<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1996
REGISTRATION NO. 333-12311
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MEDIRISK, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7389 58-2256400
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
TWO PIEDMONT CENTER, SUITE 400
3565 PIEDMONT ROAD, N.E.
ATLANTA, GEORGIA 30305-1502
(404) 364-6700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
KENNETH M. GOINS, JR.
MEDIRISK, INC.
TWO PIEDMONT CENTER, SUITE 400
3565 PIEDMONT ROAD, N.E.
ATLANTA, GEORGIA 30305-1502
(404) 364-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
DOUGLAS B. CHAPPELL, ESQ. FREDERICK W. KANNER, ESQ.
ALSTON & BIRD DEWEY BALLANTINE
ONE ATLANTIC CENTER 1301 AVENUE OF THE AMERICAS
1201 WEST PEACHTREE STREET NEW YORK, NEW YORK 10019-6092
ATLANTA, GEORGIA 30309-3424 (212) 259-8000
(404) 881-7000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable on or after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
- ---------------
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1996
2,500,000 SHARES
(LOGO) MEDIRISK
COMMON STOCK
All of the shares of Common Stock of Medirisk, Inc. (the "Company" or
"Medirisk") offered hereby (the "Offering") are being sold by the Company. Prior
to the Offering, there has been no public market for the Common Stock of the
Company (the "Common Stock"). It is currently anticipated that the initial
public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial offering price. The Common Stock has been approved for quotation on
the Nasdaq Stock Market's National Market under the symbol "MDMD."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
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Total(3).......................... $ $ $
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</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the Offering, payable by the Company, estimated
at $ .
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to an additional 375,000 shares of Common Stock on the same
terms and conditions as set forth above, solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
---------------------
The Common Stock is offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by them and
subject to approval of certain legal matters by counsel for the Underwriters.
The Underwriters reserve the right to reject orders in whole or in part and to
withdraw, to cancel or to modify the offer without notice. It is expected that
delivery of certificates representing the Common Stock will be made on or about
January , 1997.
EQUITABLE SECURITIES CORPORATION JEFFERIES & COMPANY, INC.
The date of this Prospectus is January , 1997.
<PAGE> 3
[SAMPLE COMPUTER SCREEN [SAMPLE COMPUTER SCREEN
FOR CAPITATION RATES] FOR CANDIDATE SEARCH]
[SAMPLE PHYSICIAN DATA]
[SAMPLE COMPUTER SCREEN FOR PROCEDURES] [CHART OF HMO FACILITIES OUTCOMES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
Medirisk is a leading provider of proprietary databases and related
decision-support software and analytical services to the health care industry.
The Company's products and services enable payers and providers to make
objective comparisons of the financial costs and clinical outcomes of
physician-mediated services to customer-specific and industry benchmarks and to
access information concerning specific physicians. Such capabilities assist
payers and providers in pricing managed care contracts, evaluating physician fee
schedules and utilization of physician-mediated services, comparing provider
outcomes and performance, and recruiting physicians. Medirisk actively sells its
products to over 750 major customers, including leading health plans, insurers,
hospitals and larger physician groups, as well as to more than 700 smaller
customers, including single-specialty physician groups. The Company believes it
is the leading provider of clinical and financial databases comprised of
physician-oriented content.
Medirisk's health care information products and services consist of
financial products, clinical performance products and physician database
products.
Financial Products. Medirisk's financial products provide customers
with comprehensive proprietary information regarding physician fees and
health care utilization patterns. The Company's financial products enable
payers and providers to analyze health care cost and utilization data and
compare, by procedure and geographic location, pricing and utilization
trends.
Clinical Performance Products. Medirisk's clinical performance
products allow customers to measure outcomes across a full range of care
within a variety of medical specialties. The Company's clinical performance
products enable both payers and providers to measure clinical outcomes and
apply that information to attract and retain managed care arrangements and
to improve quality of clinical care.
Physician Database Products. Medirisk offers a database comprised of
detailed information concerning physicians who are candidates for new
practice affiliations. The Company licenses its physician database products
to assist customers in cost-effective in-house physician recruiting.
Medirisk built its core databases by collecting, standardizing and
normalizing more than three billion health care transaction records. Medirisk's
databases include records submitted by the Company's customers under its ongoing
data collection plan and the results of regular proprietary surveys of managed
care plans and other payers. The Company believes that the long-standing
relationships under which it collects these data and the data interpretation
methodologies used by the Company represent significant competitive advantages.
Medirisk's objective is to enhance its position as a leading provider of
proprietary databases and related decision-support software and analytical
services to payers, providers and other health care industry participants. To
attain this objective, Medirisk seeks to: (i) leverage the Company's existing
customer base to cross sell additional products; (ii) emphasize recurring
revenue; (iii) develop new products; and (iv) acquire and integrate
complementary products and businesses. To capitalize on the fragmentation of the
industry and to support its acquisition strategy, Medirisk has corporate
resources dedicated to identifying, analyzing and pursuing appropriate
acquisition candidates. The Company is currently tracking a database of more
than 300 companies, of which more than 100 currently meet Medirisk's primary
acquisition criteria for product type, revenue and customer base.
3
<PAGE> 5
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information presented or referenced herein, the
discussion of risk factors on pages 6 to 11 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. The risks
associated with an investment in the Company include the following factors:
History of Operating Losses and Uncertain Profitability; Risks Related to
Growth; Risks of Integration of Acquired Operations; Dependence on Data Sources
and AMA Licenses; Dependence on Intellectual Property Rights; Uncertainty and
Consolidation in the Health Care Industry; Risks of Rapid Technological Change;
Intense Competition; Risks of Customer Concentration; Potential for System
Defects; Concentration of Ownership; Dependence on Key Personnel; Variable
Quarterly Operating Results and Seasonality; No Prior Public Market and Possible
Volatility of Stock Price; Potential Adverse Effects of Substantial Number of
Shares Eligible for Future Sale; Adverse Impact of Anti-takeover Provisions;
Substantial Dilution; No Dividends; and Risks Associated with Unspecified Use of
Proceeds. See "Risk Factors."
THE OFFERING
Common Stock being offered.............. 2,500,000 shares(1)
Common Stock to be outstanding after the
Offering................................ 4,222,008 shares(1)(2)
Use of proceeds......................... To repay indebtedness, to pay
accrued dividends on the Company's
Series A and Series B Convertible
Preferred Stock, and for working
capital and general corporate
purposes, including potential
acquisitions and development of
additional products. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol.................................. "MDMD"
- ---------------
(1) Does not include 375,000 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of December 20,
1996. Includes 1,021,809 shares of Common Stock issuable upon the automatic
conversion upon completion of the Offering of the Company's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock
(collectively, the "Convertible Preferred Stock"). Excludes 821,702 shares
of Common Stock issuable upon the exercise of options and warrants
outstanding as of December 20, 1996 with a weighted average exercise price
of $0.58 per share. See "Capitalization," "Management -- Executive
Compensation," "Description of Capital Stock" and Notes 5 and 8 of Notes to
Consolidated Financial Statements of the Company.
---------------------
Unless otherwise indicated, information in this Prospectus(i) assumes no
exercise of the Underwriters' option to purchase from the Company up to 375,000
additional shares of Common Stock to cover over-allotments, if any,(ii) gives
effect to the automatic conversion upon completion of the Offering of the
Convertible Preferred Stock into 1,021,809 shares of Common Stock, and(iii)
reflects a 0.6496-for-one reverse stock split with respect to the Common Stock
to be effected prior to the completion of the Offering. See "Description of
Capital Stock," "Underwriting" and Notes 8 and 11 of Notes to Consolidated
Financial Statements of the Company.
This Prospectus contains references to a number of registered and
unregistered trademarks and service marks, including marks owned by Medirisk.
Windows(R) and Excel(R) are registered trademarks of Microsoft Corporation;
Lotus 1-2-3(R) is a registered trademark of Lotus Development Corporation;
FoxPro(R) is a registered trademark of Fox Holdings, Inc.; Quattro(R) is a
registered trademark of Quattro Corporation; Dbase(R) is a registered trademark
of Ashton-Tate; and Nasdaq National Market(R) is a registered trademark of The
Nasdaq Stock Market, Inc.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------- ---------------------------
1993 1994 1995 1995 1996
------ ------ ----------------- ------ ------------------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(1)
------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................. $2,447 $2,894 $3,655 $9,184 $2,450 $ 6,254 $ 7,058
Salaries, wages and benefits........ 1,675 1,893 2,578 4,943 1,886 4,388 4,796
Other operating expenses............ 507 731 956 3,165 700 1,585 1,859
Depreciation and amortization....... 75 143 193 712 143 529 614
Acquired in-process research and
development costs(2).............. -- -- -- -- -- 6,180 --
------ ------ ------ -------- ------ ------- --------
Operating income (loss)............. 190 127 (72) 364 (279) (6,428) (211)
Interest income (expense), net...... (41) (54) (66) (898) (44) (482) (649)
Other income (expense).............. 18 -- -- -- -- (40) (40)
------ ------ ------ -------- ------ ------- --------
Net income (loss)................... $ 167 $ 73 (138) (534) (323) (6,950) (900)
====== ======
Accretion of Series A Convertible
Preferred Stock................... (92) (92) (69) -- --
Series A Convertible Preferred Stock
dividend requirement.............. (202) (202) (151) (151) (151)
------ -------- ------ ------- --------
Net loss applicable to common
stock............................. $ (432) $ (828) $ (543) $(7,101) $(1,051)
====== ======= ====== ======= =======
Unaudited pro forma loss per common
share(3).......................... $(0.20) $(0.37) $ (3.24) $ (0.48)
====== ======= ======= =======
Unaudited pro forma weighted average
number of common shares used in
calculating unaudited net loss per
share of Common Stock(3).......... 2,212 2,212 2,191 2,191
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------
AS
ACTUAL ADJUSTED(4)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................ $(2,200) $17,384
Total assets............................................................. 7,868 25,529
Long-term debt and capital lease obligations, excluding current
installments........................................................... 7,198 298
Stockholders' equity (deficit)........................................... (4,745) 21,791
</TABLE>
- ---------------
(1) Gives effect to the Company's acquisition of Formations in Health Care, Inc.
("Formations"), which occurred on January 9, 1996, and PracticeMatch, Inc.
("PracticeMatch"), which occurred on March 14, 1996, as if each transaction
had occurred on January 1, 1995. As a result of these acquisitions, the
Company's historical statements of operations are not representative of
financial results to be expected for future periods. See "The Company" and
"Unaudited Pro Forma Financial Data."
(2) In connection with the acquisition of Formations and PracticeMatch, the
Company recorded a nonrecurring charge related to acquired in-process
research and developments costs. Exclusive of this charge, operating loss,
net loss and loss per share for the nine months ended September 30, 1996
would have been $(248,000), $(770,000), and $(0.42) respectively. See "The
Company," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 2 of Notes to Consolidated Financial
Statements of the Company.
(3) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements of the Company. Historical losses per share are not presented as
they are not meaningful due to the mandatory conversion of all outstanding
shares of the Series A and Series B Convertible Preferred Stock into Common
Stock upon completion of the Offering.
(4) Gives effect to the sale of the shares of Common Stock offered hereby at an
assumed public offering price of $12.00 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
An investment in the Common Stock involves a high degree of risk. In
addition to the other information in this Prospectus, prospective investors
should carefully consider the following risk factors relating to the Company and
the Common Stock before making an investment.
HISTORY OF OPERATING LOSSES; UNCERTAIN PROFITABILITY. The Company incurred
net losses in the year ended December 31, 1995 and in the nine months ended
September 30, 1996 and had an accumulated deficit at September 30, 1996 of $9.5
million. In view of the Company's prior operating history, there can be no
assurance that the Company will be able to achieve profitability on a quarterly
or annual basis or that it will be able to sustain or increase its revenue
growth in future periods. Furthermore, in applying the provisions of Statement
of Financial Accounting Standards No. 109 ("SFAS 109") to the Company,
particularly considering the Company's history of net losses, the Company was
unable to support a conclusion that it is more likely than not that its deferred
tax assets will be realized for purposes of SFAS 109; as a result, the Company
has provided a full valuation allowance against its net deferred tax assets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 7 of Notes to Consolidated Financial Statements of the
Company."
RISKS RELATED TO GROWTH. The Company's strategy is to grow aggressively,
both internally and through acquisitions. This strategy is likely to place
significant demands on the Company's financial, operational and management
resources and to expose the Company to a variety of risks, including the risk
that the Company will be unable to retain the personnel or obtain the financial
and other resources necessary to pursue and manage such growth. The Company's
growth has resulted in an increase in the level of responsibility for the
Company's key personnel, several of whom were hired recently. Expenses arising
from the Company's efforts to complete acquisitions, develop new products or
increase its existing market penetration could have an adverse impact on the
Company's results of operations and financial condition. Furthermore, there can
be no assurance that the Company will be able to identify, acquire or integrate
acquisition candidates successfully or to manage profitably any additional
products and services resulting from such acquisitions. Acquired businesses,
products or services may not contribute to the Company's overall strategy or
produce returns that justify the related investment or implementation by the
Company. In addition, the Company's growth may involve the acquisition of
companies or the development of products or services in areas in which the
Company does not currently operate. Such acquisition or development may require
the Company's management to develop expertise in new areas and to attract a new
customer base and could adversely affect the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will be able to implement its growth strategy successfully or, if successful in
consummating acquisitions, to manage its expanded operations effectively and
profitably. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Business Strategy" and "Management."
Implementation of the Company's growth strategy will require significant
capital resources. Capital is needed for both internal growth and the
acquisition and integration of new businesses, products and services. If the
Company does not have sufficient cash resources or if the Common Stock is not
attractive to target businesses, the Company's growth could be limited, and its
existing operations impaired, unless it is able to obtain additional capital
through subsequent debt or equity financings. Any debt financings could result
in the imposition on the Company of operational or financial restrictions, and
any equity financings could result in dilution to holders of Common Stock. The
Company has entered into a commitment letter with NationsBank N.A. (South)
("NationsBank") contemplating the establishment of a $10 million revolving
credit facility (the "NationsBank Revolver"). This commitment is subject to
certain conditions including the completion of the Offering, and there can be no
assurance that such conditions will be met or that the Company will be able to
obtain financing in the future or that, if available, such financing will be on
terms acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
RISKS OF INTEGRATION OF ACQUIRED OPERATIONS. In the first quarter of 1996,
the Company completed the acquisition of Formations in Health Care, Inc., which
develops and markets outcomes measurement databases and software applications,
and PracticeMatch, Inc., which develops and markets a database of physician
6
<PAGE> 8
information. The process of integrating management services, administrative
organizations, facilities, management information systems and other operational
aspects of acquired businesses, product lines or services can be time consuming
and costly and may distract management from day-to-day operations. The
difficulties of integration may be increased by challenges in coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. If Medirisk is
to realize the anticipated benefits of past and future acquisitions, the
operations of the acquired entities must be combined and integrated successfully
and efficiently. There can be no assurance that the Company's integration
processes will be successful or that the anticipated benefits of any past or
future acquisitions will be realized. In addition, acquisitions by the Company
have resulted, and may in the future result, in the creation of substantial
goodwill or other intangible assets. There can be no assurance that such assets
will prove to be beneficial or that the amortization schedules associated with
such assets will continue to be appropriate. Any future write-off, or
acceleration of the amortization, of such assets could have a material adverse
effect on the Company's business, results of operations and financial condition.
Furthermore, there can be no assurance that there will not be substantial
unanticipated costs or other material adverse effects associated with past or
future acquisitions and integration activities conducted by the Company. See
"The Company," "Unaudited Pro Forma Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON DATA SOURCES AND AMA LICENSES. The Company incorporates the
Physicians' Current Procedural Terminology ("CPT") codes of the American Medical
Association (the "AMA") into its financial products under a nonexclusive
five-year license with the AMA that expires in 2000. The CPT code system is
considered to be the current industry standard for identifying physician
procedures, and the loss of the AMA CPT code license would have a material
adverse effect on the business, results of operations and financial condition of
Medirisk. In addition, the Company relies in large part on data from outside
payer and provider sources to generate its proprietary databases, including data
received from customers under the Company's data contribution program and other
acquired data (including physician information). There can be no assurance that
the Company's sources will continue to provide data in the future. The Company
supplements its physician database with information from the AMA under a
separate exclusive three-year license agreement with the AMA that expires in
December 1998. Pursuant to this license, the Company obtains information
concerning practicing physicians who may be seeking positions, which information
would be difficult and expensive to obtain from alternative sources. In the
event that any of the Company's sources of data becomes unavailable, the Company
could be forced to purchase data from other sources, which could result in
increased costs. Moreover, there can be no assurance that alternative sources of
data would be available or that the Company could purchase such data in a
cost-efficient manner.
On August 21, 1996, Congress passed the Health Insurance Portability and
Accountability Act of 1996. This legislation requires the Secretary of Health
and Human Services to adopt national standards for health information
transactions and the data elements used in such transactions. In addition, the
Secretary is required to adopt safeguards to ensure the integrity and
confidentiality of health information. Violation of the standards is punishable
by fines and, in the case of wrongful disclosure of individually identifiable
health information, imprisonment. The Secretary is required to issue standards
not later than February 21, 1998. A number of states are also considering the
adoption of rules to protect the privacy of patient records. These requirements,
if adopted, may substantially affect the means used by the Company to collect
data. Such requirements, if adopted, could have an adverse effect on the
availability of data to the Company or on the Company's use of data.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS. The Company has made
significant investments in the development and maintenance of its core
collection of proprietary data, its data standardization methodologies, its
clinical measurement tools and the technical resources that are used to
transform its many large and disparate data streams into marketable information
products. The Company does not own any patents or federally-registered
copyrights relating to its databases or software applications. The Company
relies largely on copyright law, its license agreements with customers and its
own security systems, confidentiality procedures and employee nondisclosure
agreements to maintain the confidentiality and trade secrecy of its proprietary
procedures and resources. Policing unauthorized use of the Company's products is
difficult, and piracy is a
7
<PAGE> 9
potential problem. The Company is aware that from time to time there have been
limited breaches of the confidentiality provisions of customers' agreements with
the Company, and there can be no assurance that the precautions taken by the
Company will be adequate to prevent further breaches or misappropriation of the
Company's proprietary information. In addition, these precautions cannot prevent
the independent development or implementation of functionally equivalent or
superior systems, products or methodologies. Misappropriation of the Company's
information or independent development of similar products may have a material
adverse effect on the Company's competitive position. The Company believes that
its products do not infringe upon the proprietary rights of third parties;
however, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that a license or
similar agreement will be available on reasonable terms in the event of an
unfavorable ruling on any such claim.
UNCERTAINTY AND CONSOLIDATION IN THE HEALTH CARE INDUSTRY. The health care
industry is subject to changing political, economic and regulatory influences
that may affect the procurement practices and operation of health care providers
and payers. The Company's products and services are designed to function within
the current structure of the U.S. health care financing and reimbursement
system; therefore, the commercial value of the Company's products could be
adversely affected if there were material changes in the current U.S. health
care financing and reimbursement system. Many federal and state legislators have
announced that they intend to propose programs to reform the U.S. health care
system at both the federal and state levels. These programs may contain
proposals to increase governmental involvement in health care, lower
reimbursement rates and otherwise change health care delivery and payment
systems. Participants in the health care market may react to these proposals and
the uncertainty surrounding such proposals by curtailing or deferring
investments, including investments in the Company's products and services. In
addition, in response to this changing environment, many market participants
(particularly providers and managed care plans) are consolidating to create
larger health care delivery organizations. This consolidation reduces the number
of potential customers for the Company's products and services and may increase
the bargaining power of these organizations, which could lead to reduced prices
for Medirisk's products. The impact of these developments in the health care
industry is difficult to predict and could have a material adverse effect on the
Company's business, operating results and financial condition.
RISKS OF RAPID TECHNOLOGICAL CHANGE. The health care information market is
characterized by rapid technological change, changing customer needs and
evolving industry standards. The Company believes that as the market for its
current products matures, its future success will depend on its ability to
enhance its current products and to develop, acquire and introduce new products
to keep pace with technological developments and emerging industry standards. In
addition, the introduction of competing products embodying new technologies and
the emergence of new industry standards could render the Company's existing
products obsolete or unmarketable. Accordingly, the Company anticipates that
significant amounts of future revenue may be derived from products and product
enhancements that do not exist today or have not been sold in large enough
quantities to measure accurately market acceptance. There can be no assurance
that the Company will not experience difficulties that could delay or prevent
the successful development and introduction of product enhancements or new
products, or that such enhancements or new products will adequately meet the
requirements of the marketplace or achieve market acceptance. If the Company is
unable to develop and introduce product enhancements and new products in a
timely and cost-efficient manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition will likely be adversely affected.
INTENSE COMPETITION. The health care information market is intensely
competitive and rapidly changing. The Company believes that the principal
competitive factors in its target markets include the breadth and quality of
database and applications offerings, access to proprietary data, the proprietary
nature of methodologies and technical resources, price and the effectiveness of
marketing and sales efforts. Competitors vary in size and in scope and breadth
of product and service offerings, and the Company competes with various
competitors in each of its target markets. In addition, other major information
companies not presently offering health care information services competitive
with the Company's products and services may in the future enter the markets in
which the Company competes. Many of the Company's competitors have, and many of
its potential competitors may have, significantly greater financial, technical,
product development and
8
<PAGE> 10
marketing resources than the Company. The Company also competes with the
internal information resources and systems of certain of its prospective and
existing customers. There can be no assurance that competitive pressures will
not have a material adverse effect on the Company. See
"Business -- Competition."
RISKS OF CUSTOMER CONCENTRATION. The Company derives a substantial portion
of its revenue from rehabilitation clinical performance products provided to
HEALTHSOUTH Corporation ("HEALTHSOUTH") under a year-to-year contract, the
current term of which expires in May 1997. Contracts with HEALTHSOUTH accounted
for approximately 9% and 13% of the Company's revenues for fiscal 1995 and the
nine months ended September 30, 1996, respectively, in each case on a pro forma
basis giving effect to the acquisition of Formations and PracticeMatch as if
such transactions had occurred on January 1, 1995. The loss of, or a significant
decrease in, business from HEALTHSOUTH could have a material adverse effect on
the Company's business, results of operations and financial condition.
POTENTIAL FOR SYSTEM DEFECTS. The information products offered by the
Company may contain undetected errors or failures. Errors or failures that are
not detected until after the commencement of commercial shipments of a product
could result in a loss of, or delay in, market acceptance of the product and in
claims against the Company. The Company also depends on the accuracy of the data
received from its data sources. If a statistically significant number of medical
records, transactions or physician profiles were found to have been altered or
incorrectly entered, or otherwise contain flawed data, there could be a loss of,
or delay in, market acceptance of the product and possible claims against the
Company.
CONCENTRATION OF OWNERSHIP. Upon the completion of the Offering, the
Company's executive officers and directors, together with their respective
affiliates, will own approximately 21.9% of the outstanding Common Stock (20.1%
if the Underwriters' over-allotment option is exercised in full). See
"Management" and "Principal Stockholders." Such persons acting together could
have significant influence on the outcome of any matter requiring approval by
the stockholders of the Company, including the election of directors, mergers
and other extraordinary corporate events.
DEPENDENCE ON KEY PERSONNEL. The Company depends on the services of Mark
A. Kaiser, its Chairman of the Board, Chief Executive Officer and President, and
on certain other officers and key personnel. The Company's growth and success
will depend in large part on its ability to attract, motivate and retain
qualified management, technical, sales and marketing personnel. Competition for
such personnel is intense. The loss of the services of one or more of the
Company's key personnel or the inability to attract and retain qualified
personnel could have a material adverse effect on the Company. See "Use of
Proceeds" and "Management -- Employment Agreements."
VARIABLE QUARTERLY OPERATING RESULTS; SEASONALITY. The Company's quarterly
revenue and operating results have varied significantly in the past and are
likely to vary substantially from quarter to quarter in the future. Quarterly
results may fluctuate as a result of a variety of factors including: the
Company's sales cycle; demand for the Company's products; the timing of
significant new customer contracts; the nonrenewal of significant customer
contracts; the timing of acquisitions; competitive conditions in the industry;
changes in customer budgets; and general economic factors. Furthermore, the
Company has experienced a seasonal pattern in its operating results, with a
greater proportion of the Company's revenue and operating profitability
occurring in the second half of the year. Accordingly, results of operations for
any particular quarter may not be indicative of results of operations for future
periods. Additionally, a significant portion of the Company's expenses are
relatively fixed, and the amount and timing of increases in such expenses are
based in large part on the Company's expectations concerning future revenue. If
revenue is below expectations in any given quarter, the adverse effect may be
magnified by the Company's inability to adjust spending quickly enough to
compensate for the revenue shortfall. Accordingly, even a small variation from
expected revenue could have a material adverse effect on the Company's results
of operations for a given quarter. Fluctuations in the Company's revenue and
operating results could have a material adverse effect on the market price for
the Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Common Stock. Although the
Common Stock has been approved for quotation on the
9
<PAGE> 11
Nasdaq Stock Market's National Market, there can be no assurance that an active
trading market will develop or be sustained after the Offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock has been
determined by negotiations between the Company and the Representatives of the
Underwriters and may not be indicative of the market price of the Common Stock
after the Offering. For a description of the factors considered in determining
the initial public offering price, see "Underwriting." The future market price
of the Common Stock is likely to depend upon a variety of events, including
quarter-to-quarter variations in operating results, news announcements, trading
volume, general market trends and other factors. Additionally, in recent years
the stock market has experienced substantial price and volume volatility, and
market prices for the stock of many companies (particularly of small and
emerging growth companies) have experienced wide fluctuations, which have not
necessarily been related to their operating performance. These broad market
fluctuations could have a material adverse effect on the market price of the
Common Stock.
POTENTIAL ADVERSE EFFECTS OF SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR
FUTURE SALE. Sales of substantial amounts of Common Stock in the public market
following the Offering could adversely affect prevailing market prices for the
Common Stock. Upon completion of the Offering, there will be 4,222,008 shares of
Common Stock outstanding (based on the number of shares of Common Stock
outstanding as of December 20, 1996). The 2,500,000 shares (or 2,875,000 shares,
if the Underwriters' over-allotment option is exercised in full) offered hereby
will be freely tradable by persons that are not affiliates of Medirisk without
restriction under the Securities Act of 1933, as amended (the "Securities Act").
The remaining 1,722,008 shares of Common Stock are deemed "restricted
securities" pursuant to Rule 144 under the Securities Act and may be sold only
pursuant to an effective registration statement or an exemption to the
registration requirements of the Securities Act, including the exemption made
available by Rule 144. Of these restricted securities, approximately 701,515
shares (of which 685,794 are subject to the lock-up agreements described below)
will be eligible for sale in the public market pursuant to Rule 144 beginning 90
days after the Offering, subject to the manner of sale, volume and other
restrictions of Rule 144, and 291,487 shares (all of which are subject to the
lock-up agreements described below) will be eligible for sale in the public
market immediately after the Offering pursuant to Rule 144(k) and without the
restrictions of Rule 144. Additional shares of Common Stock, including shares
issuable upon exercise of options, will become eligible for sale in the public
market pursuant to Rule 144 from time to time. In addition, certain holders of
"restricted securities" have registration rights obligating the Company to
register their shares under certain circumstances. The Company, each of its
directors, officers and certain other stockholders of the Company, holding in
the aggregate 1,697,843 shares (98.6%) of the Common Stock outstanding prior to
the Offering, have agreed that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of Equitable
Securities Corporation, offer, pledge, sell, contract to sell, sell any option
to purchase or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock. Such consent of Equitable Securities Corporation
may be provided without notice to purchasers of Common Stock or to officials of
the Nasdaq Stock Market's National Market. See "Management" and "Shares Eligible
for Future Sale."
ADVERSE IMPACT OF ANTI-TAKEOVER PROVISIONS. Certain provisions of the
Company's Certificate of Incorporation and Bylaws and of Delaware law could have
the effect of delaying, deterring or preventing a change of control involving
the Company. See "Description of Capital Stock -- Preferred Stock" and
"-- Anti-takeover Effects of Provisions of the Bylaws and Delaware Law."
SUBSTANTIAL DILUTION. The public offering price is substantially higher
than the net tangible book value per share of the Common Stock. Accordingly,
investors purchasing shares of Common Stock in the Offering will incur immediate
dilution of $7.72 per share (based upon an assumed public offering price of
$12.00 per share). See "Dilution."
NO DIVIDENDS. It is the policy of the Company's Board of Directors to
retain earnings, if any, to finance the continued growth of the Company rather
than to pay dividends. The Company has not paid any cash dividends on its Common
Stock since 1991. See "Dividend Policy."
10
<PAGE> 12
RISKS ASSOCIATED WITH UNSPECIFIED USE OF PROCEEDS. Assuming a public
offering price of $12.00 per share, approximately $18.2 million, or 66.9%,
($22.4 million, or 71.4%, if the Underwriters' over-allotment option is
exercised in full) of the net proceeds of the Offering will be available for
working capital and general corporate purposes, including potential acquisitions
of health care information businesses and development of additional products.
The Company's management, subject to approval by the Board of Directors, will
have absolute discretion with respect to the use of such proceeds of the
Offering. See "Use of Proceeds."
11
<PAGE> 13
THE COMPANY
Medirisk, Inc. was incorporated in Florida on June 17, 1983 and has
provided proprietary health care information products and services that track
the price and utilization of medical procedures during its 13-year history. In
January 1996, the Company acquired all of the outstanding stock of Formations, a
developer of clinical performance products that allow customers to measure
outcomes across a full range of care within a variety of medical specialties. In
March 1996, the Company acquired all of the outstanding stock of PracticeMatch,
which provides an on-line database of physician information for use by in-house
physician recruiters.
Medirisk was reincorporated in Delaware in September 1996, and in
connection with such reincorporation, the Company's treasury stock was
cancelled. The Company's principal executive offices are located at Two Piedmont
Center, Suite 400, 3565 Piedmont Road, N.E., Atlanta, Georgia 30305-1502, and
its telephone number at that address is (404) 364-6700. Unless the context
suggests otherwise, references in this Prospectus to the "Company" or "Medirisk"
mean Medirisk, Inc. and its subsidiaries and predecessor entities.
DIVIDEND POLICY
It is the policy of the Company's Board of Directors to retain earnings to
support operations and to finance continued growth of the Company rather than to
pay dividends. The Company has not declared or paid any cash dividends or
distributions on its Common Stock since 1991. Payments of future dividends, if
any, will be at the discretion of the Company's Board of Directors after taking
into account various factors, including the Company's earnings, financial
position, capital requirements and surplus, contractual restrictions and other
relevant business conditions, and there can be no assurance that dividends will
be paid. The commitment letter for the NationsBank Revolver contemplates certain
restrictions on the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to be received by Medirisk from the Offering, after
deducting estimated underwriting discounts and offering expenses payable by the
Company, are estimated to be approximately $27.2 million ($31.3 million if the
Underwriters' over-allotment option is exercised in full), based upon an assumed
public offering price of $12.00 per share. Of such net proceeds, the Company
intends to use approximately (i) $6.9 million to prepay certain senior
subordinated notes (the "Senior Subordinated Notes"); (ii) $1.1 million to
prepay certain notes issued in connection with the Company's acquisition of
PracticeMatch (the "Acquisition Notes"); (iii) $645,000 ($568,000 as of
September 30, 1996) to pay accrued and unpaid dividends on the Company's Series
A and Series B Preferred Stock and (iv) $355,000 to repay short-term bank debt
(the "Bridge Loan"). The Company has no specific plans with respect to the use
of the remaining net proceeds. The Company anticipates that such remaining net
proceeds will be used principally for working capital and general corporate
purposes, for potential acquisitions of businesses and products in the
fragmented health care information industry and for development of additional
products. Although the Company continually seeks suitable acquisition
candidates, it is not currently a party to any definitive agreement or letter of
intent regarding any acquisition. Pending the application of the net proceeds as
described above, the Company intends to invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
The Senior Subordinated Notes are held by HealthPlan Services Corporation
("HPSC") and were issued pursuant to a Securities Purchase Agreement dated
January 8, 1996, between the Company and HPSC (the "Securities Purchase
Agreement"). The Senior Subordinated Notes bear interest at a nominal rate of
10% per annum and an effective rate of 10.5% per annum and mature on January 8,
2003, subject to certain provisions of the Securities Purchase Agreement that
require the prepayment of the Senior Subordinated Notes upon the occurrence of
certain events, including the closing of an initial public offering. The
proceeds from the sale of the Senior Subordinated Notes were used to fund the
acquisition of Formations and PracticeMatch. When the Company issued the Senior
Subordinated Notes, it issued to HPSC warrants to purchase an aggregate of
298,150 shares of Common Stock at an exercise price of $0.015 per share and
recorded the estimated fair value of these warrants, $327,000, as a discount on
the issuance of debt at the time of their issuance. As a result of the
application of a portion of the net proceeds to repay this indebtedness, the
Company will incur a one-time, noncash charge of approximately $582,000 with
respect to the accelerated amortization of such discount and of related deferred
financing costs, which charge will be recorded in the period in which the
Offering is completed.
The Acquisition Notes are held by the former shareholders of PracticeMatch
and were issued to them as partial consideration for the Company's purchase of
the stock of PracticeMatch. The Acquisition Notes bear interest at the rate of
10% per annum. Of the principal amount of the Acquisition Notes, 30% is payable
on April 1, 1997, with the balance due September 14, 1997, subject to the terms
of the stock purchase agreement pursuant to which such Acquisition Notes were
issued, which effectively require their prepayment upon the prepayment of the
Senior Subordinated Notes.
The Bridge Loan is held by NationsBank and was incurred in the fourth
quarter of 1996 pursuant to a promissory note, which, as amended to date,
permits aggregate borrowings of up to $850,000, of which $355,000 was
outstanding on December 20, 1996. The Bridge Loan bears interest at
NationsBank's prime rate plus 2% per annum and matures upon the earlier of
completion of the Offering or March 31, 1997. The Bridge Loan was established to
extinguish debt assumed in connection with the PracticeMatch acquisition, and
the remainder of the Bridge Loan is available for general corporate purposes.
For further discussion of the Acquisition Notes, the Senior Subordinated
Notes, the Bridge Loan and the Convertible Preferred Stock, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Notes 2, 4, 5 and 8 of Notes to Consolidated Financial Statements of the
Company.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth at September 30, 1996 (i) the capitalization
of the Company; (ii) the pro forma capitalization of the Company giving effect
to the conversion of all outstanding shares of Convertible Preferred Stock into
1,021,809 shares of Common Stock upon completion of the Offering; and (iii) the
pro forma capitalization of the Company as adjusted to give effect to the sale
of the shares of Common Stock offered hereby (assuming a public offering price
of $12.00 per share) and the application of the estimated net proceeds therefrom
as described under "Use of Proceeds." This table should be read in conjunction
with the Company's Consolidated Financial Statements and Notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Short-term debt(1)...................................... $ 1,591,255 $ 1,591,255 $ 184,145
=========== =========== ===========
Long-term debt and capital lease obligations, excluding
current portions(1)................................... $ 7,197,744 $ 7,197,744 $ 297,744
Dividends payable....................................... 567,608 567,608 --
----------- ----------- -----------
Stockholders' equity (deficit):
Preferred Stock, $.001 par value, 4,400,000 shares
authorized, actual; and 1,000,000 shares
authorized, pro forma and pro forma as adjusted(2):
Series A Convertible Preferred Stock, 3,000,000
shares authorized; 1,292,359 shares issued and
outstanding, actual; and no shares issued or
outstanding, pro forma and pro forma as
adjusted......................................... 1,292 -- --
Series B Convertible Preferred Stock, 400,000
shares authorized; 280,623 shares issued and
outstanding,
actual; and no shares issued or outstanding, pro
forma
and pro forma as adjusted........................ 281 -- --
Common Stock, $.001 par value, 20,000,000 shares
authorized; 700,199 shares issued and outstanding,
actual; 1,722,008 shares issued and outstanding,
pro forma; and 4,222,008 shares issued and
outstanding, pro forma as adjusted(3).............. 700 1,722 4,222
Additional paid-in capital............................ 4,769,806 4,770,357 31,917,857
Accumulated deficit................................... (9,516,729) (9,516,729) (10,131,465)
----------- ----------- -----------
Total stockholders' equity (deficit).......... (4,744,650) (4,744,650) 21,790,614
----------- ----------- -----------
Total capitalization.......................... $ 3,020,702 $ 3,020,702 $22,088,358
=========== =========== ===========
</TABLE>
- ---------------
(1) Short-term debt includes current maturities of long-term debt and capital
lease obligations. See Note 4 of Notes to Consolidated Financial Statements
of the Company for a description of the Company's indebtedness.
(2) Pro forma and pro forma as adjusted amounts give effect to the
reincorporation of the Company in September 1996 and the resulting changes
in its authorized capital stock. See "The Company" and "Description of
Capital Stock."
(3) Excludes 328,672 shares of Common Stock issuable upon exercise of options
outstanding as of December 20, 1996 with a weighted average exercise price
of $0.51 per share and 493,030 shares of Common Stock issuable upon
exercise of outstanding warrants with a weighted average exercise price of
$0.62 per share.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value (deficit) of the Company at September
30, 1996 was $(9,100,740), or $(5.28) per share. Pro forma net tangible book
value (deficit) per share is determined by dividing the net tangible book value
(total tangible assets less total liabilities) of the Company by the number of
shares of Common Stock outstanding, giving pro forma effect to the conversion of
all outstanding shares of Convertible Preferred Stock into 1,021,809 shares of
Common Stock. Without taking into account any changes in the pro forma net
tangible book value of the Company after September 30, 1996, other than to give
effect to the sale of the shares of Common Stock offered hereby (assuming an
initial public offering price of $12.00 per share) and the application of the
net proceeds therefrom, the adjusted pro forma net tangible book value of the
Company at September 30, 1996 would have been $18,049,260, or $4.28 per share.
This represents an immediate dilution in net tangible book value of $7.72 per
share to new investors purchasing shares in the Offering and an immediate
increase in net tangible book value of $9.56 per share to existing stockholders.
The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................. $12.00
Pro forma net tangible book value (deficit) per share at September
30, 1996........................................................ $(5.28)
Increase per share attributable to new investors................... 9.56
------
Pro forma net tangible book value per share after the Offering....... 4.28
------
Dilution per share to new investors.................................. $ 7.72
======
</TABLE>
The following table sets forth as of September 30, 1996 (giving pro forma
effect to the conversion of all outstanding shares of Convertible Preferred
Stock into 1,021,809 shares of Common Stock) the number of shares of Common
Stock purchased from the Company, the total consideration paid (before deduction
of estimated underwriting discounts and commissions and offering expenses) and
the average price per share paid by existing stockholders and by new investors
(assuming, as to new investors, a public offering price of $12.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 1,722,008 40.8% $ 5,568,470 15.7% $ 3.23
New investors....................... 2,500,000 59.2 30,000,000 84.3 $ 12.00
--------- ----- ---------- -----
Total..................... 4,222,008 100.0% $35,568,470 100.0%
========= ===== ========== =====
</TABLE>
The foregoing tables assume no exercise of outstanding options or warrants.
At September 30, 1996, there were outstanding options to purchase 328,672 shares
of Common Stock at a weighted average exercise price of $0.51 per share and
warrants to purchase 493,030 shares of Common Stock at a weighted average
exercise price of $0.62 per share. To the extent that any of these options or
warrants are exercised, there will be further dilution to new investors. See
"Management -- Executive Compensation" and Note 8 of Notes to Consolidated
Financial Statements of the Company.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below as of and for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from
the audited consolidated financial statements of the Company and its
subsidiaries. The consolidated financial statements and notes thereto as of
December 31, 1994 and 1995 and for each of the years in the three-year period
ended December 31, 1995, and as of June 30, 1996 and for the six-month period
ended June 30, 1996, together with the related report of KPMG Peat Marwick LLP,
independent certified public accountants, are included elsewhere herein. The
selected consolidated financial data presented below for the nine months ended
September 30, 1995 and 1996 have been derived from the unaudited consolidated
financial statements of the Company which, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information included therein. Operating results for
the nine months ended September 30, 1996 are not necessarily indicative of
results to be obtained for the full year. As a result of the acquisition of
PracticeMatch and Formations, the Company's historical financial statements are
not representative of financial results to be expected for future periods. The
selected consolidated financial data should be read in conjunction with
"Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and Notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue....................................... $1,056 $1,458 $2,447 $2,894 $3,655 $2,450 $ 6,254
Salaries, wages and benefits.................. 834 1,368 1,675 1,893 2,578 1,886 4,388
Other operating expenses...................... 520 578 507 731 956 700 1,585
Depreciation and amortization................. 31 48 75 143 193 143 529
Acquired in-process research and development
costs(1).................................... -- -- -- -- -- -- 6,180
------ ------ ------ ------ ------ ------ -------
Operating income (loss)....................... (329) (536) 190 127 (72) (279) (6,428)
Interest income (expense), net................ (26) (18) (41) (54) (66) (44) (482)
Other income (expense)........................ -- -- 18 -- -- -- (40)
Income taxes.................................. -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ -------
Net income (loss)............................. $ (355) $ (554) $ 167 $ 73 (138) (323) (6,950)
====== ====== ====== ======
Accretion of Series A Convertible Preferred
Stock....................................... (92) (69) --
Series A Convertible Preferred Stock dividend
requirement................................. (202) (151) (151)
------ ------ -------
Net loss applicable to common stock........... $ (432) $ (543) $(7,101)
====== ====== =======
Unaudited pro forma loss per common
share(2).................................... $(0.20) $ (3.24)
====== =======
Unaudited pro forma weighted average number of
common shares used in calculating unaudited
pro forma net loss per share of common
stock(2).................................... 2,212 2,191
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
---- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................ $190 $ (110) $ 33 $ 321 $ 197 $(2,200)
Total assets..................................... 592 516 1,035 1,111 1,263 7,868
Long-term debt and capital lease obligations
excluding current installments................. 51 61 127 172 151 7,198
Redeemable preferred stock....................... -- 1,824 1,838 2,210 2,302 --
Stockholders' equity (deficit)................... 319 (1,809) (1,714) (1,928) (2,333) (4,745)
</TABLE>
- ---------------
(1) In connection with the acquisition of Formations and PracticeMatch the
Company recorded a nonrecurring charge related to acquired in-process
research and development costs. Exclusive of this charge, operating loss,
net loss and loss per share for the nine months ended September 30, 1996
would have been $(248,000), $(770,000), and $(0.42), respectively. See "The
Company" and Note 2 of Notes to Consolidated Financial Statements of the
Company.
(2) Computed on the basis described in Note 1 of Notes to Consolidated Financial
Statements of the Company. Historical losses per share are not presented as
they are not meaningful due to the mandatory conversion of all outstanding
shares of the Series A and Series B Convertible Preferred Stock into Common
Stock upon completion of the Offering.
16
<PAGE> 18
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data set forth below for the nine-month
period ended September 30, 1996 and the year ended December 31, 1995 give effect
to the Company's acquisition of (i) Formations on January 9, 1996 and (ii)
PracticeMatch on March 14, 1996 as if they had occurred on January 1, 1995.
Except as included in the table below, the pro forma adjustments with respect to
Formations for the nine months ended September 30, 1996 are considered by the
Company to be immaterial and have not been included for such period in the pro
forma financial data set forth below. Each of the Formations and PracticeMatch
acquisitions has been accounted for using the purchase method of accounting. The
pro forma financial data should be read in conjunction with the historical
financial statements and notes of PracticeMatch and Formations, which are
included elsewhere in this Prospectus, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The pro forma combined
results are not necessarily indicative of the results that would have been
achieved had the acquisitions of Formations and PracticeMatch occurred on
January 1, 1995 or of future operations.
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRACTICEMATCH
(PERIOD FROM
1/1/96 PRO FORMA PRO FORMA
MEDIRISK TO 3/14/96) ADJUSTMENTS RESULTS
-------- ------------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue..................................................... $ 6,254 $ 804 $ -- $ 7,058
Salaries, wages and benefits................................ 4,388 408 -- 4,796
Other operating expenses.................................... 1,585 274 -- 1,859
Depreciation and amortization............................... 529 37 48(1) 614
Acquired in-process research and development costs.......... 6,180 -- (6,180)(2) --
------- --- ----- -------
Operating income (loss)..................................... (6,428) 85 6,132 (211)
Interest income (expense), net.............................. (482) (7) (160)(3) (649)
Other income (expense)...................................... (40) -- -- (40)
Income taxes................................................ -- -- -- --
------- --- ----- -------
Net income(loss)............................................ (6,950) 78 5,972 (900)
Series A Convertible Preferred Stock dividend requirement... (151) -- -- (151)
------- --- ----- -------
Net income (loss) applicable to Common Stock................ (7,101) $ 78 $ 5,972 $(1,051)
======= === ===== =======
Net loss per common share(4)................................ $ (3.24) $ (0.48)
======= =======
Weighted average number of common shares used in calculating
net loss per share of Common Stock(4)..................... 2,191 2,191
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Data.
17
<PAGE> 19
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRACTICE- PRO FORMA PRO FORMA
MEDIRISK FORMATIONS MATCH ADJUSTMENTS RESULTS
-------- ---------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue............................................. $3,655 $1,566 $ 3,963 $ -- $ 9,184
Salaries, wages and benefits........................ 2,578 707 1,658 -- 4,943
Other operating expenses............................ 956 711 1,498 -- 3,165
Depreciation and amortization....................... 193 52 143 262(1) 650
62(5) 62
Acquired in-process research and development
costs............................................. -- -- -- -- --
------ ------ ------ ----- ----
Operating income (loss)............................. (72) 96 664 (324) 364
Interest income (expense), net...................... (66) (13) (19) (800)(3) (898)
Income taxes........................................ -- -- -- -- --
------ ------ ------ ----- ----
Net income (loss)................................... (138) 83 645 (1,124) (534)
Accretion of Series A Convertible Preferred Stock... (92) -- -- -- (92)
Series A Convertible Preferred Stock dividend
requirements...................................... (202) -- -- -- (202)
------ ------ ------ ----- ----
Net income (loss) applicable to common stock........ $ (432) $ 83 $ 645 $(1,124) $ (828)
====== ====== ====== ===== ====
Net loss per common share(4)........................ $(0.20) $ (0.37)
====== ====
Weighted average number of common shares used in
calculating net loss per share of Common
Stock(4).......................................... 2,212 2,212
</TABLE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
(1) Reflects the additional amortization of intangible assets recorded as a
result of the allocation of the purchase price for the PracticeMatch
acquisition, as if the transaction was effective as of January 1, 1995. These
intangible assets and their lives are as follows:
<TABLE>
<S> <C> <C>
Technological know-how.......................................... $ 350,000 5 years
Goodwill........................................................ $2,887,000 15 years
</TABLE>
(2) Reflects the reversal of the nonrecurring acquired in-process research
and development costs, $1,040,000 for Formations and $5,140,000 for
PracticeMatch, respectively.
(3) Reflects the interest expense related to the Acquisition Notes and
Senior Subordinated Notes issued in connection with the PracticeMatch
acquisition.
(4) Net loss per share of Common Stock has been computed on the basis
described in Note 1 of Notes to Consolidated Financial Statements of the
Company.
(5) Reflects the additional amortization of intangible assets recorded as a
result of the allocation of the purchase price for the Formations acquisition.
These intangible assets and their lives are as follows:
<TABLE>
<S> <C> <C>
Technological know-how........................................... $170,000 5 years
Goodwill......................................................... $422,000 15 years
</TABLE>
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the related Notes.
OVERVIEW
Medirisk is a leading provider of proprietary databases and related
decision-support software and analytical services to the health care industry.
The Company's health care information products and services consist of financial
products, clinical performance products and physician database products. Prior
to 1996, the Company provided only financial products consisting of
comprehensive, objective physician-related information regarding medical fees
and health care utilization patterns to both payers and providers.
In 1996, the Company undertook an acquisition strategy to expand its
product offerings. The Company acquired Formations and PracticeMatch in January
and March 1996, respectively. Formations offers clinical performance products
that allow customers to measure treatment outcomes across a range of care within
a variety of medical specialties. PracticeMatch offers physician database
products to assist customers in cost-effective in-house physician recruiting. As
a result of these acquisitions, the Company's historical financial statements
are not representative of financial results to be expected for future periods.
See "Unaudited Pro Forma Financial Data" and Note 2 of Notes to Consolidated
Financial Statements of the Company.
In connection with the Company's 1996 acquisitions, the Company acquired
intangible assets which are being amortized over various useful lives. The
amortization periods are based on, among other things, the nature of the
products and markets, the competitive position of the acquired companies and the
adaptability to changing market conditions of the acquired companies. The
Company recorded amortization expense for the nine months ended September 30,
1996 relative to intangible assets of $189,000. Giving pro forma effect to these
acquisitions as if they had occurred at January 1, 1995 amortization expenses
relating to these intangibles would have been $324,000 and $243,000 for 1995 and
the nine months ended September 30, 1996, respectively.
Also in connection with these acquisitions, the Company recorded
nonrecurring charges related to in-process research and development costs of
$1.0 million for Formations and $5.1 million for PracticeMatch. The amount of
each of these nonrecurring charges was equal to the estimated current fair
value, based on the adjusted cash flows (discounted by a risk adjusted weighted
average cost of capital of 19% for Formations and 20% for PracticeMatch), of
specifically identified technologies for which technological feasibility had not
yet been established pursuant to Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," and for which future alternative uses did not exist.
Similar charges could result in the future as a result of acquisitions accounted
for as purchases.
Medirisk's products are licensed pursuant to single-year and multi-year
agreements. Revenue from licenses of financial products is recognized upon the
delivery of the data and, in the case of multi-year agreements, on the
anniversary of the date of delivery. Revenue from licenses of clinical
performance products is recognized over the life of the contract as services are
performed. Revenue from licenses of physician database products is recognized
ratably over the life of the customer contract. Customer service revenue for all
product sets is recognized ratably over the term of the service contract. All
other revenue, including training, consulting fees and other miscellaneous
services, is recognized upon the performance of the applicable services. Because
a higher proportion of financial products historically have been licensed in the
second half of the year, the Company may experience sequentially higher revenues
in the third and fourth calendar quarters and, consequently, sequentially lower
revenues in the first calendar quarter.
The Company's revenue is composed of both recurring revenue from the
Company's current customer base as well as revenue from new customers. The
Company defines its recurring revenue percentage with respect to any particular
period as the quotient, expressed as a percentage, of (i) revenue recognized
during such period from a sale of a product to a customer who purchased a
similar product in the prior period, divided by (ii) the Company's total revenue
in the prior period. In determining its recurring revenue percentage, the
19
<PAGE> 21
Company includes in its revenue the revenue of entities acquired during the
period as if such acquisitions had occurred at the beginning of the prior
period. The Company does not include revenue in its recurring revenue percentage
to the extent that such revenue exceeds total revenue in the prior period. The
Company's recurring revenue percentage for the years ended December 31, 1994 and
1995 was approximately 73% and 71%, respectively, and was approximately 72% for
the nine months ended September 30, 1996.
In addition to acquisitions, the Company seeks to expand its product
offerings through internal product development. The Company has historically
expensed internal development costs; however, based on the Company's current
development plans, the Company anticipates capitalizing future internal product
development costs incurred after technological feasibility has been established
and prior to general product release. PracticeMatch has historically capitalized
software development costs, and capitalized development costs for PracticeMatch
totaled $74,000, net of accumulated amortization, at September 30, 1996.
As a result of the application of a portion of the net proceeds of the
Offering to repay indebtedness, the Company will incur a one-time, noncash
charge of $582,000 with respect to accelerated amortization of original issue
discount on the Senior Subordinated Notes and of related deferred financing
costs, which charge will be recorded in the period in which the Offering is
completed.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal periods indicated, certain
items from the statements of operations of the Company expressed as a percentage
of revenue:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- --------------
1993 1994 1995 1995 1996
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenue......................................... 100% 100% 100% 100% 100%
Salaries, wages and benefits.................... 68 65 71 77 70
Other operating expenses........................ 21 25 26 28 25
Depreciation and amortization................... 3 5 5 6 8
Acquired in-process research and development
costs......................................... -- -- -- -- 99
--- --- --- --- ----
Operating income (loss)......................... 8 5 (2) (11) (102)
Interest income (expense), net.................. (2) (2) (2) (2) (8)
Other income (expense).......................... 1 -- -- -- (1)
Income taxes.................................... -- -- -- -- --
--- --- --- --- ----
Net income (loss)............................... 7% 3% (4)% (13)% (111)%
=== === === === ====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Revenue. Revenue for the first nine months of 1996 was $6.3 million, an
increase of $3.8 million or 155% over the first nine months of 1995. The
increase was primarily attributable to the acquisitions of Formations and
PracticeMatch, effective in January and March 1996, respectively. Revenue
recognized by these acquired companies represented approximately $3.5 million,
or 93% of the total increase. The Company's revenue without the impact of the
revenue from the acquired companies increased 11% for the first nine months of
1996 over the same period in 1995 as a result of a combination of factors,
including increases in the volume of financial products licensed and revenue
attributable to an increase in the Company's sales and marketing personnel. The
volume increase was principally attributable to licenses to new and existing
customers as a result of product enhancements and extensions.
Salaries, wages and benefits. Salaries, wages and benefits for the first
nine months of 1996 were $4.4 million, an increase of $2.5 million or 133% over
the first nine months of 1995. This increase was primarily the result of the
acquisitions of Formations and PracticeMatch and, to a lesser extent, growth in
the Company's financial products revenue. Salaries, wages and benefits decreased
as a percentage of revenue during the nine
20
<PAGE> 22
months ended September 30, 1996 to 70% as compared to 77% for the same period in
1995. This decrease resulted primarily from leveraging the Company's existing
administrative, sales and marketing personnel as revenue increased through both
acquisitions and internal growth. Salaries, wages and benefits as a percentage
of revenue were also favorably impacted by the less seasonal nature of the
revenue of PracticeMatch and Formations. Financial product revenue has typically
been higher in the third and fourth quarters; consequently, salaries, wages and
benefits historically have been higher as a percentage of revenue during the
first and second quarters. Quarterly revenue for the acquired companies has not
been as seasonal. As a result, inclusion of these entities in the Company's
results of operations resulted in a decrease in salary, wage and benefit
expenses as a percentage of revenue in the 1996 period as compared to the 1995
period and, the Company believes, should moderate seasonality in future periods.
Other operating expenses. Other operating expenses for the first nine
months of 1996 were $1.6 million, an increase of $885,000 or 127% over the first
nine months of 1995, principally as a result of the acquisition of Formations
and PracticeMatch. Other operating expenses decreased to 25% of revenue in the
first nine months of 1996 as compared to 28% for the same period in 1995. This
decrease was principally the result of the changes in seasonality in revenue
described above.
Depreciation and amortization. Depreciation and amortization for the first
nine months of 1996 was $529,000, an increase of $385,000 or 269% over the first
nine months of 1995. This increase resulted from the two 1996 acquisitions. As a
percentage of revenue, depreciation and amortization for each of the nine-month
periods ended September 30, 1996 and 1995 was 8% and 6%, respectively.
Acquired in-process research and development costs. As discussed above, in
connection with the acquisition of Formations and PracticeMatch the Company
acquired the ongoing research and development activities of each entity. At the
effective date of each acquisition the Company recorded nonrecurring charges
resulting from expensing acquired in-process research and development costs.
These charges totaled $6.2 million, or 99% of revenue, in the nine months ended
September 30, 1996.
Net interest expense. Net interest expense for the first nine months of
1996 was $482,000, an increase of $438,000 or 989% over the first nine months of
1995. The increase was a result of interest due on the Senior Subordinated Notes
issued during 1996 to finance the acquisition of PracticeMatch as well as the
interest expense on the Acquisition Notes issued to the sellers of
PracticeMatch.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. Revenue in 1995 was $3.7 million, an increase of $761,000 or 26%
over 1994. This increase in revenue was attributable to increased licenses of
financial products to both new and existing customers.
Salaries, wages and benefits. Salaries, wages and benefits in 1995 were
$2.6 million, an increase of $685,000 or 36% over 1994. Salaries, wages and
benefits increased to 71% of revenue in 1995, compared to 65% in 1994. These
increases were primarily related to the addition of sales and marketing
personnel.
Other operating expenses. Other operating expenses in 1995 were $1.0
million, an increase of $226,000 or 31% over 1994. The increase in other
operating expenses was attributable to non-salary expenses associated with the
expansion of the Company's sales and marketing organization. Other operating
expenses were 26% of revenue in 1995, compared to 25% in 1994. The increase was
primarily related to higher costs associated with growth in the administrative,
sales and marketing infrastructure of the Company.
Depreciation and amortization. Depreciation and amortization expenses in
1995 were $193,000, an increase of $50,000 or 35% over 1994. This increase was
primarily attributable to the impact of a full year of depreciation of capital
expenditures associated with facilities expansion during 1994. Depreciation and
amortization expenses were 5% of revenue in 1995 and 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenue. Revenue for 1994 was $2.9 million, an increase of $447,000 or 18%
over 1993. The increase in revenue was attributable to improved sales
performance and the introduction of new products.
21
<PAGE> 23
Salaries, wages and benefits. Salaries, wages and benefits in 1994 were
$1.9 million, an increase of $218,000 or 13% over 1993. This increase was
primarily related to growth in the number of employees. As a percentage of
revenue, salaries, wages and benefits decreased from 68% in 1993 to 65% in 1994
as a result of leveraging the Company's existing administrative and sales and
marketing infrastructure.
Other operating expenses. Other operating expenses in 1994 were $731,000,
an increase of $223,000 or 44% over 1993. Other operating expenses increased to
25% of revenue in 1994 from 21% in 1993. These increases were due to costs
associated with the relocation and expansion of the corporate offices.
Depreciation and amortization. Depreciation and amortization expenses in
1994 were $143,000, an increase of $68,000 or 91% over 1993. Depreciation and
amortization expense increased to 5% in 1994 from 3% of revenue in 1993.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial data
for 1994, 1995 and the first three quarters of 1996. In the opinion of the
Company's management this unaudited information has been prepared on the same
basis as the audited information and includes all adjustments necessary to
present fairly the information set forth therein. The operating results for any
quarter are not necessarily indicative of results for any future period:
<TABLE>
<CAPTION>
1994 QUARTER ENDED 1995 QUARTER ENDED
-------------------------------------- --------------------------------------
STATEMENTS OF OPERATIONS: MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
- ------------------------- ------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.................. $ 487 $ 780 $ 794 $ 833 $ 470 $ 686 $ 1,294 $ 1,205
Salaries, wages and
benefits............... 417 473 485 518 563 622 701 692
Other operating
expenses............... 124 211 180 216 226 270 204 256
Depreciation and
amortization........... 22 38 42 41 42 47 54 50
Acquired in-process
research and
development costs...... -- -- -- -- -- -- -- --
---- ---- ---- ---- ----- ----- ------ ------
Operating income
(loss)............... (76) 58 87 58 (361) (253) 335 207
Interest income
(expense),
net.................... (8) (23) (17) (6) (14) (13) (17) (22)
Other income (expense)... -- -- -- -- -- -- -- --
Income taxes............. -- -- -- -- -- -- -- --
---- ---- ---- ---- ----- ----- ------ ------
Net income (loss)...... $ (84) $ 35 $ 70 $ 52 $ (375) $ (266) $ 318 $ 185
==== ==== ==== ==== ===== ===== ====== ======
<CAPTION>
1996 QUARTER ENDED
----------------------------
STATEMENTS OF OPERATIONS: MAR. 31 JUNE 30 SEPT. 30
- ------------------------- ------- ------- --------
<S> <C> <C> <C>
Revenue.................. $ 1,577 $2,297 $ 2,380
Salaries, wages and
benefits............... 1,121 1,637 1,630
Other operating
expenses............... 356 650 579
Depreciation and
amortization........... 93 217 219
Acquired in-process
research and
development costs...... 6,180 -- --
------- ------ ------
Operating income
(loss)............... (6,173) (207) (48)
Interest income
(expense),
net.................... (52) (214) (216)
Other income (expense)... -- (37) (3)
Income taxes............. -- -- --
------- ------ ------
Net income (loss)...... $(6,225) $ (458) $ (267)
======= ====== ======
</TABLE>
The Company's quarterly revenues and operating results have varied
significantly in the past. Quarterly results have fluctuated as a result of a
variety of factors, including: the Company's sales cycle; staffing changes in
the Company's sales and marketing organization; changes in the Company's
resources; demand for the Company's products; the timing of significant new
customer contracts; the nonrenewal of significant customer contracts; the timing
of acquisitions; competitive conditions in the industry; changes in customer
budgets; and general economic factors. Furthermore, the Company has experienced
a seasonal pattern in its operating results, with a greater proportion of the
Company's revenue and operating profitability occurring in the second half of
the year. The Company attributes this seasonality to a combination of factors
including budgeting and other factors affecting the health care industry
generally, the compounding effect of historical renewal schedules (which
typically result in greater license renewals in the third and fourth quarters)
and internal staffing and growth issues. The Company believes its financial
products are more seasonal than its other products and expects the addition of
new products, including those from the acquisitions of Formations and
PracticeMatch, to moderate, but not end, this seasonal effect.
A significant portion of the Company's expenses are relatively fixed, and
the amount and timing of increases in such expenses are based in large part on
the Company's expectations concerning future revenue. If
22
<PAGE> 24
revenues are below expectations in any given quarter, the adverse effect may be
magnified by the Company's inability to adjust spending quickly enough to
compensate for the revenue shortfall. Accordingly, even a small variation from
expected revenue could have a material adverse effect on the Company's results
of operations for a given quarter.
INCOME TAXES
The Company has not recorded any income tax expense or benefit during 1993,
1994, 1995 or the first nine months of 1995 or 1996 due to operating losses or
the utilization of net operating loss carryforwards to offset taxable income. At
September 30, 1996, the Company had net operating loss carryforwards of
approximately $1.3 million for federal income tax purposes. The net operating
loss carryforwards expire beginning in 2006 through 2011. The total gross
deferred tax asset was approximately $3.0 million as of September 30, 1996 and
has been reduced to zero by a valuation allowance.
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and the tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Applying the provisions of SFAS 109 to
the Company, particularly considering the Company's history of net losses, the
Company was unable to support a conclusion consistent with SFAS 109 that it is
more likely than not that it will generate future taxable income during the loss
carryforward periods; therefore, the Company has provided a full valuation
allowance against its net deferred tax assets. In determining that a valuation
allowance was required, management primarily considered such factors as the
Company's history of operating losses and expected near-term future losses and
earnings, the nature of the Company's deferred tax assets, the absence of
significant excess of appreciated asset value over the tax basis of the
Company's net assets, the absence of taxable income in prior carryback years and
the potential for deferred tax assets resulting from future business
acquisitions. Although management's operating plans assume taxable and operating
income in future periods, historical performance has produced an accumulated
deficit of $9.5 million at September 30, 1996. Consequently, the Company has
provided a full valuation allowance against its net deferred tax assets until
such time as the Company produces sufficient taxable and operating income to
support a lower valuation allowance.
The amount of the Company's net operating loss carryforwards may be limited
if the Company has an "ownership change" as defined in Section 382 of the
Internal Revenue Code of 1986, as amended. See Note 7 of Notes to Consolidated
Financial Statements of the Company. Changes in share ownership of the Company
as a result of, or arising after, the Offering, such as the exercise of
registration rights and subsequent sales of Common Stock, will likely cause an
"ownership change" to occur. If an ownership change occurs, the Company's net
operating loss carryforwards, which currently may be used to offset taxable
income without limitation, will become subject to limitation. The amount of any
such limitation would depend on numerous factors, some of which are not
determinable at this time.
LIQUIDITY AND CAPITAL RESOURCES
In January 1996 the Company and HPSC entered into the Securities Purchase
Agreement. Under that agreement, HPSC purchased 280,623 shares of Series B
Convertible Preferred Stock for $2.0 million and agreed to purchase up to $10.0
million in original principal amount of the Senior Subordinated Notes. In
connection with the issuance of the Senior Subordinated Notes, the Company
agreed to issue warrants to purchase up to 432,101 shares of Common Stock. In
March 1996, the Company issued $6.9 million in original principal amount of the
Senior Subordinated Notes to HPSC and warrants to purchase 298,150 shares of
Common Stock. The Company used $1.5 million of the proceeds from the sale of
Series B Convertible Preferred Stock to complete the acquisition of Formations.
Medirisk used approximately $5.4 million of the proceeds from the issuance of
the Senior Subordinated Notes to complete the acquisition of PracticeMatch. In
addition, in connection with the PracticeMatch acquisition, the Company issued
the Acquisition Notes to the sellers in an aggregate amount of $1.1 million.
Under the terms of the Acquisition Notes, the Company must maintain at least
$1.1 million in borrowing capacity under the Securities Purchase Agreement until
the Acquisition Notes are repaid in full. In addition, the terms of the Bridge
Loan require the Company to maintain at least $850,000 of borrowing capacity
under the Securities Purchase Agreement until the Bridge
23
<PAGE> 25
Loan is repaid in full. Upon completion of the Offering and repayment of the
Senior Subordinated Notes, HPSC's obligation to purchase additional Senior
Subordinated Notes will terminate.
For the years ended December 31, 1993, 1994 and 1995 the Company generated
cash flow from operations of $157,000, $51,000 and $15,000 respectively. For the
nine months ended September 30, 1995 and 1996, cash flow used in operations
totaled $64,000 and $606,000, respectively. These amounts primarily represent
net income (loss) adjusted for the noncash charges of depreciation and
amortization, and, in 1996, write off of in progress research and development
costs, partially offset by changes in working capital.
Net cash used in investing activities during the foregoing periods
consisted predominantly of $6.9 million used in the nine months ended September
30, 1996 to fund the acquisitions of Formations and PracticeMatch.
Net cash provided by (used in) financing activities during the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30, 1995
and 1996, was $212,000, $(192,000), $(140,000), $(102,000) and $8.1 million,
respectively. The net cash provided by financing activities during 1993
consisted primarily of the proceeds of the issuance of notes payable, partially
offset by payments on long-term debt and obligations under capital leases. The
net cash used in financing activities during the years ended December 31, 1994
and 1995 and the nine months ended September 30, 1995 consisted principally of
payments on long-term debt and obligations under capital leases and, in 1994, a
repurchase of Common Stock, offset in part, in 1994, by the proceeds from the
issuance of a promissory note. The net cash provided by financing activities for
the nine months ended September 30, 1996 resulted from the HPSC financing,
offset in part by payments on long-term debt and obligations under capital
leases and stock and debt issuance costs.
For the years ended December 31, 1993, 1994 and 1995, the Company acquired
fixed assets of $158,000, $217,000 and $192,000, respectively. For the nine
month periods ended September 30, 1995 and 1996, the Company acquired fixed
assets of $192,000 and $295,000, respectively. These assets were almost
completely financed through capital leases. Outstanding obligations under
capital leases for the same periods were $163,000, $288,000 and $324,000,
$373,000 and $338,000, respectively.
The Company's cash flow from operations has generally been sufficient to
fund liquidity needs of the Company other than acquisitions and new product
development. The Company has indebtedness of $355,000 outstanding under the
Bridge Loan as of December 20, 1996. The remainder of the Bridge Loan is
available for general corporate purposes. The net proceeds of the Offering will
be used to repay certain senior subordinated notes and certain notes issued in
connection with the Company's acquisition of PracticeMatch, to pay accrued and
unpaid dividends on the Company's Series A and Series B Preferred Stock and to
repay the Bridge Loan. The Company intends to use the balance of the net
proceeds of the Offering for working capital and general corporate purposes
including potential acquisitions of health care information businesses and
development of additional products. See "Use of Proceeds."
NationsBank and the Company have entered into a commitment letter regarding
the establishment of a $10.0 million revolving credit facility upon the closing
of the Offering. The NationsBank Revolver will be secured by substantially all
of the Company's assets. The commitment letter contemplates the establishment of
the NationsBank Revolver under which the Company may, subject to customary
terms, conditions and covenants, borrow up to $10.0 million to fund working
capital needs as well as new product development and acquisitions. The
commitment letter provides that the NationsBank Revolver will bear interest at
varying rates based on LIBOR and NationsBank's prime rate and will mature two
years after closing of the establishment of the NationsBank revolver. While the
Company and NationsBank have executed the commitment letter, the establishment
of the NationsBank Revolver is subject to a number of conditions, including the
closing of the Offering, negotiation and execution of acceptable documentation
and further due diligence by NationsBank. As a result, no assurances can be
given that the NationsBank Revolver will be established, and, if established,
what the terms of the facility will be.
After the application of the net proceeds from the Offering, the Company
believes that the remaining proceeds, borrowings under the NationsBank Revolver
and cash generated from operations will be sufficient to meet the capital
expenditure and working capital needs for the Company's operations for the next
12 months. The Company's future liquidity and cash requirements will depend on a
wide range of factors, including
24
<PAGE> 26
development costs associated with new products, enhancements of existing
products and acquisitions. Although the Company has no present commitments or
agreements regarding acquisitions, the Company's strategy is to acquire
additional complementary products and businesses. If the proceeds of the
Offering, borrowings under the NationsBank Revolver and cash flow from
operations are not sufficient to fund such acquisitions, the Company will be
required to seek additional financing, and there can be no assurance that such
financing will be available in amounts and at terms acceptable to the Company.
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on
results of operations for the periods presented. Substantial increases in costs,
particularly the cost of labor for product development, marketing and sales,
could have an adverse impact on the Company and the health care information
industry.
25
<PAGE> 27
BUSINESS
Medirisk is a leading provider of proprietary databases and related
decision-support software and analytical services to the health care industry.
The Company's products and services enable payers and providers to make
objective comparisons of the financial costs and clinical outcomes of
physician-mediated services to customer-specific and industry benchmarks and to
access information concerning specific physicians. These capabilities assist
payers and providers in pricing managed care contracts, evaluating physician fee
schedules and utilization of physician-mediated services, comparing provider
outcomes and performance, and recruiting physicians. Medirisk actively sells its
products to over 750 major customers, including leading health plans, insurers,
hospitals and larger physician groups, as well as to more than 700 smaller
customers, including single-specialty physician groups. The Company believes it
is the leading provider of clinical and financial databases comprised of
physician-oriented content.
Medirisk's health care information products and services consist of
financial products, clinical performance products and physician database
products. The Company's financial products enable customers to compare, by
procedure and geographic location, data concerning the cost and utilization of
health care services and to analyze trends in these data. The Company's clinical
performance products allow customers to measure clinical outcomes across a range
of care within a variety of medical specialties. The Company's physician
database aids customers in conducting cost-effective in-house physician
recruiting.
Medirisk built its core databases by collecting, standardizing and
normalizing more than three billion health care transaction records. Medirisk's
databases include records submitted by the Company's customers under its ongoing
data collection plan and the results of regular proprietary surveys of managed
care plans and other payers. The Company believes that the long-standing
relationships under which it collects these data and the data interpretation
methodologies used by the Company represent significant competitive advantages.
INDUSTRY BACKGROUND
The U.S. health care industry has grown dramatically in recent years.
According to the Health Care Financing Administration ("HCFA"), health care
expenditures have increased from less than $250 billion, or approximately 9% of
the gross domestic product, in 1980 to almost $1.0 trillion, or approximately
14% of the gross domestic product, in 1994. Payers are responding to escalating
costs by seeking to transfer the financial risk associated with the delivery of
health care to providers under capitated or other managed care arrangements. As
managed care arrangements become increasingly prevalent, both payers and
providers are under intense pressure to deliver health care at the lowest total
cost while ensuring quality results for their patients. To achieve this goal,
payers and providers must understand likely procedure utilization rates and the
competitive costs of health care services. In addition, the Company believes
that the ongoing development of managed care has increased the number of
physicians willing to change their practice affiliations and the demand for
primary care physicians. The Company believes that as a result of these factors,
payers and providers must understand how clinical outcomes affect total cost and
patient satisfaction levels, must evaluate means to achieve the most desirable
outcomes, and must conduct physician recruiting based on detailed criteria, all
on a cost-effective basis.
Traditional health care information systems, which have been designed to
capture only information concerning procedures performed and to generate bills,
have focused on the administrative aspects of health care. The Company believes
that there is a growing awareness that most health care costs are related to the
clinical (rather than administrative) aspects of the delivery of care, which has
resulted in a growing demand for databases incorporating clinical knowledge, and
that this demand is likely to intensify as managed care techniques become more
sophisticated. While some payers and providers have recently adopted new
information systems that allow them to capture cost, utilization and clinical
outcomes data regarding their own businesses, they generally have not been able
to use the data collected effectively. In order for payers and providers to gain
perspective on the marketplace and to analyze effectively managed care and other
arrangements, the Company believes that they must have access to benchmark data
against which they can compare the data they have collected regarding their own
businesses, as well as information relating to statistical differences in health
care costs among urban, suburban and rural markets. Furthermore, while
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<PAGE> 28
broad, public-sector information was formerly the only information practicably
available, payers and providers are increasingly seeking a more complete,
region-specific picture of the health care market, which requires access to both
private- and public-sector benchmark data.
BUSINESS STRATEGY
Medirisk's objective is to enhance its position as a leading provider of
proprietary databases and related decision-support software and analytical
services to payers, providers and other health care industry participants. To
attain this objective, Medirisk seeks to:
Leverage its Existing Customer Base. Medirisk believes that
increasing demand for health care information, coupled with its broad
customer base, provides a substantial opportunity for internal growth. The
Company has long-standing relationships with customers, and Medirisk
believes it has developed a reputation for providing objective clinical and
financial information products. The Company intends to leverage these
relationships by: (i) selling higher value products within the same product
line to existing customers; (ii) cross selling additional products and
services across product lines to existing customers; and (iii) increasing
product sales to existing customers through sales to other operating units,
departments or divisions of existing customers.
Emphasize Recurring Revenue. Medirisk seeks to maximize recurring
revenues by emphasizing multi-year contracts and contract renewals.
Substantially all of Medirisk's revenues are generated by the licensing of
products on an annual or multi-year basis. The Company believes that its
high rate of recurring revenue results principally from significant revenue
enhancements, or cost savings, derived by Medirisk's customers when they
use the Company's products, as well as from the ongoing need for current
information resulting from the continuing evolution of the health care
industry.
Develop New Products. Medirisk actively develops new products and
enhances existing offerings. In recent years, the Company has introduced
numerous new products and product extensions and enhancements, and intends
to introduce several new products and product extensions and enhancements
during 1997. Ultimately, the Company intends to cross-correlate its
existing and future databases. Medirisk believes that by linking its
financial, clinical performance and physician database products, cost and
quality can be evaluated together with outcomes for specific physicians,
thus permitting true management of care by allowing customers to compare
the financial costs and expected outcomes of competing treatment regimens
or providers.
Acquire Complementary Products and Businesses. Medirisk intends to
acquire additional companies, product lines, databases and other resources
to expand into related areas and to increase market share within the
Company's existing product lines. Medirisk believes that acquisitions of
new products and customer bases provide additional cross-selling
opportunities and can lead to the development of new products based on
cross-correlation of existing and acquired products. In the first quarter
of 1996, the Company completed the acquisition of two companies with
complementary databases and products: Formations, which develops and
markets outcomes measurement databases and software applications, and
PracticeMatch, which develops and licenses a database of physician-related
information.
MEDIRISK PRODUCTS AND SERVICES
Medirisk provides a variety of products and services designed to enable its
customers to measure and assess the financial and clinical performance of health
care services. At the core of the Company's products and services are several
proprietary databases. These databases include information on (i) reimbursement
and utilization rates for over 7,400 physician-mediated medical procedures; (ii)
clinical outcomes in six medical specialty areas; and (iii) physician recruiting
information regarding over 88,000 physicians. The Company also provides
decision-support software that enhances the utility of its databases and
analytical services. Customers can license the specific information they need
based on variables such as geographic region, medical specialty, clinical
procedure or timeframe.
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<PAGE> 29
In designing its products and services, Medirisk emphasizes quality and
ease of use. Medirisk uses proprietary data engineering methodologies to
standardize and interpret data to ensure that its products are as comprehensive,
accurate and current as possible. The detailed nature of the Company's databases
provides precise data that customers can use to address their specific
decision-making needs and offers Medirisk's customers competitive advantages.
For example, Medirisk's financial database includes information concerning over
7,400 medical procedures in 287 distinct geographic market areas. The Company
believes that the resulting detail regarding statistical differences between
health care costs in urban, suburban and rural markets is important to its
customers due to the local nature of health care delivery and the corresponding
impact on costs and reimbursement rates.
Furthermore, Medirisk's data engineering methodologies are designed to
ensure that its databases are free of bias. The resulting objectivity of
Medirisk's benchmark data allows the Company to market its products to both
payers and providers and improves the credibility of the databases as
benchmarking tools.
In addition, Medirisk's databases are regularly updated to reflect changes
in the industry and take into consideration secondary factors, such as
co-morbidity, case mix and demographics. These attributes permit customers to
compare their financial and clinical performance to industry or
customer-specific benchmarks contained in the Company's databases with
specificity and precision. Because Medirisk's information products typically
have frequent new releases, the Company can perform trend analyses of the data
over time. Further, while Medirisk's databases include public-sector data, they
focus primarily on private-sector data derived from transaction data and
clinical records contributed by Medirisk's customers and obtained from other
sources. These private- and public-sector data are not commingled, thus
permitting more precise benchmarking of data relevant to the private health care
marketplace. Medirisk obtains data through contractual contribution programs
with its customers, as well as through the Company's regular surveys of more
than 1,200 managed care organizations. The Company believes that private-sector
data is more useful for payers' and providers' comparison purposes than
public-sector data and that Medirisk's comprehensive compilation of
private-sector data represents a competitive advantage for the Company.
Medirisk has developed its databases and decision-support software for ease
of use. All of the Company's decision-support software, with the exception of
PracticeTrack, is Microsoft Windows-based and is compatible with a variety of
hardware and software applications. The Company is currently in the process of
migrating PracticeTrack to a Windows-based platform. The Company's databases can
be imported into standard software programs including Microsoft Excel, Lotus
1-2-3, FoxPro, Quattro Pro, Dbase and others, and can be imported and exported
to separate decision-support and practice administration programs provided by
companies such as HBO & Company and Medic Computer Systems, Inc.
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<PAGE> 30
Medirisk's products and services fall into three broad categories:
financial products, clinical performance products and physician database
products. The following table outlines Medirisk's products and services by
category and the related customer applications:
<TABLE>
<CAPTION>
MEDIRISK'S
INFORMATION CLINICAL PERFORMANCE PHYSICIAN DATABASE
PRODUCTS FINANCIAL PRODUCTS PRODUCTS PRODUCTS
<S> <C> <C> <C>
Benchmark Physician Fee Clinical Outcomes Physician Database(1)
Databases Database(SM) Database(1)
Procedure Utilization
Database(SM)
Decision - Capitation Manager(TM) Standardized Treatment PracticeMatch(TM)
Support Tools Fee Manager(TM) Scales PracticeTrack(SM)
Formations(SM) Clinical
Outcomes Systems
Services Decision Support Clinical Analytical TeleMatch(SM)
Services Services
Customer Managed Care Measure Efficiency and Identify Physicians
Applications Contracting Effectiveness Reduce Recruiting Cost
Market-based Pricing of Identify Under- Organize Recruiting
Procedures Performing Facilities Process
Quantify Capitation Demonstrate Quality to
Risk Managed Care
</TABLE>
(1) Used by the Company in the development of other clinical or physician
database products; not offered on a stand-alone basis.
Financial Products
Medirisk's financial products provide customers with comprehensive
proprietary information regarding physician fees and health care utilization
patterns. The following is a description of the Company's primary financial
products:
Physician Fee Database(SM). The Physician Fee Database reports
reimbursement rates for medical procedures for a variety of types of payers
performed in specific geographic markets across the United States. The
Physician Fee Database provides data concerning reimbursement levels that
providers are accepting from managed care plans and other payers, rather
than fees charged by those providers, a distinction critical to an accurate
understanding of market conditions. Fee data in the Physician Fee Database
are tracked by the AMA's CPT codes, which define all current medical
procedures, and are segregated into 287 separate market areas (compared to
89 market areas that will be tracked by HCFA in 1997). Medirisk believes
that the Physician Fee Database divides the United States into more
geographic markets than most competing products, thereby allowing customers
to make more precise fee decisions. A customer can license data for a
specific market, state, region or the entire United States. Included in the
Physician Fee Database is pricing information for (i) reasonable and
customary charges; (ii) managed indemnity fees; (iii) three different
managed care reimbursement levels (high, typical and low); (iv) the
current-year Medicare fee schedule; (v) the current-year Medicaid fee
schedule; (vi) state-mandated levels for workers' compensation claims;
(vii) state-mandated levels for automobile personal liability claims; and
(viii) three different national/state levels (national high fee, national
average fee and state average fee). The Physician Fee Database is marketed
to payers, providers and consultants to assist in evaluating pricing and
reimbursement policies relative to other payers and providers in various
market areas.
Procedure Utilization Database(SM). The Procedure Utilization
Database provides frequently updated utilization data for all medical
procedures included in the Company's Physician Fee Database. This database
can be used to model the anticipated utilization of a specific service for
a certain population
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<PAGE> 31
profile. The database is offered on a region-specific basis and can be
adjusted for age and gender. The Procedure Utilization Database is marketed
principally to health care providers, payers and consultants who use it to
analyze expected utilization patterns when negotiating managed care
arrangements.
Capitation Manager(TM). Capitation Manager is a Windows-based
decision-support application that integrates Medirisk's Physician Fee
Database and Procedure Utilization Database and calculates capitation rates
based on customer-provided pricing and demographic assumptions. Using
Capitation Manager, the customer enters the demographic profile of a group
proposed to be covered in a capitated arrangement, the services to be
provided and proposed pricing for those services. Using these assumptions
in combination with the Company's databases, Capitation Manager calculates
the expected utilization of the services to be provided and compares the
proposed capitated pricing to managed care, fee-for-service, Medicare and
other fee benchmarks tracked by the Company within a specific market.
Capitation Manager was introduced in 1995 and is marketed to both providers
and payers to analyze capitated managed care arrangements.
Fee Manager(TM). Fee Manager is a Windows-based decision-support
software system that health care providers can use to evaluate fees,
forecast revenues and appeal claims reductions. Fee Manager integrates the
fee data contained in Medirisk's Physician Fee Database with three
decision-support software modules. The fee-evaluation software provides an
easy-to-use and objective method for reviewing and comparing providers'
fees with six of the levels of fees contained in the Physician Fee Database
and for evaluating managed care fee schedules. The revenue forecasting
module is designed to maximize provider revenue by identifying procedures
priced below market, allowing providers to project revenue by patient class
and analyze the impact of fee decisions. The claims appeal software helps
providers appeal patient claim reductions by utilizing Medirisk's
market-based data to generate documentation that supports and substantiates
the original charge.
Decision-Support Services. The Company also provides analytical
services designed to assist customers in reviewing more complex price and
utilization issues. The Company works with the customer, often using
standardized project formats, to address the customer's specific needs. For
example, Medirisk might analyze a payer's claims and transaction data to
identify areas of overpayment due to excess fees, over-utilization or
billing or coding errors. In providing these analytical services, the
Company uses or develops tools that have been or can be standardized for
similar future projects. In addition, in providing these services, the
Company can often identify opportunities to develop new products or enhance
existing products.
Clinical Performance Products
The Company offers clinical performance products that allow customers to
measure clinical outcomes across a full range of care within a variety of
medical specialties. Clinical outcomes are generally defined as the change in a
patient's health status as a result of therapy or care delivered by a health
care professional. Clinical outcomes are measured empirically using standard
health status scales that can be used to assess the patient at different stages,
including prior to the delivery of therapy or care, while such care is being
delivered and when treatment is terminated. Medirisk's clinical performance
products consist of reports prepared from the Company's clinical outcomes
database. The data included in these products are gathered by Company-certified
clinicians, automated patient information systems and Medirisk's patient
interview staff using standardized outcomes scales. Comparing customer data with
norms derived from Medirisk's database, Medirisk prepares reports detailing
customers' clinical performance based on a number of independent measures,
including patient acuity, medical and functional improvement, resource
utilization, length of stay/duration of treatment, cost of treatment and patient
satisfaction. Medirisk's clinical performance products assist both payers and
providers in (i) measuring and predicting outcomes of treatment regimens; (ii)
making normalized comparisons of facilities and providers; (iii) establishing
benchmarks for clinical quality improvement; (iv) developing standards for
clinical practice; (v) generating analytical reports for communicating with
customers and their constituents; and (vi) negotiating managed care contracts.
Medirisk's clinical performance products are currently available to track
clinical outcomes in the areas of
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<PAGE> 32
rehabilitation, orthopedics, occupational health, pain management, neurological
care, wound care and respiratory care. In addition, the Company is developing
clinical performance products in a number of other areas, including ambulatory
surgery, nutrition and infection therapy. The Company markets its clinical
performance products primarily to health care providers who use them to validate
the quality of their services to payers, to compare the performance of multiple
facilities or providers and to improve their outcomes by standardizing treatment
regimens.
Physician Database Products
Medirisk's physician database products enable its customers to perform
cost-effective in-house physician recruiting. The Company's physician database
contains detailed information on more than 88,000 physicians who are or have
been candidates for a new practice affiliation and is comprised in part of
physician data from the AMA's Physician MasterFile. All physician information is
further validated and enhanced by personal telephone interviews with the
physicians conducted by members of Medirisk's full-time staff. Current products
include:
PracticeMatch(TM). PracticeMatch is a Windows-based decision-support
software system that provides in-house physician recruiters with on-line
access to the Company's physician database. By clicking on a series of
search criteria and selection screens, customers obtain information about
physicians who satisfy specified criteria. The customer can then print or
download the information to PracticeTrack for local use.
PracticeTrack(TM). PracticeTrack is a contact-management software
program that allows customers to build their own databases of physician
information concerning candidates identified using PracticeMatch, to
generate recruiting status reports and to track candidates and associated
recruiting expenses. Users can download information from the PracticeMatch
database and use the mail merge function for easy mailings to candidates.
TeleMatch(SM). TeleMatch is an outsourcing service that allows
PracticeMatch subscribers to contract with Medirisk to increase their
recruiting capabilities without increasing their staff. Under a TeleMatch
contract, the Company's staff uses PracticeMatch to identify candidates
meeting the customer's criteria and contacts these candidates to determine
their level of interest in affiliating with the TeleMatch customer. As a
result, customers can improve recruiting efficiency by focusing efforts on
only physicians who meet the customer's criteria and who have confirmed
their interest in the practice opportunity.
Customer Service Plans
As a complement to its database and decision-support products, Medirisk
offers customer service plans through which customers receive access to
value-added services that include regular updates of their licensed databases,
technical verification of data included in the databases and additional advice
related to product applications. The additional cost of these customer service
plans ranges from 15% to 25% of the related license fee.
DATA ACQUISITION
The Company collects data for inclusion in its databases and related
products in a variety of ways, including its data contribution program and its
regular managed care surveys. Once the data are collected, Medirisk's database
personnel clean and analyze the data before they are included in the Company's
databases. Medirisk uses proprietary processes to validate the data submitted by
standardizing, normalizing and formatting the data and then applies its database
methodologies to segment the data.
Financial Products. Medirisk began tracking negotiated physician fees in
1983 and created custom-negotiated fee schedules for its consulting clients in
over 100 markets before introducing and marketing the Physician Fee Database.
The data used in Medirisk's financial products have been collected through
Medirisk's customer data contribution program, whereby customers provide their
medical claims or other
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<PAGE> 33
health care transaction data to the Company on a regular basis, surveys of more
than 1,200 managed care organizations, purchases of certain data sets and
maintenance of a customer-support database. Included in the Physician Fee
Database and Procedure Utilization Database are approximately 3 billion private
sector transaction records, including actual managed care transaction data and
negotiated fee schedules, that Medirisk has collected and analyzed during the
past three years. A transaction record is generally defined as the record of a
health care procedure performed by a physician or other health care provider on
a patient. To encourage customers to participate in its data contribution
program, Medirisk offers customers price discounts in return for access to their
raw claims data and other health care transactions records. Medirisk's managed
care surveys are conducted on a regular basis, with special surveys conducted
from time to time to address new issues and emerging trends.
Clinical Performance Products. Medirisk obtains data for its clinical
outcomes databases from its clinical outcomes customers and other
Company-certified sources. To facilitate collection of outcomes measurements,
the Company provides its customers with data-collection tools that are tailored
to the customer's clinical record-keeping environment. The Company collects the
data through customer submission, automated patient information systems and
direct patient interviews conducted by the Company's clinical interview staff.
Optical scan forms or data-collection software are used to collect data directly
from the clinician in the absence of automated patient systems. To enhance the
reliability and integrity of customer-submitted data, Medirisk trains and
certifies clinicians affiliated with its customers in rating patients'
performance and in data-collection protocols and will only include in its
outcomes database data received from clinicians who are certified by Medirisk.
Physician Database Products. The data used to generate the Company's
physician database products are collected through personal telephone interviews
with each physician. Unlike most alternative sources of physician recruiting
data, Medirisk screens its candidates so as to include only physicians who have
expressed a willingness to change their practice affiliation, thereby
streamlining the recruiting efforts of the Company's customers. Medirisk employs
professional interview personnel who contact physicians directly, gather the
required information, record the information in the automated database and send
a hard copy to each physician for verification. The Company believes that the
fact that each physician profiled in the Company's database has personally
verified the information and knows that he or she is tracked in the
PracticeMatch database ensures the highest quality profile and offers a
significant competitive advantage over unverified databases. In addition, the
Company is the exclusive licensee of the AMA to share and enhance portions of
the AMA's Physician MasterFile. This relationship greatly enhances the quality
and availability of information about practicing physicians.
DATA DELIVERY
The Company's financial products are delivered to customers on magnetic
tapes or diskette, depending upon customer preference. The Company's clinical
performance products produce reports based on customer-provided data, and such
reports are delivered to customers in hard copy and on diskette. The Company's
physician database products are delivered to customers via on-line access. The
Company believes that there are readily available alternative sources of supply
for all of the media on which its products are delivered.
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<PAGE> 34
CUSTOMERS
The unbiased nature of Medirisk's databases enables the Company to market
its products to both payers and providers. The Company's customers include
managed care plans, insurance companies, self-insured companies, hospitals,
physician practices and consultants. None of the Company's customers, other than
HEALTHSOUTH, accounted for a material amount of the Company's revenues in 1995
or 1996, on a pro forma basis giving effect to the acquisition of Formations and
PracticeMatch as if such transactions occurred on January 1, 1995. The Company's
major customers include:
<TABLE>
<CAPTION>
TYPE REPRESENTATIVE CUSTOMERS
<S> <C> <C>
Managed Care Plans (HMOs, Oxford Health Plans Healthsource
PPOs, etc.) The Prudential Health Care System Aetna
Private Healthcare Systems (PHCS) Kaiser Foundation Health
Plan, Inc.
Indemnity Insurers Aetna Life Insurance Company Bankers Life & Casualty
John Alden Insurance Company Phoenix Mutual Life Insurance
Pioneer Life Insurance Company Prudential Insurance Company of
Blue Cross/Blue Shield Plans in 10 states America
Integrated Delivery Allina Health System Duke Health Network
Systems/ Quorum Health Resources OrNda Health Corporation
Hospitals University of Texas Medical Center Adventist Health System
Piedmont Healthcare Organization/Promina
Physician Practices/ Medaphis PhyCor
Management Companies Yale/New Haven Hospital Physician Corporation Johns Hopkins University School
Massachusetts General Physicians' Organization of Medicine
Vanderbilt University School of Medicine
Workers Compensation Beech Street Crawford & Company
Payers Corporate Systems State of Ohio
State of Rhode Island Commonwealth of Kentucky
State of Wisconsin District of Columbia
The Workers' Compensation Research Institute
Consulting Firms Andersen Consulting Coopers & Lybrand LLP
Deloitte & Touche LLP Ernst & Young LLP
KPMG Peat Marwick LLP Price Waterhouse LLP
Hewitt, Coleman & Associates A. Foster Higgins
The Wyatt Company
Specialty Health Care HEALTHSOUTH NovaCare, Inc.
Providers Rehabilitation Management, Inc. Mariner Health
IntegraCare, Inc.
</TABLE>
The Company has standard license agreements for its database and
decision-support software offerings. Customers purchase licenses to use
Medirisk's data for a specified period of time, ranging from one to three years.
The Company's contracts typically require payment of the current year's fee
prior to shipment or installation of the product. Prices to major customers for
Medirisk's current financial products fall in the range of $7,000 to $12,000 per
year for a single market, $20,000 to $30,000 per year for an entire state or
region, and $50,000 to $125,000 per year for a national database. Prices for
Medirisk's current clinical outcomes measurement products fall in the range of
$5,000 to $25,000 per facility per year, depending on the number of clinical
specialties and number of patients reviewed. In addition, there are one-time
charges for account set-up, user training and special report features. Prices
for access to the PracticeMatch database average approximately $15,000 to
$26,000 per year per site. Initial costs for user training and support are
included in the first-year base license fee for PracticeMatch. Medirisk's
marketing and pricing objectives are focused on
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<PAGE> 35
generating recurring revenues from multi-year contracts and from renewing
annually renewable contracts, and the Company offers price concessions for
multi-year contracts.
The Company has over 750 major customers that account for more than 90% of
the Company's revenue. These major customers include leading health plans,
insurers, hospitals and larger physician groups. The Company also has more than
700 smaller customers, including numerous small single-specialty physician
groups and consulting practices. These customers generally have licenses
generating annual license fees of less than $500 per customer.
SALES AND MARKETING
As of December 20, 1996, Medirisk's sales and marketing department included
24 full-time employees, including 13 account executives, one sales manager and
additional employees involved in market research and support and business
development. Medirisk has developed a marketing model in which its business
development staff (i) identifies and contacts prospective customers via
telephone; (ii) works to define and understand these prospective customers'
information needs to determine whether a prospective customer could benefit from
one of the Company's products; and (iii) inputs this information into a
market-specific prospect profile database. Medirisk's account executives then
contact those potential clients that have an identified need for a Medirisk
product to educate them about how Medirisk's information products and services
could be used to address their specific market and competitive needs. This
marketing model permits the Company's account executives to maximize the time
spent addressing prospective customers' purchasing decisions while minimizing
time spent with unqualified prospects.
ACQUISITIONS
The Company believes that the health care information industry is rapidly
evolving and highly fragmented, characterized by many businesses that have been
created by entrepreneurs who are knowledgeable in the areas of data products and
technology but which lack sophisticated marketing and sales organizations. The
Company believes that many of these businesses represent acquisition
opportunities that could permit the Company to integrate acquired products and
technology into its operations and to leverage its sales and marketing
organization further.
Medirisk has corporate resources dedicated to identifying, analyzing and
pursuing appropriate acquisition candidates. The Company is currently tracking a
database of more than 300 companies, of which more than 100 currently meet
Medirisk's primary acquisition criteria for product type, revenue and customer
base. Four lines of business are of primary interest to the Company: (i)
database products, with an emphasis on companies focused on benchmark data; (ii)
software products and developers that can add value to the Company's data
products or assist the Company in its data collection efforts; (iii) consulting
firms focused on payer and provider effectiveness and profitability; and (iv)
health care focused publications (both paper and electronic) to gain better
access to a broader customer base for the marketing of lower priced data
products and cross selling other products. Medirisk has also incorporated
executive management depth to build the business platform necessary to enable
the Company to be a consolidator in the fragmented health care information
services industry. The Company believes that its existing management and
infrastructure, as well as its experience in acquiring and assimilating new
products and companies, will allow it to continue the acquisition of new
companies, products, databases and other resources.
COMPETITION
The Company faces intense competition in providing health care information
products and services. Competitors vary in size, scope and breadth of product
and service offerings. The Company competes with different competitors in each
of its target markets, and certain of such competitors have substantially
greater resources than those of the Company. In addition, several large
horizontally integrated information services companies, including Dow Jones, Dun
& Bradstreet Corporation, First Data Corporation, National Data Corporation and
Thomson Publishing, have developed and are marketing information products and
services to the health care industry. The Company believes that it is likely
that one or more of such companies may
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<PAGE> 36
become direct competitors of the Company either by acquiring existing
competitors or by developing and marketing their own products. Many of these
larger companies are engaged in the processing of health care claims and, thus,
have access to substantial claims- and cost-related data from which they could
build competing databases or which they could license to other competitors of
the Company. The Company also competes with the internal information resources
and systems of certain of its prospective and existing customers. The Company
believes that the principal competitive factors in its target markets include
the breadth and quality of database and applications offerings, access to
proprietary data, the proprietary nature of methodologies and technical
resources, price and the effectiveness of marketing and sales efforts.
PROPERTIES
The Company's corporate headquarters occupy approximately 16,000 square
feet of an office building located in Atlanta, Georgia, under a lease expiring
in March 1999, with one five-year renewal term. Medirisk also leases office
space in Chicago, Illinois and St. Louis, Missouri under leases expiring in
December 1999 and March 1999, respectively. The Company believes that such
offices are adequate for the Company's current requirements.
EMPLOYEES
On December 20, 1996, the Company had 108 full-time employees. Of these, 19
were corporate personnel, 24 were sales and marketing personnel and 65 were
involved in operations and product development. None of the Company's employees
is covered by a collective bargaining agreement. The Company considers relations
with its employees to be good.
LEGAL PROCEEDINGS
The Company is involved in various claims arising in the normal course of
business. In the opinion of management of the Company, although the outcomes of
these claims are uncertain, in the aggregate they are not likely to have a
material adverse effect on the Company's business, financial condition and
results of operations.
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<PAGE> 37
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers, directors and director nominees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Mark A. Kaiser(1).............................. 39 Chairman of the Board, Chief Executive
Officer and President
Paul A. Rodwick................................ 50 Executive Vice President and Chief
Operating Officer
Kenneth M. Goins, Jr........................... 38 Executive Vice President and Chief
Financial Officer
Susan P. Brandt................................ 48 Vice President, Operations
Pamella L. Leiter.............................. 42 Vice President, Product Development
Michael J. Finn(2)............................. 47 Director
James K. Murray, III(1)(2)..................... 34 Director
Robert P. Pinkas(1)(2)......................... 42 Director
Keith O. Cowan................................. 40 Director Nominee
William M. McClatchey, M.D..................... 48 Director Nominee
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Mark A. Kaiser joined the Company in 1991 and has served as Chairman of the
Board, Chief Executive Officer and President of the Company. Mr. Kaiser has been
a director of the Company since 1991. Prior to being recruited to Medirisk, Mr.
Kaiser's experience included senior and executive management positions in sales
and marketing for health care and technology companies. Before joining Medirisk,
Mr. Kaiser was Vice President of Sales and Marketing for Charter Medical
Corporation, the nation's largest chain of psychiatric hospitals. Mr. Kaiser was
Senior Vice President of Marketing at TelecomUSA, where he worked from the early
stages of the company until its acquisition by MCI Communications Corporation.
Mr. Kaiser was involved in TelecomUSA's acquisition and consolidation of more
than 50 companies, and he co-managed the consolidation of the TelecomUSA
customer base onto standard MCI products. Mr. Kaiser holds Bachelor of Science
degrees in Computer Science and Mathematics from Furman University.
Paul A. Rodwick has served as Executive Vice President and Chief Operating
Officer since joining Medirisk in December 1996. Prior to joining the Company
from 1985 until November 1996, Mr. Rodwick served in various positions with
Attachmate Corporation ("Attachmate"), a manufacturer and seller of computer
software and hardware products for network applications. From 1995 until
November 1996, Mr. Rodwick was Executive Vice President with responsibility for
several product lines as well as responsibility for Attachmate's worldwide
manufacturing operations. From 1993 to 1995, Mr. Rodwick was President of
Attachmate's Unisys Division, which developed, manufactured and marketed Unisys
connectivity and database access products. From 1991 to 1993, Mr. Rodwick was a
Senior Vice President of Attachmate with responsibility for worldwide technical
support, information systems and operations (including worldwide manufacturing
and materials management). Prior to 1991, Mr. Rodwick was a Vice President of
Attachmate with a variety of manufacturing and management responsibilities.
Prior to joining Attachmate from 1981 to 1985, Mr. Rodwick was Vice President
and General Manager of the Computer Graphics Division of Chromatics, Inc. Mr.
Rodwick holds a Bachelor of Science degree in Mechanical Engineering from Purdue
University and a Masters of Business Administration from Loyola University.
Kenneth M. Goins, Jr., has served as Vice President, Finance and
Administration and Chief Financial Officer of the Company from joining Medirisk
in April 1996 until December 1996 when he was elected Executive Vice President.
Prior to joining the Company from 1995 until April 1996, Mr. Goins was Vice
36
<PAGE> 38
President of Financial Planning and Analysis for First Data Corporation ("FDC"),
a major financial information services company based in Atlanta. FDC acquired
Mr. Goins' previous employer, First Financial Management Corporation ("FFMC") in
October of 1995, where Mr. Goins also served as Vice President of Financial
Planning and Analysis from June 1994 until the merger. During the last half of
his tenure at FFMC and FDC, Mr. Goins also served as Chief Financial Officer for
Unified Merchant Services, a credit card processing joint venture between First
Data and NationsBank. Before joining FFMC, Mr. Goins was an officer of MicroBilt
Corporation ("MBC") from 1985 until 1994. He served at various times as the
Executive Vice President, Chief Financial Officer and Controller of MBC, an
Atlanta-based computer software services company, from 1985 through its initial
public offering and until MicroBilt was acquired by FFMC. While at MicroBilt and
FFMC, Mr. Goins was involved in a number of acquisitions in the information and
software industries. Prior to his employment with MBC, Mr. Goins was employed in
various capacities by Colonial Life and Accident Insurance Company, based in
Columbia, South Carolina. Mr. Goins holds a Bachelor of Science degree in
Business Administration from the University of South Carolina and is a Licensed
Certified Public Accountant.
Susan P. Brandt has served as Vice President since joining the Company in
March 1996 in connection with the Company's acquisition of PracticeMatch. Ms.
Brandt was with PracticeMatch from 1990 until it was acquired by the Company.
She was general manager of PracticeMatch when it was acquired by Medirisk. Prior
to joining PracticeMatch, Ms. Brandt was a consultant for Cejka & Co., a St.
Louis-based physician search firm. From 1981 to 1986, Ms. Brandt served as a
sales representative for Wang Laboratories and for Racal-Milgo, a data
communications products manufacturer.
Pamella L. Leiter has served as a Vice President since joining the Company
in January 1996 in connection with the Company's acquisition of Formations. Ms.
Leiter founded Formations in 1987 and was its President until its acquisition in
January 1996. Prior to founding Formations, Ms. Leiter managed The New Medico
Rehabilitation at Visitors Hospital in Buchanan, Michigan, managing the
conversion of a rural hospital into a head injury rehabilitation hospital from
1986 through 1987. From 1978 through 1986, Ms. Leiter served in various
rehabilitation positions at Memorial Hospital of South Bend, South Bend,
Indiana. Ms. Leiter holds a Bachelor of Science degree in Occupational Therapy
from the University of Illinois, and a Master of Science in Administration
degree from The University of Notre Dame.
Michael J. Finn has been a Director of the Company since 1992. Mr. Finn is
currently a General Partner of Brantley Venture Partners II, L.P., a venture
capital firm located in Cleveland, Ohio. Prior to joining Brantley, Mr. Finn was
Vice President, Equities for Sears Investment Management Co. Mr. Finn is also a
director of Silvon Software, Health Care Solutions, Inc. and Pediatric Services
of America, Inc. Mr. Finn has been an active investor in small businesses since
1976 and holds Bachelor of Science degree in Urban Planning and Master of
Science degrees in Land Economics and Finance from Michigan State University.
James K. Murray, III, has been a Director of the Company since January
1996. Since October 1995, Mr. Murray has been Executive Vice President and Chief
Financial Officer of HealthPlan Services Corporation, a Tampa, Florida-based
health care services company providing marketing, distribution, administrative
and cost containment services on behalf of health care payers. Prior to joining
HealthPlan Services, Mr. Murray was President and Chief Executive Officer of a
federally-insured commercial bank in Hillsborough County, Florida. From 1985 to
1990, Mr. Murray was an accountant with Arthur Andersen & Co. in Atlanta,
Georgia. Mr. Murray is also on the board of directors of DynaBit U.S.A., Inc.,
an international value added distributor of computer parts and components. Mr.
Murray holds a Bachelor of Science degree in Accounting and a Master of Science
degree in Finance from the University of Virginia. Mr. Murray is a Licensed
Certified Public Accountant.
Robert P. Pinkas has been a Director of the Company since 1991. Mr. Pinkas
is currently a General Partner and was a founding partner of Brantley Venture
Partners II, L.P., a venture capital firm located in Cleveland, Ohio. Mr. Pinkas
has been a director, officer and investor in several early-stage businesses
since 1981, and he currently serves as a director of Quad Systems Corporation,
Gliatech, Inc., Summit Environmental Group, Inc. and Pediatric Services of
America, Inc. Mr. Pinkas holds Bachelor of Arts degree in
37
<PAGE> 39
Government and a Master of Science degree in History from Harvard University and
a Juris Doctor degree from the University of Pennsylvania.
In addition to the executive officers and directors listed above, the
following persons have consented to become directors of the Company upon
completion of the Offering:
Keith O. Cowan, is Vice President -- Corporate Development for BellSouth
Corporation. Mr. Cowan joined BellSouth as an executive officer in May 1996. He
is responsible for managing the merger and acquisition activities of BellSouth
and its operating subsidiaries, including the identification of acquisition
candidates and the structuring and negotiation of transactions. Prior to joining
BellSouth, Mr. Cowan was associated with Alston & Bird, a law firm based in
Atlanta, Georgia, for 14 years, becoming a partner in the firm in 1990. His
experience included the representation of public and private corporate clients
in corporate and securities transactions. During his last five years at Alston &
Bird, Mr. Cowan specialized in the health care and insurance industries. Alston
& Bird is the Company's legal counsel.
William M. McClatchey, M.D., F.A.C.P., F.A.C.R., is a physician practicing
in Atlanta, Georgia, specializing in Primary Care Internal Medicine and
Rheumatology. Dr. McClatchey has practiced medicine at the Piedmont Clinic since
1979. Dr. McClatchey was a member of the Board of Directors of BankSouth
Corporation, N.A., and served as Chairman of its Community Development
Committee. He is a member of the American College of Physicians, serving on its
Committee on Medical Informatics from 1986 until 1992 and as Chairman of that
committee from 1990 to 1992. Dr. McClatchey was a member of the Health Policy
Advisory Committee of the Center for Strategic and International Studies in 1993
and served as Chairman of the Study Group on Preventive Health and
Infrastructure in 1993. Dr. McClatchey is President and serves on the Board of
Trustees of Georgia Health Decisions, Inc. a community-based not-for-profit
organization working for comprehensive health care reform in Georgia. Dr.
McClatchey is a member of the Georgia Coalition for Health, a 32-member group
charged by Governor Zell Miller to devise a proposal to reform Georgia's
Medicaid program. In addition, Dr. McClatchey is a member of the Board of
Directors and Executive Committee of the Georgia Health Policy Center at Georgia
State University and a member of the Information Systems Steering Committee for
Promina Health System, Atlanta, Georgia.
Under the terms of the Company's Bylaws, the members of the Board of
Directors are divided into three classes, each of which serves a term of three
years. Each class is to consist, as nearly as possible, of one-third of the
total number of directors. The terms of Mr. Cowan and Dr. McClatchey will expire
in 1997; the terms of Messrs. Finn and Murray will expire in 1998; and the terms
of Messrs. Kaiser and Pinkas will expire in 1999.
38
<PAGE> 40
EXECUTIVE COMPENSATION
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities during the fiscal year ended December 31, 1995 for the Chief
Executive Officer of the Company. None of the other executive officers of the
Company received total annual salary and bonus in excess of $100,000 in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND ---------------------------
PRINCIPAL POSITION SALARY BONUS
-------------------------------------------------- -------- --------
<S> <C> <C>
Mark A. Kaiser.................................... $175,000 $25,000
Chairman of the Board,
Chief Executive Officer
and President
</TABLE>
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark A. Kaiser............. 86,916 27,413 $29,659 $ 9,354
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market
value of the securities underlying the option at December 31, 1995
($0.64 per share as determined by the Board of Directors) and the
exercise price of the Chief Executive Officer's option. In
determining the fair market value of the Company's Common Stock, the
Board of Directors relied on the negotiated value attributed to
Common Stock in connection with the Company's acquisition of
Formations.
STOCK INCENTIVE PLANS
Medirisk Stock Incentive Plan. The Board of Directors of the Company has
adopted and the stockholders of the Company have approved the Medirisk, Inc.
1996 Stock Incentive Plan (the "Incentive Plan"). Pursuant to the Incentive
Plan, awards are permitted to be granted in the form of non-qualified stock
options, incentive stock options, stock appreciation rights and shares of
restricted stock. In addition, the Incentive Plan provides for several types of
equity-based incentive compensation awards, namely performance units,
performance shares, phantom stock, unrestricted bonus stock and dividend
equivalent rights.
The Incentive Plan will be administered by the Compensation Committee of
the Board of Directors. The Compensation Committee will determine the persons to
whom, and the times at which, awards will be granted, the type of awards to be
granted and all other related terms and conditions of the awards, subject to
certain limitations set forth in the Incentive Plan. All officers and key
employees of the Company and its affiliates are eligible to participate in the
Incentive Plan.
A total of 502,693 shares of Common Stock are reserved for issuance
pursuant to the Incentive Plan. In the event of a Change in Control of the
Company (as defined in the Incentive Plan), stock incentives will become fully
vested without regard to the exercisability of the award or any other conditions
or restrictions. Prior to the completion of the Offering, the Company will
attempt to cause all existing outstanding options to be surrendered in exchange
for options with identical terms issued under the Incentive Plan.
Medirisk Non-Management Directors' Stock Option Plan. The Medirisk, Inc.
Non-Management Directors' Stock Option Plan (the "Directors' Plan") provides for
the issuance of non-qualified stock options to directors of the Company who are
not employed by or otherwise affiliated with the Company ("eligible" directors).
A total of 100,000 shares of Common Stock are reserved for issuance pursuant to
the Directors' Plan. The effective date of the Directors' Plan (the "Effective
Date") will be the effective date of the Offering.
39
<PAGE> 41
The Directors' Plan will be administered by a committee of at least two
directors appointed by the Board. Each eligible director on the Effective Date
will be granted an option as of the Effective Date to purchase a total of 10,000
shares of Common Stock. Each eligible director who is first elected or appointed
to serve as a director following the Effective Date will be granted an option as
of the first business day following his or her first day of service as a
director to purchase 10,000 shares of Common Stock. An option granted under
either of the foregoing circumstances is hereinafter referred to as an "Initial
Option." Thereafter, each eligible director will be granted as of the last
business day of each following fiscal year an option to purchase 5,000 shares of
Common Stock (an "Annual Option"), provided that the eligible director continues
to serve as director as of the last business day of that fiscal year. In
addition, each eligible director will be granted, as of the date of exercise of
any Initial Option or Annual Option, an option to purchase a number of shares
equal to the number, if any, of the shares of Common Stock tendered in payment
of the exercise price as described below, provided that the optionee is a member
of the Board of Directors as of the exercise date. No options will be granted to
an eligible director who is otherwise precluded from receiving a grant of Common
Stock. If the remaining number of shares reserved for issuance under the
Directors' Plan is insufficient to grant options for the appropriate number of
shares to all eligible directors as of any grant date, then no options will be
granted as of that grant date.
The exercise price of an option will be equal to the fair market value of a
share of Common Stock on the date of grant. All options granted under the
Directors' Plan will become exercisable in one-third increments over three years
following the date of grant, provided, however, that in the event of a
director's death or disability, any such option will become exercisable
immediately in full upon the later of (i) the optionee's death or disability or
(ii) six months following the date of grant.
Messrs. Cowan, Finn, Murray and Pinkas and Dr. McClatchey will be eligible
to participate in the Directors' Plan and will each receive an Initial Option to
purchase 10,000 shares on the Effective Date at an exercise price equal to the
initial public offering price per share of the Common Stock.
EMPLOYMENT AGREEMENTS
Mr. Mark A. Kaiser is a party to an employment agreement dated as of May
31, 1996 with Medirisk pursuant to which he serves as Chairman of the Board of
Directors and Chief Executive Officer of the Company. The agreement is for an
initial term of three years, commencing on May 31, 1996, with automatic one-year
renewals thereafter, unless either party gives 60 days' advance notice of
nonrenewal. The agreement provides for an initial annual base salary of
$190,000, which may be increased annually at the discretion of the Compensation
Committee, and an annual target bonus equal to 50% of his base salary for the
applicable year, determined based upon Medirisk's performance with respect to
goals established by the Compensation Committee. Mr. Kaiser is also entitled to
participate in all of the Company's employee benefit plans. In addition, Mr.
Kaiser was granted options to purchase up to 32,480 shares of Common Stock at
$0.64 per share. The agreement provides that the Company shall grant Mr. Kaiser
additional options to purchase 32,480 shares on each of the first and second
anniversaries of the date of the agreement. These subsequent options will have
an exercise price equal to the fair market value of the Common Stock on the date
of grant. All of the options granted under the agreement vest ratably over five
years from the date of grant or immediately upon the sale or other change of
control involving the Company. Mr. Kaiser's agreement contains a nondisclosure
covenant, as well as covenants not to divert business or employees from the
Company for one year following termination. In the event Mr. Kaiser terminates
his employment for good reason, as defined in the agreement (which includes a
voluntary termination by Mr. Kaiser one year after a change of control involving
the Company), or if Medirisk terminates his employment other than for good
cause, as defined in the agreement, Mr. Kaiser shall be entitled to continue to
receive his base salary and all benefits until the later of May 31, 1999, or one
year from the date of termination.
Ms. Pamella L. Leiter is a party to an employment agreement dated as of
January 9, 1996 with Medirisk pursuant to which Ms. Leiter serves as a Vice
President of the Company. The agreement is for a term of two years, commencing
on January 9, 1996. The agreement provides for an initial annual base salary of
$125,000, which salary is subject to increase by the Board of Directors based on
Ms. Leiter's performance and the performance of the Company. Ms. Leiter is also
entitled to participate in benefit plans Medirisk maintains for
40
<PAGE> 42
the benefit of its executive officers. Ms. Leiter's employment agreement
contains (i) a confidentiality provision that prohibits disclosure of the
Company's proprietary information; and (ii) a covenant not to compete which,
upon Ms. Leiter's termination of employment with Medirisk for any reason,
provides that Ms. Leiter shall not engage, directly or indirectly, in the
Company's business in the United States for a period of two years following such
termination. The agreement also contains covenants prohibiting solicitation of
employees or customers for two years following termination. Ms. Leiter may
terminate her employment at any time upon 30 days' written notice to the
Company. In the event Ms. Leiter terminates her employment for good reason, as
defined in the agreement, or if Medirisk terminates her employment other than
for good cause, as defined in the agreement, Ms. Leiter shall be entitled to
continue to receive her then-effective salary through January 9, 1998.
Ms. Susan P. Brandt is a party to an employment agreement dated as of March
14, 1996 with Medirisk pursuant to which she serves as a Vice President of the
Company. The agreement is for a term of three years, commencing on March 14,
1996. The agreement provides for an initial annual base salary of $96,000 and
provides that Ms. Brandt will be eligible to receive a target bonus equal to
$50,000 for services rendered from March 14, 1996 through December 31, 1996. The
amount of the bonus will be determined based upon the performance of Medirisk
through December 31, 1996. For each year thereafter during the term of the
agreement, Ms. Brandt is entitled to receive an annual target bonus of $50,000
based upon the Company's achievement of certain pre-tax profit goals established
by the Board of Directors. In addition, Ms. Brandt was granted options to
purchase up to 32,480 shares of Common Stock of the Company at $0.64 per share.
The options vest ratably over five years and expire ten years after the date of
issuance. Ms. Brandt is also entitled to participate in benefit plans Medirisk
maintains for the benefit of its officers. Ms. Brandt's employment agreement
contains substantially the same noncompetition, nonsolicitation and
nondisclosure covenants as Ms. Leiter's employment agreement. Ms. Brandt may
terminate her employment at any time upon 30 days' written notice to the
Company. In the event Ms. Brandt terminates her employment for good reason, as
defined in the agreement, or if Medirisk terminates her employment for other
than good cause, as defined in the agreement, she shall be entitled to continue
to receive her then-effective salary through March 14, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James K. Murray, III, is a member of the Compensation Committee of the
Company's Board of Directors and is an Executive Vice President of HPSC. Prior
to Mr. Murray's joining the Board of Directors, the Company and HPSC entered
into the Securities Purchase Agreement, and the Company issued Series B
Convertible Preferred Stock and Senior Subordinated Notes to HPSC during 1996.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." At that time, the Company and
HPSC entered into a Registration Rights Agreement giving HPSC certain demand and
piggyback registration rights, a Shareholders' Agreement and Warrant Agreement.
See "Description of Capital Stock -- Registration Rights" and " -- Designation
of Directors."
CERTAIN TRANSACTIONS
Mark A. Kaiser, Chairman of the Board, Chief Executive Officer and
President of the Company, received a loan of $75,000 from the Company in 1994 in
connection with the purchase of 116,928 shares of Common Stock at a price equal
to $0.64 per share. In connection with such loan, Mr. Kaiser executed a
promissory note providing for the payment of interest at the rate of 8.25% per
annum. Mr. Kaiser made payments of principal and interest in 1994 and 1995,
reducing the principal balance to approximately $36,000. In May 1996, as an
inducement for Mr. Kaiser's execution of a new employment agreement, such
remaining principal balance was forgiven by the Company. In June 1996, the
Company loaned Mr. Kaiser $112,500, and Mr. Kaiser executed an unsecured
promissory note providing for the payment of interest at the rate of 8.25% per
annum.
In connection with and as partial consideration for the acquisition of
PracticeMatch, the Company issued a promissory note to Susan P. Brandt, Vice
President, Operations of the Company, and a former shareholder of PracticeMatch
in the original principal amount of $197,231 and bearing interest at the rate of
10.0% per annum. The note is unsecured. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
41
<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of December 20, 1996 (giving effect to
the conversion of all outstanding shares of Convertible Preferred Stock into
Common Stock), and as adjusted to reflect the sale of the shares offered hereby,
by (i) each person who is known by the Company to beneficially own more than
five percent of the outstanding shares of Common Stock; (ii) each of the
Company's directors; (iii) each executive officer of the Company; and (iv) all
of the Company's executive officers and directors as a group. Unless otherwise
indicated, the business address of each person listed below is care of Medirisk,
Inc., Two Piedmont Center, Suite 400, 3565 Piedmont Road, N.E., Atlanta, Georgia
30305.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
SHARES ---------------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(1) THE OFFERING THE OFFERING
- ---------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Brantley Venture Partners II, L.P......................... 522,745(2) 28.7% 12.1%
20600 Chagrin Boulevard
Suite 1150 Tower East
Cleveland, Ohio 44122
Sears Pension Trust....................................... 522,745(2) 28.7 12.1
c/o Chase Manhattan Bank, N.A., Trustee
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
HealthPlan Services Corporation........................... 480,442(3) 23.8 10.6
3501 Frontage Road
Tampa, Florida 33607
Mark A. Kaiser............................................ 289,722(4) 15.8 6.7
Paul A. Rodwick........................................... 0 * *
Kenneth M. Goins, Jr. .................................... 32,480 1.9 *
Susan P. Brandt........................................... 3,789 * *
Pamella L. Leiter......................................... 117,728(5) 6.8 2.8
Michael J. Finn........................................... 522,745(6) 28.7 12.1
James K. Murray, III...................................... 480,442(7) 23.8 10.6
Robert P. Pinkas.......................................... 522,745(6) 28.7 12.1
Laurence H. Powell........................................ 314,357 17.7 7.4
P.O. Box 501085
Atlanta, Georgia 31150
All directors and executive officers as a group (8
members)................................................ 1,446,906 64.4 30.5
</TABLE>
- ---------------
* Less than one percent.
(1) The named stockholders have sole voting and investment power with respect to
all shares shown as being beneficially owned by them, except as otherwise
indicated.
(2) Includes warrants to purchase 97,440 shares of Common Stock.
(3) Includes warrants to purchase 298,150 shares of Common Stock.
(4) Includes options to purchase 114,330 shares of Common Stock.
(5) Includes options to purchase 14,473 shares of Common Stock.
(6) Represents shares owned by Brantley Venture Partners II, L.P. Each of
Messrs. Finn and Pinkas is a partner of a partnership which is itself a
general partner of Brantley Venture Partners II, L.P. and, as such, may be
deemed to share voting and investment power with respect to the shares
owned by Brantley Venture Partners II, L.P. See Note 2 above.
(7) Represents shares owned by HPSC. Mr. Murray is an executive officer of HPSC
and, as such, may be deemed to share voting and investment power with
respect to the shares owned by HPSC. See Note 3 above.
42
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon completion of the Offering, the Company's authorized capital stock
will consist of 20,000,000 shares of Common Stock, par value $0.001 per share
(the "Common Stock"), and 1,000,000 shares of Preferred Stock, par value $0.001
per share (the "Preferred Stock"). At December 20, 1996 there were (i) 3,000,000
shares of Series A Preferred Stock authorized and 1,292,359 shares of Series A
Preferred Stock outstanding; (ii) 400,000 shares of Series B Preferred Stock
authorized and 280,623 shares of Series B Preferred Stock outstanding; and (iii)
20,000,000 shares of Common Stock authorized and 700,199 shares outstanding.
Upon completion of the Offering, all of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock will be converted into shares of
Common Stock, and the Series A Preferred Stock and Series B Preferred Stock will
no longer be included in the authorized capital stock of the Company. All of the
currently outstanding shares of Common Stock, Series A Preferred Stock and
Series B Preferred Stock are validly issued, fully paid and nonassessable under
the Delaware General Corporation Law (the "DGCL").
The following summary describes the capital stock of the Company to be
authorized on completion of the Offering. This summary describes the material
elements of the Company's Certificate of Incorporation as it relates to the
Company's capital stock but does not purport to be complete and is subject to,
and qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation (the "Certificate") and by the provisions of applicable law,
including the DGCL.
COMMON STOCK
Dividends and Other Distributions. Subject to the preferential rights of
the Preferred Stock, the holders of shares of Common Stock are entitled to
receive dividends, when and if declared by the Board of Directors, out of the
assets of the Company which are by law available therefor. In the event of
dissolution of the Company, after distribution of the preferential amounts to be
distributed to the holders of shares of the Preferred Stock, holders of Common
Stock are entitled to receive all of the remaining assets of the Company ratably
in proportion to the number of shares of Common Stock held by them respectively.
Voting Rights. Except as otherwise required by law or the Certificate,
each holder of Common Stock votes together with all other classes and series of
stock of the Company as a single class and has one vote in respect of each share
of stock held by the stockholder of record on the books of the Company for the
election of directors and on all matters submitted to a vote of stockholders of
the Company. Holders of Common Stock do not have cumulative voting rights.
Preemptive Rights. No holder of Common Stock has any preemptive or
preferential right to purchase or subscribe for shares of Company capital stock
of any class.
Other. All preferences, voting powers, relative, participating, optional
or other special rights and privileges, and qualifications, limitations, or
restrictions of the Common Stock are expressly made subject and subordinate to
those that may be fixed with respect to any shares of the Preferred Stock. There
is no provision for redemption or conversion of Common Stock.
PREFERRED STOCK
The Certificate provides that the Board of Directors of the Company is
authorized to issue Preferred Stock in series and to fix and state the voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights of the shares of
each such series and the qualifications, limitations and restrictions thereof.
Such action may be taken by the Board of Directors without shareholder approval.
Under the Certificate, each share of each series of Preferred Stock is to have
the same relative rights as, and be identical in all respects to, all other
shares of the same series. While providing flexibility in connection with
possible financings, acquisitions and other corporate purposes, the issuance of
Preferred Stock, among other things, could adversely affect the voting power of
the holders of Common Stock and, under certain circumstances, be used as a means
of discouraging, delaying or preventing
43
<PAGE> 45
a change of control of the Company. There will be no shares of Preferred Stock
outstanding upon completion of the Offering, and the Company has no present
intention of issuing shares of its Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE BYLAWS AND DELAWARE LAW
Bylaws. The Company's Bylaws provide that the Board of Directors will be
divided into three classes of directors, each class constituting approximately
one-third of the total number of directors and with the classes serving
staggered three-year terms. The Bylaws provide that the Company's stockholders
may call a special meeting of stockholders only upon a request of stockholders
owning at least 50% of the Company's capital stock. These provisions of the
Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors and
to discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal.
The provisions also are intended to discourage certain tactics that may be used
in proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for the Company's shares and, as a consequence,
they also may inhibit fluctuations in the market price of the Company's shares
that could result from actual or rumored takeover attempts. Such provisions also
may have the effect or preventing changes in the management of the Company. See
"Risk Factors -- Adverse Impact of Anti-takeover Provisions" and "Description of
Capital Stock -- Preferred Stock."
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any business
combination with an interested stockholder for a period of three years following
the date that such stockholder became an interested stockholder, unless: (i)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, an
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and also officers and (b) employee stock plans in which
employee participants do not have the right to determine confidentially whether
the shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent, by the affirmative vote
of at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation, involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits through the corporation or any subsidiary
thereof.
WARRANTS
In 1993, the Company obtained $300,000 in unsecured credit from Brantley
Venture Partners II, L.P. ("Brantley") and Sears Pension Trust ("Sears"). As
part of such transaction, the Company issued to the lenders warrants to purchase
a total of 194,880 shares of Common Stock (the "1993 Warrants"). The per share
exercise price of the 1993 Warrants is equal to $1.54, subject to various
anti-dilution adjustments. The 1993 Warrants are currently exercisable. The
Company has, as described below, granted Brantley and Sears certain demand and
incidental registration rights with respect to the shares of Common Stock
underlying the 1993 Warrants. The Company is required to bear the expenses of
any such registration.
44
<PAGE> 46
The Company obtained a commitment for up to $10.0 million in unsecured
credit from HealthPlan Services Corporation under a Securities Purchase
Agreement with HPSC dated January 8, 1996 (as amended, the "Securities Purchase
Agreement"). As part of such transaction, the Company agreed to issue to HPSC
warrants to purchase up to 432,101 shares of Common Stock as and when the
Company borrowed funds from such lender (the "HPSC Warrants"). The per share
exercise price of the HPSC Warrants is equal to $0.015, subject to various
anti-dilution adjustments. In March 1996, in connection with borrowing $6.9
million under the Securities Purchase Agreement, the Company issued to HPSC an
HPSC Warrant to purchase 298,150 shares of Common Stock. The HPSC Warrants are
currently exercisable. Assuming the Company makes no further borrowings from
HPSC, as is its current expectation, no further HPSC Warrants will be issued.
The Company has, as described below, granted HPSC certain demand and incidental
registration rights with respect to the shares of Common Stock underlying the
HPSC Warrants. The Company is required to bear the expenses of any such
registration.
REGISTRATION RIGHTS
Brantley, Sears and Laurence Powell, as holders of 1,164,967 shares of
Common Stock upon completion of the Offering and as holders of Common Stock
issuable upon exercise of the 1993 Warrants, or their respective transferees,
are entitled to certain rights with respect to the registration of such shares
(the "Investor Registrable Securities") under the Securities Act. These rights
are provided under the terms of an Investor Registration Agreement dated October
28, 1996 (the "Investor Agreement"). Pursuant to the Investor Agreement, the
Company granted to Brantley, Sears and Powell three demand registrations at the
Company's expense and unlimited demand registrations at the expense of the
holders, subject to certain restrictions, upon the written demand of the holders
at any time after the closing of the Offering. In addition, Brantley, Sears and
Powell are permitted to participate in any offering, subject to certain
restrictions, in the event the Company proposes to register any of its equity
securities under the Securities Act. The Company has agreed under the Investor
Agreement to indemnify the selling holders of the Registrable Securities against
certain liabilities under the Securities Act.
HPSC, as holder of 182,293 shares of Common Stock upon completion of the
Offering and as holder of Common Stock issuable upon exercise of the HPSC
Warrants, or its transferees, is entitled to certain rights with respect to the
registration of such shares (the "HPSC Registrable Securities") under the
Securities Act. These rights are provided under the terms of a Registration
Rights Agreement dated January 8, 1996 (the "HPSC Registration Agreement").
Pursuant to the HPSC Registration Agreement, the Company grants to HPSC one
demand registration per calendar year for a total of two demand registrations,
subject to certain restrictions, upon the written demand of HPSC at any time
after the closing of the Offering. In addition, HPSC is permitted to participate
in any offering in the event the Company proposes to register any of its equity
securities under the Securities Act. The Company has agreed under the HPSC
Registration Agreement to indemnify the selling holders of the HPSC Registrable
Securities against certain liabilities under the Securities Act.
Pamella L. Leiter, as holder of 103,255 shares of Common Stock and as
holder of Common Stock issuable upon exercise of options to purchase Common
Stock issued to her upon the Company's acquisition of the capital stock of
Formations, or her transferees, is entitled to certain rights with respect to
the registration of such shares (the "Leiter Registrable Securities") under the
Securities Act. These rights are provided under the terms of a Registration
Rights Agreement dated January 9, 1996 (the "Leiter Registration Agreement").
The Leiter Registration Agreement provides that if the Company at any time after
its initial public offering proposes to register any of its securities under the
Securities Act, on a form other than Form S-4 or S-8 or any successor form, the
holders of the Leiter Registrable Securities are entitled to have their shares
included in such registration statement on a pro rata basis, subject to certain
limitations and other terms and conditions. The Company has agreed under the
Leiter Registration Agreement to indemnify the selling holders of the Leiter
Registrable Securities against certain liabilities under the Securities Act.
To the extent required, each of the holders of the registration rights
described above has agreed to waive any right they may have to participate in
the Offering and not to exercise such registration rights for a period of 180
days after the date of this Prospectus.
45
<PAGE> 47
DESIGNATION OF DIRECTORS
Under a Shareholders Agreement, each of HPSC, Brantley and Sears currently
has the right, subject to certain limitations and conditions, to name one person
to be nominated to the Board of Directors. Such agreement will terminate as to
Brantley and Sears upon the closing of the Offering. Under the Securities
Purchase Agreement, HPSC will retain the right to name one person to be
nominated to the Board of Directors so long as HPSC owns or has the right to
acquire at least 162,400 shares of Common Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitations of Director Liability. Section 102(b)(7) of the DGCL
authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of directors' fiduciary duty of care. Although Section 102(b)(7) does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate limits the
liability of directors to the Company or its stockholders to the full extent
permitted by Section 102(b)(7). Specifically, directors of the Company are not
personally liable for monetary damages to the Company or its stockholders for
breach of the director's fiduciary duty as a director, except for liability: (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) for unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL; or (iv) for
any transaction from which the director derived an improper personal benefit.
The provision does not affect a stockholder's right to sue (or to recover
monetary damages) based upon a director's responsibilities under any other law,
such as federal securities laws or state or federal environmental laws.
Indemnification. To the maximum extent permitted by law, the Bylaws
provide for mandatory indemnification of directors and officers of the Company
against any expense, liability or loss to which they may become subject, or
which they may incur as a result of being or having been a director or officer
of the Company. In addition, the Company must advance or reimburse directors and
officers for expenses incurred by them in connection with indemnification
claims.
The Company has entered into separate indemnification agreements with each
of its directors and officers. Each indemnification agreement provides for,
among other things: (i) indemnification against any and all expenses,
liabilities and losses (including attorneys' fees, judgments, fines, taxes,
penalties and amounts paid in settlement) of any claim against an indemnified
party unless it is determined, as provided in the indemnification agreement,
that indemnification is not permitted under applicable law, and (ii) prompt
advancement of expenses to any indemnified party in connection with his or her
defense against any claim.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is SunTrust Bank,
Atlanta, in Atlanta, Georgia.
46
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 4,222,008 shares of
Common Stock outstanding (based on the number of shares of Common Stock
outstanding as of December 20, 1996). The 2,500,000 shares sold in the Offering
(or 2,875,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradable without restriction or further registration under
the Securities Act, except to the extent such shares are purchased by
"affiliates" of the Company, as that term is defined under the Securities Act.
The remaining 1,722,008 shares outstanding after the Offering will be
"restricted shares" (the "Restricted Shares") within the meaning of Rule 144
promulgated under the Securities Act and may not be sold except in compliance
with the registration requirements of the Securities Act or pursuant to an
exemption from registration such as the exemption provided by Rule 144 under the
Securities Act.
Of the 1,722,008 Restricted Shares to be outstanding after the Offering,
701,515 shares (of which 685,794 are subject to the lock-up agreements described
below) will be eligible for sale in the public market, pursuant to Rule 144,
beginning 90 days after the Offering, subject to the manner of sale, volume and
other restrictions of Rule 144, and 291,487 shares (all of which are subject to
the lock-up agreements described below) will be eligible for sale in the public
market immediately after the Offering pursuant to Rule 144(k) and without the
restrictions of Rule 144.
The Company, its officers and directors and certain other stockholders of
the Company holding in the aggregate 1,697,843 (98.6%) of the shares of Common
Stock outstanding immediately prior to the Offering, have agreed not to offer,
sell or otherwise dispose of any of their shares in the public market for a
period of 180 days after the date of this Prospectus without the prior consent
of Equitable Securities Corporation (the "Lockup Period"). After the Lockup
Period has lapsed, these shares will be eligible for sale in the public market,
subject to the conditions and restrictions of Rule 144, as described below.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned for at
least a two-year period (as computed under Rule 144) shares privately acquired
directly or indirectly from the Company or from an "affiliate" of the Company,
and persons who are affiliates of the Company, are entitled to sell within any
three-month period a number of shares that does not exceed the greater of (i) 1%
of the then outstanding shares of Common Stock (approximately 42,220 shares
after giving effect to the Offering) or (ii) the average weekly trading volume
in Common Stock during the four calendar weeks immediately preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain provisions relating to the manner and notice of sale and the
availability of current public information about the Company. A stockholder (or
stockholders whose shares are aggregated) who is not deemed an affiliate of the
Company at any time during the 90 days immediately preceding a sale, and who has
beneficially owned his shares for at least three years (as computed under Rule
144), is entitled to sell such shares under Rule 144(k) without regard to the
volume and manner of sale limitations described above. Rule 144A under the
Securities Act permits the immediate sale by the current holders of Restricted
Shares of all or a portion of their shares to certain qualified institutional
buyers as defined in Rule 144A.
The Securities and Exchange Commission (the "Commission") has proposed
certain amendments to Rule 144 that would reduce by one year the holding period
for shares subject to Rule 144 to become eligible for sale in the public market.
This proposal, if adopted, would increase the number of shares of Common Stock
eligible for immediate resale following the expiration of the lock up
agreements. No assurance can be given whether or when the proposal to amend Rule
144 will be adopted by the Commission.
The Company has reserved 328,672 shares of Common Stock for issuance upon
the exercise of stock options that are currently outstanding. The Company
intends to file a registration statement under the Securities Act to register
the Common Stock to be issued upon exercise of the above-described options as
soon as practical after the effective date of the registration statement with
respect to the Offering; as soon as such Common Stock is registered such shares
(other than those held by affiliates of the Company) generally may be sold
immediately in the public market, subject to the lock up agreements described
above.
Sales of Common Stock in the public market, or the availability of such
shares for sale, could adversely affect the market price of the Common Stock and
make it more difficult for the Company to sell equity securities in the future
at a time and price which it deems appropriate. The Company is unable to
estimate accurately the number of Restricted Shares that will be sold in the
future under Rule 144 since this will depend in part on the market price for the
Common Stock, the personal circumstances of the sellers and other factors.
47
<PAGE> 49
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Equitable Securities Corporation..................................................
Jefferies & Company, Inc..........................................................
---------
Total................................................................... 2,500,000
=========
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if any such shares are sold and
purchased.
The Underwriters, for whom Equitable Securities Corporation and Jefferies &
Company, Inc. are acting as Representatives, propose initially to offer part of
the shares of Common Stock directly to the public at the public offering price
set forth on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to other Underwriters or to certain
other dealers. After the initial public offering, the public offering price and
such concessions may be changed by the Underwriters. The Representatives have
informed the Company that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company, its officers and directors and certain other stockholders of
the Company have agreed that, for a period of 180 days after the date of this
Prospectus, they will not, without the prior written consent of Equitable
Securities Corporation, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock except, in the case of the Company, in certain
limited circumstances.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations between the Company and the Representatives of the
Underwriters. The factors to be considered in determining the initial public
offering price are the history of, and the prospects for, the Company's business
and the industry in which it competes,
48
<PAGE> 50
an assessment of the Company's management, its past and present operations, its
past and present earnings and the trend of such earnings, the prospects of
earnings of the Company, the present state of the Company's development, the
general condition of the securities market at the time of the Offering and the
market prices and earnings of similar securities of comparable companies at the
time of the Offering.
The Common Stock has been approved for quotation on the Nasdaq Stock
Market's National Market under the symbol "MDMD." There can be no assurance,
however, that an active or orderly trading market will develop for the Common
Stock or that the Common Stock will trade in the public markets subsequent to
the Offering at or above the initial public offering price.
During 1995 and early 1996, Equitable Securities Corporation, one of the
Underwriters of the Offering, acted as financial advisor for the Company in
connection with the proposed private placement of securities of the Company,
which culminated in the sale to HPSC of 280,623 shares of Series B Convertible
Preferred Stock for $2.0 million and HPSC's agreement to purchase up to $10.0
million in Senior Subordinated Notes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." For its services, Equitable Securities Corporation received
customary compensation and reimbursement of its related expenses.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Alston & Bird, Atlanta, Georgia
and for the Underwriters by Dewey Ballantine, New York, New York.
EXPERTS
The Consolidated Financial Statements of the Company and subsidiaries as of
December 31, 1994 and 1995 and June 30, 1996 and for each of the years in the
three-year period ended December 31, 1995 and the six months ended June 30, 1996
have been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of the Company's subsidiary Formations as of
December 31, 1995 and for the year then ended have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of the Company's subsidiary PracticeMatch as of
December 31, 1995, 1994 and 1993 and for the years then ended have been included
herein in reliance upon the report of Brown Smith Wallace, L.L.C., independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (herein, together with all exhibits and amendments thereto, called the
"Registration Statement") under the Securities Act, with respect to the shares
of Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement, including the exhibits thereto, copies of
which may be inspected, without charge, at the principal office of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York
10048. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Registration Statement, including the exhibits and
schedules thereto, is also available on the Commission's Web site at
http://www.sec.gov. Statements contained in the Prospectus concerning the
provisions of certain documents filed as exhibits to the Registration Statement
are of necessity brief descriptions thereof and summarize the material elements
thereof, but they are not necessarily complete and each such statement is
qualified in its entirety by reference to the full text of such document.
49
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Medirisk, Inc. and Subsidiaries
Independent Auditors' Report....................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995, June 30, 1996 and
September 30, 1996 (unaudited).................................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995, the six months ended June 30, 1996 and the nine months ended September
30, 1995 and 1996 (unaudited)................................................... F-4
Consolidated Statements of Stockholders' Equity (deficit) for the years ended
December 31, 1993, 1994 and 1995, the six months ended June 30, 1996 and the
three months ended September 30, 1996 (unaudited)............................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995, the six months ended June 30, 1996 and the nine months ended September
30, 1995 and 1996 (unaudited)................................................... F-6
Notes to Consolidated Financial Statements......................................... F-7
Formations in Health Care, Inc.
Independent Auditors' Report....................................................... F-19
Balance Sheet as of December 31, 1995.............................................. F-20
Statement of Operations for the year ended December 31, 1995....................... F-21
Statement of Shareholder's Equity (Deficit) for the year ended December 31, 1995... F-22
Statement of Cash Flows for the year ended December 31, 1995....................... F-23
Notes to Financial Statements...................................................... F-24
PracticeMatch, Inc.
Independent Auditors' Report....................................................... F-27
Balance Sheets as of December 31, 1995, 1994 and 1993.............................. F-28
Statements of Operations for the years ended December 31, 1995, 1994 and 1993...... F-29
Statements of Stockholders' Equity (Deficiency) for the years ended December 31,
1995, 1994 and 1993............................................................. F-30
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993...... F-31
Notes to Financial Statements...................................................... F-32
</TABLE>
F-1
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Medirisk, Inc.:
We have audited the accompanying consolidated balance sheets of Medirisk,
Inc. and subsidiaries as of December 31, 1994 and 1995 and June 30, 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1995 and for the six months ended June 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Medirisk,
Inc. and subsidiaries as of December 31, 1994 and 1995 and June 30, 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, and for the six months ended June
30, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
August 23, 1996
F-2
<PAGE> 53
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
----------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 413,625 $ 288,838 $ 1,146,617 $ 532,484
Accounts receivable, less allowances for doubtful accounts of $0, $0,
$47,698, and $47,439 at December 31, 1994 and 1995, June 30, 1996
and September 30, 1996, respectively................................ 265,149 538,769 880,987 1,194,046
Prepaid expenses...................................................... 72,245 90,573 265,664 792,158
Note receivable from officer (note 10)................................ -- -- 22,500 22,500
Other current assets.................................................. 12,678 4,603 106,913 106,575
----------- ----------- ----------- -----------
Total current assets............................................ 763,697 922,783 2,422,681 2,647,763
----------- ----------- ----------- -----------
Property and equipment (note 3)......................................... 650,748 842,311 1,487,905 1,560,210
Less accumulated depreciation and amortization........................ 317,206 510,605 673,829 778,414
----------- ----------- ----------- -----------
Property and equipment, net......................................... 333,542 331,706 814,076 781,796
----------- ----------- ----------- -----------
Excess of cost over net assets of businesses acquired, less accumulated
amortization of $81,931 at June 30, 1996 and $125,345 at September 30,
1996 (note 2)......................................................... -- -- 3,226,909 3,183,495
Intangible assets, less accumulated amortization of $37,417 at June 30,
1996 and $63,417 at September 30, 1996 (note 2)....................... -- -- 482,583 456,583
Software development costs, less accumulated amortization of $5,779 at
June 30, 1996 and $12,545 at September 30, 1996....................... -- -- 103,152 101,276
Note receivable from officer, excluding current portion (note 10)....... -- -- 90,000 90,000
Other assets............................................................ 13,715 8,801 655,656 607,438
----------- ----------- ----------- -----------
Total assets.................................................... $ 1,110,954 $ 1,263,290 $ 7,795,057 $ 7,868,351
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt and obligations under capital
leases (notes 4, 5 and 6)........................................... $ 127,711 $ 172,614 $ 910,142 $ 1,591,255
Accounts payable...................................................... 23,659 107,115 262,101 156,261
Accrued expenses...................................................... 92,773 170,925 139,478 668,793
Deferred revenue...................................................... 198,222 275,143 2,257,568 2,274,564
Other liabilities..................................................... -- -- 167,283 156,776
----------- ----------- ----------- -----------
Total current liabilities....................................... 442,365 725,797 3,736,572 4,847,649
Long-term debt and obligations under capital leases, excluding current
installments, principally related party debt at June 30, 1996 and
September 30, 1996 (notes 4, 5
and 6)................................................................ 171,695 151,302 7,968,991 7,197,744
Dividends payable (notes 8(b) and 8(d))................................. 214,794 416,402 517,206 567,608
----------- ----------- ----------- -----------
Total liabilities............................................... 828,854 1,293,501 12,222,769 12,613,001
----------- ----------- ----------- -----------
Series A convertible preferred stock, $.001 par value; at $1.95
redemption value, net of unaccreted discount; 3,000,000 shares
authorized; 1,292,359 issued and outstanding shares at December 31,
1994 and 1995 (notes 8(a) and 8(b))................................... 2,209,891 2,302,471 -- --
Stockholders' equity (deficit) -- (note 8):
Series A convertible preferred stock, $.001 par value (estimated
unaccrued aggregate involuntary liquidation preference $3,461,000);
3,000,000 shares authorized; 1,292,359 issued and outstanding shares
at June 30, 1996 and September 30, 1996............................. -- -- 1,292 1,292
Series B convertible preferred stock; $.001 par value (estimated
unaccrued aggregate involuntary liquidation preference $1,967,000);
400,000 shares authorized; 280,623 issued and outstanding shares at
June 30, 1996 and September 30, 1996 (note 5)....................... -- -- 281 281
Common Stock -- $.001 par value; 20,000,000 shares authorized;
649,730, 656,226, 763,210 and 700,199 shares issued at December 31,
1994 and 1995, June 30, 1996 and September 30, 1996, respectively;
584,770, 591,266, 698,250, and 700,199 shares outstanding at
December 31, 1994 and 1995, June 30, 1996 and September 30, 1996,
respectively........................................................ 650 656 763 700
Additional paid-in capital............................................ 492,330 292,666 4,829,360 4,769,806
Accumulated deficit................................................... (2,335,971) (2,566,204) (9,249,608) (9,516,729)
----------- ----------- ----------- -----------
(1,842,991) (2,272,882) (4,417,912) (4,744,650)
Less:
Common stock in treasury (64,960 shares), at cost................... 9,800 9,800 9,800 --
Note receivable from stockholder.................................... 75,000 50,000 -- --
----------- ----------- ----------- -----------
Total stockholders' equity (deficit)............................ (1,927,791) (2,332,682) (4,427,712) (4,744,650)
Commitments and contingencies (notes 5, 6 and 8)
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity (deficit)............ $ 1,110,954 $ 1,263,290 $ 7,795,057 $ 7,868,351
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 54
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30, SEPTEMBER 30,
--------------------------------------- ----------- -------------------------
1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue (note 9)................... $ 2,446,509 $ 2,893,803 $ 3,654,692 $ 3,874,025 $ 2,450,049 $ 6,253,646
Salaries, wages, and benefits...... 1,674,723 1,892,834 2,577,416 2,757,666 1,885,599 4,388,094
Other operating expenses........... 507,090 730,542 956,097 1,006,243 699,869 1,585,248
Depreciation and amortization...... 75,059 143,215 193,399 309,948 143,405 528,559
Acquired in-process research and
development costs (note 2)....... -- -- -- 6,180,000 -- 6,180,000
---------- ---------- ---------- ----------- ---------- -----------
Operating income (loss).......... 189,637 127,212 (72,220) (6,379,832) (278,824) (6,428,255)
Interest expense, principally
related party for 1996........... (40,641) (54,598) (65,433) (265,951) (44,304) (482,270)
Other income (expense), net........ 17,668 -- -- (37,621) -- (40,000)
---------- ---------- ---------- ----------- ---------- -----------
Income (loss) before income
taxes.......................... 166,664 72,614 (137,653) (6,683,404) (323,128) (6,950,525)
Income taxes (note 7).............. -- -- -- -- -- --
---------- ---------- ---------- ----------- ---------- -----------
Net income (loss)......... 166,664 72,614 (137,653) (6,683,404) (323,128) (6,950,525)
Accretion of Series A convertible
preferred stock.................. (13,774) (54,054) (92,580) -- (69,435) --
Series A convertible preferred
stock dividend requirement....... (56,997) (157,797) (201,608) (100,804) (151,206) (151,206)
---------- ---------- ---------- ----------- ---------- -----------
Net income (loss)
attributable to common
stock................... $ 95,893 $ (139,237) $ (431,841) $(6,784,208) (543,769) (7,101,731)
========== ========== ========== =========== ========== ===========
Pro forma net loss per share of
common stock (unaudited)......... $ (0.20) $ (3.06) $ (3.24)
========== =========== ===========
Pro forma weighted average number
of common shares used in
calculating pro forma net loss
per share of common stock
(unaudited)...................... 2,211,727 2,217,465 2,190,503
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 55
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995, SIX MONTHS ENDED JUNE 30, 1996,
AND THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------- --------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ ------- ------ --------- ------
Balance at December 31, 1992..................................... -- $ -- -- $ -- 649,600 $650
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... -- -- -- -- -- --
Accrued dividend payable (note 8(b))............................. -- -- -- -- -- --
Net income....................................................... -- -- -- -- -- --
--------- ------ ------- ---- --------- ------
Balance at December 31, 1993..................................... -- -- -- -- 649,600 650
Repurchase of common stock (note 8(e))........................... -- -- -- -- -- --
Conversion of notes payable into common stock (note 8(e))........ -- -- -- -- -- --
Issuance of common stock......................................... -- -- -- -- 130 --
Issuance of common stock in exchange for note receivable from
stockholder (note 8(e))......................................... -- -- -- -- -- --
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... -- -- -- -- -- --
Accrued dividend payable (notes 8(b) and (d)).................... -- -- -- -- -- --
Net income....................................................... -- -- -- -- -- --
--------- ------ ------- ---- --------- ------
Balance at December 31, 1994..................................... -- -- -- -- 649,730 650
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... -- -- -- -- -- --
Issuance of common stock......................................... -- -- -- -- 6,496 6
Repayment of note receivable from stockholder (note 8(e))........ -- -- -- -- -- --
Accrued dividend payable (note 8(b))............................. -- -- -- -- -- --
Net loss......................................................... -- -- -- -- -- --
--------- ------ ------- ---- --------- ------
Balance at December 31, 1995..................................... -- -- -- -- 656,226 656
Issuance of Series B convertible preferred stock, net of issuance
costs of $220,556 (note 5 and 8)................................ -- -- 280,623 281 -- --
Conversion of Series A convertible preferred stock from
redeemable to nonredeemable (note 8(b))......................... 1,292,359 1,292 -- -- -- --
Issuance of common stock (note 2)................................ -- -- -- -- 106,984 107
Repayment of note receivable from stockholder (note 8(e))........ -- -- -- -- -- --
Forgiveness of note receivable from stockholder (note 8(e))...... -- -- -- -- -- --
Discount on issuance of debt arising from stock purchase warrants
(note 5)........................................................ -- -- -- -- -- --
Stock option compensation expense (note 8(c)).................... -- -- -- -- -- --
Accrued dividend payable (note 8(b))............................. -- -- -- -- -- --
Net loss......................................................... -- -- -- -- -- --
--------- ------ ------- ---- --------- ------
Balance at June 30, 1996......................................... 1,292,359 1,292 280,623 281 763,210 763
========= ====== ======= ==== ========= ======
Cancellation of treasury stock................................... -- -- -- -- (64,960) (65)
Issuance of common stock......................................... -- -- -- -- 1,949 2
Accrued dividend payable (note 8(b))............................. -- -- -- -- -- --
Net loss......................................................... -- -- -- -- -- --
--------- ------ ------- ---- --------- ------
Balance at September 30, 1996 (unaudited)........................ 1,292,359 $1,292 280,623 $281 700,199 $700
========= ====== ======= ==== ========= ======
NOTE
ADDITIONAL TREASURY STOCK RECEIVABLE
PAID-IN ACCUMULATED ------------------- FROM
CAPITAL DEFICIT SHARES AMOUNT STOCKHOLDER
---------- ----------- -------- --------- -----------
<S> <C>
Balance at December 31, 1992..................................... 707,084 (2,507,421) 64,960 $ (9,800) --
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... -- (13,774) -- -- --
Accrued dividend payable (note 8(b))............................. (56,997) -- -- -- --
Net income....................................................... -- 166,664 -- -- --
--------- ---------- ------- -------- -------
Balance at December 31, 1993..................................... 650,087 (2,354,531) 64,960 (9,800) --
Repurchase of common stock (note 8(e))........................... -- -- 233,856 (150,000) --
Conversion of notes payable into common stock (note 8(e))........ -- -- (61,062) 39,166 --
Issuance of common stock......................................... 40 -- (55,866) 35,834 --
Issuance of common stock in exchange for note receivable from
stockholder (note 8(e))......................................... -- -- (116,928) 75,000 (75,000)
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... -- (54,054) -- -- --
Accrued dividend payable (notes 8(b) and (d)).................... (157,797) -- -- -- --
Net income....................................................... -- 72,614 -- -- --
--------- ---------- ------- -------- -------
Balance at December 31, 1994..................................... 492,330 (2,335,971) 64,960 (9,800) (75,000)
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... -- (92,580) -- -- --
Issuance of common stock......................................... 1,944 -- -- -- --
Repayment of note receivable from stockholder (note 8(e))........ -- -- -- -- 25,000
Accrued dividend payable (note 8(b))............................. (201,608) -- -- -- --
Net loss......................................................... -- (137,653) -- -- --
--------- ---------- ------- -------- -------
Balance at December 31, 1995..................................... 292,666 (2,566,204) 64,960 (9,800) (50,000)
Issuance of Series B convertible preferred stock, net of issuance
costs of $220,556 (note 5 and 8)................................ 1,779,163 -- -- -- --
Conversion of Series A convertible preferred stock from
redeemable to nonredeemable (note 8(b))......................... 2,301,179 -- -- -- --
Issuance of common stock (note 2)................................ 130,460 -- -- -- --
Repayment of note receivable from stockholder (note 8(e))........ -- -- -- -- 14,000
Forgiveness of note receivable from stockholder (note 8(e))...... -- -- -- -- 36,000
Discount on issuance of debt arising from stock purchase warrants
(note 5)........................................................ 327,111 -- -- -- --
Stock option compensation expense (note 8(c)).................... 99,585 -- -- -- --
Accrued dividend payable (note 8(b))............................. (100,804) -- -- -- --
Net loss......................................................... -- (6,683,404) -- -- --
--------- ---------- ------- -------- -------
Balance at June 30, 1996......................................... 4,829,360 (9,249,608) 64,960 (9,800) --
========= ========== ======= ======== =======
Cancellation of treasury stock................................... (9,735) -- (64,960) 9,800 --
Issuance of common stock......................................... 583 -- -- -- --
Accrued dividend payable (note 8(b))............................. (50,402) -- -- -- --
Net loss......................................................... -- (267,121) -- -- --
--------- ---------- ------- -------- -------
Balance at September 30, 1996 (unaudited)........................ 4,769,806 $(9,516,729) -- -- --
========= ========== ======= ======== =======
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
Balance at December 31, 1992..................................... (1,809,487)
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... (13,774)
Accrued dividend payable (note 8(b))............................. (56,997)
Net income....................................................... 166,664
----------
Balance at December 31, 1993..................................... (1,713,594)
Repurchase of common stock (note 8(e))........................... (150,000)
Conversion of notes payable into common stock (note 8(e))........ 39,166
Issuance of common stock......................................... 35,874
Issuance of common stock in exchange for note receivable from
stockholder (note 8(e))......................................... --
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... (54,054)
Accrued dividend payable (notes 8(b) and (d)).................... (157,797)
Net income....................................................... 72,614
----------
Balance at December 31, 1994..................................... (1,927,791)
Accretion of discount on Series A convertible preferred stock
(note 8(b))..................................................... (92,580)
Issuance of common stock......................................... 1,950
Repayment of note receivable from stockholder (note 8(e))........ 25,000
Accrued dividend payable (note 8(b))............................. (201,608)
Net loss......................................................... (137,653)
----------
Balance at December 31, 1995..................................... (2,332,682)
Issuance of Series B convertible preferred stock, net of issuance
costs of $220,556 (note 5 and 8)................................ 1,779,444
Conversion of Series A convertible preferred stock from
redeemable to nonredeemable (note 8(b))......................... 2,302,471
Issuance of common stock (note 2)................................ 130,567
Repayment of note receivable from stockholder (note 8(e))........ 14,000
Forgiveness of note receivable from stockholder (note 8(e))...... 36,000
Discount on issuance of debt arising from stock purchase warrants
(note 5)........................................................ 327,111
Stock option compensation expense (note 8(c)).................... 99,585
Accrued dividend payable (note 8(b))............................. (100,804)
Net loss......................................................... (6,683,404)
----------
Balance at June 30, 1996......................................... (4,427,712)
==========
Cancellation of treasury stock................................... --
Issuance of common stock......................................... 585
Accrued dividend payable (note 8(b))............................. (50,402)
Net loss......................................................... (267,121)
----------
Balance at September 30, 1996 (unaudited)........................ (4,744,650)
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 56
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, 30, SEPTEMBER 30,
--------------------------------- ----------- -----------------------
1993 1994 1995 1996 1995 1996
--------- --------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ 166,664 $ 72,614 $(137,653) $(6,683,404) $(323,128) $(6,950,525)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Acquired in-process research and development
costs........................................... -- -- -- 6,180,000 -- 6,180,000
Depreciation and amortization..................... 75,059 143,215 193,399 309,948 143,905 528,559
Other............................................. (15,268) -- -- 135,585 -- 135,585
Decrease (increase) in:
Accounts receivable............................. (62,748) (110,611) (273,620) 100,084 (67,703) (212,975)
Other assets.................................... (13,351) (35,960) (5,339) (132,594) 28,344 (578,378)
Increase (decrease) in:
Accounts payable................................ 17,802 (19,469) 83,456 (23,381) 20,243 (129,221)
Accrued expenses and other liabilities.......... 109,900 (51,270) 78,152 9,417 54,048 528,225
Deferred revenue................................ (121,234) 52,365 76,921 (54,557) 80,122 (107,561)
--------- --------- --------- ----------- --------- -----------
Net cash provided by (used in) operating
activities.................................. 156,824 50,884 15,316 (158,902) (64,169) (606,291)
--------- --------- --------- ----------- --------- -----------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired..... -- -- -- (6,925,393) -- (6,925,393)
Purchases of property and equipment................. (11,163) (3,191) -- (41,497) -- (113,802)
Additions to software development costs............. -- -- -- (108,931) -- (113,821)
Loan to officer..................................... -- -- -- (112,500) -- (112,500)
--------- --------- --------- ----------- --------- -----------
Net cash used in investing activities......... (11,163) (3,191) -- (7,188,321) -- (7,265,516)
--------- --------- --------- ----------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. -- -- 1,950 8,249 1,950 8,834
Proceeds from issuance of Series A convertible
preferred stock................................... -- 35,874 -- -- -- --
Proceeds from issuance of Series B convertible
preferred stock................................... -- -- -- 2,000,000 -- 2,000,000
Payments for Series B convertible preferred stock
issuance costs.................................... -- -- -- (220,556) -- (220,556)
Proceeds from issuance of notes payable............. 300,000 150,000 -- -- -- --
Proceeds from issuance of long-term debt, related
party............................................. -- -- -- 6,900,000 -- 6,900,000
Payments for debt issuance costs.................... -- -- -- (345,000) -- (345,000)
Payments on long-term debt and obligations under
capital leases.................................... (88,282) (227,976) (167,053) (151,691) (104,251) (241,825)
Repurchase of common stock.......................... -- (150,000) -- -- -- --
Repayment of note receivable from stockholder....... -- -- 25,000 14,000 -- 14,000
--------- --------- --------- ----------- --------- -----------
Net cash provided by (used in) financing
activities.................................. 211,718 (192,102) (140,103) 8,205,002 (102,301) 8,115,453
--------- --------- --------- ----------- --------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 357,379 (144,409) (124,787) 857,779 (166,470) 243,646
Cash and cash equivalents at beginning of period...... 200,655 558,034 413,625 288,838 413,625 288,838
--------- --------- --------- ----------- --------- -----------
Cash and cash equivalents at end of period............ $ 558,034 $ 413,625 $ 288,838 $ 1,146,617 $ 247,155 $ 532,484
========= ========= ========= =========== ========= ===========
Supplemental disclosure of cash flow
information -- cash paid during the period for
interest............................................ $ 27,209 $ 47,098 $ 65,433 $ 277,744 $ 43,804 $ 731,672
========= ========= ========= =========== ========= ===========
Supplemental disclosures of noncash activities:
Purchase of computer and office equipment under
capital lease arrangements........................ $ 147,176 $ 213,360 $ 191,563 $ 180,827 $ 191,563 $ 180,827
========= ========= ========= =========== ========= ===========
Debt issued in acquisition of business.............. $ -- $ -- $ -- $ 1,076,000 $ -- $ 1,076,000
========= ========= ========= =========== ========= ===========
Common stock issued in acquisition of business...... $ -- $ -- $ -- $ 122,318 $ -- $ 122,318
========= ========= ========= =========== ========= ===========
Discount on issuance of debt arising from stock
purchase warrants................................. $ -- $ -- $ -- $ 327,111 $ -- $ 327,111
========= ========= ========= =========== ========= ===========
Prepayment of insurance premiums through issuance of
note payable...................................... $ -- $ -- $ 7,548 $ -- $ -- $ --
========= ========= ========= =========== ========= ===========
Accrual of dividend payable on Series A convertible
preferred stock .................................. $ 56,997 $ 157,797 $ 201,608 $ 100,804 $ 151,206 $ 151,206
========= ========= ========= =========== ========= ===========
Conversion of notes payable and accrued interest
into Series A convertible preferred stock......... $ -- $ 318,000 $ -- $ -- $ -- $ --
========= ========= ========= =========== ========= ===========
Conversion of notes payable into common stock....... $ -- $ 39,166 $ -- $ -- $ -- $ --
========= ========= ========= =========== ========= ===========
Acquisitions of businesses:
Fair value of assets acquired..................... $ -- $ -- $ -- $ 4,909,167 $ -- $ 4,909,167
Acquired in-process research and development
costs........................................... -- -- -- 6,180,000 -- 6,180,000
Fair value of liabilities assumed................. -- -- -- (2,961,849) -- (2,961,849)
Common stock issued............................... -- -- -- (122,318) -- (122,318)
Debt issued....................................... -- -- -- (1,076,000) -- (1,076,000)
--------- --------- --------- ----------- --------- -----------
Total cash paid for acquisitions.................. -- -- -- 6,929,000 -- 6,929,000
Cash acquired..................................... -- -- -- (3,607) -- (3,607)
--------- --------- --------- ----------- --------- -----------
Net cash paid for acquisitions................ $ -- $ -- $ -- $ 6,925,393 $ -- $ 6,925,393
========= ========= ========= =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 57
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995, JUNE 30, 1996
AND SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Medirisk, Inc. (the "Company") is a provider of proprietary databases and
related decision support software and analytical services to the health care
industry. The Company's customers consist primarily of health care providers
(principally physicians and hospitals) and health care payors (principally
insurance companies and managed care organizations). The information provided by
the Company is used to make comparisons of the financial costs and clinical
outcomes of physician-mediated services to industry and company-specific
benchmarks and to access information concerning specific physicians. These
capabilities assist payers and providers in pricing managed care contracts,
evaluating fee schedules, comparing provider outcomes and performance, and
recruiting physicians.
(B) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and income and expenses for the period. Actual results could
differ from those estimates.
The consolidated financial statements include the accounts of Medirisk,
Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Information as of September 30, 1996 and for the nine months ended
September 30, 1995 and 1996 is unaudited. In the opinion of management, all
adjustments considered necessary for the fair presentation of the unaudited
consolidated financial statements of the Company as of September 30, 1996 and
for the nine months ended September 30, 1995 and 1996 have been included.
(C) CASH EQUIVALENTS
Cash equivalents at December 31, 1994 and 1995, June 30, 1996 and September
30, 1996 included amounts of $313,866, $276,647, $1,000,104 and $393,475,
respectively, invested in money market accounts with a major brokerage firm. For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments with original maturities of three months or less to be cash
equivalents.
(D) REVENUE RECOGNITION
The Company provides services/licenses its products primarily pursuant to
single- and multi-year contracts which provide for the payment of nonrefundable
annual fees generally in advance of use/shipment or of quarterly fees generally
billed in advance of service delivery. The products are segregated into three
types: financial, clinical performance, and physician database products. The
financial products provide customers with information from the Company's
financial product databases, which the Company periodically updates with new
and/or additional data. Revenue on these sales is recognized upon the delivery
of the data. The clinical performance products revenues relate to the delivery
of services and are recognized over the contract terms as the services are
provided. The physician database products revenue relates to data/services
provided to customers over time and are, therefore, recognized ratably over the
life of the contract. Customer service revenues are recognized ratably over the
service contract period. All other revenue, including fees for training,
consulting fees, and other miscellaneous services, is recognized upon the
performance of the applicable services.
F-7
<PAGE> 58
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(E) DEFERRED REVENUE
Deferred revenue represents advance payments to the Company by customers
for products and services, including deposits, revenue deferred under license
fee and subscription arrangements, and revenue deferred under customer service
and support arrangements.
(F) ACCOUNTS RECEIVABLE
When the Company enters into multi-year, noncancelable subscription
contracts, receivables associated with these contracts are recorded as accounts
receivable and deferred revenue when they become due. The contract balances are
due at the beginning of their respective annual anniversary dates.
(G) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided on the straight-line method over the
estimated useful lives of the assets ranging from three to seven years.
Amortization of assets acquired under capital lease arrangements is recorded
using the straight-line method over the estimated useful lives of the assets or
the lease term, whichever is shorter.
(H) EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED
The excess of cost over net assets of businesses acquired (goodwill) is
being amortized using the straight-line method over a period of 15 years. The
amortization period is based on, among other things, the nature of the products
and markets, the competitive position of the acquired companies and the
adaptability to changing market conditions of the acquired companies. At each
balance sheet date, the Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate equal to the rate of return that would be required by the Company
for a similar investment with like risks.
(I) INTANGIBLE ASSETS
Intangible assets represent purchased technological know-how (acquired
products). These costs were derived using a fair value method of allocation and
are being amortized using the straight-line method over five years. The Company
makes an ongoing assessment of the recoverability of its intangible assets by
comparing the amount capitalized for each asset to the estimated net realizable
value ("NRV") of the asset. If the NRV is less than the amount capitalized, a
write-down to NRV is recorded.
(J) RESEARCH AND DEVELOPMENT COSTS AND SOFTWARE DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
The Company capitalizes software development costs by project, commencing
when technological feasibility for the respective product is established and
concluding when the product is ready for general release to customers. The
Company makes an ongoing assessment of the recoverability of its capitalized
software projects by comparing the amount capitalized for each product to the
estimated NRV of the product. If the NRV is less than the amount capitalized, a
write-down to NRV is recorded. The Company capitalized computer software
development costs of $108,931 for the six-month period ended June 30, 1996 and
$113,821 for the nine-month period ended September 30, 1996. Capitalized
computer software development costs are being amortized using the straight-line
method over an estimated useful life of five years. Amortization expense was
$5,779 for the six-month period ended June 30, 1996 and $12,545 for the
nine-month period ended September 30, 1996.
F-8
<PAGE> 59
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(K) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under Accounting
Principles Board (APB) Opinion No. 25 and related Interpretations. The Company
has not yet adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) since the effects of SFAS
123 are not material to the Company's consolidated financial statements at this
time.
(L) PRO FORMA NET LOSS PER SHARE OF COMMON STOCK (UNAUDITED)
The computation of fully-diluted pro forma net loss per share of Common
Stock was antidilutive in each of the periods presented; therefore, the amounts
reported for primary and fully-diluted are the same.
Pro forma net loss per share was computed by dividing net loss by the
weighted average number of shares of common stock outstanding after giving
retroactive effect to the mandatory conversion of all of the Company's Series A
convertible preferred stock and Series B convertible preferred stock into common
stock, which will occur upon the consummation of the Company's initial public
offering, plus cheap stock as defined below. Retroactive restatement has been
made to share and per share amounts for the reverse stock split (see note 8(g)).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common stock and common stock equivalents, issued at prices below the assumed
initial public offering price per share ("cheap stock") during the 12-month
period immediately preceding the initial filing date of the Company's
Registration Statement for its public offering, have been included as
outstanding for all periods presented (using the treasury stock method at the
assumed initial public offering price) even though the effect is to reduce the
loss per share. Historical losses per share have not been presented because such
amounts are not deemed meaningful due to the significant changes in the
Company's capital structure resulting from the elimination of the redemption
feature of the Series A convertible preferred stock in 1996 and the mandatory
conversion of all of the Company's Series A and Series B convertible preferred
stock into common stock, which will occur in connection with the initial public
offering.
(M) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred income tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(N) RECLASSIFICATIONS
Certain amounts in the 1993, 1994, and 1995 consolidated financial
statements have been reclassified to conform with the 1996 consolidated
financial statement presentation.
(2) BUSINESS ACQUISITIONS
In January 1996, the Company acquired Formations in Health Care, Inc.
("Formations") of Chicago, Illinois for approximately $1,475,000 in cash, 99,466
shares of the Company's common stock, and options to purchase 28,947 shares of
the Company's common stock at an exercise price of $.64 per share. Formations
provides clinical performance products that allow customers to measure outcomes
across a range of care within a variety of medical specialties. These products
also enable both payers and providers to measure clinical outcomes and apply
that information to attract and retain managed care arrangements and to improve
quality of clinical care. The acquisition was accounted for using the purchase
method of accounting with the results of operations of the business acquired
included from the effective date of the acquisition. The
F-9
<PAGE> 60
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition resulted in purchased in-process research and development costs of
approximately $1,040,000, purchased technological know-how of approximately
$170,000, and excess of cost over net assets acquired of approximately $422,000.
In March 1996, the Company acquired PracticeMatch, Inc. ("PracticeMatch")
of St. Louis, Missouri for approximately $5,454,000 in cash and $1,076,000 in
promissory notes. PracticeMatch offers a database containing detailed
information concerning physicians who are candidates for new practice
affiliations. The Company licenses its physician database products to assist
customers in cost-effective in-house recruiting of physicians. The acquisition
was accounted for using the purchase method of accounting with the results of
operations of the business acquired included from the effective date of the
acquisition. The acquisition resulted in purchased in-process research and
development costs of approximately $5,140,000, purchased technological know-how
of approximately $350,000, and excess of cost over net assets acquired of
approximately $2,887,000.
Unaudited pro forma results of operations as if Formations and
PracticeMatch had been acquired January 1, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996 SEPTEMBER 30, 1996
----------------- ---------------- ------------------
<S> <C> <C> <C>
Revenues............................... $ 9,184,000 $4,678,000 $7,058,000
Net loss............................... (534,000) (633,000) (900,000)
Net loss per share..................... (.24) (.29) (.41)
</TABLE>
The pro forma results include the historical accounts of the Company and
the acquired entities adjusted to reflect the effects of the depreciation and
amortization of the acquired identifiable tangible and intangible assets based
on the new cost basis of the assets acquired, additional interest expense
related to notes payable issued in connection with the acquisitions, and
reversal of the nonrecurring acquired in-process research and development costs
recorded in connection with the acquisitions. The pro forma results are not
necessarily indicative of actual results which might have occurred had the
operations and management of the Company and the acquired entities been combined
in 1995 and 1996.
(3) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and fixtures.................... $233,281 $264,278 $ 341,820 $ 344,365
Computer and office equipment............. 417,467 578,033 1,086,419 1,156,179
Leasehold improvements.................... -- -- 59,666 59,666
-------- -------- ---------- ----------
$650,748 $842,311 $1,487,905 $ 1,560,210
======== ======== ========== ==========
</TABLE>
Included in property and equipment is equipment under capital lease
arrangements with a cost of $413,422, $604,985, $785,812, and $785,812 and
accumulated amortization of $140,016, $302,033, $394,946, and $437,820 at
December 31, 1994 and 1995, June 30, 1996, and September 30, 1996, respectively.
Amortization of equipment held under capital lease arrangements is included
in depreciation expense.
F-10
<PAGE> 61
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
10% unsecured senior subordinated note
payable; interest payable quarterly;
principal due January 8, 2003 (see note
5)...................................... $ -- $ -- $6,900,000 $ 6,900,000
10% unsecured notes payable resulting from
PracticeMatch acquisition; interest
payable quarterly; 30% of the principal
due on April 1, 1997 with the remainder
due September 14, 1997.................. -- -- 1,076,000 1,076,000
Note payable to bank; secured by
substantially all assets of
PracticeMatch; interest at lender's base
rate plus 2% (10.25% at September 30,
1996); principal and interest due in
monthly installments of $9,200 with
final payment due October 18, 1996...... -- -- 156,743 133,110
Line of credit payable to bank; secured by
substantially all assets of
PracticeMatch; interest at lender's base
rate plus 2% (10.25% at September 30,
1996) payable monthly; unpaid principal
balance due October 18, 1996............ -- -- 198,000 198,000
9% unsecured note payable to related
party; principal and interest due in
equal monthly installments of $3,238
through April 2001...................... -- -- 150,173 143,765
Obligations under capital leases, due in
monthly installments expiring at various
dates through February 2001, at varying
interest rates secured by property and
equipment (note 6(a))................... 287,778 323,916 398,217 338,124
12.35% note payable, secured by computer
equipment; note paid off in 1995........ 11,628 -- -- --
-------- -------- ---------- ----------
299,406 323,916 8,879,133 8,788,999
Less current installments................. 127,711 172,614 910,142 1,591,255
-------- -------- ---------- ----------
Total long-term debt and
obligations under capital
leases, excluding current
installments.................. $171,695 $151,302 $7,968,991 $ 7,197,744
======== ======== ========== ==========
</TABLE>
F-11
<PAGE> 62
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum debt payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
-------------------------------------------------------------
<S> <C>
1997.................................................... $ 910,142
1998.................................................... 892,240
1999.................................................... 92,198
2000.................................................... 54,327
2001.................................................... 30,226
Thereafter.............................................. 6,900,000
----------
$8,879,133
==========
</TABLE>
Based on the borrowing rates currently available to the Company for debt
with similar terms and average maturities, the fair value of long-term debt
approximates its carrying value.
(5) HEALTHPLAN SERVICES SECURITIES PURCHASE AGREEMENT
On January 8, 1996, for the purpose of financing the Company's ongoing
acquisition program and working capital needs, the Company and HealthPlan
Services Corporation ("HPSC"), entered into a Securities Purchase Agreement (the
"Agreement"). Under the Agreement, HPSC purchased 280,623 shares of the
Company's Series B convertible preferred stock for $2,000,000 (see note 8) and
agreed to purchase up to $10,000,000 in original principal amount of senior
subordinated notes. In addition, HPSC will be issued warrants to purchase up to
432,101 shares of the Company's common stock for $.015 per share, based upon the
amount of senior subordinated debt purchased. HPSC's obligation to purchase
senior subordinated notes under the Agreement terminates upon the earliest to
occur of (i) an initial public offering of the Company; (ii) a change of control
of the Company; (iii) an event of default; (iv) January 8, 1999; or (v) the
death or termination of employment of the Company's Chairman and Chief Executive
Officer.
On March 13, 1996, the Company sold a $6,900,000 senior subordinated note
to HPSC. The note bears interest at 10% payable quarterly and is due upon the
earliest to occur of (i) an initial public offering by the Company; (ii) a
change of control of the Company; or (iii) at maturity on January 8, 2003.
Warrants to purchase 298,150 shares of the Company's common stock were issued to
HPSC in connection with issuance of this note. The proceeds received were
allocated to the notes and the warrants based on their relative fair values
resulting in a discount of $327,111 on the note, which is being amortized over
the life of the note.
In connection with the PracticeMatch acquisition (note 2), there are
restrictions on the use of $1,100,000 of the remaining funds available of the
HPSC senior subordinated debt facility.
Under the Agreement, the Company has agreed to certain financial covenants
including, but not limited to, net worth and financial ratio requirements. At
September 30, 1996, the Company was in compliance with these financial covenants
as amended or waived.
F-12
<PAGE> 63
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS
(A) LEASES
The Company has entered into noncancelable capital and operating lease
agreements for office space, furniture and fixtures, and computer and office
equipment. Future minimum payments under all such noncancelable capital and
operating leases as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30, OPERATING CAPITAL (NOTE 4)
--------------------------------------------------------- ---------- ----------------
<S> <C> <C>
1997................................................ $ 484,216 $259,527
1998................................................ 484,679 154,782
1999................................................ 391,531 72,027
2000................................................ 53,158 12,569
2001 and thereafter................................. -- 8,379
---------- --------
$1,413,584 507,284
==========
Less amount representing interest and sales taxes... 109,067
--------
$398,217
========
</TABLE>
Rental expense for noncancelable operating leases was $90,073, $176,452,
$212,547, $191,635, $159,496, and $323,028 for the years ended December 31,
1993, 1994, and 1995, the six months ended June 30, 1996 and the nine months
ended September 30, 1995 and 1996 (unaudited), respectively.
(B) EMPLOYMENT AGREEMENT
The Company has entered into an Employment Agreement (the "Agreement") with
the Company's Chairman and Chief Executive Officer (the "CEO"). The Agreement
provides for a base salary subject to annual increases at the discretion of the
Compensation Committee, annual performance bonuses based upon attaining certain
goals established by the Compensation Committee, minimum annual stock option
grants and certain severance benefits in the event of termination. The Agreement
expires on May 31, 1999 and is automatically renewable for one-year terms
thereafter, subject to termination by the Company or the CEO upon 60 days'
notice.
(7) INCOME TAXES
Because of operating losses, net operating loss carryforwards and other
factors, the Company has not provided any income tax expense for the years ended
December 31, 1993, 1994, and 1995, the six months ended June 30, 1996, and the
nine months ended September 30, 1995 and 1996. A reconciliation of the expected
income tax expense (benefit) (based on a U.S. Federal statutory tax rate of 34%)
to the actual income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30, SEPTEMBER 30,
------------------------------ ----------- -----------------------
1993 1994 1995 1996 1995 1996
-------- -------- -------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense
(benefit).................... $ 56,666 $ 24,689 $(46,802) $(2,272,357) $(109,864) $(2,363,179)
Losses in excess of allowable
carryback.................... -- -- 43,101 2,269,534 107,089 2,359,779
Utilization of net operating
loss carryforwards........... (57,423) (26,555) -- -- -- --
Other.......................... 757 1,866 3,701 2,823 2,775 3,400
-------- -------- -------- ----------- --------- -----------
Actual income taxes... $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== =========== ========= ===========
</TABLE>
F-13
<PAGE> 64
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences and carryforwards which give rise
to deferred income tax assets are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred income tax assets:
Acquired in-process research and
development costs.................... $ -- $ -- $2,357,701 $ 2,317,532
Net operating loss carryforwards........ 185,041 193,944 430,570 512,131
Deferred revenue........................ 77,307 107,306 89,929 127,669
Property and equipment depreciation
differences.......................... 5,210 32,873 50,876 62,042
Other................................... -- -- 8,337 21,516
-------- -------- ---------- ----------
Total gross deferred income tax
assets........................ 267,558 334,123 2,937,413 3,040,890
Less valuation allowance.................. 267,558 334,123 2,937,413 3,040,890
-------- -------- ---------- ----------
Net deferred income tax
assets........................ $ -- $ -- $ -- $ --
======== ======== ========== ==========
</TABLE>
Deferred income tax assets and liabilities are initially recognized for
differences between the financial statement carrying amount and the tax bases of
assets and liabilities which will result in future deductible or taxable amounts
and operating loss and tax credit carryforwards. A valuation allowance is then
established to reduce the deferred income tax asset to the level at which it is
"more likely than not" that the tax benefits will be realized. Realization of
tax benefits of deductible temporary differences and operating loss or credit
carryforwards depends on having sufficient taxable income of an appropriate
character within the carryback and carryforward periods. Sources of taxable
income that may allow for the realization of tax benefits include: (1) taxable
income in the current year or prior years that is available through carryback;
(2) future taxable income that will result from the reversal of existing taxable
temporary differences; and (3) taxable income generated by future operations.
The valuation allowance for deferred income tax assets at January 1, 1996
was $334,123. The net increase in the valuation allowance for the six months
ended June 30, 1996 was $2,603,290.
At June 30, 1996, the Company had net operating loss carryforwards of
approximately $1,104,000, which expire beginning in 2006 through 2011. The
amount of net operating loss carryforwards may be limited if the Company has an
ownership change. In the event of an ownership change, the amount of taxable
income of a loss corporation for any postchange year which may be offset by
prechange losses shall not exceed the Internal Revenue Code Section 382
limitation for such year. Generally, an ownership change occurs if a 5%
shareholder or any equity structure shift increases the percentage of the stock
of the loss corporation owned by more than 50 percentage points over the lowest
percentage of stock of the loss corporation owned by such shareholders at any
time during a three-year look back testing period. The Section 382 limitation is
equal to the value of the old loss corporation (before the ownership change)
multiplied by the Federal long-term tax-exempt rate.
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(A) ARTICLES OF INCORPORATION
On January 8, 1996, the Company's articles of incorporation were amended to
increase the number of authorized shares of common stock from 5,000,000 shares
to 20,000,000 shares and to establish 400,000 authorized shares of Series B
convertible preferred stock. On that same date, the Company's articles of
incorporation were amended to remove the redeemable feature from the Company's
Series A convertible preferred stock.
F-14
<PAGE> 65
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(B) SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK
Until January 1996, the Series A convertible preferred stock ("Series A
CPS") carried a mandatory redemption feature pursuant to a Stockholders'
Agreement which required the Company to redeem all outstanding shares of Series
A CPS on the seventh anniversary of the original issue date (April 5, 1998) at a
price equivalent to the liquidation price of $1.95. In January 1996, the
redemption feature was eliminated and the balance related to this security was
reclassified to stockholders' equity.
The holders of the Company's Series A CPS are entitled to dividends on a
cumulative basis at 8% which began on April 5, 1994. The holders of the
Company's Series B convertible preferred stock ("Series B CPS") are entitled to
dividends on a cumulative basis at 8% beginning on January 8, 1997. The Series A
CPS and Series B CPS are convertible at the option of the holder at any time
into common stock at a ratio of .6496 shares for one share, subject to
adjustment in certain circumstances, and the holders of the Series A CPS and
Series B CPS carry voting power equivalent to the number of common shares into
which their preferred shares could be converted. Furthermore, the Company is
restricted from paying dividends on the Company's common stock until all unpaid
dividends on the Series A CPS and Series B CPS are paid. In no event shall the
Series A CPS and Series B CPS dividends be paid until payment in full of the
senior subordinated note payable. Accordingly, these dividends payable have been
classified as noncurrent.
In the event of liquidation, holders of the Series A CPS and Series B CPS
are entitled to the sum of (a) $1.95 per preferred share for Series A CPS and
$7.13 per preferred share for Series B CPS, (b) all accrued and unpaid
dividends, and (c) the portion of the fair market value of the assets and
liabilities of the Company attributable to the Series A CPS and Series B CPS
holders determined by the number of common shares that would be held by the
Series A CPS and Series B CPS holders upon conversion to common stock.
Additionally, the Series A CPS and Series B CPS will automatically convert upon
the occurrence of certain future events such as an initial public offering, as
defined, and the Company is required to obtain prior approval of the holders of
the Series A CPS and Series B CPS to effect certain transactions. The holders of
the Series A CPS and Series B CPS also carry certain other rights and
privileges, as further defined in the agreements.
During 1994 notes payable of $300,000 and accrued interest of $18,000 were
converted into 318,000 shares of the Company's Series A CPS at a conversion
price of $1.00 per share. Until January 1996, the discount of $302,100 resulting
from the 1994 conversion, and the discount associated with the original issuance
of the Series A CPS of $96,450, representing the difference between the recorded
value of the Series A CPS and the redemption value, were being accreted using
the straight-line method from issuance date through April 5, 1998, the first
date that the holders could have required redemption.
(C) STOCK OPTIONS
The Company periodically grants stock options to encourage stock ownership
by and retain the services of certain key employees. Options granted are
determined at the discretion of the Board of Directors. All options granted are
earned over a five-year vesting period at 20% per year, and expire at the
earlier of three months after termination of employment or ten years from date
of grant.
F-15
<PAGE> 66
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes option plan activity for the years ended
December 31, 1993, 1994, and 1995, the six months ended June 30, 1996 and the
three months ended September 30, 1996:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER SHARE
------- --------------
<S> <C> <C>
Options outstanding at December 31, 1992..................... 170,179 $.300
Granted...................................................... 35,728 .300
Canceled..................................................... (24,035) .300
-------
Options outstanding at December 31, 1993..................... 181,872 .300
Granted...................................................... 24,685 .300 - .64143
Exercised.................................................... (130) .300
Canceled..................................................... (9,045) .300
-------
Options outstanding at December 31, 1994..................... 197,382 .300 - .64143
Granted...................................................... 63,661 .64143
Exercised.................................................... (6,496) .300
Canceled..................................................... (37,027) .300 - .64143
-------
Options outstanding at December 31, 1995..................... 217,520 .300 - .64143
Granted...................................................... 176,731 .64143
Canceled..................................................... (17,604) .300 - .64143
-------
Options outstanding at June 30, 1996......................... 376,647 .300 - .64143
Exercised.................................................... (1,949) .300
Cancelled.................................................... (45,474) .64143
-------
Options outstanding at September 30, 1996.................... 329,224 .300 - .64143
=======
Options exercisable at June 30, 1996......................... 120,403
=======
Options exercisable at September 30, 1996.................... 140,275
=======
</TABLE>
Certain options in 1996 were granted at exercise prices below the fair
market value of the common stock as determined by management. Compensation
expense relating to these option grants was $99,585.
(D) STOCKHOLDERS' AGREEMENT
The Company is party to a Stockholders' Agreement (the "Agreement") among
all preferred and common stockholders of the Company which includes restrictions
and requirements, certain of which are disclosed below. The Agreement
establishes the composition of the Company's Board of Directors and provides for
restrictions on the transfer of the Company's shares. Additionally, the
Agreement provided for a one-time dividend to Series A CPS holders equivalent to
4% of the original purchase price of the Series A CPS. The dividend was
cumulative and accrued from April 5, 1993 to April 5, 1994. In no event shall
this Series A CPS one-time dividend be paid until payment in full of the senior
subordinated note payable. Accordingly, this dividend payable has been
classified as noncurrent.
The Company is required to reserve at all times common shares sufficient to
satisfy the exercise of all outstanding stock options and warrants, and to
satisfy the conversion of all Series A CPS and Series B CPS.
(E) CERTAIN COMMON STOCK TRANSACTIONS
In June 1994, the Company repurchased 233,856 shares of common stock from
an investor for $150,000. The repurchase was financed by the issuance of notes
payable to two other investors for $75,000 each. The notes payable were
subsequently liquidated by the payment of cash of $110,834 and the conversion of
$39,166 into 61,062 shares of common stock held in treasury.
F-16
<PAGE> 67
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1994, 116,928 shares of common stock held in treasury were issued
to a stockholder in exchange for an unsecured promissory note of $75,000. The
note bore interest at 8.25% and was payable in three annual installments of
$25,000 each through 1997. A total of $39,000 was repaid on the note and the
remaining balance of $36,000 was forgiven as consideration for entering into a
new employment agreement.
(F) WARRANTS
In 1993, the Company obtained $300,000 in financing through the issuance of
6% convertible unsecured promissory notes with attached warrants to acquire the
Company's common stock. Because the exercise price of the attached warrants
exceeded the fair value of the common stock, the Company allocated the $300,000
of proceeds to notes payable. The notes were convertible into the Company's
Series A CPS at a conversion price of $1.00 per share. In 1994, the notes
payable of $300,000 and accrued interest of $18,000 were converted into 318,000
shares of the Company's Series A CPS. The common stock purchase warrants give
the holders the right to acquire 194,880 shares of the Company's common stock at
an exercise price of $1.54 per share. The common stock purchase warrants expire
on June 23, 1998.
Also, as discussed in note 5, in March 1996, the Company issued to HPSC
warrants to purchase 298,150 shares of the Company's common stock at an exercise
price of $.015 per share. The common stock purchase warrants expire on January
8, 2003.
(G) COMMON STOCK REVERSE SPLIT
The Company's Board of Directors has approved an amendment to its
certificate of incorporation which effected a 0.6496-for-one reverse stock
split. All references to common stock, stock options and warrants in these
consolidated financial statements have been adjusted to reflect this amendment
as if it had occurred prior to January 1, 1993.
(9) MAJOR CUSTOMER
For the six months ended June 30, 1996 and the nine months ended September
30, 1996, one customer accounted for approximately 15% of total revenues.
(10) NOTE RECEIVABLE FROM OFFICER
In June 1996, the Company loaned $112,500 to an officer of the Company in
the form of an unsecured promissory note. The note is to be repaid in five equal
annual installments of $22,500 each, due and payable on the first through fifth
anniversaries of the date of the note. Interest accrues at a rate of 8.25% per
annum and is due and payable by the officer on the date each principal payment
is due.
(11) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF THE
INDEPENDENT AUDITOR
REINCORPORATION
In September 1996, the Company was reincorporated in Delaware, and in
connection with such reincorporation, the Company's treasury stock was canceled.
INITIAL PUBLIC OFFERING
In September 1996, the Company filed a registration statement with the
Securities and Exchange Commission, and in December 1996 filed an amendment,
covering up to 2,875,000 shares of the Company's common stock.
F-17
<PAGE> 68
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK INCENTIVE PLANS
In October 1996, the Board of Directors of the Company adopted the
Medirisk, Inc. 1996 Stock Incentive Plan (the "Incentive Plan") and the
Medirisk, Inc. Non-Management Directors' Stock Option Plan (the "Directors'
Plan"). A total of 502,693 shares of Common Stock have been reserved for
issuance under the Incentive Plan (which includes 329,224 options outstanding as
of September 30, 1996 under previous grants) and 100,000 shares of Common Stock
have been reserved for issuance under the Directors' Plan.
FINANCING ACTIVITIES
In December 1996, the Company secured an $850,000 bridge line of credit.
The Company also secured a commitment letter to receive a $10,000,000 revolving
line of credit contingent upon completion of certain conditions, including but
not limited to, the Company's initial public offering.
F-18
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Formations in Health Care, Inc.:
We have audited the accompanying balance sheet of Formations in Health
Care, Inc. as of December 31, 1995, and the related statements of operations,
shareholder's equity (deficit), and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Formations in Health Care,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
June 28, 1996
F-19
<PAGE> 70
FORMATIONS IN HEALTH CARE, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful accounts of $49,633........... $ 440,367
Prepaid expenses............................................................... 9,154
---------
Total current assets................................................... 449,521
---------
Property and equipment (note 2).................................................. 261,807
Less accumulated depreciation.................................................. (185,104)
---------
Property and equipment, net............................................ 76,703
---------
Total assets........................................................... $ 526,224
=========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Cash overdraft................................................................. $ 9,283
Current installments of note payable to related party (note 3)................. 25,105
Accounts payable............................................................... 9,136
Accrued expenses............................................................... 63,058
Deferred revenue............................................................... 309,777
---------
Total current liabilities.............................................. 416,359
Note payable to related party, excluding current installments (note 3)........... 138,997
Other............................................................................ 7,313
---------
Total liabilities...................................................... 562,669
---------
Shareholder's equity (deficit) (note 6):
Common stock -- no par value; 1,000 shares authorized; 100 shares issued and
outstanding at December 31, 1995............................................ 1,660
Additional paid-in capital..................................................... 9,000
Accumulated deficit............................................................ (47,105)
---------
Total shareholder's equity (deficit)................................... (36,445)
Commitments and contingencies (note 4)
---------
Total liabilities and shareholder's equity (deficit)................... $ 526,224
=========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 71
FORMATIONS IN HEALTH CARE, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Revenue (note 5)................................................................. $1,566,078
Salaries, wages, and benefits.................................................... 706,983
Other operating expenses......................................................... 660,451
Provision for doubtful accounts.................................................. 50,995
Depreciation..................................................................... 51,782
----------
Operating income....................................................... 95,867
Interest expense on related party borrowings (note 3)............................ 13,356
----------
Net income............................................................. $ 82,511
==========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 72
FORMATIONS IN HEALTH CARE, INC.
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
------ ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994................. 100 $1,660 $9,000 $(129,616) $ (118,956)
Net income................................... -- -- -- 82,511 82,511
--- ------ ----- -------- --------
Balance at December 31, 1995................. 100 $1,660 $9,000 $ (47,105) $ (36,445)
=== ====== ===== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 73
FORMATIONS IN HEALTH CARE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income..................................................................... $ 82,511
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation................................................................ 51,782
Provision for doubtful accounts............................................. 50,995
Increase in:
Accounts receivable....................................................... (440,479)
Prepaid expenses.......................................................... (9,154)
Increase in:
Accounts payable.......................................................... 5,536
Accrued expenses.......................................................... 4,449
Deferred revenue.......................................................... 204,232
Other liabilities......................................................... 7,313
---------
Net cash used in operating activities.................................. (42,815)
---------
Cash flows used in investing activities -- purchases of property and equipment... (1,291)
---------
Cash flows from financing activities:
Proceeds from note payable to related party.................................... 67,484
Principal payments on note payable to related party............................ (69,447)
Increase in cash overdraft..................................................... 9,283
---------
Net cash provided by financing activities.............................. 7,320
---------
Net decrease in cash................................................... (36,786)
Cash at beginning of year........................................................ 36,786
---------
Cash at end of year.............................................................. $ --
=========
Supplemental disclosure of cash flow information -- cash paid during the year for
interest....................................................................... $ 34,824
=========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 74
FORMATIONS IN HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Formations in Health Care, Inc. (the "Company") offers clinical outcomes
products that allow customers to measure outcomes in a variety of medical
specialties and across a full range of care within a particular specialty.
Products consist of reports prepared from the Company's clinical outcomes
database. The data included in the clinical outcomes products is gathered by
Company-certified clinicians, automated patient information systems and the
Company's patient interview staff using standardized outcomes scales. The
Company prepares reports detailing customer's clinical performance based on a
number of independent measures, including patient acuity, medical and functional
improvement, resource utilization, length of stay/duration of treatment, cost of
treatment and patient satisfaction.
(B) ACCOUNTING ESTIMATES
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and income and expenses for the
period. Actual results could differ significantly from those estimates.
(C) REVENUE RECOGNITION
The Company's revenues are derived primarily from customer contracts to
provide services and materials on a time-and-materials basis. Revenue
recognition occurs when services and/or materials are provided under the terms
of the customer contract. For the Company's largest customer, the Company bills
the customer quarterly in advance with the billed amount credited to deferred
revenue.
(D) DEFERRED REVENUE
Deferred revenue principally represents an amount prebilled to the
Company's largest customer in November 1995 for services and materials to be
performed in the first quarter of 1996. As stipulated in the related customer
contract, payment must be made by the customer in advance for charges that are
expected to arise in the succeeding quarter. The remaining portion of deferred
revenue is due to cash received in 1994 from nine companies participating in a
subacute measurement project. Due to the nature of the project, the deferred
revenue is being amortized on a straight-line basis over a period of 36 months
commencing July 1, 1995.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation for computer and office equipment is provided on the straight-line
method over a five-year estimated useful life. For furniture and fixtures,
depreciation is provided over a seven-year estimated useful life which
approximates the straight-line method.
(F) INCOME TAXES
No provision or balance sheet accounts pertaining to Federal or state
income taxes is present because the Company is an "S" Corporation. Any tax
liability is the responsibility of the individual shareholder.
(G) FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company uses financial instruments in the normal course of its
business. The carrying values of accounts receivable, cash overdraft, accounts
payable and accrued expenses approximate fair value due to the
F-24
<PAGE> 75
FORMATIONS IN HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
short-term maturities of these assets and liabilities. The Company believes the
fair value of its note payable to related party is not significantly different
from its carrying value.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 are summarized as follows:
<TABLE>
<S> <C>
Furniture and fixtures.................................................... $ 73,430
Computer and office equipment............................................. 188,377
--------
261,807
Less accumulated depreciation............................................. 185,104
--------
$ 76,703
========
</TABLE>
(3) NOTE PAYABLE TO RELATED PARTY
The note is payable to the spouse of the sole shareholder of the Company
and is summarized as follows at December 31, 1995:
<TABLE>
<S> <C>
9.00% note payable, maturing on April 1, 2001............................. $164,102
========
</TABLE>
Based on the borrowing rates currently available to the Company for debt
with similar terms and average maturities, the fair value of the note payable
approximates its carrying value.
Future minimum debt payments are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
--------------------------------------------------------------------------
<S> <C>
1996...................................................................... $ 25,105
1997...................................................................... 27,460
1998...................................................................... 30,036
1999...................................................................... 32,853
2000...................................................................... 35,935
2001 and thereafter....................................................... 12,713
--------
$164,102
========
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company has entered into a noncancelable operating lease agreement for
office space. Future minimum payments under such noncancelable operating leases
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31, OPERATING
-------------------------------------------------------------------------- ---------
<S> <C>
1996...................................................................... $ 83,935
1997...................................................................... 95,142
1998...................................................................... 98,947
1999...................................................................... 102,907
--------
$ 380,931
========
</TABLE>
Rental expense for noncancelable operating leases was $43,849 for the year
ended December 31, 1995.
F-25
<PAGE> 76
FORMATIONS IN HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(B) LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.
(5) SIGNIFICANT CUSTOMERS
For the year ended December 31, 1995, one customer accounted for 58% of
total revenues and 69% of the accounts receivable at December 31, 1995.
(6) SUBSEQUENT EVENT (UNAUDITED)
In January 1996, the Company was acquired by Medirisk, Inc. of Atlanta,
Georgia for approximately $1,325,000 in cash, 99,466 shares of Series A common
stock, and an option to acquire an additional 28,947 shares of Medirisk Inc.
Series A common stock. The Company will continue operations in Chicago, Illinois
as a wholly-owned subsidiary of Medirisk, Inc.
F-26
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
Board of Directors
PracticeMatch, Inc.
We have audited the accompanying balance sheets of PracticeMatch, Inc. (a
Missouri corporation) as of December 31, 1995, 1994 and 1993, and the related
statements of operations and stockholders' equity (deficiency) and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PracticeMatch, Inc. as of
December 31, 1995, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Brown Smith Wallace, L.L.C.
St. Louis, Missouri
August 5, 1996
F-27
<PAGE> 78
PRACTICEMATCH, INC.
BALANCE SHEETS
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................. $ 38,527 $ 148,113 $ 12,965
Contracts receivable (note B)......................... 73,133 61,268 60,218
Employee advances..................................... -- 1,898 2,580
Prepaid expenses...................................... 110,897 155,056 208,760
----------- ----------- -----------
Total Current Assets.......................... 222,557 366,335 284,523
Property and Equipment
Computer equipment.................................... 402,042 291,841 248,319
Furniture and fixtures................................ 151,323 144,041 141,069
Purchased software.................................... 60,822 53,697 37,708
Leasehold improvements................................ 38,269 28,090 28,090
----------- ----------- -----------
652,456 517,669 455,186
Less accumulated depreciation and amortization..... 360,510 365,823 285,718
----------- ----------- -----------
291,946 151,846 169,468
Other Assets
Software development costs, net of amortization (note
C)................................................. 251,887 95,772 --
Incorporation costs, net of amortization.............. -- 1,267 5,067
Deposits.............................................. 8,670 12,774 12,564
----------- ----------- -----------
260,557 109,813 17,631
----------- ----------- -----------
TOTAL ASSETS.................................. $ 775,060 $ 627,994 $ 471,622
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities
Notes payable (note D)................................ $ 140,427 $ 2,264 $ 114,176
Due to shareholder.................................... -- -- 66,000
Accounts payable -- trade............................. 61,053 62,863 113,894
Accrued liabilities................................... 114,755 77,506 97,483
Deferred revenue...................................... 1,767,083 1,996,527 1,781,705
----------- ----------- -----------
Total Current Liabilities..................... 2,083,318 2,139,160 2,173,258
Long-Term -- Deferred Revenue........................... 127,964 43,485 4,220
Long-Term Debt, less current maturities (note D)........ -- -- 2,690
Commitments (note E)
Stockholders' Equity (Deficiency) (notes G and I)
Common stock, par value $1 -- authorized 30,000
shares; issued and outstanding 1,250 shares........ 1,250 1,250 1,250
Retained earnings (deficit)........................... (1,437,472) (1,555,901) (1,709,796)
----------- ----------- -----------
(1,436,222) (1,554,651) (1,708,546)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)................................ $ 775,060 $ 627,994 $ 471,622
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-28
<PAGE> 79
PRACTICEMATCH, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenue.................................................... $3,963,065 $3,520,275 $3,006,976
Salaries, wages and benefits............................... 1,657,865 1,535,451 1,600,940
Other operating expenses................................... 1,498,109 1,565,785 1,542,102
Depreciation and amortization.............................. 143,059 88,343 82,399
---------- ---------- ----------
Operating income (loss)............................... 664,032 330,696 (218,465)
Other income (expense)
Interest income.......................................... 784 158 400
Interest expense......................................... (20,220) (20,190) (12,826)
Miscellaneous income..................................... 7,948 -- --
Loss on sale of equipment................................ (7,296) -- --
---------- ---------- ----------
(18,784) (20,032) (12,426)
---------- ---------- ----------
Net income (loss)..................................... $ 645,248 $ 310,664 $ (230,891)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-29
<PAGE> 80
PRACTICEMATCH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
------ ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1992................................ $1,000 $(1,328,905) $(1,327,905)
Add:
Issuance of 250 shares of common stock................. 250 -- 250
Deduct:
Net loss for the year ended December 31, 1993.......... -- (230,891) (230,891)
Dividends paid during 1993............................. -- (150,000) (150,000)
------ ----------- -----------
Balance at December 31, 1993................................ 1,250 (1,709,796) (1,708,546)
Add:
Net income for the year ended December 31, 1994........ -- 310,664 310,664
Deduct:
Dividends paid during 1994............................. -- (156,769) (156,769)
------ ----------- -----------
Balance at December 31, 1994................................ 1,250 (1,555,901) (1,554,651)
Add:
Net income for the year ended December 31, 1995........ -- 645,248 645,248
Deduct:
Dividends paid during 1995............................. -- (526,819) (526,819)
------ ----------- -----------
Balance at December 31, 1995................................ $1,250 $(1,437,472) $(1,436,222)
====== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-30
<PAGE> 81
PRACTICEMATCH, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ 645,248 $ 310,664 $(230,891)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization...................... 143,059 88,343 78,599
(Gain) loss on sale of equipment................... 7,296 -- --
(Increase) decrease in contracts receivable........ (11,865) (1,050) (40,415)
(Increase) decrease in employee advances........... 1,898 682 (1,300)
(Increase) decrease in prepaid expenses............ 44,159 53,704 (77,357)
(Increase) decrease in other assets................ 4,104 (210) 3,646
Increase (decrease) in accounts payable............ (1,810) (51,031) 17,555
Increase (decrease) in accrued liabilities......... 37,249 (19,977) 9,480
Increase (decrease) in deferred revenue............ (144,965) 254,087 547,462
--------- --------- ---------
Net cash provided by operating activities..... 724,373 635,212 306,779
--------- --------- ---------
Cash flows from investing activities:
Purchases of equipment................................ (253,574) (54,474) (97,391)
Proceeds from sale of equipment....................... 2,137 -- --
Increase in capitalized software...................... (193,866) (108,219) --
--------- --------- ---------
Net cash used in investing activities......... (445,303) (162,693) (97,391)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term debt......................... 210,786 100,000 --
Repayment of short-term debt.......................... (72,623) (280,602) (49,154)
Dividends paid........................................ (526,819) (156,769) (150,000)
--------- --------- ---------
Net cash used in financing activities......... (388,656) (337,371) (199,154)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. (109,586) 135,148 10,234
Cash and cash equivalents at beginning of year.......... 148,113 12,965 2,731
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 38,527 $ 148,113 $ 12,965
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statements.
F-31
<PAGE> 82
PRACTICEMATCH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE A -- SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
A summary of the operations and significant accounting policies
consistently applied in the preparation of the accompanying financial statements
follows:
NATURE OF OPERATIONS
The Company offers a database containing detailed information concerning
physicians who are candidates for new practice affiliations. The Company
licenses its physician database products to assist customers in cost effective,
in-house recruiting of physicians.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DEFERRED REVENUE
Data license fees are generally received from customers at the inception of
the contract period. These fees are non-refundable except in the unlikely event
of disruption of services. These revenues are amortized ratably over the life of
the contract. Commissions paid in association with these data license fees are
amortized ratably over the life of the contracts.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
CONTRACTS RECEIVABLE
The Company has elected the direct write-off method of accounting for bad
debts. Under this method, all uncollectible accounts are charged to expense when
determined to be uncollectible by management. The utilization of this method,
although not in conformity with generally accepted accounting principles, does
not have a material effect on the accompanying financial statements.
PREPAID ADVERTISING
Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when incurred. The costs of
direct-response advertising are capitalized and amortized over the period during
which future benefits are expected to be received, generally one year. Prepaid
advertising in 1995, 1994 and 1993 was $6,866, $20,536 and $15,184,
respectively. Advertising expense in 1995, 1994 and 1993 was $114,614, $143,269
and $11,352, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is recorded on the straight-line method over the
estimated useful lives of the assets ranging from three to seven years.
Amortization of assets acquired under capital lease arrangements is recorded on
the straight-line method over the useful lives of the assets or the lease term,
whichever is shorter.
F-32
<PAGE> 83
PRACTICEMATCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCORPORATION COSTS
Incorporation costs were being amortized over a five year period.
Amortization expense charged to operations in 1995, 1994 and 1993 was $1,267,
$3,800 and $3,800, respectively.
INCOME TAXES
The stockholders have elected to be treated as an "S" Corporation under
provisions of the Internal Revenue Code which provides that, in lieu of
corporation income taxes, the stockholders are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability for
federal and state income taxes is reflected in these financial statements.
NOTE B -- CONTRACTS RECEIVABLE
The Company enters into multi-year, non-cancelable data license contracts.
The first year of the contract is paid at contract signing, with revenue being
recognized monthly over the next twelve months. The balances relating to future
years are recorded in contracts receivable. These balances are not due to be
paid until their respective annual anniversary dates. These receivables have
been reduced by the deferred revenue amount associated with the contracts. The
gross amounts for contracts receivable for the three years ending 1995, 1994 and
1993 were $942,693, $326,875 and $208,760, respectively.
NOTE C -- SOFTWARE DEVELOPMENT
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," the Company capitalizes the direct costs associated with the
development of software products.
Direct labor costs of producing product masters incurred subsequent to
establishing technological feasibility are capitalized. Those costs include
coding and testing performed subsequent to establishing technological
feasibility. Software production costs for computer software used as an integral
part of a product or process have been charged to expense until both (a)
technological feasibility has been established for the software and (b) all
research and development activities for the other components of the product or
process have been completed.
Capitalization of computer software costs is discontinued when the product
is available for general release to customers. Costs of maintenance and customer
support are charged to expense when the related revenue is recognized or when
those costs are incurred, whichever occurs first. The sales price of a product
includes customer support; therefore, the estimated related costs are accrued in
the same period that the sales price is recognized.
The realizability of these costs requires considerable judgment from
management related to the estimated useful lives and anticipated future sales.
The amount of software development costs capitalized for the periods ending
December 31, 1995, 1994 and 1993 was $302,085, $108,219 and $0, respectively.
Capitalized costs are amortized over the estimated product life on the straight
line basis. Unamortized costs are carried at the lower of book value or net
realized value. Amortization of software development costs for the periods
ending December 31, 1995, 1994 and 1993 was $37,752, $12,447 and $0,
respectively and is included in depreciation and amortization expense in the
statements of operations.
F-33
<PAGE> 84
PRACTICEMATCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- NOTES PAYABLE
The Company was indebted under notes payable as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ------- ---------
<S> <C> <C> <C>
IBM Credit Corporation; $30,000; unsecured; payable in
monthly installments of $813, including interest at
.5% above prime (8.5% at December 31, 1994). Final
payment made in March 1995. ........................ $ -- $ 2,264 $ 11,266
Colonial Bank; secured by substantially all corporate
assets; payable in monthly installments of $9,200,
including interest at 2% above prime (8.5% at
December 31, 1995), with final payment due August
18, 1996. .......................................... 140,427 -- --
Colonial Bank; $300,000 line-of-credit; secured by
substantially all corporate assets; payable on
demand on August 18, 1996 with interest at 2% above
the prime rate (8.5% at December 31, 1995).......... -- -- 105,600
--------- ------- ---------
140,427 2,264 116,866
Less current maturities.......................... (140,427) (2,264) (114,176)
--------- ------- ---------
$ -- $ -- $ 2,690
========= ======= =========
</TABLE>
At December 31, 1995, 1994 and 1993, the fair value of the notes payable
approximates the amounts recorded on the financial statements.
NOTE E -- COMMITMENTS
The Company leases office space under an operating lease expiring in 1999.
Rental expense charged to operations under the terms of this lease in 1995, 1994
and 1993 was $130,608, $179,352 and $155,344, respectively.
The Company leases an automobile and equipment under operating leases
expiring in various years through 1999. Rental expense charged to operations
under the terms of these leases in 1995, 1994 and 1993 was $101,921, $226,790
and $210,283, respectively.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1995 for each of the
next four years are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
--------------------------------------------------------------- --------
<S> <C>
1996........................................................... $166,419
1997........................................................... 150,022
1998........................................................... 146,105
1999........................................................... 135,786
--------
Total minimum future rental payments................. $598,332
========
</TABLE>
The Company has entered into an agreement with the American Medical
Association (AMA). Under the terms of the agreement, AMA agrees to license on an
exclusive basis within the United States of America a minimum of 5,000
practicing physician names in the AMA Willing to Relocate (WTR) Database. In
addition, the AMA agrees to provide PracticeMatch, Inc. with names of all
residents in the AMA WTR Database. In return, PracticeMatch, Inc. will pay AMA a
royalty of $22,000 per month. The agreement is
F-34
<PAGE> 85
PRACTICEMATCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
effective until December 31, 1998, with PracticeMatch, Inc. having an option to
terminate the agreement after one year.
NOTE F -- RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements to conform to the 1995 presentation.
NOTE G -- STOCKHOLDERS' EQUITY (DEFICIENCY)
Pursuant to an agreement among the Company and its stockholders, the
Company and the remaining stockholders have the right of first refusal to
purchase a stockholder's shares. Additionally, if certain events occur to a
stockholder, the remaining stockholders or the Company must purchase the
existing shareholder's shares at the then current agreed value as defined in the
stockholder's agreement.
NOTE H -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Interest.................................................. $19,903 $20,190 $12,193
======= ======= =======
</TABLE>
NOTE I -- SUBSEQUENT EVENTS
On March 8, 1996 the shareholders of the Company entered into a stock
purchase agreement whereby the shareholders agreed to sell their respective
shares of common stock to a purchaser known as Medirisk, Inc. (a Florida
corporation). The aggregate amount of shares sold was 1,250 shares. The closing
date of the sale was March 14, 1996. The Company will continue operations in St.
Louis, Missouri as a wholly-owned subsidiary of Medirisk, Inc.
F-35
<PAGE> 86
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 6
The Company......................... 12
Dividend Policy..................... 12
Use of Proceeds..................... 13
Capitalization...................... 14
Dilution............................ 15
Selected Consolidated Financial
Data.............................. 16
Unaudited Pro Forma Financial
Data.............................. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 19
Business............................ 26
Management.......................... 36
Certain Transactions................ 41
Principal Stockholders.............. 42
Description of Capital Stock........ 43
Shares Eligible for Future Sale..... 46
Underwriting........................ 48
Legal Matters....................... 49
Experts............................. 49
Additional Information.............. 49
Index to Financial Statements....... F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,500,000 SHARES
MEDIRISK LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
EQUITABLE SECURITIES CORPORATION
JEFFERIES & COMPANY, INC.
January , 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Registrant in connection with the issuance and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. The
Registrant is paying all of these expenses in connection with the issuance and
distribution of the securities.
<TABLE>
<CAPTION>
PAYABLE BY
THE REGISTRANT
--------------
<S> <C>
SEC registration fee.................................................... $ 15,466
NASD filing fee......................................................... 4,985
Nasdaq Listing Fee...................................................... 35,000
Accountants' fees and expense........................................... 310,000
Legal fees and expenses................................................. 210,000
Printing and engraving costs............................................ 125,000
Blue Sky fees and expenses.............................................. 20,000
Transfer Agent and registrar fees....................................... 10,000
Miscellaneous........................................................... 19,549
-------
Total......................................................... $750,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Certificate of Incorporation of the Registrant sets forth
the extent to which the Registrant's directors and officers may be indemnified
against liabilities they may incur while serving in such capacities. Such
indemnification will be provided to the fullest extent allowed by the Delaware
General Corporation Law, as amended from time to time. Under these
indemnification provisions, the Registrant is required to indemnify any of its
directors and officers against any reasonable expenses (including attorneys'
fees) incurred by him in the defense of any action, suit or proceeding, whether
civil, criminal, administrative or investigative, to which he was made a party,
or in defense of any claim, issue or matter therein, by reason of the fact that
he is or was a director or officer of the Registrant or who, while a director or
officer of the Registrant, is or was serving at the Registrant's request as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise to
the extent that such director or officer has been successful, on the merits or
otherwise, in such defense. The Registrant is also required to indemnify any of
its directors or officers against any liability incurred in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Registrant, in which event, additional determinations must be made
before indemnification is provided) by reason of the fact that he is or was a
director or officer of the Registrant who, while a director or officer of the
Registrant, is or was serving at the Registrant's request as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, if
such director or officer acted in a manner he believed in good faith to be in,
or not opposed to, the best interests of the Registrant, and with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. The Registrant may also provide advances of expenses incurred by a
director or officer in defending any such action, suit or proceeding upon
receipt of a written affirmation of such officer or director that he has met
certain standards of conduct and an understanding by or on behalf of such
officer or director to repay such advances unless it is ultimately determined
that he is entitled to indemnification by the Registrant.
The Registrant's Certificate of Incorporation contains a provision which
eliminates, to the fullest extent permitted by law, director liability for
monetary damages for breaches of the fiduciary duty of care or any other duty as
a director.
II-1
<PAGE> 88
The Registrant has entered into an Indemnification Agreement (the
"Indemnification Agreement") with each of its directors and officers. The
Indemnification Agreement sets forth certain procedural matters relating to
indemnification, including the manner in which an indemnified party may make a
claim and the right of an indemnified party to court adjudication of his or her
claim if indemnification is denied by the Registrant.
The Registrant maintains an insurance policy insuring the Registrant and
directors and officers of the Registrant against certain liabilities. This
insurance policy does not include liabilities under the Securities Act of 1933;
however, the Company is currently negotiating to obtain such insurance.
Reference is hereby made to Section 7 of the Underwriting Agreement, the
form of which is filed as Exhibit 1.1 hereto, in which the Registrant agrees to
indemnify the Underwriters and certain other persons against certain civil
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In July of 1994, following the repurchase of 233,856 shares of Common Stock
by the Company from a shareholder for $150,000, the Company resold the shares at
the same price, half of which were purchased by employees and half of which were
purchased by Sears, Brantley and Powell. In addition, a total of 328,672 options
have been granted to employees, officers and directors of the Company. In
connection with a transaction with HPSC, the Company issued 280,623 shares of
Series B Convertible Preferred Stock to HPSC for $2,000,000 and agreed to issue
to HPSC warrants to purchase up to 432,101 shares of Common Stock as and when
the Company borrowed funds from HPSC. In March 1996, in connection with
borrowing $6,900,000 under the Securities Purchase Agreement, the Company issued
HPSC Warrants to purchase 298,150 shares of Common Stock. The Warrants are
currently exercisable. In connection with the acquisition of Formations, the
Company issued 99,466 shares of Common Stock and options to purchase 28,947
shares of Common Stock at an exercise price of $0.64 per share to Pamella L.
Leiter, the seller. All of such transactions, other than the issuance to HPSC,
were conducted without an underwriter or other placement agent, and the
Registrant claims that all of such transactions were exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act and that
sales to employees were exempt under Rule 701 adopted by the Commission pursuant
to the Securities Act. In connection with the issuance of securities to HPSC,
Equitable Securities Corporation acted as placement agent and was paid fees of
$445,000 and reimbursed its expenses of approximately $11,000. On August 4,
1996, a former employee exercised options to purchase 1,949 shares of Common
Stock and on March 14, 1996 an employee of the Company received 7,518 shares of
Common Stock in lieu of a bonus.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ --------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement among the Company and Equitable Securities
Corporation and Jefferies & Company, Inc. as Representatives of the several
underwriters.**
2.1 -- Agreement and Plan of Merger dated as of August 27, 1996, between Medirisk,
Inc., a Florida corporation and Medirisk, Inc., a Delaware corporation.*
2.2 -- Stock Purchase Agreement dated as of November 22, 1995, between the Company and
Pamella L. Leiter.*
2.3 -- Stock Purchase Agreement dated as of March 8, 1996, between the Company, Joseph
E. Thomure, Susan P. Brandt, David Rollins and Samuel E. Bradt.*
3.1 -- Certificate of Incorporation of the Company.*
3.2 -- Bylaws of the Company.*
4.1 -- See Articles IV, VI, VII, VIII and IX of the Certificate of Incorporation filed
as Exhibit 3.1 and Articles I, II, III, VI and VII of the Bylaws filed as
Exhibit 3.2.
4.2 -- Specimen Stock Certificate of the Common Stock of the Registrant.**
5.1 -- Opinion of Alston & Bird (including consent).
</TABLE>
II-2
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ --------------------------------------------------------------------------------
<C> <C> <S>
10.1 -- Securities Purchase Agreement dated January 8, 1996, between the Company and
HealthPlan Services Corporation (For Exhibits F, G, J and E to the Securities
Purchase Agreement, see Exhibits 10.6, 10.7, 10.8 and 10.9 hereto).*
10.1.1 -- Amendment No. 1 to Securities Purchase Agreement.
10.1.2 -- Amendment No. 2 to Securities Purchase Agreement.
10.1.3 -- Amendment No. 3 to Securities Purchase Agreement.
10.2 -- Employment Agreement dated as of May 31, 1996, between the Company and Mark A.
Kaiser.*
10.3 -- Employment Agreement dated as of January 9, 1996, between the Company and
Pamella L. Leiter.*
10.4 -- Employment Agreement dated as of March 14, 1996, between the Company and Susan
P. Brandt.*
10.5 -- Agreement for Participation in the Formations National Outcome System dated as
of May 28, 1995, between Formations and HEALTHSOUTH.*
10.6 -- Registration Rights Agreement dated as of January 9, 1996, between the Company
and Pamella L. Leiter.*
10.7 -- Warrant Agreement dated as of January 8, 1996, between the Company and HPSC.*
10.7.1 -- Amendment No. 1 to Warrant Agreement.
10.7.2 -- Amendment No. 2 to Warrant Agreement.
10.8 -- Consent and Modification Agreement dated as of January 8, 1996, between the
Company, Brantley Venture Partners, II, L.P., Chase Manhattan Bank, N.A., as
Trustee, and Laurence H. Powell.*
10.9 -- Shareholders Agreement dated as of January 8, 1996, between the Company,
Brantley Venture Partners, II, L.P., Chase Manhattan Bank, N.A., Laurence H.
Powell and HealthPlan Services Corporation.*
10.10 -- Registration Rights Agreement dated as of January 9, 1996, between the Company
and Health Plan Services Corporation.*
10.11 -- Form of Indemnification Agreement between the Company and each of its officers
and directors.
10.12 -- Form of Employee Shareholder Agreement.*
10.13 -- Medirisk, Inc. 1996 Stock Incentive Plan.
10.14 -- Medirisk, Inc. 1996 Non-Management Directors Stock Option Plan
10.15 -- Registration Agreement dated as of October 28, 1996, between the Company,
Brantley Venture Partners II, L.P., Chase Manhattan Bank N.A., as Trustee, and
Laurence H. Powell.
10.16 -- Termination and Waiver Agreement dated as of October 28, 1996, between the
Company, Brantley Venture Partners II, L.P., Chase Manhattan Bank, N.A., as
Trustee, and Laurence H. Powell.
10.17 -- Promissory Note dated December 20, 1996 by the Company payable to NationsBank,
N.A. (South).
10.18 -- Debt Subordination Agreement dated December 20, 1996 by and among the Company,
NationsBank and HPSC.
11.1 -- Statements of computation of pro forma net loss per share of common stock
(unaudited).
21.1 -- List of Subsidiaries of the Registrant.
23.1 -- Consent of Alston & Bird (contained in Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of KPMG Peat Marwick LLP.
23.4 -- Consent of Brown Smith Wallace, L.L.C.
24.1 -- Powers of Attorney -- see signature page of this Registration Statement.*
27.1 -- Financial Data Schedule -- Medirisk, Inc. (for SEC use only)
</TABLE>
- ---------------
* Previously Filed.
** To be filed by amendment.
II-3
<PAGE> 90
B. Financial Statement Schedules
All financial statement schedules are omitted because they are not
required or are not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the
Representatives of the Underwriters at the closing specified in the underwriting
agreements certificates in such denominations and registered in such names as
required by the Representatives of the Underwriters to permit prompt delivery to
each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on December 20, 1996.
MEDIRISK, INC.
By: /s/ MARK A. KAISER
--------------------------------------
Title: Chairman, Chief Executive
Officer, President
(principal executive officer) and
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 20, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -------------------
<C> <S> <C>
* Chairman, Chief Executive December 20, 1996
- --------------------------------------------- Officer, President
Mark A. Kaiser (principal executive
officer) and Director
* Chief Financial Officer, December 20, 1996
- --------------------------------------------- Executive Vice President
Kenneth M. Goins, Jr. (principal financial and
accounting officer)
* Director December 20, 1996
- ---------------------------------------------
Michael J. Finn
* Director December 20, 1996
- ---------------------------------------------
James K. Murray, III
* Director December 20, 1996
- ---------------------------------------------
Robert P. Pinkas
*By: /s/ MARK A. KAISER
- ---------------------------------------------
Mark A. Kaiser
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5.1
OPINION OF ALSTON & BIRD
<PAGE> 2
ALSTON&BIRD
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777
December 23, 1996
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road, N.E.
Atlanta, GA 30305-1502
Re: Registration of 2,875,000 shares of Common Stock of Medirisk, Inc.
Ladies and Gentlemen:
We have acted as counsel to Medirisk, Inc., a Delaware corporation (the
"Company"), in connection with the preparation of the Company's Registration
Statement of Form S-1 (Registration No. 333-12311) and the amendments thereto
(the Registration Statement, as amended, is hereinafter referred to as the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended. The Registration Statement
relates to the offer and sale by the Company of up to 2,875,000 shares of its
Common Stock, par value $0.01 per share ("Common Stock"). The shares of Common
Stock to be sold by the Company are hereinafter referred to as the "Company
Securities."
This opinion letter is limited by, and is in accordance with, the January
1, 1992 edition of the Interpretive Standards Applicable to Legal Opinions to
Third Parties in Corporate Transactions ("Interpretive Standards") adopted by
the Legal Opinion Committee of the Corporate and Banking Law Section of the
State Bar of Georgia, which Interpretive Standards are incorporated in this
opinion letter by this reference. Capitalized terms used in this opinion
letter and not otherwise defined herein shall have the meanings assigned to
such terms in the Interpretive Standards or the Underwriting Agreement (as
hereinafter defined).
In connection therewith, we have examined and relied upon the original, or
copies certified to our satisfaction, of (i) the Certificate of Incorporation
of the Company, as amended, and the Bylaws of the Company, as amended; (ii) the
minutes and records of the corporate proceedings of the Company with respect to
the issuance by the Company of the shares of Company Securities; (iii) the
Registration Statement and all exhibits thereto; (iv) the Underwriting
Agreement to be entered into among the Company, Equitable Securities
Corporation and Jefferies & Company, Inc. as Representatives of the
601 Pennsylvania Avenue, N.W.
North Building, Suite 250
Washington, D.C. 20004-2601
<PAGE> 3
Medirisk, Inc.
December 23, 1996
Page 2
Underwriters named therein (the "Underwriting Agreement"); (v) the form of
pricing resolutions to be utilized by the Pricing Committee of the Company's
Board of Directors; and (vi) such other documents and instruments as we have
deemed necessary for the expression of the opinions contained herein.
In making the foregoing examinations, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies thereof. As to various questions of
fact material to this opinion, where such facts have not been independently
established, and as to the content and form of certain minutes, records,
resolutions and other documents or writings of the Company, we have relied, to
the extent we have deemed reasonably appropriate, upon representations or
certificates of officers of the Company or governmental officials. We have
assumed that the Underwriting Agreement will be executed in substantially the
same form submitted to us.
Based upon the foregoing, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that the Company
Securities, upon receipt by the Company of the full consideration for the
Company Securities in accordance with the terms of the Underwriting Agreement
and upon adoption of the pricing resolutions, will be validly issued, fully
paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the
reference to this firm under "Legal Matters" in the Prospectus forming a part
of such Registration Statement.
Very truly yours,
ALSTON & BIRD
By: /s/ J. Vaughan Curtis
-------------------------------------
J. Vaughan Curtis, a Partner
<PAGE> 1
EXHIBIT 10.1.1
AMENDMENT NUMBER 1 TO SECURITIES PURCHASE AGREEMENT
<PAGE> 2
AMENDMENT NUMBER 1 TO
SECURITIES PURCHASE AGREEMENT
THIS AMENDMENT NUMBER 1 TO SECURITIES PURCHASE AGREEMENT (this
"Amendment") is made and entered into as of this 31st day of May, 1996, by and
between MEDIRISK, INC., a Florida corporation (the "Company"), and HEALTHPLAN
SERVICES CORPORATION, a Delaware corporation ("Purchaser");
WITNESSETH:
WHEREAS, Purchaser and the Company are parties to a Securities Purchase
Agreement, dated January 8, 1996 (the "Agreement"), pursuant to which Purchaser
purchased certain Convertible Preferred Stock of the Company and agreed to
purchase certain subordinated promissory notes to be issued by the Company
pursuant to the terms of the Agreement; and
WHEREAS, Purchaser and the Company now desire to amend the Agreement as
set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants hereinafter set forth, the parties agree as follows:
1. AMENDMENT OF AGREEMENT. Purchaser and the Company
hereby agree to amend the Agreement by deleting Section 5.12 therefrom in its
entirety and adding the following in lieu thereof:
5.12 Executive Compensation. Allow any of its officers,
directors or employees to use any assets or property of the Company or
any of its Affiliated Companies for personal purposes. Neither the
Company nor any of its Affiliated Companies shall increase the salary
or other compensation or benefits paid or provided to any officer or
director of the Company or such Affiliated Company except to the extent
that such increase (a) is commercially reasonable and in accordance
with industry standards and (b) is approved by the Compensation
Committee (composed entirely of directors who are not employees of the
Company or any Affiliate of the Company) of the Board of Directors of
the Company or such Affiliated Company, as the case may be, provided
that in no event will any option plan or option agreement be amended or
instituted which causes the total of all options available for grant to
employees, directors and sellers of businesses acquired by the Company,
outstanding options issued to employees, directors and sellers of
businesses acquired by the Company, and stock issued under any employee
benefit plan or otherwise to any employee or director (in his or her
capacity as such) to exceed 893,850 shares of Series A Common Stock (as
adjusted for stock splits, stock dividends and similar events occurring
after the date of this Agreement); provided, however, that at least
200,000 of such shares shall be issuable under an employee stock option
plan and a directors stock option plan,
<PAGE> 3
both of which plans shall be adopted and approved by the Company's
Board of Directors and shareholders prior to the closing of an Initial
Public Offering and under which plans no fewer than 200,000 shares of
Series A Common Stock or options or other rights to purchase Series A
Common Stock shall be available for grant after the Company's closing
of an Initial Public Offering.
2. MISCELLANEOUS. Except as specifically modified and amended
by this Amendment, the Agreement shall remain in full force and effect, and the
terms and conditions of the Agreement are hereby ratified and confirmed in all
respects as so amended.
IN WITNESS WHEREOF, each party hereto has executed or caused this
Amendment to be executed on its behalf, all on the day and year first above
written.
COMPANY:
MEDIRISK, INC.
By:/s/ Mark A. Kaiser
----------------------------------------------
Mark A. Kaiser
Chairman of the Board and Chief Executive
Officer
PURCHASER:
HEALTHPLAN SERVICES CORPORATION
By:/s/ James K. Murray, III
----------------------------------------------
James K. Murray, III, Executive Vice President
and Chief Financial Officer
-2-
<PAGE> 1
EXHIBIT 10.1.2
AMENDMENT NUMBER 2 TO SECURITIES PURCHASE AGREEMENT
<PAGE> 2
AMENDMENT NUMBER 2 TO
SECURITIES PURCHASE AGREEMENT
This AMENDMENT NUMBER 2 TO SECURITIES PURCHASE AGREEMENT (this "Amendment")
is entered into on this 29th day of August 1996, by and among MEDIRISK, INC., a
Florida corporation (the "Company"), and HEALTHPLAN SERVICES CORPORATION, a
Delaware corporation ("Purchaser").
BACKGROUND
WHEREAS, Purchaser and the Company are parties to a Securities Purchase
Agreement, dated January 8, 1996 (the "Agreement"), pursuant to which Purchaser
purchased 280,623 shares of Series B Convertible Preferred Stock of the Company
and agreed to purchase up to $10,000,000.00 in original principal amount of
Senior Subordinated Notes (as defined in the Agreement); and
WHEREAS, the parties desire to amend the Agreement as set forth in this
Amendment.
NOW, THEREFORE, Purchaser and the Company hereby agree as follows:
1. Amendment of Appendix A. Appendix A to the Agreement is amended by
inserting immediately following the definition of "Senior Subordinated Notes"
the following:
"Series A Common Stock" means the Series A Common Stock of the
Company and any stock into which such Series A Common Stock is converted
in any recapitalization, merger, consolidation, statutory share exchange
or similar event.
2. Miscellaneous. Except as specifically modified and amended by this
Amendment, the Agreement shall remain in full force and effect, and the terms of
the Agreement are hereby ratified and confirmed in all respects as so amended.
[the remainder of this page intentionally left blank]
<PAGE> 3
IN WITNESS WHEREOF, each party hereto has executed or caused this Amendment
to be executed on its behalf, all on the day and year first above written.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
------------------------------------
Title: President
------------------------------------
HEALTHPLAN SERVICES CORPORATION
By: /s/ James K. Murray, III
------------------------------------
Title: Executive Vice President
------------------------------------
- 2 -
<PAGE> 1
EXHIBIT 10.1.3
AMENDMENT NUMBER 3 TO SECURITIES PURCHASE AGREEMENT
<PAGE> 2
AMENDMENT NUMBER 3 TO
SECURITIES PURCHASE AGREEMENT
This AMENDMENT NUMBER 3 TO SECURITIES PURCHASE AGREEMENT (this "Amendment")
is entered into on this 18th day of September 1996 but is effective for all
purposes as of January 8, 1996, by and among MEDIRISK, INC., a Florida
corporation (the "Company"), and HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation ("Purchaser").
BACKGROUND
WHEREAS, Purchaser and the Company are parties to a Securities Purchase
Agreement, dated January 8, 1996, as amended as of May 31, 1996 and August 22,
1996 (as so amended, the "Agreement"), pursuant to which Purchaser purchased
280,623 shares of Series B Convertible Preferred Stock of the Company and agreed
to purchase up to $10,000,000.00 in original principal amount of Senior
Subordinated Notes (as defined in the Agreement); and
WHEREAS, upon delivery and review of the Company's audited financial
statements for the year ended December 31, 1995, the parties have determined
that they established certain of the financial covenants set forth in the
Agreement based upon their review of the Company's unaudited financial
statements as of September 30, 1995 and upon certain assumptions concerning the
Company's business and financial transactions for 1996 and the accounting
treatment therefor; and
WHEREAS, the parties desire to acknowledge that the assumptions underlying
such anticipated financial transactions, and the parties' assumptions concerning
the accounting therefor, were changed by way of mutual consent and that such
changes necessitate an amendment of certain of the financial covenants set forth
in the Agreement, with such amendment being effective as of the parties' entry
into the Agreement, and the parties desire to acknowledge and agree that no
default has existed or now exists based upon such covenants;
NOW, THEREFORE, Purchaser and the Company hereby agree as follows:
1. Amendment of Agreement. Section 5.10 of the Agreement is hereby amended
by deleting such Section in its entirety and inserting in lieu thereof the
following:
<PAGE> 3
5.10 Financial Covenants.
5.10.1 Consolidated EBITDA. Permit the Consolidated EBITDA
determined at the end of each Fiscal Year to be less than the amount
specified below:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
December 31, 1996 $ 192,000
December 31, 1997 $ 3,900,000
December 31, 1998 $ 5,900,000
December 31, 1999 $ 8,800,000
December 31, 2000 and thereafter $13,000,000
</TABLE>
5.10.2 Minimum Consolidated Net Worth. Permit Consolidated Net
Worth determined at the end of each Fiscal Year specified below to be
less than the amount specified below:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
December 31, 1995 ($11,586,000)
December 31, 1996 ($9,637,000)
December 31, 1997 ($5,000,000)
December 31, 1998 $ 8,000,000
December 31, 1999 $ 12,000,000
December 31, 2000 and thereafter $ 16,000,000
</TABLE>
5.10.3 Consolidated Debt to Consolidated EBITDA. Permit the ratio
of Consolidated Debt to Consolidated EBITDA determined at the end of each
Fiscal Year to exceed the ratio specified below:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
December 31, 1996 47.0:1.0
December 31, 1997 3.0:1.0
December 31, 1998 2.0:1.0
December 31, 1999 1.0:1.0
December 31, 2000 and thereafter 1.0:1.0
</TABLE>
(C) Fixed Charge Coverage. Permit the Fixed Charge Coverage Ratio
determined at the end of each Fiscal Year to be less than the ratio
specified below:
- 2 -
<PAGE> 4
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
December 31, 1996 n/a
December 31, 1997 4.0:1.0
December 31, 1998 and thereafter 6.0:1.0
</TABLE>
2. Amendment of Appendix A. Appendix A is hereby amended by deleting
therefrom the definition of "Consolidated EBITDA" and inserting in lieu thereof
the following:
"Consolidated EBITDA" means, for any period, Consolidated Net Income
for the Company for such period as determined in accordance with GAAP,
plus all amounts deducted therefrom for such period, if any, in respect of
(i) Consolidated Interest Charges, (ii) Consolidated Depreciation, (iii)
Consolidated Taxes, (iv) Consolidated Amortization, and (v) consolidated
in progress research and development charges or similar non-cash charges
or expenses incurred by the Company in connection with acquisitions, or
similar transactions, occurring during or prior to such period.
3. Effect of Amendment. This Amendment shall be effective as of the date
of the Agreement as if the modifications and amendments made herein were
included in the Agreement ab initio, and the covenants originally contained in
Section 5.10 shall be deemed for all purposes never to have been in force or
effect. The parties acknowledge that the provisions of Section 5.10 were agreed
to based upon mutually anticipated financial transactions and certain financial
assumptions, and that the revised covenants set forth in this Amendment
accurately reflect the parties' original intent upon entering into the
Agreement. The parties further acknowledge and agree that no default has
existed or now exists as a result of any failure to comply with such covenants.
4. Miscellaneous. Except as specifically modified and amended by this
Amendment, the Agreement shall remain in full force and effect, and the terms
of the Agreement are hereby ratified and confirmed in all respects as so
amended. Capitalized terms used and not defined in this Amendment but defined
in the Agreement shall have the respective meanings set forth in the Agreement.
[the remainder of this page intentionally left blank, signature page follows]
- 3 -
<PAGE> 5
IN WITNESS WHEREOF, each party hereto has executed or caused this
Amendment to be executed on its behalf, all on the day and year first above
written.
MEDIRISK, INC.
By: /s/ Kenneth M. Goins, Jr.
-------------------------
Title: Vice President
-------------------------
HEALTHPLAN SERVICES CORPORATION
By: /s/ James K. Murray, III
------------------------
Title: Executive Vice President
------------------------
- 4 -
<PAGE> 1
EXHIBIT 10.7.1
AMENDMENT NUMBER 1 TO WARRANT AGREEMENT
<PAGE> 2
AMENDMENT NUMBER 1 TO
WARRANT AGREEMENT
This AMENDMENT NUMBER 1 TO WARRANT AGREEMENT (this "Amendment") is entered
into on this 29th day of August, 1996, by and among MEDIRISK, INC., a Florida
corporation (the "Company"), and HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation (the "Investor").
BACKGROUND
WHEREAS, the Investor and the Company are parties to a Warrant Agreement,
dated January 8, 1996 (the "Agreement"), pursuant to which the Company agreed
to issue up to 665,180 warrants entitling the Investor to purchase up to an
aggregate of 665,180 shares of Series A Common Stock of the Company; and
WHEREAS, the parties desire to amend the Agreement as set forth in this
Amendment.
NOW, THEREFORE, the Investor and the Company hereby agree as follows:
1. Amendment of Appendix A. Appendix A to the Agreement is amended by
deleting therefrom the definition of "Series A Common Stock" in its entirety and
inserting in lieu thereof the following:
"Series A Common Stock" manes the Series A Common Stock of the
Company and any stock into which such Series A Common Stock is converted
in any recapitalization, merger, consolidation, statutory share exchange
or similar event.
2. Miscellaneous. Except as specifically modified and amended by this
Amendment, the Agreement shall remain in full force and effect, and the terms of
the Agreement are hereby ratified and confirmed in all respects as so amended.
[the remainder of this page intentionally left blank]
<PAGE> 3
IN WITNESS WHEREOF, each party hereto has executed or caused this
Amendment to be executed on its behalf, all on the day and year first above
written.
MEDIRISK, INC.
By: Kenneth M. Goins, Jr.
---------------------
Title: Vice President
---------------------
HEALTHPLAN SERVICES CORPORATION
By James K. Murray, III
------------------------
Title: Executive Vice President
------------------------
- 2 -
<PAGE> 1
EXHIBIT 10.7.2
AMENDMENT NUMBER 2 TO WARRANT AGREEMENT
<PAGE> 2
AMENDMENT NUMBER 2 TO
WARRANT AGREEMENT
This AMENDMENT NUMBER 2 TO WARRANT AGREEMENT (this "Amendment") is entered
into on this 28th day of October, 1996, by and among MEDIRISK, INC., a Delaware
corporation (the "Company"), and HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation (the "Investor").
BACKGROUND
WHEREAS, the Investor and the Company (as successor by merger to Medirisk,
Inc., a Florida corporation) are parties to a Warrant Agreement, dated January
8, 1996, as amended by Amendment Number 1 to Warrant Agreement, dated August __,
1996 (as so amended, the "Agreement"), pursuant to which the Company agreed to
issue up to 665,180 warrants entitling the Investor to purchase up to an
aggregate of 665,180 shares of Series A Common Stock of the Company; and
WHEREAS, the parties desire to amend the Agreement as set forth in this
Amendment.
NOW, THEREFORE, the Investor and the Company hereby agree as follows:
1. Amendment of Section 3.1. Section 3.1 to the Agreement is amended by
deleting such Section in its entirety and inserting in lieu thereof the
following:
3.1 Records. Until the earlier to occur of (i) the Company's payment
in full of all Senior Subordinated Notes issued to the Investor under the
Securities Purchase Agreement dated January 8, 1996 between the Company
and the Investor, and (ii) Investor's ceasing to own or have the right to
acquire an aggregate of at least 25,000 shares of Series A Common Stock,
the Company will (a) maintain adequate books and records in accordance
with GAAP, and (b) permit a representative of Investor, at any reasonable
time during the Company's regular business hours upon reasonable prior
notice, to inspect, copy, audit and examine such books and records, to
visit and inspect the properties of the Company and its Subsidiaries, and
to discuss the business, finances and affairs of the Company and its
Subsidiaries with the officers and directors thereof, all at the expense
of the Company.
2. Amendment of Section 5.1. Section 5.1 to the Agreement is amended by
deleting such Section in its entirety and inserting in lieu thereof the
following:
5.1 Prohibition on Dividends, Distributions. Until the Company's
registration of one or more of its classes of securities under the
Securities Exchange Act of 1934, as amended, the Company shall not declare
or pay any
<PAGE> 3
dividend or Distribution in cash, stock or any other property on its
capital stock now or hereafter outstanding or on any Option now or
hereafter outstanding (other than the Warrants) or redeem, retire,
purchase or otherwise acquire any shares of any class of its capital stock
now or hereafter outstanding or any Option now or hereafter outstanding
(other than the Warrants); provided, however, that nothing in this Section
5.1 or any other provision of this Warrant Agreement shall restrict the
Company's purchase of shares of Series A Common Stock or options to
purchase Series A Common Stock pursuant to the terms of any shareholder or
other agreement between the Company and any employee or former employee of
the Company in accordance with the terms of such agreement; provided,
further, that nothing in this Section 5.1 or any other provision of this
Warrant Agreement shall restrict the Company's ability to declare or pay a
dividend or Distribution permitted by the Securities Purchase Agreement if
such dividend or Distribution is paid to the Investor as if all Warrants
held by the Investor immediately prior to such dividend or Distribution
were exercised in full.
3. Miscellaneous. Except as specifically modified and amended by this
Amendment, the Agreement shall remain in full force and effect, and the terms of
the Agreement are hereby ratified and confirmed in all respects as so amended.
IN WITNESS WHEREOF, each party hereto has executed or caused this Amendment
to be executed on its behalf, all on the day and year first above written.
MEDIRISK, INC.
By: /s/ Kenneth M. Goins, Jr.
-------------------------
Title: Vice President
-------------------------
HEALTHPLAN SERVICES CORPORATION
By: /s/ James K. Murray, III
------------------------
Title: Executive Vice President
------------------------
- 2 -
<PAGE> 1
EXHIBIT 10.11
FORM OF INDEMNIFICATION AGREEMENT BETWEEN
THE COMPANY AND EACH OF ITS OFFICERS AND DIRECTORS
<PAGE> 2
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of this _____ day of October,
1996, by and between MEDIRISK, INC., a Delaware corporation (the "Company"), and
____________, a [director/officer] of the Company ("Indemnitee").
BACKGROUND
A. Section VI of the Bylaws of the Company and Article VI of the
Certificate of Incorporation of the Company permit the Company to indemnify
directors of the Company under certain circumstances in accordance with the
provisions of the Delaware General Corporate Law, as the same exists or may
hereafter be amended (the "DGCL").
B. The parties hereto desire to memorialize herein the Company's
indemnification obligations to the Indemnitee, and, in addition, to set forth
certain covenants and agreements with respect to the obligations of the Company
to indemnify the Indemnitee.
AGREEMENT
For and in consideration of the mutual agreements herein contained, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. The following capitalized terms are used in this
Agreement with the meanings thereafter ascribed:
(a) "Corporation" means the Company, and any domestic or foreign entity
that is the successor entity to the Company by merger, combination,
consolidation, or other transaction in which the separate existence of the
Company ceases.
(b) "Director" or "director" means an individual who is or was a member of
the Board of Directors of the Corporation, or an individual who, while a member
of the Board of Directors of the Corporation, is or was serving at the
Corporation's request as a director, officer, partner, trustee, employee, or
agent of another corporation (including any subsidiary of the Corporation),
partnership, limited liability company, joint venture, trust, employee benefit
plan, or other enterprise. A Director is considered to be serving an employee
benefit plan at the Corporation's request if such Director's duties to the
Corporation also impose duties on, or otherwise involve services by, such
Director to the participants in or beneficiaries of the plan. The term
"Director" or "director" includes, unless the context requires otherwise, the
estate or personal representative of a Director. For the purposes of this
Agreement,
<PAGE> 3
Indemnitee serves as a Director of each of the subsidiaries of the Corporation
at the request of the Corporation.
(c) "Expenses" includes attorneys' fees and other expenses actually and
reasonably incurred (i) by a Party in connection with the defense or settlement
of a Proceeding or (ii) by a Director or Officer in connection with a
Proceeding for which such Director or Officer is subpoenaed to appear as a
witness.
(d) "Indemnifiable Expenses" means all Expenses, Liability, and losses
(including attorneys' fees, judgments, penalties, fines, and amounts paid or to
be paid in any settlement approved in advance by the Corporation, such approval
not to be unreasonably withheld) actually and reasonably incurred or suffered
by Indemnitee in connection with a Proceeding, whether as a Party to the
Proceeding or as a witness who has been subpoenaed to appear at the Proceeding.
(e) "Interim Expenses" means Indemnifiable Expenses incurred by Indemnitee
in connection with any Proceeding to which Indemnitee is a Party in advance of
the final disposition thereof.
(f) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable Expenses incurred with respect to a Proceeding.
(g) "Officer" or "officer" means an individual who is or was elected by
the Board of Directors of the Corporation as an officer of the Corporation, or
an individual who, while an officer of the Corporation, is or was serving at
the Corporation's request as a director, officer, partner, trustee, employee,
or agent of another corporation (including any subsidiary of the Corporation),
partnership, limited liability company, joint venture, trust, employee benefit
plan, or other enterprise. The term "Officer" or "officer" includes, unless
the context requires otherwise, the estate or personal representative of an
Officer.
(h) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a Proceeding by reason of the fact that
such individual is or was a Director or an Officer of the Corporation.
(i) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, whether formal or informal, any appeal in such an action, suit,
or proceeding, and any inquiry of investigation that could lead to such an
action, suit, or proceeding, whether formal or informal.
(j) "Special Legal Counsel" means a law firm, an attorney or a member of a
law firm, that is experienced in matters of corporate law and neither currently
is, nor in the past five (5) years has been, retained to represent (A) either
the Corporation or
- 2 -
<PAGE> 4
Indemnitee in any matter material to either party, or (B) any other party to the
Proceeding giving rise to a claim for indemnification hereunder. The term
"Special Legal Counsel" shall not include any person who, under the applicable
standards of professional conduct prevailing at the time of the representation,
would have a conflict of interest in representing either the Corporation or
Indemnitee in an action to determine Indemnitee's rights under the provisions of
the Corporation's Certificate of Incorporation, Bylaws, or any agreement upon
which Indemnitee relies to establish Indemnitee's right to indemnification or
advancement of expenses.
2. Indemnification Subject to authorization pursuant to Section 5 hereof,
the Corporation shall indemnify Indemnitee against all Indemnifiable Expenses
incurred by Indemnitee in connection with any Proceeding in which Indemnitee
was, is, or is threatened to be:
(a) made a party because Indemnitee is or was a Director or Officer of the
Corporation if (i) Indemnitee acted in a manner believed in good faith by
Indemnitee to be in or not opposed to the best interests of the Corporation, and
(ii) in the case of any criminal Proceeding, Indemnitee had no reasonable cause
to believe Indemnitee's conduct was unlawful, or
(b) subpoenaed to appear as a witness.
3. Exclusions. The Corporation shall not be obligated to indemnify
Indemnitee under this Agreement in connection with any Proceeding in which
Indemnitee:
(a) was adjudged liable to the Corporation or is subjected to injunctive
relief in favor of the Corporation for:
(i) any appropriation, in violation of the duties of Indemnitee, of
any business opportunity of the Corporation;
(ii) acts or omissions which involve intentional misconduct or a
knowing violation of the law;
(iii)the types of liability set forth in Section 170 of the DGCL;
(iv) any transaction for which Indemnitee received an improper
personal benefit; or
(v) an accounting of profits made from the purchase by Indemnitee of
securities of the Corporation pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended, or similar provisions of any state
statutory law;
- 3 -
<PAGE> 5
(b) receives payment from an insurance policy, provided that the
Corporation shall remain obligated to indemnify Indemnitee hereunder for all
Indemnifiable Expenses in excess of the payment received from such insurance
policy; or
(c) receives payment from the Corporation other than pursuant to this
Agreement, provided that the Corporation shall be obligated to indemnify
Indemnitee hereunder for all Indemnifiable Expenses in excess of such payment
from the Corporation.
4. Mandatory Indemnification for Successful Party. To the extent that
Indemnitee has been successful, on the merits or otherwise, in the defense of
any Proceeding to which Indemnitee was a Party, or in defense of any claim,
issue, or matter therein, because Indemnitee is or was a Director or Officer of
the Corporation, the Corporation shall indemnify Indemnitee against all
Indemnifiable Expenses actually and reasonably incurred by Indemnitee, including
all expenses incurred by Indemnitee in connection with establishing Indemnitee's
right to indemnification pursuant to this Section 4, in whole or in part,
subject only to the exclusions in Sections 3(b) and 3(c) hereof.
5. Authorization and Determination of Indemnification.
(a) Except with respect to any mandatory indemnification pursuant to
Section 4 hereof, and except as may be ordered by a court, the Corporation shall
not be liable to Indemnitee under Section 2(a) hereof unless and until, (i)
Indemnitee delivers a written demand to the Corporation pursuant to Section 7
hereof and (ii) the Corporation makes a determination in the manner set forth in
Section 5(b) below, that indemnification of Indemnitee is proper under the
circumstances because Indemnitee has met the applicable standard of conduct set
forth in Section 2(a) hereof (the "Standard of Conduct"). For purposes of such
determination, the termination of a Proceeding by judgment, order, settlement,
or conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that Indemnitee did not meet the Standard of Conduct.
Indemnitee shall be deemed to have been found liable in respect of any claim,
issue or matter only after Indemnitee shall have been so adjudged by a court of
competent jurisdiction and after the conclusion of all appeals therefrom.
(b) The determination as to whether Indemnitee has met the Standard of
Conduct shall be made within forty-five (45) days from the date the written
demand of Indemnitee pursuant to Section 7 hereof is received by the Corporation
by:
(i) The Board of Directors of the Corporation, by majority vote of a
quorum consisting of Directors not at the time Parties to the Proceeding
or, if such a quorum cannot be obtained, then by majority vote of a
committee duly designated by the Board of Directors (in which designation
Directors who are Parties may participate), consisting solely of two (2)
or more Directors not at the time Parties to the Proceeding; or
- 4 -
<PAGE> 6
(ii) By Special Legal Counsel to the Corporation, which Special
Legal Counsel is selected by the Board of Directors or its committee in
the manner prescribed by subparagraph (i) above or, if such a quorum
cannot be obtained and such a committee cannot be designated, then
Special Legal Counsel shall be selected by majority vote of the full
Board of Directors (in which selection Directors who are Parties may
participate); or
(iii) The stockholders of the Corporation holding a majority of
votes of voting securities, provided that shares of voting securities
owned by or voted under the control of Directors or Officers who are at
the time Parties shall be excluded from the vote with respect to the
determination.
(c) The Corporation shall not be liable to Indemnitee under Section 2(b)
hereof, unless (i) Indemnitee has delivered a written demand to the Corporation
pursuant to Section 7 hereof and (ii) Indemnitee is, at the time, not a named
Party to a Proceeding. The Corporation may require Indemnitee to comply with
the provisions of Section 6 hereof as a condition precedent to the payment of
Indemnifiable Expenses.
(d) Evaluation as to reasonableness of Indemnifiable Expenses or Expenses
shall be made in the same manner as the determination that the Indemnitee has
met the applicable Standard of Conduct, except that if the determination that
Indemnitee has met the applicable Standard of Conduct is made by Special Legal
Counsel, evaluation as to reasonableness of Indemnifiable Expenses or Expenses
shall be made by those entitled under paragraph (ii) of Section 5(b) to select
such Special Legal Counsel.
6. Interim Expenses. The Corporation shall advance Interim Expenses
incurred by Indemnitee if:
(a) Indemnitee furnishes the Corporation with a written affirmation of
Indemnitee's good faith belief that Indemnitee has met the Standard of Conduct
and has not engaged in the conduct described in Section 3(a) hereof; and
(b) Indemnitee furnishes the Corporation with a written undertaking,
executed personally or on Indemnitee's behalf, in substantially the form
attached hereto as Annex I, to repay any amounts advanced under this Section 6
if it is ultimately determined that Indemnitee has not met the Standard of
Conduct or if it is ultimately determined that indemnification of Indemnitee
against such Interim Expenses is prohibited by the DGCL. The written
undertaking required herein must be an unlimited general obligation of
Indemnitee but need not be secured and may be accepted without reference to
financial ability to make repayment.
7. Procedure for Making Demand. If Indemnitee is entitled to make a claim
for indemnification pursuant to Section 2 of this Agreement, Indemnitee shall
deliver to the Corporation Indemnitee's written request for payment of
Indemnifiable Expenses
- 5 -
<PAGE> 7
(which written request shall include, in the case of a request for Interim
Expenses, the written affirmation and undertaking of Indemnitee referred to in
Section 6 hereof).
8. Payment of Indemnifiable Expenses. Within fifteen (15) days after the
determination pursuant to Section 5 hereof that Indemnitee has met the Standard
of Conduct, the Corporation shall deliver to Indemnitee either (a) payment of
such indemnification or (b) written notice by the Corporation that the
Corporation has determined that the Indemnitee is not entitled to
indemnification. If Indemnitee has not received either the payment or the
written determination from the Corporation within sixty (60) days after receipt
by the Corporation of such written request, Indemnitee may, but need not, at any
time thereafter, bring an action against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, Indemnitee shall
also be entitled to be paid for the expense (including attorneys' fees) of
bringing such action.
9. Effect of Changes in Law or Corporate Documents. No changes in the DGCL
and no amendment to the Corporation's Certificate of Incorporation or Bylaws
after the date hereof shall have the effect of limiting or eliminating the
indemnification available under this Agreement as to any act or omission which
has occurred, or capacity in which Indemnitee served prior to such amendment.
If, after the date of this Agreement, any change in any applicable law, statute,
or rule expands the power of the Corporation to indemnify a Director or Officer,
Indemnitee's rights and the Corporation's obligations under this Agreement shall
be expanded, without any action by Indemnitee or the Corporation, to include
such change. If any change in any applicable law, statute, or rule narrows the
right of the Corporation to indemnify a Director or Officer, such change, except
to the extent otherwise required by law, shall have no effect on this Agreement
or the parties' rights or obligations hereunder.
10. Indemnitee's Obligations. Indemnitee shall promptly advise the
Corporation in writing of the institution of any Proceeding which is or may be
subject to this Agreement, and shall keep the Corporation generally informed of
and shall consult with the Corporation with respect to, the status of any such
Proceeding. Notices to the Corporation shall be sent to: Two Piedmont Center,
Suite 400, 3565 Piedmont Road N.E., Atlanta, Georgia 30305-1502, Attention:
Chief Executive Officer (or such other address as the Corporation shall
designate in writing to Indemnitee). Notices shall be deemed received five (5)
days after the date postmarked if sent by United States mail, postage prepaid
and properly addressed. In the event of payment by the Corporation to Indemnitee
under this Agreement, Indemnitee agrees that the Corporation shall be subrogated
to the extent of such payment to all the rights of recovery of Indemnitee, and
Indemnitee agrees to execute all papers required and to do everything necessary
to secure such rights, including the execution of such documents necessary to
enable the Corporation effectively to bring suit to enforce such rights. In
addition, Indemnitee agrees to give the Corporation such information and
cooperation as the Corporation may reasonably require and as shall be within
Indemnitee's power regarding any Proceeding which is or may be subject to this
Agreement.
- 6 -
<PAGE> 8
11. Successors. This Agreement establishes contract rights which shall be
binding upon, and shall inure to the benefit of, the successors, assigns, heirs,
and legal representatives of the parties hereto.
12. Contract Rights Not Exclusive. The contract rights conferred by this
Agreement shall be in addition to, but not exclusive of, any other right which
Indemnitee may have or may hereafter acquire under any statute, the Certificate
of Incorporation or Bylaws of the Corporation, or any agreement, vote of
stockholders or disinterested directors, or otherwise. The rights granted in
this Agreement supersede any similar rights granted under any previous written
agreement between the Corporation and Indemnitee with respect to the subject
matter hereof.
13. Amendment, Modification and Waiver. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by both
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
14. Choice of Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Georgia. The parties hereto agree that any appropriate state court sitting in
Fulton County, Georgia or any Federal Court sitting in the Northern District of
Georgia shall have exclusive jurisdiction over any case or controversy arising
under or in connection with this Agreement and shall be a proper forum in which
to adjudicate such case or controversy. Each party hereto irrevocably consents
to the jurisdiction of such courts, and irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such suit, action, or proceeding in any such court, and further waives the
right to object, with respect to such suit, action, or proceeding, that such
court does not have jurisdiction over such party.
15. Captions and Section Headings. Captions and section headings used
herein are for convenience only and are not a part of this Agreement and shall
not be used in construing it.
16. Severability. Should any provision of this Agreement, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties hereto. To the extent permitted by law,
the parties hereto waive any provision of law which renders any such provision
prohibited or unenforceable in any respect.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signatures appear on next page]
- 7 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as the
day and year first written above.
MEDIRISK, INC.
By: __________________________
Name:________________________
Title:_________________________
INDEMNITEE
_____________________________(SEAL)
Name:
[Director/Officer]
- 8 -
<PAGE> 10
Annex I
to
Indemnification Agreement
Form of Undertaking Agreement
This AGREEMENT is made on _________________, between MEDIRISK, INC., a
Delaware corporation (the "Corporation"), and ______________________ [, a member
of the Board of Director] [an officer] of the Corporation ("Indemnitee").
WHEREAS, Indemnitee has become involved in investigations, claims,
actions, suits, or proceedings which have arisen as a result of Indemnitee's
service to the Corporation; and
WHEREAS, Indemnitee desires that the Corporation pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such investigations, claims, actions, suits, or proceedings
and that such payment be made in advance of the final disposition of such
investigations, claims, actions, suits, or proceedings to the extent that
Indemnitee has not been previously reimbursed by insurance; and
WHEREAS, the Corporation is willing to make such payments but, in
accordance with Section 145 of the Delaware General Corporate Law (the "DGCL"),
the Corporation may make such payments only if it receives an undertaking to
repay from Indemnitee; and
WHEREAS, Indemnitee is willing to give such an undertaking.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. Indemnitee affirms his good faith belief that he has met the Standard of
Conduct necessary for indemnification as defined in Section 5(a) of the
Indemnification Agreement between the Corporation and Indemnitee (the
"Indemnification Agreement") and has not engaged in the conduct described in
Section 3(a) of the Indemnification Agreement.
2. In regard to any payments made by the Corporation to Indemnitee pursuant
to the terms of the Indemnification Agreement or pursuant to Section VI of the
Bylaws of the Corporation, Indemnitee undertakes and agrees to repay to the
Corporation any and all amounts so paid promptly and in any event within thirty
(30) days after (a) any determination made pursuant to Section 5 of the
Indemnification Agreement that Indemnitee has not met the applicable Standard of
Conduct defined therein, or (b) any
Annex I to Indemnification Agreement - Page 1
<PAGE> 11
final determination that Indemnitee is not entitled to indemnification
hereunder, or pursuant to the Bylaws of the Corporation, or pursuant to the
DGCL.
3. This Agreement shall not affect in any manner the rights which
Indemnitee may have against the Corporation, any insurer, or any other person to
seek indemnification for or reimbursement of (a) any expenses referred to herein
or (b) any judgment which may be rendered in any litigation or proceeding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
MEDIRISK, INC.
By: ________________________
Name:_______________________
Title:______________________
INDEMNITEE
By: ________________________
Name:_______________________
[Director/Officer]
Annex I to Indemnification Agreement - Page 2
<PAGE> 1
EXHIBIT 10.13
MEDIRISK, INC. 1966 STOCK INCENTIVE PLAN
<PAGE> 2
MEDIRISK, INC.
1996 STOCK INCENTIVE PLAN
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1 - DEFINITIONS ....................................... 1
1.1 Definitions ........................................... 1
SECTION 2 - THE STOCK INCENTIVE PLAN .......................... 4
2.1 The Purpose of the Plan ............................... 4
2.2 Stock Subject to the Plan ............................. 5
2.3 Administration of the Plan ............................ 5
2.4 Eligibility and Limits ................................ 5
SECTION 3 - TERMS OF STOCK INCENTIVES ......................... 6
3.1 Terms and Conditions of All Stock Incentives .......... 6
3.2 Terms and Conditions of Options ....................... 7
3.3 Terms and Conditions of Stock Appreciation Rights ..... 8
3.4 Terms and Conditions of Restricted Stock Awards ....... 9
3.5 Terms and Conditions of Dividend Equivalent Rights .... 9
3.6 Terms and Conditions of Performance Unit Awards ....... 10
3.7 Terms and Conditions of Phantom Shares ................ 10
3.8 Treatment of Awards Upon Termination of Employment .... 11
SECTION 4 - RESTRICTIONS ON STOCK ............................. 11
4.1 Escrow of Shares ...................................... 11
4.2 Forfeiture of Shares .................................. 12
4.3 Restrictions on Transfer .............................. 12
SECTION 5 - GENERAL PROVISIONS ................................ 12
5.1 Withholding ........................................... 12
5.2 Changes in Capitalization; Merger; Liquidation ........ 13
5.3 Cash Awards ........................................... 14
5.4 Compliance with Code .................................. 14
5.5 Right to Terminate Employment ......................... 14
5.6 Non-alienation of Benefits ............................ 14
5.7 Restrictions on Delivery and Sale of Shares; Legends .. 14
5.8 Termination and Amendment of the Plan ................. 15
5.9 Stockholder Approval .................................. 15
5.10 Choice of Law ........................................ 15
5.11 Effective Date of Plan ............................... 15
</TABLE>
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MEDIRISK, INC.
1995 STOCK INCENTIVE PLAN
SECTION 1 - DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun shall be
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Board of Directors" means the board of directors of the Company.
(b) "Cause" has the same meaning as provided in the employment agreement
between the Participant and the Company on the date of Termination of
Employment, or if no such definition or employment agreement exists, "Cause"
means conduct amounting to (1) fraud or dishonesty against the Company, (2)
Participant's willful misconduct, repeated refusal to follow the reasonable
directions of the Chief Executive Officer or Board of Directors, or knowing
violation of law in the course of performance of the duties of Participant's
employment with the Company, (3) repeated absences from work without a
reasonable excuse, (4) repeated intoxication with alcohol or drugs while on the
Company's premises during regular business hours, (5) a conviction or plea of
guilty or nolo contendere to a felony or a crime involving dishonesty, or (6) a
breach or violation of the terms of any employment or other agreement to which
Participant and the Company are party.
(c) "Change of Control" means the first to occur of the following events:
(i) any person (as defined in Section 3(a)(9) of the Exchange Act
and as used in Sections 13(d) and 14(d) thereof), excluding the Company, any
Subsidiary and any employee benefit plan sponsored or maintained by the Company
or any Subsidiary (including any trustee of such plan acting as trustee
thereof), but including a 'group' as defined in Section 13(d)(3) of the
Exchange Act (a "Person"), becomes the beneficial owner of shares of the
Company having at least thirty percent (30%) of the total number of votes that
may be cast for the election of directors of the Company (the "Voting Shares")
(such 30% or greater percentage hereinafter referred to as the "Voting Share
Percentage"); provided that no Change of Control will occur as a result of an
acquisition of stock by the Company which increases, proportionately, the stock
representing the voting power of the Company owned by such person or group
above the Voting Share Percentage, and provided further that if such person or
group acquires stock representing more than the Voting Share Percentage by
reason of share purchases by the Company, and after such share purchases by the
Company acquires any additional shares representing voting power of the
Company, then a Change of Control shall occur;
(ii) the stockholders of the Company shall approve any merger or
other business combination of the Company, sale of the Company's assets or
combination of the
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foregoing transactions (a "Transaction") other than a Transaction involving only
the Company, or one or more of its Subsidiaries, or a Transaction immediately
following which the stockholders of the Company immediately prior to the
Transaction continue to have a majority of the voting power in the resulting
entity excluding for this purpose any stockholder owing directly or indirectly
more than ten percent (10%) of the shares of the other company involved in the
merger; or
(iii) within any 24-month period beginning on or after the Effective
Date, the persons who were directors of the Company immediately before the
beginning of such period (the "Incumbent Directors") shall cease (for any
reason other than death) to constitute at least a majority of the Board of
Directors or the board of directors of any successor to the Company, provided
that any director who was not a director as of the Effective Date shall be
deemed to be an Incumbent Director if such director was elected to the Board of
Directors by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors either
actually or by prior operation of this clause (iii); and provided further that
any director elected to the Board of Directors to avoid or settle a threatened
or actual proxy contest shall in no event be deemed to be an Incumbent
Director.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the committee appointed by the Board of Directors to
administer the Plan. The Committee shall consist of at least two members of the
Board of Directors each of whom shall be a "disinterested person," as defined in
Rule 16b-3 as promulgated under the Exchange Act.
(f) "Company" means Medirisk, Inc., a Delaware corporation.
(g) "Disability" has the same meaning as provided in the employment
agreement between the Participant and the Company on the date the Participant
ceases active work due to a disability, or if no such definition or employment
agreement exists, "Disability" means (1) the inability of Participant to perform
the duties of Participant's employment due to physical or emotional incapacity
or illness, where such inability is expected to be of long-continued and
indefinite duration or (2) Participant shall be entitled to (i) disability
retirement benefits under the federal Social Security Act or (ii) recover
benefits under any long-term disability plan or policy maintained by the
Company. In the event of a dispute, the determination of Disability shall be
made by the Committee and shall be supported by advice of a physician competent
in the area to which such Disability relates.
(h) "Disposition" means any conveyance, sale, transfer, assignment, pledge
or hypothecation whether outright or as security, inter vivos or testamentary,
with or without consideration, voluntary or involuntary.
(i) "Dividend Equivalent Rights" means certain rights to receive cash
payments as described in Plan Section 3.5.
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(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(k) "Exercise Price" means the price per share of Stock purchasable under
any Option.
(l) "Fair Market Value" with regard to a date means the closing price at
which Stock shall have been sold on the last trading date prior to that date as
reported by the National Association of Securities Dealers Automated Quotation
System (or, if applicable, as reported by a national securities exchange
selected by the Committee on which the shares of Stock are then actively traded)
and published in The Wall Street Journal; provided that, for purposes of
granting awards other than Incentive Stock Options, Fair Market Value of the
shares of Stock may be determined by the Committee by reference to the average
market value determined over a period certain or as of specified dates, to a
tender offer price for the shares of Stock (if settlement of an award is
triggered by such an event) or to any other reasonable measure of fair market
value.
(m) "Incentive Stock Option" means an incentive stock option, as defined
in Code Section 422 awarded under the Plan.
(n) "Non-Qualified Stock Option" means a stock option awarded under the
Plan not qualifying as an Incentive Stock Option.
(o) "Option" means a Non-Qualified Stock Option or an Incentive Stock
Option.
(p) "Over 10% Owner" means an individual who at the time an Incentive
Stock Option is granted owns Stock possessing more than 10% of the total
combined voting power of the Company or one of its Parents or Subsidiaries,
determined by applying the attribution rules of Code Section 424(d).
(q) "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if (with respect to Incentive
Stock Options, at the time of granting of the Option), each of the corporations
other than the Company owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
(r) "Participant" means an individual who receives a Stock Incentive
hereunder.
(s) "Performance Unit Award" refers to the rights described in Plan
Section 3.7.
(t) "Phantom Shares" refers to the rights described in Plan Section 3.7.
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(u) "Plan" means this stock incentive plan.
(v) "Restricted Stock Award" means a restricted stock award under the
Plan.
(w) "Stock" means the Company's common stock, par value $0.001 per share.
(x) "Stock Appreciation Right" means a stock appreciation right awarded
under the Plan.
(y) "Stock Incentive Agreement" means an agreement between the Company and
a recipient evidencing an award of Stock Incentive.
(z) "Stock Incentives" means collectively, Dividend Equivalent Rights,
Options, Performance Unit Awards, Phantom Shares, Restricted Stock Awards, and
Stock Appreciation Rights.
(aa) "Stock Incentive Program" means a written program established by the
Committee, pursuant to which Stock Incentives are awarded under the Plan under
uniform terms, conditions and restrictions set forth in such written program.
(bb) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if (with respect to
Incentive Stock Options, at the time of the granting of the Option), each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain.
(cc) "Termination of Employment" means the termination of the
employee-employer relationship between a Participant and the Company (and its
Parents and Subsidiaries), regardless of the fact that severance or similar
payments are made to the Participant, for any reason, including, but not by way
of limitation, a termination by resignation, discharge, death, Disability or
retirement. The Committee shall, in its absolute discretion, determine the
effect of all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a leave of
absence constitutes a Termination of Employment, or whether Termination of
Employment is for Cause. Notwithstanding the foregoing, the Committee may
approve Employment Agreements or other agreements providing for definitions of
Termination of Employment and Cause, by which agreements the Company and
Committee shall be bound; further, the Company and Committee shall be bound by
the terms of any existing employment agreements with respect to such matters.
SECTION 2 - THE STOCK INCENTIVE PLAN
2.1 The Purpose of the Plan. The Plan is intended to (a) provide
incentive to officers and key employees of Company (and its Parent and
Subsidiaries), to stimulate
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<PAGE> 8
their efforts toward the continued success of the Company (and its Parent and
Subsidiaries) and to operate and manage the business in a manner that will
provide for the long-term growth and profitability of the Company (and its
Parent and Subsidiaries); (b) encourage stock ownership by employees by
providing them with a means to acquire a proprietary interest in the Company,
acquire shares of Stock, or to receive compensation which is based upon
appreciation in the value of Stock; and (c) provide a means of obtaining,
rewarding and retaining key personnel.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
Section 5.2, 647,557 shares of Stock (the "Maximum Plan Shares") are hereby
reserved exclusively for issuance pursuant to Stock Incentives. At no time
shall the Company have outstanding Stock Incentives subject to Section 16 of
the Exchange Act and shares of Stock issued in respect of Stock Incentives in
excess of the Maximum Plan Shares; for this purpose, the outstanding Stock
Incentives and shares of Stock issued in respect of Stock Incentives shall be
computed in accordance with Rule 16b-3(a)(1) as promulgated under the Exchange
Act. To the extent permitted by Rule 16b-3(a)(1) as promulgated under the
Exchange Act, the shares of Stock attributable to the nonvested, unpaid,
unexercised, unconverted or otherwise unsettled portion of any Stock Incentive
that is forfeited or cancelled or expires or terminates for any reason without
becoming vested, paid, exercised, converted or otherwise settled in full shall
again be available for purposes of the Plan.
2.3 Administration of the Plan. The Plan shall be administered by the
Committee, which shall be comprised of at least two members of the Board of
Directors, each of whom shall be a "disinterested person" as defined in Rule
16b-3 as promulgated under the Exchange Act. The Committee shall have full
authority in its discretion to determine the officers and key employees of the
Company to whom Stock Incentives shall be granted and the terms and provisions
of Stock Incentives, subject to the Plan. Subject to the provisions of the
Plan, the Committee shall have full and conclusive authority to interpret the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the respective Stock Incentive
Agreements or Stock Incentive Programs and to make all other determinations
necessary or advisable for the proper administration of the Plan. The
Committee's determinations under the Plan need not be uniform and may be made by
it selectively among persons who receive, or are eligible to receive, awards
under the Plan (whether or not such persons are similarly situated). The
Committee's decisions shall be final and binding on all Participants. The
Committee may delegate to any member of the Board of Directors or officer of the
Company the administrative authority to (a) interpret the provisions of the
Plan, any Stock Incentive Agreement or any Stock Incentive Program; and (b)
determine the treatment of Stock Incentives upon a Termination of Employment, as
contemplated in Plan Section 3.8.
2.4 Eligibility and Limits. Stock Incentives may be granted only to
officers and key employees of the Company, or of a Parent or Subsidiary of the
Company. In the case of Incentive Stock Options, the aggregate Fair Market
Value (determined as of the time an Incentive Stock Option is granted) of stock
with respect to which stock options intended to meet the requirements of Code
Section 422 become exercisable for the first time by an
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individual during any calendar year under all plans of the Company and its
Parents and Subsidiaries shall not exceed $100,000; provided further, that if
the limitation is exceeded, the Incentive Stock Option(s) which cause the
limitation to be exceeded shall be treated as Non-Qualified Stock Option(s).
SECTION 3 - TERMS OF STOCK INCENTIVES
3.1 Terms and Conditions of All Stock Incentives.
(a) The number of shares of Stock as to which a Stock Incentive shall be
granted shall be determined by the Committee in its sole discretion, subject to
the provisions of Section 2.2 as to the total number of shares available for
grants under the Plan.
(b) Each Stock Incentive shall either be evidenced by a Stock Incentive
Agreement in such form and containing such terms, conditions and restrictions
as the Committee may determine to be appropriate, or, except for Options or
Stock Appreciation Rights, be made subject to the terms of a Stock Incentive
Program, containing such terms, conditions and restrictions as the Committee
may determine to be appropriate. Each Stock Incentive Agreement or Stock
Incentive Program shall be subject to the terms of the Plan and any provisions
contained in the Stock Incentive Agreement or Stock Incentive Program that are
inconsistent with the Plan shall be null and void.
(c) The date a Stock Incentive is granted shall be the date on which the
Committee has approved the terms and conditions of the Stock Incentive and has
determined the recipient of the Stock Incentive and the number of shares
covered by the Stock Incentive and has taken all such other action necessary to
complete the grant of the Stock Incentive.
(d) Notwithstanding any vesting provisions established pursuant to
Sections 3.2, 3.3, 3.4, 3.5, 3.6 or 3.7 of the Plan, upon a Change in Control
(1) any unexpired Option may be exercised whether or not vested, (2) any Stock
Appreciation Right may become payable whether or not vested as to the full
number of shares of Stock covered by the Option or Stock Appreciation Right
without regard to the date of grant of the Option or Stock Appreciation Right,
(3) any Restricted Stock Award which has not been previously forfeited shall be
fully vested, (4) any outstanding Dividend Equivalent Rights shall become
payable as to the full number of shares of Stock covered by the Dividend
Equivalent Right, (5) any outstanding Performance Unit Awards become payable as
to the full number of units subject to the Performance Unit Award, and (6) any
Phantom Shares shall become fully payable as to the full number of Phantom
Shares.
(e) Any Stock Incentive may be granted in connection with all or any
portion of a previously or contemporaneously granted Stock Incentive. Exercise
or vesting of a Stock Incentive granted in connection with another Stock
Incentive may result in a pro
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rata surrender or cancellation of any related Stock Incentive, as specified in
the applicable Stock Incentive Agreement or Stock Incentive Program.
(f) Stock Incentives shall not be transferable or assignable except by will
or by the laws of descent and distribution. Stock Incentives shall be
exercisable, during the Participant's lifetime, only by the Participant; or in
the event of the Disability of the Participant, by the legal representative of
the Participant; or in the event of the death of the Participant, by the legal
representatives of the Participant's estate or if no legal representative has
been appointed, by the successor in interest determined under the Participant's
will.
3.2 Terms and Conditions of Options. Each Option under the Plan shall be
evidenced by a Stock Incentive Agreement. At the time any Option is granted,
the Committee shall determine whether the Option is to be an Incentive Stock
Option or a Non-Qualified Stock Option, and the Option shall be clearly
identified as to its status as an Incentive Stock Option or a Non-Qualified
Stock Option. At the time any Incentive Stock Option is exercised, the Company
shall be entitled to place a legend on the certificates representing the shares
of Stock purchased pursuant to the Option to clearly identify them as shares of
Stock purchased upon exercise of an Incentive Stock Option. An Incentive Stock
Option may only be granted within ten (10) years from the earlier of the date
the Plan is adopted or approved by the Company's stockholders.
(a) Option Price. Subject to adjustment in accordance with Section 5.2
and the other provisions of this Section 3.2, the Exercise Price under any
Option shall be as set forth in the applicable Stock Incentive Agreement. With
respect to each grant of an Option to a Participant who is not an Over 10%
Owner, the Option price per share shall not be less than the Fair Market Value
on the date the Option is granted. With respect to each grant of an Incentive
Stock Option to a Participant who is an Over 10% Owner, the Option price per
share shall not be less than 110% of the Fair Market Value on the date the
Option is granted.
(b) Option Term. Any Incentive Stock Option granted to a Participant who
is not an Over 10% Owner shall not be exercisable after the expiration of ten
(10) years after the date the option is granted. Any Incentive Stock Option
granted to an Over 10% Owner shall not be exercisable after the expiration of
five (5) years after the date the Option is granted. The term of any
Non-Qualified Stock Option shall be as specified in the applicable Stock
Incentive Agreement.
(c) Payment. Payment for all shares of Stock purchased pursuant to
exercise of an Option shall be made in any form or manner authorized by the
committee in the Stock incentive Agreement, including, but not limited to , (i)
cash; (ii) by delivery to the Company of a number of shares of Stock which have
been owned by the holder for at least six (6) months prior to the date of
exercise having an aggregate Fair Market Value of not less than the product of
the Exercise Price multiplied by the number of shares the Participant intends
to purchase upon exercise of the Option on the date of delivery; (iii) in a
cashless exercise through a broker; or (iv) by having a number of shares of
Stock
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withheld, the Fair Market Value of which as of the date of exercise is
sufficient to satisfy the Exercise Price. In its discretion, the Committee also
may authorize (at the time an Option is granted or thereafter) Company financing
to assist the Participant as to payment of the Exercise Price on such terms as
may be offered by the Committee in its discretion. Any such financing shall
require the payment by the Participant of interest on the amount financed at a
rate not less than the "applicable federal rate" under the Code. If a Stock
Incentive Agreement so provides, the Participant may be granted a new Option to
purchase a number of shares of Stock equal to the number of previously owned
shares of Stock tendered in payment for each share of Stock purchased pursuant
to the terms of the Stock Incentive Agreement. Any such new Option shall be
subject to the terms and conditions of the Stock Incentive Agreement pursuant to
which such new Option is granted. Payment of the Exercise Price shall be made
at the time that the Option or any part thereof is exercised, and no shares
shall be issued or delivered upon exercise of an option until full payment has
been made by the Participant. The holder of an Option, as such, shall have none
of the rights of a stockholder.
(d) Conditions to Exercise of an Option. Each Option granted under the
Plan shall be exercisable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee shall specify in the
Stock Incentive Agreement; provided, however, that subsequent to the grant of
an Option, the Committee, at any time before complete termination of such
Option, may accelerate the time or times at which such Option may be exercised
in whole or in part, and may permit the Participant or any other designated
person to exercise the Option, or any portion thereof, for all or part of the
remaining Option term, notwithstanding any provision of the Stock Incentive
Agreement to the contrary.
(e) Termination of Incentive Stock Option. With respect to an Incentive
Stock Option, in the event of Termination of Employment of a Participant, the
Option or portion thereof held by the Participant which is unexercised shall
expire, terminate, and become unexercisable no later than the expiration of
three (3) months after the date of Termination of Employment; provided,
however, that in the case of a holder whose Termination of Employment is due to
death or Disability, one year shall be substituted for such three (3) month
period. For purposes of this subparagraph (f), Termination of Employment of
the Participant shall not be deemed to have occurred if the Participant is
employed by the Parent or Subsidiary or by another corporation (or Parent or
Subsidiary corporation of such other corporation) which has assumed the
Incentive Stock Option of the Participant in a transaction to which Code
Section 424(a) is applicable.
(f) Special Provisions for Certain Substitute Options. Notwithstanding
anything to the contrary in this Section 3.2, any Option issued in substitution
for an option previously issued by another entity, which substitution occurs in
connection with a transaction to which Code Section 424(a) is applicable, may
provide for an exercise price computed in accordance with such Code Section and
the regulations thereunder and may contain such other terms and conditions as
the Committee may prescribe to cause such substitute Option to contain as
nearly as possible the same terms and conditions (including
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the applicable vesting and termination provisions) as those contained in the
previously issued Option being replaced thereby.
3.3 Terms and Conditions of Stock Appreciation Rights. A Stock
Appreciation Right may be granted in connection with all or any portion of a
previously or contemporaneously granted Option or not in connection with an
Option. A Stock Appreciation Right shall entitle the Participant to receive
upon exercise or payment the excess of (1) the Fair Market Value of a specified
number of shares of the Stock at the time of exercise over (2) a specified price
which shall be not less than the Option exercise price for that number of shares
in the case of a Stock Appreciation Right granted in connection with a
previously or contemporaneously granted Option, or in the case of any other
Stock Appreciation Right not less than one hundred percent (100%) of the Fair
Market Value of that number of shares of Stock at the time the Stock
Appreciation Right was granted. A Stock Appreciation Right granted in
connection with a Stock Incentive may only be exercised to the extent that the
related Stock Incentive has not been exercised, paid or otherwise settled. The
exercise of a Stock Appreciation Right shall result in a pro rata surrender of
the related Option to the extent the Stock Appreciation Right has been
exercised.
(a) Payment. Upon exercise or payment of a Stock Appreciation Right, the
Company shall pay to the Participant the appreciation in cash or shares of Stock
(at the aggregate Fair Market Value on the date of payment or exercise) as
provided in the Stock Incentive Agreement or, in the absence of such provision,
as the Committee may determine.
(b) Conditions to Exercise. Each Stock Appreciation Agreement granted
under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of a Stock Appreciation Right, the Committee, at any time before
complete termination of such Stock Appreciation Right, may accelerate the time
or times at which such Stock Appreciation Right may be exercised in whole or in
part.
3.4 Terms and Conditions of Restricted Stock Awards. To the extent
permitted by Rule 16b3(a)(1) as promulgated under the Exchange Act, the shares
of Stock attributable to the nonvested, unpaid, unexercised, unconverted or
otherwise unsettled portion of any Restricted Stock Award that is forfeited or
cancelled or expires or terminates for any reason without becoming vested, paid,
exercised, converted or otherwise settled in full shall again be available for
purposes of the Section. The restrictions or conditions on such shares, if any,
shall be as the Committee determines, and the certificate for such shares shall
bear evidence of any restrictions or conditions. Subsequent to the date of the
grant of the Restricted Stock Award, the Committee shall have the power to
permit, in its discretion, an acceleration of the expiration of an applicable
restriction period with respect to any part or all of the shares awarded to a
Participant. The Committee may require a cash payment from the Participant in
an amount no greater than the aggregate Fair Market Value of the shares of
Restricted Stock
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Awarded determined at the date of grant in exchange for the grant of a
Restricted Stock Award or may grant a Restricted Stock Award without the
requirement of a cash payment.
3.5 Terms and Conditions of Dividend Equivalent Rights. A Dividend
Equivalent Right shall entitle the Participant to receive payments from the
Company in an amount determined by reference to any cash dividends paid on a
specified number of shares of Stock to Company stockholders of record during the
period such rights are effective. The Committee may impose such restrictions
and conditions on any Dividend Equivalent Right as the Committee in its
discretion shall determine, including the date any such right shall terminate
and may reserve the right to terminate, amend or suspend any such right at any
time.
(a) Payment. Payment in respect of a Dividend Equivalent Right may
be made by the Company in cash or shares of Stock (valued at Fair Market Value
on the date of payment) as provided in the Stock Incentive Agreement or Stock
Incentive Program, or, in the absence of such provision, as the Committee may
determine.
(b) Conditions to Payment. Each Dividend Equivalent Right granted
under the Plan shall be payable at such time or times, or upon the occurrence
of such event or events, and in such amounts, as the Committee shall specify in
the applicable Stock Incentive Agreement or Stock Incentive Program; provided,
however, that subsequent to the grant of a Dividend Equivalent Right, the
Committee, at any time before complete termination of such Dividend Equivalent
Right, may accelerate the time or times at which such Dividend Equivalent Right
may be paid in whole or in part.
3.6 Terms and Conditions of Performance Unit Awards. A Performance Unit
Award shall entitle the Participant to receive, at a specified future date,
payment of an amount equal to all or a portion of the value of a specified or
determinable number of units (stated in terms of a designated or determinable
dollar amount per unit) granted by the Committee. At the time of the grant,
the Committee must determine the base value of each unit, the number of units
subject to a Performance Unit Award, the performance factors applicable to the
determination of the ultimate payment value of the Performance Unit Award and
the period over which Company performance shall be measured. The Committee may
provide for an alternate base value for each unit under certain specified
conditions.
(a) Payment. Payment in respect of Performance Unit Awards may be
made by the Company in cash or shares of Stock (valued at Fair Market Value on
the date of payment) as provided in the applicable Stock Incentive Agreement or
Stock Incentive Program or, in the absence of such provision, as the Committee
may determine.
(b) Conditions to Payment. Each Performance Unit Award granted
under the Plan shall be payable at such time or times, or upon the occurrence
of such event or events, and in such amounts, as the Committee shall specify in
the applicable Stock Incentive Agreement or Stock Incentive Program; provided,
however, that
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subsequent to the grant of a Performance Unit Award, the Committee, at any time
before complete termination of such Performance Unit Award, may accelerate the
time or times at which such Performance Unit Award may be paid in whole or in
part.
3.7 Terms and Conditions of Phantom Shares. Phantom Shares shall entitle
the Participant to receive, at a specified future date, payment of an amount
equal to all or a portion of the Fair Market Value of a specified number of
shares of Stock at the end of a specified period. At the time of the grant, the
Committee shall determine the factors which will govern the portion of the
rights so payable, including, at the discretion of the Committee, any
performance criteria that must be satisfied as a condition to payment. Phantom
Share awards containing performance criteria may be designated as Performance
Share Awards.
(a) Payment. Payment in respect of Phantom Shares may be made by
the Company in cash or shares of Stock (valued at Fair Market Value on the date
of payment) as provided in the applicable Stock Incentive Agreement or Stock
Incentive Program, or, in the absence of such provision, as the Committee may
determine.
(b) Conditions to Payment. Each Phantom Share granted under the
Plan shall be payable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee shall specify in the
applicable Stock Incentive Agreement or Stock Incentive Program; provided,
however, that subsequent to the grant of a Phantom Share, the Committee, at any
time before complete termination of such Phantom Share, may accelerate the time
or times at which such Phantom Share may be paid in whole or in part.
3.8 Treatment of Awards Upon Termination of Employment. Except as
otherwise provided by Plan Section 3.2(e), any award under this Plan to a
Participant who has experienced a Termination of Employment may be cancelled,
accelerated, paid or continued, as provided in the applicable Stock Incentive
Agreement or Stock Incentive Program, or, in the absence of such provision, as
the Committee may determine. The portion of any award exercisable in the event
of continuation or the amount of any payment due under a continued award may be
adjusted by the Committee to reflect the Participant's period of service from
the date of grant through the date of the Participant's Termination of
Employment or such other factors as the Committee determines are relevant to its
decision to continue the award.
SECTION 4 - RESTRICTIONS ON STOCK
4.1 Escrow of Shares. Any certificates representing the shares of Stock
issued under the Plan shall be issued in the Participant's name, but, if the
applicable Stock Incentive Agreement or Stock Incentive Program so provides, the
shares of Stock shall be held by a custodian designated by the Committee (the
"Custodian"). Each applicable Stock Incentive Agreement or Stock
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<PAGE> 15
Incentive Program providing for transfer of shares of Stock to the Custodian
shall appoint the Custodian as the attorney-in-fact for the Participant for the
term specified in the applicable Stock Incentive Agreement or Stock Incentive
Program, with full power and authority in the Participant's name, place and
stead to transfer, assign and convey to the Company any shares of Stock held by
the Custodian for such Participant, if the Participant forfeits the shares under
the terms of the applicable Stock Incentive Agreement or Stock Incentive
Program. During the period that the Custodian holds the shares subject to this
Section, the Participant shall be entitled to all rights, except as provided in
the applicable Stock Incentive Agreement or Stock Incentive Program, applicable
to shares of Stock not so held. Any dividends declared on shares of Stock held
by the Custodian shall, as the Committee may provide in the applicable Stock
Incentive Agreement or Stock Incentive Program, be paid directly to the
Participant or, in the alternative, be retained by the Custodian or by the
Company until the expiration of the term specified in the applicable Stock
Incentive Agreement or Stock Incentive Program and shall then be delivered,
together with any proceeds, with the shares of Stock to the Participant or to
the Company, as applicable.
4.2 Forfeiture of Shares. Notwithstanding any vesting schedule set forth
in any Stock Incentive Agreement or Stock Incentive Program, a Stock Incentive
Agreement or Stock Incentive Program may provide that in the event a
Participant's employment is terminated by the Company for Cause or in the event
that a Participant violates a noncompetition agreement as set forth in the Stock
Incentive Agreement or Stock Incentive Program, all Stock Incentives and shares
of Stock issued to the holder pursuant to the Plan shall be forfeited; provided,
however, that the Company shall return to the holder the lesser of any
consideration paid by the Participant in exchange for Stock issued to the
Participant pursuant to the Plan or the then Fair Market Value of the Stock
forfeited hereunder.
4.3 Restrictions on Transfer. The Participant shall not have the right to
make or permit to exist any Disposition of the shares of Stock issued pursuant
to the Plan except as provided in the Plan or the Stock Incentive Agreement or
Stock Incentive Program. Any Disposition of the shares of Stock issued under
the Plan by the Participant not made in accordance with the Plan or the
applicable Stock Incentive Agreement or the Stock Incentive Program shall be
void. The Company shall not recognize, or have the duty to recognize, any
Disposition not made in accordance with the Plan and the Stock Incentive
Agreement, and the shares so transferred shall continue to be bound by the Plan
and the Stock Incentive Agreement or Stock Incentive Program.
SECTION 5 - GENERAL PROVISIONS
5.1 Withholding. The Company shall deduct from all cash distributions
under the Plan any taxes required to be withheld by federal, sate or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan or upon the vesting of any Restricted Stock
Award, the Company shall have the right to require the recipient to remit to the
Company an amount sufficient to satisfy any federal, state and local withholding
tax requirements prior to the delivery of any certificate or certificates for
such shares or the vesting of such Restricted Stock Award. A Participant may
pay the withholding tax in cash, or he may elect to have the number of shares of
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<PAGE> 16
Stock he is to receive reduced by, or with respect to a Restricted Stock Award,
tender back to the Company, the smallest number of whole shares of Stock which,
when multiplied by the Fair Market Value of the Shares determined as of the Tax
Date (defined below), is sufficient to satisfy federal, state, and local, if
any, withholding taxes arising from exercise of the Option (a "Withholding
Election"). A Participant may make a Withholding Election only if both of the
following conditions are met:
(a) The Withholding Election must be made on or prior to the date on which
the amount of tax required to be withheld is determined (the "Tax Date") by
executing and delivering to the Company a properly completed notice of
Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable except on six (6)
months advance written notice delivered to the Company; however, the Committee
may in its sole discretion disapprove and give no effect to the Withholding
Election.
5.2 Changes in Capitalization; Merger; Liquidation.
(a) The number of shares of Stock reserved for the grant of Options,
Dividend Equivalent Rights, Performance Unit Awards, Phantom Shares, Stock
Appreciation Rights and Restricted Stock Awards and the number of shares of
Stock reserved for issuance upon the exercise of each outstanding Option,
Dividend Equivalent Right, Performance Unit Award, Phantom Share, upon the
exercise or payment of each Stock Appreciation Right, and upon vesting of each
outstanding Restricted Stock Award, and the Exercise Price of each outstanding
Option and the specified number of shares of Stock to which each outstanding
Dividend Equivalent Right, Phantom Share and Stock Appreciation Right pertains
shall be proportionately adjusted by the Committee for any increase or decrease
in the number of issued shares of Stock resulting from a change in par value,
split-up, stock split, reverse stock split, reclassification, distribution of
common stock dividend, conversion of debt or equity securities that are by
their terms convertible into common stock, or other similar capital adjustment
or other increase or decrease in the number of shares of Stock outstanding
effected without receipt of consideration by the Company. Any adjustment
pursuant to this Subsection (a) may provide, in the Committee's discretion, for
the elimination of any fractional shares that might otherwise become subject to
any Stock Incentive without payment therefor.
(b) In the event of or anticipation of any merger, consolidation or other
reorganization of the Company or tender offer for shares of Stock, the Committee
may make such adjustments with respect to awards and take such other action as
it deems necessary or appropriate to reflect such merger, consolidation,
reorganization or tender offer, including, without limitation, the substitution
of new awards, the termination or adjustment of outstanding awards, the
acceleration of awards or the removal of restrictions on outstanding awards. Any
adjustment pursuant to this Section 5.2 may provide, in the Committee's
discretion, for the elimination without payment therefor of any fractional
shares that might otherwise become subject to any Stock Incentive, but shall not
otherwise diminish the then value of the Stock Incentive.
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<PAGE> 17
(c) Except as expressly provided in this Section 5.2, the holder of an
Option or Stock Appreciation Right shall have no rights by reason of any
subdivision or combination of shares of Stock of any class or the payment of
any stock dividend or any other increase or decrease in the number of shares of
Stock of any class or by reason of any Change in Control or distribution to the
Company's stockholders of assets or stock of another corporation. Except as
expressly provided herein and except for any distributions or adjustments made
with respect to shares of Stock issued under the Plan in connection with a
distribution or adjustment made with respect to all other outstanding shares of
Stock, any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Stock subject to any Stock Incentive. The existence of the Plan
and the Stock Incentives granted pursuant to the Plan shall not affect in any
way the right or power of the Company to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Company, any issue of debt or
equity securities having preferences or priorities as to the Stock or the
rights thereof, the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any other corporate
act or proceeding.
5.3 Cash Awards. The Committee may, at any time and in its discretion,
grant to any holder of a Stock Incentive the right to receive, at such times
and in such amounts as determined by the Committee in its discretion, a cash
amount which is intended to reimburse such person for all or a portion of the
federal, state and local income taxes imposed upon such person as a consequence
of the receipt of the Stock Incentive or the exercise of rights thereunder.
5.4 Compliance with Code. All Incentive Stock Options to be granted
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all Incentive Stock Options granted hereunder shall be construed in
such manner as to effectuate that intent.
5.5 Right to Terminate Employment. Nothing in the Plan or in any Stock
Incentive shall confer upon any Participant the right to continue as an
employee or officer of the Company or any of its Parents or Subsidiaries or
affect the right of the Company or any of its Parents or Subsidiaries to
terminate the Participant's employment at any time.
5.6 Non-alienation of Benefits. Other than as specifically provided with
regard to the death of a Participant, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
5.7 Restrictions on Delivery and Sale of Shares; Legends. Each Stock
Incentive is subject to the condition that if at any time the Committee, in its
discretion,
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<PAGE> 18
shall determine that the listing, registration or qualification of the shares
covered by such Stock Incentive upon any securities exchange or under any state
or federal law is necessary or desirable as a condition of or in connection with
the granting of such Stock Incentive or the purchase of delivery of shares
thereunder, the delivery of any or all shares pursuant to such Stock Incentive
may be withheld unless and until such listing, registration or qualification
shall have been effected. If a registration statement is not in effect under
the Securities Act of 1933 or any applicable state securities laws with respect
to the shares of Stock purchasable or otherwise deliverable under Stock
Incentives then outstanding, the Committee may require, as a condition of
exercise of any Option or as a condition to any other delivery of Stock pursuant
to a Stock Incentive, that the Participant or other recipient of a Stock
Incentive represent, in writing, that the shares received pursuant to the Stock
Incentive are being acquired for investment and not with a view to distribution
and agree that the shares will not be disposed of except pursuant to an
effective registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such requirement under
the Securities Act of 1933 and any applicable state securities laws. The
Company may endorse on certificates representing shares delivered pursuant to a
Stock Incentive such legends referring to the foregoing representations or
restrictions or any other applicable restrictions on resale as the Company in
its discretion, shall deem appropriate.
5.8 Termination and Amendment of the Plan. The Board of Directors of the
Company at any time may amend or terminate the Plan without stockholder
approval; provided, however, that the Board of Directors may condition any
amendment on the approval of stockholders of the Company if such approval is
necessary or advisable with respect to tax, securities or other applicable
laws. No such termination, modification or amendment without the consent of
the holder of a Stock Incentive shall adversely affect the rights of a
Participant under such Stock Incentive.
5.9 Stockholder Approval. The Plan shall be submitted to the stockholders
of the Company for their approval within twelve (12) months before or after the
adoption of the Plan by the Board of Directors of the Company. Any subsequent
amendment affecting an Incentive Stock Option that requires stockholder approval
under Code Section 422 shall be effective only if such amendment is approved by
the stockholders within twelve (12) months before or after the adoption of such
amendment. Furthermore, any amendment requiring stockholder approval as
required by the insider trading rules of Section 16 of the Securities Exchange
Act of 1934, as amended, shall be approved by the stockholders pursuant to the
rules of such Section 16. If such approval is not obtained, any Stock Incentive
granted hereunder shall be void.
5.10 Choice of Law. The laws of the State of Georgia shall govern the
Plan, to the extent not preempted by federal law.
5.11 Effective Date of Plan. The Plan shall become effective as of the
effective date of the Registration Statement on Form S-1 filed by the Company
under the Securities Act of 1933, as amended, in connection with its initial
public offering of common stock (the "Effective Date"); subject, however, to the
approval of the Plan by the Company's
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<PAGE> 19
stockholders at their next annual meeting. Stock Incentives granted hereunder
prior to such approval shall be conditioned upon such approval. Unless such
approval is obtained within twelve (12) months of the Effective Date, this Plan
and any Stock Incentives awarded hereunder shall become void thereafter.
MEDIRISK, INC.
By: /s/Kenneth M. Goins, Jr.
------------------------
Title: Vice President
------------------------
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<PAGE> 1
EXHIBIT 10.14
MEDIRISK, INC.
1996 NON-MANAGEMENT DIRECTORS STOCK OPTION PLAN
<PAGE> 2
MEDIRISK, INC.
NON-MANAGEMENT DIRECTORS' STOCK OPTION PLAN
THIS INDENTURE is made as of the 28th day of October, 1996, by Medirisk,
Inc., a corporation organized and doing business under the laws of the State of
Delaware (the "Company").
1. Purpose.
The Company adopts the Medirisk, Inc. Non-Management Directors Stock
Option Plan (the "Plan") to secure and retain the services of those directors
of the Company who are not employed by the Company or any of its affiliates
(the "Eligible Optionees") by giving them an opportunity to invest in the
future success of the Company.
2. Administration.
The Board of Directors of the Company (the "Board of Directors") shall
appoint at least two of its members to a committee (the "Committee") that will
administer the Plan on behalf of the Company.
Each member of the Committee shall serve at the pleasure of the Board of
Directors, which may fill any vacancy, however caused, in the Committee. The
Committee shall select one of its members as a chairman and shall hold meetings
at the times and in the places as it may deem advisable. All actions the
Committee takes shall be made by majority decision. Any action evidenced by a
written instrument signed by all of the members of the Committee shall be as
fully effective as if the Committee had taken the action by majority vote at a
meeting duly called and held.
The Committee shall have complete and conclusive authority to (1)
interpret the Plan, (2) prescribe, amend, and rescind rules and regulations
relating to it, and (3) make all other determinations necessary or advisable
for the administration of the Plan. The Committee's determinations on these
matters shall be conclusive.
In addition to any other rights of indemnification that they may have as
directors of the Company or as members of the Committee, the directors of the
Company and members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided the settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any action, suit or proceeding, except in
relation to matters as to which it shall be
<PAGE> 3
adjudged in the action, suit or proceeding that the director or Committee
member is liable for negligence or misconduct in the performance of his duties.
3. Grant of Options.
(a) Initial Grants. Each Eligible Optionee serving as a member of the
Board of Directors on the Effective Date (as defined in Section 6 below) shall
be granted an option as of the Effective Date to purchase Ten Thousand (10,000)
shares of common stock, par value $0.001 per share, of the Company (the
"Stock").
(b) Initial Grants Upon Appointment to the Board of Directors. Each
Eligible Optionee who is first elected or appointed to serve as a member of the
Board of Directors following the Effective Date shall be granted an option as
of the first business day following the Eligible Optionee's first day of
service as a member of the Board of Directors to purchase Ten Thousand (10,000)
shares of Stock.
(c) Subsequent Grants During Tenure as a Director. Each Eligible Optionee
shall be granted as of the last business day of each fiscal year of the Company
following the Effective Date an option to purchase Five Thousand (5,000) shares
of Stock; provided the Eligible Optionee continues to serve as a member of the
Board of Directors as of the last business day of that fiscal year.
(d) Conditions to Grants. Each Eligible Optionee shall be granted an
option to purchase that number of shares of Stock equal to the number of
previously owned Shares tendered in payment of the exercise price for each
Share purchased pursuant to an Option granted hereunder, provided that the
Eligible Optionee is serving as a member of the Board of Directors on the date
of exercise. No options under the Plan shall be granted to an Eligible
Optionee who is otherwise precluded from receiving a grant of the Company's
equity securities. In the event the remaining number of shares of Stock
reserved for issuance under the Plan are insufficient to grant options for the
appropriate number of shares of Stock to all Eligible Optionees as of any grant
date, then no options shall be granted as of that grant date.
4. Stock Subject to Plan.
The Company has authorized and reserved for issuance upon the exercise of
options pursuant to the Plan an aggregate of One Hundred Thousand (100,000)
shares of Stock. If any option is cancelled, expires or terminates without the
respective optionee exercising it in full, options with respect to those
unpurchased shares of Stock may be granted to that same optionee or to another
eligible individual or individuals under the terms of this Plan.
The Committee shall adjust the total number of shares of Stock reserved
for issuance under the Plan and any outstanding options, both as to the number
of shares Stock and the option price, for any increase or decrease in the
number of outstanding
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<PAGE> 4
shares of Stock resulting from a stock split or a payment of a stock dividend
on the Stock, a subdivision or combination of the Stock, a reclassification of
the Stock, a merger or consolidation of the Stock or any other like changes in
the Stock or in their value; provided that any such adjustment shall be made in
a manner consistent with the reason for the adjustment and shall be effected
uniformly among optionees. Outstanding options shall not be adjusted for cash
dividends or the issuance of rights to subscribe for additional stock or
securities of the Company.
Upon the consummation of a Change in Control, any unexpired Option may be
exercised whether or not vested; provided, however, that each optionee shall be
mailed notice of such Change in Control at least thirty-five (35) days prior to
the event and the optionee shall have thirty (30) days after the Change in
Control to exercise any unexpired option rights granted hereunder to the extent
they are then exercisable. For purposes of the Plan, the term Change in
Control means the first to occur of the following events:
(i) any person (as defined in Section 3(a)(9) of the Exchange Act
and as used in Sections 13(d) and 14(d) thereof), excluding the Company,
any Subsidiary and any employee benefit plan sponsored or maintained by
the Company or any Subsidiary (including any trustee of such plan acting
as trustee thereof), but including a 'group' as defined in Section
13(d)(3) of the Exchange Act (a "Person"), becomes the beneficial owner
of shares of the Company having at least thirty percent (30%) of the
total number of votes that may be cast for the election of directors of
the Company (the "Voting Shares") (such 30% or greater percentage
hereinafter referred to as the "Voting Share Percentage"); provided that
no Change of Control will occur as a result of an acquisition of stock by
the Company which increases, proportionately, the stock representing the
voting power of the Company owned by such person or group above the
Voting Share Percentage, and provided further that if such person or
group acquires stock representing more than the Voting Share Percentage
by reason of share purchases by the Company, and after such share
purchases by the Company acquires any additional shares representing
voting power of the Company, then a Change of Control shall occur;
(ii) the stockholders of the Company shall approve any merger or
other business combination of the Company, sale of the Company's assets
or combination of the foregoing transactions (a "Transaction") other than
a Transaction involving only the Company or one or more of its
Subsidiaries, or a Transaction immediately following which the
stockholders of the Company immediately prior to the Transaction continue
to have a majority of the voting power in the resulting entity excluding
for this purpose any stockholder owning directly or indirectly more than
ten percent (10%) of the shares of the other company involved in the
merger; or
(iii) within any 24-month period beginning on or after the Effective
Date, the persons who were directors of the Company immediately
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<PAGE> 5
before the beginning of such period (the "Incumbent Directors") shall
cease (for any reason other than death) to constitute at least a majority
of the Board of Directors or the board of directors of any successor to
the Company, provided that any director who was not a director as of the
Effective Date shall be deemed to be an Incumbent Director if such
director was elected to the Board of Directors by, or on the
recommendation of or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors either actually or by
prior operation of this clause (iii); and provided further that any
director elected to the Board of Directors to avoid or settle a
threatened or actual proxy contest shall in no event be deemed to be an
Incumbent Director.
If the successor corporation under any of the events described above
agrees to assume the outstanding options and in connection with the assumption
of the outstanding options to substitute substantially equivalent options, then
the outstanding options will not terminate but will remain exercisable in
accordance with the stock option agreements granting such options
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Committee in its sole discretion. Any
adjustment may provide for the elimination of any fractional share of Stock
which might otherwise become subject to an option.
The grant of an option shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations, or changes
in its capital or business structure, or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or assets.
5. Terms and Conditions of All Options.
Each option granted pursuant to the Plan shall be evidenced by a stock
option agreement or other appropriate documentation (the "Agreement") in the
form and containing the terms and conditions as the Committee from time to time
may determine, provided that each Agreement will:
(a) state an exercise price per share which will be the fair market
value of a share of Stock on the date of the grant;
(b) state the terms and conditions for payment, except as otherwise
provided by Plan Section 7;
(c) state that the option shall expire on the earlier of the tenth
anniversary of the date of grant or the first anniversary of the date
that the optionee ceases to serve as a member of the Board of Directors;
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<PAGE> 6
(d) provide that an option granted pursuant to Section 3(a) or (b)
above shall become exercisable as to the shares subject thereto in equal
one-third increments as of the first, second and third anniversaries
following the date of grant; provided, however, any such option shall
become exercisable immediately in full upon the later of: (1) six (6)
months following the date of grant; or (2) the earlier of (i) the death
of the optionee, or (ii) the disability (as defined in Section 72(m)(7)
of the Internal Revenue Code of 1986, as amended (the "Code")) of the
optionee;
(e) provide that an option granted pursuant to Section 3(c) above
shall become exercisable as to the shares subject thereto in equal
one-third increments as of the first, second and third anniversaries of
the date of grant; provided, however, any such option shall become
exercisable immediately in full upon the later of (1) six (6) months
following the date of grant; or (2) the earlier of (i) the death of the
optionee, or (ii) the disability (as defined in Section 72(m)(7) of the
Code) of the optionee;
(f) provide that the option is not transferable by the optionee
other than as provided by (1) the will of the optionee, or (2) the
applicable laws of descent and distribution, and is exercisable during
the optionee's lifetime only by the optionee except as provided in
Subsection (g) below; and
(g) provide that if an optionee dies or becomes disabled (as defined
in Code Section 72(m)(7)) during the term of the option, the option may
be exercised by the optionee or (to the extent the optionee would have
been entitled to do so) by a legatee or legatees of the optionee under
his last will, or by his guardian.
6. Term of Plan.
The effective date of the Plan is the date on which the stockholders of
the Company approve the Plan (the "Effective Date"). The Plan shall terminate
10 years after that date, subject to Plan Section 11.
7. Exercise of Option.
The optionee may purchase shares of Stock subject to an option (the
"Shares") only upon receipt by the Company of a notice in writing from the
optionee of his intent to purchase a specific number of Shares and which notice
contains such representations regarding compliance with the federal and state
securities laws as the Committee may reasonably request. The purchase price
shall be paid in full upon the exercise of an option and no Shares shall be
issued or delivered until full payment therefor has been made. Payment of the
purchase price for all Shares purchased pursuant to the exercise of an option
shall be made, at the discretion of the optionee, as follows:
(a) by payment of cash or certified check;
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<PAGE> 7
(b) by delivery to the Company of a number of shares of common stock
of the Company which have been owned by the optionee for at least six
months prior to the date of the option's exercise, having a fair market
value on the date of exercise, as determined by the Committee in its sole
discretion, either equal to the purchase price or in combination with
cash to equal the purchase price; or
(c) by receipt of the purchase price in cash from a broker, dealer
or other "creditor" as defined by Regulation T issued by the Board of
Governors of the Federal Reserve System following delivery by the
optionee to the Committee of instructions in a form acceptable to the
Committee regarding delivery of such broker, dealer or other creditor of
that number of shares of common stock with respect to which the option is
exercised.
Until stock certificates reflecting the Shares accruing to the optionee
upon the exercise of the option are issued to the optionee, the optionee shall
have no rights as a stockholder with respect to the Shares. The Company shall
make no adjustment to the Shares for any dividends or distributions or other
rights for which the record date is prior to the issuance of that stock
certificate, except as the Plan otherwise provides.
8. Assignability.
Except as Plan Section 5 permits, no option or any of the rights and
privileges thereof accruing to an optionee shall be transferred, assigned,
pledged or hypothecated in any way whether by operation of law or otherwise,
and no option, right or privilege shall be subject to execution, attachment or
similar process.
9. No Right to Continued Service.
No provision in the Plan or any option shall confer upon any optionee any
right to continue performing services for or to interfere in any way with the
right of the stockholders of the Company to remove such optionee as a director
of the Board of Directors at any time for any reason.
10. Amendment and Termination.
The Board of Directors at any time may amend or terminate the Plan without
stockholder approval; provided, however, that the Board of Directors may
condition any amendment on the approval of the stockholders of the Company if
such approval is necessary or advisable with respect to tax, securities (which
require such approval for a material increase of the number of shares of Stock
subject to options, and for material modifications to the eligibility
requirements of the Plan, among others) or other applicable laws to which the
Company, the Plan, optionees or Eligible Optionees are subject.
Notwithstanding the foregoing, in no event shall the Board of Directors amend
the Plan more than once every six (6) months, other than to comport with
changes in the Code, the
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<PAGE> 8
Employee Retirement Income Security Act of 1974, or the rules thereunder. No
amendment or termination of the Plan shall adversely affect the rights of an
optionee with regard to his options without his consent.
11. General Restriction.
Each option is subject to the condition that if at any time the Company,
in its discretion, shall determine that the listing, registration or
qualification of the shares of Stock covered by such option upon any securities
exchange or under any state or federal law is necessary or desirable as a
condition of or in connection with the granting of such option or the purchase
or delivery of shares of Stock thereunder, the delivery of any or all shares of
Stock pursuant to such option may be withheld unless and until such listing,
registration or qualification shall have been effected. If a registration
statement is not in effect under the Securities Act of 1933 or any applicable
state securities laws with respect to the shares of Stock purchasable or
otherwise deliverable under the option then outstanding, the Company may
require, as a condition of exercise of any option or as a condition to any
other delivery of shares of Stock pursuant thereto, that the optionee or the
optionee's representative represent, in writing, that the shares of Stock
received pursuant to the option are being acquired for investment and not with
a view to distribution and agree that the shares of Stock will not be disposed
of except pursuant to an effective registration statement, unless the Company
shall have received an opinion of counsel that such disposition is exempt from
such requirement under the Securities Act of 1933 and any applicable state
securities laws. The Company may endorse on certificates representing shares
of Stock delivered pursuant to an option such legends referring to the
foregoing representations or restrictions or any other applicable restrictions
on resale as the Company, in its discretion, shall deem appropriate.
12. Choice of Law.
The laws of the State of Georgia shall govern the Plan.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed in the
form and as of the date set forth above.
MEDIRISK, INC.
By: /s/ Kenneth M. Goins, Jr.
----------------------------
Title: Vice President
---------------------------
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<PAGE> 1
EXHIBIT 10.15
INVESTOR REGISTRATION AGREEMENT DATED AS OF OCTOBER 28, 1996,
BETWEEN THE COMPANY, BRANTLEY VENTURE PARTNERS II, L.P.,
CHASE MANHATTAN BANK N.A., AS TRUSTEE, AND LAURENCE H. POWELL
<PAGE> 2
INVESTOR REGISTRATION AGREEMENT
THIS INVESTOR REGISTRATION AGREEMENT (this "Agreement") is made as of
October 28, 1996, by and among MEDIRISK, INC., a Delaware corporation (the
"Company"), and BRANTLEY VENTURE PARTNERS II, L.P., a Delaware limited
partnership ("Brantley"), THE CHASE MANHATTAN BANK, N.A., AS TRUSTEE FOR SEARS
PENSION TRUST ("Sears"), and LAURENCE H. POWELL, an individual ("Powell")
(Powell being sometimes referred to as "Executive").
W I T N E S S E T H :
WHEREAS, Brantley, Sears and Powell own shares of the capital stock of the
Company (and Brantley and Sears hold warrants to purchase stock of the
Company); and
WHEREAS, the parties to this Agreement are currently parties to a
Registration Agreement, dated as of April 5, 1991, as amended on or about
November 22, 1991 to include Sears as a party and as further amended by a
Consent and Modification Agreement, dated January 8, 1996 (as so amended, the
"Original Registration Agreement"); and
WHEREAS, in connection with the proposed initial public offering by the
Company, the parties desire to terminate the Original Registration Agreement
and to enter into this Agreement setting forth the terms of registration rights
available to Brantley, Sears and Powell;
NOW, THEREFORE, in consideration of the foregoing and the covenants
contained herein, the parties agree as follows:
1. Demand Registrations.
(a) Requests for Registration. Subject to the terms and conditions
hereof, at any time after the Company's Initial Public Offering (as defined
below), if the holders of at least 50% of the Registrable Securities (as
defined below) request registration under the Securities Act of 1933, as
amended (the "Securities Act"), of all or part of their Registrable Securities
on Form S-1 or any similar long-form registration ("Long-Form Registrations"),
or on Form S-2 or S-3 or any similar short-form registration ("Short-Form
Registrations"), if available, which requests specify the approximate number of
Registrable Securities requested to be registered and the anticipated per share
price range for such offering, then within ten days after receipt of any such
request, the Company will give written notice of such requested registration to
all other holders of Registrable Securities and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 15 days after the
receipt of the Company's notice. All registrations requested pursuant to this
paragraph 1(a) are referred to herein as "Demand Registrations." As used
herein, the term
<PAGE> 3
"Initial Public Offering" means the Company's first offering of Common Stock of
the Company that is registered under the Securities Act, which offering is
underwritten on a firm commitment basis and produces gross proceeds in excess
of $10,000,000.
(b) Certain Expenses of Registrations. The holders of Registrable
Securities will be entitled to request (i) three Demand Registrations in which
the Company will pay all Registration Expenses ("Company-paid Demand
Registrations") and (ii) an unlimited number of Demand Registrations in which
the holders of Registrable Securities will pay their shares of the Registration
Expenses as set forth in paragraph 5 hereof; provided that the aggregate
offering value of the Registrable Securities requested to be registered in any
Demand Registration must equal at least $5,000,000. A Demand Registration
which is a Long-Form Registration will not count as one of the permitted
Company-paid Demand Registrations until it has become effective, and neither
the second nor any subsequent Demand Registration which is a Long-Form
Registration will count as one of the permitted Company-paid Demand
Registrations unless the holders of Registrable Securities are able to register
and sell at least 90% of the Registrable Securities requested to be included in
such registration; provided that in any event the Company will pay all
Registration Expenses (as defined below) in connection with any registration
initiated as a Company-paid Demand Registration whether or not it has become
effective. Demand Registrations will be Short-Form Registrations whenever the
Company is permitted to use any applicable short form. After the Company has
become subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act"), the Company will use its best efforts to
make Short-Form Registrations available for the sale of Registrable Securities.
(c) Priority on Demand Registrations. The Company will not include in any
Demand Registration any securities that are not Registrable Securities without
the prior written consent of the holders of a majority of the Registrable
Securities initially requesting such registration, which consent will not be
unreasonably withheld. If a Demand Registration is an underwritten offering
and the managing underwriters advise the Company in writing that in their
opinion the number of Registrable Securities and, if permitted hereunder, other
securities requested to be included in such offering exceeds the number of
Registrable Securities and other securities, if any, which can be sold in an
orderly manner in such offering within a price range acceptable to the holders
of a majority of the Registrable Securities initially requesting registration,
the Company will include in such registration prior to the inclusion of any
securities which are not Registrable Securities the number of Registrable
Securities requested to be included which in the opinion of such underwriters
can be sold in an orderly manner within the price range of such offering, pro
rata among the respective holders thereof on the basis of the amount of
Registrable Securities owned by each such holder. Any Persons other than
holders of Registrable Securities who participate in Demand Registrations which
are not at the Company's expense must pay their share of the Registration
Expenses as provided in paragraph 5 hereof.
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<PAGE> 4
(d) Restrictions on Registrations. The Company will not be obligated to
effect any Long-Form Registration within six months after the effective date of
a previous Long-Form Registration or a registration in which the holders of
Registrable Securities were given piggyback rights pursuant to paragraph 2 and
in which the holders of the Registrable Securities were able to sell at least
90% of the number of Registrable Securities requested to be included. The
Company may postpone for up to three months the filing or the effectiveness of
a registration statement for a Demand Registration if the Company, in a
certificate executed by the President of the Company in favor of all holders of
Registrable Securities, states that, in the good faith judgment of the Board of
Directors of the Company, such Demand Registration would be substantially
disadvantageous to the Company; provided that in such event, the holders of
Registrable Securities initially requesting such Demand Registration will be
entitled to withdraw such request and, if such request is withdrawn, such
Demand Registration will not count as one of the permitted Demand Registrations
hereunder, and the Company will pay all Registration Expenses in connection
with such withdrawn registration; provided, further, that the Company may
exercise its right to postpone filings only once within any 12-month period;
provided, further, however, that notwithstanding the foregoing clause, the
Company may exercise its right to postpone filings a second time within any
12-month period, if the second postponement is made on account of the Company
being in possession of material information that it deems advisable not to
disclose in a registration statement.
(e) Selection of Underwriters. In any Demand Registration, the holders of
a majority of the Registrable Securities initially requesting registration may
select a managing underwriter reasonably acceptable to the Company to
administer the offering.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any of
its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the
Company will give prompt written notice (in any event within five business days
after its receipt of notice of any exercise of demand registration rights other
than under this Agreement) to all holders of Registrable Securities and
Executive Registrable Securities (as defined below) of its intention to effect
such a registration and will include in such registration all Registrable
Securities and Executive Registrable Securities with respect to which the
Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
Registrable Securities and Executive Registrable Securities will be paid by the
Company in all Piggyback Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company or any other party
having
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<PAGE> 5
demand registration rights with respect to securities of the Company and if
the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company or such other party, then the
Company will include in such registration (i) first, the securities the Company
proposes to sell or those that such party exercising its demand registration
rights proposes to sell, (ii) second, the Registrable Securities and Executive
Registrable Securities and any securities held by HealthPlan Services
Corporation ("HPSC Registrable Securities") requested to be included in such
registration on a piggyback basis, pro rata among the holders of such
Registrable Securities, Executive Registrable Securities and HPSC Registrable
Securities on the basis of the number of shares proposed to be included in the
registration by each such holder, and (iii) third, other securities requested
to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities (other than holders exercising demand registration rights) and if
the managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in an orderly manner in such offering within a
price range acceptable to the holders initially requesting such registration,
then the Company will include in such registration (i) first, the securities
requested to be included therein by the holders requesting such registration
and the Registrable Securities, Executive Registrable Securities and HPSC
Registrable Securities requested to be included in such registration, pro rata
among the holders of such securities on the basis of the number of securities
proposed to be included in the registration by each such holder, and (ii)
second, other securities requested to be included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the selection of investment banker(s) and manager(s) for
the offering must be approved by the holders of a majority of the Registrable
Securities and a majority of the Executive Registrable Securities included in
such Piggyback Registration, which approval will not be unreasonably withheld.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the Company will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities,
until a period of at least six months has elapsed from the effective date of
such previous registration.
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<PAGE> 6
3. Holdback Agreements.
(a) Each holder of Registrable Securities and Executive Registrable
Securities agrees not to effect any public sale or distribution (including
sales pursuant to Rule 144 promulgated pursuant to the Securities Act) of
equity securities of the company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 90-day period beginning on the effective date of any underwritten
Demand Registration or underwritten Piggyback Registration in which Registrable
Securities are included (except for sales of such securities as part of such
underwritten registered offering and as otherwise permitted under Rule 144(k)),
unless the underwriters managing the registered public offering otherwise
agree.
(b) The Company agrees not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
90-day period beginning on the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public
offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered
pursuant to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof (including the registration of warrants
held by a holder of Registrable Securities requesting registration as to which
the Company has received reasonable assurances that only Registrable Securities
will be distributed to the public), and pursuant thereto the Company will as
expeditiously as possible:
(a) Prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective and
remain effective until the earlier of (i) the date when all Registrable
Securities covered by the registration statement have boon sold, or (ii) 180
days from the effective date of the registration statement; provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed
including documents that are to be incorporated by reference into such
registration statement, amendment or supplement, which documents will be
subject to the review of such counsel, and which proposed registration
statement or amendment or supplement thereto shall not be filed by the Company
if the holders of a majority of the Registrable Securities covered by such
statement, amendment or supplement reasonably object to such filing;
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<PAGE> 7
(b) Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for the period referred to in paragraph 4(a) and comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof sot
forth in such registration statement;
(c) Furnish to each holder of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such holder may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
holder;
(d) Use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions
as any holder thereof reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such holder;
(e) Notify each holder of such Registrable securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event is a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) Promptly notify the holders of Registrable securities and the
underwriters, if any, of the following events and (if requested by any such
person) confirm such notification in writing: (i) the filing of the prospectus
or any prospectus supplement and the registration statement and any amendment
or post-effective amendment thereto and, with respect to the registration
statement or any post-effective amendment thereto, the declaration of the
effectiveness of such documents, (ii) any requests by the Securities and
Exchange Commission for amendments or supplements to the registration statement
or the prospectus or for additional information, (iii) the issuance or threat
of issuance by the Securities and Exchange commission of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose, and (iv) the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or threat
of initiation of any proceeding for such purpose;
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<PAGE> 8
(g) Cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed and,
if not so listed, to be listed on the Nasdaq Stock Market and, if listed on the
Nasdaq Stock Market automated quotation system, use its best efforts to secure
designation of all such Registrable Securities covered by such registration
statement as a NASDAQ "national market system security" within the meaning of
Rule 11Aa2-1 of the Securities and Exchange commission or, failing that, to
secure Nasdaq authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register as such with respect to such Registrable Securities with the
NASD;
(h) Provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(i) Enter into such customary agreements (including, without limitation,
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
affecting a stock split or a combination of shares);
(j) Make available for inspection by any holder of Registrable Securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
holder or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such holder, underwriter, attorney, accountant or
agent in connection with such registration statement;
(k) Otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder;
(1) Permit any holder of Registrable Securities to participate in the
preparation of such registration statement or comparable statement and to
require the insertion therein of material, furnished by any such holder to the
Company in writing, which in the reasonable judgment of such holder and its
counsel should be included; provided that such material shall be furnished
under such circumstances as shall cause it to be subject to the indemnification
provisions provided pursuant to paragraph 6(b) hereof;
(m) Make every reasonable effort to prevent the entry of any order
suspending the effectiveness of the registration statement and, in the event of
the issuance
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<PAGE> 9
of any such stop order, or of any order suspending or preventing the use of any
related prospectus or suspending the qualification of any security included in
such registration statement for sale in any jurisdiction, the Company will use
its best efforts promptly to obtain the withdrawal of such order:
(n) Use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the holders
thereof to consummate the disposition of such Registrable Securities;
(o) Cooperate with the selling holders of Registrable Securities and the
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends, and enable such Registrable Securities to be in such lots
and registered in such names as the underwriters may request at least two
business days prior to any delivery of Registrable Securities to the
underwriters;
(p) Provide a CUSIP number for all Registrable Securities not later than
the effective date of the registration statement; and
(q) Prior to the effectiveness of the registration statement and any
post-effective amendment thereto and at each closing of an underwritten
offering, (i) make such representations and warranties to the selling holders
of such Registrable Securities and the underwriters, if any, with respect to
the Registrable Securities and the registration statement as are customarily
made by issuers to underwriters in primary underwritten offerings, (ii) obtain
opinions of counsel to the Company and updates thereof (which counsel and which
opinions shall be reasonably satisfactory to the underwriters, if any, and to
the holders of a majority of the Registrable Securities being sold) addressed
to each selling holder and the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such holders and underwriters
or their counsel, (iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to the selling
holders of Registrable Securities and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters by underwriters in connection with primary underwritten
offerings, and (iv) deliver such documents and certificates as may be
reasonably requested by the holders of a majority of the Registrable Securities
being sold and by the underwriters, if any, to evidence compliance with clause
(i) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws,
printing expenses,
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<PAGE> 10
messenger and delivery expenses, and fees and disbursements of counsel for the
Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other Persons retained by the Company
(all such expenses being herein called "Registration Expenses"), will be borne
as provided in this Agreement, except that the Company will, in any event, pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any liability
insurance and the expenses and fees for listing the securities to be registered
on each securities exchange on which similar securities issued by the Company
are then listed or on the Nasdaq Stock Market.
(b) In connection with each Demand Registration and each Piggyback
Registration, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees (not exceeding $20,000 for
each registration) and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities initially requesting such registration
and approved by the Company, which approval shall not be unreasonably withheld
or delayed.
(c) To the extent Registration Expenses are not required to be paid by the
Company, each holder of securities included in any registration hereunder will
pay those Registration Expenses allocable to the registration of such holder's
securities so included, and any Registration Expenses not so allocable will be
borne by all sellers of securities included in such registration in proportion
to the aggregate selling price of the securities to be so registered.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities or Executive Registrable Securities, its
officers, directors and partners, as the case may be, and each Person who
controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers, directors and partners, as the case may be,
and each Person who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
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<PAGE> 11
(b) In connection with any registration statement in which a holder of
Registrable Securities or Executive Registrable Securities is participating,
each such holder will furnish to the Company in writing such information and
affidavits as the Company reasonably requests for use in connection with any
such registration statement or prospectus and, to the extent permitted by law,
will indemnify the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder; provided that the obligation to indemnify will be individual to each
holder and will be limited to the net amount of proceeds received by such
holder from the sale of Registrable Securities or Executive Registrable
Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, indemnifying party will not be
subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Company
also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements;
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<PAGE> 12
provided, that no holder of Registrable Securities included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters other than representations and warranties regarding
such holder and such holder's intended method of distribution.
8. Reports Under the Securities Laws. With a view to making available to
the holders of Registrable Securities and Executive Registrable Securities the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the Securities and Exchange commission that may at any time
permit such holder to sell securities of the Company to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to 90 days after
the effective date of any registration statement covering an underwritten
public offering filed under the Securities Act by the Company;
(b) File with the Securities and Exchange Commission in a timely manner
all reports and other documents required of the Company under the Securities
Act and the 1934 Act at any time after it is subject to such registration
requirements; and
(c) Furnish to any such holder so long as such holder owns any of the
Registrable Securities or Executive Registrable Securities forthwith upon
request a written statement by the Company that it has complied with the
reporting requirements of Rule 144 (at any time after 90 days after the
effective date of such registration statement filed by the Company), and of the
Securities Act and the 1934 Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed by the
Company as may be reasonably requested by any such holder in availing any such
holder of any rule or regulation of the Securities and Exchange Commission
permitting the selling of any such securities without registration.
9. Certain Limitations in Connection with Future Grants of Registration
Rights. From and after the date of this Agreement, the Company shall not enter
into any agreement with any holder or prospective holder of any securities of
the Company providing for the granting to such holder of registration rights
unless such agreement:
(a) Includes as a term the equivalent of paragraph 3 of this Agreement;
(b) Includes a provision that, in the case of a Demand Registration,
protects the holders of Registrable Securities if marketing factors require a
limitation on the number of securities to be included in an underwriting in the
manner contemplated by paragraphs 1(d), 2(c) and 2(d) of this Agreement; and
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<PAGE> 13
(c) Is otherwise not inconsistent with the rights granted to the holders
of Registrable Securities in this Agreement.
10. Transfer of Registration Rights. Provided that the Company is given
written notice by the holder of Registrable Securities at the time of such
transfer stating the name and address of the transferee and identifying the
securities with respect to which the rights under this Agreement are being
assigned, the rights of such holder of Registrable Securities or Executive
Registrable Securities under this Agreement may be transferred in whole or in
part at any time.
11. Definitions. "Executive Registrable Securities" means (i) any equity
securities held as of the date hereof or. hereafter acquired by an Executive or
by a member of the immediate family of Powell, and (ii) any shares of equity
securities of the Company issued or issuable with respect to the foregoing
securities by way of dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Executive Registrable Securities, such
securities will cease to be Executive Registrable Securities when they have
been distributed to the public pursuant to a offering registered under the
Securities Act or sold to the public through a broker, dealer or market maker
in compliance with Rule 144 under the Securities Act (or any similar rule then
in force). For purposes of this Agreement, Powell will also be deemed to be a
holder of Executive Registrable Securities whenever Powell has the right to
acquire such Executive Registrable Securities (upon conversion or exercise) in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
"Registrable Securities" means (i) any equity securities of the Company
held as of the date hereof or acquired hereafter by Brantley or Sears, (ii) any
equity securities of the Company issued or issuable with respect to the
securities referred to in clause (i) by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, and (iii) any other shares of equity
securities of the Company held by persons holding securities described in
clauses (i) and (ii) above. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been
distributed to the public pursuant to a offering registered under the
Securities Act or sold to the public through a broker, dealer or market maker
in compliance with Rule 144 under the Securities Act (or any similar rule then
in force). For purposes of this Agreement, a Person will also be deemed to be
a holder of Registrable Securities whenever such Person has the right to
acquire directly or indirectly such Registrable Securities (upon conversion or
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected.
- 12 -
<PAGE> 14
12. Miscellaneous.
(a) No inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to its securities
which would materially and adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would materially and adversely
affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
(c) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company, holders of a majority of the Registrable
Securities (excluding all Registrable Securities held by the Company) and
holders of a majority of the Executive Registrable Securities.
(e) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of purchasers or holders of Registrable Securities or Executive
Registrable Securities are also for the benefit of, and enforceable by, any
subsequent holder of Registrable Securities or Executive Registrable
Securities.
(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
- 13 -
<PAGE> 15
(g) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
(h) Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only-and de not constitute a
paragraph of this Agreement. The use of the word "including" in this Agreement
shall be by way of example rather than by limitation.
(i) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Georgia.
(j) Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be delivered personally to the recipient, sent by reputable
express courier service (charges prepaid) or sent by certified or registered
mail, return receipt requested and postage prepaid and shall be deemed to have
been given when so delivered, sent or deposited in the U.S. Mail. Such
notices, demands and other communications shall be sent to the parties hereto
at the addresses indicated below or, with respect to subsequent holders of
Registrable Securities or Executive Registrable Securities, at the addresses of
such holders set forth in the books and records of the Company:
If to the Company: Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road, N.E.
Atlanta, Georgia 30305
with a copy to: Douglas B. Chappell
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
If to Brantley: Brantley Venture Partners II, L.P.
20600 Chagrin Boulevard
Suite 1150 Tower East
Cleveland, Ohio 44122
If to Sears: The Chase Manhattan Bank, N.A.
c/o David Bogetz
The Chicago Corp.
208 LaSalle, 5th Floor
Chicago, Illinois 60604
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<PAGE> 16
If to Powell: Laurence H. Powell
1525 Misty Oaks Drive
Atlanta, Georgia 30350
or to such other address as it appears in the records of the Company (unless
otherwise indicated by such holder) or to the attention of such other person as
the recipient party has specified by prior written notice to the sending party.
(k) Termination of Prior Agreement. This Agreement is intended by the
parties to supersede and replace the Original Registration Agreement, and the
parties agree that the Original Registration Agreement shall be terminated
effective immediately prior to the effectiveness of the Company's registration
statement for its initial public offering.
* * * * *
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<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MEDIRISK, INC., a Delaware corporation
By: /s/ Kenneth M. Goins, Jr.
---------------------------------------
Title: Vice President
---------------------------------------
BRANTLEY VENTURE PARTNERS II, L.P.,
a Delaware limited partnership
By: Brantley Venture Management II, L.P., its
general partner
By: Pinkas Family Partners, L.P., its
general partner
By: /s/ Robert P. Pinkas
------------------------------
Robert P. Pinkas, its
general partner
SEARS PENSION TRUST
By: Chase Manhattan Bank, N.A., as Trustee
By: /s/ Robert A. Signorino
--------------------------------------
Title: Vice President
--------------------------------------
/s/ Laurence H. Powell
-------------------------------------------
LAURENCE H. POWELL
- 16 -
<PAGE> 1
EXHIBIT 10.16
TERMINATION AND WAIVER AGREEMENT DATED AS OF OCTOBER 28, 1996,
BETWEEN THE COMPANY, BRANTLEY VENTURE PARTNERS II, L.P.,
CHASE MANHATTAN BANK, N.A., AS TRUSTEE, AND LAURENCE H. POWELL
<PAGE> 2
TERMINATION AND WAIVER AGREEMENT
THIS TERMINATION AND WAIVER AGREEMENT (this "Agreement") has been executed
as of the 28th day of October, 1996, by MEDIRISK, INC., a Delaware corporation
(as successor by merger to Medirisk, Inc., a Florida corporation) ("Medirisk"),
THE CHASE MANHATTAN BANK, N.A., AS TRUSTEE FOR SEARS PENSION TRUST ("Sears"),
BRANTLEY VENTURE PARTNERS II, L.P. ("Brantley") and LAURENCE H. POWELL
("Powell," with Brantley, Sears and Powell each being referred to as a
"Shareholder" and collectively referred to as the "Shareholders").
WHEREAS, Sears and Brantley each own 448,717.5 shares of the Series A
Convertible Preferred Stock of Medirisk (the "Series A Preferred"); and
WHEREAS, Powell owns 76,924 shares of the Series A Preferred; and
WHEREAS, Medirisk and the Shareholders are parties to a Consent and Waiver
Agreement, dated as of January 8, 1996 (the "Consent and Modification
Agreement"), related to certain aspects of the ownership of shares by the
Shareholders; and
WHEREAS, Medirisk, Brantley, Sears and Powell are parties to a
Registration Agreement, dated April 5, 1991, as amended on or about November
22, 1991 to include Sears as a party and as amended by the Consent and
Modification Agreement (as so amended to date, the "Original Registration
Agreement"), related to registration rights available to the Shareholders; and
WHEREAS, Medirisk, the Shareholders and HealthPlan Services Corporation
are parties to a Shareholders Agreement, dated as of January 8, 1996 (the "1996
Shareholders Agreement"), related to certain aspects of the ownership of shares
by the Shareholders; and
WHEREAS, effective September 19, 1996, Medirisk, Inc., a Florida
corporation ("Medirisk (Florida)"), was merged (the "Reincorporation Merger")
with and into Medirisk for the purposes of changing the state of incorporation
of Medirisk (Florida); and
WHEREAS, on September 19, 1996, Medirisk filed with the Securities and
Exchange Commission a registration statement on Form S-1 to register 3,000,000
shares of Common Stock (with an over-allotment option of 450,000 shares) to be
sold in an underwritten public offering (the "Initial Public Offering"); and
WHEREAS, in connection with the Initial Public Offering, the Board of
Directors of Medirisk has approved a 0.8368 for one reverse stock split with
respect to the Common Stock of Medirisk to be effective immediately prior to
the effectiveness of the Registration Statement for the Initial Public Offering
(the "Reverse Split"); and
<PAGE> 3
WHEREAS, pursuant to the terms of the Series A Preferred, the Consent and
Modification Agreement and the Original Registration Agreement, the
Reincorporation Merger and the Initial Public Offering will trigger certain
rights of Sears, Brantley and Powell;
NOW, THEREFORE, in consideration of the foregoing premises the
Shareholders and Medirisk hereby agree as follows:
SECTION 1. ORIGINAL REGISTRATION AGREEMENT, ETC. Each of the
Shareholders hereby waives its rights to (i) receive, in connection with the
Reincorporation Merger, a notice in accordance with paragraph 5(l) of Section I
of Article Fourth of the Articles of Incorporation of Medirisk (Florida), each
of the Shareholders acknowledging and agreeing that it or he consented to the
Reincorporation Merger as a shareholder of Medirisk (Florida) prior to its
effectiveness; (ii) receive, in connection with the Initial Public Offering, a
notice of a Piggyback Registration (as defined in the Original Registration
Agreement) in accordance with paragraph 2(a) of the Original Registration
Agreement; (iii) approve or disapprove of the issuance of shares of Common
Stock in the Initial Public Offering for purposes of the Original Purchase
Agreement (as defined in, and amended by, the Consent and Modification
Agreement); and (iv) participate, as a Piggyback Registration, in the Initial
Public Offering as specified in paragraph 2 of the Original Registration
Agreement. The Shareholders hereby consent to the Reincorporation Merger, the
Reverse Split and the Initial Public Offering for purposes of the designation
of the Series A Preferred in the Articles of Incorporation of Medirisk
(Florida), the Consent and Modification Agreement, the Original Purchase
Agreement and the Original Registration Agreement.
SECTION 2. TERMINATION OF AGREEMENTS. The Shareholders and Medirisk
hereby acknowledge and agree that the 1996 Shareholders Agreement shall be, by
its terms, automatically terminated upon the closing of the Initial Public
Offering. The Shareholders and Medirisk agree that effective immediately prior
to the effectiveness of the registration statement for the Initial Public
Offering each of the Consent and Modification Agreement, the Original Purchase
Agreement and the Original Registration Agreement shall be terminated and of no
further force and effect, the parties acknowledging and agreeing that
contemporaneously with the execution of this Agreement, they are executing and
delivering an Investor Registration Agreement providing for registration rights
substantially identical to those provided in the Original Registration
Agreement; provided that the Consent and Modification Agreement, the Original
Purchase Agreement and the Original Registration Agreement shall be deemed
reinstated and of full force and effect if the Inital Public Offering is not
closed notwithstanding the effectiveness of such registration statement.
SECTION 3. GENERAL WAIVER AND CONSENT. The Shareholders hereby consent
to and waive their respective rights with respect to (including the right to
receive any notice(s) of) the Reincorporation Merger, the Reverse Split and
Initial Public Offering, which rights arise under any of the Original
Shareholders Agreement, the 1996 Shareholders Agreement, the Original Purchase
Agreement, the Original Registration
- 2 -
<PAGE> 4
Agreement, Medirisk (Florida)'s Articles of Incorporation or Bylaws, Medirisk's
Certificate of Incorporation or Bylaws, or any other document or instrument,
other than their respective rights to receive the merger consideration in
connection with the Reincorporation Merger.
SECTION 4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia.
SECTION 5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
SECTION 6. GENDER. In this Agreement the masculine, feminine or neuter
gender shall be construed to mean each of the others of the masculine, feminine
or neuter gender.
(the remainder of this page intentionally left blank)
- 3 -
<PAGE> 5
IN WITNESS WHEREOF this Agreement has been executed by the parties below
as of the dates set forth below and shall be effective as of the last date
executed by a party hereto.
MEDIRISK, INC.
By: /s/ Kenneth M. Goins, Jr.
-------------------------------------------
Title: Vice President
-----------------------------------------
BRANTLEY VENTURE PARTNERS II, L.P.,
a Delaware limited partnership
By: Brantley Venture Management II, L.P.,
as general partner
By: Pinkas Family Partners, L.P.,as
general partner
By:/s/ Robert P. Pinkas
---------------------------------
Robert P. Pinkas, general partner
SEARS PENSION TRUST
By: Chase Manhattan Bank, N.A., as Trustee
By: /s/ Robert A. Signorino
------------------------------------------
Title: Vice President
---------------------------------------
/s/ Laurence H. Powell
-----------------------------------------------
LAURENCE H. POWELL
- 4 -
<PAGE> 1
EXHIBIT 10.18
DEBT SUBORDINATION AGREEMENT
- -------------------------------------------------------------------------------
<PAGE> 2
DEBT SUBORDINATION AGREEMENT
THIS DEBT Subordination AGREEMENT dated this ____ day of December, 1996 by
and between NationsBank N.A. (South), ("Bank"), Medirisk, Inc., a Florida
Corporation ("Borrower") and Healthplan Services Corporation, a Delaware
Corporation (the "Subordinated Lender").
W I T N E S S E T H:
WHEREAS, contemporaneously with the execution hereof, the Bank has
extended to Borrower a loan in the principal amount of $850,000 (the "Bank
Loan") pursuant to that certain Promissory Note dated December ___, 1996 (the
"Note") between Bank and Borrower (the obligations of Borrower under the Note
together with all renewals, modifications and extensions thereof collectively,
together with all other liabilities, indebtedness or obligations of Borrower to
Bank, whether now existing or hereafter arising, however evidenced or incurred,
whether direct or indirect, absolute or contingent, or due or to become due and
all renewals, modifications and extensions thereof hereinafter collectively
referred to as the "Senior Debt");
WHEREAS, Borrower and Subordinated Lender entered into a Securities
Purchase Agreement (the "SPA") dated January 8, 1996, pursuant to which
Subordinated Lender will purchase Senior Subordinated Notes (as defined in the
SPA) from Borrower from time to time (the obligations of Borrower to
Subordinated Lender thereunder, and under the Senior Subordinated Notes,
together with all renewals, modifications and extensions thereof collectively,
together with all other liabilities, indebtedness or obligations of Borrower to
Subordinated Lender, whether now existing or hereafter arising, however
evidenced or incurred, whether direct or indirect, absolute or contingent, or
due or to become due and all renewals, modifications and extensions thereof
hereinafter collectively referred to as the "Subordinated Debt");
WHEREAS, Subordinated Lender acknowledges that it will benefit from the
Bank having made the Bank Loan to the Borrower as such loan will enhance the
creditworthiness of the Borrower and the Borrower's ability to pay the
Subordinated Debt; and
WHEREAS, it is a condition precedent to the making of the Bank Loan that
this Agreement be executed and delivered by the parties hereto;
NOW, THEREFORE, and in consideration of the premises and the mutual
benefits to be derived from this Agreement and in order to determine the
relative priorities of repayment of the Senior Debt and the Subordinated Debt,
the parties hereto agree as follows:
1. Subordination of Subordinated Debt.
-1-
<PAGE> 3
(a) Subordinated Lender hereby subordinates the payment of any
indebtedness, whether principal, interest or other amounts owing to Subordinated
Lender by Borrower, arising under or in connection with the Subordinated Debt,
to the prior payment of the Senior Debt.
(b) Subject to Section 1(c) below, so long as there shall remain
any indebtedness, whether principal, interest or other amounts owing to Bank by
Borrower arising under or in connection with the Senior Debt, Subordinated
Lender shall not receive or accept, directly or indirectly, by set-off,
redemption, purchase or in any other manner, any payment from Borrower or any
other person in respect of the Subordinated Debt.
(c) Borrower may pay, and Subordinated Lender may receive and
accept, regular scheduled payments of principal or interest pursuant to
Subordinate Debt Instrument so long as no Default or Event of Default under the
Note has occurred and is continuing and has not been waived by the Bank and the
making of such payment would not constitute a Default or Event of Default under
the Note.
2. No Commencement of Actions. Unless and until the Senior Debt shall be
paid in full, Subordinated Lender (except as provided in Section 3(a)) shall
not commence any action or proceeding against Borrower in any court or other
tribunal to recover all or any part of the Subordinated Debt without prior
written consent of Bank.
3. Liquidation; Dissolution; Payment on Subordinated Debt; Bankruptcy of
Borrower. Upon any distribution of the assets of Borrower, or in the event of
any liquidation, dissolution or other winding up of Borrower or of its business
or the commencement by or against Borrower of any receivership, insolvency,
bankruptcy or reorganization proceeding under the Bankruptcy Code of 1978, as
amended or any successor thereto or other bankruptcy or reorganization law,
assignment for the benefit of creditors, reorganization or other arrangement
with creditors, sale of all or substantially all of the assets of Borrower, or
any other marshaling of the assets or liabilities of Borrower (each a
"Bankruptcy Proceeding") then, and in any such event:
(a) Subordinated Lender will at the request of the Bank, (i)
declare all indebtedness of Borrower under the Subordinated Debt to be due and
payable, (ii) file any claim, proof of claim, or other instrument of similar
character and (iii) duly and promptly take such action as may be necessary to
enforce the obligations of Borrower in respect of the Subordinated Debt; and
(b) in the event that Subordinated Lender shall fail to take such
action requested by Bank, Bank may, as attorney-in-fact for Subordinated
Lender, take such action on behalf of Subordinated Lender, and Subordinated
Lender hereby appoints Bank and any of its officers as attorney-in-fact for
Subordinated Lender to demand, sue for, collect and receive any and all
such monies, dividends or other assets and give acquittance therefor and to file
any claim, proof of claim or other instrument of similar character and to take
any such action in any Bankruptcy Proceeding in Bank's own name or in the name
of Subordinated Lender as Bank may deem necessary or advisable for the
enforcement of this Agreement; and Subordinated Lender will execute and deliver
to Bank such other and further powers of attorney or other instruments as Bank
may request
-2-
<PAGE> 4
in order to accomplish the foregoing. All actions taken by such
attorney-in-fact are hereby ratified and confirmed.
(c) Except as provided in Section 1(c), Bank shall first be
entitled to receive payment in full of the Senior Debt (whenever arising)
before Subordinated Lender shall be entitled to receive any payment on account
of the Subordinated Debt, whether on account principal, interest, or otherwise.
Any payment by, or distribution of the assets of, Borrower of
any kind or character, whether in cash, property or securities, to which
Subordinated Lender would be entitled except for the provisions of this
Agreement shall be paid or delivered by the person making such payment or
distribution (whether Borrower, a trustee in bankruptcy, receiver, custodian or
liquidating trustee or otherwise) directly to Bank, to the extent necessary to
make payment in full of all Senior Debt.
Notwithstanding the foregoing, in the event that Borrower or
any other person or entity shall offer any payment with respect to the
Subordinated Debt, Subordinated Lender will direct that the same be made or
delivered to Bank. In the event that any payment by, or distribution of the
assets of, Borrower of any kind or character, whether in cash, property or
securities, shall be received by Subordinated Lender before all Senior Debt is
paid in full, such payment or distribution shall be held in trust for the
benefit of, and shall be paid over to, Bank, to the extent necessary to make
payment in full of all Senior Debt remaining unpaid.
If Subordinated Lender shall fail to endorse any such
instrument for the payment of money payable to Subordinated Lender or to the
order of Subordinated Lender, which has been turned over to Bank, Bank and any
of its officers are each hereby irrevocably constituted and appointed
attorney-in-fact for Subordinated Lender with full power to make any such
endorsement and with full power of substitution. All actions taken by such
attorney-in-fact are hereby ratified and approved.
4. Security, etc.
(a) Subordinated Lender further agrees, without first
obtaining the written consent of the Bank (which shall not be unreasonably
withheld) not to sell, assign, transfer, pledge or give a security interest in
the Subordinated Debt (except expressly subject to this Agreement), nor to join
in any Bankruptcy Proceeding, nor to accelerate the maturity of the Subordinated
Debt nor to take any action or proceeding to enforce the same until the Senior
Debt has been paid in full. Any such assignee or transferee shall agree, as a
condition to transfer, to enter into this Agreement.
(b) Subordinated Lender further agrees that in case it should
take or receive any security interest in, or lien by way of attachment,
execution or otherwise on any of the property, real or personal of, Borrower
or should take or join in any other measure of advantage contrary to this
Agreement, while any claim exists on Bank's part against Borrower with respect
to Senior Debt, Bank shall be entitled to have the same vacated, dissolved and
set aside by such proceedings at law, or otherwise, as Bank may deem proper;
and this Agreement shall be and constitute full and sufficient grounds therefor
and shall entitle Bank to be and become a party to any proceedings at law, or
otherwise, initiated by Bank or by any other party, in or by which Bank may
deem it proper to protect Bank's interest hereunder; and the party so violating
this Agreement
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<PAGE> 5
shall be liable to Bank for all loss and damage sustained by Bank by reason of
such breach, including reasonable attorneys' fees.
5. Actions with Respect to Senior Debt/Subordinated Debt.
(a) Bank may, at any time and from time to time, without the
consent of or notice to Subordinated Lender and without incurring responsibility
to Subordinated Lender, and without impairing or releasing the obligations of
Subordinated Lender hereunder take or omit to take any action, including but not
limited to the following:
(1) change the manner, place or terms of payment or
change or extend the time of payment of or renew or alter the Senior Debt or any
portion thereof;
(2) sell, exchange, release or otherwise deal with
any collateral or any other property by whomsoever at any time pledged or
mortgaged to secure, or however securing the Senior Debt or any portion thereof;
(3) release anyone liable in any manner for the
payment or collection of the Senior Debt or any portion thereof;
(4) exercise or refrain from exercising any rights
against Borrower and others; or
(5) apply any sums by whomsoever paid or however
realized to the Senior Debt or any portion thereof.
(b) The Subordinated Lender may not amend, modify or
otherwise change the manner, place or terms of the Subordinated Debt without the
prior written notice to the Bank.
6. Consent to Senior Debt. The Subordinated Lender hereby consents
to the making of the Bank Loan and other financial accommodations by Bank to
Borrower under the Note; hereby acknowledges that Bank in entering into the Note
and in making the Bank Loan and other financial accommodations thereunder has
relied upon the terms of this Agreement; and hereby agrees that such Bank Loan,
and such other financial accommodations and the entering into and performance of
this Agreement, do not and will not create an Event of Default under the SPA.
The Bank shall have no liability to Subordinated Lender and Subordinated Lender
hereby waives any claim which it may have now or hereafter against Bank arising
from any and all actions which Bank may take or omit to take with regard to the
Note.
7. Consent to Subordinate Debt; no Default; Funding
(a) Subordinated Lender represents and warrants that no event
constituting an Event of Default under the SPA has occurred. Borrower
represents and warrants to Bank that no event constituting an Event of Default
under the SPA has occurred.
(b) Borrower and Subordinated Lender agree that they will take such
actions as are necessary and desirable under the SPA to cause the Note to be
paid at its Maturity Date and Subordinated Lender hereby waives any Event of
Default which might occur
-4-
<PAGE> 6
as a result of purchasing additional Senior Subordinated Notes at a Subsequent
Closing Date to effect the repayment of the principal interest and other
amounts due on the Note. Borrower and Subordinated Lender hereby waive any
provisions of the SPA which would otherwise restrict Borrower, and selling
Subordinated Lender buying a Senior Subordinated Note in an amount sufficient
to pay all amounts outstanding on the Note at the Maturity Date.
(c) Borrower and Subordinated Lender agree that their obligations
under this Section 7 shall be specifically enforceable and hereby consent to the
exclusive jurisdiction, venue and forming of any state or Federal court in
Atlanta, Fulton County, Georgia, with respect to any action for specific
performance, or damages, which the Bank might bring arising out of this Section
7 and the obligations of Borrower and Subordinated Lender hereunder.
8. Representations and Warranties of Subordinated Lender and
Borrower. Subordinated Lender and Borrower, respectively, represent and warrant
to the Bank that: (a) it has the legal right, power and authority to execute,
deliver and perform this Agreement; and the execution, delivery and performance
of this Agreement (i) does not require any approval or consent that has not been
obtained and is in full force and effect and (ii) will not violate any provision
of law, governmental regulation, order or decree or any indenture, mortgage,
contract or other agreement to which it is a party or by which it is bound; (b)
this Agreement has been duly executed and delivered by it and constitutes a
legal, valid and binding obligation enforceable against it in accordance with
its terms; and (c) no subordination of the Subordinated Debt has previously been
executed by Subordinated Lender.
9. ADEQUATE ASSURANCES. Subordinated Lender and Borrower,
respectively, agrees to execute any further documents or amendments and take
such other actions as may be reasonably necessary to effect the purposes of this
Agreement, all as directed by Bank.
The Subordinated Lender agrees that it shall cause to be added to each
document evidencing the Subordinated Debt the following legend:
"The rights and remedies of a holder under this instrument are subject
to the terms and conditions of that certain Debt Subordination Agreement
dated as of December, 1996 between Medirisk, Inc., Healthplan Services
Corporation and NationsBank N.A. (South), as it may be amended from time
to time, which is incorporated herein by specific reference thereto to
the same extent as if fully set forth herein."
10. Continuing Agreement. This Agreement shall be continuing in
effect, shall not be canceled or otherwise rendered ineffective by the payment
or discharge at any time of all of Borrower's debts or obligations to Bank, and
shall apply to any and all financial accommodations subsequently granted,
renewed or extended by Bank to Borrower unless Subordinated Lender shall
deliver to Bank written notice of revocation as to future transactions, at a
time when Borrower is no longer obligated to Bank, and while Bank is not
committed or otherwise obligated to make any loans to, or grant any credit to,
Borrower.
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<PAGE> 7
11. Successors and Assigns; Amendments. The terms and conditions
hereof shall be binding upon the heirs, representatives, successors and assigns
of Subordinated Lender and Borrower and shall inure to the benefit of the
successors and assigns of Bank. Nor amendment, modification or waiver of any
provision of this Agreement shall in any event be effective unless the same
shall be in writing and signed by each of the parties hereto.
12. Governing Laws. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia.
13. Terms Defined. Terms used herein and not defined herein have
their respective meanings as set forth in the Note or the SPA, respectively.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of December____, 1996.
BORROWER: Medirisk, Inc.
By: /s/ Kenneth M. Goins, Jr.
-----------------------------------------
Title: Executive Vice President and Chief
Financial Officer
--------------------------------------
SUBORDINATED LENDER: Healthplan Services
Corporation
By: /s/ James K. Murray, III
-----------------------------------------
Title: Executive Vice President
--------------------------------------
BANK: NationsBank N.A. (South)
By: /s/ Chris Jones
-----------------------------------------
Title: Senior Vice President
--------------------------------------
-6-
<PAGE> 1
EXHIBIT 10.17
PROMISSORY NOTE
- -------------------------------------------------------------------------------
<PAGE> 2
PROMISSORY NOTE
Date December , 1996 [x] New [ ] Renewal Amount $ 850,000
---------------- ------------------
Date
----------------
<TABLE>
<CAPTION>
Maturity 3/31/97
==========================================================================================
<S> <C>
Bank: Borrower:
NationsBank, N.A. (South) Medirisk, Inc.
Banking Center: Two Piedmont Center
Suite 400
Atlanta, High Tech Atlanta, Georgia 30305-1502
600 Peachtree Street, N.E.
18th Floor Attn: Ken Goins, CFO
Atlanta, Georgia 30308-2213
Attn: Deborah W. Levin, V.P.
(Name and street address, including county)
(Street address including county)
==========================================================================================
</TABLE>
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of
Eight Hundred and Fifty Thousand_________________________________________Dollars
($850,000________________), or so much thereof as may be advanced from time
to time in immediately available funds, together with interest computed daily on
the outstanding principal balance hereunder, at an annual interest rate, and in
accordance with the payment schedule, indicated below.
[THIS NOTE CONTAINS SOME PROVISIONS PRECEDED BY BOXES. IF A BOX IS MARKED, THE
PROVISION APPLIES TO THIS TRANSACTION; IF IT IS NOT MARKED, THE PROVISION DOES
NOT APPLY TO THIS TRANSACTION.]
1. RATE.
[x] PRIME RATE. The Rate shall be the Prime Rate, plus _two (2)_____ percent,
per annum. The "Prime Rate" is the fluctuating rate of interest established by
Bank from time to time, at its discretion, whether or not such rate shall be
otherwise published. The Prime Rate is established by Bank as an index and may
or may not at any time be the best or lowest rate charged by Bank on any loan.
[_] FIXED RATE. The Rate shall be fixed at ______________ percent per annum.
[_] OTHER.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by the applicable law of the State of Georgia;
if any higher rate ceiling is lawful, then that higher rate ceiling shall apply.
Any payment in excess of such maximum shall be refunded to Borrower or credited
against principal, at the option of Bank.
2. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set forth
above will be calculated by the 365/360 day method (a daily amount of interest
is computed for a hypothetical year of 360 days; that amount is multiplied by
the actual number of days for which any principal is outstanding hereunder). If
interest is not to be computed using this method, the method shall be:
N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -----------.
3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate will
change, unless otherwise provided, each time and as of the date that the index
or base rate changes. If the Rate is to change on any other date or at any
other interval, the change shall be: N/A
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -----------.
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
[_] PRINCIPAL PLUS ACCRUED INTEREST. Principal shall be paid in consecutive
equal installments of $______________, plus accrued interest, payable
[_] monthly, [_] quarterly or [_]____________________________________,
1
<PAGE> 3
commencing on ____________________, 19______, and continuing on the [_] same
day, [_] last day of each successive month, quarter or other period (as
applicable) thereafter, with a final payment of all unpaid principal and
accrued interest due on ____________________________, 19___.
[_] FIXED PRINCIPAL AND INTEREST. Principal and interest shall be paid in
consecutive equal installments of $ ______________________, payable [_]
monthly, [_] quarterly or [_] ______________________, commencing on
_______________________________, 19 _______, and continuing on the [_] same
day, [_] last day of each successive month, quarter or other period (as
applicable) thereafter, with a final payment of all unpaid principal and
interest due thereon on _____________________________, 19 _____. If, on any
payment date, accrued interest exceeds the installment amount set forth above,
Borrower will also pay such excess as and when billed.
[x] SINGLE PRINCIPAL PAYMENT. Principal shall be paid in full in a single
payment on March 31, 1997. Interest thereon shall be paid [x] at maturity, or
else [_] monthly, [_] quarterly or [_] ______________________________,
commencing on ___________________, 19_____, and continuing on the [_] same day,
[_] last day of each successive month, quarter or other period (as applicable)
thereafter, with a final payment of all unpaid interest at the stated maturity
of this Note.
[_] OTHER.
________________________________________________________________________________
________________________________________________________________________________
________
5. REVOLVING FEATURE.
[_] Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided that Borrower is not in default under any
provision of this Note, any other documents executed in connection with this
Note, or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Borrower to Bank, and provided that the
borrowings hereunder do not exceed any borrowing base or other limitation on
borrowings by Borrower. Bank shall incur no liability for its refusal to
advance funds based upon its determination that any conditions of such further
advances have not been met. Bank records of the amounts borrowed from time to
time shall be conclusive proof thereof.
[_] UNCOMMITTED FACILITY. Borrower acknowledges and agrees that,
notwithstanding any provisions of this Note or any other documents executed
in connection with this Note, Bank has no obligation to make any advance,
and that all advances are at the sole discretion of Bank.
[_] OUT-OF-DEBT PERIOD. For a period of at least ________________
consecutive days during [_] each fiscal year, [_] any consecutive 12-month
period, Borrower shall fully pay down the balance of this Note, so that no
amount of principal or interest and no obligation under this Note remains
outstanding.
6. AUTOMATIC PAYMENT.
[_] Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number
_________________________. This authorization shall not affect the obligation
of Borrower to pay such sums when due, without notice, if there are insufficient
funds in such account to make such payment in full on the due date thereof, or
if Bank fails to debit the account.
7. LOAN FEE.
[_] Upon the maturity of this Note, whether by demand, acceleration, or
otherwise, an administrative fee in the amount of $____________ shall be due
and payable.
8. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor
hereof, or any other party hereto (individually an "Obligor" and
collectively "Obligors") and each of them jointly and severally: (a) waives
presentment, demand, protest, notice of demand, notice of intent to accelerate,
notice of acceleration of maturity, notice of protest, notice of nonpayment,
notice of dishonor, and any other notice required to be given under the law to
Obligor in connection with the delivery, acceptance, performance, default or
enforcement of this Note, any indorsement or guaranty of this Note, or any
other documents executed in connection with this Note or any other note or
other loan documents now or hereafter executed in connection with any
obligation of Borrower to Bank (the "Loan Documents"); (b) consents to all
delays, extensions, renewals or other modifications of this Note or the Loan
Documents, or waivers of any term hereof or of the Loan Documents, or release
or discharge by Bank of any of Obligors, or release, substitution or exchange
of any security for the payment hereof, or the failure to act on the part of
Bank, or any indulgence shown by Bank (without notice to or further assent from
Obligor), and agree that no such action, failure to act or failure to exercise
any right or remedy by Bank shall in any way affect or impair the obligations
of any Obligors or be construed as a waiver by Bank of, or otherwise affect,
any of Bank's rights under this Note, under any indorsement or guaranty of this
Note or under any of the Loan Documentss; and (c) agrees to pay, on demand,
all costs and expenses of collection or defense of this Note or of any
indorsement or guaranty hereof and/or the enforcement or defense of Bank's
rights with respect to, or the administration, supervision, preservation, or
protection of, or realization upon, any property securing payment hereof,
including, without limitation, reasonable attorney's fees, including fees
related to any suit, mediation or arbitration proceeding, out of court payment
agreement, trial, appeal, bankruptcy proceedings or other proceeding, in such
amount as may be determined reasonable by any arbitrator or court, whichever
is applicable.
9. "INTEREST" LIMITED. As used in this Note and for the purposes of Section
7-4-2 of the Official Code of Georgia Annotated, or any successor thereto, the
term "interest" does not include any fees (including, but not limited to, the
Loan Fee) or other charges imposed on Borrower in connection with the
indebtedness evidenced by this Note, other than the interest described above.
10. PREPAYMENTS. Prepayments may be made in whole or part at any time on any
loan for which the Rate is based on the Prime Rate. All prepayments of
principal shall be applied in the inverse order of maturity, or in such other
order as Bank shall determine in its sole discretion. No prepayment of any
other loan shall be permitted without the prior written
<PAGE> 4
consent of Bank. Notwithstanding such prohibition, if there is a prepayment of
any such loan, whether by consent of Bank, or because of acceleration or
otherwise, Borrower shall, within 15 days of any request by Bank, pay to Bank
any loss or expense which Bank may incur or sustain as a result of such
prepayment. For the purposes of calculating the amounts owed only, it shall be
assumed that Bank actually funded or committed to fund the loan through the
purchase of an underlying deposit in an amount and for a term comparable to the
loan, and such determination by Bank shall be conclusive, absent a manifest
error in computation.
11. DELINQUENCY CHARGE. To the extent permitted by law, a delinquency charge
may be imposed in an amount not to exceed four percent (4%) of any payment
that is more than fifteen days late.
12. EVENTS OF DEFAULT. The following are events of default hereunder: (a)
the failure to pay or perform obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note or any Loan Documents, as and when due (whether upon
demand, at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of Obligor to any other party(1);
(c) the death of any Obligor (if an individual); (d) the resignation or
withdrawal of any material owner/officer of Borrower, as determined by Bank in
its sole discretion; (e) the commencement of a proceeding against Obligor for
dissolution or liquidation, the voluntary or involuntary termination or
dissolution of Obligor or the merger or consolidation of Obligor with or into
another entity; (f) the insolvency of, the business failure of, the appointment
of a custodian, trustee, liquidator or receiver for or for any of the property
of, the assignment for the benefit of creditors by, or the filing of a petition
under bankruptcy, insolvency or debtor's relief law or the filing of a petition
for any adjustment of indebtedness, composition or extension by or against
Obligor; (g) the determination by Bank that any representation or warranty made
to Bank by Obligor in any Loan Documents or otherwise is or was, when it was
made, untrue or materially misleading; (h) the failure of Obligor to timely
deliver such financial statements, including tax returns, other statements of
condition or other information, as Bank shall request from time to time; (i)
the entry of a judgment against Obligor which Bank deems to be of a material
nature, in Bank's sole discretion; (j) the seizure or forfeiture of, or the
issuance of any writ of possession, garnishment or attachment, or any turnover
order for any property of Obligor; (k) the determination by Bank that it is
insecure for any reason; (l) the determination by Bank that a material adverse
change has occurred in the financial condition of Obligor; (m) the failure of
the Borrower's business to comply with any law or regulation controlling its
operation; (n) a default under the Securities Purchase Agreement between
Borrower and HSC dated January 8, 1986; or (o) a default under a Debt
Subordination Agreement among Bank, Borrower and HSC dated December __, 1996
13. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a)
the entire balance outstanding hereunder and all other obligations of Obligor
to Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law, or if
none, 25% per annum (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time for any payment hereunder or to
constitute a "grace period" giving Obligor a right to cure any default. At
Bank's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of this Note or any installment thereof, be deemed to be a part of the
principal balance, and interest shall accrue on a daily compounded basis after
such date at the Default Rate provided in this Note until the entire
outstanding balance of principal and interest is paid in full. Upon a default
under this Note, Bank is hereby authorized at any time, at its option and
without notice or demand, to set off and charge against any deposit accounts
of Obligor (as well as any money, instruments, securities, documents, chattel
paper, credits, claims, demands, income and any other property, rights and
interests of Obligor), which at any time shall come into the possession or
custody or under the control of Bank or any of its agents, affiliates or
correspondents, any and all obligations due hereunder. Additionally, Bank
shall have all rights and remedies available under each of the Loan Documents,
as well as all rights and remedies available at law or in equity.
14. NON-WAIVER. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a waiver thereof,
nor shall it be a bar to the exercise of any of its options or rights at a
later date. All rights and remedies of Bank shall be cumulative and may be
pursued singly, successively or together, at the option of Bank. The
acceptance by Bank of any partial payment shall not constitute a waiver of any
default or of any of Bank's rights under this Note. No waiver of any of its
rights hereunder, and no modification or amendment of this Note, shall be
deemed to be made by Bank unless the same shall be in writing, duly signed on
behalf of Bank; each such waiver shall apply only with respect to the specific
instance involved, and shall in no way impair the rights of Bank or the
obligations of Obligor to Bank in any other respect at any other time.
15. APPLICABLE LAW, VENUE AND JURISDICTION. This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of Georgia. In any litigation in
connection with or to enforce this Note or any indorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of Georgia or the
United States located within the State of Georgia and expressly waive any
objections as to venue in any such courts. Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law.
16. PARTIAL INVALIDITY. The enforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other
provision herein and the invalidity or unenforceability of any provision of
this Note or of the Loan Documents to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
17. BINDING EFFECT. This Note shall be binding upon and inure to the benefit
of Borrower, Obligors and Bank and their respective successors, assigns, heirs
and personal representatives, provided, however, that no obligations of
Borrower or Obligors hereunder can be assigned without prior written consent of
Bank.
------------------
(1) Including Healthplan Services Corporation ("HSC")
<PAGE> 5
18. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is
in any way incompatible with any other document related specifically to the
loan evidenced by this Note, this Note shall control over any other such
document, and if this Note does not address an issue, then each other such
document shall control to the extent that it deals most specifically with an
issue.
19. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
ANY PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY
CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION,
THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS
WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE
UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,
DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF
ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS
OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER
ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE AND HEREBY EXECUTES THIS NOTE UNDER SEAL AS OF THE
DATE HERE ABOVE WRITTEN.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER:
MEDIRISK, INC.
BY: /s/ Kenneth M. Goins, Jr.
-------------------------------------
Title: Executive Vice President
----------------------------------
(Corporate Seal)
<PAGE> 1
EXHIBIT 11.1
MEDIRISK, INC. AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF PRO FORMA NET LOSS PER SHARE
OF COMMON STOCK (UNAUDITED)
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1995 September 30, 1996
----------------- ------------------
<S> <C> <C>
Net loss attributable to common stock $ (431,841) $(7,101,731)
---------- -----------
Primary and fully diluted shares:
Weighted average number of common
shares outstanding 721,186 700,199
Mandatory conversion of Series A and
Series B convertible preferred stock 1,021,809 1,021,809
"Cheap Stock" issued during the previous
12 months as defined in SEC SAB No. 83 468,732 468,495
---------- -----------
2,211,727 2,190,503
---------- -----------
Pro forma net loss per share of $ (.20) $ (3.24)
common stock ========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries of the Registrant
Formations In Health Care, Inc.
PracticeMatch, Inc.
<PAGE> 1
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Medirisk, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
December 20, 1996
<PAGE> 1
EXHIBIT 23.3
ACCOUNTANTS' CONSENT
The Board of Directors
Formations in Health Care, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
December 20, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement on Form S-1 of our
report dated August 5, 1996, on our audits of the financial statements and
financial statement schedules of PracticeMatch, Inc. We also consent to the
reference to our firm under the caption "Experts."
/s/ Brown Smith Wallace, L.L.C.
---------------------------------
Brown Smith Wallace, L.L.C.
St. Louis, Missouri
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF MEDIRISK, INC. AND NOTES THERETO INCLUDED
IN THE FORM S-1 TO WHICH THIS FINANCIAL DATA SCHEDULE IS ATTACHED AS AN EXHIBIT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 288,838 532,484
<SECURITIES> 0 0
<RECEIVABLES> 538,769 1,194,046
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 922,783 2,647,763
<PP&E> 842,311 1,560,210
<DEPRECIATION> 510,605 778,414
<TOTAL-ASSETS> 1,263,290 7,868,351
<CURRENT-LIABILITIES> 725,797 4,847,649
<BONDS> 151,302 7,197,744
2,302,471 0
0 1,573
<COMMON> 656 700
<OTHER-SE> (2,333,338) (4,746,923)
<TOTAL-LIABILITY-AND-EQUITY> 1,263,290 7,868,351
<SALES> 0 0
<TOTAL-REVENUES> 3,654,692 6,253,646
<CGS> 0 0
<TOTAL-COSTS> 3,726,912 6,501,901
<OTHER-EXPENSES> 0 6,180,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 65,433 482,270
<INCOME-PRETAX> (137,653) (6,950,525)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (137,653) (6,950,525)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (137,653) (6,950,525)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
