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 175,000 shares of
19
<PAGE>
its common stock at a price of $4.00 per share. MedicaLogic also granted an
option to purchase 8,000 shares of its common stock at a price of $4.00 per
share to Enterprise Partners IV Associates, L.P. and granted an option to
purchase 92,000 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.
In connection with MedicaLogic's series J preferred stock financing, it 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 MedicaLogic.
Bruce M. Fried, a member of the board of directors, is a partner in a law
firm retained by MedicaLogic to provide legal counsel about regulatory and
intellectual property issues.
Upon the closing of MedicaLogic's initial public offering in December 1999,
each share of its preferred stock converted into .5 shares of common stock.
MEDICALOGIC COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION REPORT
The compensation committee of the board of directors has furnished the
following report on executive compensation. It is the duty of the compensation
committee to set the base salary of MedicaLogic's executive officers. The
current members of the compensation committee are Mr. Ronald H. Kase and
Mr. Mark A. Stevens, non-employee directors of the company. Mr. Charles D.
Burwell served as a member of the compensation committee until December 31,
1999, when he resigned his position as a director of MedicaLogic.
GENERAL COMPENSATION POLICY
The fundamental policy of the compensation committee in compensation matters
is to offer MedicaLogic's executive officers competitive compensation
opportunities based upon their personal performance and their contribution to
the financial success of MedicaLogic. Accordingly, each executive officer's
compensation package is composed of three elements: (i) base salary that is
designed primarily to be competitive with base salary levels in effect both at
companies within the e-commerce industry that are of comparable size to
MedicaLogic and at companies outside of such industry with which MedicaLogic
competes for executive talent, (ii) bonus awards payable in cash and tied to the
achievement of performance goals, financial or otherwise, established by the
compensation committee and (iii) long-term stock-based incentive awards that
strengthen the mutuality of interests between the executive officers and
MedicaLogic's shareholders.
FACTORS. The principal factors that were considered by the compensation
committee in establishing the components of each officer's compensation package
for 1999 are summarized below:
- BASE SALARY. The base salary for each executive officer is determined on
the basis of internal comparability considerations and the base salary
levels in effect for comparable positions at comparable companies, both
inside and outside the industry. Salaries are reviewed on an annual basis,
with adjustments to each executive officer's base salary based upon salary
increases paid by MedicaLogic's competitors, changes in duties and
individual performance.
- ANNUAL INCENTIVE COMPENSATION. An annual bonus may be earned by each
executive officer at the discretion of the compensation committee. Bonuses
are generally based on the following factors: (i) the extent to which the
company-wide performance objectives were obtained and
20
<PAGE>
(ii) personal performance. The bonuses paid for 1999 to each of the named
executive officers is indicated in the Bonus column of the Summary
Compensation Table.
- LONG-TERM INCENTIVE COMPENSATION. The board of directors periodically
grants restricted stock to MedicaLogic's executive officers and other
employees. The grants are designed to align the interest of each executive
officer with those of MedicaLogic's shareholders as an owner with an
equity stake in the business.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting the compensation payable to MedicaLogic's Chief Executive
Officer, Dr. Leavitt, the compensation committee has sought to establish a
competitive rate of base salary.
In 1999, the board of directors granted Dr. Leavitt 15,000 shares of
restricted stock under MedicaLogic's 1999 Stock Incentive Plan. The grant was
based on achievement of company-wide performance objectives, including
implementation of the company's Internet strategy and achievement of a
successful initial public offering. In addition, the compensation committee
awarded him a cash bonus in the amount of $100,000.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Code limits to $1,000,000 per person the amount that
MedicaLogic may deduct for compensation paid to any of its most highly
compensated officers in any year. Currently, the levels of salary and bonus
generally paid by MedicaLogic do not exceed this limit. Upon the exercise of
nonstatutory stock options, the excess of the current market price over the
option price (option spread) is treated as compensation and, therefore, it may
be possible for option exercises by an officer in any year to cause the
officer's total compensation to exceed $1,000,000. Under IRS regulations, option
spread compensation from options that meet certain requirements will not be
subject to the $1,000,000 cap on deductibility, and it is MedicaLogic's current
policy, generally, to grant options that meet those requirements.
COMPENSATION COMMITTEE
RONALD H. KASE
MARK A. STEVENS
21
<PAGE>
MEDICALOGIC PERFORMANCE GRAPH
MedicaLogic completed the initial public offering of its common stock in
December, 1999. MedicaLogic's common stock has been traded on the Nasdaq
National Market under the symbol "MDLI" since December 10, 1999. Prior to that
date, there was no public market for MedicaLogic's common stock and, therefore,
no quoted market prices for its common stock are available for any periods prior
to that date. Because there were no quoted market prices for its common stock
prior to December 10, 1999, information regarding cumulative total shareholder
return on MedicaLogic's common stock for periods ending on or before
December 31, 1999, whether presented on a stand-alone basis or in comparison
with the Nasdaq Composite Index or other indices, would not be meaningful.
Notwithstanding anything to the contrary set forth in any of MedicaLogic's
previous filings under the Securities Act or the Exchange Act that might
incorporate future filings, including this proxy statement, in whole or in part,
the preceding Executive Compensation Report shall not be incorporated by
reference into any such filings; nor shall such Report be incorporated by
reference into any future filings.
22
<PAGE>
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The following table presents the beneficial ownership of MedicaLogic common
stock and the ownership percentage as of February 29, 2000 by:
- each person known by MedicaLogic to be the beneficial owner of more than
five percent of the outstanding shares of its common stock;
- each director and named executive officer; and
- all directors and officers as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and includes voting or investment power with respect to the
securities. Unless indicated otherwise below, the address for each listed
director and officer is MedicaLogic, Inc., 20500 NW Evergreen Parkway,
Hillsboro, Oregon 97124. Except as indicated by footnote, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The number of shares of common
stock outstanding used in calculating the percentage for each listed person
includes the shares of common stock underlying options held by that person that
are exercisable within 60 days of February 29, 2000 but excludes shares of
common stock underlying options held by any other person. Percentage of
beneficial ownership is based on 32,418,978 shares of common stock outstanding
as of February 29, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED OF SHARES
- ---------------- ------------------ ----------
<S> <C> <C>
ENTITIES ASSOCIATED WITH SEQUOIA FUNDS...................... 2,803,847(1) 8.6%
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
NEW ENTERPRISE ASSOCIATES................................... 2,353,596 7.3%
2490 Sand Hill Road
Menlo Park, CA 94025
CONTINENTAL CASUALTY COMPANY................................ 2,000,000 6.2%
CNA Insurance
CNA Plaza
Chicago, IL 60685
QUANTUM INDUSTRIAL PARTNERS LDC............................. 1,568,421 4.8%
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
SFM DOMESTIC INVESTMENT LLC................................. 1,568,421 4.8%
c/o Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10016
MARK A. STEVENS............................................. 2,836,847(2) 8.7%
3000 Sand Hill Rd.,
Bldg. 4, Ste. 280
Menlo Park, CA 94025
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIAL OWNER BENEFICIALLY OWNED OF SHARES
- ---------------- ------------------ ----------
<S> <C> <C>
RONALD H. KASE.............................................. 2,383,596(3) 7.3%
2490 Sand Hill Road
Menlo Park, CA 94025
MARK K. LEAVITT............................................. 1,267,501(4) 3.9%
RICHARD L. SAMCO............................................ 970,305(5) 3.0%
DAVID C. MOFFENBEIER........................................ 648,952(6) 2.0%
RONALD R. TAYLOR............................................ 558,928(7) 1.7%
Enterprise Partners
7979 Ivanhoe Ave., Ste. 550
La Jolla, CA 92037
BLACKFORD F. MIDDLETON...................................... 105,750(8) *
THOMAS M. WATSON............................................ 105,000 *
BRUCE M. FRIED.............................................. 16,566(9) *
2300 N. Street, NW
Washington, DC 20037
NEAL MOSZKOWSKI............................................. 13,750(10) *
888 Seventh Avenue
Suite 3300
New York, NY 10106
All directors and executive officers as a group 8,148,015(11) 25.1%
(10 persons)..............................................
</TABLE>
- ------------------------
* Less than one percent
(1) Includes shares held of record by the following funds:
<TABLE>
<CAPTION>
NUMBER OF SHARES
FUND HELD OF RECORD
---- ----------------
<S> <C>
Sequoia Capital Growth Fund................................. 1,726,745
Sequoia Capital VI.......................................... 400,914
Sequoia 1995................................................ 17,624
Sequoia Technology Partners VI.............................. 22,028
Sequoia Technology Partners III............................. 110,219
Sequoia Capital Franchise Fund.............................. 447,369
Sequoia Capital Franchise Patners........................... 78,948
</TABLE>
(2) Includes 2,803,847 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
24
<PAGE>
interest. See note (1). Mr. Stevens's relationships to entities associated
with Sequoia are described in the following table:
<TABLE>
<CAPTION>
RELATIONSHIP NAME OF SEQUOIA ENTITY
------------ -------------------------------------------
<S> <C>
General partner............................ Sequoia Capital VI
Sequoia Technology Partners VI
Managing member............................ Sequoia Capital Franchise Fund
Sequoia Capital Franchise Partners
Participates in voting control of shares of Sequoia Capital Growth Fund
MedicaLogic held of record by these Sequoia 1995
entities................................. Sequoia Technology Partners III
</TABLE>
The share amount also includes 5,833 shares subject to an option held of
record by Mr. Stevens that is exerciseable within 60 days of February 29, 2000.
(3) Includes securities held of record as described in the following table:
<TABLE>
<CAPTION>
HOLDER OF RECORD SECURITIES
---------------- -------------------------------------------
<S> <C>
New Enterprise Associates VI, LP........... 2,353,596 shares of common stock
Ronald H. Kase............................. Option to purchase 30,000 shares of common
stock
</TABLE>
Mr. Kase disclaims beneficial ownership of the shares held of record by New
Enterprise Associates. The option held of record by Mr. Kase is exercisable
within 60 days of February 29, 2000.
(4) Includes shares held of record as described in the following table:
<TABLE>
<CAPTION>
HOLDER OF RECORD NUMBER OF SHARES
---------------- ----------------
<S> <C>
Amy Elizabeth Leavitt....................................... 5,000
Trust for Amy Elizabeth Leavitt............................. 85,000
</TABLE>
(5) Includes shares held of record as described in the following table:
<TABLE>
<CAPTION>
HOLDER OF RECORD NUMBER OF SHARES
---------------- ----------------
<S> <C>
Courtaney E. Samco.......................................... 6,053
Mark R. Samco............................................... 6,053
</TABLE>
(6) Includes 250,000 shares of common stock held of record by Elizabeth
Moffenbeier.
(7) Includes securities held of record as described on the following table:
<TABLE>
<CAPTION>
HOLDER OF RECORD SECURITIES
---------------- -------------------------------------------
<S> <C>
Entities associated with Enterprise 475,000 shares of common stock
Partners.................................
Ronald R. Taylor........................... Option to purchase 30,000 shares of common
stock
Luke Rand Williams......................... 4,000 shares of common stock
Leah Williams Barbieri..................... 4,000 shares of common stock
Tiffany Marie Taylor....................... 4,000 shares of common stock
</TABLE>
Mr. Taylor disclaims beneficial ownership of the shares held of record by
entities associated with Enterprise Partners, except to the extent of his
pecuniary interest. Of these shares, Mr. Taylor has the right to acquire
beneficial ownership of 27,778 at any time. The option held of record by
Mr. Taylor is exercisable within 60 days of February 29, 2000. Luke Rand
Williams, Leah Williams Barbieri and Tiffany Marie Taylor are Mr. Taylor's
children.
25
<PAGE>
(8) Includes shares held of record as described in the following table:
<TABLE>
<CAPTION>
HOLDER OF RECORD NUMBER OF SHARES
---------------- ----------------
<S> <C>
Lillian S. Middleton........................................ 2,100
Julia E. Middleton Trust.................................... 2,100
</TABLE>
(9) Includes 11,666 shares subject to an option held of record by Mr. Fried that
is exerciseable within 60 days of February 29, 2000.
(10) All of these shares are subject to options that are exercisable within
60 days of February 29, 2000. 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.
(11) Includes 100,624 shares subject to options that are exercisable within
60 days of February 29, 2000.
INDEPENDENT ACCOUNTANTS
KPMG LLP has been selected as MedicaLogic's independent accountants.
Representatives of KPMG LLP are expected to attend the annual meeting. These
representatives will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires MedicaLogic's directors and
executive officers, and persons who own more than 10 percent of a registered
class of MedicaLogic's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of MedicaLogic's common stock and other equity securities. Officers,
directors and greater than 10 percent shareholders are required by the
Securities and Exchange Commission regulations to furnish MedicaLogic with
copies of all Section 16(a) reports filed.
Based solely upon review of the copies of such reports furnished to
MedicaLogic and written representations that no other reports were required,
MedicaLogic believes that there was compliance for the fiscal year ended
December 31, 1999 with all Section 16(a) filing requirements applicable to
MedicaLogic's officers, directors and greater than 10 percent beneficial owners,
except that (1) Mr. Charles Burwell, formerly a director of MedicaLogic, filed a
late report with respect to 1,150 shares acquired in MedicaLogic's initial
public offering, (2) Mr. Bruce Fried filed a late report with respect to 1,150
shares acquired in MedicaLogic's initial public offering, (3) Mr. Mark Stevens
filed a late report with respect to 3,000 shares acquired in MedicaLogic's
initial public offering, and (4) Mr. Ron Taylor filed a late report with respect
to 1,150 shares acquired in MedicaLogic's initial public offering.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Shareholders provides for transaction
of such other business as may properly come before the meeting, the board of
directors has no knowledge of any matters to be presented at the meeting other
than those referred to herein. The enclosed proxy, however, gives discretionary
authority to the proxy holders to vote in accordance with the recommendation of
management if any other matters are presented.
26
<PAGE>
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
SHAREHOLDER PROPOSALS TO BE INCLUDED IN THE COMPANY'S PROXY STATEMENT. Any
proposals which MedicaLogic shareholders wish to be considered for inclusion in
the proxy statement for MedicaLogic's 2001 annual meeting must be received by
MedicaLogic at its principal executive offices no later than December 8, 2000.
SHAREHOLDER PROPOSALS NOT IN THE COMPANY'S PROXY STATEMENT. Shareholders
wishing to present proposals for action at this annual meeting or at another
shareholders' meeting must do so in accordance with the company's bylaws. A
shareholder must give timely notice of the proposed business to the Corporate
Secretary. To be timely, a shareholder's notice must be in writing, delivered to
or mailed and received at the principal executive offices of the company not
less than 90 days nor more than 120 days prior to the first anniversary of the
date of the proxy statement for the preceding year's annual meeting; provided,
however, that if the date of such annual meeting is more than 30 days before or
more than 70 days after the anniversary date, notice by the shareholder, to be
timely, 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 meeting date is first
made. For each matter the shareholder proposes to bring before the meeting, the
notice to the Corporate Secretary must include (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (ii) the name and address of the shareholder
proposing such business, (iii) the class and number of shares of the company
which are beneficially owned by the shareholder and (iv) any material interest
of the shareholder in such business. If the shareholder is not a shareholder of
record at the time of giving the notice, the notice must be accompanied by
appropriate documentation of the shareholder's claim of beneficial ownership.
The officer presiding at the meeting may, if in the officer's opinion the facts
warrant, determine that business was not properly brought before the meeting in
accordance with the company's bylaws. If such officer does so, such officer
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
SHAREHOLDER NOMINATIONS FOR DIRECTORS. Shareholders wishing to directly
nominate candidates for election to the board of directors must do so in
accordance with the company's bylaws by giving timely notice in writing to the
Corporate Secretary as described above. The notice shall set forth (a) as to
each person whom the shareholder proposes to nominate (i) all information
relating to such person that is required to be disclosed in proxy solicitations
pursuant to Regulation 14A under the Exchange Act and (ii) the written consent
of such person to be named in the proxy statement as a nominee and to serve as a
director if elected and (b) as to the shareholder giving the notice (i) the name
and address of such shareholder and (ii) the class and number of shares of the
company which are beneficially owned by such shareholder. If the shareholder is
not a shareholder of record at the time of giving the notice, the notice must be
accompanied by appropriate documentation of the shareholder's claim of
beneficial ownership. No person shall be eligible to serve as a director of the
company unless nominated in accordance with the procedures set forth in the
bylaws. The officer presiding at the meeting may, if in the officer's opinion
the facts warrant, determine that a nomination was not made in accordance with
the procedures prescribed by the bylaws. If such officer does so, such officer
shall so declare to the meeting and the defective nomination shall be
disregarded.
27
<PAGE>
APPENDIX A
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 <#>2,000,000</#> <*>8,000,000</*> shares. If any option under the Plan
or stock appreciation right granted without a related option expires or is
canceled 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. 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
A-1
<PAGE>
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.
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
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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.
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.
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
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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 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.
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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.
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.
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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.
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.
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.
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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 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
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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.
16. INFORMATION. Financial statements of the Company will be provided
annually to each optionee under the Plan.
Effective Date: September 2, 1999
Amended: May 9, 2000
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APPENDIX B
MEDICALOGIC, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED AS OF <#>NOVEMBER 18, 1999)</#> <*>MAY 9, 2000)</*>
1. PURPOSE OF THE PLAN. MedicaLogic, Inc. (the "COMPANY") believes that
ownership of shares of its common stock by employees of the Company and its
Participating Subsidiaries (hereinafter defined) is desirable as an incentive to
better performance and improvement of profits, and as a means by which employees
may share in the rewards of growth and success. The purpose of the Company's
1999 Employee Stock Purchase Plan (the "PLAN") is to provide a convenient means
by which employees of the Company and Participating Subsidiaries may purchase
the Company's shares through payroll deductions and a method by which the
Company may assist and encourage such employees to become share owners.
2. SHARES RESERVED FOR THE PLAN. There are <#>1,000,000</#>
<*>2,500,000</*> shares of the Company's authorized but unissued or reacquired
Common Stock reserved for purposes of the Plan. The number of shares reserved
for the Plan is subject to adjustment in the event of any stock dividend, stock
split, combination of shares, recapitalization or other change in the
outstanding Common Stock of the Company. The determination of whether an
adjustment shall be made and the manner of any such adjustment shall be made by
the Board of Directors of the Company, which determination shall be conclusive.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Board
of Directors. The Board of Directors may promulgate rules and regulations for
the operation of the Plan, adopt forms for use in connection with the Plan, and
decide any question of interpretation of the Plan or rights arising thereunder.
The Board of Directors may consult with counsel for the Company on any matter
arising under the Plan. All determinations and decisions of the Board of
Directors shall be conclusive. Notwithstanding the foregoing, the Board of
Directors, if it so desires, may delegate to the Compensation Committee of the
Board the authority for general administration of the Plan.
4. ELIGIBLE EMPLOYEES. Except as indicated below, all full-time employees
of the Company and all full-time employees of each of the Company's subsidiary
corporations which is designated by the Board of Directors of the Company as a
participant in the Plan (such participating subsidiary being hereinafter called
a "PARTICIPATING SUBSIDIARY") are eligible to participate in the Plan. Any
employee who would, after a purchase of shares under the Plan, own or be deemed
(under Section 424(d) of the Internal Revenue Code of 1986, as amended (the
"CODE")) to own stock (including stock subject to any outstanding options held
by the employee) possessing 5 percent or more of the total combined voting power
or value of all classes of stock of the Company or any parent or subsidiary of
the Company, shall be ineligible to participate in the Plan. A "full-time
employee" is one who is in the active service of the Company or a Participating
Subsidiary on the applicable Subscription Deadline (as defined below) excluding,
however, any employee whose customary employment is 20 hours or less per week or
whose customary employment is for not more than five months per calendar year.
5. OFFERINGS.
(a) OFFERINGS AND PURCHASE PERIODS. The Plan shall be implemented by
(1) an initial offering ("INITIAL OFFERING") beginning on the first day that the
Company's Common Stock is publicly traded on the Nasdaq National Market and
ending on February 15, 2002 and (2) a series of one-year offerings ("SUBSEQUENT
OFFERINGS" and, together with the Initial Offering, the "OFFERINGS"), with a new
Subsequent Offering commencing on February 15 of each year beginning with
February 15, 2002 and ending on February 15 of the following year. The first day
of each Offering is the "OFFERING DATE." The Initial Offering shall include four
purchase periods ("PURCHASE PERIODS"), the first of which shall
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commence on the first day of the Initial Offering and end on August 15, 2000 and
the others of which shall be consecutive six-month periods thereafter ending on
February 15, 2001, August 15, 2001 and February 15, 2002. Each Subsequent
Offering shall include two six-month Purchase Periods ending on August 15 and
February 15 of that Offering. The last day of each Purchase Period is a
"PURCHASE DATE" for the applicable Offering.
(b) GRANTS; LIMITATIONS. On each Offering Date, each eligible employee
shall be granted an option under the Plan to purchase shares of Common Stock on
the Purchase Dates for the Offering for the price determined under paragraph 7
of the Plan exclusively through payroll deductions authorized under paragraph 6
of the Plan; provided, however, that (a) no option shall permit the purchase of
more than 10,000 shares, and (b) no option may be granted under the Plan that
would allow an employee's right to purchase shares under all stock purchase
plans of the Company and its parents and subsidiaries to which Section 423 of
the Code applies to accrue at a rate that exceeds $25,000 of fair market value
of shares (determined at the date of grant) for each calendar year in which such
option is outstanding.
6. PARTICIPATION IN THE PLAN.
(a) INITIATING PARTICIPATION. An eligible employee may participate in an
Offering under the Plan by filing with the Company a subscription and payroll
deduction authorization on a form furnished by the Company. The subscription and
payroll deduction authorization must be filed no later than 10 days prior to the
Offering Date (the "SUBSCRIPTION DEADLINE"), except that for the Initial
Offering the Subscription Deadline shall be the earlier of (i) the Offering Date
or (ii) four business days before the first payday occurring on or after the
Offering Date. Once filed, a subscription and payroll deduction authorization
shall remain in effect for subsequent Offerings unless amended or terminated.
The payroll deduction authorization will authorize the employing corporation to
make payroll deductions from each of the participant's paychecks during the
Offering other than a paycheck issued on the Offering Date. The amount to be
deducted shall be designated by the participant in the payroll deduction
authorization and must be a whole percentage of not less than one percent and
not more than 15 percent of the gross amount of base pay plus commissions, if
any, payable to the participant for the period covered by each paycheck. If
payroll deductions are made by a Participating Subsidiary, that corporation will
promptly remit the amount of the deductions to the Company.
(b) AMENDING OR TERMINATING PARTICIPATION. After a participant has begun
participating in the Plan by initiating payroll deductions, the participant may
not amend the payroll deduction authorization except for an amendment effective
for the first paycheck of a calendar quarter, but may terminate participation in
the Plan at any time prior to the tenth day before a Purchase Date by written
notice to the Company. A permitted change in payroll deductions shall be
effective for any pay period only if written notice is received by the Company
at least five banking days prior to the payday for that pay period.
Participation in the Plan shall also terminate when a participant ceases to be
an eligible employee for any reason, including death or retirement. A
participant may not reinstate participation in the Plan with respect to a
particular Offering after once terminating participation in the Plan with
respect to that Offering. Upon termination of a participant's participation in
the Plan, all amounts deducted from the participant's pay and not previously
used to purchase shares under the Plan shall be either returned to the
participant or, if so elected by a participant who continues to be an eligible
employee, retained in the participant's account and applied to purchase shares
on the next Purchase Date under the Plan.
7. OPTION PRICE. The price at which shares shall be purchased on any
Purchase Date in an Offering shall be the lower of (a) 85% of the fair market
value of a share of Common Stock on the Offering Date of the Offering or
(b) 85% of the fair market value of a share of Common Stock on the Purchase
Date. The fair market value of a share of Common Stock on any date shall be the
closing price on the immediately preceding trading day as reported by the Nasdaq
National Market or, if the
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Common Stock is not reported on the Nasdaq National Market, such other reported
value of the Common Stock as shall be specified by the Board of Directors. On
the Offering Date for the Initial Offering, the closing price on the immediately
preceding trading day shall be deemed to be the public offering price set forth
in the final prospectus filed with the Securities and Exchange Commission in
connection with the initial public offering of the Common Stock.
8. SPECIAL RULES FOR NEW EMPLOYEES. Each Purchase Date in an Offering
other than the last Purchase Date of the Offering shall also be an "INTERIM
OFFERING DATE" and the date 10 days prior to an Interim Offering Date shall be a
"SUBSCRIPTION DEADLINE" applicable to that Interim Offering Date. If a person
becomes a full-time employee after the Subscription Deadline for an Offering
under the Plan and before the Subscription Deadline applicable to any Interim
Offering Date, the new employee will be granted an option on that Interim
Offering Date (but not on any subsequent Interim Offering Date) having the same
terms and conditions as the options granted on the Offering Date, except that
for purposes of determining under paragraph 7 the price at which shares shall be
purchased in an Offering by a new employee, "the fair market value of a share of
Common Stock on the Offering Date" shall be deemed to be the higher of the fair
market value of a share of Common Stock on the Interim Offering Date or the fair
market value of a share of Common Stock on the initial Offering Date for such
Offering. To participate in the current Offering, a new employee must submit a
subscription and payroll deduction authorization as provided for in
paragraph 6(a) no later than the Subscription Deadline applicable to the Interim
Offering Date.
9. PURCHASE OF SHARES. All amounts withheld from the pay of a participant
shall be credited to his or her account under the Plan by the Custodian
appointed under paragraph 10. No interest will be paid on such accounts, unless
otherwise determined by the Board of Directors. On each Purchase Date, the
amount of the account of each participant will be applied to the purchase of
whole shares by such participant from the Company at the price determined under
paragraph 7. Any cash balance remaining in a participant's account after a
Purchase Date because it was less than the amount required to purchase a full
share shall be retained in the participant's account for the next Purchase
Period. Any other amounts in a participant's account after a Purchase Date will
be repaid to the participant.
10. DELIVERY AND CUSTODY OF SHARES. Shares purchased by participants
pursuant to the Plan will be delivered to and held in the custody of such
investment or financial firm (the "CUSTODIAN") as shall be appointed by the
Board of Directors. The Custodian may hold in nominee or street name
certificates for shares purchased pursuant to the Plan, and may commingle shares
in its custody pursuant to the Plan in a single account without identification
as to individual participants. By appropriate instructions to the Custodian on
forms to be provided for that purpose, a participant may from time to time sell
all or part of the shares held by the Custodian for the participant's account at
the market price at the time the order is executed. By appropriate instructions
to the Custodian on forms to be provided for that purpose, a participant may
obtain (a) transfer into the participant's own name of all or part of the shares
held by the Custodian for the participant's account and delivery of such shares
to the participant, or (b) transfer of all or part of the shares held for the
participant's account by the Custodian to a regular individual brokerage account
in the participant's own name, either with the firm then acting as Custodian or
with another firm; provided, however, that no shares may be transferred under
(a) or (b) until two years after the Offering Date of the Offering (or Interim
Offering Date, if applicable) in which the shares were purchased and one year
after the Purchase Date on which the shares were purchased.
11. RECORDS AND STATEMENTS. The Custodian will maintain the records of the
Plan. As soon as practicable after each Purchase Date each participant will
receive a statement showing the activity of his account since the preceding
Purchase Date and the balance on the Purchase Date as to both cash and shares.
Participants will be furnished such other reports and statements, and at such
intervals, as the Board of Directors shall determine from time to time.
B-3
<PAGE>
12. EXPENSE OF THE PLAN. The Company will pay all expenses incident to
operation of the Plan, including costs of record keeping, accounting fees, legal
fees, commissions and issue or transfer taxes on purchases pursuant to the Plan
and on delivery of shares to a participant or into his or her brokerage account.
The Company will not pay expenses, commissions or taxes incurred in connection
with sales of shares by the Custodian at the request of a participant. Expenses
to be paid by a participant will be deducted from the proceeds of sale prior to
remittance.
13. RIGHTS NOT TRANSFERABLE. The right to purchase shares under this Plan
is not transferable by a participant, and such right is exercisable during the
participant's lifetime only by the participant. Upon the death of a participant,
any cash withheld and not previously applied to purchase shares, together with
any shares held by the Custodian for the participant's account shall be
transferred to the persons entitled thereto under the laws of the state of
domicile of the participant upon a proper showing of authority.
14. DIVIDENDS AND OTHER DISTRIBUTIONS. Cash dividends and other cash
distributions, if any, on shares held by the Custodian will be paid currently to
the participants entitled thereto unless the Company subsequently adopts a
dividend reinvestment plan and the participant directs that his or her cash
dividends be invested in accordance with such plan. Stock dividends and other
distributions in shares of Common Stock of the Company on shares held by the
Custodian shall be issued to the Custodian and held by it for the account of the
respective participants entitled thereto.
15. VOTING AND SHAREHOLDER COMMUNICATIONS. In connection with voting on
any matter submitted to the shareholders of the Company, the Custodian will
furnish to each participant a proxy authorizing the participant to vote the
shares held by the Custodian for his account. Copies of all general
communications to shareholders of the Company will be sent to participants in
the Plan.
16. TAX WITHHOLDING. Each participant who has purchased shares under the
Plan shall immediately upon notification of the amount due, if any, pay to the
Company in cash amounts necessary to satisfy any applicable federal, state and
local tax withholding determined by the Company to be required. If the Company
determines that additional withholding is required beyond any amount deposited
at the time of purchase, the participant shall pay such amount to the Company on
demand. If the participant fails to pay the amount demanded, the Company may
withhold that amount from other amounts payable by the Company to the
participant, including salary, subject to applicable law.
17. RESPONSIBILITY AND INDEMNITY. Neither the Company, its Board of
Directors, the Custodian, any Participating Subsidiary, nor any member, officer,
agent, or employee of any of them, shall be liable to any participant under the
Plan for any mistake of judgment or for any omission or wrongful act unless
resulting from gross negligence, willful misconduct or intentional misfeasance.
The Company will indemnify and save harmless its Board of Directors, the
Custodian and any such member, officer, agent or employee against any claim,
loss, liability or expense arising out of the Plan, except such as may result
from the gross negligence, willful misconduct or intentional misfeasance of such
entity or person.
18. CONDITIONS AND APPROVALS. The obligations of the Company under the
Plan shall be subject to compliance with all applicable state and federal laws
and regulations, compliance with the rules of any stock exchange on which the
Company's securities may be listed, and approval of such federal and state
authorities or agencies as may have jurisdiction over the Plan or the Company.
The Company will use its best effort to comply with such laws, regulations and
rules and to obtain such approvals.
19. AMENDMENT OF THE PLAN. The Board of Directors of the Company may from
time to time amend the Plan in any and all respects, except that without the
approval of the shareholders of the Company, the Board of Directors may not
increase the number of shares reserved for the Plan (except for adjustments
authorized in paragraph 2, above) or decrease the purchase price of shares
offered pursuant to the Plan.
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<PAGE>
20. TERMINATION OF THE PLAN. The Plan shall terminate when all of the
shares reserved for purposes of the Plan have been purchased, provided that the
Board of Directors in its sole discretion may at any time terminate the Plan
without any obligation on account of such termination, except as hereinafter in
this paragraph provided. Upon termination of the Plan, the cash and shares, if
any, held in the account of each participant shall forthwith be distributed to
the participant or to the participant's order, provided that if prior to the
termination of the Plan, the Board of Directors and shareholders of the Company
shall have adopted and approved a substantially similar plan, the Board of
Directors may in its discretion determine that the account of each participant
under this Plan shall be carried forward and continued as the account of such
participant under such other plan, subject to the right of any participant to
request distribution of the cash and shares, if any, held for his account.
B-5
<PAGE>
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MEDICALOGIC, INC.
PROXY
ANNUAL MEETING, MAY 9, 2000
PROXY SOLICITED BY BOARD OF DIRECTORS
PLEASE SIGN AND RETURN THIS PROXY
The undersigned hereby appoints Mark K. Leavitt, David C. Moffenbeier
and Frank J. Spina, and each of them, proxies with power of substitution to
vote, on behalf of the undersigned, all shares that the undersigned may be
entitled to vote at the annual meeting of shareholders of MedicaLogic, Inc.
(the "Company") to be held on May 9, 2000 and at any adjournments thereof,
with all powers that the undersigned would possess if personally present,
with respect to the following:
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^ FOLD AND DETACH HERE ^
<PAGE>
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Please mark /X/
your votes as
indicated in
this example
FOR AGAINST ABSTAIN
1. Amendment of the Company's 1999 / / / / / /
Stock Incentive Plan to increase the
total number of shares of Company common
stock reserved for issuance under
such plan from 2,000,000 to 8,000,000 shares.
FOR AGAINST ABSTAIN
2. Amendment of the Company's Employee / / / / / /
Stock Purchase Plan to increase the
total number of shares of Company
common stock reserved for issuance under
such plan from 1,000,000 to 2,500,000 shares.
FOR ALL NOMINEES WITHHOLD AUTHORITY
(except as marked to (to vote for all nominees
the contrary below) listed below)
3. Election of Directors / / / /
(Instructions: To withhold authority to vote for any individual, strike a
line through the nominee's name below.)
CLASS I CLASS II CLASS III
Bruce M. Fried Esther Dyson* Fredric G. Reynolds*
C. Martin Harris* Richard D. Rehm*
Mark K. Leavitt
Paul T. Sheils*
* The election of these nominees is subject to certain conditions described
in the Proxy Statement.
4. Transaction of any business that properly comes before the meeting or
any adjournments thereof. A majority of the proxies or substitutes at the
meeting may exercise all the powers granted hereby.
Please Note: Any shares of stock of the Company held in the name of
fiduciaries, custodians or brokerage houses for the benefit of their clients
may only be voted by the fiduciary, custodian or brokerage house itself-- the
beneficial owner may not directly vote or appoint a proxy to vote the shares
and must instruct the person or entity in whose name the shares are held how
to vote the shares held for the beneficial owner. Therefore, if any shares
of stock of the Company are held in "street name" by a brokerage house, only
the brokerage house, at the instruction of its client, may vote or appoint a
proxy to vote the shares.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
REVERSE HEREOF, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR
EACH OF THE PROPOSALS. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO OTHER
MATTERS THAT MAY COME BEFORE THIS MEETING.
THE ANNUAL MEETING OF SHAREHOLDERS OF MEDICALOGIC, INC. WILL BE HELD ON
MAY 9, 2000 AT 10:00 A.M. AT THE HOTEL VINTAGE PLAZA, 422 SW BROADWAY, PORTLAND,
OREGON 97205.
Signature(s)
-------------------------------------------
Signature if held jointly
------------------------------
Dated , 2000
------------------
Please date and sign as name is imprinted hereon, including designation as
executor, trustee, etc., if applicable. A corporation must sign its name by
the president or other authorized officer.
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^ FOLD AND DETACH HERE ^
