<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1996
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock...................... 3,450,000 $13.00 $44,850,000 $15,466.00
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</TABLE>
(1) Includes 450,000 shares subject to an over-allotment option granted to the
Underwriters by the Company.
(2) Estimated solely for the purpose of computing the amount of the registration
fee.
---------------------
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 SEPTEMBER 19, 1996
PROSPECTUS
3,000,000 SHARES
(LOGO) MEDIRISK
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby are being sold by
Medirisk, Inc. ("Medirisk" or the "Company").
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for
information relating to the factors considered in determining the initial public
offering price. Application has been made to have the Common Stock approved for
quotation on the Nasdaq Stock Market's National Market under the symbol "MDMD."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------
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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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock on the same terms as set
forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC.
DEAN WITTER REYNOLDS INC.
JEFFERIES & COMPANY, INC.
EQUITABLE SECURITIES CORPORATION
, 1996
<PAGE> 3
[GRAPHICS]
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 THAT 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. The Company'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.
Medirisk's strategy to attain this objective includes the following key
elements: (i) leveraging the Company's existing customer base to cross sell
additional products; (ii) continuing to emphasize recurring revenue; (iii)
developing new products; and (iv) acquiring and integrating 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
THE OFFERING
Common Stock being offered.............. 3,000,000 shares(1)
Common Stock to be outstanding after the
offering................................ 5,218,251 shares(1)(2)
Use of proceeds......................... To repay indebtedness, to pay
accrued dividends on the Company's
Series A Convertible Preferred
Stock, and for working capital and
general corporate purposes,
including potential acquisitions
Proposed Nasdaq National Market
symbol.................................. "MDMD"
- ---------------
(1) Does not include 450,000 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 September
16, 1996. Includes 1,316,271 shares of Common Stock issuable upon the
automatic conversion upon completion of this offering of the Company's
Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock (collectively, the "Convertible Preferred Stock"). Excludes 1,117,784
shares of Common Stock issuable upon the exercise of options and warrants
outstanding as of September 16, 1996 with a weighted average exercise price
of $0.45 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 450,000
additional shares of Common Stock to cover over-allotments, if any,(ii) gives
effect to the automatic conversion upon completion of this offering of the
Convertible Preferred Stock into 1,316,271 shares of Common Stock, and(iii)
reflects a 0.8368-for-one reverse stock split with respect to the Common Stock
to be effected prior to the completion of this 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.; Quatro(R) is a
registered trademark of Quatro 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 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 $1,156 $ 3,874 $4,678
Salaries, wages and benefits........ 1,675 1,893 2,578 4,943 1,185 2,758 3,166
Other operating expenses............ 507 731 956 3,165 496 1,006 1,280
Depreciation and amortization....... 75 143 193 712 89 310 395
Acquired in-process research and
development costs(2).............. -- -- -- -- -- 6,180 --
------ ------ ------ ------ ------ ------- ------
Operating income (loss)............. 190 127 (72) 364 (614) (6,380) (163)
Interest income (expense), net...... (41) (54) (66) (898) (27) (266) (433)
Other income (expense).............. 18 -- -- -- -- (37) (37)
------ ------ ------ ------ ------ ------- ------
Net income (loss)................... $ 167 $ 73 (138) (534) (641) (6,683) (633)
====== ======
Accretion of Series A Convertible
Preferred Stock................... (92) (92) (46) -- --
Series A Convertible Preferred Stock
dividend requirement.............. (202) (202) (101) (101) (101)
------ ------ ------ ------- ------
Net loss applicable to common
stock............................. $ (432) $ (828) $ (788) $(6,784) $ (734)
====== ====== ====== ======= ======
Unaudited pro forma loss per common
share(3).......................... $(0.15) $(0.29) $ (2.38) $(0.26)
====== ====== ======= ======
Unaudited pro forma weighted average
number of common shares used in
calculating unaudited net loss per
share of Common Stock(3).......... 2,849 2,849 2,856 2,856
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
AS
ACTUAL ADJUSTED(4)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................ $(1,314) $23,246
Total assets............................................................. 7,795 31,409
Long-term debt and capital lease obligations, excluding current
installments........................................................... 7,969 316
Stockholders' equity (deficit)........................................... (4,428) 27,679
</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
"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 six months ended June 30, 1996 would
have been $(200,000), $(503,000), and $(0.21) 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 this 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 six months ended June 30, 1996 and had an accumulated deficit at June 30,
1996 of $9.2 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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. Upon
completion of this offering, the Company will have no committed sources of
capital. There can be no assurance 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."
INTEGRATION OF OPERATIONS
In the first quarter of 1996, the Company completed the acquisition of
Formations in Health Care, Inc. ("Formations"), which develops and markets
outcomes measurement databases and software applications, and PracticeMatch,
Inc. ("PracticeMatch"), which develops and markets a database of physician
information. The operations of these companies are currently being integrated
into the operations of the Company. The process of integrating management
services, administrative organizations, facilities, management infor-
6
<PAGE> 8
mation 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. While the Company has developed and implemented a data contribution
program to receive data from its customers and has acquired other data
(including physician information) under various licenses, 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 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. Although compliance with these requirements would fall on the entities
that supply data to the Company, 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
7
<PAGE> 9
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 although
the Company is unable to determine the extent to which piracy of its products
exists, piracy is a 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.
RAPID TECHNOLOGICAL CHANGE; ABILITY TO DEVELOP NEW PRODUCTS
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.
8
<PAGE> 10
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 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."
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 six months ended June 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. Although the Company believes it takes adequate precautions to
safeguard the validity of the information entered into its databases, 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 this offering, the Company's executive officers and
directors, together with their respective affiliates, will own approximately
22.7% of the outstanding Common Stock (21.1% if the Underwriters' over-allotment
option is exercised in full). See "Management" and "Principal Stockholders."
Although there are, to the Company's knowledge, no arrangements among such
stockholders, directors and executive officers with respect to the voting of the
shares of Common Stock they beneficially own, 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
9
<PAGE> 11
adverse effect on the Company. While the Company has contracts with Mr. Kaiser
and certain other members of its management team, these contracts do not
guarantee that these individuals will continue their employment with the
Company. The Company maintains "key man" life insurance of $4.0 million on the
life of Mr. Kaiser of which $2.0 million is currently payable to HealthPlan
Services Corporation in connection with certain senior subordinated notes of the
Company held by HealthPlan Services Corporation, which senior subordinated notes
will be repaid with a portion of the proceeds of this offering. 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 this offering, there has been no public market for the Common
Stock. Although the Company has applied to have the Common Stock approved for
quotation on the Nasdaq Stock Market's National Market, there can be no
assurance that an active trading market will develop or be sustained after this
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 this 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.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect prevailing market prices for the Common
Stock. Upon completion of this offering, there will be 5,218,251 shares of
Common Stock outstanding (based on the number of shares of Common Stock
outstanding as of September 16, 1996). The 3,000,000 shares (or 3,450,000
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 2,218,251 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
10
<PAGE> 12
registration requirements of the Securities Act, including the exemption made
available by Rule 144. Of these restricted securities, approximately 903,675
shares (of which are subject to the lock-up agreements described
below) will be eligible for sale in the public market pursuant to Rule 144
ninety days after this offering, subject to the manner of sale, volume and other
restrictions of Rule 144, and 375,487 shares (all of which are subject to the
lock-up agreements described below) will be eligible for sale in the public
market immediately after this 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 shares ( %) of the Common Stock outstanding prior to this
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 Smith Barney
Inc., 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 Smith Barney Inc. may be provided without notice
to purchasers of Common Stock or to officials of the Nasdaq Stock Market's
National Market. See "Management -- Employee Compensation Plans and
Arrangements" and "Shares Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER CONSIDERATIONS
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."
DILUTION; NO DIVIDENDS
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 this offering will incur immediate dilution of $7.42
per share (based upon an assumed public offering price of $12.00 per share). See
"Dilution." 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."
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. 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.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to be received by Medirisk from this offering, after
deducting estimated underwriting discounts and offering expenses payable by the
Company, are estimated to be approximately $32.7 million ($37.8 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"); and (iii) $593,000 to pay accrued and
unpaid dividends on the Company's Series A Preferred Stock. The Company intends
to use the balance of the net proceeds for working capital and general corporate
purposes, including the development of additional products and services and
possible future acquisitions of health care information businesses. 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
384,069 shares of Common Stock at an exercise price of $0.01 per share and
recorded the estimated fair value of these warrants, $327,111, 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 $594,000 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
this 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.
For further discussion of the Acquisition Notes, the Senior Subordinated
Notes 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.
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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
12
<PAGE> 14
CAPITALIZATION
The following table sets forth at June 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
1,316,271 shares of Common Stock upon completion of this 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 thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Short-term debt(1)...................................... $ 910,142 $ 910,142 $ 587,342
=========== =========== ===========
Long-term debt and capital lease obligations, excluding
current portions(1)................................... $ 7,968,991 $ 7,968,991 $ 315,791
Dividends payable....................................... 517,206 517,206 --
----------- ----------- -----------
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; 983,149 shares issued and 899,470
shares outstanding, actual; 2,215,741 shares issued
and outstanding, pro forma; and 5,215,741 shares
issued and outstanding, pro forma as adjusted(3)... 983 2,216 5,216
Additional paid-in capital............................ 4,829,140 4,819,680 37,546,680
Accumulated deficit................................... (9,249,608) (9,249,608) (9,872,540)
Treasury stock(4)..................................... (9,800) -- --
----------- ----------- -----------
Total stockholders' equity (deficit).......... (4,427,712) (4,427,712) 27,679,356
----------- ----------- -----------
Total capitalization.......................... $ 4,058,485 $ 4,058,485 $27,995,147
=========== =========== ===========
</TABLE>
- ---------------
(1) Short-term debt consists of 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 482,675 shares of Common Stock issuable upon exercise of
outstanding options with a weighted average exercise price of $0.41 per
share and 635,109 shares of Common Stock issuable upon exercise of
outstanding warrants with a weighted average exercise price of $0.48 per
share.
(4) In connection with the reincorporation of the Company in September 1996, all
treasury stock was cancelled.
13
<PAGE> 15
DILUTION
The pro forma net tangible book value (deficit) of the Company at June 30,
1996 was $(8,863,288), or $(4.00) 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 1,316,271 shares of
Common Stock. Without taking into account any changes in the pro forma net
tangible book value of the Company after June 30, 1996, other than to give
effect to the sale of the shares of Common Stock offered hereby (assuming 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 June
30, 1996 would have been $23,866,712, or $4.58 per share. This represents an
immediate dilution in net tangible book value of $7.42 per share to new
investors purchasing shares in this offering and an immediate increase in net
tangible book value of $8.58 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 June 30,
1996............................................................ $(4.00)
Increase per share attributable to new investors................... 8.58
------
Pro forma net tangible book value per share after the offering....... 4.58
------
Dilution per share to new investors.................................. $ 7.42
======
</TABLE>
The following table sets forth as of June 30, 1996 (giving pro forma effect
to the conversion of all outstanding shares of Convertible Preferred Stock into
1,316,271 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............... 2,215,741 42.5% $ 5,567,885 13.4% $ 2.51
New investors....................... 3,000,000 57.5 36,000,000 86.6 $ 12.00
------- --- ------- ---
Total..................... 5,215,741 100.0% $41,567,885 100.0%
======= === ======= ===
</TABLE>
The foregoing tables assume no exercise of outstanding options or warrants.
At June 30, 1996, there were outstanding options to purchase 482,675 shares of
Common Stock at a weighted average exercise price of $0.41 per share and
warrants to purchase 635,109 shares of Common Stock at a weighted average
exercise price of $0.48 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.
14
<PAGE> 16
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 and as of and for the
six months ended June 30, 1996 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 six months ended June 30, 1995 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 six months ended June 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 thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 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 $1,156 $ 3,874
Salaries, wages and benefits.................... 834 1,368 1,675 1,893 2,578 1,185 2,758
Other operating expenses........................ 520 578 507 731 956 496 1,006
Depreciation and amortization................... 31 48 75 143 193 89 310
Acquired in-process research and development
costs(1)...................................... -- -- -- -- -- -- 6,180
------ ------ ------ ------ ------ ------ -------
Operating income (loss)......................... (329) (536) 190 127 (72) (614) (6,380)
Interest income (expense), net.................. (26) (18) (41) (54) (66) (27) (266)
Other income (expense).......................... -- -- 18 -- -- -- (37)
Income taxes.................................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ -------
Net income (loss)............................... $ (355) $ (554) $ 167 $ 73 (138) (641) (6,683)
====== ====== ====== ======
Accretion of Series A Convertible Preferred
Stock......................................... (92) (46) --
Series A Convertible Preferred Stock dividend
requirement................................... (202) (101) (101)
------ ------ -------
Net loss applicable to common stock............. $ (432) $ (788) $(6,784)
====== ====== =======
Unaudited pro forma loss per common share(2).... $(0.15) $ (2.38)
====== =======
Unaudited pro forma weighted average number of
common shares used in calculating unaudited
pro forma net loss per share of common
stock(2)...................................... 2,849 2,856
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
-------------------------------------------- 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 $(1,314)
Total assets......................................... 592 516 1,035 1,111 1,263 7,795
Long-term debt and capital lease obligations
excluding current installments..................... 51 61 127 172 151 7,969
Redeemable preferred stock........................... -- 1,824 1,838 2,210 2,302 --
Stockholders' equity (deficit)....................... 319 (1,809) (1,714) (1,928) (2,333) (4,428)
</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 six months ended June 30, 1996 would
have been $(200,000), $(503,000), and $(0.21), 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 this offering.
15
<PAGE> 17
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data set forth below for the six-month
period ended June 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 six months ended June 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 thereto 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.
SIX MONTHS ENDED JUNE 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..................................................... $ 3,874 $ 804 $ -- $ 4,678
Salaries, wages and benefits................................ 2,758 408 -- 3,166
Other operating expenses.................................... 1,006 274 -- 1,280
Depreciation and amortization............................... 310 37 48(1) 395
Acquired in-process research and development costs(2)....... 6,180 -- (6,180)(2) 0
------- --- ----- -------
Operating income (loss)..................................... (6,380) 85 6,132 (163)
Interest income (expense), net.............................. (266) (7) (160)(3) (433)
Other income (expense)...................................... (37) -- -- (37)
Income taxes................................................ -- -- -- --
------- --- ----- -------
Net income(loss)............................................ (6,683) 78 5,972 (633)
Series A Convertible Preferred Stock dividend requirement... (101) -- -- (101)
------- --- ----- -------
Net income (loss) applicable to Common Stock................ $ (6,784) $ 78 $ 5,972 $ (734)
======= === ===== =======
Net loss per common share(4)................................ $ (2.38) $ (0.26)
======= =======
Weighted average number of common shares used in calculating
net loss per share of Common Stock(4)..................... 2,856 2,856
</TABLE>
See accompanying Notes to Unaudited Pro Forma Financial Data.
16
<PAGE> 18
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)........................ $(0.15) $ (0.29)
====== ====
Weighted average number of common shares used in
calculating net loss per share of Common
Stock(4).......................................... 2,849 2,849
</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>
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
Company recorded amortization expense for the six months ended June 30, 1996
relative to intangible assets of $119,000. 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 $162,000 for 1995 and
the six months ended June 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 weighted average cost
of capital of 17% for Formations and 18% 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. 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.
The Company's revenue is comprised 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
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 85% for
the six months ended June 30, 1996.
18
<PAGE> 20
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 June 30, 1996.
As a result of the application of a portion of the net proceeds of this
offering to repay indebtedness, the Company will incur a one-time, noncash
charge of $594,000 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 this 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>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 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 71 102 71
Other operating expenses.......................... 21 25 26 43 26
Depreciation and amortization..................... 3 5 5 8 8
Acquired in-process research and development
costs........................................... -- -- -- -- 160
--- --- --- --- ----
Operating income (loss)........................... 8 5 (2) (53) (165)
Interest income (expense), net.................... (2) (2) (2) (2) (7)
Other income (expense)............................ 1 -- -- -- (1)
Income taxes...................................... -- -- -- -- --
--- --- --- --- ----
Net income (loss)................................. 7% 3% (4)% (55)% (173)%
=== === === === ====
</TABLE>
Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995
Revenue for the first six months of 1996 was $3.9 million, an increase of
$2.7 million or 235% over the first six 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 entities represented approximately $2.1 million, or 77% of the total
increase. The Company's revenue without the impact of the revenue from the
acquired entities increased 54% in the first six 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 licenses 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.
Salary, wage and benefit expenses for the first six months of 1996 were
$2.8 million, an increase of $1.6 million or 133% over the first six months of
1995. This increase was primarily a result of the acquisitions of Formations and
PracticeMatch and, to a lesser extent, expenses incurred to support the growth
of financial products revenue. Salary, wage and benefit expenses decreased as a
percentage of revenue during the six months ended June 30, 1996 to 71% as
compared to 102% for the same period in 1995. This decrease resulted primarily
from leveraging the Company's investments in its administrative, sales and
marketing infrastructure as revenue increased through both acquisitions and
internal growth. Margins were also favorably impacted by the less seasonal
nature of the revenue of PracticeMatch and Formations. Financial product revenue
has been typically higher in the third and fourth quarters; consequently,
salary, wage and benefits expenses historically have been higher as a percentage
of revenue during the first and second quarters. Quarterly revenue for the
19
<PAGE> 21
acquired entities 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 for the first six months of 1996 were $1.0
million, an increase of $511,000 or 103% over the first six months of 1995,
principally as a result of the acquisition of Formations and PracticeMatch.
Other operating expenses decreased to 26% of revenue in the first six months of
1996 as compared to 43% for the same period in 1995. This decrease was
principally the result of the changes in seasonality in revenue described above.
Depreciation and amortization for the first six months of 1996 was
$310,000, an increase of $221,000 or 247% over the first six months of 1995.
This increase resulted from the two 1996 acquisitions. As a percentage of
revenue, depreciation and amortization for each of the six-month periods ended
June 30, 1996 and 1995 was approximately 8%. Increases in revenue between the
six-month periods covered the dollar growth in amortization expense for the six
months ended June 30, 1996.
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 160% of
revenue, in the six months ended June 30, 1996.
Net interest expense for the first six months of 1996 was $266,000, an
increase of $239,000 or 873% over the first six 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.
As a result of the factors described above, the Company recorded a net loss
of $6.7 million in the six months ended June 30, 1996 compared to a net loss of
$641,000 for the same period in 1995.
1995 Compared to 1994
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.
Salary, wage and benefit expenses in 1995 were $2.6 million, an increase of
$685,000 or 36% over 1994. Salary, wage and benefit expenses 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 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 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.
As a result of the factors described above, the Company recorded a net loss
of $138,000 in 1995 compared to net income of $73,000 in 1994.
1994 Compared to 1993
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.
20
<PAGE> 22
Salary, wage and benefit expenses 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 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 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.
As a result of the factors described above, the Company recorded net income
of $73,000 in 1994 compared to net income of $167,000 in 1993.
INCOME TAXES
The Company has not recorded any income tax expense or benefit during 1993,
1994, 1995 or the first six months of 1995 or 1996 due to operating losses or
the utilization of net operating loss carryforwards to offset taxable income. At
June 30, 1996, the Company had net operating loss carryforwards of approximately
$1.1 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 $2.9 million as of June 30, 1996 and has been
reduced to zero by a valuation allowance. Approximately $2.4 million of the
valuation allowance relates to the tax benefit resulting from acquired
in-process research and development costs, which will be credited to goodwill to
the extent that the tax benefits are subsequently recognized.
The amount of the 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, this 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 the 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 556,623 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 384,069 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. Upon completion of this 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
six months ended June 30, 1995 and 1996, cash flow used in operations totaled
$266,000 and $159,000, respectively. These amounts primarily represent
21
<PAGE> 23
net income (loss) adjusted for the noncash charges of depreciation and
amortization, partially offset by changes in working capital, especially
accounts receivable.
Net cash used in investing activities during the foregoing periods
consisted predominantly of $6.9 million used in the six months ended June 30,
1996 to fund the acquisition of Formations and PracticeMatch.
Net cash provided by (used in) financing activities during the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and
1996, was $212,000, ($192,000), ($140,000), ($70,000) and $8.2 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 six months ended June 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 six months ended June 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 six month
period ended June 30, 1995 and 1996, the Company acquired fixed assets of
$192,000 and $222,000, respectively. These assets were almost completely
financed through capital leases. Outstanding obligations under capital leases
for the same periods were $163,000, $290,000 and $323,000, $407,000 and
$404,000, respectively.
After completion of this offering, the Company intends to negotiate with
one or more lending institutions to obtain a credit facility. The Company has
begun discussions with several institutions regarding such financing. No
assurance can be given that such a facility will be available to the Company on
acceptable terms or that the terms of such facility will not place significant
restrictions on the Company's operations and use of funds.
After the application of the net proceeds from this offering, the Company
believes that the remaining proceeds and cash generated from operations will be
sufficient to meet the capital expenditure and working capital needs for the
Company's operations for the near future. See "Use of Proceeds." The Company's
future liquidity and cash requirements will depend on a wide range of factors,
including 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
this offering 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.
22
<PAGE> 24
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial data
for 1994, 1995 and the first two 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>
1996 CALENDAR
1994 CALENDAR QUARTER ENDED 1995 CALENDAR QUARTER ENDED QUARTER ENDED
STATEMENTS OF ------------------------------------------ ------------------------------------------ -------------------
OPERATIONS: MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- ------------------ -------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........... $487 $780 $ 794 $833 $ 470 $ 686 $ 1,294 $ 1,205 $ 1,577 $2,297
Salaries, wages
and
benefits........ 417 473 485 518 563 622 701 692 1,121 1,637
Other operating
expenses........ 124 211 180 216 226 270 204 256 356 650
Depreciation and
amortization.... 22 38 42 41 42 47 54 50 93 217
Acquired
in-process
research and
development
costs........... -- -- -- -- -- -- -- -- 6,180 --
---- ---- ---- ---- ----- ----- ------ ------ ------- ------
Operating income
(loss)........ (76) 58 87 58 (361) (253) 335 207 (6,173) (207)
Interest income
(expense),
net............. (8) (23) (17) (6) (14) (13) (17) (22) (52) (214)
Other income
(expense)....... -- -- -- -- -- -- -- -- -- (37)
Income taxes...... -- -- -- -- -- -- -- -- -- --
---- ---- ---- ---- ----- ----- ------ ------ ------- ------
Net income
(loss)........ $(84) $ 35 $ 70 $ 52 $ (375) $ (266) $ 318 $ 185 $ (6,225) $ (458)
==== ==== ==== ==== ===== ===== ====== ====== ======= ======
</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 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 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.
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.
23
<PAGE> 25
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
24
<PAGE> 26
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.
Medirisk's strategy to attain this objective includes the following key
elements:
Leveraging 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.
Continuing to 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 the ongoing need
for current information resulting from the continuing evolution of the
health care industry.
Developing 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.
Acquiring 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.
25
<PAGE> 27
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, Quatro 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> 28
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 Medicap 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
Mediguard(SM)
Customer Managed Care Measure Efficiency and Identify Physicians
Applications Contracting Effectiveness Reduce Recruiting Cost
Market-based Pricing Identify Under- Organize Recruiting
of Performing Facilities Process
Procedures Demonstrate Quality to
Quantify Capitation Managed Care
Risk
</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.
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<PAGE> 29
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 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.
Medicap. Medicap 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 Medicap, 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, Medicap 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. Medicap 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.
Mediguard (SM). The Company has designed and is testing Mediguard, a
toll-free telephone service designed to provide patients covered by medical
savings accounts ("MSA's"), indemnity plans or using out-of-plan providers
with information regarding appropriate physician fees to assist them in
managing the nonreimbursed portion of health care costs. Mediguard is
marketed to self-insured employers, third-party administrators and
insurance providers that are developing MSA products.
Clinical Performance Products
The Company offers clinical performance products that allow customers to
measure outcomes across a full range of care within a variety of medical
specialties. 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
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<PAGE> 30
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 analysis products are currently available to track outcomes in the
areas of 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 inhouse 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.
29
<PAGE> 31
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 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. 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 data 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.
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<PAGE> 32
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. The Company's customers include:
<TABLE>
<CAPTION>
TYPE REPRESENTATIVE CUSTOMERS
<S> <C> <C>
Managed Care Oxford Health Plans Healthsource
Plans (HMOs, The Prudential Health Care System Aetna
PPOs, etc.) Private Healthcare Systems (PHCS)
Indemnity Aetna Life Insurance Company Bankers Life & Casualty
Insurers 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 Allina Health System Duke Health Network
Delivery Quorum Health Resources OrNda Health Corporation
Systems/ University of Texas Medical Center Adventist Health System
Hospitals Piedmont Healthcare Organization/Promina
Physician Medaphis PhyCor
Practices/ Yale/New Haven Hospital Physician Corporation Johns Hopkins University School
Management Massachusetts General Physicians' Organization of Medicine
Companies Vanderbilt University School of Medicine
Workers Beech Street Crawford & Company
Compensation Corporate Systems State of Ohio
Payers State of Rhode Island Commonwealth of Kentucky
State of Wisconsin District of Columbia
The Workers' Compensation Research Institute
Consulting Andersen Consulting Coopers & Lybrand LLP
Firms Deloitte & Touche LLP Ernst & Young LLP
KPMG Peat Marwick LLP Price Waterhouse LLP
Hewitt, Coleman & Associates A. Foster Higgins
The Wyatt Company
Specialty HEALTHSOUTH Corporation Medbridge/Manor Health Care
Health Care Rehabilitation Management, Inc. NovaCare, Inc.
Providers IntegraCare, Inc. Mariner Health
</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 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 generating recurring revenues from multi-year contracts and from
renewing annually renewable contracts, and the Company offers price concessions
for multi-year contracts.
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<PAGE> 33
SALES AND MARKETING
As of August 31, 1996, Medirisk's sales and marketing department included
31 full-time employees, including 15 account executives, two sales managers 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, Equifax, Inc., 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 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
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<PAGE> 34
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 August 31, 1996, the Company had 109 full-time employees. Of these, 13
were corporate personnel, 31 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> 35
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Mark A. Kaiser(1).............................. 38 Chairman of the Board, Chief Executive
Officer and President
Susan P. Brandt................................ 48 Vice President, Operations
Kenneth M. Goins, Jr........................... 37 Vice President, Finance and Administration,
and Chief Financial Officer
Pamella L. Leiter.............................. 42 Vice President, Product Development
John P. Sauer.................................. 44 Vice President, Sales and Marketing
Michael J. Finn(2)............................. 47 Director
James K. Murray, III(1)(2)..................... 34 Director
Robert P. Pinkas(1)(2)......................... 42 Director
</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 has served as Chairman of the Board, Chief Executive Officer
and President of the Company and 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.
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 had been with PracticeMatch since 1990 and 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.
Kenneth M. Goins, Jr., has served as Vice President, Finance and
Administration and Chief Financial Officer of the Company since joining Medirisk
in April 1996. Prior to joining the Company, Mr. Goins was Vice 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 FDC, Mr. Goins served at various times as the
Executive Vice President, Chief Financial Officer and Controller of MicroBilt
Corporation ("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.
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<PAGE> 36
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.
John P. Sauer has served as Vice President, Sales and Marketing with
responsibility over the sales division since June 1995. Prior to joining
Medirisk in June of 1995, Mr. Sauer served from 1993 to 1995 as a Sales
Executive in the managed care group of Atlanta-based HBO & Company, the
country's largest health care information systems vendor. Before joining HBO &
Company, Mr. Sauer served as Area Vice President and Vice President of Sales at
Healthdyne, Inc., a national home health care company. Mr. Sauer holds a
Bachelor of Arts degree in English from Bucknell University and served as a
First Lieutenant in the U.S. Marine Corps.
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 Government and a
Master of Science degree in History from Harvard University and a Juris Doctor
degree from the University of Pennsylvania.
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
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<PAGE> 37
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............. 111,964 35,313 $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
($0.50 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.
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 41,840 shares of Common Stock at
$0.50 per share. The agreement provides that the Company shall grant Mr. Kaiser
additional options to purchase 41,840 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 the benefit of
its executive officers. Ms. Leiter's employment agreement contains (i) a
confidentiality
36
<PAGE> 38
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 41,840 shares of Common Stock of the Company at $0.50 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 150,624 shares of Common Stock at a price equal
to $0.50 per share. In connection with such loan, Mr. Kaiser executed a
promissory note bearing 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 bearing 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."
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<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of August 31, 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............................ 673,388(2) 28.7% 12.6%
20600 Chagrin Boulevard
Suite 1150 Tower East
Cleveland, Ohio 44122
Sears Pension Trust.......................................... 673,388(2) 28.7 12.6
c/o Chase Manhattan Bank, N.A., Trustee
4 Chase MetroTech Center, 18th Floor
Brooklyn, New York 11245
HealthPlan Services Corporation.............................. 618,895(3) 23.8 11.0
3501 Frontage Road
Tampa, Florida 33607
Mark A. Kaiser............................................... 367,355(4) 15.6 6.8
Susan P. Brandt.............................................. 4,881 * *
Kenneth M. Goins, Jr. ....................................... 41,840 1.9 *
Pamella L. Leiter............................................ 142,333(5) 6.4 2.7
John P. Sauer................................................ 17,433(6) * *
Michael J. Finn.............................................. 673,388(7) 28.7 12.6
James K. Murray, III......................................... 618,895(8) 23.8 11.0
Robert P. Pinkas............................................. 673,388(7) 28.7 12.6
Laurence H. Powell........................................... 404,948 17.7 7.7
P.O. Box 501085
Atlanta, Georgia 31150
All directors and executive officers as a group (8 1,874,493 64.5 31.7
members)...................................................
</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 125,520 shares of Common Stock.
(3) Includes warrants to purchase 384,069 shares of Common Stock.
(4) Includes options to purchase 141,419 shares of Common Stock.
(5) Includes options to purchase 9,322 shares of Common Stock.
(6) Includes options to purchase 12,552 shares of Common Stock.
(7) 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.
(8) 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.
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<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon completion of this 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 August 31, 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 899,470 shares outstanding.
Upon completion of this offering, all of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock will be converted into an equal
number of 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 this offering. This summary 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
39
<PAGE> 41
a change of control of the Company. There will be no shares of Preferred Stock
outstanding upon completion of this 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 -- Certain Anti-takeover Considerations" 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 251,040 shares of Common Stock (the "1993 Warrants"). The per share
exercise price of the 1993 Warrants is equal to $1.20, subject to various
anti-dilution adjustments. The 1993 Warrants are currently exercisable. The
Company has, as described below, granted the lenders 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.
40
<PAGE> 42
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 (the "Securities Purchase Agreement").
As part of such transaction, the Company agreed to issue to HPSC warrants to
purchase up to 556,623 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 $0.01, 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 384,069 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 1,500,683 shares of
Common Stock upon completion of this 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 a Registration Agreement dated April 15, 1991
(the "Investor Agreement"), as amended by the Consent and Modification Agreement
dated January 8, 1996. 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 this 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 234,825 shares of Common Stock upon completion of this
offering and as holder of Common Stock issuable upon exercise of the HPSC
Warrants, or its transferees, are 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 this 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 133,011 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, are 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 have agreed to waive any right they may have to participate in
this offering and not to exercise such registration rights for a period of 180
days after the date of this Prospectus.
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<PAGE> 43
CONTRACTUAL RIGHTS OF CERTAIN STOCKHOLDERS
In addition to the agreements and rights described above, HPSC and the
Company are parties to a Warrant Agreement (the "Warrant Agreement") which
provides that, so long as HPSC owns any HPSC Warrants or Common Stock issued
upon exercise of the HPSC Warrants, the Company will: (i) maintain adequate
books and records and permit a representative of HPSC, at any reasonable time,
to inspect, copy, audit and examine such records; (ii) maintain its corporate
existence and comply with applicable law; (iii) not declare or pay a dividend or
make a distribution or redeem or retire any shares of capital stock, provided
that the Company may pay a dividend or make a distribution if such dividend or
distribution is paid to HPSC as if it had exercised all HPSC Warrants
immediately prior to such dividend or distribution; or (iv) not reorganize or
merge with, or transfer all or substantially all of its assets to, another
entity, other than in a transaction not involving a Change of Control (as
defined in the Warrant Agreement), unless the HPSC Warrants remain outstanding
after the transaction and the holder has the right to receive consideration
specified in the Warrant Agreement upon exercise of the HPSC Warrants.
In addition to the agreements and rights described above, Brantley, Sears,
Laurence Powell and the Company are parties to a Consent and Modification
Agreement dated January 8, 1996 (the "Consent Agreement") which provides that,
so long as Brantley, Sears, and Laurence Powell, or any of them, own any Common
Stock, the Company will (i) deliver to each of them certain audited and
unaudited financial statements and certain other reports regarding the
operations of the Company; (ii) maintain proper books of record and permit any
representative of any of them, on reasonable written notice and at a reasonable
time, to inspect the properties and inspect and copy the records of the Company;
(iii) subject to certain exceptions, not make any loans or guarantees, merge
with another entity, other than in transactions which do not individually or in
the aggregate involve a Change of Control (as defined in the Consent Agreement),
transfer 25% or more of its assets to another entity, liquidate, or enter into a
substantially different line of business; (iv) not amend its articles of
incorporation or bylaws or file resolutions of the Board that would impair the
rights of Brantley, Sears and Laurence Powell; (v) not issue, sell or transfer
shares of capital stock; and (vi) maintain its corporate existence and comply
with applicable law.
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 this 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 209,200 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 recission. 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.
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
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<PAGE> 44
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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 5,218,251 shares of
Common Stock outstanding (based on the number of shares of Common Stock
outstanding as of September 16, 1996). The 3,000,000 shares sold in this
offering (or 3,450,000 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 2,218,251 shares outstanding after this 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 2,218,251 Restricted Shares to be outstanding after this offering,
903,675 shares (of which are subject to the lock-up agreements
described below) will be eligible for sale in the public market, pursuant to
Rule 144, ninety days after this offering, subject to the manner of sale, volume
and other restrictions of Rule 144, and 375,487 shares (all of which are subject
to the lock-up agreements described below) will be eligible for sale in the
public market immediately after this 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 ( %) of the shares of Common Stock
outstanding immediately prior to this 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 Smith
Barney Inc. (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 52,183 shares
after giving effect to this 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.
43
<PAGE> 45
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 482,675 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 this 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.
44
<PAGE> 46
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
NAME SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc..................................................................
Dean Witter Reynolds Inc..........................................................
Jefferies & Company, Inc..........................................................
Equitable Securities Corporation..................................................
Total................................................................... 3,000,000
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Dean Witter Reynolds Inc.,
Jefferies & Company, Inc. and Equitable Securities Corporation 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 450,000
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 Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
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 Smith Barney
Inc., 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 this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock has
been determined by negotiations between the Company and the Representatives of
the Underwriters. The factors considered in determining the initial public
offering price were the history of, and the prospects for, the Company's
business and the industry in which it competes, an
45
<PAGE> 47
assessment of the Company's management, its past and present operations, it 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 this offering and the market
prices and earnings of similar securities of comparable companies at the time of
this offering.
During 1995 and early 1996, Equitable Securities Corporation, one of the
Underwriters of this 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 included herein
and elsewhere in the registration statement have been included herein and in the
registration statement 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 are not necessarily complete
and each such statement is qualified in its entirety by reference to the full
text of such document.
46
<PAGE> 48
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, and June 30, 1996.... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995, and the six-months ended June 30, 1995 (unaudited) and 1996........... F-4
Consolidated Statements of Stockholders' Equity (deficit) for the years ended
December 31, 1993, 1994 and 1995, and the six-month period ended June 30,
1996............................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995, and the six-months ended June 30, 1995 (unaudited) and 1996........... F-6
Notes to Consolidated Financial Statements......................................... F-7
Formations in Health Care, Inc.
Independent Auditors' Report....................................................... F-18
Balance Sheet as of December 31, 1995.............................................. F-19
Statement of Operations for the year ended December 31, 1995....................... F-20
Statement of Shareholder's Equity (Deficit) for the year ended December 31, 1995... F-21
Statement of Cash Flows for the year ended December 31, 1995....................... F-22
Notes to Financial Statements...................................................... F-23
PracticeMatch, Inc.
Independent Auditors' Report....................................................... F-26
Balance Sheets as of December 31, 1995, 1994 and 1993.............................. F-27
Statements of Operations for the years ended December 31, 1995, 1994 and 1993...... F-28
Statements of Stockholders' Equity (Deficiency) for the years ended December 31,
1995, 1994 and 1993............................................................. F-29
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993...... F-30
Notes to Financial Statements...................................................... F-31
</TABLE>
F-1
<PAGE> 49
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.
Atlanta, Georgia
August 23, 1996
F-2
<PAGE> 50
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 413,625 $ 288,838 $ 1,146,617
Accounts receivable................................................. 265,149 538,769 880,987
Prepaid expenses.................................................... 72,245 90,573 265,664
Note receivable from officer (note 10).............................. -- -- 22,500
Other current assets................................................ 12,678 4,603 106,913
----------- ----------- -----------
Total current assets.......................................... 763,697 922,783 2,422,681
----------- ----------- -----------
Property and equipment (note 3)....................................... 650,748 842,311 1,487,905
Less accumulated depreciation and amortization...................... 317,206 510,605 673,829
----------- ----------- -----------
Property and equipment, net....................................... 333,542 331,706 814,076
----------- ----------- -----------
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $81,931 at June 30, 1996 (note 2)....... -- -- 3,226,909
Intangible assets, less accumulated amortization of $37,417 at June
30, 1996 (note 2)................................................... -- -- 482,583
Software development costs, less accumulated amortization of $5,779 at
June 30, 1996....................................................... -- -- 103,152
Note receivable from officer, excluding current portion (note 10)..... -- -- 90,000
Other assets.......................................................... 13,715 8,801 655,656
----------- ----------- -----------
Total assets.................................................. $ 1,110,954 $ 1,263,290 $ 7,795,057
=========== =========== ===========
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
Accounts payable.................................................... 23,659 107,115 262,101
Accrued expenses.................................................... 92,773 170,925 139,478
Deferred revenue.................................................... 198,222 275,143 2,257,568
Other liabilities................................................... -- -- 167,283
----------- ----------- -----------
Total current liabilities..................................... 442,365 725,797 3,736,572
Long-term debt and obligations under capital leases, excluding current
installments, principally related party debt at June 30, 1996 (notes
4, 5 and 6)......................................................... 171,695 151,302 7,968,991
Dividends payable (notes 8(b) and 8(d))............................... 214,794 416,402 517,206
----------- ----------- -----------
Total liabilities............................................. 828,854 1,293,501 12,222,769
----------- ----------- -----------
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
$4,135,000); 3,000,000 shares authorized; 1,292,359 issued and
outstanding shares at June 30, 1996............................... -- -- 1,292
Series B convertible preferred stock; $.001 par value (estimated
unaccrued aggregate involuntary liquidation preference
$2,351,000); 400,000 shares authorized; 280,623 issued and
outstanding shares at June 30, 1996
(note 5).......................................................... -- -- 281
Common Stock -- $.001 par value; 20,000,000 shares authorized;
836,967, 845,335, and 983,149 shares issued at December 31, 1994
and 1995, and June 30, 1996, respectively; 753,287, 761,655, and
899,470 shares outstanding at December 31, 1994 and 1995, and June
30, 1996, respectively............................................ 837 845 983
Additional paid-in capital.......................................... 492,143 292,477 4,829,140
Accumulated deficit................................................. (2,335,971) (2,566,204) (9,249,608)
----------- ----------- -----------
(1,842,991) (2,272,882) (4,417,912)
Less:
Common stock in treasury (83,680 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)
Commitments and contingencies (notes 5, 6 and 8)
----------- ----------- -----------
Total liabilities and stockholders' equity (deficit).......... $ 1,110,954 $ 1,263,290 $ 7,795,057
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 51
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue (note 9).................... $2,446,509 $2,893,803 $3,654,692 $1,155,609 $ 3,874,025
Salaries, wages, and benefits....... 1,674,723 1,892,834 2,577,416 1,184,569 2,757,666
Other operating expenses............ 507,090 730,542 956,097 495,601 1,006,243
Depreciation and amortization....... 75,059 143,215 193,399 89,443 309,948
Acquired in-process research and
development costs (note 2)........ -- -- -- -- 6,180,000
---------- ---------- ---------- ---------- -----------
Operating income (loss)........... 189,637 127,212 (72,220) (614,004) (6,379,832)
Interest expense, principally
related party for 1996............ (40,641) (54,598) (65,433) (27,337) (265,951)
Other income (expense), net......... 17,668 -- -- -- (37,621)
---------- ---------- ---------- ---------- -----------
Income (loss) before income
taxes.......................... 166,664 72,614 (137,653) (641,341) (6,683,404)
Income taxes (note 7)............... -- -- -- -- --
---------- ---------- ---------- ---------- -----------
Net income (loss)......... 166,664 72,614 (137,653) (641,341) (6,683,404)
Accretion of Series A convertible
preferred stock................... (13,774) (54,054) (92,580) (46,290) --
Series A convertible preferred stock
dividend requirement.............. (56,997) (157,797) (201,608) (100,804) (100,804)
---------- ---------- ---------- ---------- -----------
Net income (loss)
attributable to common
stock................... $ 95,893 $ (139,237) $ (431,841) $ (788,435) $(6,784,208)
========== ========== ========== ========== ===========
Pro forma net loss per share of
common stock (unaudited).......... $ (0.15) $ (2.38)
========== ===========
Pro forma weighted average number of
common shares used in calculating
pro forma net loss per share of
common stock (unaudited).......... 2,849,097 2,856,489
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 52
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995, AND SIX MONTHS ENDED JUNE 30,
1996
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- --------------- ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ ------- ------ --------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992...................... -- $ -- -- $ -- 836,800 $ 837 706,897
Accretion of discount on Series A convertible
preferred stock (note 8(b))..................... -- -- -- -- -- -- --
Accrued dividend payable (note 8(b)).............. -- -- -- -- -- -- (56,997)
Net income........................................ -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ ---------
Balance at December 31, 1993...................... -- -- -- -- 836,800 837 649,900
Repurchase of common stock (note 8(e))............ -- -- -- -- -- -- --
Conversion of notes payable into common stock
(note 8(e))..................................... -- -- -- -- -- -- --
Issuance of common stock.......................... -- -- -- -- 167 -- 40
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))..... -- -- -- -- -- -- (157,797)
Net income........................................ -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ ---------
Balance at December 31, 1994...................... -- -- -- -- 836,967 837 492,143
Accretion of discount on Series A convertible
preferred stock (note 8(b))..................... -- -- -- -- -- -- --
Issuance of common stock.......................... -- -- -- -- 8,368 8 1,942
Repayment of note receivable from stockholder
(note 8(e))..................................... -- -- -- -- -- -- --
Accrued dividend payable (note 8(b)).............. -- -- -- -- -- -- (201,608)
Net loss.......................................... -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ ---------
Balance at December 31, 1995...................... -- -- -- -- 845,335 845 292,477
Issuance of Series B convertible preferred stock,
net of issuance costs of $220,556 (note 5 and
8).............................................. -- -- 280,623 281 -- -- 1,779,163
Conversion of Series A convertible preferred stock
from redeemable to nonredeemable (note 8(b)).... 1,292,359 1,292 -- -- -- -- 2,301,179
Issuance of common stock (note 2)................. -- -- -- -- 137,814 138 130,429
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)...................... -- -- -- -- -- -- 327,111
Stock option compensation expense (note 8(c))..... -- -- -- -- -- -- 99,585
Accrued dividend payable (note 8(b)).............. -- -- -- -- -- -- (100,804)
Net loss.......................................... -- -- -- -- -- -- --
--------- ------ ------- ---- --------- ------ ---------
Balance at June 30, 1996.......................... 1,292,359 $1,292 280,623 $281 983,149 $ 983 4,829,140
========= ====== ======= ==== ========= ====== =========
<CAPTION>
NOTE TOTAL
TREASURY STOCK RECEIVABLE STOCKHOLDERS'
ACCUMULATED ------------------- FROM EQUITY
DEFICIT SHARES AMOUNT STOCKHOLDER (DEFICIT)
----------- -------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992...................... (2,507,421 ) 83,680 $ (9,800) -- (1,809,487)
Accretion of discount on Series A convertible
preferred stock (note 8(b))..................... (13,774 ) -- -- -- (13,774)
Accrued dividend payable (note 8(b)).............. -- -- -- -- (56,997)
Net income........................................ 166,664 -- -- -- 166,664
---------- ------- -------- ------- ----------
Balance at December 31, 1993...................... (2,354,531 ) 83,680 (9,800) -- (1,713,594)
Repurchase of common stock (note 8(e))............ -- 301,248 (150,000) -- (150,000)
Conversion of notes payable into common stock
(note 8(e))..................................... -- (78,659) 39,166 -- 39,166
Issuance of common stock.......................... -- (71,965) 35,834 -- 35,874
Issuance of common stock in exchange for note
receivable from stockholder (note 8(e))......... -- (150,624) 75,000 (75,000) --
Accretion of discount on Series A convertible
preferred stock (note 8(b))..................... (54,054 ) -- -- -- (54,054)
Accrued dividend payable (notes 8(b) and (d))..... -- -- -- -- (157,797)
Net income........................................ 72,614 -- -- -- 72,614
---------- ------- -------- ------- ----------
Balance at December 31, 1994...................... (2,335,971 ) 83,680 (9,800) (75,000) (1,927,791)
Accretion of discount on Series A convertible
preferred stock (note 8(b))..................... (92,580 ) -- -- -- (92,580)
Issuance of common stock.......................... -- -- -- -- 1,950
Repayment of note receivable from stockholder
(note 8(e))..................................... -- -- -- 25,000 25,000
Accrued dividend payable (note 8(b)).............. -- -- -- -- (201,608)
Net loss.......................................... (137,653 ) -- -- -- (137,653)
---------- ------- -------- ------- ----------
Balance at December 31, 1995...................... (2,566,204 ) 83,680 (9,800) (50,000) (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 14,000
Forgiveness of note receivable from stockholder
(note 8(e))..................................... -- -- -- 36,000 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 ) -- -- -- (6,683,404)
---------- ------- -------- ------- ----------
Balance at June 30, 1996.......................... (9,249,608 ) 83,680 $ (9,800) -- (4,427,712)
========== ======= ======== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 53
MEDIRISK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ 166,664 $ 72,614 $(137,653) $(641,341) $(6,683,404)
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
Depreciation and amortization................................. 75,059 143,215 193,399 89,443 309,948
Other......................................................... (15,268) -- -- -- 135,585
Decrease (increase) in:
Accounts receivable......................................... (62,748) (110,611) (273,620) 174,496 100,084
Other assets................................................ (13,351) (35,960) (5,339) 18,194 (132,594)
Increase (decrease) in:
Accounts payable............................................ 17,802 (19,469) 83,456 5,841 (23,381)
Accrued expenses............................................ 109,900 (51,270) 78,152 57,158 9,417
Deferred revenue............................................ (121,234) 52,365 76,921 30,072 (54,557)
--------- --------- --------- --------- -----------
Net cash provided by (used in) operating activities....... 156,824 50,884 15,316 (266,137) (158,902)
--------- --------- --------- --------- -----------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired................. -- -- -- -- (6,925,393)
Purchases of property and equipment............................. (11,163) (3,191) -- -- (41,497)
Additions to software development costs......................... -- -- -- -- (108,931)
Loan to officer................................................. -- -- -- -- (112,500)
--------- --------- --------- --------- -----------
Net cash used in investing activities..................... (11,163) (3,191) -- -- (7,188,321)
--------- --------- --------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.......................... -- -- 1,950 -- 8,249
Proceeds from issuance of Series A convertible preferred
stock......................................................... -- 35,874 -- -- --
Proceeds from issuance of Series B convertible preferred
stock......................................................... -- -- -- -- 2,000,000
Payments for Series B convertible preferred stock issuance
costs......................................................... -- -- -- -- (220,556)
Proceeds from issuance of notes payable......................... 300,000 150,000 -- -- --
Proceeds from issuance of long-term debt, related party......... -- -- -- -- 6,900,000
Payments for debt issuance costs................................ -- -- -- -- (345,000)
Payments on long-term debt and obligations under capital
leases........................................................ (88,282) (227,976) (167,053) (70,095) (151,691)
Repurchase of common stock...................................... -- (150,000) -- -- --
Repayment of note receivable from stockholder................... -- -- 25,000 -- 14,000
--------- --------- --------- --------- -----------
Net cash provided by (used in) financing activities....... 211,718 (192,102) (140,103) (70,095) 8,205,002
--------- --------- --------- --------- -----------
Net increase (decrease) in cash and cash equivalents...... 357,379 (144,409) (124,787) (336,232) 857,779
Cash and cash equivalents at beginning of period.................. 200,655 558,034 413,625 413,625 288,838
--------- --------- --------- --------- -----------
Cash and cash equivalents at end of period........................ $ 558,034 $ 413,625 $ 288,838 $ 77,393 $ 1,146,617
========= ========= ========= ========= ===========
Supplemental disclosure of cash flow information -- cash paid
during the period for interest.................................. $ 27,209 $ 47,098 $ 65,433 $ 27,337 $ 277,744
========= ========= ========= ========= ===========
Supplemental disclosures of noncash activities:
Purchase of computer and office equipment under capital lease
arrangements.................................................. $ 147,176 $ 213,360 $ 191,563 $ 191,563 $ 180,827
========= ========= ========= ========= ===========
Debt issued in acquisition of business.......................... $ -- $ -- $ -- $ -- $ 1,076,000
========= ========= ========= ========= ===========
Common stock issued in acquisition of business.................. $ -- $ -- $ -- $ -- $ 122,318
========= ========= ========= ========= ===========
Discount on issuance of debt arising from stock purchase
warrants...................................................... $ -- $ -- $ -- $ -- $ 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 $ 100,804
========= ========= ========= ========= ===========
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
Acquired in-process research and development costs............ -- -- -- -- 6,180,000
Fair value of liabilities assumed............................. -- -- -- -- (2,961,849)
Common stock issued........................................... -- -- -- -- (122,318)
Debt issued................................................... -- -- -- -- (1,076,000)
--------- --------- --------- --------- -----------
Total cash paid for acquisitions.............................. -- -- -- -- 6,929,000
Cash acquired................................................. -- -- -- -- (3,607)
--------- --------- --------- --------- -----------
Net cash paid for acquisitions............................ $ -- $ -- $ -- $ -- $ 6,925,393
========= ========= ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 54
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995 AND JUNE 30, 1995 (UNAUDITED) AND 1996
(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.
In the opinion of management, all adjustments considered necessary for the
fair presentation of the unaudited consolidated financial statements of the
Company for the six months ended June 30, 1995 have been included.
(C) CASH EQUIVALENTS
Cash equivalents at December 31, 1994 and 1995, and June 30, 1996 included
amounts of $313,866, $276,647, and $1,000,104, 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> 55
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. 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 reflecting the Company's average cost of funds.
(I) INTANGIBLE ASSETS
Intangible assets represent purchased technological know-how. These costs
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 during the six-month period ended June 30, 1996 in the amount
of $108,931. 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.
(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
F-8
<PAGE> 56
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 change in the Company's
capital structure 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,
128,130 shares of the Company's common stock, and options to purchase 37,289
shares of the Company's common stock at an exercise price of $.50 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 acquisition resulted in purchased in-process research and
development costs of approximately $1,040,000, purchased technological knowhow
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
F-9
<PAGE> 57
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
Revenues.............................................. $ 9,184,000 $4,678,000
Net loss.............................................. (534,000) (633,000)
Net loss per share.................................... (.19) (.22)
</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,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Furniture and fixtures................................ $233,281 $264,278 $ 341,820
Computer and office equipment......................... 417,467 578,033 1,086,419
Leasehold improvements................................ -- -- 59,666
-------- -------- ----------
$650,748 $842,311 $1,487,905
======== ======== ==========
</TABLE>
Included in property and equipment is equipment under capital lease
arrangements with a cost of $413,422, $604,985, and $785,812 and accumulated
amortization of $140,016, $302,033, and $394,946 at December 31, 1994 and 1995,
and June 30, 1996, respectively.
Amortization of equipment held under capital lease arrangements is included
in depreciation expense.
F-10
<PAGE> 58
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,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
10% unsecured senior subordinated note payable;
interest payable quarterly; principal due January 8,
2003 (see note 5)................................... $ -- $ -- $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
Note payable to bank; secured by substantially all
assets of PracticeMatch; interest at lender's base
rate plus 2% (10.25% at June 30, 1996); principal
and interest due in monthly installments of $9,200
with final payment due October 18, 1996............. -- -- 156,743
Line of credit payable to bank; secured by
substantially all assets of PracticeMatch; interest
at lender's base rate plus 2% (10.25% at June 30,
1996) payable monthly; unpaid principal balance due
October 18, 1996.................................... -- -- 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
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
12.35% note payable, secured by computer equipment;
note paid off in 1995............................... 11,628 -- --
-------- -------- ----------
299,406 323,916 8,879,133
Less current installments............................. 127,711 172,614 910,142
-------- -------- ----------
Total long-term debt and obligations under
capital leases, excluding current
installments.............................. $171,695 $151,302 $7,968,991
======== ======== ==========
</TABLE>
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.
F-11
<PAGE> 59
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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
556,623 shares of the Company's common stock for $.012 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 $6,900,000 of senior subordinated notes
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 384,069 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. Upon completion of this offering and
repayment of the senior subordinated notes, no restrictions will remain on the
use of remaining funds available from the 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
June 30, 1996, the Company was in compliance with these financial covenants as
amended or waived.
(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, $106,445, and $191,635 for the years ended December 31, 1993, 1994,
and 1995, and the six months ended June 30, 1995 (unaudited) and 1996,
respectively.
F-12
<PAGE> 60
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 and net operating loss carryforwards, the
Company has not provided any income tax expense for the years ended December 31,
1993, 1994, and 1995, and the six months ended June 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
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax expense
(benefit)...................... $ 56,666 $ 24,689 $(46,802) $ (218,056) $(2,272,357)
Losses in excess of allowable
carryback...................... -- -- 43,101 216,205 2,269,534
Utilization of net operating loss
carryforwards.................. (57,423) (26,555) -- -- --
Other............................ 757 1,866 3,701 1,851 2,823
-------- ------- ------- -------- ----------
Actual income taxes.... $ -- $ -- $ -- $ -- $ --
======== ======= ======= ======== ==========
</TABLE>
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,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Deferred income tax assets:
Acquired in-process research and development
costs............................................ $ -- $ -- $2,357,701
Net operating loss carryforwards.................... 185,041 193,944 430,570
Deferred revenue.................................... 77,307 107,306 89,929
Property and equipment depreciation differences..... 5,210 32,873 50,876
Other............................................... -- -- 8,337
-------- -------- ----------
Total gross deferred income tax assets...... 267,558 334,123 2,937,413
Less valuation allowance.............................. 267,558 334,123 2,937,413
-------- -------- ----------
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
F-13
<PAGE> 61
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Approximately $2,358,000 of the Company's
valuation allowance relates to the tax benefit resulting from acquired
in-process research and development costs, which will be credited to goodwill to
the extent that the tax benefits are subsequently recognized.
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.
(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 .8368 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
F-14
<PAGE> 62
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. The Company has reserved a
total of 747,974 shares of common stock for issuance to employees in the form of
stock options. 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.
The following table summarizes option plan activity for the years ended
December 31, 1993, 1994, and 1995, and the six months ended June 30, 1996:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER SHARE
------- --------------
<S> <C> <C>
Options outstanding at December 31, 1992..................... 219,221 $.233
Granted...................................................... 46,024 .233
Canceled..................................................... (30,962) .233
-------
Options outstanding at December 31, 1993..................... 234,283 .233
Granted...................................................... 31,798 .233 - .49793
Exercised.................................................... (167) .233
Canceled..................................................... (11,652) .233
-------
Options outstanding at December 31, 1994..................... 254,262 .233 - .49793
Granted...................................................... 82,006 .49793
Exercised.................................................... (8,368) .233
Canceled..................................................... (47,698) .233 - .49793
-------
Options outstanding at December 31, 1995..................... 280,202 .233 - .49793
Granted...................................................... 227,661 .49793
Exercised.................................................... -- --
Canceled..................................................... (22,677) .233 - .49793
-------
Options outstanding at June 30, 1996......................... 485,186 .233 - .49793
=======
Options exercisable at June 30, 1996......................... 155,101
=======
</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.
F-15
<PAGE> 63
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 301,248 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 78,659 shares of common stock held in treasury.
In July 1994, 150,624 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 251,040 shares of the Company's common stock at
an exercise price of $1.19 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 384,069 shares of the Company's common stock at an exercise
price of $.012 per share. The common stock purchase warrants expire on January
8, 2003.
(G) COMMON STOCK REVERSE SPLIT
Effective September 17, 1996 the Company filed an amendment to its
certificate of incorporation which effected a 0.8368-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, one customer accounted for
approximately 15% of total revenues.
F-16
<PAGE> 64
MEDIRISK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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
On August 27, 1996 the Company's stockholders approved a plan to
reincorporate the Company as a Delaware corporation and to cancel the treasury
stock held by the Company.
INITIAL PUBLIC OFFERING
In September 1996, the Company filed a registration statement with the
Securities and Exchange Commission covering 3,000,000 shares of the Company's
common stock.
F-17
<PAGE> 65
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.
Atlanta, Georgia
June 28, 1996
F-18
<PAGE> 66
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-19
<PAGE> 67
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-20
<PAGE> 68
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-21
<PAGE> 69
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-22
<PAGE> 70
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-23
<PAGE> 71
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-24
<PAGE> 72
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, 153,119 shares of Series A common
stock, and an option to acquire an additional 44,561 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-25
<PAGE> 73
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-26
<PAGE> 74
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-27
<PAGE> 75
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-28
<PAGE> 76
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-29
<PAGE> 77
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-30
<PAGE> 78
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-31
<PAGE> 79
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-32
<PAGE> 80
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-33
<PAGE> 81
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-34
<PAGE> 82
- ------------------------------------------------------
- ------------------------------------------------------
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............................. 11
Use of Proceeds......................... 12
Dividend Policy......................... 12
Capitalization.......................... 13
Dilution................................ 14
Selected Consolidated Financial Data.... 15
Unaudited Pro Forma Financial Data...... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 18
Business................................ 24
Management.............................. 34
Certain Transactions.................... 37
Principal Stockholders.................. 38
Description of Capital Stock............ 39
Shares Eligible for Future Sale......... 43
Underwriting............................ 45
Legal Matters........................... 46
Experts................................. 46
Additional Information.................. 46
Index to Financial Statements........... F-1
</TABLE>
---------------------
UNTIL , 1996 (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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,000,000 SHARES
MEDIRISK LOGO
COMMON STOCK
---------------
PROSPECTUS
, 1996
---------------
SMITH BARNEY INC.
DEAN WITTER REYNOLDS INC.
JEFFERIES & COMPANY, INC.
EQUITABLE SECURITIES CORPORATION
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 83
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' fee and expense............................................ *
Legal fees and expenses................................................. *
Printing and engraving costs............................................ *
Blue Sky fees and expenses.............................................. 20,000
Transfer Agent and registrar fees....................................... *
Miscellaneous........................................................... *
-------
Total......................................................... $750,000
=======
</TABLE>
- ---------------
* To be filed by Amendment.
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.
II-1
<PAGE> 84
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.
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 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 301,248 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 482,675 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 556,623 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 384,069 shares of Common Stock. The Warrants are
currently exercisable. In connection with the acquisition of Formations, the
Company issued 128,130 shares of Common Stock and options to purchase 37,289
shares of Common Stock at an exercise price of $0.50 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 3,000 shares of Common
Stock and on March 14, 1996 an employee of the Company received 9,648 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 Smith Barney Inc., Dean
Witter Reynolds Inc., Jefferies & Company, Inc. and Equitable Securities
Corporation 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.
</TABLE>
II-2
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ ---------------------------------------------------------------------------------
<C> <C> <S>
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).*
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).
10.2 -- 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 Corporation.
10.6 -- Registration Rights Agreement dated as of January 8, 1996, between the Company
and HealthPlan Services Corporation.
10.7 -- Warrant Agreement dated as of January 8, 1996, between the Company and HPSC.
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 Pamella L. Leiter.
10.11 -- Forms of Indemnification Agreement between the Company and each of its officers
and directors.*
10.12 -- Form of Employee Shareholder Agreement.
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 with respect to amendments of this Registration Statement
executed by the directors and officers of the Registrant is included on signature
page of this Registration Statement appearing on page II-5.
27.1 -- Financial Data Schedule -- Medirisk, Inc. (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment.
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
II-3
<PAGE> 86
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> 87
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 September 19, 1996.
MEDIRISK, INC.
By: /s/ MARK A. KAISER
--------------------------------------
Title: Chairman, Chief Executive
Officer, President
(principal executive officer) and
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Mark A. Kaiser and Kenneth M. Goins, Jr., and
each of them, with the power to act without the other, as his true and lawful
attorney-in-fact and agents, with full power of substitution and resubstitution
for him and in his name, place and stead, and in any and all capacities, (i) to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, (ii) to sign any registration statement to be filed
pursuant to Rule 462(b) under the Securities Act of 1933 for the purpose of
registering additional shares of Common Stock for the same offering covered by
this Registration Statement, and (iii) to file any of the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
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 September 19, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -------------------
<C> <S> <C>
/s/ MARK A. KAISER Chairman, Chief Executive September 19, 1996
- --------------------------------------------- Officer, President
Mark A. Kaiser (principal executive
officer) and Director
/s/ KENNETH M. GOINS, JR. Chief Financial Officer, September 19, 1996
- --------------------------------------------- Vice President (principal
Kenneth M. Goins, Jr. financial and accounting
officer)
/s/ MICHAEL J. FINN Director September 19, 1996
- ---------------------------------------------
Michael J. Finn
/s/ JAMES K. MURRAY, III Director September 19, 1996
- ---------------------------------------------
James K. Murray, III
/s/ ROBERT P. PINKAS Director September 19, 1996
- ---------------------------------------------
Robert P. Pinkas
</TABLE>
II-5
<PAGE> 1
EXHIBIT 2.1
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of the 27th
day of August, 1996, is made and entered into by and between MEDIRISK, INC., a
Delaware corporation ("Medirisk (Delaware)"), and MEDIRISK, INC., a Florida
corporation ("Medirisk (Florida)").
WITNESSETH:
WHEREAS, the Boards of Directors of Medirisk (Delaware) and Medirisk
(Florida) have approved the business combination transaction provided for in
this Agreement in which Medirisk (Florida) would merge with and into Medirisk
(Delaware) (the "Merger") on the terms and subject to the conditions set forth
in this Agreement in order to change the state of incorporation of Medirisk
(Florida) from Florida to Delaware;
WHEREAS, pursuant to the Merger, each issued and outstanding share of
stock of Medirisk (Florida) will be converted into the right to receive the
Merger Consideration (as defined below);
WHEREAS, for Federal income tax purposes, Medirisk (Florida) and Medirisk
(Delaware) intend that the Merger shall qualify as a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement are used as defined in this
Article I or elsewhere in this Agreement.
"CERTIFICATES" has the meaning set forth in Section 3.02.
"CERTIFICATE OF MERGER" has the meaning set forth in Section 2.03.
"CLOSING" has the meaning set forth in Section 2.02.
"CLOSING DATE" has the meaning set forth in Section 2.02.
"DELAWARE COMMON STOCK" means the shares of common stock of Medirisk
(Delaware), $0.001 par value.
<PAGE> 2
"DELAWARE SERIES A PREFERRED STOCK" means the shares of Series A
Convertible Preferred Stock of Medirisk (Delaware), $0.001 par value.
"DELAWARE SERIES B PREFERRED STOCK" means the shares of Series B
Convertible Preferred Stock of Medirisk (Delaware), $0.001 par value.
"DGCL" means the Delaware General Corporation Law.
"EFFECTIVE TIME" has the meaning set forth in Section 2.03.
"FLORIDA COMMON STOCK" means the shares of Series A Common Stock of
Medirisk (Florida), par value $0.001.
"FLORIDA SERIES A PREFERRED STOCK" means the shares of Series A
Convertible Preferred Stock of Medirisk (Florida), $0.001 par value.
"FLORIDA SERIES B PREFERRED STOCK" means the shares of Series B
Convertible Preferred Stock of Medirisk (Florida), $0.001 par value.
"FBCA" means the Florida Business Corporation Act.
"MERGER CONSIDERATION" means, in respect of each share of (i) Florida
Common Stock, the right to receive one (1) share of Delaware Common Stock; (ii)
Florida Series A Preferred Stock, the right to receive one (1) share of
Delaware Series A Preferred Stock; and (iii) Florida Series B Preferred Stock,
the right to receive one (1) share of Delaware Series B Preferred Stock.
"SURVIVING CORPORATION" means, upon the effectiveness of the Merger,
Medirisk (Delaware).
ARTICLE II
THE MERGER
2.01 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the DGCL and FBCA, Medirisk (Florida)
shall be merged with and into Medirisk (Delaware) at the Effective Time of the
Merger. Following the Merger, the separate corporate existence of Medirisk
(Florida) shall cease, and Medirisk (Delaware) shall continue as the Surviving
Corporation and shall succeed to and assume all the rights and obligations of
Medirisk (Florida) in accordance with the DGCL and FBCA.
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<PAGE> 3
2.02 CLOSING. The Closing of the Merger (the "Closing") will take place
at the offices of Alston & Bird, One Atlantic Center, 1201 West Peachtree
Street, Atlanta, Georgia 30309-3424 as soon as practical following the approval
of the Merger by the shareholders of Medirisk (Florida) or at such other date
and time as the parties may mutually agree (the date of the Closing being
referred to herein as the "Closing Date"). At the Closing, the appropriate
officers of Medirisk (Delaware) and Medirisk (Florida) shall execute and
acknowledge a Certificate of Merger (as defined below). As promptly as
practical following the Effective Time, the Secretary of the Surviving
Corporation shall mail to each shareholder of Medirisk (Florida) a Letter of
Transmittal and instructions outlining the procedures to be followed by holders
of Florida Common Stock, Florida Series A Preferred Stock and Florida Series B
Preferred Stock for surrendering their certificates representing such shares
and receiving the Merger Consideration.
2.03 EFFECTIVE TIME. As soon as practical following the Closing, the
parties shall file a certificate of merger and articles of merger substantially
in the form of Exhibit A hereto (collectively, the "Certificate of Merger")
executed and filed in accordance with the relevant provisions of the DGCL and
FBCA and shall make all other filings or recordings required under the DGCL and
FBCA. The Merger shall become effective upon the last to occur of the filing
of the Certificate of Merger with the Delaware Secretary of State or the
Secretary of State of the State of Florida (the time the Merger becomes
effective being the "Effective Time").
2.04 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in Section 259 of the DGCL and Section 607.1106 of the FBCA.
2.05 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Certificate of
Incorporation of Medirisk (Delaware) as in effect at the Effective Time shall
be the Certificate of Incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law. The
Bylaws of Medirisk (Delaware) as in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
2.06 DIRECTORS. The directors of Medirisk (Florida) at the Effective Time
shall be the directors of the Surviving Corporation, each to serve until the
earlier of his resignation or removal or the election and qualification of his
successor(s). All existing committees of the Board of Directors of Medirisk
(Florida) shall continue and shall have the same members and the same powers
and responsibilities as in effect immediately prior to the Effective Time.
2.07 OFFICERS. The officers of Medirisk (Florida) at the Effective Time
shall be the officers of the Surviving Corporation, each to serve until the
earlier of his resignation or removal or the election and qualification of his
successor(s).
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ARTICLE III
EFFECT OF MERGER ON CAPITAL STOCK
3.01 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any shares of
Delaware Common Stock, Delaware Series A Preferred Stock, Delaware Series B
Preferred Stock, Florida Common Stock, Florida Series A Preferred Stock or
Florida Series B Preferred Stock:
(a) Each share of Florida Common Stock, Florida Series A Preferred Stock
and Florida Series B Preferred Stock issued and outstanding as of the Effective
Time shall be converted into the right to receive the Merger Consideration. As
of the Effective Time, all shares of Florida Common Stock, Florida Series A
Preferred Stock and Florida Series B Preferred Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration in exchange therefor.
(b) All shares, if any, of Florida Common Stock, Florida Series A
Preferred Stock and Florida Series B Preferred Stock that are owned as treasury
stock as of the Effective Time shall be canceled and retired and shall cease to
exist, and no capital stock of Medirisk (Delaware) or other consideration shall
be delivered in exchange therefor.
(c) All shares of Delaware Common Stock owned by Medirisk (Florida)
immediately before the Effective Time shall, by virtue of the Merger and as of
the Effective Time, cease to exist, and all certificates representing such
shares shall be surrendered by Medirisk (Florida) for cancellation.
(d) All warrants and options to purchase Florida Common Stock shall, by
virtue of the Merger and as of the Effective Time and without action of the
holder thereof, become warrants and options to purchase same number of shares
of Delaware Common Stock on the same terms and conditions as previously
existing.
3.02 EXCHANGE OF CERTIFICATES; PAYMENT OF MERGER CONSIDERATION. Each
holder of record of a certificate or certificates that immediately prior to the
Effective Time of the Merger represented issued and outstanding shares of
Florida Common Stock, Florida Series A Preferred Stock or Florida Series B
Preferred Stock (the "Certificates") whose shares were converted into the right
to receive the Merger Consideration pursuant to Section 3.01 shall surrender
such Certificates to the Surviving Corporation for cancellation. In furtherance
thereof, the Surviving Corporation shall provide the holders of such
Certificates with a Letter of Transmittal and instructions concerning the
endorsement and surrender of their Certificates, and upon surrender in
accordance therewith, the Surviving Corporation shall issue to such holder in
exchange for the Certificates so surrendered a certificate representing the
number of shares of Delaware
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<PAGE> 5
Common Stock, Delaware Series A Preferred Stock or Delaware Series B Preferred
Stock that such holder has the right to receive pursuant to the provisions of
Section 3.01. Upon payment of the Merger Consideration, the Certificates so
surrendered shall be canceled.
ARTICLE IV
MISCELLANEOUS
4.01 SHAREHOLDER APPROVAL. To the extent required by the DGCL and FBCA,
each party shall, as soon as practical after the date of this Agreement, duly
call, prepare and give notice of, convene and hold a special meeting of its
shareholders for the purpose of considering and taking action upon this
Agreement and all transactions contemplated hereby; provided, however, that any
such shareholder action may be taken pursuant to a written consent in lieu of a
special meeting.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and attested as of the day and year first above-written.
MEDIRISK (DELAWARE):
MEDIRISK, INC.,
A DELAWARE CORPORATION
BY: /s/ Mark A. Kaiser
-------------------------------
MARK A. KAISER, PRESIDENT
MEDIRISK (FLORIDA):
MEDIRISK, INC.,
A FLORIDA CORPORATION
BY: /s/ Mark A. Kaiser
--------------------------------
MARK A. KAISER, PRESIDENT
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<PAGE> 1
EXHIBIT 2.2
EXECUTION COPY
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), is made this_______day
of November, 1995, by and among MEDIRISK, INC., a Florida corporation
("Purchaser"), and PAMELLA LEITER, a resident of Illinois ("Seller");
W I T N E S S E T H:
WHEREAS, the parties desire to enter into this Stock Purchase Agreement
pursuant to which Purchaser will purchase from Seller all of the outstanding
capital stock of Formations in Health Care, Inc. (the "Company") upon the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual promises,
representations, warranties and covenants hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK.
1.1 PURCHASE AND SALE OF STOCK. Subject to the terms and conditions
hereinafter set forth, Seller shall sell to Purchaser, and Purchaser shall
purchase from Seller, free and clear of all liens, claims, charges and
encumbrances of any nature whatsoever, 100 shares of issued and outstanding
common stock of the Company (the "Stock"), which represent all issued and
outstanding shares of capital stock of the Company.
1.2 PURCHASE PRICE. In consideration of the sale and delivery of the
Stock, and in reliance on the representations and warranties of Seller set
forth below, Purchaser shall (i) pay to Seller the sum of $1,325,000.00 in cash
at Closing; (ii) deliver to Seller 153,119 shares of Series A Common Stock of
Purchaser; and (iii) deliver to Seller an Option Agreement, substantially in
the form of attached EXHIBIT A (the "Option Agreement"), granting Seller,
subject to the provisions governing vesting set forth therein, the option to
purchase 44,561 shares of Series A Common Stock of Purchaser for an exercise
price of $0.41667 per share. In addition, Purchaser shall guarantee the
Company's obligations under that certain promissory note in the original
principal amount of $179,630.56, with a current principal balance outstanding
of approximately $175,000.00 payable to Philip Faraci by delivery of a
Guaranty, substantially in the form of attached EXHIBIT B.
<PAGE> 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Purchaser as follows:
2.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Indiana with the full power and authority to carry on its business in the
places and as it is now being conducted and to own and lease the properties and
assets which it now owns or leases. The Company is duly qualified to transact
business and in good standing in the states listed on SCHEDULE 2.1, which are
the only jurisdictions in which the failure to be qualified would have a
material adverse effect on the assets or the business of the Company. Included
in SCHEDULE 2.1 are true and complete copies of the Company's Articles of
Incorporation and Bylaws.
2.2 AUTHORITY AND STATUS. Seller has the capacity and authority to
execute and deliver this Agreement, to perform under it and to consummate the
transactions contemplated by this Agreement without the necessity of any act or
consent of any other person whomsoever. This Agreement and each and every
agreement, document and instrument to be executed, delivered and performed by
Seller in connection with this Agreement constitute or will, when executed and
delivered, constitute the valid and legally binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except as
enforceability may be limited by applicable equitable principles (whether
applied with action at law or in equity) or by bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect
affecting the enforcement of creditors' rights generally.
2.3 CAPITALIZATION; OWNERSHIP OF STOCK. (a) The authorized capital stock
of the Company consists of 1,000 shares of Common Stock, no par value per
share, 100 of which are issued and outstanding. All of the issued and
outstanding Shares are duly and validly issued and outstanding, are fully paid
and nonassessable, and were issued pursuant to a valid exemption from
registration under the Securities Act of 1933, as amended, and all applicable
state securities laws. There are no outstanding warrants, options, rights,
calls or other commitments of any nature relating to the Common Stock or any
other capital stock of the Company, and there are no outstanding securities of
the Company convertible into or exchangeable for shares of Common Stock or any
other capital stock of the Company.
(b) Seller is the legal and beneficial owner of the Stock, free and clear
of all liens, claims, charges, encumbrances, security interests, pledges or
other claims.
2.4 LIABILITIES AND OBLIGATIONS OF THE COMPANY. (a) Attached as SCHEDULE
2.4 are true, correct and complete copies of the Company's unaudited balance
sheets as of December 31, 1994 and December 31, 1993 and the related statements
of
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<PAGE> 3
operations for the fiscal years ending on such dates (the "Financial
Statements"). Also attached as SCHEDULE 2.4 are true, correct and complete
copies of the Company's unaudited balance sheet as of August 31, 1995 and the
related unaudited statement of operations for the eight-month period then ended
(the "Interim Financial Statements"). Except as specifically described in
SCHEDULE 2.4, the Financial Statements and the Interim Financial Statements are
complete to the extent required by generally accepted accounting principles,
have been prepared in accordance with generally accepted accounting principles
(except that the Financial Statements have been prepared in accordance with the
cash basis method of accounting and except that the Interim Financial
Statements do not contain any notes thereto and are subject to normal recurring
year-end adjustments, which individually and in the aggregate will not deviate
substantially therefrom or which are described on SCHEDULE 2.4 hereto), fairly
present in accordance with generally accepted accounting principles ("GAAP")
the Company's financial condition as of the dates thereof and disclose all of
the Company's liabilities, whether absolute, contingent, accrued or otherwise,
existing as of the dates thereof required to be disclosed in accordance with
GAAP.
(b) Except as described in SCHEDULE 2.4, the Company has no liability or
obligation related to its assets or business (whether accrued, absolute,
contingent or otherwise), except for (i) the liabilities and obligations of the
Company that are disclosed or reserved against in the Interim Financial
Statements, to the extent and in the amounts so disclosed or reserved against,
(ii) liabilities that were incurred or accrued in the ordinary course of the
Business since the date of the Interim Financial Statements and (iii) the
liabilities and obligations of the Company under the contracts that are
disclosed on SCHEDULE 2.10 or that by the terms of Section 2.10 are not
required to be identified on SCHEDULE 2.10.
2.5 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. The execution and
delivery of this Agreement by Seller do not, and the consummation of the
transactions contemplated hereby will not, violate any provision of the
Articles of Incorporation, as amended, or Bylaws, as amended, of the Company or
violate or constitute an occurrence of default under any provision of, or
conflict with, or result in acceleration of any obligation under, or give rise
to a right by any party to terminate its obligations under, any mortgage, deed
of trust, conveyance to secure debt, note, loan, lien, lease, agreement or
instrument, or any order, judgment, decree or other arrangement to which the
Company or Seller is a party or is bound.
2.6 LITIGATION Except as set forth on SCHEDULE 2.6, there is no suit,
action, proceeding, claim or investigation pending or, to the best knowledge of
Seller, threatened against, or affecting, the Company, and, to the best
knowledge of Seller, there exists no basis or grounds for any such suit, action,
proceedings, claim or investigation.
2.7 PERMITS. The Company holds all licenses, permits and other
authorizations from all appropriate federal, state or other public authorities
necessary for the conduct of its business and the use of its assets. The
Company is conducting and has conducted its
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<PAGE> 4
business so as to comply in all respects with all applicable statutes, rules,
ordinances, regulations and orders.
2.8 TITLE TO ASSETS. Attached as SCHEDULE 2.8 is a list and summary
description of all real property owned or leased by the Company and of all
items of personal property with a fair market value in excess of $5,000.00
owned or leased by the Company (such list identifying the properties owned by
the Company and all of the leases or agreements under which the Company is
lessee of or holds or operates any property). The Company has good title to
all of its property and assets, other than leased property, free and clear of
any liens, claims, charges, options, rights of tenants or other encumbrances
except as disclosed or reserved in the Financial Statements, Interim Financial
Statements or the Schedules hereto (provided such disclosure in a Schedule
hereto is sufficient to identify the matters disclosed therein as liabilities
of the Company) and except for liens for current taxes not yet due and payable.
2.9 COMPUTER SOFTWARE, INTELLECTUAL PROPERTY. Seller has previously
delivered to Purchaser an accurate identification and summary description of
all computer software, rights therein, databases and other intellectual
property assets that are readily commercially available used or licensed by the
Company, including a description of the nature of the Company's interest
therein; in addition, included in SCHEDULE 2.9 is an accurate identification
and summary description of all computer software, rights therein, databases and
other intellectual property assets that are not readily commercially available
owned, used or licensed by the Company, including a description of the
Company's interest therein (such items described on SCHEDULE 2.9 being referred
to as the "Proprietary Software"). Except as set forth in SCHEDULE 2.9, all
such items of Proprietary Software are owned exclusively by the Company or are
licensed by the Company on a royalty-free, perpetual basis without the
requirement of any type of payment to any other party. The Company is in
material compliance with all provisions of any such license with respect to the
Proprietary Software, and the transactions contemplated by this Agreement will
not cause a breach or default under any such license or impair the Company's
ability to use such Proprietary Software in substantially the same manner as
such items of Proprietary Software are currently used by the Company. Except
as described on SCHEDULE 2.9, all Proprietary Software owned by the Company is
free of all claims or rights of employees, agents, consultants or other parties
involved in the development or creation of such computer software, rights,
databases or intellectual property, and no such Proprietary Software has been
published or disclosed to any party, except pursuant to contracts requiring such
parties to keep such Proprietary Software confidential. Except as described on
SCHEDULE 2.9, the Company has received no notice or other allegation claiming or
asserting that it is violating, reasonably has no reason to believe it is
violating, and, to the knowledge of Seller, the Company has not violated and is
not violating the rights of others in any trademark, tradename, service mark,
copyright, patent, trade secret, know-how or other intangible assets.
2.10 CONTRACTS. Attached as SCHEDULE 2.10 is a true and correct list of
all contracts, agreements and other instruments to which the Company is a party
under which
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<PAGE> 5
the aggregate liability of, or benefit to, the Company could reasonably be
expected to exceed $5,000.00. On or prior to the date of this Agreement, Seller
has delivered a copy of each such contract, agreement and instrument to
Purchaser.
2.11 TAXES. The Company has timely and accurately filed all federal,
state, foreign and local tax returns and reports required to be filed by it
prior to such date and has timely paid, or will prior to Closing timely pay,
all taxes (including, without limitation, any and all income, sales, use,
withholding and excise taxes) owed for all periods prior to Closing.
2.12 EMPLOYEE BENEFIT PLANS. Attached as SCHEDULE 2.12 is a list of every
pension, retirement, profit-sharing, deferred compensation, severance pay,
vacation, bonus or other incentive plan, any other written or unwritten
employee program, arrangement that involves the expenditure of more than
$5,000.00 per year, agreement or understanding that involves the expenditure of
more than $5,000.00 per year, any medical, vision, dental or other health plan,
any life insurance plan or any other employee benefit plan or fringe benefit
plan, including without limitation any "employee benefit plan," as that term is
defined in Section 3(3) of the Employee Retirement Security Act of 1974, as
amended ("ERISA"), currently or previously adopted, maintained, sponsored or
contributed to by the Company for the benefit of employees, retirees,
dependents, spouses, directors or other beneficiaries and under which
employees, retirees, dependents, spouses, directors or other beneficiaries are
eligible to participate (collectively, the "Benefit Plans"). All of the
Benefit Plans (and any related trusts subject to ERISA) comply with and have
been administered in compliance with the provisions of ERISA, all provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), all applicable
state or federal securities laws and all other applicable laws, rules and
regulations. No event has occurred that will or could reasonably be expected
to give rise to a disqualification of any such plan under Sections 401(a) or
501(a) of the Code or to a tax under Section 511 of the Code. Neither the
Company nor any administrator or fiduciary of any such Benefit Plan (or agent
or delegate of any of the foregoing) has engaged in any transaction or acted or
failed to act in any manner that could reasonably be expected to subject the
Company to any direct or indirect liability for a breach of any fiduciary or
co-fiduciary duty under ERISA. No "party in interest" (as defined in Section
3(14) of ERISA) or "disqualified person" (as defined in Section 4975(e)(2) of
the Code) of any Benefit Plan has engaged in any "prohibited transaction"
(within the meaning of Section 4975(c) of the Code or Section 406 of ERISA and
not exempt under Section 408 of ERISA).
2.13 CUSTOMERS. Attached as SCHEDULE 2.13 is a true and correct list of
all of the customers doing in excess of $5,000.00 of business with the Company
during 1994 and 1995 setting forth as to each such customer its name, address,
telephone number and principal person of contact. Neither the Company nor
Seller has received any notice, or has any reason to believe, that any such
customer has taken or contemplates taking steps that could disrupt the business
relationship of the Company with such customer.
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<PAGE> 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Seller as follows:
3.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida
with the full power and authority to carry on its business in the places and as
it is now being conducted and to own and lease the properties and assets which
it now owns or leases. Purchaser is now, and will be at Closing, duly
qualified to transact business and in good standing in the states listed on
SCHEDULE 3.1, which are the only jurisdictions in which the failure to be
qualified would have a material adverse effect on the assets or the business of
Purchaser. Included in SCHEDULE 3.1 are true and complete copies of
Purchaser's Articles of Incorporation and Bylaws.
3.2 AUTHORITY AND STATUS. Purchaser has the capacity and authority to
execute and deliver this Agreement, to perform under it and to consummate the
transactions contemplated by this Agreement without the necessity of any act or
consent of any other person whomsoever. This Agreement and each and every
agreement, document and instrument to be executed, delivered and performed by
Purchaser in connection with this Agreement constitute or will, when executed
and delivered, constitute the valid and legally binding obligations of
Purchaser, enforceable against Purchaser in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles (whether applied with action at law or in equity) or by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally.
3.3 CAPITALIZATION. The authorized capital stock of Purchaser consists of
5,000,000 shares of Series A Common Stock, of which 910,200 shares are issued
and outstanding as of the date hereof, and 3,000,000 shares of Series A
Preferred Stock, of which 1,292,359 shares are issued and outstanding as of the
date hereof. There are 100,000 shares of Series A Common Stock held in
Purchaser's treasury. Except as set forth on SCHEDULE 3.3, there are no
outstanding options or other securities exercisable for or convertible into
capital stock of Purchaser. The shares of Series A Common Stock of Purchaser to
be issued to Seller hereunder or under the Option Agreement will, when issued
and delivered in accordance with this Agreement or the Option Agreement, as
applicable, be validly issued, fully paid and nonassessable. Except as set
forth on SCHEDULE 3.3, Purchaser is not a party to any agreement or other
commitment to register any of its securities under the Securities Act of 1933,
as amended.
3.4 LIABILITIES AND OBLIGATIONS OF PURCHASER. (a) Attached as SCHEDULE
3.4 are true, correct and complete copies of Purchaser's audited balance sheets
as of December 31, 1993 and December 31, 1994 and the related statements of
operations and statements of cash flow for the fiscal years ending on such
dates ("Purchaser's Financial Statements"). Also attached as SCHEDULE 3.4 are
true, correct and complete copies of
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<PAGE> 7
Purchaser's unaudited balance sheet as of August 31, 1995 and the related
unaudited statement of operations and statement of cash flow for the eight-month
period then ended ("Purchaser's Interim Financial Statements"). Except as
specifically described in SCHEDULE 3.4, Purchaser's Financial Statements and
Purchaser's Interim Financial Statements are complete to the extent required by
generally accepted accounting principles, have been prepared in accordance with
generally accepted accounting principles (except that Purchaser's Interim
Financial Statements do not contain any notes thereto), fairly present in
accordance with generally accepted accounting principles Purchaser's financial
condition as of the dates thereof and disclose all of Purchaser's liabilities,
whether absolute, contingent, accrued or otherwise, existing as of the dates
thereof.
(b) Purchaser has no liability or obligation related to its assets or
business (whether accrued, absolute, contingent or otherwise), except for (i)
the liabilities and obligations of Purchaser that are disclosed or reserved
against in Purchaser's Interim Financial Statements, to the extent and in the
amounts so disclosed or reserved against, and (ii) liabilities that were
incurred or accrued in the ordinary course of the Business since the date of
Purchaser's Interim Financial Statements.
3.5 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. Except as set forth on
SCHEDULE 3.5, the execution and delivery of this Agreement by Purchaser do not,
and the consummation of the transactions contemplated hereby will not, violate
any provision of the Articles of Incorporation, as amended, or Bylaws, as
amended, of Purchaser or violate or constitute an occurrence of default under
any provision of, or conflict with, or result in acceleration of any obligation
under, or give rise to a right by any party to terminate its obligations under,
any mortgage, deed of trust, conveyance to secure debt, note, loan,
lien, lease, agreement, instrument, or any order, judgment, decree or other
arrangement to which Purchaser is a party or is bound.
3.6 LITIGATION. There is no suit, action, proceeding, claim or
investigation pending or, to the best knowledge of Purchaser, threatened
against, or affecting, Purchaser, and, to the best knowledge of Purchaser,
there exists no basis or grounds for any such suit, action, proceedings, claim
or investigation.
3.7 PERMITS. Purchaser holds all licenses, permits and other
authorizations from all appropriate federal, state or other public authorities
necessary for the conduct of its business and the use of its assets. Purchaser
is conducting and has conducted its business so as to comply in all respects
with all applicable statutes, rules, ordinances, regulations and orders.
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<PAGE> 8
ARTICLE IV
COVENANTS AND UNDERTAKINGS
4.1 COVENANT NOT TO COMPETE. At Closing, Seller and Purchaser will, and
Seller will cause the Company to, enter into a Covenant Not to Compete
substantially in the form of attached EXHIBIT C (the "Covenant Not to
Compete").
4.2 EMPLOYMENT AGREEMENT. At Closing, Seller and Purchaser will enter
into an Employment Agreement substantially in the form of attached EXHIBIT D
(the "Employment Agreement").
4.3 REGISTRATION RIGHTS AGREEMENT. At Closing, Purchaser and Seller will
enter into a Registration Rights Agreement substantially in the form of
attached EXHIBIT E (the "Registration Rights Agreement").
4.4 INVESTMENT LETTER. At Closing, Seller will execute and deliver to
Purchaser an investment letter with respect to the shares of Series A Common
Stock of Purchaser to be delivered to Seller at Closing and with respect to the
Option Agreement substantially in the form of attached EXHIBIT F (the
"Investment Letter").
4.5 SHAREHOLDERS AGREEMENT. At Closing, Seller and Purchaser will enter
into a Shareholders Agreement substantially in the form of attached EXHIBIT G
(the "Shareholders Agreement").
4.6 CONSENTS AND APPROVALS. Seller agrees to use her reasonable best
efforts to obtain the waiver, consent and approval of all persons whose waiver,
consent or approval is required in order to consummate the transactions
contemplated by this Agreement, or is required by any agreement, lease,
instrument, arrangement, judgment, decree, order or license to which the
Company or Seller is a party or subject that would prohibit, or require the
waiver, consent or approval of any person to such transactions, or under which
the consummation of such transactions would constitute (or with notice or lapse
of time would constitute) an event of default.
4.7 CONDUCT OF THE BUSINESS PRIOR TO CLOSING. Except with the written
consent of Purchaser and except as may be required to effect the transactions
contemplated by this Agreement, between the date of this Agreement and the
earlier of (i) Closing and (ii) the termination of this Agreement, Seller will
cause the Company to (a) operate the Business only in the ordinary course, (b)
not make or permit any amendment of the Company's Articles of Incorporation or
Bylaws or change its issued and outstanding securities; (c) not hire or engage
any employee, consultant or independent contractor, (d) not directly or
indirectly declare, pay or authorize any dividends or distributions on or
payments in respect of its capital stock; (e) not make any
contribution to or distribution from any Employee Benefit Plan except as
required pursuant to the terms thereof or by law; (f) not pay or agree to pay,
conditionally or otherwise, any bonus, extra compensation, pension or severance
pay to any of Company's present or former officers,
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<PAGE> 9
agents, consultants or employees except under any existing pension or other plan
or arrangement or increase the compensation (including salaries, fees,
commissions, bonuses, profit sharing, incentive, pension, retirement or other
similar payments) being paid as of September 1, 1995, to any of the Company's
management or other employees, other than salary increases not greater than 4.0%
in connection with customary annual reviews or as otherwise required under an
agreement disclosed on SCHEDULE 2.10 or pursuant to an employee benefit plan
listed on SCHEDULE 2.12; (g) not borrow any monies or subject any of its assets
to any lien, charge, pledge or other encumbrance; and (h) not enter into any
material contracts or extend, modify or amend any material contracts existing on
the date of this Agreement.
4.8 FINANCING, ETC. Purchaser agrees to use its reasonable best efforts
to obtain the waiver, consent and approval of all persons whose waiver, consent
or approval is required in order to consummate the transactions contemplated by
this Agreement, or is required by any agreement, lease, instrument,
arrangement, judgment, decree, order or license to which the Purchaser is a
party or subject that would prohibit, or require the waiver, consent or
approval of any person to such transactions, or under which the consummation of
such transactions would constitute (or with notice or lapse of time would
constitute) an event of default. In addition, Purchaser agrees to use its
reasonable best efforts to obtain financing to fund the consummation of the
transactions contemplated by this Agreement and for such other purposes as
Purchaser deems reasonable, such financing to be on commercially reasonable
terms and conditions.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction, on or before the
Closing Date, of each and every one of the following conditions:
5.1 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The
representations and warranties made by Seller in this Agreement or any document
or instrument delivered to Purchaser or its representatives hereunder shall be
true and correct in all material respects on the Closing Date with the same
force and effect as if such representations and warranties had been made on and
as of the Closing Date. Seller shall have duly performed all of the
agreements, covenants, acts and undertakings to be performed by Seller on or
prior to the Closing Date.
5.2 NO INJUNCTION, ETC. No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain, prohibit,
or obtain substantial damages in respect of, or which is related to, or arises
out of, this Agreement or the consummation of the transactions contemplated
hereby, or which is related to or arises out of the business of the Company, if
such action, proceeding, investigation, regulation or legislation, in the
reasonable judgment of Purchaser, would make it inadvisable to
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consummate such transactions or would have a material adverse effect on the
Company or its assets or business.
5.3 NO MATERIAL ADVERSE CHANGE. There shall not have been any material
adverse change in the business, assets, liabilities or condition, financial or
otherwise, of the Company between the date of the Interim Financial Statements
and the Closing Date.
5.4 CONSENTS. Seller shall have delivered to Purchaser the written
consents of third parties and all governmental consents and approvals, if any,
referred to in Section 4.6 hereof, which consents shall be in form, scope and
substance reasonably satisfactory to Purchaser and its counsel.
5.8 GOOD STANDING CERTIFICATE. Purchaser shall have received a
Certificate of Good Standing from the State of Indiana with respect to the
Company as of the most recent practical date prior to the Closing Date.
5.9 FINANCING. Purchaser shall have obtained financing for the cash
payment to be made at Closing under this Agreement on terms and conditions
satisfactory to Purchaser in its discretion.
5.10 DUE DILIGENCE. Purchaser shall in all respects be satisfied in its
discretion with the results of its due diligence investigation of the Company
and its assets and business.
5.11 UDSMR MATTERS. Purchaser acknowledges that Seller has disclosed to
Purchaser claims by UDSmr related to certain intellectual property used by the
Company, which claims allege that the Company is infringing on rights of UDSmr.
Seller agrees to continue to use reasonable efforts between the date of this
Agreement and Closing to resolve such claims in a manner reasonably acceptable
to Purchaser, Purchaser's approval of such resolution not to be unreasonably
withheld. In the event such claims are not resolved before Closing, Purchaser
shall be entitled not to close the transactions contemplated by this Agreement
and to terminate this Agreement if Purchaser reasonably determines that the
likely exposure of the Company for out-of-pocket costs and expenses on account
of such claims or their resolution will be in excess of $50,000.00.
ARTICLE VI
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF SELLER TO CLOSE
The obligations of Seller to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions:
6.1 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The
representations and warranties made by Purchaser in this Agreement or any
document or
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instrument delivered to Seller or her representatives hereunder shall be true
and correct on the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of such date. Purchaser
shall have duly performed all of the agreements, covenants, acts and
undertakings to be performed by it on or prior to the Closing Date.
6.2 NO INJUNCTION, ETC. No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain, prohibit,
or obtain substantial damages in respect of, or which is related to, or arises
out of, this Agreement or the consummation of the transactions contemplated
hereby, or which is related to or arises out of the business of Purchaser, if
such action, proceedings, investigation, regulation or legislation, in the
reasonable judgment of Seller would make it inadvisable to consummate same or
would have a material adverse effect on Purchaser or its assets or business.
6.3 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments and
documents deemed necessary or appropriate by Sellers or her counsel to
effectuate this Agreement in the consummation of the transactions contemplated
hereby, or incidental hereto, and all other related legal matters, shall have
been approved by such counsel.
6.4 NO MATERIAL ADVERSE CHANGE. There shall not have been any material
adverse change in the business, assets, liabilities or condition, financial or
otherwise, of Purchaser between the date of the Purchaser Interim Financial
Statements and the Closing Date.
6.5 GOOD STANDING CERTIFICATE. Seller shall have received a certificate
of existence from the State of Florida with respect to Purchaser as of the most
recent practical date prior to the Closing Date.
6.6 FINANCING. Seller shall have reviewed and found satisfactory the
terms of the financing obtained by Purchaser for the cash payment to be made at
Closing under this Agreement.
6.7 DUE DILIGENCE. Seller shall in all respects be satisfied in her
discretion with the results of her due diligence investigation of Purchaser and
its assets and business.
ARTICLE VII
CLOSING.
7.1 TIME AND PLACE OF CLOSING. The closing (the "Closing") of the
transactions contemplated by this Agreement will be held no later than five
business days after Purchaser has obtained the financing necessary to fund the
cash payment to be made at Closing hereunder and all other conditions have been
met; provided that Purchaser shall give Seller written notice at least five
business days in advance of the date of such Closing;
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provided, further, that Seller may, by written notice to Purchaser given at
least three days before a closing scheduled by Purchaser, delay the Closing to a
date chosen by Seller, which date shall not be later than January 9, 1995. The
Closing shall commence at 2:00 p.m. at the offices of Alston & Bird, One
Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424 or at
such other time or place upon which the parties agree. The date on which
Closing occurs shall be referred to as the "Closing Date"). Unless the parties
otherwise agree in writing, the transactions contemplated by this Agreement will
be deemed closed as of 12:01 a.m. on the Closing Date.
7.2 TRANSACTIONS AT CLOSING. At the Closing:
(a) Seller shall deliver to Purchaser the certificates for the capital
stock sold by Seller to Purchaser, duly endorsed for transfer or accompanied by
blank stock powers;
(b) Seller shall deliver or cause to be delivered to Purchaser a
Certificate of Good Standing of the Company, as of the most recent practicable
date, from the Secretary of State of the State of Indiana;
(c) Seller shall execute and deliver to Purchaser the Covenant Not to
Compete, the Employment Agreement, the Registration Rights Agreement, the
Shareholders' Agreement and the Investment Letter;
(e) Purchaser shall pay $1,325,000.00 by bank cashier's check or wire
transfer to Seller;
(f) Purchaser shall deliver to Seller one or more share certificates
registered in the name of Seller for an aggregate of 153,119 shares of Series A
Stock of Purchaser; and
(g) Purchaser shall execute and deliver to Seller the Option Agreement,
the Covenant Not to Compete, the Employment Agreement, the Registration Rights
Agreement and the Shareholders' Agreement.
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ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER AND
INDEMNITY. (a) Subject to Section 8.4(c) hereof, all representations,
warranties, agreements, covenants and obligations made or undertaken by the
Purchaser and Seller in this Agreement or in any document or instrument
executed and delivered pursuant hereto shall survive the Closing hereunder and
shall not merge in the performance of any obligation by any party hereto.
(b) Seller agrees to indemnify and hold Purchaser harmless from and
against all liability, loss, damages or injury and all reasonable costs and
expenses (including reasonable counsel fees and costs of any suit related
thereto) suffered or incurred by Purchaser arising from any misrepresentation
by, or breach of any covenant or warranty of, Seller contained in this
Agreement, or any misrepresentation in any certificate or other instrument
furnished or to be furnished Seller hereunder.
(c) Purchaser agrees to indemnify and hold Seller harmless from and
against all liability, loss, damage or injury and all reasonable costs and
expenses (including reasonable counsel fees and costs of any suit related
thereto) suffered or incurred by Seller arising from any misrepresentation by,
or breach of any covenant or warranty of, Purchaser contained in this Agreement
or any misrepresentation in or omission from any certificate or instrument
furnished or to be furnished by Purchaser hereunder.
8.2 NOTICE OF ASSERTED LIABILITY. Promptly after receipt by an indemnified
party hereunder of notice of any demand, claim or circumstances which, with or
without the lapse of time, would give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or investigation (an
"Asserted Liability") that may result in a loss subject to indemnification under
this Agreement, such indemnified party shall give notice thereof (the "Claims
Notice") to the indemnifying party. The Claims Notice shall describe the
Asserted Liability in reasonable detail and shall indicate the amount
(estimated, if necessary) of the loss that has been or may be suffered by such
indemnified party.
8.3 OPPORTUNITY TO DEFEND. The indemnifying party may elect to compromise
or defend, at his or its own expense and by his or its own counsel, any
Asserted Liability; provided, however, that the indemnifying party may not
compromise or settle any Asserted Liability without the consent of the
indemnified party unless such compromise or settlement requires no more than a
monetary payment for which the indemnified party hereunder is fully indemnified
or involves other matters not binding upon the indemnified party. If the
indemnifying party elects to compromise or defend such Asserted Liability, she
or it shall within 30 days after receipt of notice thereof (or sooner, if the
nature of the Asserted Liability so requires) notify the indemnified party of
her or its intent to do so, and
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the indemnified party shall cooperate, at the expense of the indemnifying party
with respect to out-of-pocket expenses of the indemnified party, in the
compromise of or defense against such Asserted Liability. The assumption of the
defense of a matter by an indemnifying party shall be deemed an admission by
such indemnifying party of its obligation to indemnify the indemnified party
hereunder with respect to such claim. If the indemnifying party elects not to
compromise or defend the Asserted Liability, fails to notify the indemnified
party of her or its election as herein provided or contests her or its
obligation to indemnify, the indemnified party or parties may pay, compromise or
defend such Asserted Liability in respect of any Asserted Liability for which
the indemnifying party may have an indemnification obligation. In any event,
the indemnified party and the indemnifying party may participate in the defense
of such Asserted Liability in respect of any Asserted Liability for which the
indemnifying party may have an indemnification obligation.
8.4 LIMITATIONS. (a) Notwithstanding the provisions of Section 8.1(b)
above, Seller shall not be required to make any indemnification payments under
Section 8.1(b) until the aggregate amount of losses suffered by Purchaser that
are subject to indemnification under such Section exceed $18,000.00, at which
time claims may be asserted for the amount in excess of such amount.
Notwithstanding the provisions of Section 8.1(c) above, Purchaser shall not be
required to make any indemnification payments under Section 8.1(c) until the
aggregate amount of losses suffered by Seller that are subject to
indemnification under such Section exceed $18,000.00, at which time claims may
be asserted for the amount in excess of such amount.
(b) Notwithstanding the provisions of Section 8.1(b) above, and except
for any liability, loss, damage, injury or claim resulting from a breach of the
covenants, representations and warranties set forth in Section 1.1, Section 2.2
or Section 2.3, the maximum aggregate liability of Seller for indemnification
under this Agreement shall be equal to $500,000.00. Notwithstanding the
provisions of Section 8.1(b) above or the immediately preceding sentence of this
Section 8.4(b), the maximum aggregate liability of Seller for indemnification
under this Agreement (including both those matters that are subject to the
$500,000.00 limitation set forth in the immediately preceding sentence and those
that are not subject to such limitation) shall be equal to $1,325,000.00.
(c) Notwithstanding the provisions of Section 8.1(c) above, and
except for any liability, loss, damage, injury or claim resulting from a breach
of the covenants, representations and warranties set forth in Section 1.2,
Section 3.2 or Section 3.3, the maximum aggregate liability of Purchaser for
indemnification under this Agreement shall be equal to $500,000.00.
Notwithstanding the provisions of Section 8.1(c) above or the immediately
preceding sentence of this Section 8.4(c), the maximum aggregate liability of
Purchaser for indemnification under this Agreement (including both those
matters that are subject to the $500,000.00 limitation set forth in the
immediately preceding sentence and those that are not subject to such
limitation) shall be equal to $1,325,000.00.
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<PAGE> 15
(d) Notwithstanding the provisions of Section 8.1 above, no claim for
indemnification under this Agreement may be made after the first anniversary of
the Closing Date unless notice of such claim or the facts underlying it is
given to the indemnifying party prior to such first anniversary; provided,
however, that the foregoing restriction shall not apply with respect to (i) any
liability, loss, damage, injury or claim by Purchaser resulting from a breach
of the covenants, representations and warranties set forth in Section 1.1,
Section 2.2, Section 2.3 or Section 2.11, and (ii) any liability, loss, damage,
injury or claim by Seller resulting from a breach of the covenants,
representations and warranties set forth in Section 1.2, Section 3.2 or Section
3.3; provided, further, that any claim based upon any of the matters described
in subsection (i) or (ii) may be brought at any time, subject to any applicable
statutes of limitation.
8.5 EXCLUSIVE REMEDY. From and after Closing, the terms of this Article
VIII shall provide the exclusive remedies of all parties hereto with respect to
any claims arising out of or related to any and all breaches of
representations, warranties, covenants or agreements contained in this
Agreement, or in any documents or instrument delivered in connection herewith;
provided, however, that the foregoing shall not prohibit or limit the right of
any party to seek damages with respect to, or equitable relief in accordance
with the provisions of, the Stock Option, the Covenant Not to Compete, the
Employment Agreement, the Registration Rights Agreement or the Shareholders'
Agreement.
ARTICLE IX
TERMINATION
9.1 METHOD OF TERMINATION. This Agreement and the transactions
contemplated by it may be terminated at any time prior to the Closing Date:
(a) By the mutual consent of Seller and Purchaser;
(b) By Seller after November 30, 1995 if Purchaser shall (i) fail to
perform in any material respect its agreements contained herein required to be
performed by it on or prior to the Closing Date, or (ii) materially breach any
of its representations, warranties or covenants contained herein;
(c) By Purchaser after November 30, 1995, if Seller shall (i) fail to
perform in any material respect her agreements contained herein required to be
performed by her on or prior to the Closing Date, or (ii) materially breach any
of her representations, warranties or covenants contained herein;
(d) By Seller or Purchaser at any time after January 9, 1996, if the
Closing shall not have occurred for any reason on or prior to January 9, 1996.
(e) By either Purchaser or Seller if there shall be any order, writ,
injunction or decree of any court or governmental or regulatory agency binding
on Purchaser or Seller, which prohibits or restrains Purchaser and/or Seller
from
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consummating the purchase of the shares from Sellers, provided that Purchaser
and Seller shall have used their reasonable best efforts to have any such order,
writ, injunction or decree lifted and the same shall not have been lifted within
30 days after entry, by any such court or governmental or regulatory agency.
9.2 NOTICE OF TERMINATION. Notice of termination of this Agreement, as
provided for in this Article IX, shall be given by the parties so terminating
to the other parties hereto in accordance with Section 10.1 of this Agreement.
9.3 EFFECT OF TERMINATION. If this Agreement terminates pursuant to
Section 9.1 hereof, this Agreement shall become void and of no further force
and effect, and each party shall pay the costs and expenses incurred by it in
connection with this Agreement and, provided the Agreement was not terminated
pursuant to subparagraph (b) or (c) of Section 9.1, no party (or any of its
officers, directors, employees, agents, representatives or shareholders) shall
be liable to any other party for any costs, expenses, damages (direct or
indirect) or loss of anticipated profits. If, however, this Agreement is
terminated pursuant to subparagraphs (b) or (c) of Section 9.1, this Section
9.3 shall not relieve a breaching or defaulting party from any liability to the
other party.
ARTICLE X
GENERAL PROVISIONS.
10.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. From and after the
Closing, and until the earlier to occur of (i) the Purchaser's registration of
one or more classes of its securities under the Securities Exchange Act of 1934,
as amended, or (ii) Sellers ceasing to own at least 25,000 shares of Series A
Common Stock of Purchaser, Purchaser will deliver to Seller:
(a) as soon as practicable after the end of each fiscal year of
Purchaser, and in any event within one hundred twenty (120) days thereafter, (i)
a consolidated balance sheet of Purchaser and its Subsidiaries (as hereinafter
defined) as at the end of such year, and the consolidated statements of
operations and cash flow of Purchaser and its Subsidiaries, for such fiscal
year, prepared in accordance with GAAP and certified by nationally recognized
independent public accounts, and (ii) a copy of the management letter, if any,
from such accountants;
(b) as soon as practicable after the end of each calendar month, and
in any event within forty-five (45) days thereafter, the consolidated balance
sheet of Purchaser and its Subsidiaries as of the end of such month, and the
consolidated statements of operations and cash flow of Purchaser and its
Subsidiaries for such month and for the current fiscal year to date, subject to
changes resulting from normal year-end audit adjustments;
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<PAGE> 17
(c) promptly upon receipt thereof, copies of all other reports, if
any, submitted to Purchaser by independent public accountants in connection with
any annual or interim audit of the books of Purchaser and its Subsidiaries made
by such accountants;
(d) promptly upon the occurrence thereof, notice of any default under,
or breach or violation of, this Agreement or any other material agreement to
which Purchaser or any Subsidiary is a party or is bound, or the Certificate of
Incorporation or By-Laws of Purchaser or any Subsidiary; and
(e) with reasonable promptness, such other data and information as
from time to time may be reasonably requested by Seller.
Purchaser agrees that if Seller ceases to be entitled to receive information
under this Section 10.1 on account of Purchaser's registration of a class of
securities under the Securities Exchange Act of 1934 and if Purchaser
subsequently ceases to have one or more classes of securities so registered
while Seller owns more than 25,000 shares of Series A Common Stock, then
Purchaser shall again furnish to Seller the information required by this
Section 10.1.
10.2 INSPECTION RIGHTS. From and after the Closing, and at all times that
Purchaser is required to deliver information to Seller in accordance with
Section 10.1 above, Purchaser will permit Seller to visit and inspect the
properties of Purchaser and its Subsidiaries, including its and their books and
records (and to make extracts therefrom or copies thereof) and to discuss its
and their affairs, finances and accounts with its and their officers and
personnel, all at such reasonable times and as often as Seller may reasonably
request. For purposes of Sections 10.1 and 10.2, "Subsidiary" includes any
corporation, association or other entity of which securities or other ownership
interests representing fifty percent (50%) or more of the ordinary voting power
are, at the time as of which any determination is being made, owned or
controlled by Purchaser or one or more Subsidiaries of Purchaser or by Purchaser
and one or more Subsidiaries of Purchaser.
10.3 NOTICES. (a) All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
facsimile or mailed by nationally recognized overnight delivery service or by
registered or certified mail, return receipt requested, first class postage
prepaid, addressed as follows:
If to Seller:
Pamella Leiter
155 North Wacker Drive, Suite 725
Chicago, Illinois 60606
Facsimile #: (312) 843-3061
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<PAGE> 18
If to Purchaser:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Attn: Mark A. Kaiser
Facsimile #: (404) 364-6711
with a copy to:
Alston & Bird
1201 West Peachtree Street
Atlanta, GA 30309
Attn: Keith O. Cowan
Telephone: (404) 881-7449
Facsimile: (404) 881-7777
(b) If delivered personally or by facsimile, the date on which a
notice, request, instruction or document is delivered shall be the date on which
such delivery is made and, if delivered by mail, the date on which such notice,
request, instruction or document is received shall be the date of delivery.
(c) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
10.1.
10.4 BROKERS. Purchaser represents and warrants to Seller, and Seller
represents and warrants to Purchaser, that no broker or finder has acted for it
or him or any entity controlling, controlled by or under common control with it
or them in connection with this Agreement.
10.5 FURTHER ASSURANCES. Each party covenants that at any time, and from
time to time, after the Closing, it will execute such additional instruments
and take such actions as may be reasonably requested by the other parties to
confirm or perfect or otherwise to carry out the intent and purposes of this
Agreement.
10.6 WAIVER. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. No waiver of any provision of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
10.7 EXPENSES. Except as provided below, all expenses incurred by the
parties hereto in connection with or related to the authorization, preparation
and execution of this Agreement and the Closing of the transactions
contemplated hereby, including, without
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limitation of the generality of the foregoing, all fees and expenses of agents,
representatives, counsel and accountants employed by any such party, shall be
borne solely and entirely by the party which has incurred the same. The parties
agree that the Company will pay, with funds that are the Company's, up to $5,000
in fees and expenses incurred by Seller and the Company in connection with or
related to the authorization, preparation and execution of this Agreement and
the Closing, and that all such fees and expenses of Seller and the Company in
excess of such amount shall be borne by Seller with funds that are not assets of
the Company.
10.8 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
10.9 HEADINGS. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a
part of this Agreement.
10.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto and supersedes and cancels any prior agreements,
representations, warranties, or communications, whether oral or written, among
the parties hereto relating to the transactions contemplated hereby or the
subject matter herein. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an agreement in
writing signed by the party against whom or which the enforcement of such
change, waiver, discharge or termination is sought.
10.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
10.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.13 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, each party hereto has executed or caused this
Agreement to be executed on its behalf, all on the day and year first above
written.
PURCHASER:
MEDIRISK, INC.
By:
---------------------------------------
Name: Mark A. Kaiser
Title: Chairman of the Board and Chief
Executive Officer
SELLER:
------------------------------------------
Pamella Leiter
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<PAGE> 21
LIST OF EXHIBITS
Exhibit A Form of Option Agreement
Exhibit B Form of Guaranty
Exhibit C Form of Covenant Not to Compete
Exhibit D Form of Employment Agreement
Exhibit E Form of Registration Rights Agreement
Exhibit F Form of Investment Letter
Exhibit G Form of Shareholders Agreement
LIST OF SCHEDULES
Schedule 2.1 Organization and Standing Articles of Incorporation
Schedule 2.4 Financial Statements
Schedule 2.6 Litigation
Schedule 2.8 List of Assets
Schedule 2.9 Computer Software; Intellectual Property
Schedule 2.10 Contracts
Schedule 2.12 Employee Benefit Plans
Schedule 2.13 Customers
Schedule 3.1 Organization and Standing of Purchaser
Schedule 3.3 Capitalization
Schedule 3.4 Purchaser's Financial Statements
Schedule 3.5 List of Consents
<PAGE> 1
EXHIBIT 2.3
EXECUTION COPY
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), is made this day
of March, 1996, by and among MEDIRISK, INC., a Florida corporation
("Purchaser"), JOSEPH E. THOMURE, individually ("Thomure") and as trustee under
the Joseph E. Thomure Revocable Living Trust ("Thomure Trust"), SUSAN BRANDT
("Brandt"), DAVID ROLLINS, individually ("Rollins") and as trustee under the
David Rollins Revocable Living Trust ("Rollins Trust"), and SAMUEL E. BRADT
("Bradt");
W I T N E S S E T H:
WHEREAS, the parties desire to enter into this Stock Purchase Agreement
pursuant to which Purchaser will purchase all of the outstanding capital stock
of PracticeMatch, Inc. (the "Company") from Thomure Trust, Brandt and Rollins
Trust (collectively, the "Shareholders") upon the terms and subject to the
conditions set forth herein; and
WHEREAS, Thomure is an employee, officer and director of the Company and
is primary beneficiary of Thomure Trust, and will receive appreciable benefits
from the purchase and sale of the stock of the Company as contemplated hereby;
and
WHEREAS, Brandt is an employee and officer of the Company and will receive
appreciable benefits from the purchase and sale of the stock of the Company as
contemplated hereby; and
WHEREAS, Brandt has an option to and intends to purchase from Thomure
Trust an additional 4.5% of the outstanding shares of stock in the Company
prior to the Closing, and for purposes of this Agreement it is assumed that
Brandt will have exercised said option; and
WHEREAS, Rollins is a former employee of the Company and is primary
beneficiary of Rollins Trust, and will receive appreciable benefits from the
purchase and sale of the stock of the Company as contemplated hereby; and
WHEREAS, Bradt has served as a consultant to the Company, and in
consideration for his services to the Shareholders and the Company, the
Shareholders have agreed that Bradt shall be entitled to receive a commission
equal to 6% of the proceeds of the purchase and sale of the stock of the
Company as contemplated hereby; and
WHEREAS, the Shareholders and Bradt are sometimes referred to herein as
"Sellers" for purposes of convenience;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual promises,
representations, warranties and covenants hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK.
1.1 PURCHASE AND SALE OF STOCK. Subject to the terms and conditions
hereinafter set forth, the Shareholders shall sell to Purchaser, and Purchaser
shall purchase from the Shareholders, free and clear of all liens, claims,
charges and encumbrances of any nature whatsoever, an aggregate of 1,250 shares
of issued and outstanding common stock of the Company (the "Stock"), which
shares represent all issued and outstanding shares of capital stock of the
Company. Each Shareholder shall sell the number of shares of Stock set forth
opposite her or its name on SCHEDULE 1.1, which Schedule reflects the number of
Shares that each Shareholder will own after Brandt exercises her option to
purchase additional shares, which shares Brandt will acquire from Thomure
Trust.
1.2 PURCHASE PRICE. In consideration of the sale and delivery of the
Stock by the Shareholders, (and in the case of Bradt, in consideration of
services rendered to the Company and the Shareholders) and in reliance on the
representations and warranties set forth in Article II below, Purchaser shall
(i) pay to the Sellers (as contemplated by the immediately succeeding sentence)
the sum of $4,954,000.00 in the aggregate, in cash by wire transfer or bank
cashier's check at Closing, such amount to be allocated among the Sellers as
set forth on SCHEDULE 1.2 under the heading of "Cash Payable at Closing;" and
(ii) deliver to the Sellers (as contemplated by the immediately succeeding
sentence) promissory notes, substantially in the form of attached EXHIBIT A
(the "Promissory Notes"), in an aggregate original principal amount of
$1,076,000.00, such amount to be allocated among the Sellers as set forth on
SCHEDULE 1.2 under the heading of "Promissory Notes Deliverable at Closing."
Payment of the Promissory Notes will be guaranteed by the Company under the
terms of a Guaranty, substantially in the form of attached EXHIBIT L. The
Shareholders hereby acknowledge and agree that Bradt is entitled to receive a
portion of the proceeds of the sale and purchase of the Stock in consideration
of services rendered to them, and the Shareholders hereby direct that Purchaser
deliver at Closing to Bradt the sum of cash and Promissory Note as set forth
above.
1.3 ELECTION UNDER SECTION 338(H)(10); TAX MATTERS
(a) Subject to the satisfaction of all terms and conditions of Section
1.3(e) below, Purchaser and the Shareholders shall, at the written request of
Purchaser made within 90 days after Closing, or within the period described in
subsection (d) of this Section 1.3 in the event Purchaser makes a Determination
Election, make a timely election (a "338 Election") under Section 338(h)(10) of
the Internal Revenue Code of 1986, as amended (the "Code") and Section
1.338(h)(10)-1 of the Treasury Regulations promulgated pursuant to the Code,
and any corresponding elections under state or local
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tax law with respect to the purchase and sale of the Stock. Each
Shareholder shall take all actions reasonably requested by Purchaser
(including, without limitation, cooperation in the preparation, and completion
by Purchaser and timely joint filing by Purchaser and the Shareholders of Form
8023-A, and cooperation in the preparation, and completion by Purchaser and
timely filing of such other forms, returns, elections, schedules and other
documents and instruments reasonably requested by Purchaser) to effect a timely
Section 338 Election with respect to the purchase and sale of the Stock. If
Purchaser makes a 338 Election, Purchaser and the Shareholders shall report the
purchase and sale of the Stock consistent with the 338 Election and shall take
no position contrary thereto or inconsistent therewith in any tax return, or in
any discussion with or any proceeding before any taxing authority or other
governmental body or otherwise.
(b) The purchase price specified in Section 1.2 and all other items that
comprise the "modified aggregate deemed sale price" (as defined in, and
required to be allocated pursuant to, Section 338(h)(10) of the Code) shall be
allocated in accordance with a schedule prepared by Purchaser and the
Shareholders on a reasonable basis in accordance with the requirements of the
Code and the regulations thereunder the ("Allocation Schedule") Such
allocation and valuation shall, for tax purposes, be binding on the Company,
the Shareholders and Purchaser. If Purchaser makes a 338 Election, the
Company, the Shareholders and Purchaser shall file their respective tax returns
in accordance with such allocation and shall not take any position inconsistent
with such allocation. In the event that such allocation is disputed by any
taxing authority, the party receiving notice of such dispute shall promptly
notify and consult with the other parties hereto concerning resolution of such
dispute and no such dispute shall be finally settled or compromised without the
mutual consent of the parties, which consent will not be unreasonably withheld.
(c) Shareholders shall, on a timely basis prepare in a manner consistent
with past practice, and Purchaser shall cause an appropriate officer of the
Company to execute and file on behalf of the Company, all tax returns for the
period ended December 31, 1995, at the cost of Shareholders. If Purchaser
determines to make a 338 Election, Shareholders shall, on a timely basis,
prepare (in a manner consistent with prior practice), and Purchaser shall cause
an appropriate officer of the Company to execute and file on behalf of the
Company, (A) the federal income tax returns (338 Returns) to be filed on
behalf of Company for the period ending as of the close of business on the
Closing Date that will include the gain or loss resulting from the "deemed
sale" and "deemed liquidation" that will occur (pursuant to Treasury Regulation
Section 1.338(h)(10)-1(e)(1) and (2) promulgated under the Code) by reason of
the 338 Election and (B) the corresponding state and local income tax returns
to be filed on behalf of Company for the period ending as of the close of
business on the Closing Date. The Purchaser shall cooperate with Shareholders
in connection with the preparation and filing of such returns by making the
books and records of the Company available to Shareholders' independent
accountant and taking such other actions as Shareholders may reasonably
request. Purchaser, upon written notice of request to Shareholders, shall have
the right to review and comment upon such returns prior to filing; provided
that such review and comment must be
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completed at least 10 business days prior to the date on which such returns are
required to be filed, and the Shareholders shall direct their independent
accountant to consider reasonably Purchaser's comments concerning such returns
and to make such adjustments as are reasonable based upon such comments. If
Purchaser does not make a 338 Election, the Shareholders shall, on a timely
basis, prepare (in a manner consistent with prior practice), and Purchaser
shall cause an appropriate officer of the Company to execute and file on behalf
of the Company, the federal, state and local income tax returns to be filed on
behalf of the Company for the period ending as of the close of business on the
Closing Date, and the Shareholders shall bear the costs and expenses of
preparing and filing such returns. If for any reason, a closing of the books
is not mandated, all parties shall join in an election under Section 1377(a)(2)
of the Code to terminate Company's year on the Closing Date.
(d) If (i) Purchaser determines to make a 338 Election pursuant to
subsection (a) above, Purchaser shall pay to the Shareholders, as additional
purchase price hereunder, an amount (the "338 Amount") equal to (A) the
difference between the net after tax proceeds accounting for difference in
timing as well as amount, and including federal and states taxes of the sale of
Stock that the Shareholders would have received had no 338 Election been made
and the net after tax proceeds of such sale that the Shareholders will receive
after applying such 338 Election (i.e. taxes resulting from the deemed sale and
liquidation) plus (B) an amount such that the Shareholders, after receiving the
amount described in (A) and the amount described in this clause (B) and paying
applicable tax thereon, would receive the same net after tax proceeds as the
Shareholders would have received had no 338 Election been made. The
Shareholder's net after tax proceeds of the sale of Stock (both with and
without a 338 Election) and the tax effect of the payment described in (A) and
(B) of the immediately preceding sentence shall be determined by the Company's
regular independent accountant, based upon good faith estimates there
applicable, within 30 days after Purchaser gives the Shareholders notice that
it has determined to make a 338 Election or that it is making a Determination
Election, if earlier, but in no event sooner than 30 days after the final
Allocation Schedule is made available to such accountant. The Shareholders
shall give Purchaser's independent accountant 10 business days to review and
comment upon such determination of the Company's accountant (the "Review
Period"). After the Review Period (and with such adjustments as the Company's
independent accountant may have made, in its reasonable discretion, based upon
the review and comment of Purchaser's independent accountant), the
determination of the net after tax proceeds and the tax effect of such payment
by the Company's independent accountant shall be final and binding on the
parties subject only to future IRS adjustments and future change of
circumstances, such as default by Purchaser under the Promissory Notes,
retroactive future tax law changes and final calculation of the 1996 tax
liabilities of the Shareholders. Purchaser shall pay the fees and expenses of
the Company's independent accountant in connection with making such
determination and, if Purchaser makes a 338 Election, the preparation of the
returns under subsection (c) above (except the returns contemplated by the last
sentence of subsection (c) above). Purchaser may request, by written notice
to Shareholders within 60 days after Closing, that the Company's independent
accountant make the determination described in this
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subsection (d) prior to making its determination concerning making a 338
Election (a "Determination Election"). If Purchaser makes a Determination
Election, then, subject to the satisfaction of the terms of Section 1.3(e)
Purchaser may make a 338 Election pursuant to subsection (a) above prior to the
earlier to occur of (i) ten business days after the Review Period or (ii) ten
business days prior to the date on which the Shareholders are required to file
returns reflecting such 338 Election.
(e) In the event Purchaser determines to make a 338 Election, the 338
amount as determined in accordance with subsection (d) of this Section 1.3 (the
"CPA 338 Amount") shall be paid in cash, by wire transfer or bank cashier's
check, on the earlier of (i) ten business days after the Review Period or (ii)
five business days before the 338 Election is due. Notwithstanding any
provisions of this Section 1.3 to the contrary, in no event shall the
Shareholders be required to join in any 338 Election unless the CPA 338 Amount
is paid in full. If the 338 Amount is later determined to be more than the CPA
338 Amount, such excess shall be paid by Purchaser to the Shareholders within
30 days after Purchaser receives notice of such excess from the Shareholders.
If the 338 Amount is later determined to be less than the CPA 338 Amount, such
difference shall be paid by the Shareholders to Purchaser within 30 days after
the actual 338 Amount is determined.
1.4 RELEASES FROM GUARANTEES. (a) Purchaser hereby acknowledges that
Thomure and his wife, Elaine Thomure (collectively with Thomure, the
"Thomures") have guaranteed certain indebtedness and other obligations of the
Company as set forth on SCHEDULE 1.4. Purchaser agrees to use its best efforts
and reasonable diligence to cause the Thomures to be released from any and all
liability they have as guarantors of the indebtedness described in Section A of
SCHEDULE 1.4, and to cause any personal collateral pledged by the Thomures to
secure their guarantees of such indebtedness to be released, within 90 days
after Closing and, in any event, to cause the Thomures to be released from any
and all liability they have as guarantors with respect to such indebtedness on
or before 180 days after Closing (even if causing such release requires payment
of all or part of such indebtedness and/or providing substitute collateral and
guarantees). In the event Purchaser is unable to cause such release (including
the release of personal collateral) within 180 days, Purchaser shall pay to
Thomure an amount equal to $2,000.00 per month as a guaranty fee, with the
first such payment being due on the day that is 181 days after Closing and with
subsequent payments due monthly (on the same day of each month) thereafter.
Purchaser and Thomure acknowledge that Purchaser has begun making efforts to
cause such release.
(b) Purchaser agrees to use its best efforts and reasonable diligence to
cause Thomure to be released from any and all liability he has as guarantor
with respect to all other obligations described on SCHEDULE 1.4 within 180 days
after Closing and, in any event, to cause the Thomure to be released from any
and all liability he has as guarantor with respect to any such other
obligation on or before the first anniversary of the Closing Date.
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(c) Purchaser agrees to cause the Company to pay all amounts due and owing
and otherwise to perform all such obligations that the Thomures have (or either
of them has) guaranteed as and when due until the Thomures (or either of them
and such collateral) are released, and upon the Company's failure to so pay and
perform, Purchaser shall so pay and otherwise perform such obligations, it
being the understanding of the parties that, as between Purchaser and the
Thomures, Purchaser has guaranteed the Company's performance of such
obligations. Until Thomures are released as guarantors, Purchaser agrees that
it will not: (a) modify, alter or amend any such obligations, provided that
Purchaser may permit the Company to incur indebtedness under the facilities
described in SCHEDULE 1.4 in accordance with the Company's past practices in
the ordinary course of business, and (b) permit the Company to pay any dividend
or make any loan to Purchaser or any affiliate of Purchaser or otherwise use
the proceeds of any borrowing from Colonial Bank for the direct benefit of
Purchaser. It is the intent of the parties that net cash flow of the Company
not reasonably anticipated to be needed for the operation of the Company's
business in a reasonably foreseeable time will be applied to reduce borrowings
under the loans described in Section A of SCHEDULE 1.4.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS.
Thomure, Thomure Trust, Brandt, Rollins, Rollins Trust and Bradt
(collectively, "Sellers" and individually a "Seller"), jointly and severally,
represent and warrant to Purchaser as follows:
2.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Missouri with the full corporate power and authority to carry on its business
in the State of Missouri and to own and lease the properties and assets it now
owns or leases. The State of Missouri is the only jurisdiction in which
failure to be so qualified to transact business as a corporation would have a
material adverse effect on the Company or its assets or business. Included in
SCHEDULE 2.1 are true and complete copies of the Company's Articles of
Incorporation and Bylaws.
2.2 AUTHORITY AND STATUS. Each Seller has the capacity and authority to
execute and deliver this Agreement, to perform under it and to consummate the
transactions contemplated by this Agreement without the necessity of any act or
consent of any other person whomsoever. This Agreement and each and every
agreement, document and instrument to be executed, delivered and performed by
each Seller in connection with this Agreement constitute or will, when executed
and delivered, constitute the valid and legally binding obligations of such
Seller, enforceable against such Seller in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles (whether applied with action at law or in equity) or by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally.
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2.3 CAPITALIZATION; OWNERSHIP OF STOCK. (a) The authorized capital stock
of the Company consists of 30,000 shares of Common Stock, $1.00 par value per
share, 1,250 of which are issued and outstanding. All of the issued and
outstanding Shares are duly and validly issued and outstanding, are fully paid
and nonassessable, and were issued pursuant to a valid exemption from
registration under the Securities Act of 1933, as amended, and all applicable
state securities laws. There are no outstanding warrants, options, rights,
calls or other commitments of any nature relating to the Common Stock or any
other capital stock of the Company, and there are no outstanding securities of
the Company convertible into or exchangeable for shares of Common Stock or any
other capital stock of the Company, except the option of Brandt, as noted
above. Furthermore, as noted above, Bradt is entitled to receive a portion of
the purchase price as a commission from the transaction contemplated by this
Agreement.
(b) Each Shareholder is, or at the closing will be, the legal and
beneficial owner of the number of shares of Stock reflected opposite his or her
name on SCHEDULE 1.1, free and clear of all liens, claims, charges,
encumbrances, security interests, pledges or other claims.
2.4 LIABILITIES AND OBLIGATIONS OF THE COMPANY. (a) Attached as SCHEDULE
2.4 are true, correct and complete copies of (i) the Company's audited balance
sheet as of December 31, 1994 and the related statement of operations and
statement of cash flows for the fiscal year ending on December 31, 1994, and
(ii) the Company's unaudited balance sheet as of December 31, 1993 and the
related statements of operations for the fiscal year ending on December 31,
1993 (the "Financial Statements"). Also attached as SCHEDULE 2.4 are true,
correct and complete copies of the Company's unaudited balance sheet as of
December 31, 1995 and the related unaudited statement of operations for the
twelve-month period then ended (the "Interim Financial Statements"). Except as
specifically described in SCHEDULE 2.4 and except that the Financial Statements
for the period ending December 31, 1993 and the Interim Financial Statements do
not include statements of cash flows, the Financial Statements and the Interim
Financial Statements are complete to the extent required by generally accepted
accounting principles, have been prepared in accordance with generally accepted
accounting principles consistently applied (except that the Interim Financial
Statements do not contain any notes thereto and are subject to normal recurring
year-end adjustments, which individually and in the aggregate will not deviate
substantially therefrom), and fairly present the Company's financial condition
as of the dates thereof in accordance with generally accepted accounting
principles.
(b) Except as described in SCHEDULE 2.4, the Company has no liability or
obligation related to its assets or business (whether accrued, absolute,
contingent or otherwise), except for (i) the liabilities and obligations of the
Company that are disclosed or reserved against in the Interim Financial
Statements, to the extent and in the amounts so disclosed or reserved against,
(ii) liabilities that were incurred or accrued in the ordinary course of the
Business since the date of the Interim Financial Statements, and (iii) the
liabilities and obligations of the Company under the contracts that are
disclosed on
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SCHEDULE 2.10 or that by the terms of Section 2.10 are not required to be
identified on SCHEDULE 2.10.
2.5 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. Except as set forth on
SCHEDULE 2.5, each Seller's execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will not, violate
any provision of the Articles of Incorporation, as amended, or Bylaws, as
amended, of the Company, or violate or constitute an occurrence of default
under any provision of, or conflict with, or result in acceleration of any
obligation under, or give rise to a right by any party to terminate its
obligations under, any mortgage, deed of trust, conveyance to secure debt,
note, loan, lien, lease, agreement or instrument, or any order, judgment,
decree or other arrangement to which the Company or any Seller is a party or is
bound
2.6 LITIGATION Except as set forth on SCHEDULE 2.6, there is no suit,
action, proceeding, claim or investigation pending or, to the knowledge of each
of Sellers and the Company, threatened against, or affecting, the Company; and
to the knowledge of each of Sellers and the Company, there exists no reasonable
basis or grounds for any such suit, action, proceedings, claim or
investigation, which suit, action, proceedings, claim or investigation is
reasonably likely of assertion based upon communications of third parties to
the Company or any Seller.
2.7 PERMITS. The Company holds all licenses, permits and other
authorizations from all appropriate federal, state or other public authorities
necessary for the conduct of its business and the use of its assets, except
where the failure to have any such license, permit or authority would not
result in a monetary penalty against the Company or in any alteration or
cessation of any portion of the business of the Company. The Company is
conducting and has conducted its business so as to comply with all applicable
statutes, rules, ordinances, regulations and orders.
2.8 TITLE TO ASSETS. Attached as SCHEDULE 2.8 is a list and summary
description of all real property owned or leased by the Company and of all
items of personal property with a fair market value in excess of $5,000 owned
or leased by the Company (such list identifying the properties owned by the
Company and all of the leases or agreements under which the Company is lessee
of or holds or operates any property). Except as set forth on SCHEDULE 2.8,
the Company has good title to all of its property and assets, other than leased
property, free and clear of any liens, claims, charges, options, rights of
tenants or other encumbrances, except as disclosed or reserved in the Financial
Statements or the Interim Financial Statements and except for liens for current
taxes not yet due and payable.
2.9 COMPUTER SOFTWARE, INTELLECTUAL PROPERTY. (a) Attached SCHEDULE
2.9(A) sets forth a complete and correct list and summary description of all
trademarks, trade names, service marks, service names, brand names, copyrights
and patents, registrations thereof and applications therefor, used by the
Company in the conduct of its business, together with a complete list of all
licenses granted by or to the
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Company with respect to any of the above. All such trademarks, trade names,
service marks, service names, brand names, copyrights and patents reflected on
SCHEDULE 2.9(A) as owned by the Company are owned by the Company free and clear
of all liens, claims, security interests and encumbrances of any nature
whatsoever. All such trademarks, trade names, service marks, service names,
brand names, copyrights and patents reflected on SCHEDULE 2.9(A) as licensed,
leased or otherwise used (but not owned) by the Company are used by the Company
pursuant to terms of binding agreements under which the Company has the right
to use such trademarks, trade names, service marks, service names, brand names,
copyrights and patents as currently used in the Company's business without
payment of any royalty or other fee, except as set forth on SCHEDULE 2.9(A).
The Company is not currently in receipt of any notice of violation of, and to
the best of Sellers' knowledge, the Company is not violating the rights of
others in any trademark, trade name, service mark, copyright, patent, trade
secret, know-how or other intangible asset.
(b) Attached SCHEDULE 2.9(B) contains a complete and accurate list of the
computer software, databases and other intellectual property that is owned by
the Company (the "Owned Software"). Except as set forth on SCHEDULE 2.9(B),
the Company has exclusive rights and title to the Owned Software, free and
clear of all liens, claims, security interests and encumbrances of any nature
whatsoever, including claims or rights of employees, agents, consultants,
customers, licensees or other parties involved in the development, creation,
marketing, maintenance, enhancement or licensing of such Owned Software.
Except as set forth on SCHEDULE 2.9(B), the Owned Software is not dependent on
any Licensed Software (as defined below) in order to operate fully in the
manner in which it is intended, except for operating systems and third party
applications that are stated in the Owned Software documentation and are
readily commercially available. No Owned Software has been published or
disclosed by the Company or, to the knowledge of each of the Sellers and the
Company, by any third party to any other parties, except as set forth on
SCHEDULE 2.9(B) and except pursuant to contracts requiring such other parties
to keep such Owned Software confidential. To the knowledge of each of the
Sellers and the Company, no such other party has breached any such obligation
of confidentiality, except as disclosed on SCHEDULE 2.9(B).
(c) Attached SCHEDULE 2.9(C) contains a complete and accurate list of all
computer software, databases and other intellectual property that is used by
the Company of which the Company is the licensee or lessee or the right to use
which the Company has otherwise obtained (other than commercially available
over-the-counter "shrinkwrap" software) (all of such software, including
"shrinkwrap" software being used by the Company, collectively, the "Licensed
Software"). SCHEDULE 2.9(C) also sets forth a list of all license fees, rents,
royalties or other charges that the Company is required or obligated to pay
with respect to Licensed Software. Prior to the date of this Agreement,
Sellers have delivered to Purchaser true and complete copies of all agreements
under which Seller has the right to use Licensed Software. Except as described
on SCHEDULE 2.9(C), the Company has the right and license to use, sublicense,
modify and copy the Licensed Software, free and clear of any limitations or
encumbrances. The Company is in compliance with all provisions of any license,
lease or other similar agreement pursuant to
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which the Company has rights to use the Licensed Software, except where the
failure to be in compliance would not cause the termination of such license,
lease or agreement, would not lead to the imposition of any penalty, premium or
additional cost or damage under such license, lease or agreement and would not
cause a material adverse effect on the Company or its assets or business.
Except as disclosed on SCHEDULE 2.9(C), none of the Licensed Software has been
incorporated into or made a part of any Owned Software or any other Licensed
Software. The Company has not published or disclosed any Licensed Software to
any other party except, in the case of Licensed Software that the Company
leases or markets to others, in accordance with and as permitted by any
license, lease or similar agreement relating to the Licensed Software and
except pursuant to contracts requiring such other parties to keep the Licensed
Software confidential. To the knowledge of each of the Sellers and the
Company, no party to whom the Company has disclosed Licensed Software has
breached such obligation of confidentiality.
(d) The Owned Software and the Licensed Software constitute all software
used in relation to the business of the Company (the "Company Software").
Attached SCHEDULE 2.9(D) sets forth a list of all contract programmers,
independent contractors, nonemployee agents and persons or other entities
(other than employees or former employees) who have performed computer
programming services for the Company in connection with any of the Company
Software and identifies all contracts and agreements pursuant to which such
services were performed. The transactions contemplated by this Agreement will
not cause a breach or default under any license or similar agreement relating
to the Company Software or impair Purchaser's ability to use the Company
Software in the same manner as such Company Software is currently used by the
Company. Except as set forth in SCHEDULE 2.9(D), to the knowledge of each of
Sellers and the Company, (i) the Company is not infringing any intellectual
property rights of any other person or entity with respect to the Company
Software, and (ii) no other person or entity is infringing any intellectual
property rights of the Company with respect to the Owned Software.
(e) The Company and, to the knowledge of each of the Sellers and the
Company, all other parties to any licensing or similar arrangements under which
the Company is the licensor or has otherwise granted the right to use the
Company Software are in substantial compliance with such licensing or similar
arrangements and are not in material breach of their obligations with respect
thereto, except as set forth in SCHEDULE 2.9(E). Except as set forth on
SCHEDULE 2.9(E), the Company is not a party to any license, installation
agreement, maintenance agreement, data processing agreement, services agreement
or other agreement pursuant to which it is committed to perform software
installation, modifications, enhancements or services without payment or for
payments which, in the aggregate, are less that the reasonably anticipated cost
to perform such installation, modifications, enhancements or services. The
Company has complied in all material respects with its obligations to its
customers and licensees in respect of the Company Software.
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(f) Except as set forth on SCHEDULE 2.9(F), the Company has granted no
marketing rights in the Company Software to any third party, and all marketing
rights granted by any third party to the Company have been granted exclusively
to the Company. SCHEDULE 2.9(F) lists and separately identifies all agreements
pursuant to which the Company has granted or been granted rights to market
software, databases and other intellectual property owned by third parties.
2.10 CONTRACTS. Attached as SCHEDULE 2.10 is a true and correct list of
all contracts, agreements and other instruments to which the Company is a party
under which the aggregate liability of, or benefit to, the Company could
reasonably be expected to exceed $5,000. On or prior to the date of this
Agreement, Sellers have made available a copy of each such contract, agreement
and instrument to Purchaser. Said SCHEDULE 2.10 also lists those contracts
that have technically expired but which have been continued by agreement
between the Company and the customer, such Schedule reflecting which of such
contracts have technically expired and the terms of any modifications of such
contracts made by the Company and the customer when the contract was continued.
2.11 TAXES.
(a) Effective as of January 1, 1990, the Company elected, and its
shareholders consented to treatment as an S Corporation under Subchapter S of
the Internal Revenue Code of 1986, as amended (the "Code"). Such election
remains in full force and effect; and has not been revoked or terminated.
(b) The Company has timely and accurately filed all federal, state,
foreign and local tax and information returns and reports required to be filed
by it prior to such date and has timely paid, or will prior to Closing timely
pay, all taxes, including, without limitation, any and all income, sales, use,
withholding and excise taxes (collectively "Taxes") required to be paid prior
to Closing. No liens have been filed and no claims are being asserted with
respect to any Taxes. No restrictions on assessment or collection of Taxes
have been waived with respect to the Company, and the Company has not consented
to the extension of any statute of limitations with respect to the Company
relating to Taxes, except for waivers or consents that are no longer in effect.
The Company has received no notice of assessment or proposed assessment of any
Taxes claimed to be owed by it or any other person or entity on its behalf. No
returns, reports or forms filed by or on behalf of the Company with respect to
Taxes are currently being audited or examined, and the Company has not received
any notice of any such audit or examination.
(c) The Company has withheld or collected from each payment made to each
of its employees the amount of all Taxes required to be withheld or collected
therefrom and the Company has paid the same to the proper tax depositories or
collecting authorities to the extent such withholding, collection or payment
was required to be made prior to Closing.
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(d) All ad valorem property taxes for years prior to 1996 imposed on the
Company with respect to, or which may become a lien on, its assets have been
paid in full.
2.12 EMPLOYEE BENEFIT PLANS. Attached as SCHEDULE 2.12 is a list of every
pension, retirement, profit-sharing, deferred compensation, severance pay,
vacation, bonus or other incentive plan, any other written or unwritten
employee program, arrangement that involves the expenditure of more than $5,000
per year, agreement or understanding that involves the expenditure of more than
$5,000 per year, any medical, vision, dental or other health plan, any life
insurance plan or any other employee benefit plan or fringe benefit plan,
including without limitation any "employee benefit plan," as that term is
defined in Section 3(3) of the Employee Retirement Security Act of 1974, as
amended ("ERISA"), currently or previously adopted, maintained, sponsored or
contributed to by the Company for the benefit of employees, retirees,
dependents, spouses, directors or other beneficiaries and under which
employees, retirees, dependents, spouses, directors or other beneficiaries are
eligible to participate (collectively, the "Benefit Plans"). All of the
Benefit Plans (and any related trusts subject to ERISA) comply with and have
been administered in compliance with the provisions of ERISA, all provisions of
the Code, all applicable state or federal securities laws and all other
applicable laws, rules and regulations, except where the failure to be so
administered would not result in a monetary penalty against the Company or in
any alteration or cessation or the conduct of any portion of the Company's
business. No event has occurred that will or could reasonably be expected to
give rise to a disqualification of any such plan under Sections 401(a) or
501(a) of the Code or to a tax under Section 511 of the Code. Neither the
Company nor any administrator or fiduciary of any such Benefit Plan (or agent
or delegate of any of the foregoing) has engaged in any transaction or acted or
failed to act in any manner that could reasonably be expected to subject the
Company to any direct or indirect liability for a breach of any fiduciary or
co-fiduciary duty under ERISA. No "party in interest" (as defined in Section
3(14) of ERISA) or "disqualified person" (as defined in Section 4975(e)(2) of
the Code) of any Benefit Plan has engaged in any "prohibited transaction"
(within the meaning of Section 4975(c) of the Code or Section 406 of ERISA and
not exempt under Section 408 of ERISA).
2.13 CUSTOMERS. Attached as SCHEDULE 2.13 is a true and correct list of
all of the customers who did in excess of $5,000 of business with the Company
during 1994 and 1995 setting forth as to each such customer its name, address,
telephone number and principal person of contact. Except as otherwise
disclosed on SCHEDULE 2.3, neither the Company nor any Seller has received any
actual notice that any such customer has taken or contemplates taking steps
that could disrupt the business relationship of the Company with such customer,
except that those customers noted by an asterisk (*) on SCHEDULE 2.13 have not
renewed their subscriptions or have advised the Company that they do not
intend to renew their existing subscriptions. Sellers do not represent or
warrant the continuation of any customer relationships with the Company.
2.14 OFFICERS, DIRECTORS AND BANK ACCOUNTS. SCHEDULE 2.14 lists (i) the
names of all directors and officers of the Company, and (ii) the name and
location of each
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bank or other institution in which the Company has any deposit account or safe
deposit box, all account numbers and names of all persons authorized to draw
thereon or to have access thereto.
2.15 INTERESTED TRANSACTIONS.
(a) Except as set forth on SCHEDULE 2.15, the Company is not a party
to any contract, agreement or other instrument or transaction with any of the
following persons, or in which any of the following persons have any direct or
indirect interest (other than as a shareholder or employee of the Company);
(i) Any director or officers of the Company listed on SCHEDULE
2.14 or any of the Sellers;
(ii) Any of the spouses (other than Thomure's spouse, who has
performed bookkeeping and other services for the Company), parents, siblings,
children, aunts, uncles, nieces, nephews, in-laws or grandparents of any of
the persons described in clause (i); or
(iii) Any corporation, trust, partnership or other entity in
which any of the persons described in clauses (i) or (ii) has a beneficial
interest (other than in a corporation whose shares are publicly traded and in
which such persons own beneficially in the aggregate no more than two percent
of the equity interest).
(b) None of the Sellers is an employee, consultant, partner,
principal, director or shareholder of any business or entity (other than the
Company or a corporation whose shares are publicly traded and in which such
Seller beneficially owns in the aggregate no more than a two percent equity
interest) which is engaged in a business similar to the business of the Company.
2.16 SCHEDULES. Matters disclosed on each Schedule shall be deemed
disclosed only for purposes of the matters to be disclosed in such Schedule and
in any other Schedule in which the same or substantially the same information
is required to be disclosed, provided that the disclosure in the Schedule is
sufficiently detailed to permit a reasonable reader to know such disclosure
relates to the matters required to be disclosed on such other Schedule.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Sellers as follows:
3.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida
with the full
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power and authority to carry on its business in the places and as it is now
being conducted and to own and lease the properties and assets which it now
owns or leases. Purchaser is now, and will be at Closing, duly qualified to
transact business and in good standing in all jurisdictions in which the
operations of Purchaser's business or the assets of Purchaser require such
qualification.
3.2 AUTHORITY AND STATUS. Purchaser has the capacity and authority to
execute and deliver this Agreement, to perform under it and to consummate the
transactions contemplated by this Agreement without the necessity of any act or
consent of any other person whomsoever. This Agreement and each and every
agreement, document and instrument to be executed, delivered and performed by
Purchaser in connection with this Agreement constitute or will, when executed
and delivered, constitute the valid and legally binding obligations of
Purchaser, enforceable against Purchaser in accordance with their respective
terms, except as enforceability may be limited by applicable equitable
principles (whether applied with action at law or in equity) or by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally.
3.3 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. Except as set forth on
SCHEDULE 3.3, the execution and delivery of this Agreement by Purchaser do not,
and the consummation of the transactions contemplated hereby will not, violate
any provision of the Articles of Incorporation, as amended, or Bylaws, as
amended, of Purchaser or violate or constitute an occurrence of default under
any provision of, or conflict with, or result in acceleration of any obligation
under, or give rise to a right by any party to terminate its obligations under,
any mortgage, deed of trust, conveyance to secure debt, note, loan, lien,
lease, agreement, instrument, or any order, judgment, decree or other
arrangement to which Purchaser is a party or is bound.
3.4 INVESTMENT. The shares to be purchased by Purchaser hereunder are
being acquired for investment purposes only for Purchaser's own account, not as
nominee or agent, and not with a view to the distribution or resale of any part
thereof.
3.5 SOPHISTICATION. Purchaser has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of Purchaser's investment in the stock. Purchaser has the ability to
bear the economic risks of such investment. Purchaser has the capacity to
protect Purchaser's own interest in connection with the transactions
contemplated by this Agreement, and Purchaser has, through the representations
and warranties of Sellers in this Agreement, Purchaser's access to the
Company's books, records, facilities and assets, and Purchaser's due diligence
investigation, had an opportunity to obtain such financial and other
information from Company and Sellers as Purchaser deems necessary or
appropriate in connection with evaluating the merits of the investment in the
shares.
3.6 HPSC AGREEMENT. Attached hereto as SCHEDULE 3.6 is a true, correct
and complete copy of the Securities Purchase Agreement (the "Securities
Purchase
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Agreement"), dated January 8, 1996, by and between Purchaser and HealthPlan
Services Corporation ("HPSC"); provided that such copy omits the exhibits and
schedules to the Securities Purchase Agreement. The Securities Purchase
Agreement is in full force and effect and has not been modified, amended,
supplemented or changed in any respect. To the knowledge of Purchaser, no
event has occurred and no condition exists which, with notice or passage of
time or both, would constitute a default under the Securities Purchase
Agreement by Purchaser or HPSC. Except as specifically set forth in the
Securities Purchase Agreement, HPSC has no right to terminate the Securities
Purchase Agreement. To the knowledge of Purchaser, there are no actions,
whether voluntary or involuntary, pending against HPSC under the bankruptcy or
insolvency laws of the United States or any political subdivision thereof.
Purchaser represents and warrants to the Shareholders and Bradt that this
Agreement and the deliveries to the Escrow Agent (as defined below) as
contemplated by Section 4.8(b) do not violate or constitute an Event of Default
(as defined in the Securities Purchase Agreement) and do not give HPSC any
right to cease to honor directions by Purchaser under the Securities Purchase
Agreement that HPSC purchase additional Senior Subordinated Notes.
ARTICLE IV
COVENANTS AND UNDERTAKINGS
4.1 COVENANT NOT TO COMPETE. At Closing, each of Thomure and Thomure
Trust, Brandt, Rollins and Rollins Trust, and Bradt will enter into a Covenant
Not to Compete with Purchaser and the Company substantially in the form of
attached EXHIBIT B (the "Covenants Not to Compete"). In consideration of the
execution and delivery of such Covenants Not to Compete, Purchaser will pay at
Closing, by wire transfer or bank cashier's check, the following amounts (i) to
Thomure and Thomure Trust, $61,570.00, (ii) to Brandt, $18,330.00, (iii) to
Rollins and Rollins Trust, $14,100.00, and (iv) to Bradt $6,000.00.
4.2 EMPLOYMENT AGREEMENT AND CONSULTING AGREEMENT. At Closing, Brandt,
the Company and Purchaser will enter into an Employment Agreement substantially
in the form of attached EXHIBIT C (the "Employment Agreement"). At Closing,
Thomure, the Company and Purchaser will enter into a Consulting Agreement
substantially in the form of attached EXHIBIT D (the "Consulting Agreement").
4.3 INVESTMENT LETTER. At Closing, each Shareholder and Bradt will
execute and deliver to Purchaser an investment letter with respect to the
promissory note of Purchaser to be delivered to such Shareholder or Bradt at
Closing substantially in the form of attached EXHIBIT E (the "Investment
Letter").
4.4 SHAREHOLDER CONSENT. Each Seller shall execute and deliver a
Shareholder Consent and Power of Attorney substantially in the form of attached
EXHIBIT F (the "Shareholder Consent") appointing Thomure to act as his, her or
its attorney-in-fact hereunder. In such capacity, Thomure (and any successor
of Thomure in such capacity as provided in the Shareholder Consent) is referred
to in this Agreement as the
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"Representative." In the event of Thomure's death or incapacity, Brandt shall
act as Representative under the Shareholder Consent.
4.5 CONSENTS AND APPROVALS. Each Seller agrees to use his, her or its
best efforts and due diligence to obtain the waiver, consent and approval of
all persons whose waiver, consent or approval is required in order to
consummate the transactions contemplated by this Agreement, or is required by
any agreement, lease, instrument, arrangement, judgment, decree, order or
license to which the Company or any Seller is a party or subject that would
prohibit, or require the waiver, consent or approval of any person to such
transactions, or under which the consummation of such transactions would
constitute (or with notice or lapse of time would constitute) an event of
default.
4.6 CONDUCT OF THE BUSINESS PRIOR TO CLOSING. Except with the written
consent of Purchaser and except as may be required to effect the transactions
contemplated by this Agreement, between the date of this Agreement and the
earlier of (i) Closing and (ii) the termination of this Agreement, Sellers will
cause the Company to (a) operate the Business only in the ordinary course, (b)
not make or permit any amendment of the Company's Articles of Incorporation or
Bylaws or change its issued and outstanding securities; (c) not hire or engage
any employee, consultant or independent contractor; (d) not directly or
indirectly declare, pay or authorize any dividends or distributions on or
payments in respect of its capital stock, except for dividends to enable the
Shareholders to pay income taxes with respect to the income of the Company,
which dividends shall be in an amount equal to 43.5% of the taxable income of
the Company for the period beginning on January 1, 1996 and ending on the
Closing Date, which amount shall be paid to the Shareholders as soon as
determined, whether before or after Closing; (e) not make any contribution to
or distribution from any Employee Benefit Plan, except as required pursuant to
the terms thereof or by law; (f) not pay or agree to pay, conditionally or
otherwise, any bonus, extra compensation, pension or severance pay to any of
Company's present or former officers, agents, consultants or employees except
under any existing pension or other plan or arrangement or increase the
compensation (including salaries, fees, commissions, bonuses, profit sharing,
incentive, pension, retirement or other similar payments) being paid as of
January 1, 1996, to any of the Company's management or other employees, other
than salary increases not greater than 4% in connection with customary annual
reviews or except as required under an agreement disclosed on SCHEDULE 2.10 or
pursuant to an employee benefit plan listed on SCHEDULE 2.12; (g) not borrow
any monies or subject any of its assets to any lien, charge, pledge or other
encumbrance; and (h) not enter into any material contracts or extend, modify or
amend any material contracts existing on the date of this Agreement.
4.7 CONSENTS OF PURCHASER. Purchaser agrees to use its best efforts and
due diligence to obtain the waiver, consent and approval of all persons whose
waiver, consent or approval is required in order to consummate the transactions
contemplated by this Agreement, or is required by any agreement, lease,
instrument, arrangement, judgment, decree, order or license to which the
Purchaser is a party or subject that would prohibit, or require the waiver,
consent or approval of any person to such transactions, or under which
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the consummation of such transactions would constitute (or with notice or lapse
of time would constitute) an event of default.
4.8 FINANCING AND ESCROW AGREEMENT. (a) Purchaser agrees that so long as
any of the Promissory Notes remains outstanding it shall not, except to fund
the repayment of the Promissory Notes, cause HPSC to purchase under the
Securities Purchase Agreement Senior Subordinated Notes (as defined in the
Securities Purchase Agreement) with an aggregate original principal amount in
excess of the greater of (i) $8,900,000.00 or (ii) $9,000,000.00 if the
aggregate remaining principal balance of the Promissory Notes outstanding is
less than $1,000,000.00. Purchaser agrees to comply in all material respects
with all of the terms of the HPSC Agreement. Purchaser further agrees that
there will, at all times while the Promissory Notes are outstanding, be
sufficient funds available under the Securities Purchase Agreement to permit
Purchaser to fund payment of principal and interest due under the Promissory
Notes. Purchaser agrees to deliver to the Representative, within five business
days after received, a copy of any notice received by Purchaser from HPSC that
alleges an event of default or potential event of default has occurred under
the Securities Purchase Agreement or pursuant to which HPSC accelerates the
maturity of the indebtedness outstanding under the Securities Purchase
Agreement.
(b) At Closing Purchaser, the Shareholders and Bradt shall enter into an
Escrow Agreement with United Missouri Bank, as escrow agent (the "Escrow
Agent"), substantially in the form of attached EXHIBIT H (the "Escrow
Agreement"), pursuant to which Purchaser will deliver to the Escrow Agent all
executed documents necessary to create an obligation on the part of HPSC to
purchase $1,100,000.00 in Senior Subordinated Notes and (B) to cause HPSC to
pay the purchase price for such Senior Subordinated Notes to the Shareholders
and Bradt in payment of the Promissory Notes.
(c) Purchaser agrees that for so long as any amount remains unpaid under
the Promissory Notes it shall not pledge or otherwise encumber the shares of
stock of the Company acquired hereunder except to a senior lender to which HPSC
is required to subordinate pursuant to Section 4.1 of the Securities Purchase
Agreement.
4.9 MAINTENANCE OF INSURANCE. After Closing, Purchaser shall cause the
Company to maintain for at least two years after Closing the insurance policies
described on SCHEDULE 4.9 or policies (with companies that have a Best's rating
of no less than AA, or equivalent) providing the same or more coverage than
such policies as to acts and omissions of the Company occurring prior to
Closing. In lieu of maintaining any policy described in the immediately
preceding sentence, the Company may purchase "tail" coverage with respect to
any such policy, provided that the period of such "tail" coverage ends no
earlier than the second anniversary of Closing. In the event the Company is
merged with Purchaser or any other entity prior to the second anniversary of
the Closing, Purchaser shall, or shall cause such other entity to, maintain
the insurance policies or "tail" coverage described above. Purchaser shall in
February of each year provide Sellers with a certificate or other evidence of
insurance. If Purchaser fails to maintain such insurance,
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Seller may (but is not obligated to) procure such insurance on behalf of
Purchaser, and shall be entitled to reimbursement from Purchaser, in addition
to any other rights and remedies under this Agreement.
4.10 AVAILABILITY OF RECORDS. After the Closing, at reasonable times and
on reasonable notice, Sellers and their representatives shall have access to
all financial and other books and records of the Company as existing on the
Closing Date including, but not limited to, the minute books and stock ledger
records of the Company. Furthermore, Purchaser shall retain such books and
records for a period of at least five (5) years after the Closing, and Sellers
shall be permitted to make and retain copies of the books and records. Sellers
shall use such records only in connection with tax matters involving periods
prior to the Closing Date and they shall not disclose any of the information
made available to them hereunder except (i) to their counsels and
representatives, (ii) to the Internal Revenue Service in connection with an
audit or (iii) as required by law. From and after the Closing and until the
Promissory Notes are paid in full and the Thomures are released from all
guaranty liability as provided in Section 1.4, Purchaser will provide Sellers
with: (i) as soon as available, and in any event within 120 days after the end
of each fiscal year of Purchaser ended after the date of this Agreement,
audited consolidated financial statements of Purchaser as of the end of and for
such fiscal year, together with a report thereon of Purchaser's independent
certified public accounting firm, prepared in accordance with generally
accepted accounting principles; and (ii) as soon as available, and in any event
within 45 days after the end of each fiscal quarter of Purchaser ended after
the date of this Agreement, a consolidated balance sheet of Purchaser as of the
end of such quarter and statements of income, retained earnings and cash flows
of Purchaser for such quarter and for the fiscal year to date prepared in
accordance with generally accepted accounting principles subject to normal
year-end audit adjustments applied on a basis consistent with prior years. If
Purchaser becomes subject to the reporting requirements of the Securities
Exchange Act of 1934 prior to payment in full of the Promissory Notes and the
Release of the Thomures, then Purchaser shall furnish Sellers with copies of
all reports filed by the Company under the Securities Exchange Act of 1934 in
lieu of the information contemplated by the immediately preceding sentence.
4.11 AUTOMOBILE LEASE. Thomure acknowledges and agrees that the Company
has leased a 1996 BMW automobile for Thomure's business and personal use from
Plaza Motor Company (the "Automobile Lease") and that Thomure desires to
continue to have the use of such automobile after Closing. Thomure, therefore,
agrees to assume the Automobile Lease, and Sellers agree to cause the Company
to assign the Automobile Lease to Thomure, at or before Closing. Thomure
agrees to use his best efforts to obtain the consent of the lessor to the
assignment of the Automobile Lease and to use his best efforts to cause such
lessor to release the Company from any and all liability with respect to such
Automobile Lease. From and after Closing, Thomure shall pay all costs and
expenses related to the leasing, operation, maintenance and insurance of the
automobile leased under the Automobile Lease, whether or not the lessor
consents to such assignment.
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ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction or waiver by Purchaser,
on or before the Closing Date, of each and every one of the following
conditions:
5.1 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The
representations and warranties made by Sellers in this Agreement or any
document or instrument delivered to Purchaser or its representatives hereunder
shall be true and correct on the Closing Date with the same force and effect as
if such representations and warranties had been made on and as of the Closing
Date. Each Seller shall have duly performed all of the agreements, covenants,
acts and undertakings to be performed by such Seller on or prior to the Closing
Date. Each Seller shall deliver to Purchaser a certificate, dated the Closing
Date, as to the satisfaction of the conditions set forth in this Section 5.1.
5.2 NO INJUNCTION, ETC. No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain, prohibit,
or obtain substantial damages in respect of, or which is related to, or arises
out of, this Agreement or the consummation of the transactions contemplated
hereby, or which is related to or arises out of the business of the Company, if
such action, proceeding, investigation, regulation or legislation, in the
judgment of Purchaser, would make it inadvisable to consummate such
transactions or would have a material adverse effect on the Company or its
assets or business.
5.3 NO MATERIAL ADVERSE CHANGE. There shall not have been any material
adverse change in the business, assets, liabilities or condition, financial or
otherwise, of the Company between the date of the Interim Financial Statements
and the Closing Date.
5.4 CONSENTS. Sellers shall have delivered to Purchaser the written
consents of third parties and all governmental consents and approvals, if any,
referred to in Section 4.6 hereof, which consents shall be in form, scope and
substance reasonably satisfactory to Purchaser and its counsel.
5.5 GOOD STANDING CERTIFICATE. Purchaser shall have received a
Certificate of Existence or Good Standing from the State of Missouri with
respect to the Company as of the most recent practical date prior to the
Closing Date.
5.6 DUE DILIGENCE. Purchaser shall in all respects be satisfied in its
discretion with the results of its due diligence investigation of the Company
and its assets and business.
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5.7 OPINION OF COUNSEL. Purchaser shall have received an opinion of
counsel to Sellers substantially in the form of attached EXHIBIT H.
ARTICLE VI
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF SELLERS TO CLOSE
The obligations of Sellers to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction or waiver by the
Representative on behalf of Sellers, on or before the Closing Date, of each and
every one of the following conditions:
6.1 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The
representations and warranties made by Purchaser in this Agreement or any
document or instrument delivered to Sellers or their representatives hereunder
shall be true and correct on the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of such
date. Purchaser shall have duly performed all of the agreements, covenants,
acts and undertakings to be performed by it on or prior to the Closing Date.
Purchaser shall deliver to Sellers a certificate, dated the Closing Date, as to
the satisfaction of the conditions set forth in this Section 5.1.
6.2 NO INJUNCTION, ETC. No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain, prohibit,
or obtain substantial damages in respect of, or which is related to, or arises
out of, this Agreement or the consummation of the transactions contemplated
hereby.
6.3 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments and
documents deemed necessary or appropriate by Sellers or their counsel to
effectuate this Agreement in the consummation of the transactions contemplated
hereby, or incidental hereto, and all other related legal matters, shall have
been approved by such counsel.
6.4 GOOD STANDING CERTIFICATE. Sellers shall have received a certificate
of existence from the State of Florida with respect to Purchaser as of the most
recent practical date prior to the Closing Date.
6.5 OPINION OF COUNSEL. Sellers shall have received an opinion of Alston
& Bird, counsel to Purchaser, substantially in the form of attached EXHIBIT I.
6.6 BOARD AND SHAREHOLDER APPROVAL. Purchaser shall have furnished to
Sellers a certified copy of resolutions of Purchaser's board of directors
approving the transactions contemplated by this transaction and authorizing one
or more of its officers to execute all documents and take all action as may be
necessary to consummate the transaction.
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6.7 MUTUAL RELEASE. The Company and each of Sellers shall have entered
into a Mutual Release in the form of EXHIBIT K, whereby each will release the
other from all liabilities and claims they have or may have against the other
which arose or accrued up to the date of Closing. Said release shall not
release the Company or any Seller from any liabilities it, he or she has for
obligations arising out of the this Agreement and the transactions contemplated
hereby.]
ARTICLE VII
CLOSING.
7.1 TIME AND PLACE OF CLOSING. The closing (the "Closing") of the
transactions contemplated by this Agreement will be held by mail with
clearinghouse on March 14, 1996 or such other date as the parties may agree.
The Closing shall commence at 11:00 a.m. at the offices of Alston & Bird, One
Atlantic Center, 1201 West Peachtree Street, Atlanta, Georgia 30309-3424 or at
such other time or place upon which the parties agree. The date on which
Closing occurs shall be referred to as the "Closing Date". Unless the parties
otherwise agree in writing, the transactions contemplated by this Agreement
will be deemed closed as of 12:01 a.m. on the day after the Closing Date.
7.2 TRANSACTIONS AT CLOSING. At the Closing:
(a) Each of the Shareholders shall deliver to Purchaser the
certificates for the capital stock sold by such Shareholder to Purchaser, duly
endorsed for transfer or accompanied by blank stock powers;
(b) Sellers shall deliver or cause to be delivered to Purchaser
Certificates of Good Standing of the Company, as of the most recent practicable
date, as contemplated by Section 5.5;
(c) As contemplated by Section 4.1, Thomure and Thomure Trust, Brandt,
Rollins and Rollins Trust, and Bradt shall execute and deliver to Purchaser the
Covenants Not to Compete;
(d) As contemplated by Section 4.2, Brandt shall execute and deliver to
Purchaser the Employment Agreement, and Thomure shall execute and deliver to
Purchaser the Consulting Agreement;
(e) As contemplated by Section 4.3, each of the Shareholders and Bradt
shall execute and deliver to Purchaser an Investment Letter;
(f) As contemplated by Section 4.4, each of the Sellers shall execute
and deliver to Purchaser a Shareholder Consent;
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(g) As contemplated by Section 4.6, each of the Shareholders and Bradt
will execute and deliver to Purchaser the Escrow Agreement;
(h) The Sellers shall execute and deliver the certificates
contemplated by Section 5.1;
(i) Purchaser shall pay $4,954,000.00 by bank cashier's check or wire
transfer to the Sellers as provided in Section 1.2, and as allocated among the
Sellers as provided in SCHEDULE 1.2;
(j) Purchaser shall execute and deliver to the Sellers, as provided in
Section 1.2, the Promissory Notes, in an aggregate original principal amount of
$1,076,000.00, and as allocated among the Sellers, as provided in SCHEDULE 1.2
and shall cause the Company to execute and deliver the Guaranty contemplated by
Section 1.2;
(k) Purchaser shall deliver or cause to be delivered to Sellers a
Certificate of Good Standing of Purchaser, as of the most recent practicable
date, as contemplated by Section 6.4;
(l) Purchaser shall execute and deliver the Covenants Not to Compete
and shall deliver the consideration therefor as specified in Section 4.1;
(m) Purchaser shall execute and deliver to Brandt the Employment
Agreement and shall execute and deliver to Thomure the Consulting Agreement;
(n) Purchaser shall execute and deliver the Escrow Agreement and shall
deliver to the Escrow Agent the items contemplated by Section 4.8 to be
delivered to the Escrow Agent; and.
(o) Purchaser and Sellers shall execute and deliver the Indemnity
Escrow Agreement as contemplated by Section 8.5.
(p) Purchaser shall deliver certified copies of resolutions of its
board of directors approving the transactions contemplated by this Agreement;
(q) Purchaser shall deliver an incumbency certificate as to the
officers executing this Agreement and the other documents and agreements
contemplated hereby;
(r) The Company and each Shareholder shall execute the Mutual Release
in the form of EXHIBIT G.
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ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION.
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER AND
INDEMNITY. (a) Subject to Section 8.4(d) hereof, all representations,
warranties, agreements, covenants and obligations made or undertaken by the
Purchaser and Sellers in this Agreement or in any document or instrument
executed and delivered pursuant hereto shall survive the Closing hereunder and
shall not merge in the performance of any obligation by any party hereto.
(b) Subject to the provisions of this Article VIII, each Seller (other
than Bradt), jointly and severally, agrees to indemnify and hold Purchaser
harmless from and against, and Bradt, severally but not jointly agrees to
indemnify and hold Purchaser harmless from and against, all liability, loss,
damages or injury and all reasonable costs and expenses (including reasonable
counsel fees and costs of any suit related thereto) suffered or incurred by
Purchaser arising from any misrepresentation by, or breach of any covenant or
warranty of any Seller contained in this Agreement, or any misrepresentation in
any certificate or other instrument specifically required to be executed and
delivered by any Seller hereunder.
(c) Subject to the provisions of this Article VIII, Purchaser agrees
to indemnify and hold each Seller harmless from and against all liability, loss,
damage or injury and all reasonable costs and expenses (including reasonable
counsel fees and costs of any suit related thereto) suffered or incurred by
such Seller arising from any misrepresentation by, or breach of any covenant or
warranty of, Purchaser contained in this Agreement or any misrepresentation in
or omission from any certificate or instrument furnished or to be furnished by
Purchaser hereunder.
(d) Subject to the provisions of this Article VIII, Purchaser agrees
to indemnify and hold the Thomures harmless from and against all liability,
loss, damage or injury and all reasonable costs and expenses (including
reasonable counsel fees and costs of any suit related thereto) suffered or
incurred by the Thomures on account of any liability either of them has as a
guarantor of an obligation of the Company, which guaranty liability is
described on SCHEDULE 1.4.
(e) Subject to the provisions of this Article VIII, Thomure agrees to
indemnify and hold the Company and Purchaser harmless from and against all
liability, loss, damage or injury and all reasonable costs and expenses
(including reasonable counsel fees and costs of any suit related thereto)
suffered or incurred by the Company on account of the Automobile Lease or on
account of the use, operation, maintenance and insurance of the automobile
subject to the Automobile Lease (including, without limitation, any liability
resulting from any accident or other casualty involving such automobile).
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<PAGE> 24
8.2 NOTICE OF ASSERTED LIABILITY. Promptly after receipt by an
indemnified party hereunder of notice of any demand, claim or circumstances
which, with or without the lapse of time, would give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a loss subject to
indemnification under this Agreement, such indemnified party shall give notice
thereof (the "Claims Notice") to the indemnifying party. The Claims Notice
shall describe the Asserted Liability in reasonable detail and shall indicate
the amount (estimated, if necessary) of the loss that has been or may be
suffered by such indemnified party. Failure of the indemnified party to give
the notice described above shall not relieve the indemnifying party from any
liability which it may have on account of indemnification hereunder, except to
the extent that the indemnifying party is actually prejudiced by such failure.
8.3 OPPORTUNITY TO DEFEND. The indemnifying party may elect (with the
Sellers being deemed one indemnifying party that acts through the
Representative in making such election and taking all other actions specified
in this Article VIII) to compromise or defend, at their or its own expense and
by their or its own counsel, any Asserted Liability; provided, however, that
the indemnifying party may not compromise or settle any Asserted Liability
without the consent of the indemnified party unless such compromise or
settlement requires no more than a monetary payment for which the indemnified
party hereunder is fully indemnified or involves other matters not binding upon
the indemnified party and such compromise or settlement includes an
unconditional release of the indemnified party. If the indemnifying party
elects to compromise or defend such Asserted Liability, the Representative or
Purchaser shall within 30 days after receipt of notice thereof (or sooner, if
the nature of the Asserted Liability so requires) notify the indemnified party
of his or its intent to do so, and the indemnified party shall cooperate, at
the expense of the indemnifying party with respect to out-of-pocket expenses of
the indemnified party, in the compromise of or defense against such Asserted
Liability. The assumption of the defense of a matter by an indemnifying party
shall be deemed an admission by such indemnifying party of its obligation to
indemnify the indemnified party hereunder with respect to such claim. If the
indemnifying party elects not to compromise or defend the Asserted Liability,
fails to notify the indemnified party of their or its election as herein
provided or contests their or its obligation to indemnify, the indemnified
party or parties may pay, compromise or defend such Asserted Liability in
respect of any Asserted Liability for which the indemnifying party may have an
indemnification obligation. In any event, the indemnified party and the
indemnifying party may participate in the defense of such Asserted Liability in
respect of any Asserted Liability for which the indemnifying party may have an
indemnification obligation; provided that if the indemnifying party assumes the
defense and compromise of such Asserted Liability as provided above, then the
indemnified party shall bear any expenses incurred in participating in such
defense from and after the assumption of the defense thereof by the
indemnifying party.
8.4 LIMITATIONS. (a) Notwithstanding the provisions of Section 8.1(b)
above, Sellers shall not be required to make any indemnification payments under
Section 8.1(b) until the aggregate amount of losses suffered by Purchaser that
are subject to
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<PAGE> 25
indemnification under such Section exceed $10,000.00 (the "Minimum Indemnity
Amount"), at which time claims may be asserted for the Minimum Indemnity Amount
and any amount of losses in excess of such Minimum Indemnity Amount, subject to
any other restrictions of this Section 8.4. Notwithstanding the provisions of
Section 8.1(c) above, Purchaser shall not be required to make any
indemnification payments under Section 8.1(c) until the aggregate amount of
losses suffered by Sellers that are subject to indemnification under such
Section exceed the Minimum Indemnity Amount, at which time claims may be
asserted for the Minimum Indemnity Amount and any amount of losses in excess of
such Minimum Indemnity Amount.
(b) Notwithstanding the provisions of Section 8.1(b) above, and
except for any liability, loss, damage, injury or claim resulting from a
breach of the covenants, representations and warranties set forth in Section
1.1, 2.1, 2.2, 2.3 or 2.8, the maximum aggregate liability of Sellers
(including but not limited to any and all liabilities of Sellers for costs,
expenses, and attorneys' fees paid or incurred in connection therewith ) for
indemnification under this Agreement shall be equal to $3,065,000.00. There
shall be no maximum aggregate liability amount for any liability, loss, damage,
injury or claim resulting from a breach of the covenants, representations and
warranties set forth in Sections 1.1, 2.1, 2.2, 2.3 and 2.8.
(c) Notwithstanding the provisions of Section 8.1(c) above, and except
for any liability, loss, damage, injury or claim resulting from a breach of the
covenants, representations and warranties set forth in Sections 1.2, 1.3(e),
1.4, 3.1, 3.2 or 3.3, the maximum aggregate liability of Purchaser (including
but not limited to any and all liabilities of Sellers for costs, expenses, and
attorneys' fees paid or incurred in connection therewith) for indemnification
under this Agreement shall be equal to $3,065,000.00. There shall be no
maximum aggregate liability amount for any liability, loss, damage, injury or
claim resulting from a breach of the covenants, representations and warranties
set forth in Sections 1.2, 1.3(e), 1.4, 3.1, 3.2 and 3.3.
(d) Notwithstanding the provisions of Section 8.1 above, no claim for
indemnification under this Agreement may be made after the second anniversary
of the Closing Date unless notice of such claim or the facts underlying it is
given to the indemnifying party prior to such second anniversary; provided,
however, that the foregoing restriction shall not apply with respect to (i) any
liability, loss, damage, injury or claim by Purchaser resulting from a breach
of the covenants, representations and warranties set forth in Sections 1.1,
2.1, 2.2, 2.3, 2.8 or 2.12, and (ii) any liability, loss, damage, injury or
claim by Sellers resulting from a breach of the covenants, representations and
warranties set forth in Sections 1.2, 1.3(e), 1.4, 3.1, 3.2 or 3.3; provided,
however, that any claim resulting from a breach of the representations and
warranties set forth in Section 2.12 may not be made after the third
anniversary of the Closing Date unless notice of such claim or the facts
underlying it is given to the indemnifying party prior to such third
anniversary; provided, further, that any claim based upon any of the matters
described in subsection (i) or (ii) may be brought at any time, subject to any
applicable statutes of limitation.
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<PAGE> 26
(e) With respect to any claim for indemnification that arises in
connection with an Asserted Liability based upon a claim made by a third party,
the indemnified party shall not be entitled to indemnification hereunder unless
litigation or another proceeding to resolve the matter underlying the Asserted
Liability is commenced within one year after the indemnified party gives the
Claims Notice contemplated by Section 8.2 with respect to such Asserted
Liability. With respect to all claims for indemnification that are not based
upon a claim made by a third party, the indemnified party shall not be entitled
to indemnification hereunder unless the indemnified party commences litigation
or another proceeding to resolve the matter within 90 days after the
indemnified party gives the Claims Notice contemplated by Section 8.2 with
respect to such Asserted Liability.
(f) Notwithstanding anything to contrary contained in this Agreement,
Sellers shall be not liable under the indemnification provisions of Section 8
or otherwise have any liability for any misrepresentation or breach of warranty
or covenant under this Agreement or otherwise in connection with the
transactions contemplated hereby to the extent that such liability results from
returns or allowances in the ordinary course of business consistent in amount,
timing and cause with the Company's historic practices.
(g) The amount of losses an indemnified party is entitled to recover
hereunder shall be determined net of the present value of the amount that (i)
any reduction in federal and state income taxes of an indemnified party or the
Company in one or more of its taxable periods resulting from the payment or
incurring of such losses exceeds (ii) any increase in the federal and state
income taxes of such indemnified party or the Company resulting from any
payment made hereunder. In determining such present value the rate equal to
the rate then established pursuant to Section 6621 of the Code shall be used
and the period shall be from the date of payment or incurring of such loss by
the indemnified party or the Company to the last day for filing such
indemnified party's or the Company's federal or state income tax returns for
the taxable period in which the reduction in tax may be claimed.
(h) Notwithstanding any provision of this Agreement to the contrary,
the obligations of Bradt to indemnify Purchaser hereunder shall not exceed
$367,800.00.
8.5 WITHHOLDING AND OFFSET. In addition to any other rights or remedies
Purchaser may have, but subject to all other limitations under this Article 8,
it shall be entitled to (i) withhold from the payments due under the Promissory
Notes (in order of the due date) the amount of any and all liabilities, losses,
damages, injuries, costs, expenses and counsel fees that it has sustained, or
that it reasonably believes may be sustained, on account of an indemnified loss
that Purchaser reasonably believes may be sustained on account of a specific
allegation made by or against the Company or Purchaser and (ii) to offset
against such withheld amount any amount ultimately determined to be due and
owing to Purchaser by way of indemnification pursuant to this Article VIII.
Purchaser shall not be liable for principal or interest under the Promissory
Notes on any amounts so
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<PAGE> 27
set off. Purchaser shall withhold and set off against all the Promissory Notes
in the proportion that the original principal amount of each Promissory Note
bears to the aggregate original principal of all the Promissory Notes.
Notwithstanding the foregoing, if Purchaser withholds payments due under the
Promissory Notes, Purchaser shall pay to the Indemnity Escrow Agent (as defined
below) all said amounts withheld, plus interest at the rate set forth in the
first paragraph of each Promissory Note, on the date on which such payment is
due under the Promissory Notes, said amount withheld to be held and disbursed
in accordance with the terms of the Indemnity Escrow Agreement (as defined
below). At Closing Purchaser, Sellers and United Missouri Bank (the "Indemnity
Escrow Agent") shall enter into an Indemnity Escrow Agreement (the "Indemnity
Escrow Agreement") substantially in the form of EXHIBIT J attached hereto.
8.6 PURSUIT OF SELLERS. Sellers (other than Bradt) acknowledge and agree
that their obligation to indemnify Purchaser hereunder is joint and several.
Notwithstanding anything contained herein to the contrary, the obligation of
Sam Bradt to indemnify is several (and not joint with the other Sellers), and
Bradt shall in no event be liable to indemnify Purchaser for more than his
Seller's Pro Rata Share of any indemnified loss. Purchaser agrees that it
shall use reasonable efforts to collect from each Seller, such Seller's Pro
Rata Share (as defined below) of each indemnified loss, to the extent such
indemnified loss is not satisfied by setoff against the Promissory Notes as
contemplated by Section 8.5. For the purposes of this Section 8.6, Thomure and
Thomure Trust shall be deemed to be one Seller, and Rollins and Rollins Trust
shall be deemed to be one Seller. For the purposes of this Section 8.6, each
"Seller's Pro Rata Share" is the percentage set forth opposite such Seller's
name in the table below:
<TABLE>
Seller Percentage
------ ----------
<S> <C>
Thomure and Thomure Trust 61.57%
Brandt 18.33%
Rollins and Rollins Trust 14.1%
Bradt 6%
</TABLE>
8.7 INSURANCE. The amount of indemnified losses suffered by an
indemnified party hereunder shall be determined net of any insurance proceeds
actually received by such indemnified party on account of the claim or event
giving rise to such losses, or in the event that Purchaser failed to maintain
insurance as required pursuant to Section 4.9, net of any insurance proceeds
that Purchaser would have been to entitled to have received on account of the
claim or event giving rise to such losses, in the event that such insurance had
been maintained. In the case of an indemnification claim that may be covered
by one or more policies of insurance to be maintained by the Company as
provided in Section 4.9 of this Agreement, Purchaser shall make a claim for and
otherwise take reasonable steps to pursue recovery (but for no more than six
(6) months from the date the claim is made) from the issuer of such policy or
policies of
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<PAGE> 28
insurance before seeking to collect for a loss hereunder on account of such
indemnification claim, provided that nothing provided herein shall require
Purchaser to file suit against any such insurer in the event of a denial of all
or any portion of its claim; provided, further, that, except with respect to
such policies of insurance required pursuant to Section 4.9, nothing provided
in this Agreement shall require a party that is entitled to indemnification to
make a claim for or otherwise pursue recovery from any insurance carrier prior
to making a claim for indemnification under Article VIII of this Agreement.
Furthermore, in the event the insurer denies or fails to pay all or any portion
of such a claim and Sellers indemnify (or are deemed to indemnify Purchaser by
way of setoff under the Promissory Notes) Purchaser under this Agreement in the
full amount of such claim, Sellers shall be subrogated to Purchaser's rights
against the insurer.
8.8 NO CLAIM AGAINST COMPANY. Since following the Closing the Company
will be owned by Purchaser, the parties agree that the Sellers will have no
right of reimbursement or contribution against the Company on account of any
indemnified loss hereunder, and any liability, loss, damage or injury suffered
or incurred by the Company against which Purchaser is indemnified and held
harmless as provided in Section 8.1 of this Agreement shall be deemed suffered
by Purchaser, which shall, either independently or jointly with the Acquired
Company, be entitled to enforce such indemnity.
8.9 EXCLUSIVE REMEDY. From and after Closing, the terms of this Article
VIII shall provide the exclusive remedies of all parties hereto with respect to
any claims arising out of or related to any and all breaches of
representations, warranties, covenants or agreements contained in this
Agreement, or in any documents or instrument delivered in connection herewith;
provided, however, that the foregoing shall not prohibit or limit the right of
any party to seek damages with respect to, or equitable relief in accordance
with the provisions of, the Covenants Not to Compete, the Employment Agreement,
the Consulting Agreement or the Escrow Agreement.
ARTICLE IX
TERMINATION
9.1 METHOD OF TERMINATION. This Agreement and the transactions
contemplated by it may be terminated at any time prior to the Closing Date:
(a) By the mutual consent of Seller and Purchaser;
(b) By the Representative after March 14, 1996 if Purchaser shall (i)
fail to perform in any material respect its agreements contained herein
required to be performed by it on or prior to the Closing Date, or (ii)
materially breach any of its representations, warranties or covenants
contained herein; if same is not cured within the applicable cure period
described in paragraph 10.15 below.
(c) By Purchaser after March 14, 1996, if any Seller shall (i) fail to
perform in any material respect his, her or its agreements contained herein
required to be performed by him, her or it on or prior to the Closing Date, or
(ii) materially breach any of his, her or its representations, warranties or
covenants contained herein; if same is not cured within the applicable cure
period described in paragraph 10.15 below.
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<PAGE> 29
(d) By the Representative or Purchaser at any time after April 15,
1996, if the Closing shall not have occurred for any reason on or prior to
April 15, 1996.
(e) By either Purchaser or the Representative if there shall be any
order, writ, injunction or decree of any court or governmental or regulatory
agency binding on Purchaser or any Seller, which prohibits or restrains
Purchaser and/or any Seller from consummating the purchase of the shares from
the Shareholders, provided that Purchaser and Sellers shall have used their
reasonable best efforts to have any such order, writ, injunction or decree
lifted and the same shall not have been lifted within 30 days after entry, by
any such court or governmental or regulatory agency.
9.2 NOTICE OF TERMINATION. Notice of termination of this Agreement, as
provided for in this Article IX, shall be given by the parties so terminating
to the other parties hereto in accordance with Section 10.1 of this Agreement.
9.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 9.1 hereof, this Agreement shall become void and of no further force
and effect, and each party shall pay the costs and expenses incurred by it in
connection with this Agreement; and, provided the Agreement was not terminated
pursuant to subparagraph (b) or (c) of Section 9.1, no party (or any of its
officers, directors, employees, agents, representatives or shareholders) shall
be liable to any other party for any costs, expenses, damages (direct or
indirect) or loss of anticipated profits. If, however, this Agreement is
terminated pursuant to subparagraphs (b) or (c) of Section 9.1, this Section
9.3 shall not relieve a breaching or defaulting party from any liability to the
other party.
9.4 RISK OF LOSS. The Company and the Sellers shall bear all risk of
condemnation, destruction, loss or damage due to fire or other casualty from
the date of this Agreement through the Closing. If the condemnation,
destruction, loss or damage is such that the business of the Company is
interrupted or curtailed or the assets of the Company are materially affected,
then either party shall have the right to terminate this Agreement without
liability to either party. If the condemnation, destruction, loss or damage is
such that the business is neither interrupted nor curtailed or the assets are
not materially affected, or if the business of the Company is curtailed or
interrupted or the assets are materially affected and both parties nevertheless
forgoes the right to terminate this Agreement, then the purchase price shall be
adjusted at Closing to reflect such condemnation, destruction, loss or damage
to the extent that insurance proceeds are not sufficient to cover such
destruction, loss or damage. If Purchaser, on the one hand, and the Sellers,
on the other, are unable to agree upon the amount of such adjustment, then the
dispute shall be resolved jointly by the independent accounting firms then
employed by the Company and Purchaser, and if said accounting firms do not
agree, they shall appoint a nationally recognized accounting firm to make such
determination, whose determination of the dispute shall be final and binding.
The fees and expenses of such nationally recognized accounting firm shall be
borne one-half by Purchaser and one-half by Sellers.
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<PAGE> 30
ARTICLE X
GENERAL PROVISIONS.
10.1 NOTICES. (a) All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
facsimile or mailed by nationally recognized overnight delivery service or by
registered or certified mail, return receipt requested, first class postage
prepaid, addressed as follows:
If to the Sellers:
Joseph E. Thomure, Representative
13006 Mason Estates Court
St. Louis, Missouri 63141
Susan Brandt
650 Stablestone
Chesterfield, MO 63017
David Rollins, individually and as Trustee
8032 Seminole Place
Clayton, MO 63105
Samuel E. Bradt
c/o Merganser Corporation
6925 North Wildwood Point Road
Chenequa, WI 53029-9711
Facsimile: # 414-966-7003
With copies (which shall not constitute notice) to:
Vines, Frankel, Rubin, Bond & Dubin, P.C.
231 South Bemiston, Suite 1111
St. Louis, Missouri 63105
Attn.: Leonard D. Vines
Telephone #: 314-725-8000
Facsimile #: 314-726-5837
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<PAGE> 31
and
Nangle, Cooper, Niemann & Bitting, LLC
120 S. Central, Suite 1500
St. Louis, Missouri 63105
Attn.: William Cooper
Facsimile #: 314-863-1335
If to Purchaser:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Attn: Mark A. Kaiser
Facsimile #: (404) 364-6711
with a copy (which shall not constitute notice) to:
Alston & Bird
1201 West Peachtree Street
Atlanta, GA 30309
Attn: Keith O. Cowan
Telephone: (404) 881-7449
Facsimile: (404) 881-7777
(b) If delivered personally or by facsimile, the date on which a
notice, request, instruction or document is delivered shall be the date on
which such delivery is made and, if delivered by mail, the date on which such
notice, request, instruction or document is received shall be the date of
delivery.
(c) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
10.1.
(d) The failure of Purchaser to deliver notice to any Seller other than
the Representative as described above shall not invalidate any such notice,
provided that the Seller failing to receive such notice may make a claim for
damages to the extent he, she or it is actually prejudiced by such failure.
10.2 BROKERS. Purchaser represents and warrants to Sellers, and Sellers
jointly and severally represent and warrant to Purchaser, that, except as
disclosed in SCHEDULE 10.2, no broker or finder has acted for it or them or any
entity controlling, controlled by or under common control with it or them in
connection with this Agreement.
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<PAGE> 32
10.3 FURTHER ASSURANCES. Each party covenants that at any time, and from
time to time, after the Closing, it will execute such additional instruments
and take such actions as may be reasonably requested by the other parties to
confirm or perfect or otherwise to carry out the intent and purposes of this
Agreement.
10.4 WAIVER. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by any
other party to whom such compliance is owed. No waiver of any provision of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.
10.5 EXPENSES. All expenses incurred by the parties hereto in connection
with or related to the authorization, preparation and execution of this
Agreement and the Closing of the transactions contemplated hereby, including,
without limitation of the generality of the foregoing, all fees and expenses of
agents, representatives, counsel and accountants employed by any such party,
shall be borne solely and entirely by the party which has incurred the same.
Sellers agree that the Company shall not pay any expenses in connection with or
related to the authorization, preparation and execution of this Agreement or
the Closing of the transactions contemplated hereby and that, if the Company
pays any such expenses, Sellers shall promptly reimburse the Company for any
amount so paid.
10.6 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
10.7 HEADINGS. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a
part of this Agreement.
10.8 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto and supersedes and cancels any prior agreements,
representations, warranties, or communications, whether oral or written, among
the parties hereto relating to the transactions contemplated hereby or the
subject matter herein. This Agreement constitutes a final agreement between the
parties, after extensive negotiations. Any changes from any prior drafts are
not to be construed in interpreting this Agreement, and shall be deemed to have
never existed. Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only by an agreement in writing
signed by the party against whom or which the enforcement of such change,
waiver, discharge or termination is sought. Purchaser acknowledges and agrees
that Sellers have made no representations or warranties to Purchaser with
respect to the Company or any aspect of its business or assets, express or
implied, other than those expressly set forth in this Agreement and that
Purchaser has been and will be afforded the opportunity to investigate the
transactions contemplated by this Agreement and to perform due diligence in
connection with the assets and liabilities of the Company. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES EXPRESSLY SET
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<PAGE> 33
FORTH IN THIS AGREEMENT, PURCHASER AGREES THAT THE ASSETS OF THE COMPANY ARE IN
"AS IS, WHERE IS" CONDITION. PURCHASER ACKNOWLEDGES THAT SELLERS MAKE NO
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND THAT ANY
SUCH WARRANTY IS HEREBY EXPRESSLY DISCLAIMED.
10.9 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MISSOURI.
Notwithstanding that the transactions contemplated by this Agreement are to be
closed in Atlanta, Georgia, Medirisk hereby consents to the jurisdiction of the
courts of Missouri for purposes of any suit or other action based on or arising
out of this Agreement.
10.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.11 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
10.12 KNOWLEDGE. Wherever in this Agreement reference is made to
Sellers' or Company's notice, knowledge or best of knowledge (or words of
similar meaning) of a matter, such words shall mean and refer to matters of
which one or more of the persons listed below has actual notice or actual
knowledge or of which one or more of such persons reasonably should have known
based upon facts and circumstances of which such persons have actual notice or
actual knowledge: Thomure, Brandt, Rollins, Bradt, James Gossrau and Dan
Arnold.
10.13 SEVERABILITY. If any provision or provisions of this Agreement
shall be unlawful or unenforceable, then such provision or provisions shall be
null and void, but the remainder of this Agreement shall remain in full force
and effect and shall be binding on Sellers and Purchaser.
10.14 CURE PERIOD. If either party fails to perform any of its
obligations hereunder (the "Failing Party"), the other party ("Other Party')
shall provide the Failing Party with written notice of the failure to perform.
The Failing Party shall have ten (10) days from receipt of such notice of
failure to perform in which to cure same ("Cure Period"). No default shall be
deemed to have occurred under this Agreement unless the Failing Party fails to
cure such failure within the applicable cure period after notice thereof and a
default is declared in writing by the party asserting said default.
Notwithstanding the foregoing, the Cure Period shall not apply to a failure by
a party hereto to close on the Closing Date or to a party's failure to
terminate this Agreement within the time periods set forth herein for the
satisfaction of the Conditions Precedent.
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<PAGE> 34
10.15 CONFIDENTIALITY; RETURN OF DOCUMENTS IF SALE DOES NOT CLOSE. Sellers
and Purchaser agree not to disclose to anyone the terms, parties, conditions or
any other facts with respect to this Agreement, or actions relating to this
Agreement, including the status thereof, without the prior written consent of
the other party hereto. Notwithstanding the foregoing, Sellers and Purchaser
may disclose the foregoing to their respective attorneys, accountants,
officers, and directors and employees, on a need to know basis. Furthermore,
Sellers and Purchaser shall be permitted to make any disclosures that are
required by applicable law, provided that the disclosing party first notifies
the other party that it intends to make such disclosure. This provision shall
not prohibit either party hereto from disclosing matters that are public
knowledge. If the transaction does not close for any reason, Purchaser agrees
to return or destroy (and certify such destruction to the Shareholders) all
data, software, documents and other materials that were provided to Purchaser
in connection with this transaction, to the Company.
10.16 GOOD FAITH. The parties hereto covenant and pledge to each other
good faith, complete cooperation, due diligence and honesty in fact in the
performance of all obligations pursuant to this Agreement, including but not
limited to their efforts to satisfy the conditions precedent pursuant to this
Agreement.
10.17 LIMITATION OF DAMAGES. In no event shall any of the parties be
liable to the other parties hereunder for punitive or exemplary damages in
connection with this Agreement or any obligations hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, each party hereto has executed or caused this
Agreement to be executed on its behalf, all on the day and year first above
written.
PURCHASER:
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
---------------------------------------------
Name: Mark A. Kaiser
Title: Chairman of the Board and Chief
Executive Officer
SELLERS:
JOSEPH E. THOMURE, AS TRUSTEE UNDER
THE JOSEPH E. THOMURE REVOCABLE
LIVING TRUST
By: /s/ Joseph E. Thomure
---------------------------------------------
Joseph E. Thomure, Trustee
/s/ Joseph E. Thomure
------------------------------------------------
JOSEPH E. THOMURE
DAVID ROLLINS, AS TRUSTEE UNDER THE
DAVID ROLLINS REVOCABLE LIVING TRUST
By: /s/ David Rollins
--------------------------------------------
David Rollins, Trustee
/s/ David Rollins
-----------------------------------------------
DAVID ROLLINS
/s/ Susan Brandt
-----------------------------------------------
SUSAN BRANDT
/s/ Samuel Bradt
-----------------------------------------------
SAMUEL BRADT
35
<PAGE> 36
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Promissory Note
Exhibit B Form of Covenant Not to Compete
Exhibit C Form of Employment Agreement
Exhibit D Form of Consulting Agreement
Exhibit E Form of Investment Letter
Exhibit F Form of Shareholder Consent and Power of Attorney
Exhibit G Form of Escrow Agreement
Exhibit H Form of Opinion of Sellers' Counsel
Exhibit I Form of Opinion of Alston & Bird
Exhibit J Form of Indemnity Escrow Agreement
Exhibit K Mutual Release between Sellers and Company
Exhibit L Form of Guaranty
LIST OF SCHEDULES
Schedule 1.1 Number of Shares owned by Shareholders
Schedule 1.2 Allocation of Purchase Price among Shareholders and Bradt
Schedule 1.4 Guaranteed Obligations
Schedule 2.1 Organization and Standing; Articles of Incorporation and
Bylaws
Schedule 2.4 Financial Statements
Schedule 2.5 Required Consents of the Company and Sellers
Schedule 2.6 Litigation
Schedule 2.8 List of Assets Schedule
Schedule 2.9(a) Trademarks, etc., of the Company
Schedule 2.9(b) Owned Software
Schedule 2.9(c) Licensed Software
Schedule 2.9(d) Programmers of Company Software
Schedule 2.9(e) Commitments to Perform Software Installation, etc.
Schedule 2.9(f) Marketing Rights
Schedule 2.10 Contracts
Schedule 2.12 Employee Benefit Plans
Schedule 2.13 Customers
Schedule 2.14 Directors, Officer, and Banks
Schedule 2.15 Interested Transactions
Schedule 3.3 Required Consents of Purchaser
Schedule 3.6 HPSC Agreement
Schedule 4.9 Insurance to be Maintained
</TABLE>
36
<PAGE> 37
EXHIBIT B
CAPITALIZATION OF THE COMPANY
<TABLE>
<CAPTION>
Designation Authorized Issued
of Capital Stock No. of Shares No. of Shares
- ----------------- ------------- -------------
<S> <C> <C>
</TABLE>
<PAGE> 38
EXHIBIT C
CAPITALIZATION OF THE COMPANY
<PAGE> 39
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.2.1 Subsidiaries; Fictitious Names; Pre-emptive Rights
Schedule 2.2.2 No Violations; Required Consents
Schedule 2.2.6.1 Assumptions
Schedule 2.2.6.2 Pro Forma Financial Statements
Schedule 2.2.8 Absence of Certain Changes
Schedule 2.2.11 Taxes
Schedule 2.2.12 Insurance Policies
Schedule 2.2.13 Debt Instruments
Schedule 2.2.14 Benefit Plans
Schedule 2.2.15 Certain Contracts and Commitments
Schedule 2.2.16 Labor Matters
Schedule 2.2.21 Proprietary Rights
Schedule 2.2.23 Accounts Receivable
</TABLE>
<PAGE> 40
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.1
Subsidiaries; Fictitious Names; Pre-emptive Rights
The Company has no Subsidiaries.
The Company does not operate under any fictitious names; however, the
Company has operated a division under the name "Mediguard."
Pursuant to the Shareholders Agreement dated April 5, 1991 by and among
the Company, Brantley Venture Partners II, L.P. ("Brantley"), Laurence H.
Powell and Dr. John P. Schmitt, as amended on or around November 22, 1991 to
add Sears Pension Trust ("Sears") as a party, Brantley and Sears have first
refusal rights with respect to the issuance of shares of capital stock by the
Company. These rights will be amended and superceded by the Shareholders
Agreement to be executed at Closing.
<PAGE> 41
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.2
Articles of Incorporation -- Article 4, Section I, 6(vi) provides that the
Company shall not, without the consent of the majority of the holders of Series
A Preferred Stock, authorize or issue any equity security or warrants, options
or other rights, except for certain enumerated exceptions.
Preferred Shares Purchase Agreement dated April 5, 1991, as amended, between
the Company, Brantley Venture Partners II, L.P., Sears Pension Trust (Brantley
and Sears being the "Investors") and Laurence H. Powell -- Section 3D provides
that so long as the Series A Preferred Shares are held by the Investors,
without the consent of the holders of a majority of Investor Shares, except as
expressly enumerated therein, the Company shall not:
(i) amend the Articles of Incorporation or bylaws, etc. in a manner
that would adversely affect the preferences of the Series A Preferred Shares;
(ii) create or incur any indebtedness other than in the ordinary course
of business or in excess of $75,000 for any transaction or $150,000 in the
aggregate at any one time outstanding;
(iii) issue, sell or transfer any shares of the capital stock, or rights
to acquire shares of capital stock of the Company;
(iv) borrow against, assign or change the beneficiary under any of the
key-man life insurance policies;
(v) subject to the Shareholders Agreement (as defined below), change
the size of the board to other than three members;
In addition, Section 3H of the Preferred Shares Purchase Agreement provides
that without a consent of a majority of the Series A Preferred held by the
Investors, the Company will not amend any of the collateral agreements entered
into in connection with the Preferred Shares Purchase Agreement or the
organizational documents. This agreement will be amended pursuant to the
Consent and Modification Agreement to be executed at Closing.
Shareholders Agreement dated April 5, 1991, as amended, by and among the
Company, the Investors, Laurence H. Powell, and Dr. John P. Schmitt -- Section 8
provides that the Investors have first refusal rights with respect to the
issuance of shares of common stock by the Company except for (i) the issuance of
Common Shares upon the exercise of the conversion option under the Preferred
Shares, (ii) in connection with an acquisition, (iii) a public offering valued
in excess of $10 million, (iv) a dividend with respect to the Shares,
<PAGE> 42
or (v) pursuant to a Stock Option Plan. These rights will be amended and
superceded by the Shareholders Agreement to be executed at Closing.
Registration Rights Agreement dated April 5, 1991, by and among the Company and
the Investors -- Section 1(f) provides that the Company will not grant to any
person the right to request the Company to register any equity securities of
the Company without the prior written consent of the holders of a majority of
the Registrable Securities (as defined therein). Pursuant to the Consent and
Modification Agreement to be executed at Closing, the holders of a majority of
the Registrable Securities have waived this provision as it relates to the
Registration Rights Agreement to be executed between the Company and the
Purchaser at Closing. Furthermore, the terms of this agreement will be amended
pursuant to the Consent and Modification Agreement to be executed at Closing.
- ii -
<PAGE> 43
SECURITIES PURCHASE AGREEMENT
SECTION 2.2.6.1
Certain of the assumptions used to prepare the projections or projected
consolidated financial statements (the "projections") contained in the
Confidential Information Memorandum are or may be inaccurate as follows:
- Proposed acquisitions of Companies "A", "B" and "C" have not been
consummated as of January 1, 1996.
- The final terms of the acquisitions of Companies "A", "B" and "C", if
consummated, may differ from the assumptions, including the
assumptions as to the aggregate purchase price paid by the Company,
and the allocation of the purchase price between Company stock, cash
and seller notes (for example, the projections assume the issuance of
1,375,000 shares of common stock as consideration for the three
acquisitions).
- Projections with respect to Companies "B" and "C" were based on
preliminary information provided to the Company, without the Company
having conducted a due diligence investigation of such entities.
- There can be no assurances that any of the acquisitions referred to
above will be consummated.
- The period of amortization for goodwill (20 years) may be subject to
adjustment.
- The projections assume the issuance of 500,000 warrants as part of
the financing.
<PAGE> 44
SECURITIES PURCHASE AGREEMENT
SECTION 2.2.6.2
Pro Forma Financial Statements
<PAGE> 45
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.8
The Company did not achieve its financial targets as of November 30, 1995,
or for the month then ended.
Effective December 31, 1995, David L. Bogetz resigned as a director of the
Company.
<PAGE> 46
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.11
The Company collects sales and use taxes only in connection with sales to
purchasers and licensees in the State of Georgia. The Company's standard
License Agreement provides that the purchaser/licensee will pay all sales and
use taxes in connection with any other sale outside of Georgia. The Company's
auditors are currently reviewing this practice to determine whether the volume
or nature of sales of the Company in other states may require the Company to
file sales and use tax returns and pay sales and use taxes in other states.
<PAGE> 47
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.12
A complete list of insurance policies is attached hereto.
<PAGE> 48
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.13
Debt Instruments Greater than $50,000:
1. Lynray Financial Corporation lease dated March 22, 1995 for various
computer equipment.
2. Executone Information Systems, Inc. lease dated June 4, 1993 for
telephone equipment.
3. Piedmont Center office space lease dated February 16, 1994
In addition, a list of all loan and financing arrangements to which the
Company is a party is attached hereto.
<PAGE> 49
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.14
2.2.14(a) -- A copy of the Summary Plan Description of the Medirisk, Inc.
401(k) Plan is attached hereto.
2.2.14(b) -- None.
2.2.14(c) -- The Company pays all expenses relating to the operations of the
Medirisk, Inc. 401(k) Plan. The Company has never elected to make any matching
contributions or other contributions in connection with such Plan.
2.2.14(d)
1. Sales employees compensation plans offer incentive compensation/bonuses
based on individual performance achievement above goal and for specific
performance rewards, including but not limited to securing multi-year
terms on the company's license agreements. Such plans are effective for
the current year only and are revised annually for a term of one year as
approved by the CEO.
2. Key management compensation plans offer incentive compensation/bonuses
based on the financial performance of the Company. Such plans are
effective for the current year only and are revised annually for a term of
one year with the approval of the Compensation Committee of the Board. In
1995 the following key management were eligible for incentive bonuses in
the following amounts, however, no bonuses were earned for 1995 due to the
Company's performance not meeting the designated targets.
<TABLE>
<CAPTION>
NAME POSITION TARGET BONUS @ 100% PLAN
- ---- -------- ------------------------
<S> <C> <C>
Kaiser CEO $85,000
Sauer VP Sales & Marketing $55,000
Whitted-Peabody VP Decision Support $12,500
Ohlhausen Director, Development $14,000
Cumming Controller $10,000
O'Hara Director, Operations $10,000
Rickard Director, Human Resources $10,000
</TABLE>
2.2.14(e) -- None.
3. Key employees have from time to time been granted stock options by the
Company. A list of outstanding stock options is attached. Each option is
granted via a letter agreement. A copy of the form letter agreement is
attached.
<PAGE> 50
4. Other fringe benefits are limited to health insurance, short term
disability, long-term disability, paid vacation, paid sick time and other
benefits as per standard Company policy as documented in the Company's
Policies and Procedures manual. A copy of the current version of the
Policies and Procedures manual is attached.
- ii -
<PAGE> 51
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.15
The Company is a party to various shareholders agreements, registration
rights agreements and purchase agreements with its current shareholders,
including the agreements described in Schedule 2.2.2 hereof, and shareholder
agreements with each employee shareholder of the Company substantially in the
form attached hereto.
<PAGE> 52
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.16
Labor Matters
(g) The Company is obligated to make severance payments for up to six (6)
months' pay to Mark A. Kaiser, the Company's Chairman, President and CEO
under an Employment Agreement dated May 30, 1991, if the Company
terminates such agreement "without cause" or Mr. Kaiser terminates the
agreement with "good reason."
A copy of Mr. Kaiser's employment agreement and stock option letters is
included in this schedule.
<PAGE> 53
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.21
The Company uses (but does not have registered rights to) the names
"Medirisk", "Medicap" and "Mediguard." The Company has no knowledge of any
infringement or violation of the rights of the Company in or to such names by
any third party, nor has any claim been asserted in writing to the Company or
threatened by any person with respect to the ownership or use of such names.
Attached hereto is a copy of a computer search of similar registered marks.
Attached hereto is a copy of the License Agreement by and between the
Company and the American Medical Association, and the Data Use License
Agreement by and between the Company and The Health Insurance Association of
America.
<PAGE> 54
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.22
Pursuant to that certain Lease dated February 16, 1994, by and between
the Company and Piedmont Center (the "Lessor"), the Company has knowledge
that a portion of the Premises in the Building occupied by the Company
may contain asbestos, and the obligation of the Lessor with respect to
the removal or encapsulation of such hazardous substance is provided for
in the Lease (including, but not limited to, the provision therefor in
Exhibit "C" thereto). A copy of the Lease is attached to Schedule 2.2.13
hereto.
<PAGE> 55
SECURITIES PURCHASE AGREEMENT
SCHEDULE 2.2.23
Collection of Accounts Receivable
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MEDIRISK, INC.
ARTICLE I
NAME
The name of the corporation is MEDIRISK, INC. (the "Corporation").
ARTICLE II
ADDRESS OF REGISTERED OFFICE;
NAME OF REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of Newcastle. The name of its registered agent at that
address in The Corporation Trust Company.
ARTICLE III
PURPOSE AND POWERS
The purpose of the corporation is to engage in and transact any lawful act
or activity for which a corporation may be organized under the Delaware General
Corporation Law. It shall have all powers that may now or hereafter be lawful
for a corporation to exercise under the Delaware General Corporation Law.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1. TOTAL NUMBER OF SHARES OF STOCK. The total number of shares
of all classes of stock which the corporation shall have authority to issue is
TWENTY FOUR MILLION FOUR HUNDRED THOUSAND (24,400,000), divided into classes as
follows:
THREE MILLION (3,000,000) shares shall be Series A Convertible Preferred
Stock, $.001 par value per share (the "Series A Preferred Shares"),
<PAGE> 2
FOUR HUNDRED THOUSAND (400,000) shall be Series B Convertible Preferred
Stock, $.001 par value per share (the "Series B Preferred Shares"),
ONE MILLION (1,000,000) shares shall be preferred stock, $.001 par value
per share (the "Preferred Stock); and
TWENTY MILLION (20,000,000) shares shall be Common Stock, $.001 par value
per share ("Common Shares").
SECTION 4.2. SERIES A PREFERRED SHARES. The following are statements of
the relative powers, preferences, rights and the qualifications, limitations or
restrictions of the Series A Preferred Shares.
SECTION 4.2.1. Definitions.
For purposes of this Section 4.2, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean Medirisk, Inc., a Delaware corporation.
(c) "Original Issue Date" for the Series A Preferred Shares shall
mean the date on which the first share of Series A Convertible Preferred
Stock was originally issued by the Company's predecessor, Medirisk, Inc.,
a Florida corporation.
(d) "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting shares shall at the time be owned directly or
indirectly by the Company or by one or more subsidiaries.
SECTION 4.2.2. DIVIDENDS.
(a) The holders of record of the then outstanding Series A Preferred
Shares shall be entitled to receive when, as and if declared by the Board, but
in any event not prior to the third anniversary of the Original Issue Date, out
of the funds legally available therefor, cumulative dividends at the annual
rate of 8% per share. Such dividends shall accrue on each Series A Preferred
Share from and after the third anniversary of the Original Issue Date, shall
accrue from day to day, whether or not earned or declared, and shall be payable
in cash. Such dividends will in no event be declared or paid by the Company
prior to the payment in full of those certain Senior Subordinated Promissory
Notes issued by the Company pursuant to that certain Securities Purchase
Agreement, dated January 8, 1996, by and between the Company and HealthPlan
Services Corporation (the "Securities Purchase Agreement").
(b) Subject to the provisions of this Section 4.2, the provisions of the
Securities Purchase Agreement and the provisions of a Shareholders Agreement
among
- 2 -
<PAGE> 3
the Company and certain shareholders of the Company, as the same may be amended
from time to time, the Company may, in the Board's discretion, declare and pay
dividends or distributions, or make provision for the payment thereof, on any
equity security of the Company, but only if all accrued dividends and
distributions on the Series A Preferred Shares and the Series B Preferred
Shares shall have been paid and made in full prior to the date of any such
declaration, payment, provision or distribution.
(c) Notwithstanding anything in the foregoing to the contrary, no
dividends shall be declared, paid or distributed, or provision therefor made,
on any Common Shares, unless simultaneously therewith there also shall be
declared, paid or distributed, or provision therefor made, as the case may be,
a dividend or distribution pro rata on each then outstanding Series A Preferred
Share to each holder thereof. For purposes of the foregoing, the number of
Series A Preferred Shares deemed to be outstanding with respect to each such
holder shall be equal to the maximum number of Common Shares into which such
holder's Series A Preferred Shares would then be convertible upon exercise of
the Conversion Rights described in Section 4.2.5.
SECTION 4.2.3. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities and obligations of the
Company, each holder of Series A Preferred Shares then outstanding shall be
entitled to be paid out of the net assets of the Company available for
distribution to its shareholders prior and in preference to any payment or
declaration and setting apart for payment of any amount in respect of the
Common Shares, an amount equal to the sum of the following: (i) $1.95 per
Series A Preferred Share held by such holder, (ii) an amount equal to all
accrued and unpaid dividends thereon, whether or not earned or declared, to and
including the date full payment shall be tendered to the holders of the Series
A Preferred Share with respect to such liquidation, dissolution or winding up,
and (iii) the fair market value, reasonably determined in good faith by the
Board, of the evidences of indebtedness, assets and securities referred to in
Section 4.2.5(f) which such holders would have been entitled to receive upon
conversion of their Series A Preferred Shares (clauses (i) through (iii),
collectively the "Series A Liquidation Preference"); if upon any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
assets to be distributed to the holders of the Series A Preferred Shares and
the Series B Preferred Shares shall be insufficient to permit the payment to
such holders of the full aggregate amount of the Series A Liquidation
Preference plus the Series B Liquidation Preference (as defined below), then
all of the net assets of the Company available for distribution to its
shareholders shall be distributed ratably among the holders of the Series A
Preferred Shares and the Series B Preferred Shares in proportion to the then
applicable Series A Liquidation Preference with respect to each Series A
Preferred Share and the then applicable Series B Liquidation Preference with
respect to each Series B Preferred Share.
- 3 -
<PAGE> 4
(b) Upon the completion of the distribution required by Section 4.2.3(a)
above, if assets of the Company remain to be distributed, each holder of Series
A Preferred Shares shall be entitled to be paid out of the remaining assets of
the Company, as and when distributed, pro rata with the holders of Common
Shares on each Series A Preferred Share deemed to be outstanding. For purposes
of the foregoing, the number of Series A Preferred Shares deemed to be
outstanding with respect to each such holder shall be equal to the maximum
number of Common Shares into which such holder's Series A Preferred Shares
would then be convertible upon exercise of the Conversion Rights described in
Section 4.2.5.
(c) Written notice of any such liquidation, dissolution or winding up,
stating a payment date, the place where such payment shall be made, an estimate
of the net value that would be received by each such holder if all such holders
converted all of their Series A Preferred Shares immediately prior to such
liquidation, dissolution or winding up of the Company, and containing a
statement of or reference to applicable conversion rights, shall be given by
first class mail, postage prepaid, not less than 30 days prior to the payment
day stated therein, to each holder of record of the Series A Preferred Shares
at such holder's address as shown in the records of the Company.
(d) Whenever the distribution provided for in this Section 4.2.3 shall be
payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the Board.
SECTION 4.2.4. VOTING RIGHTS. Except as otherwise expressly provided
herein or as required by law, the holders of Series A Preferred Shares shall be
entitled to vote on all matters upon which holders of Common Shares have the
right to vote and, with respect to such vote, shall be entitled to notice of
any shareholders' meeting in accordance with the bylaws of the Company, and
shall be entitled to a number of votes equal to the number of Common Shares
into which such Series A Preferred Shares could then be converted, upon
conversion pursuant to the Conversion Rights described in Section 4.2.5, at the
record date for the determination of shareholders entitled to vote on such
matters or, if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein, or to the extent class or series voting is otherwise
required by law or agreement, the holders of Series A Preferred Shares and
Common Shares shall vote together as a single class and not as separate classes.
SECTION 4.2.5. CONVERSION. The holders of the Series A Preferred Shares
shall have the following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each Series A Preferred Share shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such shares, at the office of the Company or any transfer agent for the Series
A Preferred Shares or Common Shares, into fully paid and nonassessable Common
Shares, at the Conversion Price (as hereafter defined) therefor in effect at
the time of conversion determined as
- 4 -
<PAGE> 5
provided herein, and prior to the closing date for any underwritten public
offering of Common Shares conducted on a firm commitment basis and registered
under the Securities Act of 1933, as amended, the gross proceeds of which to
the Company and/or selling shareholders (if any) are at least $10 million (a
"Public Offering") (but the right to convert shall not expire upon such
occurrence unless an automatic conversion shall have occurred as set forth in
Section 4.2.5(c) below).
(b) Conversion Price. Each Series A Preferred Share shall be convertible
into the number of Common Shares that results from dividing $1.95 by the
conversion price per share (the "Conversion Price") in effect at the time of
conversion of such Series A Preferred Share. The Conversion Price for each
Series A Preferred Share at the Original Issue Date shall be $1.95 and shall be
subject to adjustment from time to time as provided herein.
(c) Automatic Conversion. Each Series A Preferred Share which remains
outstanding on the closing date for a Public Offering (the "Registration Date")
shall automatically and without any action on the part of the holder thereof or
the Company, except as provided in clause (i) below, be converted on the same
basis and at the same Conversion Price as if each holder thereof had properly
exercised his right to convert on the date next preceding the Registration
Date; provided, that (i) each holder of Series A Preferred Shares shall have
received written notice of the proposed Public Offering at least 30 days prior
to the date the registration statement relating to that Public Offering becomes
effective, (ii) such conversion shall be effective at the close of business on
the Registration Date, and (iii) the Company shall have no obligation to issue
and deliver to any such holder of Series A Preferred Shares on such date a
certificate for the number of Common Shares to which such holder shall be
entitled until such time as such holder has surrendered his certificate or
certificates for his Series A Preferred Shares, duly endorsed, at the office of
the Company or any transfer agent for the Common Shares, or the holder notifies
the Company that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection therewith. All rights with respect to
Series A Preferred Shares outstanding on the Registration Date shall terminate
on such Registration Date, except only the right of the holders of such shares
to receive Common Shares upon surrender of their certificates for the Series A
Preferred Shares and their rights with respect to unpaid dividends described in
Section 4.2.5(d).
(d) Mechanics of Conversion; Unpaid Dividends. Before any holder of
Series A Preferred Shares shall be entitled to convert the same into Common
Shares, such holder shall either (i) surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for the Series A Preferred Shares or Common Shares, or (ii) deliver an
affidavit in favor of the Company stating that such certificates have been
lost, stolen or destroyed and containing an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith, and shall give written notice by mail, postage prepaid, to the
Company at such office that such holder elects to convert the same and shall
state therein the number of Series A
- 5 -
<PAGE> 6
Preferred Shares being converted and the name or names in which the certificate
or certificates for Common Shares to which such holder shall be entitled. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the Series A Preferred Shares to be
converted, and the person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Shares. All dividends accrued and unpaid
prior to surrender of Series A Preferred Shares surrendered for conversion
shall constitute a debt of the Company payable to the converting shareholder in
cash upon surrender of the Series A Preferred Shares for conversion, and no
dividend or other distribution shall be paid on, declared or set apart for any
Common Shares until such debt is fully paid or sufficient funds set apart for
the payment thereof.
(e) Adjustment for Stock Splits and Combinations. If the Company shall at
any time or from time to time after the Original Issue Date effect a
subdivision or combination of any outstanding Common Shares, the Conversion
Price then in effect immediately before that subdivision or combination shall
be proportionately adjusted by multiplying the then effective Conversion Price
by a fraction, (i) the numerator of which shall be the number of Common Shares
issued and outstanding immediately prior to such subdivision or combination,
and (ii) the denominator of which shall be the number of Common Shares issued
and outstanding immediately after such subdivision or combination. The number
of Common Shares outstanding at any time shall, for the purposes of this
Section 4.2.5(e), include the number of Common Shares into which any
convertible securities of the Company may be converted, or for which any
warrant, option or rights of the Company may be exchanged. Any adjustment
under this Section 4.2.5(e) shall become effective at the close of business on
the date the subdivision or combination becomes effective.
(f) Adjustments for Other Dividends and Distributions. In the event the
Company at any time or from time to time after the Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common
Shares entitled to receive, a dividend or other distribution payable in (i)
evidences of indebtedness of the Company, (ii) assets of the Company (other
than cash), or (iii) securities of the Company other than Common Shares, then
and in each such event provision shall be made so that the holders of Series A
Preferred Shares shall receive upon conversion thereof, in addition to the
number of Common Shares receivable thereupon, the amount of such evidences,
assets or securities that they would have received had they held, on such
record date, the maximum number of Common Shares into which their Series A
Preferred Shares could then have been converted.
(g) Adjustment for Reclassification, Exchange or Substitution. If the
Common Shares issuable upon the conversion of the Series A Preferred Shares
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4.2.5), then and in
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each such event the holder of each Series A Preferred Share shall have the
right thereafter to convert each such share into the kind and amount of shares
of stock and other securities and property receivable upon such reorganization,
reclassification or other change, by holders of the maximum number of Common
Shares into which such Series A Preferred Shares could have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(h) Reorganization, Mergers, Consolidations or Sales of Assets or Capital
Stock. If at any time or from time to time there shall be (i) a capital
reorganization of the Common Shares (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
4.2.5) or (ii) a merger, consolidation or statutory share exchange of the
Company with or into another corporation in which consolidation, merger or
statutory share exchange persons owning capital stock of the Company
immediately prior to the consolidation, merger or share exchange own less than
a majority of the voting stock of the resulting, surviving or exchanging
corporation, or (iii) the sale of all or substantially all the Company's
properties and assets or capital stock to any other person, then, as a part of
such reorganization, merger, share exchange, consolidation or sale, provision
shall be made so that the holders of the Series A Preferred Shares shall
thereafter be entitled to receive, upon conversion of the Series A Preferred
Shares, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, share exchange or sale, to which a holder of the maximum number
of Common Shares into which such Series A Preferred Shares would then be
converted would have been entitled on such capital, reorganization, merger,
share exchange, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4.2.5 with respect to the rights of the holders of the Series A Preferred
Shares after the reorganization, merger, share exchange, consolidation or sale
to the end that the provisions of this Section 4.2.5 (including adjustment of
the Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series A Preferred Shares) shall be applicable after that
event as nearly equivalent as may be practicable.
(i) Sale of Shares Below Conversion Price.
(i) If, at any time or from time to time after the Original Issue
Date, the Company shall issue or sell Additional Common Shares (as
hereinafter defined), other than as a dividend and other than upon a
subdivision or combination of Common Shares as provided in Section
4.2.5(e), for a consideration per share less than the then existing
Conversion Price for the Series A Preferred Shares (or, if an adjusted
Conversion Price shall be in effect by reason of one or more previous
adjustments, then less than such adjusted Conversion Price), then in each
case the then Conversion Price for the Series A Preferred Shares shall be
reduced, as of the opening of business on the date of such issue or sale,
to a price equal to such consideration per share.
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<PAGE> 8
(ii) For the purpose of making any adjustment in the Conversion
Price or number of Common Shares deliverable on conversion of Series A
Preferred Shares as provided above, the consideration received by the
Company for any issue or sale of securities shall,
(A) to the extent it consists of cash, be computed at the net
amount of cash receivable by the Company after deduction of any
underwriting or similar commissions, concessions or compensation
paid or allowed by the Company in connection with such issue or
sale,
(B) to the extent it consists of services or property other than
cash, be computed at the fair market value of such services or
property as reasonably determined in good faith by the Board; and
(C) if Additional Common Shares, Convertible Securities (as
hereinafter defined), or rights or options to purchase either
Additional Common Shares or Convertible Securities are issued or
sold together with other shares or securities or other assets of
the Company for a consideration that covers both, be computed as
the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable
to such Additional Common Shares, Convertible Securities or rights
or options.
(iii) For the purpose of the adjustment provided in subsection (i)
of this Section 4.2.5(i), if at any time or from time to time after the
Original Issue Date the Company shall issue any rights or options for the
purchase of, or stock or other securities convertible into, Additional
Common Shares (such convertible stock or securities being hereinafter
referred to as "Convertible Securities"), then, in each case, if the
Effective Price (as hereinafter defined in this subsection (iii) of this
Section 4.2.5(i)) of such rights, options or Convertible Securities shall
be less than the then existing Conversion Price for the Series A
Preferred Shares, the Company shall be deemed to have issued at the time
of the issuance of such rights or options or Convertible Securities the
maximum number of Additional Common Shares issuable upon exercise or
conversion thereof and to have received as consideration for the issuance
of such shares an amount equal to the total amount of the consideration,
if any, received by the Company for the issuance of such rights or
options or Convertible Securities, plus, in the case of such options or
rights, the minimum amounts of consideration, if any, payable to the
Company upon exercise or conversion of such options or rights. For
purposes of this subsection (iii) of this Section 4.2.5(i), "Effective
Price" shall mean the quotient determined by dividing the total of all
such minimum amounts of consideration by such maximum number of
Additional Common Shares. No further adjustment of the Conversion Price
adjusted upon the issuance of such rights, options, or Convertible
Securities shall be made as a result of the actual issuance of Additional
Common Shares on the exercise of any such rights or options or the
conversion of any such Convertible
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<PAGE> 9
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without
having been exercised, the Conversion Price adjusted upon the issuance of
such rights, options or Convertible Securities shall be readjusted to the
Conversion Price that would have been in effect had an adjustment been
made on the basis that the only Additional Common Shares so issued were
the Additional Common Shares, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such
Convertible Securities, and such Additional Common Shares, if any, were
issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by
the Company for the granting of all such rights or options, whether or
not exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted plus the consideration, if any,
actually received by the Company on the conversion of such Convertible
Securities.
(iv) For the purpose of the adjustment provided for in subsection
(i) of this Section 4.2.5(i), if at any time or from time to time after
the Original Issue Date the Company shall issue any rights or options for
the purchase of Convertible Securities, then, in each such case, if the
Effective Price (as hereinafter defined in this subsection (iv) of this
Section 4.2.5(i)) thereof is less than the then current Conversion Price,
the Company shall be deemed to have issued at the time of the issuance of
such rights or options the maximum number of Additional Common Shares
issuable upon conversion of the total amount of Convertible Securities
covered by such rights or options and to have received as consideration
for the issuance of such Additional Common Shares an amount equal to the
amount of consideration, if any, payable to the Company upon the
conversion of such Convertible Securities plus the consideration, if any,
received by the Company upon the issuance of such Convertible Securities.
For purposes of the foregoing "Effective Price" for purposes of this
subsection (iv) of Section 4.2.5(i) shall mean the quotient determined by
dividing the total amount of such consideration by such maximum number of
Additional Common Shares. No further adjustment of such Conversion Price
adjusted upon the issuance of such rights or options shall be made as a
result of the actual issuance of the Convertible Securities upon the
exercise of such rights or options or upon the actual issuance of
Additional Common Shares upon the conversion of such Convertible
Securities.
The provisions of subsection (iii) above for the readjustment of
such Conversion Price upon the expiration of rights or options or the
rights of conversion of Convertible Securities, shall apply mutatis
mutandis to the rights, options and Convertible Securities referred to in
this subsection (iv).
(j) Definition. The term "Additional Common Shares" as used herein shall
mean all Common Shares issued or deemed issued by the Company after the
Original Issue Date, whether or not subsequently reacquired or retired by the
Company, other than (i) Common Shares issued upon conversion of the Series A
Preferred Stock, (ii) Common
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<PAGE> 10
Shares issued upon conversion of the Series B Preferred Stock, (iii) any Common
Shares, Convertible Securities, options or rights (as adjusted for all stock
dividends, stock splits, subdivisions and combinations) issued to employees,
officers, directors, consultants or other persons performing services for the
Company or any Subsidiary (if so issued solely because of any such person's
status as an officer, director, employee, consultant or other person performing
services for the Company or any Subsidiary and not as part of any offering of
the Company's securities) pursuant to any stock option plan, stock purchase
plan or management incentive plan, agreement or arrangement approved by a
majority of the members of the Board of Directors who are not employees of the
Company or any subsidiary of the Company, (iv) as to each holder of Series A
Preferred Shares, Common Shares which are purchased by such holder, (v) up to
300,000 Common Shares (as adjusted for all stock dividends, stock splits and
combinations) issued upon the exercise of stock purchase warrants originally
granted in connection with sales or issuances of Series A Preferred Shares or
debt or other securities which are convertible into Series A Preferred Shares,
(v) any Common Shares issued upon the exercise of up to 605,314 stock purchase
warrants granted in connection with sales or issuances of Senior Subordinated
Promissory Notes by the Company to HealthPlan Services Corporation or any
assignee or successor of HealthPlan Services Corporation, (vi) any Common
Shares (as adjusted for all stock dividends, stock splits, subdivisions and
combinations) issued to sellers of businesses acquired by the Company as full
or partial consideration of such acquisition, or (vii) Common Shares issued or
issuable with respect to the securities referred to in (i), (ii), (iii), (iv),
(v) or (vi) by way of stock split or stock dividend or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
(k) Accountants' Certificate of Adjustment. In each case of an adjustment
or readjustment of the Conversion Price for the number of Common Shares or
other securities issuable upon conversion of the Series A Preferred Shares, the
Company, at its expense, shall cause independent certified public accountants
of recognized standing selected by the Company (who may be the independent
certified public accounts then auditing the books of the Company) to compute
such adjustment or readjustment in accordance herewith and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first-class mail, postage prepaid, to each registered holder of
the Series A Preferred Shares at the holder's address as shown in the Company's
books. The certificate shall set forth such adjustment or readjustment,
showing in detail the facts upon which such adjustment or readjustment is based
including a statement of (i) the consideration received or to be received by
the Company for any Additional Common Shares issued or sold or deemed to have
been issued or sold, (ii) the Conversion Price at the time in effect for each
series of the Series A Preferred Shares, and (iii) the number of Common Shares
and the type and amount, if any, of other property which at the time would be
received upon conversion of the Series A Preferred Shares.
(l) Notices of Record Date. In the event of (i) any taking by the company
of a record of the holders of any class or series of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any reclassification or recapitalization of the
capital stock of the Company, any merger or
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<PAGE> 11
consolidation of the Company, or any transfer of all or substantially all of
the assets or capital stock of the company to any other corporation, entity or
person, or any voluntary of involuntary dissolution, liquidation or winding up
of the affairs of the Company, the Company shall mail to each holder of Series
A Preferred Shares at least 30 days prior to the record date specified therein,
a notice specifying (A) the date of on which any such record is to be taken for
the purpose of such dividend or distribution and a description of such dividend
or distribution, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (C) the time, if any is to be
fixed, as to when the holders of record of Common Shares (or other securities)
shall be entitled to exchange their shares of Common Shares (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
(m) Fractional Shares. No fractional Common Shares shall be issued upon
conversion of Series A Preferred Shares. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall pay cash equal
to the product of such fraction multiplied by the fair market value of one
Common Share on the date of conversion, as reasonably determined in good faith
by the Board. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of Series A
Preferred Shares the holder is at the time converting into Common Shares and
the number of Common Shares issuable upon such aggregate conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued Common
Shares, solely for the following purposes, (i) such number of Common Shares
required to pay all dividends payable in Common Shares which the Company by
agreement is obligated, or may choose, to pay, (ii) such number of Common
Shares as may from time to time be required, at such time, to be issued by the
Company upon exercise of all then-exercisable warrants and options to purchase
Common Shares or the right to convert other convertible securities into Common
Shares, and (iii) such number of its Common Shares as shall from time to time
be sufficient to effect the Conversion of all outstanding Series A Preferred
Shares. As a condition precedent to the taking of any action which would cause
an adjustment to the Conversion Price, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient in order that it may be validly and legally issue the Common Shares
issuable based upon such adjusted Conversion Price.
(o) Notices. Any notice required by the provisions of this Section 4.2.5
to be given to the holder of the Series A Preferred Shares shall be deemed
given when personally delivered to such holder or five business days after the
same has been deposited in the United States mail, certified or registered
mail, return receipt requested, postage
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<PAGE> 12
prepaid, and addressed to each holder of record at this address appearing on
the books of the Company.
(p) Payment of Taxes. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
holders of the Series A Preferred Shares) that may be imposed in respect of the
issue or delivery of Common Shares upon conversion of the Series A Preferred
Shares.
(q) No Dilution or Impairment. The Company shall not amend these Articles
of Incorporation or participate in any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Shares against dilution or other impairment.
SECTION 4.2.6. STATUS OF PREFERRED SHARES. No Series A Preferred Shares
acquired by the Company by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue,
except for the pledge of such shares upon redemption thereof pursuant to an
agreement to which the Company is a party for the purpose of securing repayment
of amounts owing with respect to such redemption. In the event of the
automatic conversion of the Series A Preferred Shares pursuant to Section
4.2.5(c) hereof, all Series A Preferred Shares (including, without limitation,
all authorized but unissued Series A Preferred Shares) shall automatically and
without further action by the Company be eliminated from the shares which the
Company shall be authorized to issue, and each Series A Preferred Share
outstanding upon such conversion shall have the rights set forth in Sections
4.2.5(c) and 4.2.5(d) hereof.
SECTION 4.3. SERIES B PREFERRED SHARES. The following are statements of
the relative powers, preferences, rights and the qualifications, limitations or
restrictions of the Series B Preferred Shares.
SECTION 4.3.1.DEFINITIONS.
For purposes of this Section 4.3, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock Outstanding" means the number of Common Shares
outstanding plus the number of Common Shares issuable upon exercise of
all outstanding Options and upon conversion of all outstanding
Convertible Securities, including the Series B Preferred Shares.
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<PAGE> 13
(c) "Company" shall mean Medirisk, Inc.
(d) "Convertible Securities" means any indebtedness or shares of
capital stock convertible into or exchangeable for Common Shares.
(e) "Excluded Shares" means (i) Common Shares issued upon conversion
of the Series A Preferred Shares, (ii) Common Shares issued upon
conversion of the Series B Preferred Shares, (iii) the Common Shares
issuable upon the exercise of warrants granted in connection with the
issuance and sale by the Company of Senior Subordinated Notes to
HealthPlan Services Corporation or its successors or assigns, (iv) Common
Shares, Options or Convertible Securities issued to employees, officers,
directors or consultants of the Company or its Subsidiaries in
transactions approved or pursuant to a plan approved by a majority of the
members of the Board of Directors of the Company who are not employees of
the Company or any subsidiary of the Company, (v) as to each holder of
Series B Preferred Shares, Common Shares which are purchased by such
holder, (vi) up to 300,000 Common Shares (as adjusted for all stock
dividends, stock splits and combinations) issued upon the exercise of
stock purchase warrants originally granted in connection with sales or
issuances of Series A Preferred Shares or debt or other securities which
are convertible into Series A Preferred Shares, (vii) Common Shares,
Options or Convertible Securities issued to sellers of businesses
acquired by the Company as full or partial consideration of such
acquisition, or (viii) Common Shares issued or issuable with respect to
the securities referred to in (i), (ii), (iii), (iv), (v), (vi) or (vii)
by way of stock split or stock dividend or in connection with a
combination of shares, recapitalization, merger, consolidation, share
exchange or other reorganization.
(f) "Fair Value" of a Common Share on any specified date means:
(i) If Common Shares are then listed or admitted to trading on any
national securities exchange or traded on any national market system, the
average of the daily closing prices for the thirty (30) trading days
before such date, excluding any trades which are not bona fide, arm's
length transactions. The closing price for each day shall be the last
sale price on such date or, if no such sale takes place on such date, the
average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or
national market system on which such shares are then listed, admitted to
trading or traded.
(ii) If no Common Shares are then listed or admitted to trading on
any national securities exchange or traded on any national market system,
the average of the reported closing bid and asked prices thereof on such
date in the over-the-counter market as shown by the National Association
of Securities Dealers automated quotation system or, if such shares are
not then quoted in such system, as published by the National Quotation
Bureau, Incorporated or any similar
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<PAGE> 14
successor organization, and in either case as reported by any member firm
of the New York Stock Exchange selected by the holders of a majority of
the outstanding Series B Preferred Shares.
(iii) If no Common Shares are then listed or admitted to trading on
any national exchange or traded on any national market system, and if no
closing bid and asked prices thereof are then so quoted or published in
the over-the-counter market, the fair value of a Common Share shall be as
mutually agreed by the Company and holders of a majority of the
outstanding Series B Preferred Shares; provided, however that if the
Company and such holders are unable to mutually agree upon the fair
value, the Company and such holders shall, within five days from the date
that either party determines that they cannot agree, jointly retain an
investment banking firm, or a nationally recognized accounting firm or
other firm providing similar valuation services, satisfactory to each of
them. If the Company and such holders are unable to agree on the
selection of such a firm within such five day period, the Company and
such holders shall, within twenty days after expiration of such five day
period, each retain a separate independent investment banking firm (which
firm, in either case, shall not be the investment banking firm regularly
retained by the Company). If either the Company or such holders fail to
retain such an investment banking firm during such twenty day period,
then the independent investment banking firm retained by such holders or
the Company, as the case may be, shall alone take the actions described
below. Such firms shall determine within 30 days of being retained the
fair value of a Common Share and deliver their opinion in writing to the
Company and to such holders as to the fair value. If such firms cannot
jointly agree upon the fair value, then, unless otherwise directed in
writing by both the Company and such holders, such firms, in their sole
discretion, shall choose another investment banking firm independent of
the Company, which firm shall make such determination and render such an
opinion as promptly as practicable. In either case, the determination so
made shall be conclusive and binding on the Company and the holders of
the Series B Preferred Shares. The fees and expenses for such
determination made by any and all such investment banking or other firms
shall be paid one-half by the Company and one-half by such holders. In
the determination of the fair value of a Common Share, there shall not be
taken into consideration any premium for shares representing control of
the Company.
(g) "Option" means any right, warrant or option to subscribe for or
purchase Common Shares or Convertible Securities.
(h) "Original Issue Date" for the Series B Preferred Shares shall
mean January 8, 1996.
(i) "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting shares shall at the time be owned directly or
indirectly by the Company or by one or more subsidiaries.
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<PAGE> 15
SECTION 4.3.2. DIVIDENDS.
(a) The holders of record of the then outstanding Series B Preferred
Shares shall be entitled to receive when, as and if declared by the Board, but
in any event not prior to the first anniversary of the Original Issue Date, out
of the funds legally available therefor, cumulative dividends at the annual
rate of 8% per share. Such dividends shall accrue on each Series B Preferred
Share from and after the first anniversary of the Original Issue Date, shall
accrue from day to day, whether or not earned or declared, and shall be payable
in cash. Such dividends will in no event be declared or paid by the Company
prior to the payment in full of those certain senior subordinated Promissory
Notes issued by the Company pursuant to the Securities Purchase Agreement.
(b) Subject to the provisions of this Section 4.3.2, the provisions of the
Securities Purchase Agreement and the provisions of a Shareholders Agreement
among the Company and certain shareholders of the Company, as the same may be
amended from time to time, the Company may, in the Board's discretion, declare
and pay dividends or distributions, or make provision for the payment thereof,
on any equity security of the Company, but only if all accrued dividends and
distributions on the Series A Preferred Shares and the Series B Preferred
Shares shall have been paid and made in full prior to the date of any such
declaration, payment, provision or distribution.
(c) Notwithstanding anything in the foregoing to the contrary, no
dividends shall be declared, paid or distributed, or provision therefor made,
on any Common Shares, unless simultaneously therewith there also shall be
declared, paid or distributed, or provision therefor made, as the case may be,
a dividend or distribution pro rata on each then outstanding Series B Preferred
Share to each holder thereof. For purposes of the foregoing, the number of
Series B Preferred Shares deemed to be outstanding with respect to each such
holder shall be equal to the maximum number of Common Shares into which such
holder's Series B Preferred Shares would then be convertible upon exercise of
the Conversion Rights described in Section 4.3.5.
SECTION 4.3.3. LIQUIDATION RIGHTS.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities and obligations of the
Company, each holder of Series B Preferred Shares then outstanding shall be
entitled to be paid out of the net assets of the Company available for
distribution to its shareholders prior and in preference to any payment or
declaration and setting apart for payment of any amount in respect of the
Common Shares, an amount equal to the sum of the following: (i) $7.13 per
Series B Preferred Share held by such holder, and (ii) the fair market value,
reasonably determined in good faith by the Board, of the evidences of
indebtedness, assets and securities referred to in Section 4.3.5(e) hereof to
which such holders would have been entitled to receive upon conversion of their
Series B Preferred Shares (clauses (i) and (ii), collectively the
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<PAGE> 16
"Series B Liquidation Preference"); if upon any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the assets to be
distributed to the holders of the Series A Preferred Shares and the Series B
Preferred Shares shall be insufficient to permit the payment to such holders of
the full aggregate amount of the Series A Liquidation Preference plus the
Series B Liquidation Preference, then all of the net assets of the Company
available for distribution to its shareholders shall be distributed ratably
among the holders of the Series A Preferred Shares and the Series B Preferred
Shares in proportion to the then applicable Series A Liquidation Preference
with respect to each Series A Preferred Share and the then applicable Series B
Liquidation Preference with respect to each Series B Preferred Share.
(b) Upon the completion of the distribution required by subsection (a) of
this Section 4.3.3, if assets of the Company remain to be distributed, each
holder of Series B Preferred Shares shall be entitled to be paid out of the
remaining assets of the Company, as and when distributed, pro rata with the
holders of Common Shares on each Series B Preferred Share deemed to be
outstanding. For purposes of the foregoing, the number of Series B Preferred
Shares deemed to be outstanding with respect to each such holder shall be equal
to the maximum number of Common Shares into which such holder's Series B
Preferred Shares would then be convertible upon exercise of the Conversion
Rights described in Section 4.3.5.
(c) Written notice of any such liquidation, dissolution or winding up,
stating a payment date, the place where such payment shall be made, an estimate
of the net value that would be received by each such holder if all such holders
converted all of their Series B Preferred Shares immediately prior to such
liquidation, dissolution or winding up of the Company, and containing a
statement of or reference to applicable conversion rights, shall be given by
first class mail, postage prepaid, not less than 30 days prior to the payment
day stated therein, to each holder of record of the Series B Preferred Shares
at such holder's address as shown in the records of the Company.
(d) Whenever the distribution provided for in this Section 4.3.3 shall be
payable in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the Board.
SECTION 4.3.4. VOTING RIGHTS. Except as otherwise expressly provided
herein or as required by law, the holders of Series B Preferred Shares shall be
entitled to vote on all matters upon which holders of Common Shares have the
right to vote and, with respect to such vote, shall be entitled to notice of
any shareholders' meeting in accordance with the bylaws of the Company, and
shall be entitled to a number of votes equal to the number of Common Shares
into which such Series B Preferred Shares could then be converted, upon
conversion pursuant to the Conversion Rights described in Section 4.3.5, at the
record date for the determination of shareholders entitled to vote on such
matters or, if no such record date is established, at the date such vote is
taken or any written consent of shareholders is solicited. Except as otherwise
expressly provided herein, or to the extent class or series voting is otherwise
required by law or agreement, the holders of Series B
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<PAGE> 17
Preferred Shares and Common Shares shall vote together as a single class and
not as separate classes.
SECTION 4.3.5. CONVERSION. The holders of the Series B Preferred Shares
shall have the following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each Series B Preferred Share shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such shares, and prior to the closing date for any Public Offering giving rise
to an automatic conversion as provided in Section 4.3.5(c), at the office of
the Company or any transfer agent for the Series B Preferred Shares or Common
Shares, into fully paid and nonassessable Common Shares, at the Conversion
Price (as hereafter defined) therefor in effect at the time of conversion
determined as provided herein.
(b) Conversion Price. Each Series B Preferred Share shall be convertible
into the number of Common Shares that results from dividing $7.13 by the
conversion price per share (the "Series B Conversion Price") in effect at the
time of conversion of such Series B Preferred Share. The Series B Conversion
Price for each Series B Preferred Share at the Original Issue Date shall be
$7.13 and shall be subject to adjustment from time to time as provided herein.
(c) Automatic Conversion. Each Series A Preferred Share which remains
outstanding on the closing date for a Public Offering (the "Registration Date")
shall automatically and without any action on the part of the holder thereof or
the Company, except as provided in clause (i) below, be converted on the same
basis and at the same Conversion Price as if each holder thereof had properly
exercised his right to convert on the date next preceding the Registration
Date; provided, that (i) each holder of Series A Preferred Shares shall have
received written notice of the proposed Public Offering at least 30 days prior
to the date the registration statement relating to that Public Offering becomes
effective, (ii) such conversion shall be effective at the close of business on
the Registration Date, and (iii) the Company shall have no obligation to issue
and deliver to any such holder of Series A Preferred Shares on such date a
certificate for the number of Common Shares to which such holder shall be
entitled until such time as such holder has surrendered his certificate or
certificates for his Series A Preferred Shares, duly endorsed, at the office of
the Company or any transfer agent for the Common Shares, or the holder notifies
the Company that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection therewith. All rights with respect to
Series A Preferred Shares outstanding on the Registration Date shall terminate
on such Registration Date, except only the right of the holders of such shares
to receive Common Shares upon surrender of their certificates for the Series A
Preferred Shares and their rights with respect to unpaid dividends described in
Section 4.3.5(d).
(d) Mechanics of Conversion; Unpaid Dividends. Before any holder of
Series B Preferred Shares shall be entitled to convert the same into Common
Shares, such holder
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<PAGE> 18
shall either (i) surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or of any transfer agent for the Series
B Preferred Shares or Common Shares, or (ii) deliver an affidavit in favor of
the Company stating that such certificates have been lost, stolen or destroyed
and containing an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith, and shall give
written notice by mail, postage prepaid, to the Company at such office that
such holder elects to convert the same and shall state therein the number of
Series B Preferred Shares being converted and the name or names in which the
certificate or certificates for Common Shares to which such holder shall be
entitled. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the Series B
Preferred Shares to be converted, and the person or persons entitled to receive
the Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Shares. All dividends
accrued and unpaid prior to surrender of Series B Preferred Shares surrendered
for conversion shall constitute a debt of the Company payable to the converting
shareholder in cash upon surrender of the Series B Preferred Shares for
conversion, and no dividend or other distribution shall be paid on, declared or
set apart for any Common Shares until such debt is fully paid or sufficient
funds set apart for the payment thereof.
(e) Adjustment for Stock Splits and Combinations. If the Company shall at
any time or from time to time after the Original Issue Date effect a
subdivision or combination of any outstanding Common Shares, the Series B
Conversion Price then in effect immediately before that subdivision or
combination shall be proportionately adjusted by multiplying the then effective
Series B Conversion Price by a fraction, (i) the numerator of which shall be
the number of Common Shares issued and outstanding immediately prior to such
subdivision or combination, and (ii) the denominator of which shall be the
number of Common Shares issued and outstanding immediately after such
subdivision or combination. The number of Common Shares outstanding at any
time shall, for the purposes of this Section 4.3.5(e), include the number of
Common Shares into which any convertible securities of the Company may be
converted, or for which any warrant, option or rights of the Company may be
exchanged. Any adjustment under this Section 4.3.5(e) shall become effective
at the close of business on the date the subdivision or combination becomes
effective.
(f) Adjustments for Other Dividends and Distributions. In the event the
Company at any time or from time to time after the Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common
Shares entitled to receive, a dividend or other distribution payable in (i)
evidences of indebtedness of the Company, (ii) assets of the Company (other
than cash), or (iii) securities of the Company other than Common Shares, then
and in each such event provision shall be made so that the holders of Series B
Preferred Shares shall receive upon conversion thereof, in addition to the
number of Common Shares receivable thereupon, the amount of such evidences,
assets or securities that they would have received had they held, on such
record date, the maximum number of Common Shares into which their Series B
Preferred Shares could then have been converted.
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<PAGE> 19
(g) Adjustment for Reclassification, Exchange or Substitution. If the
Common Shares issuable upon the conversion of the Series B Preferred Shares
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4.3.5), then and in each such
event the holder of each Series B Preferred Share shall have the right
thereafter to convert each such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification or other change, by holders of the maximum number of Common
Shares into which such Series B Preferred Shares could have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(h) Reorganization, Mergers, Consolidations or Sales of Assets or Capital
Stock. If at any time or from time to time there shall be (i) a capital
reorganization of the Common Shares (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
4.3.5) or (ii) a merger, consolidation or statutory share exchange of the
Company with or into another corporation in which consolidation, merger or
statutory share exchange persons owning capital stock of the Company
immediately prior to the consolidation, merger or share exchange own less than
a majority of the voting stock of the resulting, surviving or exchanging
corporation, or (iii) the sale of all or substantially all the Company's
properties and assets or capital stock to any other person, then, as a part of
such reorganization, merger, consolidation, share exchange or sale, provision
shall be made so that the holders of the Series B Preferred Shares shall
thereafter be entitled to receive, upon conversion of the Series B Preferred
Shares, the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such merger or
consolidation, share exchange or sale, to which a holder of the maximum number
of Common Shares into which such Series B Preferred Shares would then be
converted would have been entitled on such capital, reorganization, merger,
share exchange, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4.3.5 with respect to the rights of the holders of the Series B Preferred
Shares after the reorganization, merger, share exchange, consolidation or sale
to the end that the provisions of this Section 4.3.5 (including adjustment of
the Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Shares) shall be applicable after that
event as nearly equivalent as may be practicable.
(i) Change in Series B Conversion Price Upon Issuance of Securities. If
the Company issues or sells any Common Shares, other than Common Shares
Outstanding on the Original Issue Date of the Series B Preferred Shares and
Excluded Shares, or issues any Convertible Security or Option entitling the
issuee to acquire Common Shares for a consideration per share less than the
Fair Value in effect immediately prior to the time of such issuance or sale,
then the Series B Conversion Price shall be reduced to the lower of the
following:
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<PAGE> 20
(I) the price determined by dividing (i) an amount equal to the sum of (x)
the Common Shares Outstanding immediately prior to such issuance or sale
multiplied by the then current Series B Conversion Price, plus (y) the
aggregate consideration, if any, received by the Company upon such issuance or
sale, by (ii) the Common Shares Outstanding immediately after such issuance or
sale; or
(II) the price determined by multiplying the then current Series B
Conversion Price by a fraction (i) the numerator of which shall be the sum of
(A) the Common Shares Outstanding immediately prior to such issuance or sale,
plus (B) the number of Common Shares that the aggregate consideration, if any,
received by the Company upon such issuance or sale would purchase at the Fair
Value on the date of such issuance or sale and (ii) the denominator of which
shall be the Common Shares Outstanding immediately after and giving effect to
such issuance or sale.
For the purposes of this Section 4.3.5(i), the following provisions shall
also be applicable:
(i) Cash Consideration. If the Company issues the Common Shares, Option
or Convertible Security for cash, the consideration received by the Company
therefor (or, if such shares are offered by the Company for subscription, the
subscription price, or, if such shares are sold to underwriters or dealers for
public offering without a subscription offering, the initial public offering
price), after deducting therefrom any reasonable compensation or discount paid
or allowed to underwriters or dealers or others performing similar services but
without deducting therefrom any reasonable expenses incurred in connection
therewith, shall be deemed to be the consideration received by the Company for
such shares.
(ii) Non-Cash Consideration. If the Company issues (other than upon
conversion or issuance of a Convertible Security) the Common Shares, Option or
Convertible Security for a consideration wholly or partially other than cash,
including services rendered, the fair value of such consideration, as
determined by the Board of Directors of the Company in good faith shall be
deemed to be the value, for purposes of this Section 4.3.5(i), of the
consideration other than cash received by the Company for such securities
except that any Common Share, Option or Convertible Security issued for
services shall be deemed to be issued for no consideration.
(iii) Options and Convertible Securities. If the Company issues or grants
any Option or any Convertible Security, and the inclusion thereof in the
calculation of an adjusted Series B Conversion Price pursuant to this Section
4.3.5(i) would result in a Series B Conversion Exercise Price lower than if
excluded, the total maximum number of Common Shares issuable upon the exercise
of such Option or upon conversion or exchange of the total maximum amount of
such Convertible Security outstanding at the time such Convertible Security
first becomes convertible or exchangeable shall be deemed to be issued and to
be outstanding for the purposes of this Section 4.3.5(i) as of the date
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<PAGE> 21
of issue or grant of such Option or, in the case of the issue or sale of a
Convertible Security other than where the same is issuable upon the exercise of
an Option, as of the date of such issue or sale and to have been issued for the
sum of the amount (if any) paid for such Option or Convertible Security and the
amount (if any) payable upon the exercise of such Option or upon conversion or
exchange of such Convertible Security at the time such Convertible Security
becomes convertible or exchangeable. If the inclusion thereof would not result
in a Series B Conversion Price lower than if excluded, or if, at the time of
exercise, the Series B Conversion Price which would result from deeming such an
Option or Convertible Security to have been issued on the date of exercise is
lower than that which resulted from adjustment of the Exercise Price at the
time of issuance, such Option or Convertible Security shall not be deemed to be
issued until the close of business on the date of exercise, conversion or
exchange and issuance of Common Shares pursuant thereto.
(iv) Reclassification. The reclassification of securities other than
Common Shares into securities including Common Shares shall be deemed to
involve the issuance for a consideration other than cash of such Common Shares
at the close of business on the date fixed for the determination of
stockholders entitled to receive such Common Shares.
(j) Change in Exercise Price or Conversion Rate of Option or Convertible
Securities.
(i) Not Due to Dilution. If the purchase price provided for in any
Option, or the additional consideration (if any) payable upon the conversion or
exchange of any Convertible Security, or the rate at which any Convertible
Security is convertible into or exchangeable for Common Shares changes at any
time (other than under or by reason of provisions designed to protect against
dilution), the Series B Conversion Price in effect at the time of the change
shall be readjusted to the Series B Conversion Price that would have been in
effect at such time had such Option or Convertible Security still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or
sold.
(ii) Due to Dilution. If the purchase price provided for in any Option,
or the additional consideration (if any) payable upon the conversion or
exchange of any Convertible Security, or the rate at which any Convertible
Security is convertible into or exchangeable for Common Shares is reduced at
any time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common Shares upon
the exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Series B Conversion Price then in effect hereunder
shall, upon issuance of such Common Shares, be adjusted to such amount as would
have obtained had such Option or Convertible Security never been issued and had
adjustments been made only upon the issuance of the Common Shares delivered as
aforesaid and for the consideration actually received for such Option or
Convertible Security and Common Shares.
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<PAGE> 22
(k) Termination of Option or Conversion Rights. If any right to purchase
Common Shares under any Option or any right to convert or exchange any
Convertible Security terminates or expires, the Series B Conversion Price then
in effect shall, upon such termination, be changed to the Series B Conversion
Price that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
Common Shares thereunder shall no longer be deemed to be Common Shares
Outstanding.
(l) Successive Changes. The provisions of this Section 4.3.5 shall apply
to successive issuances, dividends or other Distributions, subdivisions and
combinations on or of Common Shares after the Original Issue Date of the Series
B Preferred Shares.
(m) Accountants' Certificate of Adjustment. In each case of an adjustment
or readjustment of the Series B Conversion Price for the number of Common
Shares or other securities issuable upon conversion of the Series B Preferred
Shares, the Company, at its expense, shall cause independent certified public
accountants of recognized standing selected by the Company (who may be the
independent certified public accounts then auditing the books of the Company)
to compute such adjustment or readjustment in accordance herewith and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first-class mail, postage prepaid, to each registered holder of
the Series B Preferred Shares at the holder's address as shown in the Company's
books. The certificate shall set forth such adjustment or readjustment,
showing in detail the facts upon which such adjustment or readjustment is based
including a statement of (i) the consideration received or to be received by
the Company for any Common Shares issued or sold or deemed to have been issued
or sold after the Original Issue Date of the Series B Preferred Shares that are
not Excluded Shares, (ii) the Series B Conversion Price at the time in effect
for each series of the Series B Preferred Shares, and (iii) the number of
Common Shares and the type and amount, if any, of other property which at the
time would be received upon conversion of the Series B Preferred Shares.
(n) Certain Other Actions Prohibited. The Company shall not by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Series B Preferred Shares set forth in
this Section 4.3, but shall at all times in good faith assist in the carrying
out of all of the such terms and shall take all such reasonable action as
required to protect the conversion privilege of the holders of Series B
Preferred Shares against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (i) shall not increase the par value
of the Common Share above the Series B Conversion Price, (ii) shall take all
such actions as may be necessary or appropriate under local, state or federal
laws of the United States of America in order that the Company may validly and
legally issue fully paid and nonassessable Common Shares upon the conversion
exercise of all Series B Preferred Shares from time to time outstanding and
(iii) shall not
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<PAGE> 23
take any action which results in any adjustment of the Series B Conversion
Price if the total number of Common Shares or other securities issuable after
the action upon the conversion of all of the Series B Preferred Shares would
exceed the total number of Common Shares or other securities then authorized by
the Company's Articles of Incorporation and available for the purpose of issue
upon such exercise.
(o) Notices of Record Date. In the event of (i) any taking by the company
of a record of the holders of any class or series of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of the Company, or
any transfer of all or substantially all of the assets or capital stock of the
company to any other corporation, entity or person, or any voluntary of
involuntary dissolution, liquidation or winding up of the affairs of the
Company, the Company shall mail to each holder of Series B Preferred Shares at
least 30 days prior to the record date specified therein, a notice specifying
(A) the date of on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution,
(B) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, share exchange, dissolution, liquidation or winding up
is expected to become effective, and (C) the time, if any is to be fixed, as to
when the holders of record of Common Shares (or other securities) shall be
entitled to exchange their shares of Common Shares (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, share exchange, dissolution,
liquidation or winding up.
(p) Fractional Shares. No fractional Common Shares shall be issued upon
conversion of Series B Preferred Shares. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall pay cash equal
to the product of such fraction multiplied by the Fair Value of one Common
Share on the date of conversion. Whether or not fractional shares are issuable
upon such conversion shall be determined on the basis of the total number of
Series B Preferred Shares the holder is at the time converting into Common
Shares and the number of Common Shares issuable upon such aggregate conversion.
(q) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued Common
Shares, solely for the following purposes, (i) such number of Common Shares
required to pay all dividends payable in Common Shares which the Company by
agreement is obligated, or may choose, to pay, (ii) such number of Common
Shares as may from time to time be required, at such time, to be issued by the
Company upon exercise of all then-exercisable warrants and options to purchase
Common Shares or the right to convert other convertible securities into Common
Shares, and (iii) such number of its Common Shares as shall from time to time
be sufficient to effect the Conversion of all outstanding Series B Preferred
Shares. As a condition precedent to the taking of any action which would cause
an adjustment to the Conversion Price, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued
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<PAGE> 24
Common Shares to such number of shares as shall be sufficient in order that it
may be validly and legally issue the Common Shares issuable based upon such
adjusted Conversion Price.
(r) Notices. Any notice required by the provisions of this Section 4.3.5
to be given to the holder of the Series B Preferred Shares shall be deemed
given when personally delivered to such holder or five business days after the
same has been deposited in the United States mail, certified or registered
mail, return receipt requested, postage prepaid, and addressed to each holder
of record at this address appearing on the books of the Company.
(s) Payment of Taxes. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
holders of the Series B Preferred Shares) that may be imposed in respect of the
issue or delivery of Common Shares upon conversion of the Series B Preferred
Shares.
SECTION 4.3.6. STATUS OF PREFERRED SHARES. No Series B Preferred Shares
acquired by the Company by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue,
except for the pledge of such shares upon redemption thereof pursuant to an
agreement to which the Company is a party for the purpose of securing repayment
of amounts owing with respect to such redemption. In the event of the
automatic conversion of the Series B Preferred Shares pursuant to Section
4.3.5(c) hereof, all Series B Preferred Shares (including, without limitation,
all authorized but unissued Series B Preferred Shares) shall automatically and
without further action by the Company be eliminated from the shares which the
Company shall be authorized to issue, and each Series B Preferred Share
outstanding upon such conversion shall have the rights set forth in Sections
4.3.5(c) and 4.3.5(d) hereof.
SECTION 4.4. PREFERRED STOCK.
SECTION 4.4.1. SERIES OF PREFERRED STOCK. The Preferred Stock may be
issued from time to time in one or more series, each such series to have the
terms stated herein and in the resolution of the Board of Directors of the
Corporation providing for its issue. All shares of any one series of Preferred
Stock shall be identical, but shares of different series of Preferred Stock
need not be identical or rank equally except insofar as provided by law or
herein.
SECTION 4.4.2. DESIGNATION AND RIGHTS OF PREFERRED STOCK. The Board of
Directors of the Corporation shall have authority by resolution to cause to be
created one or more series of Preferred Stock and to determine and fix with
respect to each series prior to the issuance of any shares of the series to
which such resolution relates:
(a) The distinctive designation of the series and the number of shares
that will constitute the series, which number may be increased or decreased
(but not below
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the number of shares then outstanding) from time to time by action of the Board
of Directors;
(b) The dividend rate and the times of payment of dividends on the shares
of the series, whether dividends will be cumulative and, if so, from what date
or dates;
(c) Whether or not the shares of the series will be redeemable and, if so,
the price or prices at which, and the terms and conditions upon which, the
shares of the series may be redeemed at the option of the Corporation or the
holder;
(d) Whether or not the shares of the series will be entitled to the
benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled, the amount of such fund and the
terms and provisions relative to the operation thereof;
(e) Whether or not the shares of the series will be convertible into, or
exchangeable for, any other shares of stock of the Corporation or other
securities and, if so convertible or exchangeable, the conversion price or
prices, or the rates of exchange, and any adjustment thereof, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(f) The rights of the shares of the series in the event of voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation;
(g) Whether or not the shares will have priority over or be on a parity
with or be junior to the shares of any other series or class in any respect or
will be entitled to the benefit of limitations restricting the issuance of any
other series or class having priority over or being on a parity with the shares
of such series in any respect, or restricting the payment of dividends on or
the making of other distributions in respect of shares of any other series or
class ranking junior to the shares of the series as to dividends or assets or
restricting the purchase or redemption of the shares of any such junior series
or class, and the terms of any such restriction;
(h) Whether the series will have voting rights in addition to any voting
rights provided by law and, if so, the terms of such voting rights; and
(i) Any other preferences, qualifications, privileges, options or other
relative or special rights and limitations of that series.
SECTION 4.4.3. PAYMENT OF DIVIDENDS. Holders of Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, out of funds legally available for the payment thereof, dividends
at the rates fixed by the Board of Directors of the respective series, and no
more, before dividends shall be
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<PAGE> 26
declared and paid, or set apart for payment on Common Stock with respect to the
same dividend period.
SECTION 4.4.4. LIQUIDATION OF THE CORPORATION. In the event of the
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, holders of each series of Preferred Stock will be entitled to
receive the amount fixed for such series plus, in the case of any series on
which dividends will have been determined by the Board of Directors to be
cumulative, an amount equal to all dividends accumulated and unpaid thereon to
the date of final distribution whether or not earned or declared before any
distribution shall be paid, or set aside for payment, to holders of Common
Stock. If the assets of the Corporation are not sufficient to pay such amounts
in full, holders of all shares of Preferred Stock will participate in the
distribution of assets ratably in proportion to the full amounts to which they
are entitled or in such order of priority, if any, as will have been fixed in
the resolution or resolutions providing for the issue of the series of
Preferred Stock. Neither the merger nor the consolidation of the Corporation
into or with any other corporation nor a sale, transfer or lease of all or part
of its assets will be deemed a liquidation, dissolution or winding-up of the
Corporation within the meaning of this paragraph except to the extent
specifically provided for in the resolution or resolutions providing for the
issue of the series of Preferred Stock.
SECTION 4.4.5. OTHER PROVISIONS REGARDING PREFERRED STOCK. The
Corporation may, at the option of its Board of Directors, if so provided in the
resolutions providing for its issue, redeem all or part of the shares of any
series of Preferred Stock upon the terms and conditions fixed for such series.
Except as otherwise provided by law, as otherwise provided herein, or as
otherwise determined by the Board of Directors as to the shares of any series
of Preferred Stock prior to the issuance of any such shares, the holders of
Preferred Stock shall have no voting rights and shall not be entitled to any
notice of meeting of stockholders.
SECTION 4.4. COMMON SHARES. The following are statements of the relative
powers, preferences, rights and the qualifications, limitations or restrictions
of the Common Shares.
Each Common Share shall have one vote upon all matters to be voted on by
the holders of Common Shares. Each Common Share shall be entitled to
participate equally in all dividends payable with respect to the Common Shares
and to share ratably, subject to the rights and preferences of any series of
Preferred Shares, in all assets of the corporation in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the corporation, or upon any distribution of the asset of the corporation.
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ARTICLE V
INITIAL BOARD OF DIRECTORS
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation. The name and address of the person who is to
serve as the sole director of the Corporation until the first annual meeting of
stockholders or until his successor is elected and qualified are as follows:
Mark A. Kaiser
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road, N.E.
Atlanta, Georgia 30305-1502.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact:
(a) that he or she is or was a director or officer of the Corporation, or
(b) that he or she, being at the time a director or officer of the
Corporation, is or was serving at the request of the Corporation as a director,
trustee, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (collectively, "another enterprise" or "other
enterprise"), whether either in case (a) or in case (b) the basis of such
proceeding is alleged action or inaction (x) in an official capacity as a
director or officer of the Corporation, or as a director, trustee, officer,
employee or agent of such other enterprise, or (y) in any other capacity
related to the Corporation or such other enterprise while so serving as a
director, trustee, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent not prohibited by Section 145
of the Delaware General Corporation Law (or any successor provision or
provisions) as the same exists or may hereafter be amended (but, in the case of
any such amendment, with respect to alleged action or inaction occurring prior
to such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including without limitation
attorneys' fees and expenses, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such person
in connection therewith. The persons indemnified by this Article VI are
hereinafter referred to as "indemnitees." Such indemnification as to such
alleged action or inaction shall
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<PAGE> 28
continue as to an indemnitee who has after such alleged action or inaction
ceased to be a director or officer of the Corporation, or director, officer,
employee or agent of such other enterprise; and shall inure to the benefit of
the indemnitee's heirs, executors and administrators. Notwithstanding the
foregoing, except as may be provided in the Bylaws or by the Board of
Directors, the Corporation shall not indemnify any such indemnitee in
connection with a proceeding (or portion thereof) initiated by such indemnitee
(but this prohibition shall not apply to a counterclaim, cross-claim or
third-party claim brought by the indemnitee in any proceeding) unless such
proceeding (or portion thereof) was authorized by the Board of Directors. The
right to indemnification conferred in this Article VI: (i) shall be a contract
right; (ii) shall not be affected adversely to any indemnitee by any amendment
of this Certificate of Incorporation with respect to any alleged action or
inaction occurring prior to such amendment; and (iii) shall, subject to any
requirements imposed by law and the Bylaws, include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition.
SECTION 6.2. RELATIONSHIP TO OTHER RIGHTS AND PROVISIONS CONCERNING
INDEMNIFICATION. The rights to indemnification and to the advancement of
expenses conferred in this Article VI shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise. The Bylaws may contain such other
provisions concerning indemnification, including provisions specifying
reasonable procedures relating to and conditions to the receipt by indemnitees
of indemnification, provided that such provisions are not inconsistent with the
provisions of this Article VI.
SECTION 6.3. AGENTS AND EMPLOYEES. The Corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of expenses, to any employee or agent
of the Corporation (or any person serving at the Corporation's request as a
director, trustee, officer, employee or agent of another enterprise) or to any
person who is or was a director, officer, employee or agent of any of the
Corporation's affiliates, or who is or was serving at the request of such
affiliate, predecessor or subsidiary corporation or of such constituent
corporation as a director, officer, employee or agent of another enterprise, in
each case as determined by the Board of Directors to the fullest extent of the
provisions of this Article VI in cases of the indemnification and advancement
of expenses of directors and officers of the Corporation, or to any lesser
extent (or greater extent, if permitted by law) determined by the Board of
Directors.
ARTICLE VII
LIMITATION ON LIABILITY OF DIRECTORS
No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that the
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foregoing shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. If the Delaware General
Corporation Law is amended hereafter to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended. Any
amendment, repeal or modification of this Article VI shall not adversely affect
any right or protection of a director of the Corporation existing hereunder
with respect to any act or omission occurring prior to such amendment, repeal
or modification.
ARTICLE VIII
COMPROMISE
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions
of Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of the Delaware
Code, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
The Corporation hereby reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation. Any such
amendment, alteration, change or repeal shall require the affirmative vote of
both (a) a majority of the members of the Board of Directors then in office and
(b) a majority of the voting power of all of the shares of capital stock of the
Corporation entitled to vote generally in the election of
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directors, voting together as a single class. In furtherance of any not in
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to adopt, amend, alter, change or repeal, in whole or in
part, the Bylaws of the Corporation.
ARTICLE X
SEVERABILITY
In the event that any of the provisions of this Certificate of
Incorporation (including any provision within a single Article, Section,
paragraph or sentence) is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, the remaining provisions are
severable and shall remain enforceable to the full extent permitted by law.
ARTICLE XI
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Douglas B. Chappell
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
IN WITNESS WHEREOF, the undersigned executes this Certificate of
Incorporation this ___ day of August, 1996.
----------------------
Douglas B. Chappell
Incorporator
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<PAGE> 31
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION OF
MEDIRISK, INC.
Medirisk, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The Certificate of Incorporation of the Corporation is hereby
amended by deleting Section 4.3.5 therefrom in its entirety and inserting in
lieu thereof the following:
(c) Automatic Conversion. Each Series B Preferred Share
which remins outstanding on the closing date for a Public Offering (the
"Registration Date") shall automatically and without any action on the
part of the holder thereof or the Company, except as provided in clause
(i) below, be converted on the same basis and at the same Conversion
Price as if each holder thereof had properly exercised his right to
convert on the date next preceding the Registration Date; provided,
that (i) each holder of Series B Preferred Shares shall have received
written notice of the proposed Public Offering at least 30 days prior
to the date the registration statement relating to that Public Offering
becomes effective, (ii) such conversion shall be effective at the close
of business on the Registration Date, and (iii) the Company shall have
no obligation to issue and deliver to any such holder of Series B
Preferred Shares on such date a certificate for the number of Common
Shares to which such holder shall be entitled until such time as such
holder has surrendered his certificate or certificates for his Series B
Preferred Shares, duly endorsed, at the office of the Company or any
transfer agent for the Common Shares, or the holder notifies the
Company that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. All
rights with respect to Series B Preferred Shares outstanding on the
Registration Date shall terminate on such Registration Date, except
only the right of the holders of such shares to receive Common Shares
upon surrender of their certificates for the Series B Preferred Shares
and their rights with respect to unpaid dividends described in Section
4.3.5(d).
2. The foregoing amendment required the approval of the Board of
Directors and sole stockholder of the Corporation, which approval was obtained
by unanimous written consent effective as of August 26, 1996.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Amendment this 18th day of September 1996 and affirms, under penalties of
perjury, that the information set forth herein is true and correct.
MEDIRISK, INC.
By: /s/
---------------------------
Title: CEO
------------------------
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<PAGE> 1
EXHIBIT 3.2
===============================================================================
MEDIRISK, INC.
BYLAWS
===============================================================================
ADOPTED ON AUGUST , 1996
----
<PAGE> 2
MEDIRISK, INC.
BYLAWS
SECTION I
CAPITAL STOCK
SECTION 1.1. CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed in the name of the Corporation
by the Chairman of the Board of Directors or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Corporation certifying the number of shares in the Corporation
owned by such holder. If such certificate is countersigned (a) by a transfer
agent other than the Corporation or its employee, or, (b) by a registrar other
than the Corporation or its employee, any other signature on the certificate
may be a facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent, or registrar at the date
of issue.
SECTION 1.2. RECORD OWNERSHIP. A record of the name and address of
the holder of each certificate, the number of shares represented thereby and
the date of issue thereof shall be made on the Corporation's books. The
Corporation shall be entitled to treat the holder of record of any share of
stock as the holder in fact thereof, and accordingly shall not be bound to
recognize any equitable or other claim to or interest in any share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as required by the laws of the State of Delaware.
SECTION 1.3. TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall
be made on the books of the Corporation only by direction of the person named
in the certificate or such person's attorney, lawfully constituted in writing,
and only upon the surrender of the certificate therefor and a written
assignment of the shares evidenced thereby, which certificate shall be canceled
before the new certificate is issued.
SECTION 1.4. LOST CERTIFICATES. Any person claiming a stock
certificate in lieu of one lost, stolen or destroyed shall give the Corporation
an affidavit as to such person's ownership of the certificate and of the facts
which go to prove its loss, theft or destruction. Such person shall also, if
required by policies adopted by the Board of Directors, give the Corporation a
bond, in such form as may be approved by the Corporation, sufficient to
indemnify the Corporation against any claim that may be made
<PAGE> 3
against it on account of the alleged loss of the certificate or the issuance of
a new certificate.
SECTION 1.5. TRANSFER AGENTS; REGISTRARS; RULES RESPECTING
CERTIFICATES. The Board of Directors may appoint, or authorize any officer or
officers to appoint, one or more transfer agents and one or more registrars.
The Board of Directors may make such further rules and regulations as it may
deem expedient concerning the issue, transfer and registration of stock
certificates of the Corporation.
SECTION 1.6. RECORD DATE. The Board of Directors may fix in advance
a future date, not exceeding 60 days (nor, in the case of a stockholders'
meeting, less than ten days) preceding the date of any meeting of stockholders,
payment of dividend or other distribution, allotment of rights, or change,
conversion or exchange of capital stock or for the purpose of any other lawful
action, as the record date for determination of the stockholders entitled to
notice of and to vote at any such meeting and any adjournment thereof, or to
receive any such dividend or other distribution or allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, or to participate in any such other lawful action, and in such
case such stockholders and only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to such notice of and to vote at
such meeting and any adjournment thereof, or to receive such dividend or other
distribution or allotment of rights, or to exercise such rights, or to
participate in any such other lawful action, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date fixed as aforesaid.
SECTION II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. ANNUAL. The annual meeting of stockholders for the
election of directors and the transaction of such other proper business shall
be held, within or without the State of Delaware on such date and at such time
as shall be designated by the Board of Directors.
SECTION 2.2. SPECIAL. Special meetings of stockholders for any
purpose or purposes may be called by the Board of Directors, pursuant to a
resolution adopted by a majority of the members of the Board of Directors then
in office, or by the holders of shares representing not less than fifty percent
of the votes which may be cast at the meeting. Special meetings may be held at
any place, within or without the State of Delaware, as determined by the Board
of Directors. The only business which may be conducted at such a meeting,
other than procedural matters and matters relating to the conduct of the
meeting, shall be the matter or matters described in the notice of the meeting.
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<PAGE> 4
SECTION 2.3. NOTICE. Written notice of each meeting of stockholders,
stating the date, time, place and, in the case of a special meeting, the
purpose thereof, shall be given as provided by law by the Secretary or an
Assistant Secretary not less than ten days nor more than 60 days before such
meeting (unless a different time is specified by law) to every stockholder
entitled by law to notice of such meeting.
SECTION 2.4. LIST OF STOCKHOLDERS. A complete list of the
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder, shall be prepared by the
Secretary and shall be open to the examination of any stockholder, for any
purpose germane to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified at the place where the meeting is to be held,
for at least ten days before the meeting and at the place of the meeting during
the whole time of the meeting.
SECTION 2.5. QUORUM. The holders of shares of stock entitled to cast
a majority of the votes on the matters at issue at a meeting of stockholders,
present in person or represented by proxy, shall constitute a quorum, except as
otherwise required by the Delaware General Corporation Law. In the event of a
lack of a quorum, the chairman of the meeting or a majority in interest of the
stockholders present in person or represented by proxy may adjourn the meeting
from time to time without notice other than announcement at the meeting, until
a quorum shall be obtained. At any such adjourned meeting at which there is a
quorum, any business may be transacted that might have been transacted at the
meeting originally called.
SECTION 2.6. ORGANIZATION AND PROCEDURE.
(a) The Chairman of the Board, or, in the absence of the Chairman
of the Board, the President, or, in the absence of the President, any Vice
President designated by the Board of Directors, shall preside at meetings of
stockholders. The Secretary of the Corporation shall act as secretary, but in
the absence of the Secretary, the presiding officer may appoint a secretary.
(b) At each meeting of stockholders, the chairman of the meeting
shall fix and announce the date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at the meeting and
shall determine the order of business and all other matters of procedure.
Except to the extent inconsistent with any such rules and regulations as
adopted by the Board of Directors, the chairman of the meeting may establish
rules, which need not be in writing, to maintain order for the conduct of the
meeting, including, without limitation, restricting attendance to bona fide
stockholders of record and their proxies and other persons in attendance at the
invitation of the chairman and making rules governing speeches and debates.
The chairman of the meeting acts in his or her absolute discretion and his or
her rulings are not subject to appeal.
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<PAGE> 5
SECTION 2.7. STOCKHOLDER NOMINATIONS AND PROPOSALS.
(a) No proposal for a stockholder vote shall be submitted by a
stockholder (a "Stockholder Proposal") to the Corporation's stockholders unless
the stockholder submitting such proposal (the "Proponent") shall have filed a
written notice setting forth with particularity (i) the names and business
addresses of the Proponent and all persons acting in concert with the
Proponent; (ii) the name and address of the Proponent and the persons
identified in clause (i), as they appear on the Corporation's books (if they so
appear); (iii) the class and number of shares of the Corporation beneficially
owned by the Proponent and the persons identified in clause (i); (iv) a
description of the Stockholder Proposal containing all material information
relating thereto; and (v) such other information as the Board of Directors
reasonably determines is necessary or appropriate to enable the Board of
Directors and stockholders of the Corporation to consider the Stockholder
Proposal. The presiding officer at any stockholders' meeting may determine
that any Stockholder Proposal was not made in accordance with the procedures
prescribed in these Bylaws or is otherwise not in accordance with law, or is
not appropriate for consideration at that meeting based on valid considerations
(including that the Stockholder Proposal was not included in the proxy
statement distributed to stockholders in connection with the meeting), and if
so determined, such officer shall so declare at the meeting and the Stockholder
Proposal shall be disregarded.
(b) Only persons who are selected and recommended by the Board of
Directors or the committee of the Board of Directors designated to make
nominations, or who are nominated by stockholders in accordance with the
procedures set forth in this Section 2.7, shall be eligible for election, or
qualified to serve, as directors. Nominations of individuals for election to
the Board of Directors of the Corporation at any annual meeting or any special
meeting of stockholders at which directors are to be elected may be made by any
stockholder of the Corporation entitled to vote for the election of directors
at that meeting by compliance with the procedures set forth in this Section
2.7. Nominations by stockholders shall be made by written notice (a
"Nomination Notice"), which shall set forth (i) as to each individual
nominated, (A) the name, date of birth, business address and residence address
of such individual; (B) the business experience during the past five years of
such nominee, including his or her principal occupations and employment during
such period, the name and principal business of any corporation or other
organization in which such occupations and employment were carried on, and such
other information as to the nature of his or her responsibilities and level of
professional competence as may be sufficient to permit assessment of his or her
prior business experience; (C) whether the nominee is or has ever been at any
time a director, officer or owner of 5% or more of any class of capital stock,
partnership interests or other equity interest of any corporation, partnership
or other entity; (D) any directorships held by such nominee in any company with
a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, or subject to the requirements of Section
15(d) of such Act or any company registered as an investment company under the
Investment Company Act of 1940, as amended; and (E) whether, in the last five
years, such nominee has been convicted in a criminal proceeding or has been
subject to a judgment, order, finding or
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<PAGE> 6
decree of any federal, state or other governmental entity, concerning any
violation of federal, state or other law, or any proceeding in bankruptcy,
which conviction, order, finding, decree or proceeding may be material to an
evaluation of the ability or integrity of the nominee; and (ii) as to the
person submitting the Nomination Notice and any person acting in concert with
such person, (x) the name and business address of such person, (y) the name and
address of such person as they appear on the Corporation's books (if they so
appear), and (z) the class and number of shares of the Corporation that are
beneficially owned by such person. A written consent to being named in a proxy
statement as a nominee, and to serve as a director if elected, signed by the
nominee, shall be filed with any Nomination Notice. If the presiding officer
at any stockholders' meeting determines that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, he shall so declare
to the meeting and the defective nomination shall be disregarded.
(c) Nomination Notices and Stockholder Proposals shall be
delivered to the Secretary at the principal executive office of the Corporation
60 days or more before the date of the stockholders' meeting if such Nomination
Notice or Stockholder Proposal is to be submitted at an annual stockholders'
meeting (provided, however, that if such annual meeting is called to be held
before the date specified in Section 2.1 hereof, such Nomination Notice or
Stockholder Proposal shall be so delivered no later than the close of business
on the 15th day following the day on which notice of the date of the annual
stockholders' meeting was given). Nomination Notices and Stockholder Proposals
shall be delivered to the Secretary at the principal executive office of the
Corporation no later than the close of business on the 15th day following the
day on which notice of the date of a special meeting of stockholders was given
if the Nomination Notice or Stockholder Proposal is to be submitted at a
special stockholders' meeting.
SECTION 2.8. VOTING. Unless otherwise provided by the Delaware
General Corporation Law, each stockholder shall be entitled to one vote, in
person or by written proxy, for each share held of record by such stockholder
who is entitled to vote generally in the election of directors. All elections
for the Board of Directors shall be decided by a plurality of the votes cast
and all other questions shall be decided by a majority of the votes cast,
except as otherwise required by the Delaware General Corporation Law or as
provided for in the Certificate of Incorporation or these Bylaws. Abstentions
shall not be considered to be votes cast.
SECTION 2.9. INSPECTORS. The Board of Directors by resolution shall,
in advance of any meeting of stockholders, appoint one or more inspectors,
which inspector or inspectors may include individuals who serve the Corporation
in other capacities, including, without limitation, as officers, employees,
agents or representatives of the Corporation, to act at the meeting and make a
written report thereof. One or more persons may be designated by the Board of
Directors as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an
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oath faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall have the
duties prescribed by the Delaware General Corporation Law.
SECTION III
BOARD OF DIRECTORS
SECTION 3.1. MANAGEMENT. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors.
SECTION 3.2. NUMBER; QUALIFICATION; ELECTION; TERM. The number of
directors constituting the Board of Directors shall not be less than three, nor
more than twelve, the exact number to be determined by a vote of the majority
of the Directors then in office. The directors of the Corporation (exclusive
of any directors who are elected pursuant to the terms of, and serve as
representatives of the holders of, any series of preferred stock of the
Corporation) shall be referred to herein as "Classified Directors" and shall be
divided into three classes, with the first class referred to herein as "Class
1," the second class as "Class 2," and the third class as "Class 3." If the
total number of Classified Directors equals a number divisible by three, then
the number of directors in each of Class 1, Class 2 and Class 3 shall be that
number of directors equal to the total number of directors divided by three.
If, however, the total number of Classified Directors equals a number that is
not divisible by three, each such class of directors shall consist of that
number of directors as nearly equal in number as possible to the total number
of directors divided by three, as determined by the Board of Directors in
advance of each respective election of directors by holders of shares of
capital stock of the Corporation then entitled to vote in such election. The
term of office of the initial Class 1 directors shall expire at the 1997 annual
meeting of stockholders, the term of office of the initial Class 2 directors
shall expire at the 1998 annual meeting of stockholders, and the term of office
of the initial Class 3 directors shall expire at the 1999 annual meeting of
stockholders, with each director to hold office until his successor shall have
been duly elected and qualified. At each annual meeting of stockholders,
commencing with the 1997 annual meeting, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his successor shall have been
duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by series or by class (excluding holders of common
stock), to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies, and other features of such
directorships shall be governed by the terms of the Certificate of
Incorporation including any amendment to the Certificate of Incorporation that
designates a series of preferred stock) and such directors so elected by the
holders of
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preferred stock shall not be divided into classes pursuant to this Section 3.2
unless expressly provided by the terms of the Certificate of Incorporation.
SECTION 3.3. VACANCIES. Any or all Classified Directors may be
removed for cause at any annual or special meeting of stockholders, upon the
affirmative vote of the holders of a majority of the outstanding shares of each
class of capital stock then entitled to vote in person or by proxy at an
election of such Classified Directors, provided that notice of the intention to
act upon such matter shall have been given in the notice calling such meeting.
Newly created directorships resulting from any increase in the authorized
number of Directors and any vacancies occurring in the board of directors
caused by death, resignation, retirement, disqualification, removal or other
termination from office of any directors may be filled by the vote of a
majority of the Directors then in office, though less than a quorum, or by the
affirmative vote, at a special meeting of the stockholders called for the
purpose of filling such directorship, of the holders of a majority of the
outstanding shares of capital stock then entitled to vote in person or by proxy
at such meeting. Each successor directors so chosen shall hold office until
the next election of the class for which such director shall have been chosen
and until his respective successor shall have been duly elected and qualified.
Any newly created or eliminated directorships resulting from an increase or
decrease in the authorized number of directors shall be appointed or allocated
by the Board of Directors among the three classes of directors so as to
maintain such classes as nearly equal in number as possible.
SECTION 3.4. RESIGNATION. A director may resign at any time by
giving written notice to the Chairman of the Board, to the President, or to the
Secretary. Unless otherwise stated in such notice of resignation, the
acceptance thereof shall not be necessary to make it effective; and such
resignation shall take effect at the time specified therein or, in the absence
of such specification, it shall take effect upon the receipt thereof.
SECTION 3.5. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without further notice at such time and such place as
shall from time to time be determined by the Board of Directors. A meeting of
the Board of Directors for the election of officers and the transaction of such
other business as may come before it may be held without notice immediately
following the annual meeting of stockholders.
SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or the President, or at
the request in writing of one-third of the members of the Board of Directors
then in office.
SECTION 3.7. NOTICE OF SPECIAL MEETINGS. Notice of the date, time
and place of each special meeting shall be mailed by regular mail to each
director at his or her designated address at least six (6) days before the
meeting; or sent by overnight courier to each director at his or her designated
address at least two (2) days before the meeting (with delivery scheduled to
occur no later than the day before the meeting); or given orally by telephone
or other means, or by telegraph or telecopy, or by any other means comparable
to any of the foregoing, to each director at his designated address at least
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<PAGE> 9
twenty-four (24) hours before the meeting; provided, however, that if less than
five days' notice is provided and one third of the members of the Board of
Directors then in office object in writing prior to or at the commencement of
the meeting, such meeting shall be postponed until five (5) days after such
notice was given pursuant to this sentence (or such shorter period to which a
majority of those who objected in writing agree), provided that notice of such
postponed meeting shall be given in accordance with this Section 3.7. The
notice of the special meeting shall state the general purpose of the meeting,
but other routine business may be conducted at the special meeting without such
matter being stated in the notice.
SECTION 3.8. PLACE OF MEETINGS. The Board of Directors may hold
their meetings and have an office or offices inside or outside of the State of
Delaware.
SECTION 3.9. TELEPHONIC MEETING AND PARTICIPATION. Any or all of the
directors may, at their discretion, participate in a meeting of the Board of
Directors or any committee thereof by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence
in person at the meeting.
SECTION 3.10. ACTION BY DIRECTORS WITHOUT A MEETING. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
SECTION 3.11. QUORUM AND ADJOURNMENT. A majority of the directors
then holding office shall constitute a quorum. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. Whether or not a quorum is present to conduct a
meeting, any meeting of the Board of Directors (including an adjourned meeting)
may be adjourned by a majority of the directors present, to reconvene at a
specific time and place. It shall not be necessary to give to the directors
present at the adjourned meeting notice of the reconvened meeting or of the
business to be transacted, other than by announcement at the meeting that was
adjourned; provided, however, notice of such reconvened meeting, stating the
date, time, and place of the reconvened meeting, shall be given to the
directors not present at the adjourned meeting in accordance with the
requirements of Section 3.7 hereof.
SECTION 3.12. ORGANIZATION. The Chairman of the Board, or, in the
absence of the Chairman of the Board, the President, or in the absence of the
President, a member of the Board selected by the members present, shall preside
at meetings of the Board. The Secretary of the Corporation shall act as
secretary, but in the absence of the Secretary, the presiding officer may
appoint a secretary.
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SECTION 3.13. COMPENSATION OF DIRECTORS. Directors shall receive
such compensation for their services as the Board of Directors may determine.
Any director may serve the Corporation in any other capacity and receive
compensation therefor.
SECTION 3.14. PRESUMPTION OF ASSENT. A director of the Corporation
who is present at a meeting of the Board of Directors when a vote on any matter
is taken is deemed to have assented to the action taken unless he votes against
or abstains from the action taken, or unless at the beginning of the meeting or
promptly upon arrival the director objects to the holding of the meeting or
transacting specified business at the meeting. Any such dissenting votes,
abstentions or objections shall be entered in the minutes of the meeting.
SECTION IV
COMMITTEES
SECTION 4.1. COMMITTEES. The Board of Directors may, by resolutions
passed by a majority of the members of the Board of Directors, designate
members of the Board of Directors to constitute committees which shall in each
case consist of such number of directors, and shall have and may execute such
powers as may be determined and specified in the respective resolutions
appointing them. Any such committee may fix its rules of procedure, determine
its manner of acting and the time and place, whether within or without the
State of Delaware, of its meetings and specify what notice thereof, if any,
shall be given, unless the Board of Directors shall otherwise by resolution
provide. Unless otherwise provided by the Board of Directors or such
committee, the quorum, voting and other procedures shall be the same as those
applicable to actions taken by the Board of Directors. A majority of the
members of the Board of Directors then in office shall have the power to change
the membership of any such committee at any time, to fill vacancies therein and
to discharge any such committee or to remove any member thereof, either with or
without cause, at any time.
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SECTION V
OFFICERS
SECTION 5.1. DESIGNATION. The officers of the Corporation shall be a
Chairman of the Board, a President, and a Secretary. The Board of Directors
may elect or appoint, or provide for the appointment of, such other officers,
including one or more Vice Presidents in such gradation as the Board of
Directors may determine, or agents as may from time to time appear necessary or
advisable in the conduct of the business and affairs of the Corporation. Any
number of offices may be held by the same person.
SECTION 5.2. ELECTION TERM. At its first meeting after each annual
meeting of stockholders, the Board of Directors shall elect the officers or
provide for the appointment thereof. Subject to Section 5.3 and Section 5.4
hereof, the term of each officer elected by the Board of Directors shall be
until the first meeting of the Board of Directors following the next annual
meeting of stockholders and until such officer's successor is chosen and
qualified.
SECTION 5.3. RESIGNATION. Any officer may resign at any time by
giving written notice to the President or the Secretary. Unless otherwise
stated in such notice of resignation, the acceptance thereof shall not be
necessary to make it effective; and such resignation shall take effect at the
time specified therein or, in the absence of such specification, it shall take
effect upon the receipt thereof.
SECTION 5.4. REMOVAL. Any officer may be removed at any time with or
without cause by the affirmative vote of a majority of the members of the Board
of Directors then in office. Any officer appointed by another officer may be
removed with or without cause by such officer or the Chief Executive Officer.
SECTION 5.5. VACANCIES. A vacancy in any office may be filled for
the unexpired portion of the term by the Board of Directors or, in the case of
offices held by officers who may be appointed by other officers, by any officer
authorized to appoint such officer.
SECTION 5.6. CHIEF EXECUTIVE OFFICER. The President shall initially
be the Chief Executive Officer of the Corporation and thereafter, at such time
as the Board of Directors shall determine, the Chief Executive Officer shall be
such officer as the Board of Directors shall designate from time to time. The
Chief Executive Officer shall be responsible for carrying out the policies
adopted by the Board of Directors.
SECTION 5.7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
have such powers and perform such duties as may be provided for herein and as
may be incident to the office and as may be assigned by the Board of Directors.
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<PAGE> 12
SECTION 5.8. PRESIDENT. The President shall have general supervision
of the business of the Corporation and shall perform such other duties as may
be assigned by the Board of Directors.
SECTION 5.9. VICE PRESIDENT. Each Vice President shall have such
powers and perform such duties as may be provided for herein and as may be
assigned by the Chief Executive Officer, or the Board of Directors.
SECTION 5.10. VICE PRESIDENT-FINANCE/TREASURER. The Vice
President-Finance shall have the custody and operation of the accounting books
and records of the Corporation, shall have charge of all funds of the
Corporation and shall perform all acts incident to the position of Vice
President-Finance, subject to the control of the Board of Directors.
SECTION 5.11. SECRETARY. The Secretary shall keep the minutes, and
give notices, of all meetings of stockholders and directors and of such
committees as directed by the Board of Directors. The Secretary shall have
charge of such books and papers as the Board of Directors may require. The
Secretary or any Assistant Secretary is authorized to certify copies of
extracts from minutes and of documents in the Secretary's charge and anyone may
rely on such certified copies to the same effect as if such copies were
originals and may rely upon any statement of fact concerning the Corporation
certified by the Secretary or any Assistant Secretary. The Secretary shall
perform all acts incident to the office of Secretary, subject to the control of
the Board of Directors.
SECTION 5.12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
Assistant Secretaries and Assistant Treasurers shall have such powers and
perform such duties as usually pertain to their respective offices and as may
be assigned by the Board of Directors or an officer designated by the Board of
Directors.
SECTION 5.13. COMPENSATION OF OFFICERS. The officers of the
Corporation shall receive such compensation for their services as the Board of
Directors may determine. The Board of Directors may delegate its authority to
determine compensation to designated officers of the Corporation.
SECTION 5.14. EXECUTION OF INSTRUMENTS. Checks, notes, drafts, other
commercial instruments, assignments, guarantees of signatures and contracts
(except as otherwise provided herein or by law) shall be executed by the Chief
Executive Officer, the Chairman, the President, any Vice President or such
officers or employees or agents as the Board of Directors or any of such
designated officers may direct.
SECTION 5.15. MECHANICAL ENDORSEMENTS. The Chief Executive Officer,
the Chairman, the President, any Vice President or the Secretary may authorize
any endorsement on behalf of the Corporation to be made by such mechanical
means or stamps as any of such officers may deem appropriate.
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<PAGE> 13
SECTION VI
INDEMNIFICATION
SECTION 6.1. INDEMNIFICATION PROVISIONS IN CERTIFICATE OF
INCORPORATION. The provisions of this Section VI are intended to supplement
Article VI of the Certificate of Incorporation pursuant to Sections 6.2 and 6.3
thereof. To the extent that this Section VI contains any provisions
inconsistent with said Article VI, the provisions of the Certificate of
Incorporation shall govern. Terms defined in such Article VI shall have the
same meaning in this Section VI.
SECTION 6.2. INDEMNIFICATION OF EMPLOYEES. The Corporation shall
indemnify and advance expenses to its employees to the same extent as to its
directors and officers, as set forth in the Certificate of Incorporation and in
this Section VI of the Bylaws of the Corporation.
SECTION 6.3. UNDERTAKINGS FOR ADVANCES OF EXPENSES. If and to the
extent the Delaware General Corporation Law requires, an advancement by the
Corporation of expenses incurred by an indemnitee pursuant to clause (iii) of
the last sentence of Section 6.1(b) of the Certificate of Incorporation
(hereinafter an "advancement of expenses") shall be made only upon delivery to
the Corporation of an undertaking (hereinafter an "undertaking"), by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under Article VI
of the Certificate of Incorporation or otherwise.
SECTION 6.4. CLAIMS FOR INDEMNIFICATION. If a claim for
indemnification under Section 6.1 of the Certificate of Incorporation is not
paid in full by the Corporation within sixty (60) days after it has been
received in writing by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In any suit brought by the indemnitee to enforce a right
to indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
in any suit by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking the Corporation shall be entitled to recover
such expenses only upon a final adjudication that, the indemnitee has not met
the applicable standard of conduct set forth in Section 145 of the Delaware
General Corporation Law (or any successor provision or provisions). Neither
the failure of the Corporation (including the Board of Directors, independent
legal counsel, or its stockholders) to have made a
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<PAGE> 14
determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in Section 145 of the Delaware
General Corporation Law (or any successor provision or provisions), nor an
actual determination by the Corporation (including the Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to have or
retain such advancement of expenses, under Article VI of the Certificate of
Incorporation or this Section VI or otherwise, shall be on the Corporation.
SECTION 6.5. INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any director, trustee, officer, employee or
agent of the Corporation or another enterprise against any expense, liability
or loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware General
Corporation Law.
SECTION 6.6. SEVERABILITY. In the event that any of the provisions
of this Section VI (including any provision within a single section, paragraph
or sentence) is held by a court of competent jurisdiction to be invalid, void
or otherwise unenforceable, the remaining provisions are severable and shall
remain enforceable to the full extent permitted by law.
SECTION VII
MISCELLANEOUS
SECTION 7.1. SEAL. The Corporation shall have a suitable seal,
containing the name of the Corporation. The Secretary shall be in charge of
the seal and may authorize one or more duplicate seals to be kept and used by
any other officer or person.
SECTION 7.2. WAIVER OF NOTICE. Whenever any notice is required to be
given, a waiver thereof in writing, signed by the person or persons entitled to
the notice, whether before or after the time stated therein shall be deemed
equivalent thereto. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 7.3. VOTING OF STOCK OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the
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<PAGE> 15
Corporation by the Chairman of the Board, the President, any Vice President or
such officers or employees or agents as the Board of Directors or any of such
designated officers may direct. Any such officer may, in the name of and on
behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and powers incident
to the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may from time to time confer like powers upon any other person or
persons.
SECTION VIII
AMENDMENT OF BYLAWS
The Board of Directors, by the affirmative vote of a majority of the
whole Board of Directors, shall have power to amend, alter, change, adopt or
repeal the Bylaws of the Corporation at any regular or special meeting;
provided, however, that the stockholders entitled to vote may prescribe that
any Bylaw adopted by the stockholders may not be amended, altered, changed or
repealed by the Board of Directors. The stockholders entitled to vote also
shall have the power to amend, alter, change, adopt or repeal the Bylaws of the
Corporation at any annual or special meeting subject to the requirements of the
Certificate of Incorporation.
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<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
================================================================================
SECURITIES PURCHASE AGREEMENT
DATED
JANUARY 8, 1996
BETWEEN
MEDIRISK, INC.,
AND
HEALTHPLAN SERVICES CORPORATION
================================================================================
<PAGE> 2
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT is entered into on this 8th
day of January 1996, by and among MEDIRISK, INC., a Florida corporation (the
"Company"), and HEALTHPLAN SERVICES CORPORATION, a Delaware corporation
("Purchaser").
BACKGROUND
WHEREAS, Purchaser desires to purchase 280,623 shares of
Series B Convertible Preferred Stock of the Company and to purchase up to
$10,000,000.00 in original principal amount of Senior Subordinated Notes, for
the purposes of financing the Company's ongoing acquisition program and for
working capital purposes, and in connection therewith, the Company will issue
to Purchaser warrants to purchase shares of Series A Common Stock of the
Company, as more fully described herein and in the Warrant Agreement; and
WHEREAS, capitalized terms used in this Agreement have the
meanings specified on Appendix A.
AGREEMENT
NOW, THEREFORE, Purchaser and the Company hereby agree as
follows:
SECTION 1
PURCHASE AND SALE OF SECURITIES
1.1 Purchase and Sale of Convertible Preferred Stock. The Company
agrees to use its best efforts to cause its shareholders to approve an
amendment to and restatement of its Articles of Incorporation in the form set
forth on EXHIBIT A attached hereto. Purchaser agrees to purchase from the
Company, and the Company agrees to issue and sell to Purchaser, 280,623 shares
of Series B Convertible Preferred Stock (the "Preferred Stock") at the Closing.
Purchaser agrees to pay the Company the sum of $2,000,000 in consideration of
such shares. On the Closing Date, Purchaser shall deliver $2,000,000 to the
Company by wire transfer or bank cashier's check against delivery by the
Company to the Purchaser of a certificate for the shares of Preferred Stock
purchased hereunder.
1.2 Purchase and Sale of Senior Subordinated Notes.
1.2.1 Purchase and Sale. Purchaser agrees to purchase from
the Company Senior Subordinated Notes in an aggregate original principal amount
equal to up to $10,000,000, upon and subject to the provisions of this Section
1.2. The Senior Subordinated Notes shall be purchased at par, and on each
occasion on which the Company issues Senior Subordinated Notes to Purchaser
hereunder, it shall also issue and
<PAGE> 3
deliver a warrant certificate to Purchaser in accordance with the Warrant
Agreement. The Company shall sell not less than $6,500,000 of Senior
Subordinated Notes to Purchaser on or before the third anniversary of the
Closing Date (the "Third Anniversary"), unless the Purchaser's commitment has,
pursuant to Section 1.3, been terminated prior to the Company's sale of such
amount. Purchaser's obligation to purchase Senior Subordinated Notes shall be
reduced on each Subsequent Closing Date by an amount equal to the original
principal amount of the Senior Subordinated Notes purchased on such Subsequent
Closing Date, and such obligation shall not be increased or restored in any way
by any payment on or in respect of the Senior Subordinated Notes. Purchaser
and the Company acknowledge and agree that the execution and delivery of this
Agreement has taken place in the State of Georgia and that the execution and
delivery of the Senior Subordinated Notes will take place in the State of
Georgia or such other state as the Company may have its principal place of
business.
1.2.2 Form and Terms of Notes. The Senior Subordinated
Notes shall be substantially in the form of EXHIBIT B attached hereto. The
Senior Subordinated Notes shall be payable in Dollars, and all interest shall
be computed in and based upon Dollars. The Senior Subordinated Notes shall
bear interest at a rate of 10% per annum. Interest payable under the Senior
Subordinated Notes outstanding from time to time shall be computed on the basis
of a 365-day year, actual days elapsed, from the date of disbursement until
repayment. The Company shall pay all documentary stamp and other taxes, if
any, related to the issuance of the Senior Subordinated Notes.
1.2.3 Subsequent Closings. From time to time after the
Closing Date and before the Third Anniversary or the earlier termination of
Purchaser's commitment to purchase Senior Subordinated Notes hereunder as
provided in Section 1.3, the Company may deliver to the Purchaser a notice of
borrowing (a "Notice of Borrowing"), which notice shall set forth the original
principal amount of Senior Subordinated Notes to be sold to Purchaser, the use
for which such funds are being requested, the closing date for such purchase
and a statement that such notice is given under this Agreement. The closing
date (a "Subsequent Closing Date") set forth in such notice shall be not less
than 20 days after the date such notice is given to the Purchaser, and the
Company shall use its reasonable best efforts to provide Purchaser with the
maximum amount of notice of a sale of Senior Subordinated Notes as is possible
under the circumstances. The minimum amount of Senior Subordinated Notes to be
sold at any subsequent closing under this Section 1.2.3 (a "Subsequent
Closing") shall be $1,000,000, and shall be in increments of $100,000 above
such amount. The purchase price for the Senior Subordinated Notes shall be the
original principal amount thereof, and, subject to the satisfaction of the
terms and conditions of this Agreement, such purchase price shall be paid by
Purchaser to the Company on each Subsequent Closing Date by wire transfer or
bank cashier's check against delivery by the Company to Purchaser of the Senior
Subordinated Notes issued on such Subsequent Closing Date. The parties agree
that a Subsequent Closing may occur on the Closing Date, if the Company gives
Purchaser a Notice of Borrowing with respect thereto at least five Business
Days prior to the Closing Date.
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<PAGE> 4
1.2.4 Right of Prepayment. The Company may prepay the
Senior Subordinated Notes in whole or in part at any time and from time to time
without penalty or premium; provided, however, that the Company shall not be
entitled to reborrow any such amount prepaid.
1.3 Termination of Commitment to Purchase Notes. Purchaser's
obligation to purchase Senior Subordinated Notes hereunder shall, except as
provided below, terminate automatically upon the earliest to occur of (i) the
Company's Initial Public Offering, (ii) a Change of Control of the Company,
(iii) an Event of Default, (iii) the Third Anniversary or (iv) the death of
Mark Kaiser or the termination of Mark Kaiser's employment with the Company;
provided, however, that (i) in the event of the death of Mark Kaiser on or
before December 31, 1996 if Purchaser desires to terminate its commitment
thereafter as a result of such death, Purchaser must give notice to the Company
of its termination of the commitment to purchase Senior Subordinated Notes and
the termination of Purchaser's obligation shall not occur until such notice is
given to the Company in writing by Purchaser, and (ii) in the event of an Event
of Default, Purchaser's obligation to purchase Senior Subordinated Notes shall
resume upon its waiver, if given, of such Event of Default..
1.4 Mandatory Repayment
1.4.1 Scheduled Repayments. Subject to the acceleration
provisions of Section 6, the Company shall repay all principal and interest
remaining outstanding on the Senior Subordinated Notes at maturity on January
8, 2003. The principal payment hereunder shall be paid by wire transfer or
bank cashier's check.
1.4.2 Mandatory Prepayment. Notwithstanding the provisions
of Section 1.4.1, all outstanding principal and interest relating to the Senior
Subordinated Notes shall be due and payable within 15 Business Days after the
earlier to occur of (i) the Company's Initial Public Offering and (ii) a Change
of Control of the Company.
SECTION 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Purchaser. Purchaser
represents and warrants to the Company that:
2.1.1 Investment. The Preferred Stock and the Senior
Subordinated Notes to be purchased by Purchaser hereunder are being acquired
for investment purposes only for Purchaser's own account, not as a nominee or
agent, and not with a view to the distribution or resale of any part thereof.
2.1.2 Sophistication. Purchaser has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of Purchaser's investment in the Preferred Stock and the
Senior Subordinated Notes;
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<PAGE> 5
Purchaser has the ability to bear the economic risks of such investment;
Purchaser has the capacity to protect Purchaser's own interests in connection
with the transactions contemplated by this Agreement; and Purchaser has had an
opportunity to obtain such financial and other information from the Company as
Purchaser deems necessary or appropriate in connection with evaluating the
merits of the investment in the Preferred Stock and the Senior Subordinated
Note; provided, however, that none of the Purchaser's representations hereunder
are intended in any way to limit the scope or applicability of the Company's
representations and warranties in this Agreement, the truth, accuracy and
completeness of which Purchaser has relied upon in its investment in the
Preferred Stock and the Senior Subordinated Note.
2.2 Representations and Warranties of the Company. The Company
represents and warrants to Purchaser that:
2.2.1 Capitalization; Legal Status; Qualification. The
authorized capitalization and all outstanding shares of capital stock and
options, warrants and similar rights to subscribe to or purchase capital stock
of the Company are set forth on EXHIBIT C. Except as described in SCHEDULE
2.2.1, as of the date of this Agreement, the Company has no Subsidiaries and
has not operated, and does not operate, under any fictitious name. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Florida. The Company is duly qualified or licensed to
do business and in good standing as a foreign corporation in all jurisdictions
where the nature or conduct of its business as now conducted requires such
qualification. Except as described in SCHEDULE 2.2.1, there are no preemptive
rights to purchase capital stock of the Company except those contained in the
Investment Documents. The Company has furnished to Purchaser a complete and
correct copy of the Company's Articles of Incorporation and Bylaws, each as
amended or restated and currently in effect. The Company is not in violation
of any of the provisions of its Articles of Incorporation or Bylaws, which
violation has not been waived in the Consent and Modification Agreement. The
minute books of the Company contain complete and accurate records of all
actions taken and resolutions adopted by the Company's board of directors and
any committees thereof and by its shareholders since the Company's
organization. The stock transfer ledger of the Company accurately reflects the
ownership of the capital stock of the Company. Access to complete and accurate
copies of all such minute books and the stock transfer ledger has been provided
by the Company to Purchaser.
2.2.2 No Violation. Except as reflected on SCHEDULE 2.2.2,
the execution, delivery and performance by the Company of the Investment
Documents to which it is a party, and any other instruments or documents it
executed and delivered hereunder: (a) do not conflict with its articles of
incorporation or bylaws, (b) do not violate any provision of any law, rule,
regulation or ordinance, or any order or ruling of any court or governmental
entity, and (c) do not result in a breach of or constitute a default (or an
event which with the passage of time or giving of notice, or both, would
constitute a default) under, or cause or permit the acceleration of the
maturity of or give rise to any right of termination, cancellation, imposition
of fees or penalties under, any
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<PAGE> 6
contract, obligation, debt, note, bond, lease, mortgage, license, indenture or
other instrument to which the Company is a party or by which the Company, or
any of its properties or assets, may be bound.
2.2.3 Corporate Power and Authority; Governmental or Other
Consents. The Company has all requisite corporate power and authority to carry
on its business as presently conducted and as currently proposed to be
conducted, and to own, lease, sell or operate its properties. The Company has
the requisite corporate power and authority to execute, deliver and perform its
obligations under the Investment Documents to which it is a party, and any
other instruments or documents executed and delivered by it hereunder. No
governmental or other consents, approvals, authorizations, registrations,
declarations or filings are required for the execution, delivery and
performance of the Investment Documents by the Company. The Company is not
subject to any law, rule or regulation restricting in any way its ability to
incur indebtedness or to issue shares of its capital stock or rights to acquire
such shares. Neither the execution and delivery of this Agreement or the other
Investment Documents nor the fulfillment of or compliance with their respective
provisions and terms will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a violation of or default under any
applicable law, regulation, order, writ or decree, or any Material Agreement or
create any security interest, chattel mortgage, lien or other encumbrance upon
any of the property or assets of the Company pursuant to the terms of any
agreement or instrument to which the Company is a party or by the Company or
its assets are bound, except those in favor of the Purchaser expressly created
by the Investment Documents.
2.2.4 Due Authorization; Validity; Enforceability. The
Investment Documents and all other instruments or documents executed by the
Company in connection with the Investment Documents (including the Senior
Subordinated Notes when executed and delivered in accordance with this
Agreement) have been duly authorized, executed and delivered, and constitute
legal, valid and binding obligations of the Company, enforceable in accordance
with their respective terms except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general principles
of equity (whether considered in an action at law or in equity).
2.2.5 Ownership of Assets. The Company (i) is the owner or
has the lawful right to use in the manner currently used by the Company all of
the assets used in its business or currently reflected as assets of the Company
on the financial statements of the Company and (ii) has good title (and with
respect to leased property, a leasehold interest in accordance with the terms
of the lease relating to such property) to its interest in such assets free and
clear of all claims, Liens, title defects and objections, easements, equities,
rights of way, covenants, restrictions, security interests or other
encumbrances except for Liens permitted to exist pursuant to Section 5.5 and
involuntary Liens arising in the ordinary course of business and securing sums
not yet due.
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<PAGE> 7
2.2.6 Financial Statements; Other Information. (a) The
Company has delivered to Purchaser copies of the Financial Statements, attached
as EXHIBIT D. The Financial Statements present fairly in all material respects
in accordance with GAAP consistently applied with prior periods the financial
condition, results of operations, earnings, shareholder's equity and cash flows
of the Company as of the dates and for the periods covered thereby and disclose
all material Liabilities of the Company of a nature required to be disclosed in
financial statements in accordance with GAAP, whether liquidated or
unliquidated, fixed, contingent or inchoate.
(b) The information contained in that certain
Medirisk, Inc. Confidential Information Memorandum, dated October 19, 1995,
provided to Purchaser on behalf of the Company was true and correct in all
material respects as of the date thereof; provided, however, that such
Confidential Information Memorandum is subject to the disclosures contained
therein and no representation or warranty is made hereunder with respect to any
projections or projected consolidated financial statements included in such
Confidential Information Memorandum or the assumptions used to prepare such
projections or projected consolidated financial statements; provided, further,
that the Company believes such assumptions to be reasonable as of the date of
this Agreement, except as disclosed on SCHEDULE 2.2.6.1. Purchaser
acknowledges and agrees that, as set forth on SCHEDULE 2.2.6.1, the Company has
informed Purchaser that some of the assumptions used to prepare such
projections or projected financial statements are not correct as of the date of
this Agreement.
(c) The pro forma balance sheet as of November
30, 1995 and the related pro forma statements of income attached hereto as
SCHEDULE 2.2.6.2 for the eleven-month period ending November 30, 1995
reflecting the pro forma combined results of operations for the Company and
Formations In Health Care, Inc. for such period were prepared in good faith,
and such pro forma statements present fairly in all material respects in
accordance with GAAP the financial condition, results of operations, earnings
and shareholder's equity of the Company and Formations In Health Care, Inc. as
of the dates and for the periods covered thereby (except that such pro forma
statements (i) do not contain notes thereto or statements of cash flows and are
subject to customary year-end audit adjustments, (ii) assume that the Company's
acquisition of Formations In Health Care, Inc. was closed effective January 1,
1995, (iii) reflect information based upon the financial statements of
Formations In Health Care, Inc., which are prepared upon the cash basis, rather
than the accrual basis, (iv) assume that such acquisition will be accounted for
by the Company as a "pooling of interests" when such acquisition will, in fact,
be accounted for by the Company as a purchase, and (v) were prepared in part
based upon financial information provided to the Company by Formations In
Health Care, Inc., which information the Company has not independently
verified). Purchaser acknowledges and agrees that such pro forma statements
are based in part upon information prepared by the management of Formations In
Health Care, Inc. and furnished to the Company, which information the Company
believes to be correct but is unable independently to verify.
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<PAGE> 8
2.2.7 Absence of Undisclosed Liabilities. The Company has
no material Liabilities except (i) Liabilities that are reflected or reserved
against in the Financial Statements, or (ii) Liabilities incurred in the
ordinary course of business since September 30, 1995. Except for information
concerning Formations In Health Care, Inc. and its business and operations,
all information provided to Purchaser in or as part of the Schedules to this
Agreement, or that is set forth or described in any such Schedule, is true and
correct in all material respects, and with respect to information concerning
Formations In Health Care, Inc. and its business and operations, to the
knowledge of the Company, all such information that has been provided to
Purchaser in or as part of the Schedules to this Agreement is true and correct
in all material respects.
2.2.8 Absence of Certain Changes. Except as set forth on
SCHEDULE 2.2.8, since September 30, 1995, the Company has not:
(a) suffered any material adverse change in its
financial condition, working capital, assets, Liabilities, earnings, reserves,
business, operations or prospects;
(b) suffered any loss, damage, destruction or
other casualty materially and adversely affecting any of its properties, assets
or business whether or not covered by insurance;
(c) borrowed or agreed to borrow any funds except
pursuant to this Agreement and except for the incurrence of trade accounts
payable in the ordinary course of business and consistent with past practice;
(d) sold, transferred, assigned or otherwise
disposed of any of its property or assets in excess individually or in the
aggregate of $50,000 or permitted, or allowed, any of its property or assets to
be subjected to any Lien or restriction of any kind, except for properties and
assets sold or encumbered since September 30, 1995 in the ordinary course of
business and consistent with past practice;
(e) declared, paid or set aside for payment any
dividend or other distribution in respect of its capital stock or other
securities or equity interests or, directly or indirectly, redeemed, purchased
or otherwise acquired any shares of its capital stock or other securities or
equity interests; or
(f) made any change in any method of accounting
or accounting practice or any change in depreciation or amortization policies
or rates theretofore adopted.
2.2.9 Regulatory Compliance. The Company possesses all
permits and other authorizations from federal, foreign, state and local
governmental authorities required by applicable provisions of law to permit it
to operate the Business, except where
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<PAGE> 9
the failure to have such a permit or authorization would not have a Material
Adverse Effect.
2.2.10 Litigation. There is no (a) legal, administrative,
arbitration or other proceeding, suit, claim or action of any nature,
investigation or controversy, pending or, to the knowledge of the Company,
threatened against the Company, whether at law or in equity, or before or by
any arbitrator or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality and the
Company has no knowledge of any facts or circumstances that reasonably could be
expected to result in such a procedure, suit, claim, action, investigation or
controversy; or (b) judgment, decree, injunction or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
against the Company.
2.2.11 Taxes. Except as set forth in SCHEDULE 2.2.11, the
Company has duly and timely filed all federal, state, local and foreign tax
reports and returns required to be filed on or before the Closing Date with
respect to all federal, state, local and foreign taxes, including, but not
limited to, all income, ad valorem, property, and value added sales and use
taxes, except where the failure to so file has subsequently been corrected or
would not have a Material Adverse Effect. All taxes and other related charges
due or claimed to be due from the Company by federal, state, local or foreign
taxing authorities have been paid, or are being contested in good faith by
appropriate proceedings and, as of the respective dates thereof, were
adequately reserved for on the Financial Statements. There are no pending
audits of any tax return of the Company filed with any governmental agency, and
there are no outstanding agreements or waivers extending the statutory period
of limitation applicable to any federal, state, local or foreign income tax
return or report for any period.
2.2.12 Insurance. The Company has obtained insurance in
such amounts and covering such risks as is usually carried by companies engaged
in similar businesses in the relevant jurisdiction and owning or leasing
similar properties. All such policies are in full force and effect, and all
premiums with respect thereto are currently paid. A complete list of all such
policies is contained in SCHEDULE 2.2.12.
2.2.13 Debt Instruments. SCHEDULE 2.2.13 contains a
complete list of all loan agreements, promissory notes, letters of credit,
security agreements or other financing documents to which the Company is a
party or by which the Company or any of its properties or assets (including,
without limitation, equipment subject to any equipment lease), is bound which
individually or in the aggregate involve an obligation of $50,000 or more (the
"Debt Instruments"), together with a description of the term and amount owing
in respect thereof. There are no existing material defaults by the Company or
any other obligor under or party to any such Debt Instrument, and no event has
occurred which (whether with notice, lapse of time, or both, or the happening
or occurrence of any other event) would constitute a material default by the
Company or give rise to the right of any holder to accelerate the indebtedness
represented thereby.
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<PAGE> 10
2.2.14 Benefit Plans.
(a) Except as set forth in SCHEDULE 2.2.14(A),
the Company does not maintain or contribute to any "employee pension benefit
plan," as such term is defined in Section 3(2) of ERISA; and each such
"employee pension benefit plan" set forth in SCHEDULE 2.2.14(A) ("Pension
Plan") is in compliance with the applicable provisions of ERISA, the Code, and
all other law, except where the failure to be in such compliance can be cured
within applicable statutory or regulatory cure periods and such failures would
not in the aggregate result in a fine, penalty or excise tax in excess of
$5,000. Complete copies of all Pension Plans and all summary plan descriptions
of Pension Plans, as in effect on the date hereof, have been delivered to
Purchaser;
(b) Except as set forth in SCHEDULE 2.2.14(B), no
Pension Plan, fiduciary thereof or trust created thereunder has engaged in a
transaction that might reasonably be expected to subject the Company, directly
or indirectly, to any tax on prohibited transactions imposed by Section 4975 of
the Code or to any civil penalty imposed by Section 502 of ERISA;
(c) Except as set forth in SCHEDULE 2.2.14(C),
the Company does not maintain or contribute to any "employee welfare benefit
plan," as such term is defined in Section 3(1) of ERISA; and each such
"employee welfare benefit plan" set forth in SCHEDULE 2.2.14(C) ("Welfare
Plan") is in compliance with the applicable provisions of ERISA, the Code, and
all other law, except where the failure to be in such compliance can be cured
within applicable statutory or regulatory cure periods and such failures would
not in the aggregate result in a fine, penalty or excise tax in excess of
$5,000. Complete copies of all Welfare Plans and all summary plan
descriptions of Welfare Plans, as in effect on the date hereof, have been
provided to Purchaser;
(d) Except as set forth in SCHEDULE 2.2.14(D),
the Company does not maintain or contribute to any bonus, incentive
compensation, stock option, stock purchase, or other fringe benefit plan or
program, whether or not reflected in a written document;
(e) Except as set forth in SCHEDULE 2.2.14(E), no
Pension Plan (either currently sponsored by the Company or terminated by the
Company within the past six years) has (i) incurred an "accumulated funding
deficiency" (within the meaning of Section 412(a) of the Code), whether or not
waived; (ii) been a plan with respect to which a Reportable Event has occurred
within six (6) years prior to the Closing Date; or (iii) been a plan with
respect to which any termination liability to the PBGC has been or is expected
to be incurred or with respect to which there exist conditions or events that
have occurred presenting a risk of termination by the PBGC; and
(f) The Company: (i) has not incurred a partial
or complete withdrawal from a "multiemployer plan" within the meaning of
Section 3(37) of ERISA to which the Company has been obligated to contribute
("Multiemployer Plan") which
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<PAGE> 11
resulted in the imposition of withdrawal liability under the Multiemployer
Pension Plan Amendments Act of 1980, as amended, that has not been assessed and
paid in full on the date hereof, or which could result in the imposition of
withdrawal liability under such act; and (ii) does not participate in any
Multiemployer Plan with respect to which the Company or its ERISA Affiliates
would have withdrawal liability in the event of a complete withdrawal on the
Closing Date.
2.2.15 Certain Contracts and Commitments. Except as set
forth in SCHEDULE 2.2.15:
(a) The Company has no collective bargaining or
union contracts or agreements;
(b) The Company has not entered into any written
agreement restricting it from carrying on its business within the United
States or any subdivision thereof;
(c) The Company is not a party to any "safe
harbor lease" as defined in Section 168(f)(8) of the Internal Revenue Code of
1954 as in effect prior to amendment by the Tax Equity and Fiscal
Responsibility Act of 1982;
(d) The Company is not in default on any
Indebtedness, or on any material lease, commitment, contract, instrument or
obligation by which it or its properties or assets is bound (collectively the
"Material Agreements" and individually a "Material Agreement"), and, to the
knowledge of the Company, no other party to any of the Material Agreements is
in default of any material provision of such Material Agreement; and
(e) The Company is not a party to any
shareholders agreement, registration rights agreement or other currently
effective agreement with any of its shareholders with respect to the stock or
operations of the Company.
2.2.16 Labor Matters. Except to the extent set forth in
SCHEDULE 2.2.16: (a) the Company is and has been in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation,
any such laws respecting employment discrimination, occupational safety and
health, and unfair labor practices; (b) there is no unfair labor practice
complaint against the Company pending or, to the knowledge of the Company,
threatened before the National Labor Relations Board or any comparable state,
local or foreign agency nor are any disputes, claims or legal proceedings
pending or threatened before any court or tribunal arising under contract,
common law or pursuant to any employment legislation, and no liability has been
incurred by the Company that remains undischarged in respect of any unfair
labor practice complaint or any breach of contract claim or any award under
employment legislation or for wrongful dismissal, and no order has been made
for reinstatement or re-engagement of any former employee; (c)
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<PAGE> 12
there is no labor strike, dispute, slowdown or stoppage or other industrial
action actually pending or, to the knowledge of the Company, threatened against
or directly affecting the employees of the Company; (d) to the knowledge of the
Company, no union representation question exists and no union or other
organization of employees are recognized for collective bargaining purposes,
and no union organization effort is underway, respecting the employees of the
Company; (e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending, and, to the knowledge of the
Company, no claims therefor exist, except where such grievance or claim would
not have a Material Adverse Effect; (f) the Company is not delinquent in
payments to any of its employees for any wages, salaries, commissions, bonuses
or other direct compensation for any services performed by them to the Closing
Date or amounts required to be reimbursed to such employees, and the Company is
not otherwise in breach of any contract of employment of any employee; or (g)
upon termination of the employment of any of the employees of the Company, the
Company will not be liable to any of its employees for severance pay.
2.2.17 Compliance with Law. The Company is in material
compliance with all laws, regulations and orders applicable to the Business,
including, without limitation, applicable building, planning, zoning or health
laws, ordinances and regulations. The Company has not received any
notification that it is in violation of any such laws, regulations or orders,
and neither the Company nor, to the knowledge of the Company, any employee
thereof (while acting in such capacity), has made any payment or gift to or for
the benefit of any Person, which payment or gift violates any statute or law.
2.2.18 No Subordination. Other than the obligation of
Purchaser to enter into a subordination agreement with respect to the Senior
Debt as contemplated by Section 4.1, there is no agreement, indenture, contract
or instrument to which the Company is a party or by which it may be bound that
requires the subordination in right of payment of any of the Obligations to the
repayment of any other obligation of the Company.
2.2.19 Solvency. The Company is Solvent prior to, and after
giving effect to, the transactions contemplated by the Investment Documents.
No transfer of property is being made and no obligation is being incurred in
connection with the transactions contemplated by the Investment Documents with
the intent to hinder, delay or defraud either present or future creditors of
the Company.
2.2.20 Valid Issuance. All of the outstanding capital stock
of the Company has been duly authorized and validly issued and is fully paid
and non-assessable and has been issued in material compliance with applicable
securities and other similar laws. When issued after the amendment of the
Articles of Incorporation of the Company contemplated by Section 3.1.4 in
accordance with, and for the consideration specified in, this Agreement, the
Preferred Stock will have been duly authorized and validly issued and will be
fully paid and non-assessable, and Purchaser will receive title to such
Preferred Stock free and clear of any lien, charge or encumbrance created by
the action or inaction
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<PAGE> 13
of the Company. When issued after such amendment upon exercise of the warrants
issued pursuant to the Warrant Agreement in accordance with, and for the
consideration specified in, the Warrant Agreement, the Series A Common Stock
will have been duly authorized and validly issued and will be fully paid and
non-assessable, and Purchaser will receive title to such Series A Common Stock
free and clear of any lien, charge or encumbrance created by the action or
inaction of the Company.
2.2.21 Proprietary Rights. The Company owns or has the
right to use all patents, trademarks, trade names, service marks, service
names, trade secrets, copyrights and other proprietary intellectual property
rights and applications therefor, and any corporate or other name,
(collectively, "Proprietary Rights") as are used or held for use in the
Company's business free and clear of any encumbrance other than the rights of
licensors of Proprietary Rights licensed to the Company and other than the
rights of licensees of Proprietary Rights licensed by the Company to others.
SCHEDULE 2.2.21 sets forth a list of all Proprietary Rights that are owned by
or licensed to the Company and that are not readily commercially available and
sets forth a list of any licenses or other agreements related thereto.
SCHEDULE 2.2.21 indicates whether and where any such Proprietary Right has been
registered or filed by the Company with the United States Patent and Trademark
Office or the corresponding office of any other jurisdiction. Except as set
forth in SCHEDULE 2.2.21: (i) no Person has a right to receive a royalty or
similar payment from the Company in respect of any Proprietary Rights, whether
pursuant to any contractual arrangements entered into by the Company or
otherwise; (ii) the Company does not have any licenses granted by or to it or
any other agreements to which it is a party relating in whole or in part to any
of the Proprietary Rights owned by the Company; (iii) neither any of the
Proprietary Rights nor the use thereof by the Company infringes upon or
otherwise violates any intellectual property rights of a third party; (iv)
there are no proceedings instituted against or written notices received by the
Company that are presently outstanding that allege that the use by the Company
of the Proprietary Rights infringes upon or otherwise violates any intellectual
property rights of a third party; (v) the Company has no knowledge of any
infringement or violation of the rights of the Company in or to the Proprietary
Rights by any third party; (vi) no claim has been asserted in writing to the
Company or, to the knowledge of the Company, threatened by any Person with
respect to the ownership, validity, license or use of, or any infringement
resulting from, any of the Proprietary Rights used by the Company or the
provision or sale of any services or products of the Company; (vii) the Company
has the right to provide and sell the services and products provided and sold
by it and to conduct its business as heretofore conducted using the Proprietary
Rights, and the consummation of the transactions contemplated hereby will not
alter or impair any such rights; and (viii) no officer, director or employee of
the Company owns or has any interest in any Proprietary Rights or any secret,
invention or process used by the Company in connection with its business.
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<PAGE> 14
2.2.22 Environmental Matters. Except as set forth in
SCHEDULE 2.2.22:
(a) The Company is in compliance with all
material provisions of the Environmental Laws, except where the failure to so
be in compliance will not result in a Material Adverse Effect.
(b) The Company has not received any assessment,
notice of liability or notice of financial responsibility, and the Company has
not received any notice of any action, claim or proceeding to determine such
liability or responsibility, or the amount thereof, or to impose civil
penalties, with respect to a site listed on any federal or state listing of
sites containing or believed to contain Hazardous Wastes. The Company has not
received notification that any Hazardous Wastes that it has disposed of have
been found in any site at which any governmental agency is conducting an
investigation or other proceeding under any Environmental Law.
(c) To the knowledge of the Company no property,
and no portion of any building, structure, facility or improvement located on
such property, that is used or occupied by the Company in its business (i)
contains friable asbestos or polychlorinated byphenyls ("PCBs"); (ii) has
electrical transformers, fluorescent light fixture ballasts or other equipment
containing PCBs installed thereon or therein; (iii) is used for the handling,
processing, storage or disposal or Hazardous Wastes; or (iv) contains
above-ground or underground storage tanks or other storage facilities for
Hazardous Wastes.
(d) No excise taxes have been imposed on the
Company pursuant to Sections 4611, 4661 or 4681 of the Code.
2.2.23 Collection of Accounts Receivable. Except as set
forth in the columns labeled "ADJ" and "OUTSTANDING 04-Jan-96" on attached
SCHEDULE 2.2.23, the Company has collected all receivables shown on the balance
sheet of the Company as of September 30, 1995 included in the Financial
Statements attached hereto as EXHIBIT D..
SECTION 3
CONDITIONS PRECEDENT
3.1 Purchaser's Conditions to Initial Closing. The obligation of
Purchaser to purchase the Preferred Stock, as well as the binding nature of
Purchaser's obligation to purchase Senior Subordinated Notes, is subject to the
fulfillment or waiver of all of the following conditions prior to, or
contemporaneously with, the closing of the purchase and sale of the Preferred
Stock (the "Closing"); from and after the Closing, the obligation of Purchaser
to purchase Senior Subordinated Notes is subject only to the conditions set
forth in Section 3.2:
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<PAGE> 15
3.1.1 Representations and Warranties. The representations
and warranties of the Company contained herein shall be true and correct in all
material respects on and as of the Closing Date, with the same effect as though
made on and as of the Closing Date; and as of the Closing Date, no Event of
Default shall have occurred and be continuing and no Event of Default shall
occur upon the consummation of the transactions contemplated by the Investment
Documents. Purchaser shall have received a certificate of an officer of the
Company certifying the provisions of this Section 3.1.1.
3.1.2 Executed Documents. The Company shall have
delivered, or shall have caused to be delivered, to Purchaser, the following
documents, duly executed by all parties thereto:
(a) this Agreement;
(b) a certificate representing the Preferred
Stock purchased hereunder;
(c) a Senior Subordinated Note, if any, in the
principal amount of any Senior Subordinated
Note to be sold on the Closing Date;
(d) the Warrant Agreement and certificates
representing the warrants, if any, issued
pursuant thereto;
(e) the Shareholders Agreement;
(f) the Registration Rights Agreement;
(g) the Consent and Modification Agreement; and
(g) the legal opinion of Alston & Bird
substantially in the form attached hereto as
EXHIBIT H.
3.1.3 Certified Documents, Etc. The Company shall have
delivered, or shall have caused to be delivered, to Purchaser copies of the
following documents, duly certified, or the following certificates, as
applicable:
(a) Resolutions of the Board of Directors of the
Company authorizing (1) the execution, delivery and performance of the
Investment Documents, (2) the consummation of the transactions contemplated by
the Investment Documents, (3) the reservation of the shares to be issued upon
exercise of the warrants issued under the Warrant Agreement or conversion of
the Preferred Stock, and (4) all other actions to be taken by the Company in
connection with the Investment Documents;
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<PAGE> 16
(b) Certificates, signed by the Secretary of the
Company dated as of the Closing Date, as to the incumbency, and containing the
specimen signature or signatures, of the Person or Persons authorized to
execute the Investment Documents on behalf of the Company, together with
evidence of the incumbency of such company officer;
(c) The articles of incorporation of the Company,
certified as of a recent date by the Secretary of State of the state under the
laws of which the Company is incorporated and copies of the bylaws of the
Company, certified as of the Closing Date by the Secretary of the Company; and
(d) A certificate of status, good standing or
existence with respect the Company from the Secretary of State of the state
under the laws of which the Company is incorporated, dated as of a recent date.
3.1.4 Amendment of Articles of Incorporation. The Company
shall have amended and restated its Articles of Incorporation, in form and
substance acceptable to Purchaser, and the Amended and Restated Articles of
Incorporation so adopted shall have the Preferred Stock as part of the
Company's authorized capitalization.
3.1.5 Other Acts, Conditions, Etc.. All acts, conditions
and things (including, without limitation, the obtaining of any necessary
regulatory approvals and the making of any required filings, recordings or
registrations) required to be done and performed and to have happened precedent
to the execution, delivery and performance of the Investment Documents and to
constitute the same legal, valid and binding obligations of the parties
thereto, enforceable in accordance with their respective terms, shall have been
done and performed and shall have happened in due and strict compliance with
all applicable laws.
3.1.6 Documents in Satisfactory Form. All documentation,
including, without limitation, documentation for corporate and legal
proceedings, and all instruments in connection with the transactions
contemplated by the Investment Documents and all documents executed and
delivered in connection with the Investment Documents shall be reasonably
satisfactory in form and substance to Purchaser (including without limitation
all disclosure schedules prepared in connection with the Investment Documents),
and Purchaser shall have received all further information and documents that
Purchaser may have reasonable requested, such documents where appropriate to be
certified by proper authorities and corporate officials and parties.
3.2 Purchaser's Conditions to Subsequent Closings. The obligation
of Purchaser to purchase Senior Subordinated Notes on the Subsequent Closing
Dates is subject to the fulfillment of all of the following conditions prior
to, or contemporaneously with, the Subsequent Closing:
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<PAGE> 17
3.2.1 Representations and Warranties. The representations
and warranties of the Company contained herein shall be true and correct in all
material respects on and as of such Subsequent Closing Date, with the same
effect as though made on and as of such Subsequent Closing Date, except for
changes (i) occurring in the ordinary course of the Company's business; (ii)
occurring in connection with the incurrence of Senior Debt and Other Credit
Facilities, (iii) occurring in connection with acquisitions permitted under
Sections 5.6 and 5.8 and (iv) disclosed in updated disclosure schedules to this
Agreement (including disclosure schedules with respect to Sections of this
Agreement that do not currently refer to a SCHEDULE for an exception to the
representation and warranty made in such Section) delivered by the Company to
Purchaser not less than five Business Days prior to the Subsequent Closing
Date, all of which changes do not, individually or in the aggregate, represent
a Material Adverse Effect; and as of such Subsequent Closing Date, the Company
shall not have violated or be in violation of any covenant or agreement to be
performed by the Company under any of the Investment Documents, and no Event of
Default shall have occurred and be continuing and no Event of Default shall
occur upon the consummation of the transactions contemplated by the Investment
Documents. Purchaser shall have received a certificate of an officer of the
Company, dated as of such Subsequent Closing Date, certifying the provisions of
this Section 3.2.1.
3.2.2 Executed Documents. The Company shall have
delivered, or shall have caused to be delivered, to Purchaser, the following
documents, duly executed by all parties thereto:
(a) a Senior Subordinated Note in the principal
amount of the Senior Subordinated Note to be
sold on such Subsequent Closing Date, as such
principal amount is specified in the Notice
of Borrowing delivered by the Company to
Purchaser with respect to such sale pursuant
to Section 1.2(a); and
(b) a certificate representing the warrants
issued pursuant to the Warrant Agreement upon
such sale of Senior Subordinated Notes.
3.2.3 Certified Documents, Etc. The Company shall have
delivered, or shall have caused to be delivered, to Purchaser copies of the
following documents, duly certified, or the following certificates, as
applicable:
(a) A certificate of the Secretary of the Company
to the effect that the resolutions of the Board of Directors of the Company
authorizing (1) the execution, delivery and performance of the Investment
Documents; (2) the consummation of the transactions contemplated by the
Investment Documents, (3) the reservation of the shares to be issued upon
exercise of the Warrants or conversion of the Preferred Stock, and (4) all
other actions to be taken by the Company in connection with the Investment
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<PAGE> 18
Documents, delivered at the initial Closing have not been amended, modified or
revoked in any respect;
(b) Certificates, signed by the Secretary of the
Company dated as of the Subsequent Closing Date, as to the incumbency, and
containing the specimen signature or signatures, of the Person or Persons
authorized to execute the Investment Documents on behalf of the Company,
together with evidence of the incumbency of such company officer; and
(c) A certificate of status, good standing or
existence with respect the Company from the Secretary of State of the state
under the laws of which the Company is incorporated, dated as of a recent date.
3.2.4 Key Man Insurance. The "key man" life insurance on
the life of Mark Kaiser described in Section 4.2.6 shall be in full force and
effect, and Purchaser shall, as required by such Section 4.2.6, be named as the
beneficiary thereof as provided in such Section 4.2.6.
3.3 The Company's Conditions to Initial Closing. The obligation
of the Company to sell the Preferred Stock, as well as the binding nature of
the Company's obligation to sell Senior Subordinated Notes, is subject to the
fulfillment or waiver of all of the following conditions prior to, or
contemporaneously with, the Closing; from and after the Closing, the obligation
of the Company to sell Senior Subordinated Notes is subject only to the
conditions set forth in Section 3.4:
3.3.1 Representations and Warranties. The representations
and warranties of Purchaser contained herein shall be true and correct in all
material respects on and as of the Closing Date, with the same effect as though
made on and as of the Closing Date. The Company shall have received a
certificate of an officer of Purchaser certifying the provisions of this
Section 3.3.1.
3.3.2 Executed Documents. Purchaser shall have delivered,
or shall have caused to be delivered, to the Company, the following documents,
duly executed by all parties thereto:
(a) this Agreement;
(b) the Warrant Agreement;
(c) the Shareholders Agreement;
(d) the Registration Rights Agreement; and
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<PAGE> 19
(e) the legal opinion of Fowler, White, Gillen,
Boggs, Villareal and Banker, P.A.
substantially in the form attached hereto as
EXHIBIT I.
3.3.3 Certified Documents, Etc. Purchaser shall have
delivered, or shall have caused to be delivered, to the Company copies of the
following documents, duly certified, or the following certificates, as
applicable:
(a) Resolutions of the Board of Directors or
Executive Committee of the Board of Directors of Purchaser authorizing (1) the
execution, delivery and performance of the Investment Documents, (2) the
consummation of the transactions contemplated by the Investment Documents, and
(3) all other actions to be taken by Purchaser in connection with the
Investment Documents;
(b) Certificates, signed by the Secretary or an
Assistant Secretary of Purchaser dated as of the Closing Date, as to the
incumbency, and containing the specimen signature or signatures, of the Person
or Persons authorized to execute the Investment Documents on behalf of
Purchaser, together with evidence of the incumbency of such company officer;
and
(c) A certificate of status, good standing or
existence with respect Purchaser from the Secretary of State of the state under
the laws of which Purchaser is incorporated, dated as of a recent date.
3.4 The Company's Conditions to Subsequent Closings. The
obligation of the Company to sell Senior Subordinated Notes on the Subsequent
Closing Dates is subject to the fulfillment of all of the following conditions
prior to, or contemporaneously with, the Subsequent Closing:
3.4.1 Representations and Warranties. The representations
and warranties of Purchaser contained herein shall be true and correct in all
material respects on and as of such Subsequent Closing Date, with the same
effect as though made on and as of such Subsequent Closing Date. The Company
shall have received a certificate of an officer of Purchaser, dated as of such
Subsequent Closing Date, certifying the provisions of this Section 3.4.1.
3.4.2 Certified Documents, Etc. Purchaser shall have
delivered, or shall have caused to be delivered, to the Company copies of the
following documents, duly certified, or the following certificates, as
applicable:
(a) A certificate of the Secretary or an
Assistant Secretary of Purchaser to the effect that the resolutions of the
Board of Directors or Executive Committee of the Board of Directors of
Purchaser authorizing (1) the execution, delivery and performance of the
Investment Documents; (2) the consummation of the transactions contemplated by
the Investment Documents, and (3) all other actions to be taken by
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<PAGE> 20
Purchaser in connection with the Investment Documents, delivered at the initial
Closing have not been amended, modified or revoked in any respect; and
(b) Certificates, signed by the Secretary or an
Assistant Secretary of Purchaser dated as of the Subsequent Closing Date, as to
the incumbency, and containing the specimen signature or signatures, of the
Person or Persons authorized to execute the Investment Documents on behalf of
Purchaser, together with evidence of the incumbency of such company officer.
SECTION 4
AFFIRMATIVE COVENANTS
4.1 Subordination by Purchaser. Purchaser agrees that the
indebtedness represented by the Senior Subordinated Notes is to be subordinate
to one or more secured credit facilities in an aggregate original principal
amount not to exceed $2,000,000 obtained by the Company subsequent to the
Closing Date for the purposes of financing working capital requirements in the
ordinary course of business and/or financing equipment purchases (the "Senior
Debt"). Purchaser agrees to enter into a subordination agreement on
commercially reasonable terms with the Bank or Banks providing such secured
credit facilities to the Company, the terms of which subordination agreement
will not unreasonably restrict Purchaser's rights to accelerate the maturity of
the Senior Subordinated Notes or to pursue its remedies upon an Event of
Default; provided, however, that Purchaser shall not be required to subordinate
the indebtedness represented by the Senior Subordinated Notes to more than
$2,000,000 in aggregate original principal amount of Senior Debt; provided,
further, that such Senior Debt shall be on terms and conditions reasonably
customary for secured working capital or equipment financing credit
transactions.
4.2 Covenants of the Company. The Company covenants that so long
as any of the Obligations of the Company to Purchaser hereunder or under any of
the other Investment Documents remains outstanding, and until final payment in
full of the Senior Subordinated Notes, the Company shall, and shall cause each
Affiliated Company of the Company to:
4.2.1 Punctual Payments. Pay when due: (a) the interest
and principal on the Senior Subordinated Notes, at the times and place and in
the manner specified therein, (b) any fees or other liabilities due hereunder
at the times and place and in the manner specified herein, (c) any taxes,
assessments or governmental charges of any governmental authority, and (d) any
other obligation of the Company for or in respect of Indebtedness, unless in
the cases of (c) and (d), the same (i) is being contested by the Company in
good faith and (ii) does not result in (A) any Lien upon any material asset of
the Company or upon any substantial portion of the Company's assets, (B) an
acceleration of any other material obligation of the Company or (C) the loss of
any material right under or the material breach of any agreement that is
material to the Company. Pay within 30
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<PAGE> 21
days after the scheduled due date, or such later date as may be possible
without the incurrence of a material penalty, any and all obligations of the
Company not described in the immediately preceding sentence, unless any of the
same is being contested by the Company in good faith.
4.2.2 Accounting Records. Maintain adequate books and
records in accordance with GAAP, and permit any representative of Purchaser,
during the Company's regular business hours upon reasonable notice, to inspect,
copy, audit and examine such books and records and inspect the properties of
the Company and its Affiliated Companies.
4.2.3 Reporting Requirements. (a) Provide Purchaser with
copies of all notices of meeting delivered to the members of the Board of
Directors of the Company and of all other materials delivered to the members of
the Board of Directors in their capacity as such or to the Investors (as
defined in the Consent and Modification Agreement) in their capacity as such.
(b) In addition, the Company will provide
Purchaser with:
(i) as soon as available and in any
event within 120 days after the end of each Fiscal Year (other than the Fiscal
Year ended December 31, 1995, in which event on or before June 30, 1996),
audited consolidated financial statements of the Company and its Affiliated
Companies as of the end of and for such Fiscal Year, together with an
unqualified report thereon of the Company's independent certified public
accounting firm, such financial statements to include a balance sheet,
statements of income, shareholders' equity and cash flows, and footnotes, all
prepared in accordance with GAAP;
(ii) as soon as available and in any
event within 30 days after the end of each month, a consolidated balance sheet
of the Company and its Affiliated Companies as of the end of such month and
statements of income, retained earnings and cash flows of the Company and its
Affiliated Companies for such month and for the Fiscal Year to date, prepared
in accordance with GAAP subject to normal year-end audit adjustments applied on
a basis consistent with prior years;
(iii) as soon as possible and in any event
within ten Business Days after the Company has knowledge of the occurrence of
any Event of Default or Potential Default, a statement of the chief executive
officer, chief financial officer or chief operating officer of the Company
setting forth details of such event and the action that the Company and its
Affiliated Companies propose to take with respect thereto;
(iv) as soon as possible and in any event
within ten Business Days after acquiring knowledge thereof, written notice of
all litigation, actions, suits or proceedings threatened or commenced affecting
the Company or any of its
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<PAGE> 22
Affiliated Companies or the properties or business of the Company or any of its
Affiliated Companies if the relief sought thereunder is either unspecified as
to amount, or is for damages in excess of $10,000 or, if awarded, could
reasonably be expected to materially and adversely affect the business,
properties, condition (financial or otherwise), or operations of the Company or
any of its Affiliated Companies; and as soon as possible and in any event
within five Business Days after any material development or change in the
status of any such litigation, action, suit or proceeding, notice of such
development or change;
(v) promptly after the furnishing
thereof, copies of any statement or report furnished to any other holder of the
debt or equity securities of the Company or any of its Affiliated Companies,
including without limitation any statement or report furnished pursuant to the
terms of any stock purchase, indenture, loan or credit or similar agreement and
not otherwise required to be furnished to Purchaser pursuant to any other
clause of this Section 4.2.3, but excluding (i) any statement or request
delivered to any holder of the debt or equity securities of the Company or any
of its Affiliated Companies other than in such Person's capacity as a holder of
such debt or equity and (ii) routine correspondence between the Bank and the
Company; and
(vi) prompt written notice of the
occurrence of any event that has had, or that could reasonably be expected to
have, a Material Adverse Effect on the Company.
4.2.4 Existence; Compliance With Law and Material
Agreements. Preserve and maintain its corporate existence, and all of its
licenses, permits, governmental approvals, rights, privileges and franchises
necessary or desirable in the normal conduct of its business as now conducted
or presently proposed to be conducted; conduct its business in an orderly and
regular manner; comply with the provisions of all material agreements to which
the Company is a party, except where such failure to comply will not cause a
Material Adverse Effect on the Company or cause the Company to lose any of its
material rights under such agreements, comply with the provisions of all
documents pursuant to which it is organized or which govern its continued
existence; and comply with the requirements of all applicable laws, rules,
regulations, ordinances, orders of any governmental authority, including,
without limitation, all applicable Environmental Laws and ERISA, and
requirements for the maintenance of its insurance, licenses, permits,
governmental approvals, rights, privileges and franchises, including, but not
limited to, all applicable federal, state, regional or local environmental
laws, rules, regulations, ordinances and orders.
4.2.5 Insurance. Maintain and keep in force with insurers
reasonably acceptable to Purchaser insurance of the types and in amounts
customarily carried in lines of business similar to its line of business in the
relevant jurisdiction, including without limitation fire, extended coverage,
public liability, property damage, business interruption, and workers'
compensation, and deliver to Purchaser, from time to time, at Purchaser's
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<PAGE> 23
request, schedules setting forth all insurance then in effect. All premiums on
insurance policies required under this Section shall be paid by the Company.
4.2.6 Key Man Insurance. Within 180 days after Closing,
the Company shall obtain from an insurer reasonably acceptable to Purchaser,
and thereafter shall maintain until the Senior Subordinated Notes are repaid in
full, a policy of "key man" life insurance insuring the life of Mark A. Kaiser
in an amount equal to $2,000,000, and naming the Purchaser the beneficiary
thereof up to the principal amount of the Senior Subordinated Notes held by
Purchaser at any time. In the event of the death of Mr. Kaiser, the Purchaser
shall credit toward the prepayment of the Senior Subordinated Notes, as and
when received by Purchaser, the proceeds of such policy up to the aggregate
amount of the Senior Subordinated Notes and all interest accrued thereunder
outstanding at such time. The Company shall not change such beneficiary of, or
pledge or otherwise grant a security interest in, such "key man" life insurance
policy, to secure the Senior Debt or otherwise. Notwithstanding the foregoing
provisions of this Section 4.2.6, until January 1, 1997, Purchaser shall be
named the beneficiary the entire face amount of such policy without limitation
as to the principal amount of the Senior Subordinated Notes; and if Mr. Kaiser
dies on or prior to December 31, 1996, the Company shall, unless otherwise
directed by Purchaser, deliver all of the proceeds of such policy, if, as and
when received, to Purchaser (and Purchaser shall be entitled to retain all such
proceeds delivered to Purchaser), which proceeds shall first be applied toward
the prepayment of the Senior Subordinated Notes and shall, if such proceeds are
greater that the then-outstanding amount of the Senior Subordinated Notes, then
be retained by Purchaser without further obligation hereunder as a reduction of
the purchase price paid by Purchaser for the Preferred Stock.
4.2.7 Notice to Purchaser. Promptly (but in no event more
than five Business Days after the occurrence of each such event or matter) the
Company shall give notice in writing to Purchaser of: (a) any change in its
name, state of incorporation, organizational structure or composition; (b) any
termination or cancellation of any insurance policy which it is required to
maintain and which it does not replace with substantially similar coverage; (c)
any warranty claim or uninsured or partially uninsured loss or liability
through liability or property damage, or through fire, theft or any other cause
affecting its property in excess of an aggregate of $250,000; (d) any loss of a
customer from which the Company received more than 5% of its revenues during
the previous year; (e) any Event of Default or Potential Default; or (f) any
event proposed in writing by, or under active discussions with, any Person
that, if consummated, could result in a Change of Control.
4.2.8 Purchaser's Designee. As promptly as reasonably
practicable after the Closing Date, the Company shall cause one vacancy to be
created on the Board of Directors of the Company (by increasing the number of
members of the Board of Directors or otherwise) and shall, with respect to such
vacancy, thereafter immediately cause a person designated by Purchaser to be
elected to the Board of Directors. Each designee of the Purchaser shall serve
until his successor is duly elected and qualified. The
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<PAGE> 24
Company shall include one designee of Purchaser in the slate of nominees
recommended by the Board of Directors or the Company's management to
shareholders for election as directors at each annual meeting of shareholders
of the Company, commencing with the first annual meeting of shareholders after
the Closing Date and so long as Purchaser owns Preferred Stock, common stock of
the Company and Warrants representing, in the aggregate, ownership of or the
right to acquire at least 250,000 shares of Series A Common Stock of the
Company (as adjusted for stock splits, stock dividends and similar events
occurring after the date of this Agreement). The Company shall vote all shares
for which the Company's management or Board of Directors holds proxies or is
otherwise entitled to vote in favor of the election of such designee. The
Company's management shall in all respects use its best efforts to cause the
election of such designee. In the event that such designee shall cease to
serve as a director for any reason, the resulting vacancy shall be filled by a
designee of Purchaser. Any such designee of Purchaser must be reasonably
acceptable to the Company; provided that the Company shall not unreasonably
withhold its approval of any such designee. In the event that Purchaser ceases
to own Preferred Stock, common stock of the Company and Warrants representing,
in the aggregate, ownership of or the right to acquire at least 250,000 shares
of Series A Common Stock of the Company (as adjusted for stock splits, stock
dividends and similar events occurring after the date of this Agreement) for a
period of 90 consecutive days, Purchaser shall cause its designee to resign
from the Board of Directors. The Company's obligations under this Section
4.2.8 shall terminate at such time as Purchaser continues to beneficially own
Preferred Stock, common stock of the Company and Warrants representing, in the
aggregate, ownership of or the right to acquire less than 250,000 shares of
Series A Common Stock of the Company (as adjusted for stock splits, stock
dividends and similar events occurring after the date of this Agreement) for a
period of 180 days. Purchaser and the Company acknowledge and agree that the
Shareholders Agreement contains provisions that require the Purchaser to vote
to elect certain designees of other shareholders to the Board of Directors and
provisions that require other shareholders to vote to elect Purchaser's
designee to the Board of Directors.
4.2.9 Visitation Rights. The Company shall permit any
representatives designated by Purchaser, upon reasonable written notice and
during normal business hours and such other times as Purchaser may reasonably
request, to (i) visit and inspect any of the properties of the Company, (ii)
examine the corporate and financial records of the Company and make copies
thereof or extracts therefrom, and (iii) discuss the affairs, finances and
accounts of the Company with the directors, officers, key employees and
independent accountants of the Company. The presentation of an executed copy
of this Agreement by Purchaser to the Company's independent accountants shall
constitute the Company's permission to its independent accountants to
participate in discussions with such Persons.
4.2.10 Current Public Information. At all times after the
Company has filed a registration statement with the Securities and Exchange
Commission pursuant to the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company shall file all reports required to be
filed by it under the Act and the Exchange
- 23 -
<PAGE> 25
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder and shall take such further action as the Purchaser may
reasonably request, all to the extent required to enable Purchaser or any other
holder, from time to time, of the Preferred Stock or shares of Series A Common
Stock issuable upon conversion of the Preferred Stock or exercise of warrants
issued under the Warrant Agreement to sell the Preferred Stock (or the Series A
Common Stock issuable upon conversion thereof) or such Series A Common Stock
pursuant to (i) Rule 144 adopted by the Securities and Exchange Commission
under the Act (as such rule may be amended from time to time) or any similar
rule or regulation hereafter adopted by the Securities and Exchange Commission
or (ii) as and to the extent set forth in the Registration Rights Agreement, a
registration statement on Forms S-1, S-2 or S-3 or any similar registration
form hereafter adopted by the Securities and Exchange Commission. Upon
request, the Company shall deliver to Purchaser a written statement as to
whether the Company has complied with such requirements.
4.2.11 Public Disclosures. The Company shall not disclose
Purchaser's name or identity as an investor of the Company in any press release
or other public announcement or in any document or material filed with any
governmental entity, without the prior written consent of Purchaser, unless
such disclosure (i) does nothing more than identify Purchaser as an investor in
the Company in a format previously approved by Purchaser or (ii) is required by
applicable law or governmental regulations or by order of a court of competent
jurisdiction, in which case prior to making such disclosure the Company shall
give written notice to Purchaser describing in reasonable detail the proposed
content of such disclosure and shall permit Purchaser to review and comment
upon the form and substance of such disclosure.
SECTION 5
NEGATIVE COVENANTS
The Company further covenants that, so long as any of the
Obligations of the Company to Purchaser hereunder remain outstanding and until
final payment in full of the Senior Subordinated Notes, without the prior
written consent of Purchaser, the Company shall not, and the Company shall not
allow any of its Affiliated Companies to:
5.1 Use of Funds. Use the proceeds of the purchase and sale of
Senior Subordinated Notes for any purpose other than financing the acquisition
of businesses in the same general line of business as that engaged in by the
Company (as described in Section 5.3) and for ordinary course of business
working capital purposes (other than payments of interest or principal due on
the Senior Subordinated Notes or the Senior Debt).
5.2 Dividends, Distributions. Except for dividends payable in
respect of the Company's Series A Convertible Preferred Stock and the Preferred
Stock, declare or pay any dividend or distribution either in cash, stock or any
other property on its capital stock now or hereafter outstanding or on any
warrant, option or other right to acquire capital
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<PAGE> 26
stock now or hereafter outstanding (except for the securities issued or
issuable under the Warrant Agreement) or redeem, retire, purchase or otherwise
acquire any shares of any class of its capital stock now or hereafter
outstanding or any warrant, option or other right to acquire capital stock now
or hereafter outstanding (except for the securities issued or issuable under
the Warrant Agreement), including without limitation any put, call or other
right to payment under any warrant, option or other right to acquire capital
stock now or hereafter outstanding (other than the securities issued or
issuable under the Warrant Agreement); provided, that any Affiliated Company
may pay dividends and distributions to the Company for reasonable and customary
administrative expenses of the Company, and (ii) the Company may purchase from
any of its current or former employees or officers the shares of Series A
Common Stock of the Company owned by any such current or former employee or
officer on the terms and conditions set forth in the shareholder agreements
between the Company and each such current or former employee or officer with
respect to such Series A Common Stock if (A) no Event of Default or Potential
Default has occurred at the time of payment for such shares, and (B) purchase
of such shares would not create an Event of Default or Potential Default.
5.3 Business. Discontinue the Business or engage in any business
activities or operations substantially different from or unrelated to the
development, implementation, sale, marketing and servicing of computer
databases, software, information products and other tools (and support services
related to such databases, software, information products and tools) to
measure, track, report on, and manipulate and analyze healthcare or insurance
industry information, including, without limitation, information concerning
costs, procedures, treatments, practitioners and protocols.
5.4 Indebtedness. Create, incur, assume or permit to exist any
Indebtedness (other than the Obligations); provided, however, that this Section
5.4 shall not prohibit:
(a) the incurrence of Senior Debt (as defined in
Section 4.1) or Other Credit Facilities (as defined in Section 1.1(b) of the
Warrant Agreement);
(b) the incurrence in the ordinary course of
business or trade accounts payable;
(c) Indebtedness for taxes, assessments,
governmental charges or levies;
(d) Indebtedness of the Company existing as of
the Closing Date and disclosed in the Financial Statements or in SCHEDULE 2.2.8
and indebtedness of any business acquired by the Company, which indebtedness
was outstanding immediately prior to the acquisition of such business and was
fully disclosed to the Company prior to acquiring such business;
- 25 -
<PAGE> 27
(e) purchase money Indebtedness incurred in
connection with the acquisition of equipment and not in excess of $250,000 in
the aggregate at any time outstanding;
(f) debt to insurance or bonding companies in
connection with the performance or payment bonds obtained by the Company to
secure its performance under contracts entered into in the ordinary course of
its business;
(g) debt issued to sellers of businesses acquired
by the Company in full or partial consideration of the purchase of such
businesses; and
(i) Indebtedness between the Company and any
wholly-owned Subsidiary so long as it is evidenced by a note or other
instrument reasonably satisfactory to Purchaser.
5.5 Liens. Create or suffer to exist any Lien or any other type
of preferential arrangement, upon or with respect to any of its assets or
properties, whether now owned or hereafter acquired, or assign any right to
receive income to secure any Indebtedness of any Person except:
(a) Liens securing the Senior Debt;
(b) Leases and lessor interests in security
deposits given pursuant to leases of real property entered into by the Company
or any of its Affiliated Companies, as lessee, in the ordinary course of
business;
(c) Liens for current taxes, assessments or other
governmental charges (i) which are not delinquent, or (ii) the validity of
which is contested in good faith by appropriate proceedings upon stay of
execution of the enforcement thereof and which are in respect of claims for
current taxes, assessments or other governmental charges not exceeding an
aggregate amount of $100,000;
(d) Liens, for charges incurred in the ordinary
course of business in connection with worker's compensation, unemployment
insurance or other forms of governmental insurance or benefits, or to secure
performance of statutory obligations entered into in the ordinary course of
business;
(e) Liens of attachment and judgment respecting
claims, the validity of which is being contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof (i) in an
aggregate amount not exceeding $100,000, or (ii) which shall be vacated within
10 days after the creation thereof;
(f) Mechanics', materialmen's or other similar
Liens arising in the ordinary course of business which either (i) are inchoate
and relate to an obligation which is not yet due and payable or (ii) are being
contested in good faith by appropriate
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<PAGE> 28
proceedings upon stay of execution of the enforcement thereof and are in an
aggregate amount not exceeding $100,000;
(g) Liens incurred in connection with purchase
money Indebtedness permitted under Section 5.5(f);
(h) Liens securing Indebtedness permitted under
subsections (a), (c), (d), and (f), Section 5.4; and
(i) Liens incurred in replacement of Liens
permitted under Section 5.5(a) through (h).
5.6 Subsidiaries; Investments. Create any Subsidiary, make any
capital contribution to or other investment in any Affiliated Company or make
any Investment, except for Permitted Investments. Notwithstanding the
provisions of the preceding sentence, the Company may, with the prior written
consent of Purchaser, which consent will not be unreasonably withheld, create a
Subsidiary provided that (i) the Company shall not make any capital
contribution to or other investment in excess of $500,000 in any such
Subsidiary unless such contribution or investment is approved in advance by
Purchaser, (ii) the Company may purchase stock of another corporation in an
acquisition transaction (not described in Section 5.8 below) in which the
Company becomes the owner of 80% or more of the equity of such corporation;
(iii) each of the terms, covenants and conditions of the Investment Documents
applicable to the business and operations of the Company shall be applicable to
the business and operations of such Subsidiary, including without limitation
all financial covenants and reporting requirements which, unless otherwise
required by Purchaser, shall be applied on a consolidated basis, (iv) all
financial statements shall be prepared on a consolidated basis and (iv) the
Company shall own, directly or indirectly, 100% of the capital stock of such a
Subsidiary that is newly created and 80% of the capital stock of an acquired
Subsidiary. Purchaser acknowledges and agrees that the Company may acquire all
of the outstanding capital stock of Formations in Health Care, Inc. from
Pamella Leiter for consideration consisting of cash, stock and options to
purchase stock.
5.7 Guaranteed Indebtedness. Create, assume, incur, or be or
become liable for any Guaranteed Indebtedness except: (a) it may endorse
negotiable instruments for deposit or collection in the ordinary course of
business; (b) any Affiliated Company of the Company may guaranty or become
jointly liable with respect to the Obligations; and (c) it may guaranty or
become jointly liable on any Indebtedness or Lien which such guarantor would
have been permitted to incur under Sections 5.4 and 5.5; (d) guarantees of the
Senior Debt or an Other Credit Facility; and (e) guarantees of the Obligations.
5.8 Mergers. Merge with or into, consolidate with or into, or
enter into a statutory share exchange with another Person or acquire all or
substantially all of the assets or capital stock of any Person, provided,
however, that (i) the Company may acquire all of the outstanding capital stock
of Formations in Health Care, Inc. from
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<PAGE> 29
Pamella Leiter as permitted in Section 5.6 hereof, (ii) the Company may make
acquisitions at fair market value in arm's- length transactions, which do not
individually or when taken together with all other acquisitions after the date
of this Agreement result in a Change of Control; and (iii) in either event each
of the terms covenants and conditions of the Investment Documents applicable to
the business and operations of the Company shall be applicable to the business
and operations of the acquired company, including without limitation all
financial covenants and reporting requirements which, unless otherwise required
by Purchaser, shall be applied on a consolidated basis.
5.9 Restrictions on Sales of Assets. Sell or otherwise dispose of
any property except:
(a) sales, leases, rentals or dispositions of
property as a result of a constructive loss or similar loss of the property or
a decision to dispose under a fix/sell analysis;
(b) sales, leases, rentals or dispositions of
property in the ordinary course of business and for consideration not less than
the fair market value;
(c) sales, leases, rentals or dispositions of
property not in excess of $200,000 in the aggregate during any Fiscal Year; and
(d) the disposition of any obsolete or retired
property not used or useful in its business the fair market value of which
obsolete or retired property, singly or when aggregated with all other such
assets sold pursuant to this clause (e) over the original term of the Senior
Subordinated Notes does not exceed $500,000.
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 $ 1,800,000
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:
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<PAGE> 30
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
December 31, 1995 $ 300,000
December 31, 1996 $ 3,500,000
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 4.0:1.0
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:
<TABLE>
<CAPTION>
Fiscal Year Ending Amount
------------------ ------
<S> <C>
December 31, 1996 2.0:1.0
December 31, 1997 4.0:1.0
December 31, 1998 and thereafter 6.0:1.0
</TABLE>
5.11 Prepayment of Indebtedness. Prepay Indebtedness, other than
the Senior Debt and the Obligations, before the stated maturity 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
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<PAGE> 31
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 493,850 shares of Series A Common Stock
(as adjusted for stock splits, stock dividends and similar events occurring
after the date of this Agreement).
5.13 Series of Common Stock. Amend the Articles of Incorporation
of the Company or otherwise adopt any class or series of common stock of the
Company other than the Series A Common Stock or issue any shares of capital
stock of the Company or any options, rights or warrants convertible into or
exercisable or exchangeable for any such capital stock, except for Excluded
Shares (as defined in the Amended and Restated Articles of Incorporation of the
Company attached hereto as EXHIBIT A).
SECTION 6
EVENTS OF DEFAULT
6.1 Events of Default. The occurrence of any of the following
shall constitute an "Event of Default" under this Agreement:
(a) the Company shall fail to pay when due any
principal, interest, premium or other amount payable under the Senior
Subordinated Notes;
(b) the Company shall fail to observe or perform,
or shall fail to cause any of its Affiliated Companies to observe or perform,
any obligation, covenant or other provision contained in any of the Investment
Documents (other than a failure to pay when due principal, interest, premium or
other amounts payable under the Senior Subordinated Notes), or in the Consent
and Modification Agreement (whether or not such failure is consented to or
waived by the shareholders who are parties to the Consent and Modification
Agreement), which failure, if susceptible of cure, is not cured prior to the
later of 30 days after the occurrence of such failure or the expiration of any
applicable grace period for performance of such obligation, covenant or other
provision, or which failure is not waived by Purchaser in writing;
(c) any representation or warranty made by the
Company herein or in any of the Investment Documents shall be false or
misleading in any material respect on the date upon which such representation
or warranty is made or deemed made;
(d) acceleration of any Indebtedness of the
Company or any of its Affiliated Companies, which Indebtedness in the aggregate
principal amount exceeds $100,000;
(e) any material default under the Senior Debt,
an Other Credit Facility or any other indebtedness of the Company for borrowed
money owed to a bank, insurance company, venture capital firm or other
financial institution;
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<PAGE> 32
(f) the entry of any judgment, order or decree
against a the Company or any of its Affiliated Companies; or the filing of a
notice of judgment lien against the Company or any of its Affiliated Companies;
or the recording of any abstract of judgment against the Company or any of its
Affiliated Companies in any county in which the Company or such Affiliated
Company has an interest in real property; or the service of a notice of levy or
of a writ of attachment or execution, or other like process, against the assets
of the Company or any of its Affiliated Companies; and such judgment, judgment
lien, levy, attachment or execution shall not have been vacated, discharged or
stayed within 30 days from the entry thereof;
(g) the Company or any of its Affiliated
Companies shall cease to be Solvent, or shall suffer or consent to or apply for
the appointment of a receiver or administrative receiver, trustee, custodian or
liquidator of itself or any of its property, or shall generally fail to pay its
debts as they become due, or shall make a general assignment for the benefit of
creditors; the Company or any of its Affiliated Companies shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Code, or under any state or federal law granting relief to debtors,
whether now or hereafter in effect; or any involuntary petition or proceeding
pursuant to the Bankruptcy Code or any other applicable state or federal law
relating to bankruptcy, reorganization or other relief for debtors is filed or
commenced against the Company or any of its Affiliated Companies, which
petition or proceeding (i) results in the entry of an order for relief or any
such adjudication of relief, or (ii) remains unreleased or undischarged for a
period of 60 days, or (iii) the Company or such Affiliated Company files an
answer admitting jurisdiction of the court and the material allegations of the
petition; or the Company or any of its Affiliated Companies shall be
adjudicated a bankrupt, or an order for relief shall be entered by any court of
competent jurisdiction under the Bankruptcy Code or any other applicable state
or federal law relating to bankruptcy, reorganization or other relief for
debtors;
(h) the dissolution of, the liquidation of, or
the suspension of business by, the Company, or any of the directors or
shareholders of the Company shall take action seeking to effect the dissolution
or liquidation of the Company;
(i) any of the Investment Documents shall, at any
time, cease to be in full force and effect except in accordance with its terms
or shall be declared null and void pursuant to a judicial or other governmental
act, or the validity or enforceability thereof shall be contested by any party
thereto; and
(j) any financial statement, report or other
document to be delivered by or on behalf of the Company to the Purchaser after
the Closing Date pursuant to the Investment Documents is false or misleading in
any material respect when made or delivered.
6.2 Remedies.
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<PAGE> 33
6.2.1 Termination of Advances; Acceleration. Upon the
occurrence of any Event of Default, and at any time thereafter as long as the
Event of Default is continuing, (i) Purchaser may, by notice to the Company,
declare the Purchaser's obligation to purchase Senior Subordinated Notes under
Section 1.2 of this Agreement to be terminated, whereupon the same shall
forthwith terminate and (ii) the holders of a majority of the then-outstanding
principal amount of the Senior Subordinated Notes may, by notice to the
Company, declare the Senior Subordinated Notes and all interest thereon and all
other amounts payable under this Agreement and the Investment Documents to be
forthwith due and payable, whereupon the Senior Subordinated Notes, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Company; provided, however, that in
the event of an actual or deemed entry of an order for relief with respect to
the Company or any of its Subsidiaries under the Federal Bankruptcy Code, then,
unless any such Event of Default is waived in writing by Purchaser, (x) the
obligation of the Purchaser to purchase Senior Subordinated Notes under Section
1.2 of this Agreement shall automatically be terminated and (y) the Senior
Subordinated Notes, and all such interest and all such amounts shall
automatically become and be due and payable without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Company. In addition, without limiting any other rights of Purchaser or a
holder of Senior Subordinated Notes, whenever the holders of a majority of the
outstanding amount of the Senior Subordinated Notes have the right to declare
any indebtedness to be immediately due and payable and have so declared and
whenever the Senior Subordinated notes shall become automatically due and
payable as provided in the immediately preceding sentence, Purchaser and any
such holder may set off against the indebtedness without notice any amounts
then owed to the Company by Purchaser or such holder in any capacity.
6.2.2 Cumulative Remedies. All rights, remedies or
recourse of the holders of the Senior Subordinated Notes under this Agreement,
the Senior Subordinated Notes, or any other Investment Documents, under the
Uniform Commercial Code or other law, in equity or otherwise, are cumulative,
and exercisable concurrently and may be pursued singularly, successively or
together and may be exercised as often as occasion therefor shall arise. No
act of commission or omission by a holder of the Senior Subordinated Notes,
including, but not limited to, any failure to exercise, or any delay,
forbearance or indulgence in the exercise of any right, remedy or recourse
hereunder or under any Investment Document shall be deemed a waiver, release or
modification of that or any other right, remedy or recourse, and no single or
partial exercise of any right, remedy or recourse shall preclude the Purchaser
from any other or future exercise of the right, remedy or recourse or the
exercise of any other right, remedy or recourse. No waiver or release of any
such rights, remedies and recourse shall be effective against Purchaser or any
holder of the Senior Subordinated Notes unless in writing and manually signed
by an authorized officer of Purchaser or such holder, and then only to the
extent therein recited. A waiver, release or modification with reference to
any one event shall not be construed as continuing or constituting a course of
dealing, and no such waiver, release
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<PAGE> 34
or modification shall be construed as a bar to, or as a waiver, release or
modification of, any subsequent right, remedy or recourse as to a subsequent
event.
6.2.3 No Liability. Whether or not the holders of the
Senior Subordinated Notes elect to employ any or all remedies available in the
event of the occurrence of any Event of Default, such holders shall not be
liable for the payment of any expenses incurred by the Company in connection
with the exercise of any remedy available or for the performance or
non-performance of any obligation of the Company.
6.2.4 Waiver of Default. Purchaser or any other holder of
Senior Subordinated Notes may, by written notice to the Company, at any time
and from time to time, waive any Event of Default that has occurred hereunder
and its consequences. Any such waiver shall be for such period and subject to
such conditions as shall be specified in any such notice. In the case of any
such waiver, the Company shall be restored to its former position hereunder and
under the Investment Documents, and any Event of Default so waived shall be
deemed to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Event of Default.
6.2.5 No Waiver. No failure to exercise and no delay in
exercising, on the part of any holder of Senior Subordinated Notes, any right,
power or privilege hereunder or under any of the other Investment Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.
6.2.6 Right to Damages. Without limiting the foregoing,
the Purchaser shall be entitled to recover damages (including, without
limitation, reasonable attorneys' fees and expenses of any suit to enforce this
Agreement or recover damages hereunder) from the Company by reason of any
breach by the Company of any provision of this Agreement, any Investment
Document (including, without limitation, the representations, warranties and
covenants of the Company contained therein and herein), the Company's Articles
of Incorporation or Bylaws or any other document delivered at the same time as
the execution and delivery of this Agreement or related thereto.
SECTION 7
MISCELLANEOUS
7.1 Transfers. Prior to the earlier to occur of (i) an Initial
Public Offering by the Company or (ii) December 31, 2002, Purchaser may not
assign this Agreement or make a transfer of the Preferred Stock, except to an
Affiliate of Purchaser, the obligations of which Affiliate the Purchaser
unconditionally guarantees. The Purchaser may transfer the Senior Subordinated
Notes issued hereunder to any party that is not a competitor of the Company.
7.2 Termination.
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<PAGE> 35
7.2.1 Method of Termination. This Agreement and the
transactions contemplated by it may be terminated at any time prior to the
Closing:
(a) By the mutual consent of Seller and Purchaser;
(b) By the Company after January 8, 1996 if the
transactions contemplated hereby have not been closed or if any of the
conditions to the Company's obligations set forth in Section 3.3 have not been
satisfied or waived by the Company, unless the failure to close such
transactions is due to any failure by the Company to perform in any material
respect its agreements contained herein required to be performed by it on or
prior to the Closing Date, or a material breach any of the Company's
representations, warranties or covenants contained herein;
(c) By Purchaser after January 31, 1996, if the
transactions contemplated hereby have not been closed or if any of the
conditions to Purchaser's obligations set forth in Section 3.1 have not been
satisfied or waived by Purchaser, unless the failure to close such transactions
is due to any failure by Purchaser to perform in any material respect its
agreements contained herein required to be performed by it on or prior to the
Closing Date, or a material breach any of Purchaser's representations,
warranties or covenants contained herein;
(d) By the Company or Purchaser at any time after
February 15, 1996, if the Closing shall not have occurred for any reason on or
prior to February 15, 1996;
(e) By either Purchaser or the Company if there shall be
any order, writ, injunction or decree of any court or governmental or
regulatory agency binding on Purchaser or the Company, which prohibits or
restrains Purchaser and/or the Company from consummating the transactions
contemplated by this Agreement, provided that Purchaser and the Company shall
have used their reasonable best efforts to have any such order, writ,
injunction or decree lifted and the same shall not have been lifted within 30
days after entry, by any such court or governmental or regulatory agency.
7.2.2 Notice of Termination. Notice of termination of this
Agreement, as provided for in this Section 7.2, shall be given by the party so
terminating to the other party hereto in accordance with Section 7.3 of this
Agreement.
7.2.3 Effect of Termination. If this Agreement terminates
pursuant to Section 7.2, this Agreement shall become void and of no further
force and effect, and each party shall pay the costs and expenses incurred by
it in connection with this Agreement and, provided the Agreement was not
terminated as a result of a breach of this Agreement, no party (or any of its
officers, directors, employees, agents, representatives or shareholders) shall
be liable to any other party for any costs, expenses, damages (direct or
indirect) or loss of anticipated profits. If, however, this Agreement is
terminated as a
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<PAGE> 36
result of a breach, this Section 7.2.3 shall not relieve a breaching or
defaulting party from any liability to the other party.
7.2.4 Termination of Covenants. If the transactions
contemplated by this Agreement are consummated, all of the covenants set forth
in Sections 4 and 5 (except for the covenants set forth in Section 4.2.8) shall
remain in force until no Obligations of the Company to Purchaser hereunder or
of Purchaser to the Company hereunder remain outstanding and until payment in
full of the Senior Subordinated Notes, and when there are no such Obligations
and the Senior Subordinated Notes have been paid in full, the covenants set
forth in Sections 4 and 5 (except for the covenants set forth in Section 4.2.8)
shall terminate and be of no further force and effect. The covenant set forth
in Section 4.2.8 shall remain in force as provided in such covenant.
7.3 Notices. In order to be effective, any notice or other
communication required or permitted hereunder, shall, unless otherwise stated
herein, be in writing and shall be transmitted by messenger, delivery service,
mail, telecopy, as specified below:
If to Purchaser:
HealthPlan Services Corporation
P.O. Box 30098
Tampa, Florida 33630-3098
Telecopier: (813) 289-9359
Attention: Mr. James K. Murray III, Chief Financial
Officer and Mary Fahy, General Counsel
with a copy (which shall not constitute notice) to:
Fowler, White, Gillen, Boggs, Villareal and Banker, P.A.
501 East Kennedy Boulevard, Suite 1700
Tampa, Florida 33602
Telecopier: (813) 229-8313
Attention: David C. Shobe
If to the Company:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Telecopier: (404) 364-6711
Attention: Mark A. Kaiser, Chairman and Chief
Executive Officer
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<PAGE> 37
With a copy (which shall not constitute notice) to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopier: (404) 881-7777
Attention: Keith O. Cowan
or at such other address as a party shall designate in a written notice to the
other parties hereto given in accordance with this Section 7.3. All notices
and other communications shall be effective (i) if sent by messenger or
delivery service, when delivered, (ii) if sent by mail, five days after having
been sent by certified mail, with return receipt requested, or (iii) if sent by
telecopier with receipt acknowledged, when sent.
7.3 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, except that Purchaser may not assign this Agreement or any rights
hereunder except as provided in Section 7.1, and except that Purchaser may not,
even if assignment is permitted under Section 7.1, assign its right to
designate a member of the Board of Directors of the Company pursuant to Section
4.2.8, except to an Affiliate of Purchaser.
7.4 Entire Agreement, Amendment. The Investment Documents
(including the Exhibits and Schedules thereto) executed by the Company in
connection with, or as required by, this Agreement constitute the entire
agreement between the Company and Purchaser with respect to the transactions
contemplated by this Agreement; supersede all prior or contemporaneous
negotiations, communications, discussions and correspondence concerning the
subject matter hereof; and may be amended or modified only with the written
consent of the holders of a majority in principal amount of the Senior
Subordinated Notes then outstanding, except that no such amendment or
modification shall become effective if it extends the maturity or reduces the
rate of interest payable with respect to the Senior Subordinated Notes, alters
the terms of payment of the principal and interest under the Senior
Subordinated Notes, or reduces the percentage of holders of principal amount of
the Senior Subordinated Notes necessary to approve modifications or amendments
to this Agreement without the consent of each holder of the Senior Subordinated
Notes affected thereby. Whenever the consent or approval of Purchaser is
required, such consent or approval must be given in writing by the holders of a
majority in principal amount of the Senior Subordinated Notes then outstanding.
7.5 Severability of Provisions. If any provision of this
Agreement shall 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 such provision or any
remaining provisions of this Agreement, and the parties shall use their
respective best efforts to negotiate and enter into an amendment to this
Agreement whereby such provision will be modified in a manner that is
consistent with the intended
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<PAGE> 38
economic consequences of the invalid provision and that, as modified, is legal
and enforceable.
7.6 GOVERNING LAW. THIS AGREEMENT AND THE SENIOR SUBORDINATED
NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF GEORGIA.
7.7 CONSENT TO EXCLUSIVE JURISDICTION, VENUE AND FORUM. THE
COMPANY HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION, VENUE AND FORUM OF ANY
STATE OR FEDERAL COURT IN TAMPA, FLORIDA WITH RESPECT TO ANY ACTION, WHETHER
COMMENCED BY PURCHASER OR ANY OTHER PERSON, WHICH, IN WHOLE OR IN PART, IN ANY
WAY ARISES UNDER OR RELATES TO THE INVESTMENT DOCUMENTS, AND THE COMPANY AGREES
THAT ANY SUCH ACTION FILED BY IT WILL BE FILED IN SUCH A COURT.
7.8 Incorporation of Exhibits and Schedules by Reference. All
Appendices, Exhibits and Schedules to this Agreement are incorporated herein by
this reference.
7.9 Counterparts. This Agreement may be executed in separate
counterparts, each of which, when so executed, shall be deemed to be an
original and all of which, when taken together, shall constitute but one and
the same agreement.
7.10 Survival. The representations, warranties, covenants and
agreements made herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
notwithstanding any investigation made by Purchaser or its agents or
representatives.
7.11 Interest. The Company and Purchaser agree that in no event
shall the amount of interest or other consideration due to Purchaser with
respect to the making of the loans evidenced by the Senior Subordinated Notes
exceed the maximum rate of interest allowed by applicable law, and in the event
any such payment is inadvertently paid by the Company or inadvertently received
by the Purchaser, then such excess sum shall be credited as a payment of
principal to be applied to the principal, unless the Company shall notify
Purchaser in writing that the Company elects to have such excess sum returned
to it forthwith. It is the express intent of the parties hereto that the
Company not pay and Purchaser not receive, directly or indirectly, in any
manner whatsoever, interest in excess of that which may be lawfully paid by the
Company under applicable law.
(remainder of page intentionally left blank, signatures follow)
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<PAGE> 39
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed the day and year first written above.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
-------------------------------------
Mark A. Kaiser, Chairman and Chief
Executive Officer
HEALTHPLAN SERVICES CORPORATION
By: /s/ James K. Murray, III
-------------------------------------
James K. Murray III, Executive Vice
President and Chief Financial Officer
<PAGE> 40
EXHIBITS
Exhibit A: Form of Amended and Restated Articles of Incorporation
Exhibit B: Form of Senior Subordinated Promissory Note
Exhibit C: Capitalization
Exhibit D: Financial Statements
Exhibit E: Form of Shareholders Agreement
Exhibit F: Form of Registration Rights Agreement
Exhibit G: Form of Warrant Agreement
Exhibit H Form of Opinion of Alston & Bird
Exhibit I Form of Opinion of Fowler, White, Gillen, Boggs, Villareal and
Baker P.A.
Exhibit J Form of Consent and Modification Agreement
SCHEDULES
Schedule 2.2.1 Existing Preemptive Rights
Schedule 2.2.2 Required Consents
Schedule 2.2.6.1 Variations from Assumptions
Schedule 2.2.6.2 Pro Forma Financial Statements
Schedule 2.2.8 Absence of Certain Changes
Schedule 2.2.11 Tax Matters
Schedule 2.2.12 Insurance Policies
Schedule 2.2.13 Debt Instruments
Schedule 2.2.14 Benefit Plans
Schedule 2.2.15 Contracts and Commitments
Schedule 2.2.16 Labor Matters
Schedule 2.2.21 Proprietary Rights
Schedule 2.2.22 Envrironmental Matters
Schedule 2.2.23 Accounts Receivable
<PAGE> 41
APPENDIX A
DEFINITIONS
A. Certain Defined Terms.
The following terms used in this Agreement have the following
meanings:
"Act" means the Securities Act of 1933, as amended from time
to time, or any successor statute.
"Affiliate" means, as to any Person, any other Person that
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
means possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities,
or partnership or other ownership interests, by contract or otherwise),
provided that, in any event: (a) any Person that owns directly or indirectly
fifty percent (50%) or more of the securities having ordinary voting power for
the election of directors or other members of the governing body of a
corporation or fifty percent (50%) or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of
such other Person) will be deemed to control such corporation or other Person;
and (b) each director or officer of such Person shall be deemed to be an
Affiliate of such Person.
"Affiliated Company" means any Subsidiary of the Company.
"Agreement" means this Securities Purchase Agreement, as it
may be amended from time to time.
"Bank" means the lender or lenders chosen by the Company to
provide up to $2,000,000 in secured working capital and/or equipment financing
indebtedness, and any successor, assign or subsequent holder of the Senior
Debt.
"Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of
the United States Code, as amended or recodified from time to time, or any
successor statute.
"Business" means the business of the Company as presently
conducted and as proposed to be conducted.
"Business Day" means any day on which commercial banks in
Tampa, Florida are required to be open for business.
"Capital Lease" means a lease giving rise to a Capitalized
Lease Obligation.
<PAGE> 42
"Capitalized Lease Obligation" means indebtedness represented
by obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"Change of Control" means, with respect to the Company, a sale
of all or substantially all of the Company's assets; a merger, statutory share
exchange or consolidation in which the Persons holding the Company's voting
securities as of the Closing Date (and assuming (i) the grant to and exercise
by the Purchaser of the greater of (A) 68.15% of the maximum number of warrants
to be issued to the Purchaser under the Warrant Agreement and (B) the number of
Warrants actually issued to Purchaser under the Warrant Agreement, and (ii) the
exercise of all warrants and options of the Company outstanding on the Closing
Date by the holders thereof) cease to hold more than 50% of the Outstanding
Voting Power of the surviving or resulting corporation; or a transaction or
series of transactions in which a Person or group (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934), (i) who did not hold voting
securities of the Company as of the date of this Agreement, acquires beneficial
ownership of more than 50% of the Outstanding Voting Power of the Company or
(ii) increased its ownership of voting securities of the Company from the
number beneficially owned by such Person or group as of the Closing Date to
more than 50% of the Outstanding Voting Power of the Company.
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" means January 8, 1996.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
"Company" has the meaning set forth in the first paragraph
of this Agreement.
"Consent and Modification Agreement" means that certain
Consent and Modification Agreement, of even date herewith, by and among the
Company, Sears Pension Trust, Brantley Investment Partners II, L.P. and
Laurence H. Powell, substantially in the form of EXHIBIT J attached hereto.
"Consolidated Amortization" means, for any period, the
aggregate amount of all amortization expense of the Company as shown on the
consolidated financial statements of the Company in accordance with GAAP.
"Consolidated Debt" means the sum of all Indebtedness of the
Company as determined in accordance with GAAP, after elimination of all
intercompany items.
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<PAGE> 43
"Consolidated Depreciation" means, for any period, the
aggregate amount of all depreciation expense of the Company as shown on the
consolidated financial statements of the Company in accordance with GAAP.
"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 and (iv) Consolidated Amortization.
"Consolidated Interest Charges" means, for any period, the
aggregate amount of all interest on Indebtedness (including payments in the
nature of interest under Capital Leases) that would, in accordance with GAAP,
be deducted in determining Consolidated Net Income for such period.
"Consolidated Net Income," for any period, means the amount of
net income or net loss of the Company, for such period (taken as a cumulative
whole) determined on a consolidated basis in accordance with GAAP after
elimination of intercompany items and portions of income attributable to
minority interests in Subsidiaries (until such earnings are received by the
Company), provided, that there shall be excluded:
(i) any gains or losses on the sale or other disposition
of investments or of fixed or capital assets, and any taxes on such
excluded gains and any tax deductions or tax credits on account of any
such excluded losses;
(ii) the proceeds of any life insurance policy;
(iii) net earnings and losses of any Subsidiary accrued
prior to the date it became a Subsidiary;
(iv) net earnings and losses of any entity, substantially
all the assets of which have been acquired in any manner, that were
realized by such entity prior to the date of such acquisition;
(v) net earnings and losses of any entity (i) with which
the Company shall have consolidated, (ii) that shall have merged into
or with the Company, or (iii) that shall have acquired or been
acquired by the Company through a statutory share exchange, which
earnings and losses were realized by such entity prior to the date of
such consolidation or merger;
(vi) net earnings of any business entity (other than a
Subsidiary) in which the Company has an ownership interest unless such
net earnings shall have actually been received by the Company in the
form of cash distributions; and
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<PAGE> 44
(vii) earnings resulting from any reappraisal, reevaluation
or write-up of assets.
"Consolidated Net Worth" means at any time the consolidated
stockholders' equity of the Company as of such time as determined in accordance
with GAAP.
"Consolidated Taxes" means, for any period, the aggregate
amount of all Taxes paid by the Company during such period, as determined in
accordance with GAAP.
"Debt Instruments" has the meaning set forth in Section 2.2.13.
"Dollars" and "$" mean the lawful money of the United States
of America.
"Environmental Law" means any statute, law, ordinance,
regulation, order or rule of any federal or state governmental agency or body
that relates to pollution or protection of the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901 et seq. and other statutes, laws, ordinances,
regulations, orders or rules relating to emissions, discharges, releases or
threatened releases of Hazardous Wastes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.
"ERISA Affiliate" means any company which, as of a given
moment, is a member of a "controlled group of corporations" or a group of
"trades or businesses (whether or not incorporated) which are under common
control" (as defined in Sections 414(b) and (c) of the Code, respectively) of
which Borrower or any of its Affiliated Companies is a member.
"Events of Default" means each of the events set forth in
Section 6.1.
"Exchange Act" has the meaning set forth in Section 4.2.10.
"Financial Statements" means balance sheet and statements of
income and cash flows for the Company for the Fiscal Years ending December 31,
1993 and December 31, 1994 and the balance sheet and statement of income and
cash flows for the Company for the nine-month period ending September 30, 1995.
"Fiscal Year" means the fiscal year of the Company, which
shall be the twelve-month period ending on the last day in the month of
December.
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<PAGE> 45
"Fixed Charge Coverage Ratio" means (i) Consolidated EBITDA
divided by (ii) scheduled payments of principal on Consolidated Debt plus cash
payments of Consolidated Interested Charges.
"GAAP" means generally accepted accounting principles and
practices, consistently applied, as promulgated in (i) the documents of Rule
203 of the Code of Professional Conduct of the American Institute of Certified
Public Accountants, (ii) Statement of Accounting Standards No. 43 "Omnibus
Statement on Auditing Standards" of the Auditing Standards Board of the
American Institute of Certified Public Accountants and (iii) any superseding or
supplemental documentation of equal authority promulgating generally accepted
accounting principles and practices, all as in effect from time to time.
"Guaranteed Indebtedness" of any Person means all Indebtedness
(x) of any Person other than such Person and either (y) guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (a) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (b) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss, (c) to supply funds to or in any other manner invest
in the debtor (including any agreement to pay for property or services
irrespective of whether or not such property is received or such services are
rendered and any agreement to maintain working capital or other balance sheet
condition) or (d) otherwise to assure the holder of such Indebtedness against
loss, or (z) secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any lien, security
interest or other charge or encumbrance upon or in property (including without
limitation accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness.
"Hazardous Wastes" means any substance or waste that is
defined as hazardous or toxic in any in any Environmental Law.
"Indebtedness" means, for any Person without double counting,
(i) all indebtedness or other obligations of such Person for borrowed money or
for the deferred purchase price of property or services, (ii) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property), (iii) all
obligations under leases that are or should be, in accordance with GAAP,
recorded as Capital Leases in respect of which such Person is liable as lessee,
(iv) liabilities in respect of unfunded vested benefits under any Plan, (v) all
obligations owed pursuant to any interest rate hedging arrangement or in
respect of any letter of credit established for the account of such Person
(including without limitation all obligations to reimburse the
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<PAGE> 46
issuer thereof in respect of amounts drawn thereunder), and (vi) all Guaranteed
Indebtedness.
"Initial Public Offering" means the Company's first offering
of Common Stock of the Company that is registered under the Act, which offering
is underwritten on a firm commitment basis and produces gross proceeds in
excess of $10,000,000.
"Investment" as applied to any Person, means any direct or
indirect purchase or other acquisition by that Person of stock or other
securities, or of a beneficial interest in stock or other securities, of any
other Person (other than a Subsidiary), or any direct or indirect loan, advance
(other than advances to employees for moving and travel expenses, drawing
accounts, and similar expenditures in the ordinary course of business) or
capital contribution by that Person to any other Person, including all
Indebtedness and accounts receivable from that other Person which are not
current assets or did not arise from sales of goods or services to that other
Person in the ordinary course of business. The amount of any Investment (other
than loans, advances and accounts receivable) shall be the original cost of
such Investment plus the cost of all additions thereto, and the amount of any
Investment shall be without any adjustments for increases or decreases in
value, or write-ups, write-downs, or write-offs with respect to such
Investment.
"Investment Documents" means this Agreement, the Senior
Subordinated Notes, the Warrant Agreement, the Registration Rights Agreement
and the Shareholders Agreement.
"Liabilities" means obligations of any nature, whether
absolute, accrued, contingent or otherwise, whether due or to become due and
whether or not required to be reflected or reserved against on a balance sheet
under GAAP.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, whether voluntary or involuntary,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code of any jurisdiction.
"Material Adverse Effect" means any circumstances, change in,
or effect on the Company or its business that, individually or when taken
together with all other circumstances, changes in or effects on the Company or
its business is or is reasonably likely to be materially adverse to the
condition (financial or otherwise), results of operations, earnings, business,
assets (including intangible assets) or prospects of the Company or a material
and adverse effect on the Company's ability to perform its obligations under
any of the Investment Documents or Material Agreements or under any other
document, investment or agreement issued in connection herewith or therewith to
which the Company is a party or any adverse effect whether or not material,
upon the binding nature, validity or enforceability of any material provision
of any Investment Document or Material Agreement.
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<PAGE> 47
"Material Agreement" has the meaning set forth in Section
2.2.15.
"Multiemployer Plan" has the meaning set forth in Section
2.2.14.
"Notice of Borrowing" has the meaning set forth in Section
1.2.3.
"Obligations" means all obligations of every nature of the
Company from time to time owed to Purchaser under any of the Senior
Subordinated Notes.
"Other Credit Facility" has the meaning set forth in Section
1.1(b) of the Warrant Agreement attached hereto as EXHIBIT G.
"Outstanding Voting Power of the Company" means the total
number of votes which may be cast in the election of directors of the Company
at any meeting of shareholders of the Company if all securities (and all such
securities issuable upon the exercise or conversion of options, warrants or
other convertible or exercisable securities) entitled to vote at such meeting
were present and voted at such meeting.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor to its functions.
"PCBs" has the meaning set forth in Section 2.2.22.
"Pension Plan" has the meaning set forth in Section 2.2.14.
"Permitted Investments" means with respect to all the Company,
Investments in: (i) obligations issued or guaranteed by the United States of
America; (ii) certificates of deposit, demand deposits, bankers acceptances,
disbursement or time deposits of the Company and other "money market
instruments" issued by the Bank or any bank or trust company organized under
the laws of the United States of America or any state thereof and having
capital and surplus in an aggregate amount not less than $100,000,000; (iii)
open market commercial paper bearing the highest credit rating issued by
Standard & Poor's Corp. or by another nationally recognized credit rating firm;
(iv) repurchase agreements entered into with the Bank or any bank or trust
company organized under the laws of the United States of America or any state
thereof having capital and surplus in an aggregate amount not less than
$100,000,000; (v) shares of "money market funds", each having net assets of not
less than $100,000,000; in each case maturing or being due or payable in full
not more than one hundred eighty (180) days after the Company's acquisition
thereof; and (vi) certificates of deposit of, or demand or time deposits in,
the Bank.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts and other
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<PAGE> 48
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
"Plan" means an "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained or contributed to by the Company or any of its
Affiliated Companies.
"Potential Default" means any condition, event or act that,
with the giving of notice, passage of time or both, would constitute an Event
of Default.
"Preferred Stock" has the meaning set forth in Section 1.1.
"Purchaser" has the meaning set forth in the first paragraph
of this Agreement.
"Registration Rights Agreement" means the Registration Rights
Agreement to be entered into between the Company and Purchaser substantially in
the form attached hereto as EXHIBIT F.
"Reportable Event" means a "reportable event" (as defined in
Section 4043(b) of ERISA) with respect to which reporting to the PBGC within
thirty (30) days of occurrence has not been waived.
"Senior Debt" has the meaning set forth in Section 4.1.
"Senior Debt Documents" means the Credit Agreement and any
document or agreement executed in connection with the Senior Debt.
"Senior Subordinated Notes" means the promissory notes issued
pursuant to Section 1.2 to Purchaser in aggregate principal amounts equal to up
to $10,000,000, and any note or notes subsequently issued in place of such
notes.
"Shareholders Agreement" means the Shareholders Agreement to
be entered into among the Company, Purchaser, Brantley Venture Partners II,
L.P., Sears Pension Trust and Laurence H. Powell substantially in the form
attached hereto as EXHIBIT E.
"Solvent" means that: (a) the fair valuation of all of its
property is in excess of the total amount of its debts (including contingent
liabilities as properly valued) as of the date solvency is determined under the
Bankruptcy Code or any applicable enactment of the Uniform Fraudulent Transfer
Act or similar statute; (b) the present fair salable value of all of its
property is more than the amount that will be required to pay the Person's
existing debts (including contingent liabilities as properly valued) as they
become absolute and matured, as determined in accordance with any applicable
enactment of the Uniform Fraudulent Conveyance Act or similar statute; (c) it
does not intend to incur, nor believe that it will incur, nor reasonably should
believe that it will incur, debts beyond its
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<PAGE> 49
ability to pay as they mature, as determined in accordance with the Bankruptcy
Code, any applicable enactment of the Uniform Fraudulent Conveyance Act, any
applicable enactment of the Uniform Fraudulent Transfer Act or any similar
statute; and (d) is not engaged in a business or a transaction or about to be
engaged in a business or a transaction for which its property constitutes (i)
unreasonably small capital, for purposes of the Bankruptcy Code and any
applicable enactment of the Uniform Fraudulent Conveyance Act, or similar
statute, or (ii) unreasonably small assets, for purposes of any applicable
enactment of the Uniform Fraudulent Transfer Act, or similar statute.
"Subsequent Closing" has the meaning set forth in Section
1.2.3.
"Subsequent Closing Date" has the meaning set forth in Section
1.2.3.
"Subsidiary" of any Person means a corporation of which more
than fifty percent (50%) of the outstanding shares of capital stock of each
class having ordinary voting power is owned by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries or which is controlled directly or indirectly by the first person.
"Third Anniversary" has the meaning set forth in Section
1.2.1.
"Transfer" means the sale, pledge, assignment or other
transfer of the Senior Subordinated Notes or Preferred Stock, in whole or in
part, and of the rights of the holders thereof under this Agreement.
"Warrant Agreement" means the Warrant Agreement to be entered
into by and between the Company and Purchaser substantially in the form
attached hereto as EXHIBIT G.
"Welfare Plan" has the meaning set forth in Section 2.2.14.
B. Accounting Terms. For purposes of this Agreement, all
accounting terms not otherwise defined herein have the meanings assigned to
them in conformity with GAAP.
C. Other Definitional Provisions.
(1) Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, to the singular
include the plural, and to the part include the whole. The term "including" is
not limiting and the term "or" has the inclusive meaning represented by the
term "and/or." The words "hereof," "herein," "hereunder," and similar terms
in this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to "Sections," "Appendices,"
"Exhibits" and "Schedules" are to Sections, Appendices, Exhibits and
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<PAGE> 50
Schedules, respectively, of this Agreement, unless otherwise specifically
provided. Terms defined herein may be used in the singular or the plural.
(2) Accounting principles and practices are "consistently
applied" when the accounting principles and practices observed in a current
period are comparable in all material respects to the accounting principles and
practices applied in the preceding period.
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<PAGE> 51
As filed January 8, 1996 at 3:04 p.m.
with the Secretary of State of Florida
Tallahassee, Florida
EXHIBIT A
FORM OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MEDIRISK, INC.
WHEREAS, the name of the corporation is Medirisk, Inc.;
WHEREAS, the corporation was incorporated pursuant to the laws of the
State of Florida on June 17, 1983;
WHEREAS, the corporation's registered agent and registered office are as
follows:
Registered Agent: CT Corporation System
Registered Office: 1200 South Pine Island Road
Plantation, Florida 33324
WHEREAS, the undersigned corporation, by and through its shareholders, and
pursuant to the provisions of Sections 607.1003 and 607.1007, Florida Business
Corporation Act, desires to amend and restate its Articles of Incorporation in
their entirety; and
WHEREAS, the corporation's shareholders, on January 8, 1996, by written
consent in lieu of meeting approved and adopted the amendment and restatement
of the corporation's Articles of Incorporation in the manner hereinafter set
forth;
The address of the principal office and the mailing address of the
corporation is: Two Piedmont Center, Suite 400, 3565 Piedmont Road,
Atlanta, Georgia 30305
NOW, THEREFORE, the undersigned hereby certifies that the Articles of
Incorporation are hereby amended and restated in their entirety as follows:
"AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
MEDIRISK, INC.
FIRST: The name of the corporation is MEDIRISK, INC.
<PAGE> 52
SECOND: The registered agent of the corporation is CT Corporation System,
and the address of the corporation's agent is 1200 South Pine Island Road,
Plantation, Florida 33324.
THIRD: The purpose of the corporation is to engage in and transact any
business, lawful act or activity for which a corporation may be organized under
Section 607.0101 to 607.1907, inclusive, of the Florida Business Corporation
Act.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is TWENTY THREE MILLION FOUR HUNDRED
THOUSAND (23,400,000), divided into classes as follows:
THREE MILLION (3,000,000) shares shall be Series A Convertible Preferred
Stock, $.001 par value per share (the "Series A Preferred Shares"),
FOUR HUNDRED THOUSAND (400,000) shall be Series B Convertible Preferred
Stock, $.001 par value per share (the "Series B Preferred Shares"), and
TWENTY MILLION (20,000,000) shares shall be Series A Common Stock, $.001
par value per share ("Common Shares").
The following are statements of the relative powers, preferences, rights
and the qualifications, limitations or restrictions of the Series A Preferred
Shares, the Series B Preferred Shares and the Common Shares.
SECTION I.
Series A Preferred Shares
1. Definitions.
For purposes of this Section I of Article FOURTH, the following
definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean Medirisk, Inc.
(c) "Original Issue Date" for the Series A Preferred Shares shall
mean the date on which the first share of such Series A Preferred Shares
was originally issued.
(d) "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting shares shall at the time be owned directly or
indirectly by the Company or by one or more subsidiaries.
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<PAGE> 53
2. Dividends.
(a) The holders of record of the then outstanding Series A Preferred
Shares shall be entitled to receive when, as and if declared by the Board, but
in any event not prior to the third anniversary of the Original Issue Date, out
of the funds legally available therefor, cumulative dividends at the annual
rate of 8% per share. Such dividends shall accrue on each Series A Preferred
Share from and after the third anniversary of the Original Issue Date, shall
accrue from day to day, whether or not earned or declared, and shall be payable
in cash. Such dividends will in no event be declared or paid by the Company
prior to the payment in full of those certain Senior Subordinated Promissory
Notes issued by the Company pursuant to that certain Securities Purchase
Agreement, dated January 8, 1996, by and between the Company and HealthPlan
Services Corporation (the "Securities Purchase Agreement").
(b) Subject to the provisions of this paragraph 2 of this Section I, the
provisions of the Securities Purchase Agreement and the provisions of a
Shareholders Agreement among the Company and certain shareholders of the
Company, as the same may be amended from time to time, the Company may, in the
Board's discretion, declare and pay dividends or distributions, or make
provision for the payment thereof, on any equity security of the Company, but
only if all accrued dividends and distributions on the Series A Preferred
Shares and the Series B Preferred Shares shall have been paid and made in full
prior to the date of any such declaration, payment, provision or distribution.
(c) Notwithstanding anything in the foregoing to the contrary, no
dividends shall be declared, paid or distributed, or provision therefor made,
on any Common Shares, unless simultaneously therewith there also shall be
declared, paid or distributed, or provision therefor made, as the case may be,
a dividend or distribution pro rata on each then outstanding Series A Preferred
Share to each holder thereof. For purposes of the foregoing, the number of
Series A Preferred Shares deemed to be outstanding with respect to each such
holder shall be equal to the maximum number of Common Shares into which such
holder's Series A Preferred Shares would then be convertible upon exercise of
the Conversion Rights described in paragraph 5 of this Section I.
3. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities and obligations of the
Company, each holder of Series A Preferred Shares then outstanding shall be
entitled to be paid out of the net assets of the Company available for
distribution to its shareholders prior and in preference to any payment or
declaration and setting apart for payment of any amount in respect of the
Common Shares, an amount equal to the sum of the following: (i) $1.95 per
Series A Preferred Share held by such holder, (ii) an amount equal to all
accrued and unpaid dividends thereon, whether or not earned or declared, to and
including the date full payment shall be tendered to the holders of the Series
A Preferred Share with respect to
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<PAGE> 54
such liquidation, dissolution or winding up, and (iii) the fair market value,
reasonably determined in good faith by the Board, of the evidences of
indebtedness, assets and securities referred to in paragraph 5(f) of this
Section I to which such holders would have been entitled to receive upon
conversion of their Series A Preferred Shares (clauses (i) through (iii),
collectively the "Series A Liquidation Preference"); if upon any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
assets to be distributed to the holders of the Series A Preferred Shares and
the Series B Preferred Shares shall be insufficient to permit the payment to
such holders of the full aggregate amount of the Series A Liquidation
Preference plus the Series B Liquidation Preference (as defined below), then
all of the net assets of the Company available for distribution to its
shareholders shall be distributed ratably among the holders of the Series A
Preferred Shares and the Series B Preferred Shares in proportion to the then
applicable Series A Liquidation Preference with respect to each Series A
Preferred Share and the then applicable Series B Liquidation Preference with
respect to each Series B Preferred Share.
(b) Upon the completion of the distribution required by subparagraph (a),
if assets of the Company remain to be distributed, each holder of Series A
Preferred Shares shall be entitled to be paid out of the remaining assets of
the Company, as and when distributed, pro rata with the holders of Common
Shares on each Series A Preferred Share deemed to be outstanding. For purposes
of the foregoing, the number of Series A Preferred Shares deemed to be
outstanding with respect to each such holder shall be equal to the maximum
number of Common Shares into which such holder's Series A Preferred Shares
would then be convertible upon exercise of the Conversion Rights described in
paragraph 5 of this Section I.
(c) Written notice of any such liquidation, dissolution or winding up,
stating a payment date, the place where such payment shall be made, an estimate
of the net value that would be received by each such holder if all such holders
converted all of their Series A Preferred Shares immediately prior to such
liquidation, dissolution or winding up of the Company, and containing a
statement of or reference to applicable conversion rights, shall be given by
first class mail, postage prepaid, not less than 30 days prior to the payment
day stated therein, to each holder of record of the Series A Preferred Shares
at such holder's address as shown in the records of the Company.
(d) Whenever the distribution provided for in this paragraph 3 of this
Section I shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board.
4. Voting Rights. Except as otherwise expressly provided herein or as
required by law, the holders of Series A Preferred Shares shall be entitled to
vote on all matters upon which holders of Common Shares have the right to vote
and, with respect to such vote, shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of the Company, and shall
be entitled to a number of votes equal to the number of Common Shares into
which such Series A Preferred Shares could then be converted, upon conversion
pursuant to the Conversion Rights described in paragraph 5 of this Section I,
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<PAGE> 55
at the record date for the determination of shareholders entitled to vote on
such matters or, if no such record date is established, at the date such vote
is taken or any written consent of shareholders is solicited. Except as
otherwise expressly provided herein, or to the extent class or series voting is
otherwise required by law or agreement, the holders of Series A Preferred
Shares and Common Shares shall vote together as a single class and not as
separate classes.
5. Conversion. The holders of the Series A Preferred Shares shall have
the following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each Series A Preferred Share shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such shares, at the office of the Company or any transfer agent for the Series
A Preferred Shares or Common Shares, into fully paid and nonassessable Common
Shares, at the Conversion Price (as hereafter defined) therefor in effect at
the time of conversion determined as provided herein, and prior to the closing
date for any underwritten public offering of Common Shares conducted on a firm
commitment basis and registered under the Securities Act of 1933, as amended,
the gross proceeds of which to the Company and/or selling shareholders (if any)
are at least $10 million (a "Public Offering") (but the right to convert shall
not expire upon such occurrence unless an automatic conversion shall have
occurred as set forth in paragraph 5(c) of this Section I).
(b) Conversion Price. Each Series A Preferred Share shall be convertible
into the number of Common Shares that results from dividing $1.95 by the
conversion price per share (the "Conversion Price") in effect at the time of
conversion of such Series A Preferred Share. The Conversion Price for each
Series A Preferred Share at the Original Issue Date shall be $1.95 and shall be
subject to adjustment from time to time as provided herein.
(c) Automatic Conversion. Each Series A Preferred Share which remains
outstanding on the closing date for a Public Offering (the "Registration Date")
shall automatically and without any action on the part of the holder thereof or
the Company, except as provided in clause (i) below, be converted on the same
basis and at the same Conversion Price as if each holder thereof had properly
exercised his right to convert on the date next preceding the Registration
Date; provided, that (i) each holder of Series A Preferred Shares shall have
received written notice of the proposed Public Offering at least 30 days prior
to the date the registration statement relating to that Public Offering becomes
effective, (ii) such conversion shall be effective at the close of business on
the Registration Date, and (iii) the Company shall have no obligation to issue
and deliver to any such holder of Series A Preferred Shares on such date a
certificate for the number of Common Shares to which such holder shall be
entitled until such time as such holder has surrendered his certificate or
certificates for his Series A Preferred Shares, duly endorsed, at the office of
the Company or any transfer agent for the Common Shares, or the holder notifies
the Company that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any
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<PAGE> 56
loss incurred by it in connection therewith. All rights with respect to Series
A Preferred Shares outstanding on the Registration Date shall terminate on such
Registration Date, except only the right of the holders of such shares to
receive Common Shares upon surrender of their certificates for the Series A
Preferred Shares and their rights with respect to unpaid dividends described in
paragraph 5(d) of this Section I.
(d) Mechanics of Conversion; Unpaid Dividends. Before any holder of
Series A Preferred Shares shall be entitled to convert the same into Common
Shares, such holder shall either (i) surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for the Series A Preferred Shares or Common Shares, or (ii) deliver an
affidavit in favor of the Company stating that such certificates have been
lost, stolen or destroyed and containing an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith, and shall give written notice by mail, postage prepaid, to the
Company at such office that such holder elects to convert the same and shall
state therein the number of Series A Preferred Shares being converted and the
name or names in which the certificate or certificates for Common Shares to
which such holder shall be entitled. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the Series A Preferred Shares to be converted, and the person or
persons entitled to receive the Common Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
Common Shares issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such Common Shares on such date. All
dividends accrued and unpaid prior to surrender of Series A Preferred Shares
surrendered for conversion shall at the option of the holders of Series A
Preferred Shares, either (i) be subtracted from the aggregate Conversion Price
as in effect at the time of conversion or (ii) constitute a debt of the Company
payable to the converting shareholder, and no dividend or other distribution
shall be paid on, declared or set apart for any Common Shares until such debt
is fully paid or sufficient funds set apart for the payment thereof.
(e) Adjustment for Stock Splits and Combinations. If the Company shall at
any time or from time to time after the Original Issue Date effect a
subdivision or combination of any outstanding Common Shares, the Conversion
Price then in effect immediately before that subdivision or combination shall
be proportionately adjusted by multiplying the then effective Conversion Price
by a fraction, (i) the numerator of which shall be the number of Common Shares
issued and outstanding immediately prior to such subdivision or combination,
and (ii) the denominator of which shall be the number of Common Shares issued
and outstanding immediately after such subdivision or combination. The number
of Common Shares outstanding at any time shall, for the purposes of this
paragraph 5(e) of this Section I, include the number of Common Shares into
which any convertible securities of the Company may be converted, or for which
any warrant, option or rights of the Company may be exchanged. Any adjustment
under this paragraph 5(e) of this Section I shall become effective at the close
of business on the date the subdivision or combination becomes effective.
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<PAGE> 57
(f) Adjustments for Other Dividends and Distributions. In the event the
Company at any time or from time to time after the Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common
Shares entitled to receive, a dividend or other distribution payable in (i)
evidences of indebtedness of the Company, (ii) assets of the Company (other
than cash), or (iii) securities of the Company other than Common Shares, then
and in each such event provision shall be made so that the holders of Series A
Preferred Shares shall receive upon conversion thereof, in addition to the
number of Common Shares receivable thereupon, the amount of such evidences,
assets or securities that they would have received had they held, on such
record date, the maximum number of Common Shares into which their Series A
Preferred Shares could then have been converted.
(g) Adjustment for Reclassification, Exchange or Substitution. If the
Common Shares issuable upon the conversion of the Series A Preferred Shares
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this paragraph 5 of this Section I), then and
in each such event the holder of each Series A Preferred Share shall have the
right thereafter to convert each such share into the kind and amount of shares
of stock and other securities and property receivable upon such reorganization,
reclassification or other change, by holders of the maximum number of Common
Shares into which such Series A Preferred Shares could have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(h) Reorganization, Mergers, Consolidations or Sales of Assets or Capital
Stock. If at any time or from time to time there shall be (i) a capital
reorganization of the Common Shares (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this paragraph
5 of this Section I) or (ii) a merger, consolidation or statutory share
exchange of the Company with or into another corporation in which
consolidation, merger or statutory share exchange persons owning capital stock
of the Company immediately prior to the consolidation, merger or share exchange
own less than a majority of the voting stock of the resulting, surviving or
exchanging corporation, or (iii) the sale of all or substantially all the
Company's properties and assets or capital stock to any other person, then, as
a part of such reorganization, merger, share exchange, consolidation or sale,
provision shall be made so that the holders of the Series A Preferred Shares
shall thereafter be entitled to receive, upon conversion of the Series A
Preferred Shares, the number of shares of stock or other securities or property
of the Company, or of the successor corporation resulting from such merger or
consolidation, share exchange or sale, to which a holder of the maximum number
of Common Shares into which such Series A Preferred Shares would then be
converted would have been entitled on such capital, reorganization, merger,
share exchange, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this paragraph
5 of this Section I with respect to the rights
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of the holders of the Series A Preferred Shares after the reorganization,
merger, share exchange, consolidation or sale to the end that the provisions of
this paragraph 5 of this Section I (including adjustment of the Conversion
Price then in effect and the number of shares purchasable upon conversion of
the Series A Preferred Shares) shall be applicable after that event as nearly
equivalent as may be practicable.
(i) Sale of Shares Below Conversion Price.
(i) If, at any time or from time to time after the Original Issue
Date, the Company shall issue or sell Additional Common Shares (as
hereinafter defined), other than as a dividend and other than upon a
subdivision or combination of Common Shares as provided in paragraph 5(e)
of this Section I, for a consideration per share less than the then
existing Conversion Price for the Series A Preferred Shares (or, if an
adjusted Conversion Price shall be in effect by reason of one or more
previous adjustments, then less than such adjusted Conversion Price), then
in each case the then Conversion Price for the Series A Preferred Shares
shall be reduced, as of the opening of business on the date of such
issue or sale, to a price equal to such consideration per share.
(ii) For the purpose of making any adjustment in the Conversion
Price or number of Common Shares deliverable on conversion of Series A
Preferred Shares as provided above, the consideration received by the
Company for any issue or sale of securities shall,
(A) to the extent it consists of cash, be computed at the net amount
of cash receivable by the Company after deduction of any
underwriting or similar commissions, concessions or compensation
paid or allowed by the Company in connection with such issue or
sale,
(B) to the extent it consists of services or property other than
cash, be computed at the fair market value of such services or
property as reasonably determined in good faith by the Board; and
(C) if Additional Common Shares, Convertible Securities (as
hereinafter defined), or rights or options to purchase either
Additional Common Shares or Convertible Securities are issued or
sold together with other shares or securities or other assets of the
Company for a consideration that covers both, be computed as the
portion of the consideration so received that may be reasonably
determined in good faith by the Board to be allocable to such
Additional Common Shares, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment provided in subsection (i)
of this paragraph 5(i) of this Section I, if at any time or from time to
time after the Original Issue Date the Company shall issue any rights or
options for the purchase
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of, or stock or other securities convertible into, Additional Common
Shares (such convertible stock or securities being hereinafter referred to
as "Convertible Securities"), then, in each case, if the Effective Price
(as hereinafter defined in this subsection (iii) of this paragraph 5(i) of
this Section I) of such rights, options or Convertible Securities shall be
less than the then existing Conversion Price for the Series A Preferred
Shares, the Company shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities the maximum
number of Additional Common Shares issuable upon exercise or conversion
thereof and to have received as consideration for the issuance of such
shares an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such rights or options or
Convertible Securities, plus, in the case of such options or rights, the
minimum amounts of consideration, if any, payable to the Company upon
exercise or conversion of such options or rights. For purposes of this
subsection (iii) of this paragraph 5(i) of this Section I, "Effective
Price" shall mean the quotient determined by dividing the total of all
such minimum amounts of consideration by such maximum number of Additional
Common Shares. No further adjustment of the Conversion Price adjusted
upon the issuance of such rights, options, or Convertible Securities shall
be made as a result of the actual issuance of Additional Common Shares on
the exercise of any such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Price adjusted upon the
issuance of such rights, options or Convertible Securities shall be
readjusted to the Conversion Price that would have been in effect had an
adjustment been made on the basis that the only Additional Common Shares
so issued were the Additional Common Shares, if any, actually issued or
sold on the exercise of such rights or options or rights of conversion of
such Convertible Securities, and such Additional Common Shares, if any,
were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by
the Company for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted plus the consideration, if any,
actually received by the Company on the conversion of such Convertible
Securities.
(iv) For the purpose of the adjustment provided for in subsection
(i) of this paragraph 5(i) of this Section I, if at any time or from time
to time after the Original Issue Date the Company shall issue any rights
or options for the purchase of Convertible Securities, then, in each such
case, if the Effective Price (as hereinafter defined in this subsection
(iv) of this paragraph 5(i) of this Section I) thereof is less than the
then current Conversion Price, the Company shall be deemed to have issued
at the time of the issuance of such rights or options the maximum number
of Additional Common Shares issuable upon conversion of the total amount
of Convertible Securities covered by such rights or options and to have
received as consideration for the issuance of such Additional Common
Shares
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an amount equal to the amount of consideration, if any, payable to the
Company upon the conversion of such Convertible Securities plus the
consideration, if any, received by the Company upon the issuance of such
Convertible Securities. For purposes of the foregoing "Effective Price"
for purposes of this subsection (iv) of paragraph 5(i) of this Section I
shall mean the quotient determined by dividing the total amount of such
consideration by such maximum number of Additional Common Shares. No
further adjustment of such Conversion Price adjusted upon the issuance of
such rights or options shall be made as a result of the actual issuance of
the Convertible Securities upon the exercise of such rights or options or
upon the actual issuance of Additional Common Shares upon the
conversion of such Convertible Securities.
The provisions of subsection (iii) above for the readjustment of
such Conversion Price upon the expiration of rights or options or the
rights of conversion of Convertible Securities, shall apply mutatis
mutandis to the rights, options and Convertible Securities referred to in
this subsection (iv).
(j) Definition. The term "Additional Common Shares" as used herein shall
mean all Common Shares issued or deemed issued by the Company after the
Original Issue Date, whether or not subsequently reacquired or retired by the
Company, other than (i) Common Shares issued upon conversion of the Series A
Preferred Stock, (ii) Common Shares issued upon conversion of the Series B
Preferred Stock, (iii) any Common Shares, Convertible Securities, options or
rights (as adjusted for all stock dividends, stock splits, subdivisions and
combinations) issued to employees, officers, directors, consultants or other
persons performing services for the Company or any Subsidiary (if so issued
solely because of any such person's status as an officer, director, employee,
consultant or other person performing services for the Company or any
Subsidiary and not as part of any offering of the Company's securities)
pursuant to any stock option plan, stock purchase plan or management incentive
plan, agreement or arrangement approved by a majority of the members of the
Board of Directors who are not employees of the Company or any subsidiary of
the Company, (iv) as to each holder of Series A Preferred Shares, Common Shares
which are purchased by such holder, (v) up to 300,000 Common Shares (as
adjusted for all stock dividends, stock splits and combinations) issued upon
the exercise of stock purchase warrants originally granted in connection with
sales or issuances of Series A Preferred Shares or debt or other securities
which are convertible into Series A Preferred Shares, (v) any Common Shares
issued upon the exercise of up to 605,314 stock purchase warrants granted in
connection with sales or issuances of Senior Subordinated Promissory Notes by
the Company to HealthPlan Services Corporation or any assignee or successor of
HealthPlan Services Corporation, (vi) any Common Shares (as adjusted for all
stock dividends, stock splits, subdivisions and combinations) issued to sellers
of businesses acquired by the Company as full or partial consideration of such
acquisition, or (vii) Common Shares issued or issuable with respect to the
securities referred to in (i), (ii), (iii), (iv), (v) or (vi) by way of stock
split or stock dividend or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
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<PAGE> 61
(k) Accountants' Certificate of Adjustment. In each case of an adjustment
or readjustment of the Conversion Price for the number of Common Shares or
other securities issuable upon conversion of the Series A Preferred Shares, the
Company, at its expense, shall cause independent certified public accountants
of recognized standing selected by the Company (who may be the independent
certified public accounts then auditing the books of the Company) to compute
such adjustment or readjustment in accordance herewith and prepare a
certificate showing such adjustment or readjustment, and shall mail such
certificate, by first-class mail, postage prepaid, to each registered holder of
the Series A Preferred Shares at the holder's address as shown in the Company's
books. The certificate shall set forth such adjustment or readjustment,
showing in detail the facts upon which such adjustment or readjustment is based
including a statement of (i) the consideration received or to be received by
the Company for any Additional Common Shares issued or sold or deemed to have
been issued or sold, (ii) the Conversion Price at the time in effect for each
series of the Series A Preferred Shares, and (iii) the number of Common Shares
and the type and amount, if any, of other property which at the time would be
received upon conversion of the Series A Preferred Shares.
(l) Notices of Record Date. In the event of (i) any taking by the company
of a record of the holders of any class or series of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of the Company, or
any transfer of all or substantially all of the assets or capital stock of the
company to any other corporation, entity or person, or any voluntary of
involuntary dissolution, liquidation or winding up of the affairs of the
Company, the Company shall mail to each holder of Series A Preferred Shares at
least 30 days prior to the record date specified therein, a notice specifying
(A) the date of on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution,
(B) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (C) the time, if any is to be fixed, as to when the
holders of record of Common Shares (or other securities) shall be entitled to
exchange their shares of Common Shares (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up.
(m) Fractional Shares. No fractional Common Shares shall be issued upon
conversion of Series A Preferred Shares. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall pay cash equal
to the product of such fraction multiplied by the fair market value of one
Common Share on the date of conversion, as reasonably determined in good faith
by the Board. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of Series A
Preferred Shares the holder is at the time converting into Common Shares and
the number of Common Shares issuable upon such aggregate conversion.
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<PAGE> 62
(n) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued Common
Shares, solely for the following purposes, (i) such number of Common Shares
required to pay all dividends payable in Common Shares which the Company by
agreement is obligated, or may choose, to pay, (ii) such number of Common
Shares as may from time to time be required, at such time, to be issued by the
Company upon exercise of all then-exercisable warrants and options to purchase
Common Shares or the right to convert other convertible securities into Common
Shares, and (iii) such number of its Common Shares as shall from time to time
be sufficient to effect the Conversion of all outstanding Series A Preferred
Shares. As a condition precedent to the taking of any action which would cause
an adjustment to the Conversion Price, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient in order that it may be validly and legally issue the Common Shares
issuable based upon such adjusted Conversion Price.
(o) Notices. Any notice required by the provisions of this paragraph 5 of
this Section I to be given to the holder of the Series A Preferred Shares shall
be deemed given when personally delivered to such holder or five business days
after the same has been deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed to
each holder of record at this address appearing on the books of the Company.
(p) Payment of Taxes. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
holders of the Series A Preferred Shares) that may be imposed in respect of the
issue or delivery of Common Shares upon conversion of the Series A Preferred
Shares.
(q) No Dilution or Impairment. The Company shall not amend these Articles
of Incorporation or participate in any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Series A Preferred Shares against dilution or other impairment.
6. Status of Preferred Shares. No Series A Preferred Shares acquired by
the Company by reason of redemption, purchase, conversion or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from
the shares which the Company shall be authorized to issue, except for the
pledge of such shares upon redemption thereof pursuant to an agreement to which
the Company is a party for the purpose of securing repayment of amounts owing
with respect to such redemption.
SECTION II.
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<PAGE> 63
Series B Preferred Shares
1. Definitions.
For purposes of this Section II of Article FOURTH, the following
definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Common Stock Outstanding" means the number of Common Shares
outstanding plus the number of Common Shares issuable upon exercise of all
outstanding Options and upon conversion of all outstanding Convertible
Securities, including the Series B Preferred Shares.
(c) "Company" shall mean Medirisk, Inc.
(d) "Convertible Securities" means any indebtedness or shares of
capital stock convertible into or exchangeable for Common Shares.
(e) "Excluded Shares" means (i) Common Shares issued upon conversion
of the Series A Preferred Shares, (ii) Common Shares issued upon
conversion of the Series B Preferred Shares, (iii) the Common Shares
issuable upon the exercise of warrants granted in connection with the
issuance and sale by the Company of Senior Subordinated Notes to
HealthPlan Services Corporation or its successors or assigns, (iv) Common
Shares, Options or Convertible Securities issued to employees, officers,
directors or consultants of the Company or its Subsidiaries in
transactions approved or pursuant to a plan approved by a majority of the
members of the Board of Directors of the Company who are not employees of
the Company or any subsidiary of the Company, (v) as to each holder of
Series B Preferred Shares, Common Shares which are purchased by such
holder, (vi) up to 300,000 Common Shares (as adjusted for all stock
dividends, stock splits and combinations) issued upon the exercise of
stock purchase warrants originally granted in connection with sales or
issuances of Series A Preferred Shares or debt or other securities which
are convertible into Series A Preferred Shares, (vii) Common Shares,
Options or Convertible Securities issued to sellers of businesses acquired
by the Company as full or partial consideration of such acquisition, or
(viii) Common Shares issued or issuable with respect to the securities
referred to in (i), (ii), (iii), (iv), (v), (vi) or (vii) by way of stock
split or stock dividend or in connection with a combination of shares,
recapitalization, merger, consolidation, share exchange or other
reorganization.
(f) "Fair Value" of a Common Share on any specified date means:
(i) If Common Shares are then listed or admitted to trading on any
national securities exchange or traded on any national market system, the
average
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<PAGE> 64
of the daily closing prices for the thirty (30) trading days
before such date, excluding any trades which are not bona fide, arm's
length transactions. The closing price for each day shall be the last
sale price on such date or, if no such sale takes place on such date, the
average of the closing bid and asked prices on such date, in each case as
officially reported on the principal national securities exchange or
national market system on which such shares are then listed, admitted to
trading or traded.
(ii) If no Common Shares are then listed or admitted to trading on
any national securities exchange or traded on any national market system,
the average of the reported closing bid and asked prices thereof on such
date in the over-the-counter market as shown by the National Association
of Securities Dealers automated quotation system or, if such shares are
not then quoted in such system, as published by the National Quotation
Bureau, Incorporated or any similar successor organization, and in either
case as reported by any member firm of the New York Stock Exchange
selected by the holders of a majority of the outstanding Series B
Preferred Shares.
(iii) If no Common Shares are then listed or admitted to trading on
any national exchange or traded on any national market system, and if no
closing bid and asked prices thereof are then so quoted or published in
the over-the-counter market, the fair value of a Common Share shall be as
mutually agreed by the Company and holders of a majority of the
outstanding Series B Preferred Shares; provided, however that if the
Company and such holders are unable to mutually agree upon the fair value,
the Company and such holders shall, within five days from the date that
either party determines that they cannot agree, jointly retain an
investment banking firm, or a nationally recognized accounting firm or
other firm providing similar valuation services, satisfactory to each of
them. If the Company and such holders are unable to agree on the
selection of such a firm within such five day period, the Company and such
holders shall, within twenty days after expiration of such five day
period, each retain a separate independent investment banking firm (which
firm, in either case, shall not be the investment banking firm regularly
retained by the Company). If either the Company or such holders fail to
retain such an investment banking firm during such twenty day period, then
the independent investment banking firm retained by such holders or the
Company, as the case may be, shall alone take the actions described below.
Such firms shall determine within 30 days of being retained the fair value
of a Common Share and deliver their opinion in writing to the Company and
to such holders as to the fair value. If such firms cannot jointly agree
upon the fair value, then, unless otherwise directed in writing by both
the Company and such holders, such firms, in their sole discretion, shall
choose another investment banking firm independent of the Company, which
firm shall make such determination and render such an opinion as promptly
as practicable. In either case, the determination so made shall be
conclusive and binding on the Company and the holders of the Series B
Preferred Shares. The fees and expenses for such determination made by
any and all such
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<PAGE> 65
investment banking or other firms shall be paid one-half by the Company
and one-half by such holders. In the determination of the fair value of a
Common Share, there shall not be taken into consideration any premium for
shares representing control of the Company.
(g) "Option" means any right, warrant or option to subscribe for or
purchase Common Shares or Convertible Securities.
(h) "Original Issue Date" for the Series B Preferred Shares shall
mean the date on which the first share of such Series B Preferred Shares
was originally issued.
(i) "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting shares shall at the time be owned directly or
indirectly by the Company or by one or more subsidiaries.
2. Dividends.
(a) The holders of record of the then outstanding Series B Preferred
Shares shall be entitled to receive when, as and if declared by the Board, but
in any event not prior to the first anniversary of the Original Issue Date, out
of the funds legally available therefor, cumulative dividends at the annual
rate of 8% per share. Such dividends shall accrue on each Series B Preferred
Share from and after the first anniversary of the Original Issue Date, shall
accrue from day to day, whether or not earned or declared, and shall be payable
in cash. Such dividends will in no event be declared or paid by the Company
prior to the payment in full of those certain senior subordinated Promissory
Notes issued by the Company pursuant to the Securities Purchase Agreement.
(b) Subject to the provisions of this paragraph 2 of this Section II, the
provisions of the Securities Purchase Agreement and the provisions of a
Shareholders Agreement among the Company and certain shareholders of the
Company, as the same may be amended from time to time, the Company may, in the
Board's discretion, declare and pay dividends or distributions, or make
provision for the payment thereof, on any equity security of the Company, but
only if all accrued dividends and distributions on the Series A Preferred
Shares and the Series B Preferred Shares shall have been paid and made in full
prior to the date of any such declaration, payment, provision or distribution.
(c) Notwithstanding anything in the foregoing to the contrary, no
dividends shall be declared, paid or distributed, or provision therefor made,
on any Common Shares, unless simultaneously therewith there also shall be
declared, paid or distributed, or provision therefor made, as the case may be,
a dividend or distribution pro rata on each then outstanding Series B Preferred
Share to each holder thereof. For purposes of the foregoing, the number of
Series B Preferred Shares deemed to be outstanding with respect to each such
holder shall be equal to the maximum number of Common Shares into which
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<PAGE> 66
such holder's Series B Preferred Shares would then be convertible upon exercise
of the Conversion Rights described in paragraph 5 of this Section II.
3. Liquidation Rights.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities and obligations of the
Company, each holder of Series B Preferred Shares then outstanding shall be
entitled to be paid out of the net assets of the Company available for
distribution to its shareholders prior and in preference to any payment or
declaration and setting apart for payment of any amount in respect of the
Common Shares, an amount equal to the sum of the following: (i) $7.13 per
Series B Preferred Share held by such holder, and (ii) the fair market value,
reasonably determined in good faith by the Board, of the evidences of
indebtedness, assets and securities referred to in paragraph 5(e) hereof to
which such holders would have been entitled to receive upon conversion of their
Series B Preferred Shares (clauses (i) and (ii), collectively the "Series B
Liquidation Preference"); if upon any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, the assets to be distributed to
the holders of the Series A Preferred Shares and the Series B Preferred Shares
shall be insufficient to permit the payment to such holders of the full
aggregate amount of the Series A Liquidation Preference plus the Series B
Liquidation Preference, then all of the net assets of the Company available for
distribution to its shareholders shall be distributed ratably among the holders
of the Series A Preferred Shares and the Series B Preferred Shares in
proportion to the then applicable Series A Liquidation Preference with respect
to each Series A Preferred Share and the then applicable Series B Liquidation
Preference with respect to each Series B Preferred Share.
(b) Upon the completion of the distribution required by subparagraph (a),
if assets of the Company remain to be distributed, each holder of Series B
Preferred Shares shall be entitled to be paid out of the remaining assets of
the Company, as and when distributed, pro rata with the holders of Common
Shares on each Series B Preferred Share deemed to be outstanding. For purposes
of the foregoing, the number of Series B Preferred Shares deemed to be
outstanding with respect to each such holder shall be equal to the maximum
number of Common Shares into which such holder's Series B Preferred Shares
would then be convertible upon exercise of the Conversion Rights described in
paragraph 5 of this Section II.
(c) Written notice of any such liquidation, dissolution or winding up,
stating a payment date, the place where such payment shall be made, an estimate
of the net value that would be received by each such holder if all such holders
converted all of their Series B Preferred Shares immediately prior to such
liquidation, dissolution or winding up of the Company, and containing a
statement of or reference to applicable conversion rights, shall be given by
first class mail, postage prepaid, not less than 30 days prior to the payment
day stated therein, to each holder of record of the Series B Preferred Shares
at such holder's address as shown in the records of the Company.
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<PAGE> 67
(d) Whenever the distribution provided for in this paragraph 3 of this
Section II shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board.
4. Voting Rights. Except as otherwise expressly provided herein or as
required by law, the holders of Series B Preferred Shares shall be entitled to
vote on all matters upon which holders of Common Shares have the right to vote
and, with respect to such vote, shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of the Company, and shall
be entitled to a number of votes equal to the number of Common Shares into
which such Series B Preferred Shares could then be converted, upon conversion
pursuant to the Conversion Rights described in paragraph 5 of this Section II,
at the record date for the determination of shareholders entitled to vote on
such matters or, if no such record date is established, at the date such vote
is taken or any written consent of shareholders is solicited. Except as
otherwise expressly provided herein, or to the extent class or series voting is
otherwise required by law or agreement, the holders of Series B Preferred
Shares and Common Shares shall vote together as a single class and not as
separate classes.
5. Conversion. The holders of the Series B Preferred Shares shall have
the following conversion rights (the "Conversion Rights"):
(a) Right to Convert. Each Series B Preferred Share shall be convertible,
at the option of the holder thereof, at any time after the date of issuance of
such shares, and prior to the closing date for any Public Offering giving rise
to an automatic conversion as provided in paragraph 5(c) of this Section II, at
the office of the Company or any transfer agent for the Series B Preferred
Shares or Common Shares, into fully paid and nonassessable Common Shares, at
the Conversion Price (as hereafter defined) therefor in effect at the time of
conversion determined as provided herein.
(b) Conversion Price. Each Series B Preferred Share shall be convertible
into the number of Common Shares that results from dividing $7.13 by the
conversion price per share (the "Series B Conversion Price") in effect at the
time of conversion of such Series B Preferred Share. The Series B Conversion
Price for each Series B Preferred Share at the Original Issue Date shall be
$7.13 and shall be subject to adjustment from time to time as provided herein.
(c) Automatic Conversion. Each Series A Preferred Share which remains
outstanding on the closing date for a Public Offering (the "Registration Date")
shall automatically and without any action on the part of the holder thereof or
the Company, except as provided in clause (i) below, be converted on the same
basis and at the same Conversion Price as if each holder thereof had properly
exercised his right to convert on the date next preceding the Registration
Date; provided, that (i) each holder of Series A Preferred Shares shall have
received written notice of the proposed Public Offering at least 30 days prior
to the date the registration statement relating to that Public Offering
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becomes effective, (ii) such conversion shall be effective at the close of
business on the Registration Date, and (iii) the Company shall have no
obligation to issue and deliver to any such holder of Series A Preferred Shares
on such date a certificate for the number of Common Shares to which such holder
shall be entitled until such time as such holder has surrendered his
certificate or certificates for his Series A Preferred Shares, duly endorsed,
at the office of the Company or any transfer agent for the Common Shares, or
the holder notifies the Company that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection therewith. All rights
with respect to Series A Preferred Shares outstanding on the Registration Date
shall terminate on such Registration Date, except only the right of the holders
of such shares to receive Common Shares upon surrender of their certificates
for the Series A Preferred Shares and their rights with respect to unpaid
dividends described in paragraph 5(d) of this Section I.
(d) Mechanics of Conversion; Unpaid Dividends. Before any holder of
Series B Preferred Shares shall be entitled to convert the same into Common
Shares, such holder shall either (i) surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for the Series B Preferred Shares or Common Shares, or (ii) deliver an
affidavit in favor of the Company stating that such certificates have been
lost, stolen or destroyed and containing an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith, and shall give written notice by mail, postage prepaid, to the
Company at such office that such holder elects to convert the same and shall
state therein the number of Series B Preferred Shares being converted and the
name or names in which the certificate or certificates for Common Shares to
which such holder shall be entitled. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the Series B Preferred Shares to be converted, and the person or
persons entitled to receive the Common Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
Common Shares issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such Common Shares on such date. All
dividends accrued and unpaid prior to surrender of Series B Preferred Shares
surrendered for conversion shall at the option of the holders of Series B
Preferred Shares, either (i) be subtracted from the aggregate Series B
Conversion Price as in effect at the time of conversion or (ii) constitute a
debt of the Company payable to the converting shareholder, and no dividend or
other distribution shall be paid on, declared or set apart for any Common
Shares until such debt is fully paid or sufficient funds set apart for the
payment thereof.
(e) Adjustment for Stock Splits and Combinations. If the Company shall at
any time or from time to time after the Original Issue Date effect a
subdivision or combination of any outstanding Common Shares, the Series B
Conversion Price then in effect immediately before that subdivision or
combination shall be proportionately adjusted by multiplying the then effective
Series B Conversion Price by a fraction, (i) the numerator of which shall be
the number
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<PAGE> 69
of Common Shares issued and outstanding immediately prior to such subdivision
or combination, and (ii) the denominator of which shall be the number of Common
Shares issued and outstanding immediately after such subdivision or
combination. The number of Common Shares outstanding at any time shall, for
the purposes of this paragraph 5(e) of this Section II, include the number of
Common Shares into which any convertible securities of the Company may be
converted, or for which any warrant, option or rights of the Company may be
exchanged. Any adjustment under this paragraph 5(e) of this Section II shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(f) Adjustments for Other Dividends and Distributions. In the event the
Company at any time or from time to time after the Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common
Shares entitled to receive, a dividend or other distribution payable in (i)
evidences of indebtedness of the Company, (ii) assets of the Company (other
than cash), or (iii) securities of the Company other than Common Shares, then
and in each such event provision shall be made so that the holders of Series B
Preferred Shares shall receive upon conversion thereof, in addition to the
number of Common Shares receivable thereupon, the amount of such evidences,
assets or securities that they would have received had they held, on such
record date, the maximum number of Common Shares into which their Series B
Preferred Shares could then have been converted.
(g) Adjustment for Reclassification, Exchange or Substitution. If the
Common Shares issuable upon the conversion of the Series B Preferred Shares
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this paragraph 5 of this Section II), then and
in each such event the holder of each Series B Preferred Share shall have the
right thereafter to convert each such share into the kind and amount of shares
of stock and other securities and property receivable upon such reorganization,
reclassification or other change, by holders of the maximum number of Common
Shares into which such Series B Preferred Shares could have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(h) Reorganization, Mergers, Consolidations or Sales of Assets or Capital
Stock. If at any time or from time to time there shall be (i) a capital
reorganization of the Common Shares (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this paragraph
5 of this Section II) or (ii) a merger, consolidation or statutory share
exchange of the Company with or into another corporation in which
consolidation, merger or statutory share exchange persons owning capital stock
of the Company immediately prior to the consolidation, merger or share exchange
own less than a majority of the voting stock of the resulting, surviving or
exchanging corporation, or (iii) the sale of all or substantially all the
Company's properties and assets or capital stock to any other person, then, as
a part of such reorganization, merger, consolidation, share exchange or sale,
provision shall be made so that the holders
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<PAGE> 70
of the Series B Preferred Shares shall thereafter be entitled to
receive, upon conversion of the Series B Preferred Shares, the number of shares
of stock or other securities or property of the Company, or of the successor
corporation resulting from such merger or consolidation, share exchange or
sale, to which a holder of the maximum number of Common Shares into which such
Series B Preferred Shares would then be converted would have been entitled on
such capital, reorganization, merger, share exchange, consolidation, or sale.
In any such case, appropriate adjustment shall be made in the application of
the provisions of this paragraph 5 of this Section II with respect to the
rights of the holders of the Series B Preferred Shares after the
reorganization, merger, share exchange, consolidation or sale to the end that
the provisions of this paragraph 5 of this Section II (including adjustment of
the Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Shares) shall be applicable after that
event as nearly equivalent as may be practicable.
(i) Change in Series B Conversion Price Upon Issuance of Securities. If
the Company issues or sells any Common Shares, other than Common Shares
Outstanding on the Original Issue Date of the Series B Preferred Shares and
Excluded Shares, or issues any Convertible Security or Option entitling the
issuee to acquire Common Shares for a consideration per share less than the
Fair Value in effect immediately prior to the time of such issuance or sale,
then the Series B Conversion Price shall be reduced to the lower of the
following:
(I) the price determined by dividing (i) an amount equal to the sum of (x)
the Common Shares Outstanding immediately prior to such issuance or sale
multiplied by the then current Series B Conversion Price, plus (y) the
aggregate consideration, if any, received by the Company upon such issuance or
sale, by (ii) the Common Shares Outstanding immediately after such issuance or
sale; or
(II) the price determined by multiplying the then current Series B
Conversion Price by a fraction (i) the numerator of which shall be the sum of
(A) the Common Shares Outstanding immediately prior to such issuance or sale,
plus (B) the number of Common Shares that the aggregate consideration, if any,
received by the Company upon such issuance or sale would purchase at the Fair
Value on the date of such issuance or sale and (ii) the denominator of which
shall be the Common Shares Outstanding immediately after and giving effect to
such issuance or sale.
For the purposes of this paragraph 5(i) of this Section II, the following
provisions shall also be applicable:
(i) Cash Consideration. If the Company issues the Common Shares, Option
or Convertible Security for cash, the consideration received by the Company
therefor (or, if such shares are offered by the Company for subscription, the
subscription price, or, if such shares are sold to underwriters or dealers for
public offering without a subscription offering, the initial public offering
price), after deducting therefrom any
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<PAGE> 71
reasonable compensation or discount paid or allowed to underwriters or dealers
or others performing similar services but without deducting therefrom any
reasonable expenses incurred in connection therewith, shall be deemed to be the
consideration received by the Company for such shares.
(ii) Non-Cash Consideration. If the Company issues (other than upon
conversion or issuance of a Convertible Security) the Common Shares, Option or
Convertible Security for a consideration wholly or partially other than cash,
including services rendered, the fair value of such consideration, as
determined by the Board of Directors of the Company in good faith shall be
deemed to be the value, for purposes of this Section 5(i) of this Section II,
of the consideration other than cash received by the Company for such
securities except that any Common Share, Option or Convertible Security issued
for services shall be deemed to be issued for no consideration.
(iii) Options and Convertible Securities. If the Company issues or grants
any Option or any Convertible Security, and the inclusion thereof in the
calculation of an adjusted Series B Conversion Price pursuant to this paragraph
5(i) of this Section II would result in a Series B Conversion Exercise Price
lower than if excluded, the total maximum number of Common Shares issuable upon
the exercise of such Option or upon conversion or exchange of the total maximum
amount of such Convertible Security outstanding at the time such Convertible
Security first becomes convertible or exchangeable shall be deemed to be issued
and to be outstanding for the purposes of this paragraph 5(i) of this Section
II as of the date of issue or grant of such Option or, in the case of the issue
or sale of a Convertible Security other than where the same is issuable upon
the exercise of an Option, as of the date of such issue or sale and to have
been issued for the sum of the amount (if any) paid for such Option or
Convertible Security and the amount (if any) payable upon the exercise of such
Option or upon conversion or exchange of such Convertible Security at the time
such Convertible Security becomes convertible or exchangeable. If the
inclusion thereof would not result in a Series B Conversion Price lower than if
excluded, or if, at the time of exercise, the Series B Conversion Price which
would result from deeming such an Option or Convertible Security to have been
issued on the date of exercise is lower than that which resulted from
adjustment of the Exercise Price at the time of issuance, such Option or
Convertible Security shall not be deemed to be issued until the close of
business on the date of exercise, conversion or exchange and issuance of Common
Shares pursuant thereto.
(iv) Reclassification. The reclassification of securities other than
Common Shares into securities including Common Shares shall be deemed to
involve the issuance for a consideration other than cash of such Common Shares
at the close of business on the date fixed for the determination of
stockholders entitled to receive such Common Shares.
(j) Change in Exercise Price or Conversion Rate of Option or Convertible
Securities.
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<PAGE> 72
(i) Not Due to Dilution. If the purchase price provided for in any
Option, or the additional consideration (if any) payable upon the conversion or
exchange of any Convertible Security, or the rate at which any Convertible
Security is convertible into or exchangeable for Common Shares changes at any
time (other than under or by reason of provisions designed to protect against
dilution), the Series B Conversion Price in effect at the time of the change
shall be readjusted to the Series B Conversion Price that would have been in
effect at such time had such Option or Convertible Security still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or
sold.
(ii) Due to Dilution. If the purchase price provided for in any Option,
or the additional consideration (if any) payable upon the conversion or
exchange of any Convertible Security, or the rate at which any Convertible
Security is convertible into or exchangeable for Common Shares is reduced at
any time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of Common Shares upon
the exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Series B Conversion Price then in effect hereunder
shall, upon issuance of such Common Shares, be adjusted to such amount as would
have obtained had such Option or Convertible Security never been issued and had
adjustments been made only upon the issuance of the Common Shares delivered as
aforesaid and for the consideration actually received for such Option or
Convertible Security and Common Shares.
(k) Termination of Option or Conversion Rights. If any right to purchase
Common Shares under any Option or any right to convert or exchange any
Convertible Security terminates or expires, the Series B Conversion Price then
in effect shall, upon such termination, be changed to the Series B Conversion
Price that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
Common Shares thereunder shall no longer be deemed to be Common Shares
Outstanding.
(l) Successive Changes. The provisions of this paragraph 5 of this
Section II shall apply to successive issuances, dividends or other
Distributions, subdivisions and combinations on or of Common Shares after the
Original Issue Date of the Series B Preferred Shares.
(m) Accountants' Certificate of Adjustment. In each case of an adjustment
or readjustment of the Series B Conversion Price for the number of Common
Shares or other securities issuable upon conversion of the Series B Preferred
Shares, the Company, at its expense, shall cause independent certified public
accountants of recognized standing selected by the Company (who may be the
independent certified public accounts then auditing the books of the Company)
to compute such adjustment or readjustment in accordance herewith and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first-class mail, postage prepaid, to each registered
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<PAGE> 73
holder of the Series B Preferred Shares at the holder's address as shown in the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based including a statement of (i) the consideration received
or to be received by the Company for any Common Shares issued or sold or deemed
to have been issued or sold after the Original Issue Date of the Series B
Preferred Shares that are not Excluded Shares, (ii) the Series B Conversion
Price at the time in effect for each series of the Series B Preferred Shares,
and (iii) the number of Common Shares and the type and amount, if any, of other
property which at the time would be received upon conversion of the Series B
Preferred Shares.
(n) Certain Other Actions Prohibited. The Company shall not by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Series B Preferred Shares set forth in
this Section II, but shall at all times in good faith assist in the carrying
out of all of the such terms and shall take all such reasonable action as
required to protect the conversion privilege of the holders of Series B
Preferred Shares against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (i) shall not increase the par value
of the Common Share above the Series B Conversion Price, (ii) shall take all
such actions as may be necessary or appropriate under local, state or federal
laws of the United States of America in order that the Company may validly and
legally issue fully paid and nonassessable Common Shares upon the conversion
exercise of all Series B Preferred Shares from time to time outstanding and
(iii) shall not take any action which results in any adjustment of the Series B
Conversion Price if the total number of Common Shares or other securities
issuable after the action upon the conversion of all of the Series B Preferred
Shares would exceed the total number of Common Shares or other securities then
authorized by the Company's Articles of Incorporation and available for the
purpose of issue upon such exercise.
(o) Notices of Record Date. In the event of (i) any taking by the company
of a record of the holders of any class or series of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of the Company, or
any transfer of all or substantially all of the assets or capital stock of the
company to any other corporation, entity or person, or any voluntary of
involuntary dissolution, liquidation or winding up of the affairs of the
Company, the Company shall mail to each holder of Series B Preferred Shares at
least 30 days prior to the record date specified therein, a notice specifying
(A) the date of on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution,
(B) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, share exchange, dissolution, liquidation or winding up
is expected to become effective, and (C) the time, if any is to be fixed, as to
when the holders of record of Common Shares (or other securities) shall be
entitled to exchange their shares of Common Shares (or other securities) for
securities or other
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<PAGE> 74
property deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, share exchange, dissolution, liquidation or winding up.
(p) Fractional Shares. No fractional Common Shares shall be issued upon
conversion of Series B Preferred Shares. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Company shall pay cash equal
to the product of such fraction multiplied by the Fair Value of one Common
Share on the date of conversion. Whether or not fractional shares are issuable
upon such conversion shall be determined on the basis of the total number of
Series B Preferred Shares the holder is at the time converting into Common
Shares and the number of Common Shares issuable upon such aggregate conversion.
(q) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued Common
Shares, solely for the following purposes, (i) such number of Common Shares
required to pay all dividends payable in Common Shares which the Company by
agreement is obligated, or may choose, to pay, (ii) such number of Common
Shares as may from time to time be required, at such time, to be issued by the
Company upon exercise of all then-exercisable warrants and options to purchase
Common Shares or the right to convert other convertible securities into Common
Shares, and (iii) such number of its Common Shares as shall from time to time
be sufficient to effect the Conversion of all outstanding Series B Preferred
Shares. As a condition precedent to the taking of any action which would cause
an adjustment to the Conversion Price, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient in order that it may be validly and legally issue the Common Shares
issuable based upon such adjusted Conversion Price.
(r) Notices. Any notice required by the provisions of this paragraph 5 to
be given to the holder of the Series B Preferred Shares shall be deemed given
when personally delivered to such holder or five business days after the same
has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to each holder of
record at this address appearing on the books of the Company.
(s) Payment of Taxes. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
holders of the Series B Preferred Shares) that may be imposed in respect of the
issue or delivery of Common Shares upon conversion of the Series B Preferred
Shares.
6. Status of Preferred Shares. No Series B Preferred Shares acquired by
the Company by reason of redemption, purchase, conversion or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from
the shares which the Company shall be authorized to issue, except for the
pledge of such shares upon
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<PAGE> 75
redemption thereof pursuant to an agreement to which the Company is a party for
the purpose of securing repayment of amounts owing with respect to such
redemption.
SECTION III.
Common Shares
Each Common Share shall have one vote upon all matters to be voted on by
the holders of Common Shares. Each Common Share shall be entitled to
participate equally in all dividends payable with respect to the Common Shares
and to share ratably, subject to the rights and preferences of any series of
Preferred Shares, in all assets of the corporation in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the corporation, or upon any distribution of the asset of the corporation.
FIFTH: No holder of shares of the corporation of any class shall be
entitled as such, as a matter of right, to subscribe for or purchase shares of
any class, now or hereafter authorized, or to subscribe for or purchase
securities convertible into or exchangeable for shares of the corporation or to
which shall be attached or appertain any warrants or rights entitling the
holder thereof to subscribe for or purchase shares, except such rights of
subscription or purchase, if any, for such considerations and upon such terms
and conditions as its Board of Directors from time to time may determine.
SIXTH: Notwithstanding any provision of Sections 607.0101 to 607.1907,
inclusive, of the Florida General Corporation Act, or any successor statutes
now or hereafter in force, requiring for the authorization or taking of any
action the vote or consent of the holders of shares entitling them to exercise
two-thirds or any other proportion of the voting power of the corporation or of
any class or classes of shares thereof, such action, unless otherwise expressly
required by law or these Articles of Incorporation, may be authorized or taken
by the vote or consent of the holders of shares entitling them to exercise a
majority of the voting power of the corporation or of such class or classes of
shares thereof.
SEVENTH: To the extent permitted by law, the corporation, by action of
its Board of Directors, may purchase or otherwise acquire shares of any class
issued by it at such times, for such considerations and upon such terms and
conditions as its Board of Directors may determine.
EIGHTH: No person who is serving or has served as a director of the
corporation shall be personally liable to the corporation or any of its
shareholders for monetary damages for breach of any fiduciary duty of such
person as a director by reason of any act or omission of such person as a
director; provided, however, that the foregoing provision shall not eliminate
or limit the liability of any person (a) for any breach of such person's duty
of loyalty as a director to the corporation or its shareholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 607.0834 of the Florida Business
Corporation Act, (d)
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<PAGE> 76
for any transaction from which such person derived any improper personal
benefit, or (e) to the extent that such liability may not be limited to
eliminated by virtue of the provisions of Section 607.0850 of the Florida
Business Corporation Act or any successor section or statute. Any repeal or
modification of this Article EIGHTH by the shareholders of the corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or the corporation existing at the time of
such repeal or modification.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in these Restated Articles of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred
upon shareholders herein are granted subject to this reservation.
TENTH: The provisions of Section 607.0902 of the Florida Business
Corporation Act shall not apply to control share acquisitions (as defined in
such Section 607.0902) of shares of the corporation.
IN WITNESS WHEREOF, the undersigned has set its hand hereto as of the
_____ day of ________________, 199__.
MEDIRISK, INC., a Florida corporation
By:
------------------------------------
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<PAGE> 77
EXHIBIT B
FORM OF SENIOR SUBORDINATED NOTE
THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER
AND ANY APPLICABLE STATE SECURITIES LAWS.
SENIOR SUBORDINATED PROMISSORY NOTE
$________________ ______________, 199__
FOR VALUE RECEIVED, the undersigned MEDIRISK, INC., a Florida corporation
(the "Company"), hereby promises to pay to the order of HealthPlan Services
Corporation, a Delaware corporation ("Holder"), or its assigns, the principal
sum of _________________ Dollars ($_____________) and accrued interest thereon,
which shall be due and payable to Holder as provided below.
This Note is one of the Senior Subordinated Notes referred to in, and is
entitled to the benefits of, the Securities Purchase Agreement, dated January
8, 1996, among the Company and Holder (the "Securities Purchase Agreement").
Capitalized terms used without definition herein shall have the meanings given
to them in the Securities Purchase Agreement.
Subject to the provisions of Section 1.4 of the Securities Purchase
Agreement and to the acceleration provisions of Section 6 of the Securities
Purchase Agreement, the Company shall repay all principal and interest
outstanding in respect of this Note as follows on 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.
Interest on the unpaid principal amount outstanding hereunder shall accrue
from the date hereof until maturity at the rate of 10% per annum. Interest
shall be computed on the basis of a 365-day year, actual days elapsed. The
first payment of interest on the outstanding principal amount of this Note
shall be due and payable by Borrowers to Lender in arrears on
____________________, 199___, for the period from the Subsequent Closing Date
on which this Note was issued until ________________, 199__, and thereafter
such interest shall be due and payable quarterly in arrears. The interest
payment for each such quarterly term shall be made on the last day of the term,
with such quarterly payments to be made on March 31, June 30, September 30 and
December 31 of each year.
Payment of principal and interest shall be made in lawful money of the
United States of America (by wire transfer or immediately available funds) to
the Holder at P.O.
<PAGE> 78
Box 30098, Tampa, Florida 33630-3098 or at any other place of payment that may
be designated by the Holder in writing prior to the date upon which such
payment is due.
In the event that any payment of principal, interest or any other sum
required to be paid under this Note or the Securities Purchase Agreement is not
made when due or that any other Event of Default occurs and is not cured within
the applicable period, if any, provided for in the Securities Purchase
Agreement, all principal and accrued interest shall, at the option of the
holders of a majority in principal amount outstanding of the Senior
Subordinated Notes unless otherwise provided in the Securities Purchase
Agreement, become immediately due and payable. In the event that any payment
of principal, interest or any other sum required to be paid under this Note or
the Securities Purchase Agreement is not made when due, interest on all such
principal, interest or other sum shall accrue from the due date (not giving
effect to any grace or cure period) at the rate of 18% per annum, compounded
quarterly, calculated on the basis of a 365-day year, actual days elapsed, or
at the maximum rate permitted by law, whichever is less.
This Note may be prepaid in whole or in part without premium or penalty.
The Company waives presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note.
The Company agrees to pay all costs and expenses, including, without
limitation, reasonable attorneys' fees and expenses, expended or incurred by
the Holder in connection with the enforcement of this Note or the collection of
any sums due hereunder
The Company and the Holder agree that in no event shall the amount of
interest or other consideration due to the Holder with respect to the making of
the loans evidenced by the Senior Subordinated Notes shall exceed the maximum
rate of interest allowed by applicable law, and in the event any such payment
is inadvertently paid by the Company or inadvertently received by the
Purchaser, then such excess sum shall be credited as a payment of principal to
be applied to the principal, unless the Company shall notify the Holder in
writing that the Company elects to have such excess sum returned to it
forthwith. It is the express intent of the parties hereto that the Company not
pay and the Holder not receive, directly or indirectly, in any manner
whatsoever, interest in excess of that which may be lawfully paid by the
Company under applicable law.
MEDIRISK, INC.
By:
------------------------------------
Mark A. Kaiser
Chairman and Chief Executive Officer
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<PAGE> 79
EXHIBIT I
ALSTON&BIRD
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-7777
January 8,1996
HealthPlan Services Corporation
P.O. Box 30098
Tampa, Florida 33630-3098
Attention: James K. Murray III, Chief Financial Officer
Re: Securities Purchase Agreement, dated January 8, 1996, between
Medirisk, Inc. and HealthPlan Services Corporation
Ladies and Gentlemen:
We are counsel to Medirisk, Inc. (the "Company") in connection with the
execution and delivery of that certain Securities Purchase Agreement (the
"Agreement") dated as of January 8, 1996 by and between the Company and
HealthPlan Services Corporation ("Purchaser").
This opinion is delivered pursuant to Section 3.1.2(h) of the Agreement.
This opinion is governed by, and shall be interpreted in accordance with, the
Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991).
As a consequence it is subject to a number of qualifications, exceptions,
definitions, limitations on coverage and other limitations, all as more
particularly described in the Accord, and this opinion should be read in
conjunction with the Accord. The Law covered by the opinions expressed herein
is limited to the Federal Law of the United States and the Law of the State of
Georgia. Capitalized terms used and not otherwise defined in this opinion
shall have the meanings assigned to such terms in the Accord or the Agreement.
We have participated in the preparation of the Agreement and the Exhibits
and Schedules thereto, and we have examined such other documents, certificates,
and instruments as we have deemed necessary or appropriate for the purposes of
this opinion. As to factual matters material to our opinion, we have relied
upon the representations made by the Company in the Agreement and upon
certificates of officers of the Company and public officials.
601 Pennsylvania Avenue, N.W.
North Building, Suite 250
Washington, D.C. 20004-2601
<PAGE> 80
HealthPlan Services Corporation
January 8, 1996
Page 2
As to the opinions in paragraphs 2, 3, 4, 5 and 6 hereof, we have reviewed
the following agreements (collectively, the "Investment Documents"):
a. the Agreement;
b. the Registration Rights Agreement;
c. the Shareholders Agreement;
d. the Warrant Agreement; and
e. the form of Senior Subordinated Note.
Based upon the foregoing and such investigation as we have deemed
necessary, we are of the opinion that:
1. The Company is validly existing as a corporation under the laws of the
State of Florida.
2. The Company has twenty million (20,000,000) authorized shares of Class
A Common Stock, $.001 par value per share; three million (3,000,000) authorized
shares of Series A Convertible Preferred Stock, $.001 par value per share; and
four hundred thousand (400,000) authorized shares of Class B Preferred Stock,
$.001 par value per share. Based solely upon our review of the Company's stock
transfer ledger and a certificate of an officer of the Company that such ledger
is accurate, of such authorized capital, there are 910,200 shares of Series A
Common Stock and 1,292,359 shares of Series A Convertible Preferred Stock
issued and outstanding; and, upon Closing of the transactions contemplated by
the Securities Purchase Agreement and payment of the consideration specified
therein by the Purchaser, on the Closing Date there shall be 280,623 shares of
Series B Convertible Preferred Stock issued and outstanding. Subject to the
understanding, with your permission, that no opinion is given herein as to the
effect of any nonpayment of applicable stamp taxes with respect to the issuance
and transfer of stock of the Company, the outstanding shares of Series A Common
Stock and Series B Convertible Preferred Stock are, and upon payment therefor
in accordance with the agreement the shares of Preferred Stock issuable to
Purchaser under the Agreement will be, validly issued and are fully paid and
nonassessable, and together all such shares comprise the totality of the
Company's outstanding capitalization as of the date hereof. 665,180 shares of
the authorized Series A Common Stock have been reserved for issuance pursuant
to the terms of the Warrant Agreement, and 280,623 shares of the authorized
Series A Common Stock have been reserved by the Company for issuance upon
the conversion of the Preferred Stock.
<PAGE> 81
HealthPlan Services Corporation
January 8, 1996
Page 3
3. The Company has the corporate power to execute and deliver the
Investment Documents to which it is a party and any other instruments or
documents executed and delivered by it under the Agreement, to perform its
obligations thereunder, to own and use its assets and to conduct its business.
No governmental or other consents, approvals, authorizations, registrations,
declarations or filings with any governmental authority of the United States or
the State of Georgia are required for the execution, delivery and performance
of the Investment Documents by the Company. The Company is not subject to any
law, rule or regulation of the United States or the State of Georgia
restricting in any way its ability to incur indebtedness or to issue shares of
its capital stock or rights to acquire such shares as contemplated by the
Investment Documents.
4. The Company has duly authorized the execution and delivery of the
Investment Documents and all other instruments or documents executed by the
Company in connection with the Investment Documents, and the Company has duly
executed and delivered the Investment Documents and such other instruments and
documents. Each of the Investment Documents is a valid and binding obligation
of the Company enforceable against the Company in accordance with its
respective terms. With your consent, the opinions set forth in this paragraph
4 are subject to the limitations and qualifications set forth in Appendix A as
well as the qualifications of the Accord to which this entire opinion is
subject.
5. The issuance of the Senior Subordinated Notes pursuant to the
Securities Purchase Agreement and payment of such notes in accordance with
their terms, and the related issuance of warrant certificates pursuant to the
Warrant Agreement and exercise of such warrants in accordance with their terms,
do not violate any law of the State of Georgia relating to interest and usury.
6. The execution and delivery of the Investment Documents by the Company
and the consummation of the transactions contemplated thereby, if the Company
were now to perform its obligations under the Investment Documents, will not
(a) conflict with any provisions of the Company's articles of incorporation or
bylaws, (b) violate any provisions of any existing federal or state
constitution, statute, law, rule, regulation or order to which the Company or
its assets are subject, or (c) result in a breach of or constitute a default
(or an event of default which with the passage of time or giving of notice, or
both, would constitute a default) under, or cause or permit the acceleration of
the maturity of or give rise to any right of termination, cancellation,
imposition of fees or penalties under, any material written agreement, which
breach or default has not been waived. With your permission we have assumed
that the term "material written agreement" used in clause (c) above includes
only those agreements listed on SCHEDULES 2.2.13, 2.2.14 and 2.2.15 to the
Agreement and those agreements that are Exhibits to the Agreement.
<PAGE> 82
HealthPlan Services Corporation
January 8, 1996
Page 4
Based upon the limitations and qualifications set forth above, we confirm
to you that:
1. To our knowledge, there is no litigation or other proceeding that is
pending, threatened or contemplated which would restrain, invalidate or
challenge, or would seek to restrain, invalidate or challenge or would seek
damages in connection with, the transactions contemplated by the Investment
Documents.
2. The Company is qualified to transact business as a foreign corporation
in the State of Georgia. The foregoing statement is based solely upon a
certificate provided by the Secretary of State of the State of Georgia, a copy
of which the Company has delivered to you, and is limited to the meaning
ascribed to such certificate by such state agency.
Assumptions and Qualifications
In addition to the assumptions and qualifications set forth specifically
above, this opinion letter is subject to the following assumptions and
qualifications:
1. With your permission, the General Qualifications, specifically
including, without limitation, the Bankruptcy and Insolvency Exception, the
Equitable Principles Exception and the Other Common Qualifications, apply to
the opinions set forth above; provided that the opinion expressed in paragraph
5 is not subject to any of the General Qualifications relating to laws relating
to interest or usury.
2. With respect to paragraph 4 above, we express no opinion as to whether
Section 7.11 of the Securities Purchase Agreement is enforceable.
3. With respect to paragraph 5 above, we express no opinion as to whether
the interest and other consideration received by Purchaser in connection with
its purchase of Senior Subordinated Notes is usurious in the event Section 7.11
of the Securities Purchase Agreement is not enforceable, and such Senior
Subordinated Notes are required to be prepaid prior to April 8, 1997 by reason
of (i) acceleration following the occurrence of an Event of Default or (ii) an
event giving rise to a mandatory prepayment beyond the control of the Company.
Furthermore, for the purposes of the prior sentence, we have assumed that the
only interest paid or deemed paid on the notes is interest calculated at the
rate of 18% per annum plus the value of the Warrants issued pursuant to the
Warrant Agreement, and that the only effect of such a required prepayment prior
to April 8, 1997 is to truncate or shorten the period of time over which the
rate of interest on the notes is calculated.
<PAGE> 83
HealthPlan Services Corporation
January 8, 1996
Page 5
4. For purposes of paragraph 5 hereof, we have assumed that the right of
Purchaser to purchase shares of the Company pursuant to the Warrant Agreement
has a fair market value as of the date hereof of not greater than $7.13 for
each such share of Series A Common Stock issuable thereunder.
The opinions expressed in this opinion letter are based upon the law as
currently in effect and currently existing interpretations thereof. Insofar as
our opinions relate to future events or circumstances, the opinions expressed
herein are based upon the assumption that such laws and prevailing
interpretations thereof will remain unchanged. We assume no obligation to
advise you of any changes in the foregoing subsequent to the delivery of this
opinion letter. This opinion letter is rendered solely for your information in
connection with the transactions described above and is not to be used,
circulated, quoted or otherwise referred to for any purpose whatsoever, except
to the extent authorized in the Accord, without in each instance our prior
written consent.
Very truly yours,
ALSTON & BIRD
By:
--------------------------
Keith O. Cowan, Partner
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
the 31st day of May, 1996, between MEDIRISK, INC., a Florida corporation
(hereinafter referred to as the "Company"), and Mark A. Kaiser (hereinafter
referred to as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of providing products and
services to organizations and groups that provide or finance health care; and
WHEREAS, the parties hereto desire to enter into an Employment Agreement
upon the following terms and conditions.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for and in
consideration of the above premises, and other good and valuable consideration,
the receipt whereof is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT TERM. Subject to the terms and conditions hereinafter set
forth, the Company agrees to employ Employee for a term of three (3) years,
commencing on the date hereof. Upon the expiration of the said three-year term
(the "Initial Term"), this Agreement shall each year thereafter be
automatically renewed under the same terms and conditions for 1-year terms (the
"Renewal Term"), unless at least sixty (60) days prior to the end of the
Initial Term or a Renewal Term, if applicable, either party gives written
notice to the other that it/he elects not to renew for the next succeeding term.
2. DUTIES. The Company hereby employs Employee and Employee hereby
accepts such employment and agrees to devote his full attention and best
efforts to the performance of his duties as Chairman of the Board of Directors
and Chief Executive Officer for the Company, which shall include such executive
duties as are customarily performed by chief executive officers, chief
operating officers and general managers in similar enterprises, including but
not limited to the following: hiring, motivating, training, and retaining
personnel; management and oversight of sales and marketing, production, data
processing, and financial control operations, either directly or by delegation
to and supervision of subordinates; gathering and assimilating information on
industry, market, and competitive affairs, events, and trends; and reporting
regularly, openly, and fully to the Board of Directors. In addition, he shall
also render such other duties as may, from time to time, be assigned to him by
the Board of Directors of the Company.
The parties hereto acknowledge that the duties of Employee shall always be
many and varied; therefore, the Company retains the right at any time and all
times to specify the duties to be performed by Employee and the right to change
and/or modify his position to any other
<PAGE> 2
essential executive position, in accordance with all applicable provisions of
this Agreement. Notwithstanding the foregoing or anything herein that may be
construed to the contrary, the Company shall at no time, without the express
written consent of Employee, undertake any action which may result in a
material diminution or reduction of Employee's titles, offices, reporting
responsibilities, position, duties, responsibilities and/or status with the
Company as such may be in effect at the time any such action is proposed to be
undertaken.
Employee's principal office and principal place of employment throughout
the duration of this Agreement shall be located in the Atlanta greater
metropolitan area; however, Employee acknowledges that reasonable travel will
be required to perform the duties hereunder.
3. EXTENT OF SERVICE. While employed by the Company, Employee shall
devote his entire attention and energy to the business of the Company, and
shall not, without the written consent of the Company, be employed in any other
additional business activities, whether or not such activities are pursued for
gain, profit or other pecuniary advantage, and Employee shall not at any time,
during the term of this Agreement, become engaged in any business competitive
with or similar to the business of the Company; but this shall not be construed
as preventing Employee from (a) investing his personal assets in businesses
that do not compete with the Company in such form or manner as will not require
any services on the part of the Employee that interfere with Employee's ability
to perform his duties under this Agreement, (b) purchasing securities in any
corporation whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any time five
percent or more of the equity securities of any corporation engaged in a
business competitive to that of the Company, (c) serving on the boards of
directors or boards of advisors of businesses that do not compete with the
Company, and (d) participating in conferences, preparing or publishing papers
or books or teaching so long as such activities do not interfere with
Employee's ability to perform his duties under this Agreement.
4. COMPENSATION. During the period from the effective date of this
Agreement until December 31, 1996, the Company agrees to pay Employee and
Employee agrees to accept a base salary at an annual rate of not less than one
hundred and ninety thousand dollars ($190,000.00), which salary shall be
payable in accordance with the general payroll practices of the Company. This
base salary shall be reviewed by the Compensation Committee of the Board of
Directors of the Company (the "Compensation Committee") in December of each
year and shall, effective as of January 1 of each year, be increased by such
amount as the Compensation Committee determines.
5. PERFORMANCE BONUSES. For each year during the Initial Term and any
Renewal Term of this Agreement, Employee shall be entitled to receive a target
bonus of fifty percent (50%) of his base salary for such year based upon the
Company's achievement of one hundred percent (100%) of goals reasonably
established by the Compensation Committee. The Company and Employee agree that
Employee's performance bonus for the year 1996 will be based upon the
achievement of performance goals that have already been established. The actual
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<PAGE> 3
bonuses paid will be increased or decreased from the target based upon the
Company's exceeding or failing to achieve one hundred percent (100%) of the
relevant goals pursuant to formulae reasonably established by the Compensation
Committee when it establishes the goals for such year.
6. EMPLOYEE BENEFITS. Employee shall be entitled to participate in all
medical, dental, disability, hospitalization, life insurance, vacation and
other employee benefit programs of the Company. Except as may otherwise be
expressly provided in this Agreement, the Company may change any of its benefit
programs at any time, provided that the level of benefits available shall at
all times be at least as favorable to Employee as the level of benefits
provided on the date of this Agreement and as the level provided to other
Company employees. In addition to such benefits, the Company will pay on
behalf of Employee, or reimburse Employee for, the premiums due for a
$1,000,000 policy of term life insurance on Employee, payable to beneficiaries
designated by Employee; provided that such payment or reimbursement shall not
exceed $1,000 in any year. In addition to the benefits described above, the
Company will grant Employee options to purchase 50,000 shares of Series A
Common Stock of the Company ("Common Stock") on the date of this Agreement and
on each of the first and second anniversaries of the date of this Agreement,
such number of shares being adjusted for any stock splits or stock dividends
occurring after the date of this Agreement. Such options will have an exercise
price per share equal to the fair market value of a share of Common Stock as
reasonably determined by the Compensation Committee. Such options shall vest
at a rate of 20% per year, over five years, or immediately upon the sale or
other change of control of the Company.
7. EXPENSES. The Company shall pay or reimburse Employee for all
business, travel, and entertainment expenses incurred by him in connection with
the performance of his duties and responsibilities hereunder upon submission to
the Company of appropriate documentation in accordance with the Company's
normal business practices.
8. TERMINATION.
(a) The Company may not terminate this Agreement during the term without
cause, except upon Employee's death or total disability.
(b) The Company may terminate Employee's employment hereunder, upon
written notice to Employee, for "cause." For purposes of this Agreement,
"cause" for termination of Employee's employment shall exist if: (1) Employee
is convicted of, pleads guilty to or confesses to any felony or commits any act
of fraud, misappropriation or embezzlement against the Company or any of its
subsidiaries; (2) Employee has engaged in a dishonest act to the material
damage or prejudice of the Company or any of its subsidiaries or has engaged in
conduct or activities involving moral turpitude that materially damage the
property, business or reputation of the Company or any of its subsidiaries; (3)
Employee suffers from chronic alcoholism or other form of addiction, (4)
Employee materially neglects or fails to perform his duties under this
Agreement, which neglect or failure continues for thirty (30) days after
receipt of written notice
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<PAGE> 4
detailing such neglect or failure from the Board of Directors of the Company;
(5) Employee materially underperforms the objective performance goals
reasonably established by the Compensation Committee and agreed to by Employee,
which agreement shall not be unreasonably withheld, which underperformance is
not the result of general economic conditions that widely affect the industry
in which the Company conducts its business; or (6) if during the term of this
Agreement Employee violates any provision set forth in paragraph 10 of this
Agreement.
(c) Employee shall have the right to terminate this Agreement for "good
reason," as hereinafter defined, upon providing the Company with ten (10) days
written notice of his intention to so terminate this Agreement. For the
purposes of this Agreement, "good reason" shall exist if: (1) without the
express written consent of Employee, there is a material diminution of his
position, duties, responsibilities and status with the Company as in effect as
of the date of this Agreement, Employee's reporting responsibilities, titles or
offices as in effect as of the date of this Agreement are materially reduced,
or Employee is removed from or not re-elected to any position referred to
earlier herein, except in connection with promotions to higher office or except
in connection with the termination of his employment for cause; (2) the Company
reduces Employee's base salary, as in effect on the date of this Agreement or
as the same hereafter is increased in accordance with this Agreement, or the
performance bonus structure currently in effect hereunder is substantially
changed (other than changes in goals from year to year); (3) the Company fails
to continue in effect any incentive plan or any insurance or pension plan, as
in effect on the date of this Agreement (or plans and benefits which are, in
the aggregate, no less favorable to Employee than those Employee enjoys as of
the effective date of this Agreement); (4) the Company's principal executive
offices are relocated to a location outside the Atlanta, Georgia area, or the
Company requires Employee, without his consent, to be based anywhere other than
the Company's principal executive offices; (5) the Company reduces number of
Employee's yearly vacation days; (6) the Company or any person or entity
directly or indirectly controlling or controlled by the Company intentionally
interferes with the performance by Employee of the duties required of him
hereunder such that Employee is prevented or materially impaired from
performing such duties; (7) the Company materially breaches any provision of
this Agreement; or (8) Employee gives notice of termination to the Company
during the 30-day period immediately following the first anniversary of a sale
or other change of control of the Company.
9. BENEFITS UPON TERMINATION. Subject to paragraph 8 above, if this
Agreement is terminated by the Company without cause, or if Employee terminates
this Agreement for good reason, Employee shall be entitled to receive that
portion of his base salary, described in paragraph 4 herein, and performance
bonus, described in paragraph 5, which is actually earned up to and including
the date of termination, and Employee shall continue to receive his
then-effective base salary and all employee benefits contemplated by paragraph
6 of this Agreement until the later of the expiration of the Initial Term or
one year after such termination. Subject to paragraph 8 above, if the Company
terminates this Agreement for cause on account of matters described in
subparagraph (5) of paragraph 8(b), Employee shall be entitled to receive that
portion of his base salary, described in paragraph 4 herein, and performance
bonus, described in paragraph 5, which is actually earned up to and including
the date of termination, and
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<PAGE> 5
Employee shall continue to receive his then-effective base salary and all
employee benefits contemplated by paragraph 6 of this Agreement until one year
after such termination. Except as provided in the immediately preceding
sentence, if this Agreement is terminated by the Company for cause, or if
Employee terminates this Agreement without good reason, Employee shall not be
entitled to any such salary, bonus or benefits beyond the date of such
termination. The provisions of this paragraph are subject to and shall be
construed in accordance with all provisions of law applicable to continuation
of employee benefits subsequent to termination of employment. In the event of
any termination of employment hereunder, Employee shall have the right to
exercise outstanding options in accordance with the terms of applicable
agreements, to the extent such options are vested as of the date of such
termination
10. CONFIDENTIALITY AND NONCOMPETITION.
(a) DEFINITIONS. For purposes of this paragraph 10 of this Agreement:
(i) "Trade Secrets" shall mean all secret, proprietary or Confidential
Information regarding the Company or any of its subsidiaries or the Company's
or any of its subsidiaries' business or activities, including any and all
information not generally known to, or ascertainable by, persons not employed
by the Company or any of its subsidiaries, the disclosure or knowledge of which
would permit those persons to derive actual or potential economic value
therefrom or to cause economic or financial harm to the Company or any of its
subsidiaries. Trade Secrets shall include, but not be limited to, information
relating to the Company's or any of its subsidiaries' business plan, marketing
techniques, financial statements and projections, customer lists, Prospective
Customer lists (including names, addresses and telephone numbers), marketing
research, marketing methods, database products and systems, employee and
independent contractor lists and information, litigation, medical information
about or patient records of clients (including employees thereof) compensation
schedules, price list, training manuals, contracts, agreements, specialized
computer software, billing information, personnel information and other
information concerning the financial affairs, future plans and management of
the Company, its subsidiaries and their respective clients.
(ii) "Confidential Information" shall mean all information regarding the
Company and its subsidiaries, the Company's and its subsidiaries' businesses,
the Company's and its subsidiaries' activities or the Company's and its
subsidiaries' clients, customers or employees that is not generally known to
persons not employed by the Company or any of its subsidiaries but that does
not rise to the level of a Trade Secret and that is not generally disclosed by
Company practice or authority to persons not employed by the Company or any of
its subsidiaries.
(iii) "Material Contact" shall mean contact between Employee and each
customer or Prospective Customer (A) with whom Employee dealt; (B) whose
dealings with the Company or any of its subsidiaries were coordinated or
supervised by Employee; (c) about whom Employee obtained Trade Secrets or
Confidential Information in the ordinary course of business as a result of
Employee's association with the Company or any of its subsidiaries; or (D) who
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<PAGE> 6
receives products or services authorized by the Company or any of its
subsidiaries, the sale or provision of which results or resulted in
compensation, commissions or earnings for Employee within one year prior to the
date of Employee's termination.
(iv) "Person" shall mean any individual, partnership, corporation, trust,
unincorporated organization, or any other business entity or enterprise,
provided, however, that the term "person" shall not include the Company or any
of its subsidiaries.
(v) "Prospective Customer" shall mean any person to whom the Company or
any of its subsidiaries has sent or delivered written sales or servicing
proposal or contract in connection with the business of the Company or any of
its subsidiaries.
(b) ACKNOWLEDGMENTS. Employee agrees and acknowledges that: (i) he is and
will be in a position of confidence and trust with the Company and he will have
access to Trade Secrets and Confidential Information; (ii) the nature and
period of restrictions imposed by the covenants set forth in this Agreement are
fair, reasonable and necessary to protect and preserve for the Company the
benefits of this Agreement and that such restrictions will not prevent Employee
from earning a livelihood; (iii) the Company would sustain irreparable loss
under damage if Employee were to breach any of such covenants; and (iv) the
covenants herein set forth are made as an inducement to and have been relied
upon by the company in continuing to employ Employee and Employee represents
and warrants for himself that he has not, prior to the date hereof, disclosed
to any Person or used or otherwise exploited for his own benefit or for the
benefit of any other Person any Trade Secrets or Confidential Information.
(c) COVENANTS. Having acknowledged the foregoing, Employee hereby
covenants to and agrees to the following:
(i) COVENANT AGAINST DISCLOSURE OF TRADE SECRETS AND CONFIDENTIAL
INFORMATION. Employee hereby agrees to hold Trade Secrets and Confidential
Information in a fiduciary capacity for the benefit of the Company and agrees
that he shall not, directly or indirectly, during the term of Employee's
employment by the Company and for two years after the termination of his
employment for any reason whatsoever disclose to any Person or use or otherwise
exploit for Employee's own benefit or for the benefit of any other Person any
Trade Secrets or Confidential Information that were disclosed to Employee or
acquired by Employee while an Employee of the Company. Additionally, Employee
agrees that he will not, directly or indirectly, use or disclose to any Person
any Trade Secret at any time, as long as that information continues to be a
Trade Secret, even after the expiration of the above-referenced two-year
period, and further agrees that this paragraph 10(c)(i) shall not limit in any
manner the protection of the Company's Trade Secrets otherwise afforded by law.
(ii) COVENANT AGAINST DIVERSION OF BUSINESS. Employee shall not,
directly or indirectly, while he is in the Company's employ and through the
period ending one year after the termination of his employment for any reason,
accept, solicit, divert,
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<PAGE> 7
appropriate, or attempt to accept, solicit, divert, or appropriate, directly or
by assisting others, any business from any Person that was a customer or
Prospective Customer with whom Employee had Material Contact during his
employment hereunder for purposes of providing products or services that are
competitive with those provided by the Company.
(iii) COVENANT AGAINST DIVERSION OF EMPLOYEES. Employee shall not,
directly or indirectly while he is in the Company's employ and through the
period ending one year after the termination of his employment for any reason
initiate contact with the intention to recruit or hire, directly or by
assisting others, any employee of the Company or any of its affiliates;
provided, however, that Employee may hire or assist others in hiring any
employee of the Company whose employment with the Company at the time of such
hiring has been terminated by the Company.
(iv) FURTHER COVENANTS WHILE EMPLOYEE EMPLOYED BY THE COMPANY. Nothing
in this Agreement shall be construed to limit Employee's legal duties to the
Company while employed by the Company, which include, but are not limited to,
acting solely in the Company's best interest and, while employed by the
Company, Employee shall refrain from diverting (i) any and all business of the
Company whatsoever, and (ii) any employee of the Company to any Person.
(d) CONSENT TO INJUNCTION. Employee acknowledges that his breach of any
covenant set forth in this paragraph 10 will result in irreparable injury to
the Company and that the Company's remedies at law for such a breach will be
inadequate and extremely difficult to calculate or determine. Accordingly,
Employee agrees and consents that upon such breach or threatened breach by
Employee of any covenant set forth herein, the Company shall, in addition to
all other remedies available at law and in equity, be entitled to a temporary
restraining order, preliminary and interlocutory injunction, and permanent
injunctions to prevent or halt such a breach or threatened breach by Employee
of any covenant contained herein. Any violation of the covenants contained in
this paragraph 10 shall automatically toll and suspend the period of such
covenant for the amount of time the violation continues.
(e) REFORMATION. If any of the provisions of this Agreement should ever
be held to exceed the time or geographic limitations permitted by applicable
law in a final judgment by a court of competent jurisdiction, then such
provisions shall be automatically reformed to the maximum time or geographic
limitations permitted by applicable law.
(f) SEVERABILITY. If any of the provisions of this Agreement should in
whole or in part be held invalid in a final judgment by a court of competent
jurisdiction, such invalidity shall not affect the validity of the rest of this
Agreement, the parties hereto intending that each provision of this Agreement,
including each subparagraph contained in paragraph 10(c), be severable.
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<PAGE> 8
(g) REMEDIES CUMULATIVE AND CONCURRENT. The rights and remedies of the
Company as provided in this Agreement shall be cumulative and may be pursued
separately, successively or together against Employee at the sole discretion of
the Company, and may be exercised as often as occasion therefor shall arise.
The failure to exercise any right or remedy shall in no event be construed as a
waiver or release thereof.
11. FURTHER AGREEMENTS.
(a) In consideration of Employee's execution of this Agreement, the
Company agrees that all indebtedness owed by Employee to the Company under that
Unsecured Promissory Note in the original principal amount of $75,000 dated
July 11, 1994 is hereby forgiven, Employee acknowledging that such forgiveness
will result in taxable income to Employee in an amount equal to the currently
outstanding principal and interest of such Promissory Note.
(b) The Company agrees that if, after the date of this Agreement, the
Company acquires any shares of Common Stock from any other shareholder of the
Company, then the Company shall offer to sell 50% of such acquired shares to
Employee for a purchase price equal to the price paid by the Company to acquire
such shares. Employee may accept such offer by giving notice of acceptance to
the Company within 30 days. If Employee so accepts, Employee may elect to pay
all or any portion of the purchase price for such shares by delivery of a
promissory note bearing interest at the prime rate (as reported in the "Money
Rates" table of the Wall Street Journal on the day prior to such delivery),
such promissory note being payable in 5 equal annual installments of principal
with accrued interest, with such installments payable on the first, second,
third, fourth and fifth anniversaries of the delivery of such promissory note.
12. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such
terms, covenants or conditions, nor shall waiver of a matter at any time or
more times, be deemed a waiver or relinquishment of such right or power at any
other time.
13. BENEFIT. Except as otherwise herein expressly provided, this
Agreement shall inure to the benefit of and be binding upon the Company, its
successors and assigns, including, but not limited to, any corporation which
may acquire all or substantially all of the Company's assets and business or
with which the Company may be consolidate or merged, and Employee, his heirs,
executors, administrators and legal representatives, provided that the
employment obligations of Employee hereunder shall not be delegated.
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto regarding the subject matter hereof and supersedes
any prior written or oral agreements between them respecting the subject matter
of this Agreement, including, without limitation, the Employment Agreement
between the Company and Employee dated May 30, 1991
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<PAGE> 9
and the Employee Confidentiality and Restrictive Covenant Agreement between the
Company and Employee dated June 20, 1994, but not including that certain
Employee Shareholder Agreement between the Company and certain of its employees
(including Employee) dated July, 1994. This Agreement and all option
agreements pursuant to which Employee has been, or is hereafter, granted
options to purchase Common Stock. This Agreement shall not be modified or
altered except by another written agreement executed by each of the parties
hereto.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
15. HEADINGS. The headings in this Agreement are inserted for convenience
and identification only and are in no way intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.
16. SURVIVAL. Any and all provisions of this Agreement which contemplate
ongoing rights or obligations on the part of either the Company or Employee
subsequent to any termination of this Agreement shall survive such termination.
17. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed served if
deposited in the United States mail, postage prepaid, certified mail, return
receipt requested, and addressed as follows:
TO COMPANY: Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305
Attention: Chief Financial Officer and Secretary
TO EMPLOYEE: Mr. Mark A. Kaiser
1363 Peachtree Battle, NW
Atlanta, Georgia 30327
or such other address as one party may from time to time give notice of to the
other party.
[The remainder of the page intentionally left blank.]
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<PAGE> 10
[SIGNATURE PAGE FOR MARK A. KAISER EMPLOYMENT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals, the day and year first above written.
MEDIRISK, INC.
BY: /s/ Kenneth M. Goins, Jr.
-----------------------------------------
ITS: Vice President
----------------------------------------
/s/ Mark A. Kaiser
--------------------------------------------
Mark A. Kaiser
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<PAGE> 1
EXHIBIT 10.3
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
9th day of January, 1996, by and between Pamella Leiter, an individual resident
of the State of Illinois (hereinafter referred to as "Employee"), and Medirisk,
Inc., a Florida corporation ("Medirisk").
W I T N E S S E T H:
WHEREAS, pursuant to a Stock Purchaser Agreement dated November 22, 1996
(the "Stock Purchase Agreement"), by and between Medirisk and Employee,
Employee is selling to Medirisk all of her shares of capital stock in
Formations in Health Care, Inc. (the "Company");
WHEREAS, in order to induce Medirisk to enter into the Stock Purchase
Agreement and consummate the transactions contemplated thereby, Employee has
agreed to enter into this Agreement; and
WHEREAS, Medirisk desires to employ Employee, and Employee desires to be
employed by Medirisk, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I.
EMPLOYMENT.
1.1 Position. Subject to the terms hereof, Medirisk hereby employs
Employee, and Employee hereby accepts such employment. Employee shall serve as
a Vice President of Medirisk generally responsible for managing the operations
of the Company, and Employee shall perform such duties and accept such
responsibilities as are assigned to her from time to time by the Chief
Executive Officer or President of Medirisk consistent with being the executive
responsible for managing the operations of the Company (Employee and Medirisk
hereby acknowledging that she will not be responsible for managing the sales,
human resources or the accounting functions of the Company's operations).
Unless otherwise agreed by Employee, Employee's principal place of employment
shall be in the Chicago, Illinois metropolitan area; provided that the Employee
acknowledges that reasonable travel to other locations may be necessary to
perform the duties hereunder.
1.2 Discharge of Duties. Employee agrees faithfully and diligently to
discharge and carry out her duties and responsibilities under this Agreement,
shall use her
<PAGE> 2
reasonable best efforts to implement the policies established by the Chief
Executive Officer or President of Medirisk which are consistent with her title
and position as specified in Section 1.1 hereof, and shall devote her full
business time, attention, energy and skill to the business of the Company and
Medirisk. Employee shall not, during her employment, unless otherwise agreed
to in advance in writing by the Board of Directors of the Medirisk, seek or
accept other employment, become self-employed in any other capacity during the
term of his employment, or engage in any activities which are detrimental to
the business of Medirisk or the Company. Notwithstanding the foregoing,
Employee may engage in personal investment activities, provided that such
activities do not interfere with Employee's ability to discharge her duties and
responsibilities hereunder.
ARTICLE II.
TERM AND TERMINATION.
2.1 Term of Employment. The employment of Employee hereunder shall
commence as of the date hereof and shall, except as otherwise provided herein,
continue until the earlier of (a) the second anniversary of the date hereof
(the "Expiration Date") or (b) the occurrence of any of the following events:
(i) the death or total disability of Employee (total disability
meaning the failure of Employee to perform her normal required services
hereunder for a period of three consecutive months during any consecutive
12 month period during the term hereof by reason of Employee's mental or
physical disability);
(ii) the Company's termination of Employee's employment hereunder,
upon prior written notice to Employee, for "good cause." For the purposes
of this Agreement, good cause for termination of Employee's employment
shall exist (A) if Employee is convicted of, pleads guilty to, or
confesses to any felony or commits any act of fraud, misappropriation or
embezzlement against the Company or Medirisk, (B) if Employee has engaged
in a dishonest act to the material damage or prejudice of the Company,
Medirisk or any affiliate of either or engaged in conduct or activities
involving moral turpitude that damage the property, business or reputation
of the Company, Medirisk or any affiliate of either, (C) if Employee
suffers from chronic alcoholism or other form of addiction, (D) if
Employee shall neglect or fail to perform duties assigned to her
consistent with Section 2.2 hereof which continues for thirty days after
receipt of written notice detailing such neglect or failure from the Board
of Directors of the Company, or (G) if during the term of this Agreement,
Employee violates any provisions set forth in Article V of this Agreement;
or
(iii) Employee's termination of Employee's employment hereunder upon
thirty (30) days' written notice.
The earlier of (a) and (b) of this Article II is sometimes hereinafter referred
to as the "Termination Date."
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<PAGE> 3
2.2 Termination by Employee for Good Reason. Employee shall be entitled
to terminate her employment hereunder for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the prior written consent of Employee:
(a) the relocation of Employee's principal place of employment anywhere
outside the Chicago, Illinois metropolitan area, or Employee being required to
be based anywhere other than the Chicago, Illinois metropolitan area, except
for reasonable travel on the Company's business;
(b) the removal of the title of Employee specified in Section 1.1
hereof;
(c) the failure of Medirisk to permit Employee to participate in such
benefit plans as are in effect from time to time on a basis substantially
equivalent to the participation of employees similarly situated to Employee;
(d) the requirement that Employee report to any officer, consultant or
committee other than the Chief Executive Officer or the President and Chief
Operating Officer of Medirisk; or
(e) a material breach by the Company of its obligations under any of
(i) this Agreement, (ii) the Stock Purchase Agreement, (iii) the Registration
Rights Agreement (as defined in the Stock Purchase Agreement), (iv) the
Guaranty in the form of EXHIBIT B to the Stock Purchase Agreement, or (v) the
Option Agreement (as defined in the Stock Purchase Agreement), which material
breach continues for thirty days after receipt of written notice from Employee
detailing such material breach.
ARTICLE III.
COMPENSATION.
3.1 Salary. Employee shall be paid a salary (the "Salary") during the
first year of her employment hereunder at the rate of One Hundred Twenty Five
Thousand Dollars ($125,000.00) per annum, payable in accordance with Medirisk's
standard policy (which policy currently provides for payments on the fifteenth
and last day of each month); provided that Employee shall be paid no less than
once per month. Thereafter, the Salary is subject to increase by the Board of
Directors of Medirisk from time to time, in its sole discretion, based upon
review of Employee's performance and the performance of Medirisk pursuant to
Medirisk's policy.
3.2 Expenses. Medirisk shall reimburse Employee for all reasonable
expenses incurred by Employee on behalf of Medirisk, and approved and vouched
pursuant to Medirisk's procedures or practices then in effect.
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<PAGE> 4
ARTICLE IV.
BENEFITS.
Medirisk shall provide Employee with the following fringe benefits during
the term of her employment hereunder:
4.1 Benefits. Employee shall be entitled to participate in such medical,
dental, disability, hospitalization, life insurance and other benefit plans
(such as pension and 401(k) plans) as Medirisk shall maintain from time to time
for the benefit of executive officers of Medirisk, on the terms and subject to
the conditions set forth in such plans. Without limiting the generality of the
foregoing, Medirisk shall (i) pay or reimburse Employee for the costs and
charges relating to the lease and use of a mobile telephone, (ii) pay or
reimburse Employee for the rental of a parking space in the building in which
the Company's principal place of business in Chicago is located and (iii)
reimburse Employee for the annual fee for one credit card, issued in Employee's
name, with which Employee incurs expenses reimbursable hereunder. In addition,
Medirisk shall provide a reasonable allowance each year to be spent at
Employee's reasonable discretion for various matters and items intended to
maintain or enhance the morale and motivation of the Company's employees or
otherwise provide incentives to such employees (for example, providing pizza
parties, birthday cakes to celebrate employees' birthdays, token gifts on
holidays, and other similar kinds of items and matters).
4.2 Vacation. In addition to customary holidays observed by Medirisk,
Employee shall receive 20 working days of paid vacation time per calendar year
during the term of her employment hereunder. Any unused vacation days in any
calendar year may not be carried over to subsequent calendar years, and
vacation days for partial calendar years during the term of employment will be
pro rated. In addition to such paid vacation time and time spent away from the
offices of the Company or Medirisk during business travel, Medirisk agrees that
Employee may be absent from the offices of Medirisk and the Company for up to
an additional 20 days per year, upon the approval of Medirisk, which approval
will not be unreasonably withheld, provided that during such additional absence
Employee makes herself reasonably available to Medirisk and the Company by
telephone, facsimile, computer or other means such that Employee can, if
necessary, perform the services to be performed hereunder during such absence.
ARTICLE V.
RESTRICTIVE COVENANTS.
5.1 Certain Definitions.
"Business" shall mean the Company's and Medirisk's present businesses
which consist of the development, implementation, marketing and sale of
computer software, databases and other tools (and support services related to
such software, databases and tools) to measure, track, report on, and
manipulate and analyze data concerning (i) the outcomes of procedures,
treatments and protocols in inpatient
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<PAGE> 5
rehabilitation, subacute/skilled care, outpatient rehabilitation, home health
care and acute care and (ii) the costs and utilization of healthcare
procedures, treatments and protocols.
"Compete" or "Competing" shall mean with respect to the Business: (i)
the development, implementation, marketing and sale of computer software,
databases and other tools (and support services related to such software,
databases and tools) to measure, track, report on, and manipulate and analyze
data concerning (A) the outcomes of procedures, treatments and protocols in
inpatient rehabilitation, subacute/skilled care, outpatient rehabilitation,
home health care or acute care and (B) the costs and utilization of healthcare
procedures, treatments and protocols; (ii) hiring, soliciting or attempting to
hire or solicit any employee of the Company or Medirisk either on Employee's
behalf or on behalf of any other person or entity; or (iii) entering into or
attempting to enter into any business substantially similar to the Business,
either alone or with any individual, partnership, corporation or association.
"Directly or Indirectly" as they modify the words "Compete" or
"Competing" shall mean: (i) acting as an agent, representative, consultant,
officer, director, independent contractor or employee of any entity or
enterprise that is Competing with the Business; (ii) participating in any such
Competing entity or enterprise as an owner, partner, limited partner, joint
venturer, creditor, or stockholder (except as a stockholder owning less than a
five percent interest in a corporation whose shares are actively traded on a
national securities exchange or in the over-the-counter market); and (iii)
communicating to any such Competing entity or enterprise the names or
addresses or any other information concerning any past, present or identified
prospective client, customer or supplier of the Company or Medirisk.
"Territory" shall mean the United States of America and all of its
political subdivisions.
5.2 Scope and Reasonableness. Employee also acknowledges that Medirisk
and the Company have a reasonable present and future expectation of business
within the Territory.
5.3 Confidentiality and Trade Secrets.
(a) Employee acknowledges and agrees that as an employee, officer,
director and owner of stock of the Company and as an employee and officer of
Medirisk she has been and will be afforded an unique opportunity to acquire
confidential information concerning the Business and that the misappropriation
or disclosure of such confidential information would cause irreparable harm to
Medirisk and the Company. Employee acknowledges that such confidential
information includes, without limitation, financial information concerning the
Business, the names and addresses of actual and potential customers, studies of
prospective market areas, data supply sources, products, technical data, ideas,
processes, financial matters, and trade secrets (including without limitation
all such information obtained or learned during her tenure as a director,
officer
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<PAGE> 6
and employee and stockholder of the Company or as an employee and officer of
Medirisk), such information collectively being referred to as the "Confidential
Information." Confidential Information shall not include any information or
documents that (i) are or become publicly available without breach of this
Section 5.3, (ii) Employee receives from any third party who, to the best of
Employee's knowledge upon reasonable inquiry, is not breaching an obligation of
confidence with Medirisk or the Company or without an accompanying obligation
of confidence, or (iii) constitutes Employee's general knowledge of the
industry of which the Business is part, or (iv) is required to be released by a
valid court or governmental order. In the event that Employee is requested in
any court or governmental proceeding to disclose any Confidential Information,
Employee shall give Medirisk prompt notice of such request, such that Medirisk
or the Company may seek a protective order or other appropriate relief, and in
any such proceeding Employee will disclose only so much of the Confidential
Information as is required to be disclosed.
(b) Employee will keep confidential and will not for a period of two (2)
years after the termination or expiration of her employment with Medirisk,
directly or indirectly, divulge to anyone, use or otherwise appropriate any of
the Confidential Information for any reason or purpose whatsoever except to
authorized representatives of Medirisk or the Company.
(c) With respect to any trade secrets included in the Confidential
Information, Employee also agrees not to use or disclose any of such trade
secrets at any time until such trade secrets become generally available to the
public by independent discovery or development and publication through no fault
of Employee. Employee acknowledges and agrees that these prohibitions against
disclosure of Confidential Information are in addition to, and not in lieu of,
any rights or remedies that Medirisk or the Company may have available pursuant
to the laws of any jurisdiction or at common law to prevent disclosure of trade
secrets or proprietary information, and the enforcement by Medirisk or the
Company of any of their rights and remedies pursuant to this Agreement shall
not be construed as a waiver of any other rights or available remedies they may
possess in law or equity absent this Agreement.
5.4 Non-Competition. Employee agrees that for a period of two (2)
years following the expiration or termination of her employment with Medirisk,
she will not, without Medirisk's prior written consent, Directly or Indirectly
Compete with the Company in the Business within the Territory.
5.5 Non-Solicitation and Non-Interference. Employee agrees that for a
period of two (2) years after the expiration or termination of her employment
with Medirisk, she will not in any way, directly or indirectly, for herself or
on behalf of or in conjunction with any other person, partnership, firm or
corporation:
(a) Solicit or divert away or attempt to solicit or divert any
customer served by the Company or Medirisk prior to the
Termination Date;
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<PAGE> 7
(b) Solicit or divert away or attempt to solicit or divert
away any prospective customer to which a written proposal was
submitted during the twelve (12) month period prior to the
Termination Date;
(c) Solicit or divert away or attempt to solicit or divert
away any prospective customer to which a specific oral proposal was
submitted during the twelve (12) month period prior to the
Termination Date; or
(d) Hire any employee of Medirisk or the Company, or request
or induce any employee of Medirisk or the Company to terminate his
or her employment with Medirisk or the Company and accept
employment with another entity.
5.6 Remedies. Employee acknowledges that any violation of this Article V
will cause irreparable harm to Medirisk and the Company and that damages are
not an adequate remedy. Employee, therefore, agrees that Medirisk and the
Company shall be entitled to an injunction enjoining, prohibiting, and
restraining Employee from the continuance of any such violation, in addition to
any monetary recovery that might be available to Medirisk and the Company by
reason of a violation of this Agreement and any other remedies at law or in
equity, including without limitation specific performance.
5.7 Independent. The covenants set forth in the foregoing Sections of
Article V are and shall be deemed and construed as separate and independent
covenants. Should any part or provision of such covenants be held invalid,
void or unenforceable in any court of competent jurisdiction, such invalidity,
voidness or unenforceability shall not render invalid, void or unenforceable
any other part or provision thereof. Specifically, and without limiting the
generality of the foregoing, if any portion of Section 5.2, 5.3, 5.4 or 5.5 is
found to be invalid by a court of competent jurisdiction because its duration,
the Territory, and/or the Business are invalid or unreasonable in scope, such
duration, Territory, and/or Business, as the case may be, shall be redefined by
consideration of the reasonable concerns and needs of Medirisk and the Company
such that the intent of Medirisk and Employee, in agreeing to Sections 5.2,
5.3, 5.4 and 5.5, will not be impaired and shall be enforceable to the fullest
extent of the applicable laws. Employee acknowledges and agrees that the
Company is an intended third party beneficiary of this Agreement.
5.8 Permitted Activities. Notwithstanding the provisions of Sections 5.4
and 5.5 above, Medirisk acknowledges and agrees that Employee may teach or
conduct research activities concerning the Business or fields related to it;
provided that in any such teaching or research activities Employee shall not
disclose or use Confidential Information in violation of Section 5.3 and shall
not disclose specific information concerning Medirisk's or the Company's
practices or conduct of its business or use of Confidential Information,
whether or not such specific information falls within the definition of
Confidential Information; provided, further, that in the event Employee's
research activities yield during
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<PAGE> 8
the term of the noncompetition covenant set forth in Section 5.5 any
commercially useful or marketable results that could reasonably be expected to
be applied in the Business, Employee shall offer to the Company and Medirisk
the opportunity to license or purchase such results on commercially reasonable
terms prior to offering to license or sell such results to any other party.
ARTICLE VI.
PAYMENTS UPON TERMINATION.
If Employee voluntarily terminates employment hereunder (other than for
Good Reason), if Employee's employment is terminated by reason of her death or
total disability, or if the Company terminates Employee's employment hereunder
for "good cause," Employee shall be entitled to receive the unpaid Salary
accrued for performance rendered under this Agreement through the Termination
Date. If Employee terminates employment for Good Reason, or if Medirisk
terminates Employee's employment hereunder other than for "good cause,"
Employee shall be entitled to continue to receive her then-effective Salary
through the Expiration Date, paid in accordance with Medirisk's standard policy
(which policy currently provides for payments on the fifteenth and last day of
each month); provided that Employee shall be paid no less than once per month.
ARTICLE VII.
MISCELLANEOUS
7.1 Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon Employee and her executor, administrator, heirs, personal
representatives and assigns, and Medirisk and its successors and assigns;
provided, however, that Employee shall not be entitled to assign or delegate
any of her rights or obligations hereunder without the prior written consent of
Medirisk.
7.2 Governing Law. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with, the laws of the State of Illinois.
7.3 Withholding. Notwithstanding any of the terms and provisions of this
Agreement, all amounts payable to Employee hereunder shall be subject to
withholding of such sums related to taxes, garnishments or other legal
obligations as Medirisk may reasonably determine it is required to withhold
pursuant to applicable law, regulation, decree or judgment.
7.4 Waiver. No delay or omission by either party in exercising any right,
remedy or power hereunder or existing at law or in equity shall be construed as
a waiver thereof, and any such right, remedy or power may be exercised by such
party from time to time and as often as may be deemed expedient or necessary by
such party in its sole discretion.
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<PAGE> 9
7.5 Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.6 Notices. Unless otherwise agreed to in writing by the parties hereto,
all communications provided for hereunder shall be in writing and shall be
deemed to be given when delivered in person or two (2) business days after
being sent by first class mail and addressed as follows:
(a) If to Employee:
Ms. Pamella Leiter
155 North Wacker Drive, Suite 725
Chicago, IL 60606
(b) If to Medirisk addressed to:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, GA 30305-1502
Attention: Mark A. Kaiser
or to such other person or address as shall be furnished in writing by any
party to the other prior to the giving of the applicable notice or
communication.
7.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
7.8 Entire Agreement. This Agreement supersedes all prior agreements
between the parties regarding the employment of Employee. This Agreement may
be modified only by a written instrument signed by each of the parties hereto.
Nothing in this Agreement shall be construed as giving Employee any right to be
retained in the employ of Medirisk beyond the Expiration Date as set forth in
Section 2 of this Agreement, and Employee specifically acknowledges that in the
event her employment continues beyond the Expiration Date, she shall be an
employee at will of Medirisk, and thus subject to discharge by Medirisk with or
without cause and without compensation of any nature and that following any
such discharge the provisions of Section 5 of this Agreement shall be
applicable.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.]
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
-----------------------------------
Name: Mark A. Kaiser
---------------------------------
Title: Chief Executive Officer
--------------------------------
EMPLOYEE
/s/ Pamella Leiter
--------------------------------------
PAMELLA LEITER
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
___ day of March, 1996, by and between SUSAN BRANDT, an individual resident of
the State of Missouri (hereinafter referred to as "Employee"), and MEDIRISK,
INC., a Florida corporation ("Medirisk").
W I T N E S S E T H:
WHEREAS, pursuant to a Stock Purchaser Agreement dated March ___, 1996
(the "Stock Purchase Agreement"), by and among Medirisk, Employee and the other
Sellers (as defined in the Stock Purchase Agreement), Employee is selling to
Medirisk all of her shares of capital stock in PracticeMatch, Inc. (the
"Company");
WHEREAS, in order to induce Medirisk to enter into the Stock Purchase
Agreement and consummate the transactions contemplated thereby, Employee has
agreed to enter into this Agreement; and
WHEREAS, Medirisk desires to employ Employee, and Employee desires to be
employed by Medirisk, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I.
EMPLOYMENT.
1.1 Position. Subject to the terms hereof, Medirisk hereby employs
Employee, and Employee hereby accepts such employment. Employee shall serve as
a Vice President of Medirisk generally responsible for managing the day-to-day
operations of the Company (Employee acknowledging and agreeing that human
resources, sales and corporate functions such as legal and accounting services
may be consolidated with those of Medirisk), and Employee shall perform such
duties and accept such responsibilities as are assigned to her from time to
time by the Chief Executive Officer or Chief Operating Officer of Medirisk.
Unless otherwise agreed by Employee, Employee's principal place of employment
shall be in the St. Louis, Missouri metropolitan area; provided that the
Employee acknowledges that reasonable travel to other locations may be
necessary to perform the duties hereunder.
1.2 Discharge of Duties. Employee agrees faithfully and diligently to
discharge and carry out her duties and responsibilities under this Agreement,
shall use her
<PAGE> 2
reasonable best efforts to implement the policies established by the Chief
Executive Officer or Chief Operating Officer of Medirisk which are consistent
with her title and position as specified in Section 1.1 hereof, and shall
devote her full business time, attention, energy and skill to the business of
the Company and Medirisk. Employee shall not, during her employment, seek or
accept other employment, become self-employed in any other capacity during the
term of her employment, or engage in any activities which are detrimental to
the business of Medirisk or the Company; provided, however, that Employee may
continue to be associated with the business of Cedar Restorers of St. Louis,
Inc. in the capacities in which she was involved with such business prior to
the date of this Agreement. Notwithstanding the foregoing, Employee may engage
in personal investment activities, provided that such activities do not
interfere with Employee's ability to discharge her duties and responsibilities
hereunder.
ARTICLE II.
TERM AND TERMINATION.
2.1 Term of Employment. The employment of Employee hereunder shall
commence as of the date hereof and shall, except as otherwise provided herein,
continue until the earlier of (a) the third anniversary of the date hereof (the
"Expiration Date") or (b) the occurrence of any of the following events:
(i) the death or total disability of Employee (total disability
meaning the failure of Employee to perform her normal required services
hereunder for a period of three consecutive months during any consecutive
six-month period during the term hereof by reason of Employee's mental or
physical disability as reasonably determined by a physician selected by
the Board of Directors of the Company or by the Chief Executive Officer of
Medirisk);
(ii) the Company's termination of Employee's employment hereunder,
upon prior written notice to Employee, for "good cause." For the purposes
of this Agreement, good cause for termination of Employee's employment
shall exist (A) if Employee is convicted of, pleads guilty to, confesses
to or is indicted of any felony or commits any act of fraud,
misappropriation or embezzlement against the Company or Medirisk, (B) if
Employee has engaged in a dishonest act to the material damage or
prejudice of the Company, Medirisk or any affiliate of either or engaged
in conduct or activities involving moral turpitude that damage the
property, business or reputation of the Company, Medirisk or any affiliate
of either, (C) if Employee suffers from chronic alcoholism or other form
of addiction, (D) if Employee shall materially neglect or fail to perform
duties assigned to her consistent with Section 2.2 hereof which continues
for thirty days after receipt of written notice detailing such neglect or
failure from the Chief Executive Officer, Chief Operating Officer or Board
of Directors of the Company, or (G) if during the term of this Agreement,
Employee violates any provisions set forth in Article V of this Agreement;
or
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<PAGE> 3
(iii) Employee's termination of Employee's employment hereunder upon
thirty (30) days' written notice.
The earlier of (a) and (b) of this Article II is sometimes hereinafter referred
to as the "Termination Date."
2.2 Termination by Employee for Good Reason. Employee shall be entitled
to terminate her employment hereunder for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the prior written consent of Employee:
(a) the relocation of Employee's principal place of employment
anywhere outside the St. Louis, Missouri metropolitan area, or Employee being
required to be based anywhere other than the St. Louis, Missouri metropolitan
area, except for reasonable travel on the Company's business;
(b) the removal of the title of Employee specified in Section 1.1
hereof or the material reduction, without Employee's consent, of Employee's
duties and responsibilities hereunder; or
(c) a material breach by the Company of its obligations under this
Agreement, which breach continues for a period of 30 days after notice from
Employee detailing such material breach.
ARTICLE III.
COMPENSATION.
3.1 Salary. Employee shall be paid a base salary (the "Salary") during
her employment hereunder at the rate of $96,000 per annum, payable in
accordance with Medirisk's standard policy (which policy currently provides for
payments on the fifteenth and last day of each month). Such Salary is subject
to increase by the Board of Directors of Medirisk from time to time, in its
sole discretion, based upon review of Employee's performance and the
performance of Medirisk pursuant to Medirisk's policy.
3.2 Bonus. (a) Employee shall be eligible for a target bonus equal to
$50,000 for services rendered from the date hereof through December 31, 1996,
and for all calendar years thereafter during the term of this Agreement.
(b) For the period from the date hereof through December 31, 1996,
Employee's bonus shall consist of (i) a commission of 1% of all renewal revenue
recognized by the Company during such period, such commission being paid
monthly based on renewal revenue recognized in the preceding month and such
commission being calculated based upon renewal revenue recognized as determined
on the cash basis of accounting (rather than the accrual basis) as such cash
basis has historically been applied
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<PAGE> 4
by the Company, and (ii) a target bonus of $25,000 based upon the Company's
achievement of 100% of the pre-tax profit goal reasonably established by
Medirisk within 60 days after the date of this Agreement, such profit bonus
being increased by 3% for each 1% that actual results exceed such pre-tax
profit goal and being reduced by 1% for each 1% that actual results are below
such pre-tax profit goal; provided that Employee shall receive no bonus based
upon the Company's pre-tax profits if the Company fails to achieve 70% of such
pre-tax profit goal. The Chief Executive Officer of Medirisk may determine,
based upon year-to-date performance and forecast performance for the remainder
of the year, to pay up to 50% of the Employee's bonus based on pre-tax profits
on a quarterly basis based on the Company's performance in the prior quarter.
Notwithstanding the foregoing, Employee shall receive a minimum bonus based on
pre-tax profits of the Company of $4,000 for each of the first two calendar
quarters of 1996, such minimum to be credited against bonuses actually earned
during 1996 and to be paid within 30 days after the end of each of the first
two calendar quarters of 1996.
(c) For each year from and after January 1, 1997 during the term of
this Agreement, Employee shall be entitled to receive a target bonus of $50,000
based upon the Company's achievement of 100% of renewal and pre-tax profit
goals reasonably established by the Board of Directors of Medirisk in advance
of such year. The portion of such bonus based on renewal goals will continue
to be paid monthly, and up to 50% of the portion of the bonus based on pre-tax
profit goals will continue to be paid quarterly (subject to Medirisk's Chief
Executive Officer's determination). The target bonus will be increased or
decreased based upon the Company's exceeding or failing to achieve 100% of the
relevant goal on the same basis as the pre-tax profits-based goal for 1996 is
to be adjusted.
3.3 Expenses. Medirisk shall reimburse Employee for all reasonable
expenses incurred by Employee on behalf of the Company or Medirisk, and
approved and vouched pursuant to Medirisk's procedures or practices then in
effect.
3.4 Options. Within sixty days following the date hereof, Medirisk
will grant to Employee options to purchase up to 50,000 shares of Series A
Common Stock of Medirisk for a purchase price per share equal to the then fair
market value of a share as established on the date of such grant by the Board of
Directors, such fair market value to be communicated to the Employee at or
before the execution and delivery of this Agreement. The options will be
granted pursuant to the terms of Medirisk's standard option agreement. Such
options shall vest ratably over five years and will expire ten years after they
are issued.
ARTICLE IV.
BENEFITS.
Medirisk shall provide Employee with the following fringe benefits
during the term of her employment hereunder:
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<PAGE> 5
4.1 Benefits. Employee shall be entitled to participate in such
medical, dental, disability, hospitalization, life insurance and other benefit
plans (such as pension and 401(k) plans) as Medirisk shall maintain from time
to time for the benefit of officers of Medirisk, on the terms and subject to the
conditions set forth in such plans.
4.2 Vacation. In addition to customary holidays observed by Medirisk,
Employee shall receive paid vacation time during the term of her employment
hereunder in accordance with the vacation policy maintained by Medirisk from
time to time for the benefit of officers and employees of Medirisk, provided
that if the calculation of paid vacation time is based on time of service with
Medirisk, Employee shall receive credit for prior service as an employee of the
Company. Any unused vacation days in any calendar year may not be carried over
to subsequent calendar years, and vacation days for partial calendar years
during the term of employment will be pro rated.
ARTICLE V.
RESTRICTIVE COVENANTS.
5.1 Certain Definitions.
"Business" shall mean the Company's and Medirisk's present businesses
which consist of the development, implementation, marketing and sale of
computer software, databases and other tools (and support services related to
such software, databases and tools) to measure, track, report on, and
manipulate and analyze data concerning (i) the outcomes of procedures,
treatments and protocols in inpatient rehabilitation, subacute/skilled care,
outpatient rehabilitation, home health care and acute care, (ii) the costs and
utilization of healthcare procedures, treatments and protocols, and (iii)
profile and recruitment information directly or indirectly relating to
physicians and other healthcare providers.
"Compete" or "Competing" shall mean with respect to the Business: (i)
the development, implementation, marketing and sale of computer software,
databases and other tools (and support services related to such software,
databases and tools) to measure, track, report on, and manipulate and analyze
data concerning (A) the outcomes of procedures, treatments and protocols in
inpatient rehabilitation, subacute/skilled care, outpatient rehabilitation,
home health care or acute care, (B) the costs and utilization of healthcare
procedures, treatments and protocols or (C) profile and recruitment information
directly or indirectly relating to physicians or other healthcare providers,
provided that "Compete" or "Competing" shall not be deemed to mean Employee's
engaging in the business of physician recruiting; (ii) hiring, soliciting or
attempting to hire or solicit any employee of the Company or Medirisk either
on Employee's behalf or on behalf of any other person or entity; or (iii)
entering into or attempting to enter into any business substantially similar
to the Business, either alone or with any individual, partnership, corporation
or association.
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<PAGE> 6
"Directly or Indirectly" as they modify the words "Compete" or
"Competing" shall mean: (i) acting as an agent, representative, consultant,
officer, director, independent contractor or employee of any entity or
enterprise that is Competing with the Business; (ii) participating in any such
Competing entity or enterprise as an owner, partner, limited partner, joint
venturer, creditor, or stockholder (except as a stockholder owning less than a
five percent interest in a corporation whose shares are actively traded on a
national securities exchange or in the over-the-counter market); and (iii)
communicating to any such Competing entity or enterprise the names or addresses
or any other information concerning any past, present or identified prospective
client, customer or supplier of the Company or Medirisk.
"Territory" shall mean the United States of America and all of its
political subdivisions.
5.2 Scope and Reasonableness. Employee acknowledges that Medirisk and the
Company have a reasonable present and future expectation of business within the
Territory. Employee acknowledges that this Agreement (including without
limitation this Article V) is being entered into as a major portion of the
consideration for the sale of the stock of the Company to Medirisk
5.3 Confidentiality and Trade Secrets.
(a) Employee acknowledges and agrees that her prior positions as an
employee, officer, director and owner of stock of the Company and as an
employee and officer of Medirisk she has been and will be afforded an unique
opportunity to acquire confidential information concerning the Business and
that the misappropriation or disclosure of such confidential information would
cause irreparable harm to Medirisk and the Company. Employee acknowledges that
such confidential information includes, without limitation, financial
information concerning the Business, the names and addresses of actual and
potential customers, studies of prospective market areas, data supply sources,
products, technical data, ideas, processes, financial matters, and trade
secrets (including without limitation all such information obtained or learned
during her tenure as a director, officer and employee and stockholder of the
Company or as an employee and officer of Medirisk), such information
collectively being referred to as the "Confidential Information." Confidential
Information shall not include any information or documents that (i) are or
become publicly available without breach of this Section 5.3, (ii) Employee
receives from any third party who is not breaching an obligation of confidence
with Medirisk or the Company or without an accompanying obligation of
confidence, or (iii) is required to be released by a valid court or
governmental order. In the event that Employee is requested in any court or
governmental proceeding to disclose any Confidential Information, Employee
shall give Medirisk prompt notice of such request, such that Medirisk or the
Company may seek a protective order or other appropriate relief, and in any
such proceeding Employee will disclose only so much of the Confidential
Information as is required to be disclosed.
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<PAGE> 7
(b) Employee will keep confidential and will not for a period of two years
after the termination or expiration of her employment with Medirisk, directly
or indirectly, divulge to anyone, use or otherwise appropriate any of the
Confidential Information for any reason or purpose whatsoever except to
authorized representatives of Medirisk or the Company.
(c) With respect to any trade secrets included in the Confidential
Information, Employee also agrees not to use or disclose any of such trade
secrets at any time until such trade secrets become generally available to the
public by independent discovery or development and publication through no fault
of Employee. Employee acknowledges and agrees that these prohibitions against
disclosure of Confidential Information are in addition to, and not in lieu of,
any rights or remedies that Medirisk or the Company may have available pursuant
to the laws of any jurisdiction or at common law to prevent disclosure of trade
secrets or proprietary information, and the enforcement by Medirisk or the
Company of any of their rights and remedies pursuant to this Agreement shall
not be construed as a waiver of any other rights or available remedies they may
possess in law or equity absent this Agreement.
5.4 Non-Competition. Employee agrees that for a period of two years
following the expiration or termination of her employment with Medirisk, she
will not, without Medirisk's prior written consent, Directly or Indirectly
Compete with the Company in the Business within the Territory; provided that
this Section 5.4 shall be inapplicable in the event Employee terminates
employment hereunder for Good Reason pursuant to Section 2.2.
5.5 Non-Solicitation and Non-Interference. Employee agrees that for a
period of two years after the expiration or termination of her employment with
Medirisk, she will not in any way, directly or indirectly, for herself or on
behalf of or in conjunction with any other person, partnership, firm or
corporation:
(a) Solicit or divert away or attempt to solicit or divert any
customer served by the Company or Medirisk or any identified
prospective customer of the Company or Medirisk prior to the
Termination Date;
(b) Hire any employee of Medirisk or the Company, or request
or induce any employee of Medirisk or the Company to terminate his
or her employment with Medirisk or the Company and accept
employment with another entity;
provided that this Section 5.5 shall be inapplicable in the event Employee
terminates employment hereunder for Good Reason pursuant to Section 2.2
5.6 Remedies. Employee acknowledges that any violation of this
Article V will cause irreparable harm to Medirisk and the Company and that
damages are not an adequate remedy. Employee, therefore, agrees that Medirisk
and the Company shall be
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<PAGE> 8
entitled to an injunction enjoining, prohibiting, and restraining Employee from
the continuance of any such violation, in addition to any monetary recovery
that might be available to Medirisk and the Company by reason of a violation of
this Agreement and any other remedies at law or in equity, including without
limitation specific performance.
5.7 Independent. The covenants set forth in the foregoing Sections of
Article V are and shall be deemed and construed as separate and independent
covenants. Should any part or provision of such covenants be held invalid,
void or unenforceable in any court of competent jurisdiction, such invalidity,
voidness or unenforceability shall not render invalid, void or unenforceable
any other part or provision thereof. Specifically, and without limiting the
generality of the foregoing, if any portion of Section 5.2, 5.3, 5.4 or 5.5 is
found to be invalid by a court of competent jurisdiction because its duration,
the Territory, and/or the Business are invalid or unreasonable in scope, such
duration, Territory, and/or Business, as the case may be, shall be redefined by
consideration of the reasonable concerns and needs of Medirisk and the Company
such that the intent of Medirisk and Employee, in agreeing to Sections 5.2,
5.3, 5.4 and 5.5, will not be impaired and shall be enforceable to the fullest
extent of the applicable laws. Employee acknowledges and agrees that the
Company is an intended third party beneficiary of this Agreement.
ARTICLE VI.
PAYMENTS UPON TERMINATION.
If Employee voluntarily terminates employment hereunder (other than for
Good Reason), if Employee's employment is terminated by reason of her death or
total disability, or if the Company terminates Employee's employment hereunder
for "good cause," then Employee shall be entitled to receive the unpaid Salary
accrued for performance rendered under this Agreement through the Termination
Date. If Employee terminates employment for Good Reason, or if Medirisk
terminates Employee's employment hereunder other than for "good cause,"
Employee shall be entitled to continue to receive her then-effective Salary
through the Expiration Date, paid in accordance with Medirisk's standard
policy.
ARTICLE VII.
MISCELLANEOUS
7.1 Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon Employee and her executor, administrator, heirs, personal
representatives and assigns, and Medirisk and its successors and assigns;
provided, however, that Employee shall not be entitled to assign or delegate
any of her rights or obligations hereunder without the prior written consent of
Medirisk.
7.2 Governing Law. This Agreement shall be deemed to be made in, and
in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of Georgia.
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<PAGE> 9
7.3 Withholding. Notwithstanding any of the terms and provisions of this
Agreement, all amounts payable to Employee hereunder shall be subject to
withholding of such sums related to taxes, garnishments or other legal
obligations as Medirisk may reasonably determine it is required to withhold
pursuant to applicable law, regulation, decree or judgment.
7.4 Waiver. No delay or omission by either party in exercising any right,
remedy or power hereunder or existing at law or in equity shall be construed as
a waiver thereof, and any such right, remedy or power may be exercised by such
party from time to time and as often as may be deemed expedient or necessary by
such party in its sole discretion.
7.5 Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.6 Notices. Unless otherwise agreed to in writing by the parties hereto,
all communications provided for hereunder shall be in writing and shall be
deemed to be given when delivered in person or two (2) business days after
being sent by first class mail and addressed as follows:
(a) If to Employee:
Ms. Susan Brandt
55 West Port Plaza, Suite 755
St. Louis, Missouri 63146
(b) If to Medirisk addressed to:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, GA 30305-1502
Attention: Mark A. Kaiser
or to such other person or address as shall be furnished in writing by any
party to the other prior to the giving of the applicable notice or
communication.
7.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
7.8 Entire Agreement. This Agreement supersedes all prior agreements
between the parties regarding the employment of Employee. This Agreement may
be
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<PAGE> 10
modified only by a written instrument signed by each of the parties hereto.
Nothing in this Agreement shall be construed as giving Employee any right to be
retained in the employ of Medirisk beyond the Expiration Date as set forth in
Section 2 of this Agreement, and Employee specifically acknowledges that in the
event her employment continues beyond the Expiration Date, she shall be an
employee at will of Medirisk, and thus subject to discharge by Medirisk with or
without cause and without compensation of any nature and that following any
such discharge the provisions of Section 5 of this Agreement shall be
applicable.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.]
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
------------------------------
Name: Mark A. Kaiser
-----------------------------
Title: Chief Executive Officer
----------------------------
EMPLOYEE
/s/ Susan Brandt
----------------------------------
SUSAN BRANDT
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<PAGE> 1
EXHIBIT 10.5
Jack Sauer
Vice President
Sales & Marketing
May 31, 1996
Susan Sheedy, RN, MPH, FACHE
Director Quality Improvement/
Program Development
HealthSouth Corporation
Two Perimeter Park South
Birmingham, AL 35243
(205) 967-7116
(205) 969-4736 Fax
Dear Susan:
This letter will confirm that the current contract between HealthSouth
Corporation and Formations in Health Care, Inc. effective June 1, 1995
has been automatically renewed under the same terms and conditions.
This renewal will be for a period of one year beginning June 1, 1996.
We also agreed that we will be working to finalize agreement on
new projects and services such as the Ambulatory Surgery Project. We
may then mutually agree to supersede this agreement with one that
incorporates the revised format and language developed for these new
projects and services.
I'm looking forward to working with you personally and continuing
to develop the partnership between our companies.
Sincerely
/s/ Jack Sauer
cc: Mark Kaiser
Pam Leiter
<PAGE> 2
[LOGO] FORMATIONS
IN HEALTH CARE, INC.
CONTRACT FOR
SUBSCRIBING TO FORMATIONS OUTCOMES SYSTEMS
Date: June 1, 1995
To: James Bennett, President and C.E.O.
HealthSouth Corporation
Two Perimeter Parkway South
Birmingham, AL 35243
FROM: Pamella Leiter, President
Formations in Health Care, Inc.
Formations has truly appreciated the collaboration and support from HealthSouth
over the last year, as well as the previous years. We hope you have been
satisfied with the dedication of our staff to providing service to your
facility and corporate office staff. We have been timely and maintained
accuracy, while being flexible to your needs. We were not perfect, as there
were three unfortunate incidents where we mis-communicated or needed to improve
a procedure. However, we have implemented better procedures and are uniquely
positioned to continue to serve your organization.
Once again, we are requesting that our contract be renewed. This document
details all of the charges, including the increase in pricing. It has not been
possible to provide service at the current level for the 1994 prices. THIS
CONTRACT INCLUDES A 37% INCREASE IN PATIENTS AND A 37% INCREASE IN TOTAL COST
FOR SERVICES, BASED UPON SERVICES THAT HAVE BEEN ORDERED AS OF JULY 28, 1995.
A summary of pricing is included in Addendum 4, pages 21 and 22.
HealthSouth Data Contract
May 28, 1995
Page 1
<PAGE> 3
Jim , we need a little help from you in the area of collections. Formations
has had a tough time getting paid by HealthSouth in 40 days. This has made it
very difficult for us to meet payroll. We have had to borrow and pay interest
to cover while waiting for late HealthSouth payments, for which we are not
getting paid interest. This is very hard on a small business. We are now
billing twice a month, but it seems checks are still being delayed. Would you
consider an electronic transfer of funds, or do you have any other solutions?
All in all this has been a very satisfying relationship. We look forward to the
future.
cc: Susan Sheedy
HealthSouth Data Contract
May 28, 1995
Page 2
<PAGE> 4
AGREEMENT FOR PARTICIPATION IN THE FORMATIONS NATIONAL OUTCOME SYSTEM
This Agreement is entered into this ______ day of _____, 1995, between
HealthSouth Corporation, of Birmingham, Alabama (hereinafter the Participating
Organization) and Formations in Health Care, Inc. of Chicago, IL, (hereinafter
Formations).
WITNESSETH:
Whereas, Formations is an Indiana Corporation licensed to conduct business in
Illinois and engaged in the development of an outcome measurement system for
providers of rehabilitation services,
and, whereas, Formations provides the Formations Outcome System, (hereinafter
referred to as the System), proprietary to Formations. Such System may
include:
1. Clinical rating scales, which may or may not be
proprietary to Formations
2. A method for rating patients in rehabilitation
facilities
3. Training materials and a Certification process
4. Data collection forms and software
5. Data analysis programs
6. Outcomes reports
7. Follow-up interviews
and, whereas, the System is intended to provide a standardized system for
rehabilitation facilities to:
1. Evaluate program effectiveness based on predictive ranges
of functional improvement.
2. Monitor program efficiency based on predictive ranges
of length of stay and facility charges.
3. Monitor program changes and interventions.
4. Assist in meeting CARF program evaluation and JCAHO
quality improvement standards.
5. Minimize staff time and costs to implement a program
evaluation system.
6. Compare themselves to national data on program
effectiveness and efficiency.
and, whereas, to accomplish this, the Participating Organization has selected
to use the following scale(s), as appropriate, for outcomes measurement:
- Level of Rehabilitation Scale (LORS-III)
HealthSouth Data Contract
May 28, 1995
Page 3
<PAGE> 5
- Functional independence measure
- Medical Outcomes Scales (Pain, Wound, Respiratory and
scales under development): inpatient rehabilitation
patients with medical comorbidities and medical subacute
patients.
- Comorbid Disease Status: all patients
- Instrumental ADL Scales: inpatient rehab and outpatient
neuro patients
- Outpatient Scales: neuro, orthopedic scales and occupational
rehabilitation scales as appropriate for hospital based
outpatient programs
AA. It is hereby agreed between the parties that nothing within the scope of
this Agreement shall be deemed a grant of license by Formations to the
Participating Organization in any third party, proprietary rights such as
terms, names, common law trademarks, registered trademarks, trade names,
service marks and/or logos, data, scales and measures, (hereinafter "Third
Party Terms(s)") or shall give the Participating Organization any right, title,
or interest in or to such Third Party Term(s) for any purpose whatsoever. It
is understood, however, that the Participating Organization may use and refer
to such Third Party Term(s) for internal purposes, so long as the Participating
Organization at all times when using such Third Party Term(s) acknowledges the
proprietary rights, if any, of such Third Party Term(s). The Participating
Organization agrees that it shall indemnify, defend, and hold Formations
harmless from any misuse by the Participating Organization of any Third Party
Term(s). The Participating Organization shall promptly notify Formations in
the defense of any such claim or demand, neither shall settle such claim nor
demand without the permission of the other. The provision of this section
shall survive the termination or expiration of this agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereby agree as follows:
AB. To maintain the validity of the data collected by Formations, Formations
has developed a certification process. It is required by the certification
process that clinical raters take a test to show that they adequately
understand the rating guide lines and the scoring of the System and the scales.
It is also required that 80% of the clinical staff at a given facility achieve
this standard. To assure this standard, Formations had, upon the request of
its clients, developed a registry of clinicians who have passed a test of the
ability of clinical raters to correctly use the scales and rate patients in a
uniform method. It is herein referred to as "Competency Certification." This
certification is a process that is controlled and managed by Formations and
used for Formations purposes only. It is understood between the parties that
no other authority, either public or private mandates or supervises this
certification process.
AC. It is also acknowledged by the parties that Formations have developed a
data analysis method that is unique to the industry and is recognized for its
reporting methods. It is agreed that if and
HealthSouth Data Contract
May 28, 1995
Page 4
<PAGE> 6
when the Participating Organization uses its data in a written form for
marketing, contracting, public relations, or any other external purpose, it
will provide written recognition of Formations' proprietary rights in this data
analysis method.
AD. The parties acknowledge that Formations owns certain data entry software
referred to as the Rehabilitation Case Manager (RCM) based upon the Paradox
Runtime System. If the Participating Organization chooses to use this
software, it is agreed that the Participating Organization accept the terms and
agreements stipulated in the end-user license agreement and any other
agreements related to software licenses.
In fulfilling the terms of this contract:
A. Formations shall enroll the Participating Organization and its
designated facilities as subscribers to the Formations Outcomes
Systems and shall provide the following services:
1. A LIST OF ALL FACILITIES COVERED under this contract, with the
understanding that the number of facilities and the services provided
to each can increase throughout the year, upon the Participating
Organization providing Formations with a 60 days notice. This list
shall be provided in January.
2. COMPETENCY CERTIFICATION: Participating Organization must receive
"Competency Certification" in order for Formations to accept data
from this Participating Organization into the national data base.
For a Participating Organization to achieve this standard, 80% of
its clinical raters must pass a test that is offered by Formations
in Health Care, Inc. To pass, the clinical rater must get 80% of the
questions correct. Formations provides the following services to
assist the Participating Organization in achieving Competency
Certification:
a) On-site training to all clinical raters at designated
individual facilities to be provided for the initial
certification in a scale.
b) Provide one trained education consultant for on-site
training to all clinical raters in the form of a 4-6
hour workshop, followed by a "Certification Test."
Formations reserves the right to develop in the
future, alternate methods of education to include
computer-assisted training and/or videotapes and/or
train-the-trainer workshops. These alternate methods
shall be agreed upon, in writing between the Participating
Organization and Formations.
c) Score the clinicians' test and maintain a data base of
therapists who have passed the test and inform the
Participating Organization whether each
HealthSouth Data Contract
May 28, 1995
Page 5
<PAGE> 7
clinician has passed/not passed.
d) Inform the Participating Organization of the clinicians
who have not passed the test. Offer the test at regular
intervals to those who did not pass the first time and
score the test of these clinicians, and inform the
Participating Organization whether each clinician has
passed/not passed, and whether 80% of the staff has passed
the test, and whether the Participating Organization has
achieved Competency Certification.
e) Provide a certificate indicating Competency Certification
for each clinical rater and for each facility designated
by the Participating Organization.
f) If the Participating Organization collects and submits
data and does not meet competency requirements, and the
Participating Organization desires a Formations Outcomes
Report, Formations will process a "conditional" report
as a preliminary indication of outcomes, but the report
will include a "qualifying statement" that the facility
has not yet passed the competency requirements for rating.
g) Formations will provide the testing and/or a workshop(s)
at intervals when less than 80% of the staff meets
competency requirements.
h) Formations will schedule Competency Workshops according
to a schedule to be agreed upon in writing between the
parties. In January of each year, Formations shall
provide an education schedule for the year which lists
any facility that will receive training and the approximate
date of the training. It is understood that new
facilities may be added or scales may be added throughout
the year and additional training may be scheduled as needed.
i) The Participating Organization and Formations may produce
training videos to be used to train new staff after the
facility has achieved initial certification; e.g., it is
assumed that each facility will have an on-site
certification session and that the videos will be used to
supplement that training of newly hired staff. The
Participating Organization and Formations agree that they
will split the costs of production in half, and that the
Participating Organization will grant rights to Formations
to sell and market these training videos to other
Formations' clients. If the Participating Organization
produces the videos in such a way that they appear
proprietary to the Participating Organization (use of logos
and
HealthSouth Data Contract
May 28, 1995
Page 6
<PAGE> 8
mention of the Participating Organization's name, other than in
recognition of copyright, or procedures specific to the
Participating Organization) and cannot be used by Formations to
sell or market, Formations shall be compensated for its share of
the development time at a rate of $125 per hour, as for consulting
services.
k) After a facility has been certified and there has been less than
twenty percent turnover in staff, the new staff may become
certified by reading training manuals, watching videos and taking
the certification test. These tests shall be mailed to
Formations, scored and certificates provided. When the staff
turnover is greater than twenty percent in a given year, on-site
certification class shall be held.
3. REPORT PROCESSING: Read data, check for missing data and errors, and
process all data provided by each facility for the purpose of producing
facility and corporate outcomes reports and data analysis studies.
a) Provide Quarterly Facility Inpatient Rehabilitation Outcomes
Reports of the admission and discharge data collected from each
facility. Each facility shall be compared to the Formations
aggregate inpatient data base. Reports shall be processed
according to the data schedule as specified in Addendum 2. These
reports shall consist of 14 tables, 5 standard graphs and 3
optional graphs. One set of color graphs shall be provided to
each facility.
Formations shall revise the current report format to provide a
comparison to previous and current year-to-date.
Facilities who use the new co-morbid disease scales and the
Instrumental ADL scales shall have their report expanded by at
least 2 tables. Facilities who use the Medical Outcomes Scales
shall have their report expanded up to 33 tables and 7 graphs.
b) Provide Quarterly Inpatient Rehabilitation Facility Follow-up
Reports of the discharge and follow-up data collected from each
facility. Each facility shall be compared to Formations'
aggregate inpatient data base. Reports shall be processed
according to the schedule specified in Addendum 2. These reports
shall consist of 5 tables and 1 standard graph, a "Patient Decline
Report," and patient comments, each of the last two reports
providing identification of the patient by patient medical record
number, and a log of interview completion and non-completion,
specifying reasons
HealthSouth Data Contract
May 28, 1995
Page 7
<PAGE> 9
for non-completion. Each facility shall receive one unbound
copy of this report. Graphs in the Follow-up Report are
printed in black and white and color.
The corporate office shall receive one page of this
report that indicates which patients are "better, same
or worse." This table shall be revised by the 3rd
quarter of 1995 to include a comparison to current
quarter of last year and current year and previous
cumulative year-to-date.
c) Provide two-Year-End Inpatient Rehabilitation Outcomes Reports
to each facility that aggregates admission and discharge
data from a twelve month period. One report compares
each HealthSouth facility to Formations aggregate
inpatient data base. These reports shall consist of 14
TABLES AND 5 STANDARD GRAPHS AND 3 OPTIONAL GRAPHS. One
set of color graphs shall be provided to each facility.
The second report is a Year-End Facility Outcomes Report
Payor Profile that separates annualized outcomes data
by Medicare and Other, with Medicaid omitted from data.
Formations shall revise the current reports to include
a comparison of to previous and current year-to-date.
d) Process two Quarterly Corporate Inpatient Rehabilitation
Outcomes Reports and Quarterly Follow-up Reports: "Break
out," of all impairment groups, and "No-Break Out," which
collapses the impairment groups into major categories.
These reports aggregate the data from all facilities each
quarter and compare the HealthSouth corporation to
Formations aggregate inpatient data base, which includes
all HealthSouth facilities. The no-break out report
currently compares the current quarter to the same
quarter or the previous year and the current year to date
to the year to date of the previous year. Formations
will modify the "Break-Out" Report to reflect these
same comparisons. The graphs in the Quarterly Corporate
Inpatient Outcomes Reports are produced in black and white
and one set is provided in color.
e) Process Quarterly Corporate Inpatient Rehabilitation
Trend Report: This report compares the HealthSouth
Corporation to Formations aggregate inpatient data base,
which includes all HealthSouth facilities. This report
consists of 40 graphs and reflects patient numbers and
their outcomes since May 1989 and ongoing. This report
has been especially designed for HealthSouth. The graphs
are produced in black and white only.
f) Process Quarterly Corporate Inpatient Ranking Report: This
HealthSouth Data Contract
May 28, 1995
Page 8
<PAGE> 10
report compares all facilities to the national data base, to the
Health South data base, and to the data base that excludes
HealthSouth. It compares all facilities, by eight product lines,
to the outcomes of length of stay, charges, self care, mobility,
and return to home rate and ranks them in order of performance. A
comparison is made to the mean of the data base and the expected
range as available. In addition, the report states the number of
total patients that the facility treated. 13 color copies and one
black and white copy of this report is provided.
g) Provide quarterly facility reports for hospital based outpatient
neuro, orthopedic or occupational rehab outpatients and
rehabilitation inpatients with respiratory, wound, pain as
secondary complications or medical subacute patients receiving
care for respiratory, wound or pain, who have been assessed on one
of Formations' new scales. These new reports shall be available
no sooner than October 15, 1995 to facilities who have started to
collect data by July 1, 1995. Corporate reports for these scales
will be available in June, 1996 or as requested by the
Participating Organization.
h) Provide one bound copy and one unbound copy of every report
produced, unless stated otherwise above.
i) Provide ongoing support by telephone or fax, not to exceed one
hour per quarter per facility throughout the duration of this
contract. In addition, the President of Formations in Health
Care, Inc. shall provide in person support/consultation for one
day per quarter to the corporate office staff on all matters
related to this contract.
j) Maintain a copy of all patient data collected from facility(ies)
belonging to the Participating Organization.
k) Maintain the confidentiality of the data specific to the
Participating Organization and maintain the confidentiality of the
analysis of the data specific to the Participating Organization,
unless otherwise requested by the Participating Organization.
l) Notify the corporate office when 10% or more of the data submitted
by a facility is missing from the data file.
m) Notify the corporate office when a facility's data is more than
one week late.
HealthSouth Data Contract
May 28, 1995
Page 9
<PAGE> 11
n) The schedule for production of all reports is contained in
Addendum 2.
4. CONDUCT FOLLOW-UP TELEPHONE CALLS on the patients discharged from the
Participating Organization.
a) Provide trained telephone interviewers with a background in health
care/rehabilitation to call discharged rehabilitation inpatients
between 80-100 days after discharge.
b) Interview rehabilitation inpatients using an agreed upon follow-up
survey consisting of up to 24 standard questions and 2 custom
questions.
c) Provide a report meeting the specifications in section 3.b) stated
above.
d) Make contact with 70% of the rehabilitation inpatients discharged
or their family members, for whom correct telephone numbers have
been provided, and data was submitted prior to expiration of
follow-up cycle (100 days after discharge). Formations will make
a minimum of three attempts to call each patient, prior to coding
as "No Answer."
e) Notify the facility administrator or, in his or her absence, the
acting administrator when an interview reveals a problem that
requires immediate attention by the facility.
f) Maintain follow-up data on computer files. Provide each facility
with a copy of their completed follow-up data on a diskette at the
end of each quarter, as the Participating Organization's computer
software allows for unloading of the data.
g) Provide follow-up telephone services for outpatient neuro, ortho,
or occupational rehabilitation patients and medical rehabilitation
or subacute patients as requested by the Participating
Organization. These services require the use of Formations' new
scales. Follow-up services shall be available for these services
after September 1, 1995. Follow-up reports shall be available
after December 1, 1995.
5. Provide a detailed file specifications and data transmission schedule to
allow for the electronic data transmission.
a) Provide detailed file layouts with exact descriptors of all data
elements, i.e.,
HealthSouth Data Contract
May 28, 1995
Page 10
<PAGE> 12
1) Zero filled left or right and justification instructions.
2) Examples of how data fields must be completed.
3) Definition of export format.
b) Provide Participating Organization with notification of any
changes in file layout or data definitions which would require
modifications of the Participating Organization's software 90 days
prior to Formations' implementation of new data procession
procedures.
c) Any changes in Participating Organization's software file
structure and data transmission shall be described and signed off
by both parties to the execution of such changes.
6. MAINTAIN INSURANCE of up to $100,000.00 to cover loss of data due to
property casualty.
7. PROVIDE CUSTOM SERVICES such as data analysis, report production software
design and programming, and consultation upon request. Such services
shall be requested in writing, an estimate provided and an approval
signature provided prior to implementation.
B. The Participating Organization shall:
1. At least once a year and prior to June 1, provides Formations with
a CURRENT LISTING OF ALL FACILITIES covered by the contract,
specifying if they are to receive rehabilitation reports,
medical outcomes reports and/or outpatient neuro, ortho or
occupational rehabilitation reports.
2. Keep Formations UPDATED WITH INFORMATION regarding the name,
contact person and approximate numbers of patients for new
facilities and with changes in facility personnel, phone numbers
of data coordinators, follow up coordinators and administrators
and fax to Formations as soon as possible.
3. Ensure that the CERTIFICATION PROCESS for raters and the
facilities designated by the Participating Organization is
maintained in cooperation with Formations to delete clinicians
who are no longer acting as raters from certification records and
provide competency Certification for new raters.
a) This shall be done by sending a staff listing with
clinician names and social security numbers once a year to
Formations.
HealthSouth Data Contract
May 28, 1995
Page 11
<PAGE> 13
b) Assign an appropriate staff member at each facility to oversee the
Competency Certification training for new staff members. Make
certain that this staff member has achieved Formations Competency
Certification through Formations Competency Certification process.
c) Once a year, during a two-month certification period, Formations
may make notification and request that the Participating
Organization make copies of, distributes, and administers the
Certification Test to non-certified staff. Once completed, the
Participating Organization shall send the Certification Tests to
Formations for scoring.
4. Ensure that data will be collected within three days from admission and
within three days from discharge for all patients according to their
actual level of functioning at admission and discharge, and that data
shall not be intentionally falsified or distorted for any reason.
5. Assign a staff member at each facility who shall be responsible for
assuring that all data fields are complete, and that data is entered and
submitted according to guide lines as specified in the Instruction Guide
and according to the data submission schedule agreed upon between the
parties (See Addendum 2) and inform Formations of that person's name,
telephone number and fax number.
a) Inform Formations in Health Care, Inc. when this responsibility
has been reassigned to another staff member for any reason and
provide appropriate information.
b) See that all staffs who coordinate data have been supplied with an
Instruction Guide provided by Formations and the data coordination
responsibilities have been fully explained.
6. Maintain a data collection method that provides Formations with a data
file that can be read by Formations data analysis program.
7. Use Formations primarily to provide national comparisons of
rehabilitation outcome data.
8. Submit inpatient rehab data to Formations according to the following
schedule: Each facility shall submit inpatient rehab data from the
previous month by the 12th of every month. Inpatient rehab data shall be
submitted on a diskette.
8) Indemnify, defend and hold Formations harmless from and against any third
party
HealthSouth Data Contract
May 28, 1995
Page 12
<PAGE> 14
claim, demand, suit or actions with regard to Formations use of
such data in accordance with the terms and provisions of this
Agreement. The Participating Organization agrees that all
patients shall sign a release of information that allows their
confidential outcomes data, names and telephone number to be
released to Formations for the purpose of making follow-up
telephone calls. An example is provided in Addendum 3.
C) The term of this contract shall be for one year from June 1, 1995. This
contract shall be automatically renewed for successive one year periods,
subject to agreement on adjustment to the contract price.
D) This contract may be terminated by either party by providing day one
hundred eighty day written notice to the other party. The expiration or
termination of this Agreement shall not in any way affect or be deemed to
affect any obligation of either party having accrued prior to the
expiration or effective date of termination hereof or any right or
obligation which, by its terms, is to survive the expiration or
termination of this Agreement. Not withstanding any other provision of
this Agreement, should the settlement or final determination of any
intellectual property action or other action taken by a Third Party
against Formations or Participating Organization established that further
use of Third Party Terms shall result in a continuing infringement of
such Third Party rights, then Formations shall have the option and right
to immediately terminate this Agreement without further duty or
obligation to Participating Organization.
E) Cost for services:
a) Testing, scoring and certification of raters and the facility.
Cost: $1,000 for each facility for the initial certification
training for in the use of a scale, plus travel expenses. As new
training methodologies are developed, costs and responsibilities
shall be agreed upon in writing between the parties. For
individual testing of raters, there will be $20.00 per applicant
fee to offer and grade the test, enroll in data base and to
provide certificates. Each clinician must have a certification
manual to study. The cost of this manual is $15.00 per manual and
cannot be duplicated.
b) Enrolling of each facility:
All facilities currently operated by the Participating
Organization as designated in Addendum 4, shall be included in
this contract.
c) Outcomes Reports:
Reports will be processed for inpatient rehabilitation. Some
facilities will also receive medical outcomes reports and
outpatient reports as requested and designated in Addendum 5.
Please note that in the previous contract, only the
HealthSouth Data Contract
May 28, 1995
Page 13
<PAGE> 15
LORS or functional independence measure was available. In this
contract the co-morbid disease status is available to all
facilities and, pain, wound, respiratory, Instrumental ADLs,
Outpatient Neuro, Ortho and Occupational Rehabilitation are
available to selected facilities.
Cost: All facility and corporate outcomes reports described in
this contract shall be produced for the cost of $11.35 per patient
or a minimum of $250 per report, whichever is greater, with a
guaranteed minimum number of patients to be 20,000 35,000, or
2,917 patients per month. This fee is the same whether the
patient is assessed on one or more of the Formations' scales in a
given setting. In other words, if a patient is discharged from
inpatient care and admitted to outpatient care, subacute care or
home health care, where outcomes are assessed, this will
constitute a new patient fee.
d) Follow-up Telephone Interviews:
Cost: $8.90 per patient, plus telephone bill expense, with a
guaranteed minimum number of patients to be 35,000, or 2,917
patients per month. (Note: This is cost per patient, not per
completed call. Only 70% of all patients with accurate phone
numbers and timely submission of data will actually be contacted.)
e) In the event the Participating Organization chooses to submit data
on optical scan forms rather than diskettes, as in the case of
medical outcomes and outpatient outcomes scales, Formations shall
make forms available at a cost of $3.00 per patient.
f) Additional Programming and Consultation Services:
Support services requested in addition to this contract, shall be
requested in writing, and shall be billed as follows:
1) President: $150 per hour at Formations' office or in
Chicago. $1,300 per day or any portion thereof for
meetings outside of Chicago. Travel expenses to be billed
at cost.
2) Medical Director: $200 per hour at Formations' office or in
Chicago. $1600 per day or any portion thereof for meetings
outside of Chicago. Travel expenses to be billed at cost.
3) Research Consultants, Training Consultants, Marketing
Consultants, programming or statistical analysis services:
$125 per hour at Formations' office or in Chicago. $1000
per day or any portion thereof for meetings outside of
Chicago. Travel expenses to be billed at cost.
4) Customer Support Staff: $60.00 per hour at Formations'
office or in Chicago. $400 per day or any portion thereof
for meetings outside of Chicago. Travel expenses to be
billed at cost.
5) If a facility requests an additional service that is not
approved by the
HealthSouth Data Contract
May 28, 1995
Page 14
<PAGE> 16
corporate office, or if a facility makes an error or wishes
to have their report rerun, these expenses shall be billed
as consulting time to the facility and not the corporate
office.
f) Telephone and fax support as specified within this agreement is
without charge, however all travel expenses for in person meetings
requested by the Participant Organization shall be billed at cost.
When attendance at a meeting is suggested by the Participating
Organization, but not requested, and Formations agrees to attend,
Formations shall pay for the travel expenses and shall not bill
for consultation time.
g) Invoice schedules shall be as follows:
1) Fees for services shall be billed twice a month, based upon
a 35,000 patient guaranteed minimum. The combined fee for
report processing and follow-up interviews is $20.25 per
patient.
These fees shall be billed twice a month at the rate of
$29,534.63 (2,917 patients per month X $20.25 per patient =
$59,069.25 per month/2 billing periods per month =
$29,534.63 per billing period) and invoiced on the 15th of
the month and the end of the month. Travel expenses,
telephone bill for follow-up services, training fees and
additional services that are requested shall be invoiced by
the end of the month for which the service was utilized.
Should the Participating Organization begin to submit data
for more than 2,917 patients per month, a charge of $20.25
shall be submitted for each patient.
All invoices are due within 40 days. Invoices over 40 days
are subject to a 1.5% per month interest charge.
Formations requests that the Participating Organization
consider the implementation of a bi-monthly bank transfer,
after invoice approval, rather than mailing of a check to
decrease the recurring problems with late payments and
mis-placed checks.
2) Programming cost for modification to all reports to as
follows: facility reports, Facility Year-End Report and
Facility-Year-End report divided by pay source and the
one-page Corporate Follow-up Table; comparison to previous
and current year-to-date, and Corporate Break Out Report to
include a comparison to same quarter previous year and year
to date previous and current year-to-date, modifications to
follow-up graphs as per
HealthSouth Data Contract
May 28, 1995
Page 15
<PAGE> 17
request to include pie charts: Cost for programming and
testing: 140 hours X $125 = $17,500. This will be billed
one time only as "consulting services." These modifications
shall be completed within 120 days of signing this
agreement.
I. Miscellaneous: This agreement shall bind and benefit the parties and
their respective assigns. This Agreement may not be assigned by the
parties without prior written consent of the other. Such consent shall
not be unreasonably withheld. No delay or omission by Participating
Organization shall be a waiver thereof, nor shall any single or partial
exercise of any right or remedy preclude any other exercise of any other
right or remedy.
This Agreement shall be governed by the laws of the State of Illinois.
The parties agree to the personal jurisdiction of any Illinois court. In
the event of any successful legal proceeding to enforce the terms of this
Agreement, Formations shall be entitled to recover reasonable attorneys'
fees and expenses and other costs from Participating Organization.
Section Headings are for the convenience of the parties and shall not be
construed as part of the Agreement.
The invalidity of any portion of the Agreement shall not affect the
enforceability or validity of any other provision.
The agreement together with any exhibit or addenda represents the entire
agreement between the parties and supersedes all prior oral or written
communication. No modification of this agreement shall be effective
unless in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date put
above written.
Participating Organization: Formations:
Signature /s/ James P. Bennett Signature /s/ Pamella Leiter
-------------------- ------------------
Print Name James P. Bennett Print Name: Pamella Leiter
-------------------
Title President Title: President
------------------------
Date Date
------------------------- -----------------------
HealthSouth Data Contract
May 28, 1995
Page 16
<PAGE> 18
Addendum 1. to Agreement for Participation in the Formations Outcomes System
Please complete for all facilities to be enrolled and mail or fax to
Formations:
Fax: (312) 849-3060. Address: 155 N. Wacker Dr., Suite 725,
Chicago, IL 60606.
Name of Participating Organization:
-----------------------------
Date when data collection will begin:
---------------------------
Facility Name:
-------------------------------------------------------
Data base category: The Participating Organization should determine how each
facility's data should be categorized within the Formations' data base. Please
select the facility type that applies.
Inpatient: DRG exempt rehabilitation unit in a hospital
----
Inpatient; A freestanding rehabilitation hospital
----
Hospital based subacute care facility
----
Outpatient Neuro
----
Outpatient Ortho
----
Outpatient Occupational Rehabilitation
----
Home Health Care
----
Other
----
Facility ID Code: (To be assigned by Formations after this form is
submitted:
---------
Address:
------------------------------------------------------------
- ---------------------------------------------------------------------
Person to whom Outcomes Reports should be sent: Name:
----------------
Phone: Fax:
---------------------------- -------------------------------
Address (if different from above):
-----------------------------------
- ---------------------------------------------------------------------
Certification workshop contact person:
-------------------------------
Phone: Fax:
---------------------------- -------------------------------
Data collection coordinator:
-----------------------------------------
Phone: Fax:
---------------------------- -------------------------------
Follow-up phone contact person:
--------------------------------------
Phone: Fax:
---------------------------- -------------------------------
Data entry method:
HCIS software
----
Formations forms
----
Other:
---- ------------------------------------------
Will this facility require a Certification Workshop? Yes No
----- -----
If yes, please state month in which workshop should occur:
------------
Number of staff to be certified: X $15.00 (Cost per Instruction
---------
Guide) =
----
(please attach additional copies for each facility)
HealthSouth Data Contract
May 28, 1995
Page 17
<PAGE> 19
Addendum 2
The HealthSouth report/processing schedule is listed below:
<TABLE>
<CAPTION>
Report Current Schedule New Schedule
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Facility Inpatient 5/15, 8/15, 10/15, 2/15 5/30(1), 8/10, 11/10, 1995
Rehabilitation Reports: 2/10, 1996
- -----------------------------------------------------------------------------------------
Corporate Reports, No 4/15, 8/15, 10/15, 2/15 5/30(2), 8/10, 11/10, 1995
Break Out, Break Out, 2/10, 1996
Ranking Report
- -----------------------------------------------------------------------------------------
Inpatient Rehab Trend 4/30, 7/31, 10/31, 1/31 6/10, 8/20, 11/20, 1995
Graphs 2/20, 1996
- -----------------------------------------------------------------------------------------
Year-end corporate 2/28 2/28
report
- -----------------------------------------------------------------------------------------
Year-end facility 3/28 3/28
reports
- -----------------------------------------------------------------------------------------
Medical Outcomes 9/30, 12/30, 1995
Reports 3/30, 6/30, 1996
- -----------------------------------------------------------------------------------------
Outpatient Outcomes 10/30, 1995
Reports 1/30, 4/30, 7/30, 1996
- -----------------------------------------------------------------------------------------
</TABLE>
___________________
(1)This extension is requested for the first quarter of each year because
Formations updates the norms and needs extra time to work out inevitable
problems with running new software programs.
(2)This extension is requested for the same reasons as stated above.
HealthSouth Data Contract
May 28, 1995
Page 18
<PAGE> 20
Addendum 3
SAMPLE FOLLOW-UP RELEASE FORM
PATIENTS RECEIVING REHABILITATION SERVICES
(Facility Name) strives to provide its customers with the highest quality
rehabilitation services. Information that you provide is vital to us in helping
maintain customer satisfaction and attain positive outcomes within our facility.
To ensure our programs continue to provide effective services, your treatment
team conducts evaluations during specific periods of your stay in the areas of
self-care, mobility, communication, and cognition. These assessments allow us to
maintain the quality of our program outcomes.
Because we are concerned with your ability to maintain your quality of life once
you have left (Facility Name), we attempt to assess each patient's functional
ability levels after their discharge. Approximately three months after your
discharge, you will be contacted by telephone by a representative of a company
named Formations in Health Care. (Facility Name) has contracted with Formations
to collect this data so that it may be compared to your assessment levels from
both admission and discharge. This follow-up information aids us in identifying
issues for our program evaluation system.
We thank you in advance for your cooperation.
I acknowledge that the above information was explained to me to my satisfaction.
I agree to the release of my name, phone number, demographic and functional
status information to the appropriate parties mentioned above. I also agree that
either I or my representative will do our best to cooperate with the interview.
NAME OF PATIENT DATE
- ----------------------------------------- ------------------------------
OR
GUARDIAN, NEXT OF KIN OR SPONSORING AGENT DATE
- ----------------------------------------- ------------------------------
HealthSouth Data Contract
May 28, 1995
Page 19
<PAGE> 21
Addendum 4
HEALTHSOUTH-FORMATIONS CONTRACT PRICE COMPARISONS: 1994-1995
<TABLE>
<CAPTION>
SERVICE 1994 PRICE 1995 PRICE COMMENTS
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Competency $1,000 per same per facility, HealthSouth is producing
Certification facility when a single a video which should
staff member is support training efforts.
certified the price
is $20.00
- -----------------------------------------------------------------------------------------------------
Facility and corporate $8.55 per patient 11.35 Formations did not cover
report processing costs in servicing the
HealthSouth contract in
1994-1995, so prices
needed to be raised. In
1995-1996 Formations is
providing more service:
more scales and expanded
reports.
- -----------------------------------------------------------------------------------------------------
Follow up phone calls $6.90 8.90 Same as above
and reports
- -----------------------------------------------------------------------------------------------------
Consultation services $1.00 per patient Will be billed on See consultation fees on
a "per project" E. f), page 13
basis
- -----------------------------------------------------------------------------------------------------
</TABLE>
For 1995, the total contract for standard services is based upon $20.25 per
patient for a minimum of 35,000 patients.
HealthSouth Data Contract
May 28, 1995
Page 20
<PAGE> 22
PROJECTED 1995 FEES:
<TABLE>
<CAPTION>
Report processing Consulting and Phone Other: Travel, Total
and follow up calls Certification bill shipping,
manuals
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$708,750 $3,000 for video tape $42,892 $25,149 $887,291
$20,000 (estimate) for $30,000 for
certification of training
outpatient and subacute manuals
centers Total:
$40,000 for certification $55,149
of 2,000 staff in
co-morbid and
IADL scales
$17,500 for requested
report modifications
Total: $80,500
- ---------------------------------------------------------------------------------------------------
</TABLE>
COMPARISON TO LAST YEAR:
From June 1, 1994 through May 31, 1995, Formations processed data for 25,474
patients. The total charges to HealthSouth were $604,903 and were categorized as
follows:
<TABLE>
<CAPTION>
Report processing Consulting and Phone Other: Travel, Total
and follow up calls Certification bill shipping,
manuals
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$521,109 $43,600 $32,250 $20,958 $649,388
- ---------------------------------------------------------------------------------------------------
</TABLE>
THIS COMPARISON INDICATES A 37% INCREASE IN PATIENTS AND A 37% INCREASE IN COST
OF SERVICES, BASED UPON SERVICES THAT HAVE BEEN ORDERED AS OF JULY 29, 1995.
Formations requests that the invoicing schedule be altered to two times per
month rather than one time per month. On the 15th of the month, the invoice
shall be $29,534.63. On the 30th of the month the invoice shall be the same, and
also include any additional programming/consulting or
HealthSouth Data Contract
May 28, 1995
Page 21
<PAGE> 23
training sessions. Each month, Formations will indicate the number of patients
for which data was received.
HealthSouth is receiving a large discount on services. Other clients are paying
$33.00 per patient, not including any corporate reports.
HealthSouth Data Contract
May 28, 1995
Page 22
<PAGE> 24
<TABLE>
<CAPTION>
Addendum 5
HealthSouth Facilities and Scales in use and proposed for use with month of implementation
-- Scales In Use -- -------------------------------- Scales Proposed---------------------------------
===================================================================================================================================
functional functional Medical Comorbid Instrumental Outpatient Outpatient Outpatient
independence independence Outcomes Disease ADL Neuro Ortho Occupational
Facility Name LORS measure measure Scales Status Scales Scales Scales Rehab Scales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HealthSouth Regional X July July
Rehab Center - Miami
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Regional X July July
Rehab Center - Largo
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Rehab X July July
Hospital - Oklahoma
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Rehab X July July
Hospital - Florence
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Rehab X July July
Center - Humble
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Rehab X July July
Center - Kingsport
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Medical X July July July
Center - Richmond
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth New Hampshire X July July
Rehab Hospital
===================================================================================================================================
HEALTHSOUTH DATA CONTRACT
MAY 28, 1995
PAGE 23
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
-- Scales In Use -- -------------------------------- Scales Proposed---------------------------------
===================================================================================================================================
functional functional Medical Comorbid Instrumental Outpatient Outpatient Outpatient
independence independence Outcomes Disease ADL Neuro Ortho Occupational
Facility Name LORS measure measure Scales Status Scales Scales Scales Rehab Scales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HealthSouth Medical X July July July
Center East
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - North X Sept. July July
Houston
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Head Injury X July July
Rehab Center
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Rehab X July July
Hospital - Albuquerque
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Rehab X July July
Hospital - Columbia
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Regional X July July
Rehab - Fort Worth
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Vanderbilt/ X July July
Stallworth
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Trident X July July
Neurological Center
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth Altoona X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Tallahassee X July July
===================================================================================================================================
HEALTHSOUTH DATA CONTRACT
MAY 28, 1995
PAGE 24
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
-- Scales In Use -- -------------------------------- Scales Proposed---------------------------------
===================================================================================================================================
functional functional Medical Comorbid Instrumental Outpatient Outpatient Outpatient
independence independence Outcomes Disease ADL Neuro Ortho Occupational
Facility Name LORS measure measure Scales Status Scales Scales Scales Rehab Scales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HealthSouth - Dallas X July July
Rehab Institute
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Fort Smith X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - New Jersey X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Great Lakes X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Montgomery X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Mechanicsburg X July July
Acute
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Sarasota X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Sea Pines X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Nittany Valley X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Sunrise X July July
===================================================================================================================================
HEALTHSOUTH DATA CONTRACT
MAY 28, 1995
PAGE 25
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
-- Scales In Use -- -------------------------------- Scales Proposed---------------------------------
===================================================================================================================================
functional functional Medical Comorbid Instrumental Outpatient Outpatient Outpatient
independence independence Outcomes Disease ADL Neuro Ortho Occupational
Facility Name LORS measure measure Scales Status Scales Scales Scales Rehab Scales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HealthSouth - Treasure X July July
Coast
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - York X Sept. July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Greater X July July
Pittsburgh
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Riosa X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Utah X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Dothan X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Memphis X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Lake Erie X Sept. July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Austin X July July
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Texarkana X July July
===================================================================================================================================
HEALTHSOUTH DATA CONTRACT
MAY 28, 1995
PAGE 26
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
-- Scales In Use -- -------------------------------- Scales Proposed---------------------------------
===================================================================================================================================
functional functional Medical Comorbid Instrumental Outpatient Outpatient Outpatient
independence independence Outcomes Disease ADL Neuro Ortho Occupational
Facility Name LORS measure measure Scales Status Scales Scales Scales Rehab Scales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HealthSouth - Midland/ X July July
Odessa
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - North X July July
Alabama Rehab Hospital
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Middle X July July
Tennessee Rehab at Sumner
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Lakeshore X July July
Rehab at Carraway
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Chattanooga X July July
Rehab
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Huntington X July July
Rehab Hospital
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Lakeshore X July July
Rehab - Brookwood Unit
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Lakeshore Rehab X July July
at Bessemer-Carraway
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Northern X July July
Kentucky Rehab
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Lakeshore X July July
Rehab Hospital
===================================================================================================================================
HEALTHSOUTH DATA CONTRACT
MAY 28, 1995
PAGE 27
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
-- Scales In Use -- -------------------------------- Scales Proposed---------------------------------
===================================================================================================================================
functional functional Medical Comorbid Instrumental Outpatient Outpatient Outpatient
independence independence Outcomes Disease ADL Neuro Ortho Occupational
Facility Name LORS measure measure Scales Status Scales Scales Scales Rehab Scales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HealthSouth - Central X July July
Georgia Rehab
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - South X July July
Louisiana Rehab
- -----------------------------------------------------------------------------------------------------------------------------------
NovaCare Facilities:
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Arlington October October October
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Virginia October October October
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Mountainview October October October
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Western Hills October October October
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Southern Hills October October October
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Institute October October October
of Tucson
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Meridian Point October October October
===================================================================================================================================
HEALTHSOUTH DATA CONTRACT
MAY 28, 1995
PAGE 28
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
-- Scales In Use -- -------------------------------- Scales Proposed---------------------------------
===================================================================================================================================
functional functional Medical Comorbid Instrumental Outpatient Outpatient Outpatient
independence independence Outcomes Disease ADL Neuro Ortho Occupational
Facility Name LORS measure measure Scales Status Scales Scales Scales Rehab Scales
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HealthSouth - Chesapeake October October October
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Valley of October October October
the Sun
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - Bakersfield October October October
- -----------------------------------------------------------------------------------------------------------------------------------
HealthSouth - TriState October October October
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
HEALTHSOUTH DATA CONTRACT
MAY 28, 1995
PAGE 29
</TABLE>
<PAGE> 31
JOINT VENTURE WITH HEALTHSOUTH
ADDENDUM 1. - COVERED UNDER HEALTHSOUTH CONTRACT (probably starting 1/1/96)
<TABLE>
<S> <C>
Please complete for each facility to be enrolled and mail or fax to Formations:
Fax: (312) 848-0060 Ph: (312) 549-3060 Address: 155 North Wacker Drive, Suite 725, Chicago, IL 60606
Name of Participating Organization: University of Virginia Health Sciences Center
----------------------------------------------------------------------
Facility Name Date when data collection will begin: ASAP after training
---------------------------- -------------------------
Data base category: The Participating Organization should determine how each facility's data should be
categorized within the Formations' data base. Please select ONE AND ONLY ONE of the following:
- ---------------------------------------------------------------------------------------------------------
X Inpatient CRC exempt rehabilitation unit in hospital Inpatient Free-standing rehabilitation hospital
- - -
- ---------------------------------------------------------------------------------------------------------
Hospital-based subacute unit Hospital-based skilled nursing unit
- - -
- ---------------------------------------------------------------------------------------------------------
Skilled nursing facility Subacute unit Skilled nursing facility
- - -
- ---------------------------------------------------------------------------------------------------------
Contract services company Subacute care Contract services company Skilled care
- - -
- ---------------------------------------------------------------------------------------------------------
Home care agency Outpatient Center - hospital based
- - -
- ---------------------------------------------------------------------------------------------------------
Occupational rehabilitation clinic Outpatient center, non-hospital
- - -
- ---------------------------------------------------------------------------------------------------------
Acute Long Term Care
- -
- ---------------------------------------------------------------------------------------------------------
Facility Medicare Provider #: 490009 Facility Corp. ID #
-------------------------------- -----------------------
(Formations will assign)
Address: PO Box 79 Blue Ridge Hospital UVA Charlottesville, Virginia 22901
-------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Person to whom Outcomes Reports should be sent Name: Teresa Tusen Radford
-----------------------------------------------------
Phone (804) 924 8549 Fax: (804) 924-2439
----------------------------------- -----------------------------------------------------------
Address (if different from above)
------------------------------------------------------------------------
Certification coordinator:
-------------------------------------------------------------------------------
Phone: Fax:
----------------------------------- -----------------------------------------------------------
Data collection coordinator:
-----------------------------------------------------------------------------
Phone: Fax:
----------------------------------- -----------------------------------------------------------
Billing contact: Danye Robinson
----------------------------------------------------------------------------------------
Phone: (804) 243-6226 Fax: (804) 924-0221
----------------------------------- -----------------------------------------------------------
Scales that data will be collected on: Flm
-------------------------------------------------------------------
Data entry method: Formations optical scan forms other:
--- ----- ----------------------------
X Formations Rehabilitation Case Manager (RCM)
---
Will this facility collect follow-up data? X Yes No
--- ---
Will this facility contract for Formations follow-up services? X Yes No
--- ---
If yes, who is the contact person? Name: Teresa Radford Phone: (804) 924-8549
---------------------- -----------------------------------
Anticipated number of discharges per month to be submitted:
----------------------------------------------
Will this facility require a Certification Workshop? X Yes No
--- ---
If yes, state month in which workshop should occur: VA NOV
------------------------------------------------------
If no, how will facility certify staff?:
-----------------------------------------------------------------
Name of trainer:
-----------------------------------------------------------------------------------------
Number of staff to be certified: 30 x $20.00 (Cost per Instruction Guide) = 600
------ -------
$20.00 (Cost per certification test)* =
-------
Shipping fees** =
-------
Workshop price*** $1,000
Sign-on fee $ 250
Total amount due = 1,850
-------
*The certification test fee is waived if a Formations trainer is giving workshop.
**Formations will calculate based on weight of shipment of handling fees.
***The workshop price is waived if a non-Formations trainer is giving workshop.
(See train-the-trainer program)
(please attach additional copies for each facility)
</TABLE>
<PAGE> 1
EXHIBIT 10.6
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
January 9, 1996 by and between MEDIRISK, INC., a Florida corporation (the
"Company"), and Pamella Leiter, a resident of Illinois (the "Shareholder").
W I T N E S S E T H
WHEREAS, the Company and the Shareholder are parties to a Stock Purchase
Agreement dated November 22, 1996 (the "Stock Purchase Agreement"), providing
for, upon the terms and subject to the conditions of the Stock Purchase
Agreement, the acquisition of all of the capital stock of Formations in Health
Care, Inc. ("Formations") by the Company; and
WHEREAS, upon the terms and subject to the conditions of the Stock
Purchase Agreement, the Shareholder will receive 153,119 shares of Series A
Common Stock of the Company and an option to purchase an additional 44,561
shares of Series A Common Stock of the Company (such shares and the shares
issued upon the exercise of such option being collectively referred to as the
"Restricted Shares") in partial consideration for the transfer of the capital
stock of Formations; and
WHEREAS, it is in the best interests of the Company and the Shareholder
that certain registration rights be granted to the Shareholder with respect to
the Restricted Shares;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS.
"Board of Directors" means the Board of Directors of the Company.
"business day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of Atlanta, Georgia are authorized by law to
close.
"Closing Date" shall have the meaning set forth in the Stock Purchase
Agreement.
"Commission" means the Securities and Exchange Commission and any
successor commission or agency having similar powers.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE> 2
"person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture, or other
entity of whatever nature.
"Registrable Securities" means the Restricted Shares acquired by the
Shareholder pursuant to the Stock Purchase Agreement or acquired upon the
exercise of the option granted under the Option Agreement (as defined in the
Stock Purchase Agreement) and held by the Shareholder at a given time; provided
that such Restricted Shares shall cease to be Registrable Securities if and
when (i) a registration statement with respect to the disposition of such
Restricted Shares shall have become effective under the Securities Act and such
Restricted Shares shall have been disposed of pursuant to such effective
registration statement, (ii) such Restricted Shares have been or could be sold
to the public under circumstances in which all of the applicable conditions of
Rule 144 (or any similar rule then in force) under the Securities Act were met
or would be met, as the case may be, (iii) such Restricted Shares shall have
been otherwise transferred, if new certificates or other evidences for such
Restricted Shares not bearing a legend restricting further transfer and not
subject to any stop transfer order or other restrictions on transfer shall have
been delivered by the Company and subsequent disposition of such Restricted
Shares shall not require registration or qualification of such Restricted
Shares under the Securities Act, or (iv) such Restricted Shares shall have
ceased to be outstanding.
"Registration Expenses" means (i) all registration and filing fees, (ii)
fees and expenses of compliance with securities or blue sky laws (including
fees and disbursements of counsel in connection with blue sky qualification of
the Registrable Securities), (iii) printing expenses, (iv) internal expenses
(including, without limitation, all salaries and expenses of officers and
employees of the Company performing legal or accounting duties), (v) fees and
disbursements of counsel for the Company and fees and expenses for independent
certified public accountants retained by the Company (including the expenses of
any comfort letters or costs associated with the delivery by independent
certified public accountants of a comfort letter or comfort letters requested
pursuant to Section 2.4(h) hereof), (vi) fees and expenses of any special
experts retained by the Company in connection with such registration, (vii)
fees and expenses of listing the Registrable Securities on a securities
exchange, (viii) fees of the National Association of Securities Dealers, Inc.,
and (ix) fees of transfer agents and registrars; but shall not include any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, any out-of-pocket expenses of the Shareholder (or the
agents who manage her accounts) or any fees and expenses of counsel for the
Shareholder or any expenses of underwriters except as specifically indicated
above.
"Securities Act" means the Securities Act of 1933, as amended.
- 2 -
<PAGE> 3
ARTICLE II
REGISTRATION RIGHTS
2.1 INCIDENTAL REGISTRATION.
(a) If the Company, at any time after its initial offering of stock
registered under the Securities Act, proposes to register any of its equity
securities (the "Priority Securities") under the Securities Act (other than a
registration (i) on Form S-8 or S-4 or any successor or similar forms, (ii)
relating to equity securities issuable upon exercise of employee stock options
or in connection with any employee benefit or similar plan of the Company, or
(iii) in connection with a direct or indirect acquisition by the Company of
another company), whether or not for sale for its own account, in a manner that
would permit registration of Registrable Securities for sale to the public
under the Securities Act, it will on each such occasion give prompt written
notice to the Shareholder of its intention to do so and of the Shareholder's
rights under this Section 2.1, at least 30 days prior to the anticipated filing
date of the registration statement relating to such registration. Any such
notice shall offer the Shareholder the opportunity to request to include in
such registration statement such number of Registrable Securities as the
Shareholder may request. Upon the written request of the Shareholder made
within 20 days after the receipt of notice from the Company (which request
shall specify the number of Registrable Securities intended to be disposed of
by the Shareholder and the intended method of disposition thereof), the Company
will use its best efforts to effect the registration under the Securities Act
of all Registrable Securities which the Company has been so requested to
register by the Shareholder, to the extent requisite to permit the disposition
(in accordance with such intended methods thereof) of the Registrable
Securities so to be registered; provided that (i) if such registration involves
an underwritten public offering, the Shareholders must sell their Registrable
Securities to the underwriters selected by the Company on the same terms and
conditions as apply to the Company; and (ii) if, at any time after giving
written notice of its intention to register any securities pursuant to this
Section 2.1(a) and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register such securities, the Company shall give written notice
to the Shareholder and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration. If a
registration pursuant to this Section 2.1(a) involves an underwritten public
offering and the Shareholder requests shares be included in such registration,
the Shareholder may elect, by notice to the Company not less than 10 business
days prior to the effective date of the registration statement filed in
connection with such registration, not to register such shares in connection
with such registration.
(b) Priority In Incidental Registrations. If a registration pursuant to
this Section 2.1 involves an underwritten public offering and the managing
underwriter advises the Company that, in its view, the number of equity
securities (including all Registrable Securities) which the Company, the
Shareholder and any other persons intend to include in such registration
exceeds the largest number of securities that can, in the opinion of the
managing underwriter, be sold in such offering (the "Maximum Offering
Size"), the
- 3 -
<PAGE> 4
Company will include in such registration, in the following priority, up to the
Maximum Offering Size:
(i) first, all the Priority Securities (including any to be sold for
the Company's own account or for other holders of Priority Securities with
demand registration rights or priority incidental registration rights),
with such priorities among them as the Company may determine; and
(ii) second, the equity securities requested to be sold for the
account of all other persons pro rata on the basis of the relative number
of equity securities that all such persons have requested to be included
in such registration;
provided, however, that if securities owned by any executive officer of the
Company are included in the Priority Securities, then any Registrable
Securities that the Shareholder proposes to include in such registration shall
also be deemed Priority Securities, and to the extent securities owned by any
such executive officer are included in the registration, the Shareholder's
Registrable Securities shall be included in such registration pro rata with
those owned by all executive officers on the basis of the relative number of
equity securities that all such executive officers (including the Shareholder)
have requested to be included in such registration.
2.2 HOLDBACK AGREEMENTS.
(a) If any registration of Registrable Securities shall be in connection
with an underwritten public offering and the Shareholder elects to have shares
included in such offering, the Shareholder agrees not to effect any public sale
or distribution under the Securities Act of any Registrable Securities, and not
to effect any such public sale or distribution of any other equity security of
the Company or of any security convertible into or exchangeable or exercisable
for any equity security of the Company (in each case, other than as part of
such public offering) during the 5 business days prior to, and during the
90-day period (or such longer period as requested by the underwriters and
agreed to by the Shareholder) which begins on, the effective date of such
registration statement, provided that the Shareholder has received written
notice of such registration at least two business days prior to the anticipated
beginning of the 5 business day period referred to above.
(b) If any registration of Registrable Securities shall be in connection
with an underwritten public offering, the Company agrees not to effect any
public sale or distribution of any of its equity securities or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than any such sale or distribution of such securities in
connection with any merger or consolidation by the Company or any subsidiary of
the Company or the acquisition by the Company or a subsidiary of the Company of
the capital stock or substantially all the assets of any other person or in
connection with an employee stock ownership or other benefit plan) during the 5
business days prior to, and during the 90-day period (or such longer period as
requested by the underwriters and agreed to by the Company) which begins on,
the effective date of such registration statement.
- 4 -
<PAGE> 5
2.3 REGISTRATION PROCEDURES. Whenever the Shareholder requests that any
Registrable Securities be registered pursuant to Section 2.1 hereof, 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 as quickly as practicable, and the Company, in connection
with any such request, will:
(a) Prepare and file with the Commission, as expeditiously as
possible, a registration statement on any form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and
which form shall be available for the sale of the Registrable Securities
to be registered thereunder and which shall state, if applicable, that the
subject Registrable Securities are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, and use
its best efforts to cause such registration statement to become and remain
effective for the period of distribution contemplated thereby (determined
as hereinafter provided).
(b) Prepare and file with the 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 specified in this Section 2.3 and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement in
accordance with the sellers' intended method of disposition set forth in
such registration statement for such period.
(c) Will, a reasonable time prior to filing a registration statement
or prospectus or any amendment or supplement thereto, furnish to the
Shareholder and each underwriter, if any, of the Registrable Securities
covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Company will furnish
to the Shareholder and underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by
reference therein), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as the
Shareholder or underwriter may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by the Shareholder.
(d) Promptly notify the Shareholder of any stop order issued or
threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.
(e) Use its best efforts to (i) register or qualify the Registrable
Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the managing underwriter or
Shareholder shall reasonably request and (ii) cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations
<PAGE> 6
of the Company and to do any and all other acts and things that may be
reasonably necessary or advisable to enable the Shareholder to consummate
the disposition of the Registrable Securities owned by the Shareholder;
provided that the Company will not be required to (A) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (e), (B) subject itself to taxation in any
such jurisdiction or (C) consent to general service of process in any such
jurisdiction.
(f) Immediately notify the Shareholder and each underwriter, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of any event as a result of which
the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and 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 material fact required
to be stated therein or necessary to make the statements therein not
misleading and promptly make available to each the Shareholder any such
supplement or amendment.
(g) Make available for inspection by the Shareholder, any underwriter
participating in any disposition pursuant to such registration statement
and any attorney, accountant or other professional retained by any the
Shareholder or underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the
Company and cause the Company's officers, directors and employees to
supply all information, in every instance where reasonably requested by
any Inspectors in connection with such registration statement.
(h) Will furnish to the Shareholder of Registrable Securities covered
by such registration statement and to each underwriter, if any, a signed
counterpart, addressed to the Shareholder or underwriter, of (i) an
opinion or opinions of counsel to the Company and (ii) a comfort letter or
comfort letters from the Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered
by opinions or comfort letters in such transactions.
(i) Will otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
(j) Use its best efforts to cause all such Registrable Securities to
be listed on each securities exchange on which the same or similar
securities issued by the Company are then listed.
For purposes of paragraphs (a) and (b) of this Section 2.3, (i) the period
of distribution of securities in an underwritten public offering shall be
deemed to extend until
- 6 -
<PAGE> 7
the later of the date each underwriter has completed the distribution of all
securities purchased by it and the termination of the period in which
prospectuses must be delivered under Rule 174 of the Securities Act, and (ii)
the period of distribution of securities in any other registration shall be
deemed to extend until the earlier of the sale of all securities covered
thereby and 60 days after the effective date thereof.
The Company may require the Shareholder promptly to furnish in writing to
the Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration.
In connection with each registration pursuant to Section 2.1 hereof
covering an underwritten public offering, the Company and the Shareholder agree
to enter into a written agreement with the managing underwriter in such form
and containing such provisions as are customary in the securities business for
such an arrangement between major underwriters and companies of the Company's
size and investment stature, provided that such agreement shall not contain any
provision applicable to the Company that is inconsistent with the provisions
hereof.
The Shareholder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 2.3(f) hereof,
the Shareholder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until the Shareholder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 2.3(f) hereof. In the event that
the Company shall give such notice, the Company shall extend the period during
which such registration statement shall be maintained effective hereof by the
number of days during the period from and including the date of the giving of
notice pursuant to Section 2.3(f) hereof to the date when the Company shall
make available to the Shareholder a prospectus supplemented or amended to
conform with the requirements of Section 2.3(f) hereof.
2.4 EXPENSES. The Company will pay all Registration Expenses in
connection with any registration statement filed pursuant to Article II hereof.
All other expenses of registration, including underwriting discounts and
selling commissions and any out-of-pocket expenses incurred by the Shareholder
relating to the sale or disposition of the Shareholder's Registrable
Securities, shall be paid by the Shareholder.
2.5 INDEMNIFICATION BY THE COMPANY. If the Shareholder includes
Registrable Securities in a registration statement pursuant to Section 2.1 or
otherwise, the Company agrees to indemnify and hold harmless the Shareholder,
and each person, if any, who controls the Shareholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, pending or threatened claims, damages, liabilities,
joint or several (or actions in respect thereof), including, as incurred and
without limitation, reasonable legal, accounting, expert witnesses, or other
costs of investigating, preparing or defending any such claim or action
("expenses"), arising under the Securities Act or otherwise, caused by any
untrue
- 7 -
<PAGE> 8
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon information furnished in writing to the Company by the Shareholder
or on the Shareholder's behalf expressly for use therein; provided, however,
that with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, or in any prospectus,
as the case may be, the indemnity agreement contained in this paragraph shall
not apply to the extent that any such loss, claim, damage, liability or
expenses results from the fact that a current copy of the prospectus (or, in
the case of a prospectus, the prospectus as amended or supplemented) was not
sent or given to the person asserting any such loss, claim, damage, liability
or expenses at or prior to the written confirmation of the sale of the
Registrable Securities concerned to such person if it is determined that the
Company has provided such prospectus and it was the responsibility of the
Shareholder to provide such person with a current copy of the prospectus (or
such amended or supplemented prospectus, as the case may be) and such current
copy of the prospectus (or such amended or supplemented prospectus, as the case
may be) would have cured the defect giving rise to such loss, claim, damage,
liability or expense. The Company also agrees to indemnify any underwriters of
the Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Shareholders provided in this Section 2.5.
2.6 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES AND UNDERWRITERS.
The Shareholder, if any of her Registrable Securities are included in any
registration statement, agrees to indemnify and hold harmless the Company, its
officers, directors and agents and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to the Shareholder, but only with respect to information
furnished in writing by the Shareholder or on the Shareholder's behalf
expressly for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. The Shareholder also agrees to indemnify and hold
harmless underwriters of the Registrable Securities, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of the Company provided in this
Section 2.6. In no event and under no circumstances shall Shareholder be
liable for indemnification in an amount in excess of the proceeds received by
Shareholder from the sale of Registrable Securities pursuant to the
registration statement. As a condition to including Registrable Securities in
any registration statement filed in accordance with Article II hereof, the
Company may require that it shall have received an undertaking reasonably
satisfactory to it from any underwriter to indemnify and hold it harmless to
the extent customarily provided by underwriters with respect to similar
securities.
- 8 -
<PAGE> 9
2.7 CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to Section 2.5 or
2.6, such person (an "Indemnified Party") shall promptly notify the person
against whom such indemnity may be sought (the "Indemnifying Party") in writing
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses; provided that the failure of
any Indemnified Party so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent that the
Indemnifying Party is materially prejudiced by such failure to notify. In any
such proceeding, any Indemnified Party shall have the right to retain its own
counsel, and the fees and expenses of the counsel of such Indemnified Party
shall be at the expense of such Indemnifying Party if (i) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (ii) in the reasonable judgment of such Indemnified Party
representation of both parties by the same counsel would be inappropriate
because there may be defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying Party or if
the interests of the Indemnified Party reasonably may be deemed to conflict
with the interests of the Indemnifying Party. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings, in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one counsel for the Shareholder's Indemnified Parties and
one counsel for the underwriters' Indemnified Parties (in each case in addition
to any local counsel) at any time for all such Indemnified Parties, and that
all such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firms for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any proceeding effected without its written
consent which consent shall not be unreasonably withheld, but if settled with
such consent, or if there shall be a final judgment for the plaintiff, the
Indemnifying Party shall indemnify and hold harmless such Indemnified Parties
from and against any loss or liability (to the extent stated above) by reason
of such settlement or judgment. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
or threatened proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability arising out of such proceeding.
2.8 CONTRIBUTION. If the indemnification provided for in this Article II
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and expenses in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Parties in connection with the actions or inactions which resulted
in such losses, claims, damages, liabilities and expenses. The relative fault
of the Company on the one hand and of the Shareholder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the
- 9 -
<PAGE> 10
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Shareholder agree that it would not be just and
equitable if contribution pursuant to this Section 2.8 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.8, the Shareholder
shall not be required to contribute any amount in excess of the amount by which
the net proceeds received by the Shareholder exceeds the amount of any damages
which the Shareholder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
2.9 PARTICIPATION IN PUBLIC OFFERING. No person may participate in any
registration hereunder unless such person (a) agrees to sell such person's
Restricted Shares on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and this Agreement.
2.10 OTHER INDEMNIFICATION. Indemnification similar to that specified
herein (with appropriate modifications) shall be given by the Company and the
Shareholder with respect to any required registration or other qualification of
securities under any state law or regulation or governmental authority other
than the Securities Act.
ARTICLE III
MISCELLANEOUS
3.1 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
any provisions hereof.
3.2 NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Shareholder in this Agreement. The Company further
agrees that it will not, without the written consent of the Shareholder, grant
registration rights more favorable than those granted to the Shareholder
hereunder to any executive officer of the Company or to any person from whom
the Company acquires a business. The Shareholder acknowledges that Company has
previously entered into continuing agreements with respect to its debt or
equity securities granting registration rights (including demand registration
rights) and that it is likely to grant additional registration rights to
persons providing new financing to the Company, and the Shareholder
acknowledges and agrees that registration rights more favorable than those
granted to the Shareholder hereunder may be granted in the
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<PAGE> 11
Company's discretion to such persons providing financing.
3.3 REMEDIES. The Company acknowledges and agrees that in the event of
any breach of this Agreement by it, the Shareholder would be irreparably harmed
and could not be made whole by monetary damages. The Company accordingly
agrees (i) to waive the defense in any action for specific performance that a
remedy at law would be adequate, and (ii) that the Shareholder, in addition to
any other remedy to which she may be entitled at law or in equity, shall be
entitled to compel specific performance of this Agreement.
3.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein, and there are no restrictions, promises,
representations, warranties, covenants, or undertakings with respect to the
subject matter hereof, other than those expressly set forth or referred to
herein or therein. This Agreement supersedes all prior agreements and
understandings between the parties hereto with respect to the subject matter
hereof.
3.5 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party hereto to another party hereto shall be in writing
and shall be deemed given upon the earlier of delivery thereof, if by hand or
upon receipt if sent by certified or registered mail, postage prepaid, return
receipt requested, or on the second next business day after deposit if sent by
a recognized overnight delivery service or upon facsimile transmission (with
request of assurance of receipt in a manner customary for communications of
such type), to the following addresses:
If to the Shareholder:
Pamella Leiter
155 North Wacker Drive, Suite 725
Chicago, Illinois 60606
Facsimile #: (312) 843-3061
If to the Company:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Facsimile #: (404) 364-6711
Attention: Mark A. Kaiser
with a copy (which shall not constitute notice) to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
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<PAGE> 12
Facsimile #: (404) 881-7777
Attention: Keith O. Cowan
(b) If delivered personally or by facsimile, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made and, if delivered by mail, the date on which such notice,
request, instruction or document is received shall be the date of delivery.
(c) Any party hereto may change its address specified for notices herein
by designating a new address by notice in accordance with this Section 3.5.
3.6 APPLICABLE LAW. The laws of the State of Georgia shall govern the
interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under applicable principles of
conflicts of laws.
3.7 SEVERABILITY. The invalidity or unenforceability of any provisions
of this Agreement in any jurisdiction shall not affect the validity, legality
or enforceability of the remainder of this Agreement in such jurisdiction or
the validity, legality or enforceability of this Agreement, including any such
provision, in any other jurisdiction, it being intended that all rights and
obligations of the parties hereunder shall be enforceable to the fullest extent
permitted by law.
3.8 SUCCESSORS, ASSIGNS, TRANSFEREES. The provisions of this Agreement
shall be binding upon and accrue to the benefit of the parties hereto and their
respective heirs, successors, and assigns. Without limiting the generality of
the foregoing, the registration rights conferred herein on the Shareholder
shall inure to the benefit of any and all subsequent holders from time to time
of the Registrable Securities, unless otherwise agreed to by such subsequent
holders; provided that such subsequent holders promptly provide the Company
with their names and addresses and that such subsequent holder has acquired
such Registrable Securities in a transaction that did not violate the
Shareholders Agreement between the Shareholder and the Company.
3.9 COMPANY REPORTS. The Company covenants that, from and after the time
the Company engages in an initial offering of its securities registered under
the Securities Act, it will file the reports required to be filed by the
Company under the Securities Act and the Exchange Act, and the rules and
regulations adopted by the Commission thereunder; and it will take such further
action as the Shareholder may reasonably request, all to the extent required
from time to time to enable the Shareholder to sell the Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the reasonable request of the Shareholder, the
Company will deliver to the Shareholder a written statement as to the status of
the filings made by the Company with the Commission with copies of such
filings.
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<PAGE> 13
3.10 DEFAULTS. A default by any party to this Agreement in such party's
compliance with any of the conditions or covenants hereof or performance of any
of the obligations of such party hereunder shall not constitute a default by
any other party.
3.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.
3.12 RECAPITALIZATION, ETC. In the event that any capital stock or other
securities are issued in respect of, in exchange for, or in substitution of,
any Registrable Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Restricted Shares or any other change in
capital structure of the Company, appropriate adjustments shall be made in the
provisions of this Agreement so as to fairly and equitably preserve, as far as
practicable, the original rights of the Shareholder under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
-------------------------------------
Mark A. Kaiser, Chairman and Chief
Executive Officer
/s/ Pamella Leiter
-----------------------------------------
Pamella Leiter
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<PAGE> 1
EXHIBIT 10.7
EXECUTION COPY
____________________________________________________________________
WARRANT AGREEMENT
DATED
JANUARY 8, 1996
BETWEEN
MEDIRISK, INC.
AND
HEALTHPLAN SERVICES CORPORATION
____________________________________________________________________
<PAGE> 2
WARRANT AGREEMENT
This WARRANT AGREEMENT is entered into this 8th day of January 1996, by
and between MEDIRISK, INC., a Florida corporation (the "Company"), and
HEALTHPLAN SERVICES CORPORATION, a Delaware corporation (the "Investor").
BACKGROUND
The Company is authorized to issue 20,000,000 shares of Series A Common
Stock, par value $0.001.
Pursuant to this Agreement, the Company shall issue up to 665,180 warrants
to the Investor entitling it to purchase, subject to adjustment as provided in
this Agreement, up to an aggregate of 665,180 shares of Series A Common Stock
of the Company, such maximum aggregate number of shares representing 16% of the
outstanding shares of Series A Common Stock of the Company on a fully diluted
basis on the date hereof.
Capitalized terms used in this Agreement shall have the meanings set forth
on APPENDIX A.
NOW, THEREFORE, the Company and the Investor agree as follows:
ARTICLE 1
THE WARRANTS
1.1 Issuance of Warrants. (a) On each Subsequent Closing Date, in
consideration of the purchase by Investor of the Senior Subordinated Notes
purchased on such Subsequent Closing Date, the Company shall issue to the
Investor a number of Warrants equal to the aggregate original principal amount
of the Senior Subordinated Notes purchased at such Subsequent Closing
multiplied by 0.066518 (the "Warrant Multiple"). A maximum of 665,180 Warrants
will be issued hereunder if Investor purchases Senior Subordinated Notes with
an aggregate original principal amount equal to $10,000,000, such Warrants
representing 16% of the outstanding shares of the Company on a fully diluted
basis on the date hereof. At each such Subsequent Closing the Company shall
deliver to the Investor a Warrant Certificate representing such Warrants. Each
Warrant will entitle the Investor to purchase one share of Series A Common
Stock of the Company, with such number being adjusted as provided in Article 4
of this Agreement on account of events occurring after the date of this
Agreement, whether or not such events occur before or after the issuance of the
Warrant.
(b) If the Company (i) establishes any credit facility (an "Other Credit
Facility") prior to such time as the maximum number of Warrants issuable
hereunder have been issued, which credit facility is not (A) Senior Debt (as
defined in the Securities Purchase Agreement) or (B) indebtedness issued by the
Company to a seller of a business
<PAGE> 3
acquired by the Company in connection with the Company's acquisition of such
business, and (ii) incurs any indebtedness under such Other Credit Facility,
then the Company shall issue to the Investor effective as of each day on which
it incurs indebtedness under such Other Credit Facility a number of Warrants
equal to the aggregate original principal amount of the indebtedness incurred
by the Company under such Other Credit Facility on such day multiplied by the
Warrant Multiple. The Company shall deliver to the Investor a Warrant
Certificate representing the Warrants issuable under this subsection (b) within
30 days after the day on which it incurs indebtedness under such Other Credit
Facility.
(c) Subject to the provisions of subsection (d) below, if on the day the
Company engages in, or experiences, a Maturity Event the Company has not issued
at least 68.15% of the maximum number of Warrants issuable under this
Agreement, then the Company shall issue to the Investor a number of Warrants
equal to (i) 68.15% of the maximum number of Warrants issuable under this
Agreement minus (ii) the number of Warrants that have been issued under this
Agreement prior to such Maturity Event. The Company shall deliver to the
Investor a Warrant Certificate representing the Warrants issuable under this
subsection (c) within 10 Business Days after the effective date of such
Maturity Event. For the purposes of this Agreement, the term "Maturity Event"
means (A) an Initial Public Offering by the Company; (B) a Change of Control of
the Company; (C) the third anniversary of the date of this Agreement; (D) any
acceleration by the Investor of the maturity of the Indebtedness outstanding
under the Senior Subordinated Notes or any Event of Default that would give the
Investor the right to accelerate such maturity at a time when the Investor is
precluded from accelerating such maturity by reason of a Subordination
Agreement, (E) the death of Mark A. Kaiser, if such death occurs on or after
January 1, 1997, and (F) the termination of the employment of Mark A. Kaiser
with the Company.
(d) Notwithstanding the provisions of subsection (c) above, if Mark A.
Kaiser dies on or before December 31, 1996 (a "1996 Kaiser Death"), the
Investor may, on any date after such 1996 Kaiser Death and prior to a
subsequent Maturity Event, terminate its commitment to purchase Senior
Subordinated Notes as set forth in the Securities Purchase Agreement or
determine not to purchase Senior Subordinated Notes that it was otherwise
obligated to purchase thereunder except for the occurrence of the 1996 Kaiser
Death (a "Kaiser Death Funding Termination Event"); and upon such Kaiser Death
Funding Termination Event, subsection (c) of this Section 1.1 shall terminate
and be of no force and effect. In the absence of a Kaiser Death Funding
Termination Event, the Company shall continue to issue Warrants to Investor in
accordance with the provisions of this Agreement.
1.2 Execution of Warrant Certificates. Warrant Certificates may be
signed on behalf of the Company by any person authorized by the Company to do
so. Any person who, on the actual date of the execution of a Warrant
Certificate, is authorized by the Company to sign the Warrant Certificate, may
sign on the Company's behalf even if such person was not authorized to do so on
the Subsequent Closing Date.
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<PAGE> 4
1.3 Registration. The Company may deem and treat the registered Holder
of a Warrant Certificate as the absolute owner for all purposes, notwithstanding
any notation of ownership or other writing thereon made by anyone.
1.4 Exchanges. At the option of the Holder, any Warrant Certificate may
be exchanged when surrendered at the principal office of the Company for one or
more Warrant Certificates representing in the aggregate a Warrant or Warrants
to acquire a like number and kind of shares of Series A Common Stock in the
Company by the Holder. Warrant Certificates surrendered for exchange shall be
canceled by the Company.
1.5 Mutilated or Missing Warrant Certificates. If any of the Warrant
Certificates shall be mutilated, lost, stolen or destroyed, the Company shall
issue, in exchange and substitution for and upon cancellation of such Warrant
Certificate, a new Warrant Certificate representing an equivalent number of
Warrants, but only upon receipt of evidence of such loss, theft or destruction
reasonably satisfactory to the Company or, if requested by the Company, upon
receipt of a duly executed indemnification agreement reasonably satisfactory to
the Company; provided, however, that the Investor shall not be required to
deliver an indemnity bond.
1.6 Term and Exercisability of Warrants. The Warrants shall be
exercisable, at any time or from time to time, in whole or in part, in the
manner provided in Section 1.7; provided, however, that at the Expiration Date
any unexercised Warrants shall become void and all rights of the Investor with
respect to such Warrants shall cease.
1.7 Manner of Exercise of Warrants. Subject to the provisions of this
Agreement, the Investor shall have the right to purchase from the Company, and
the Company shall issue and sell to the Investor, one share of Series A Common
Stock for each Warrant exercised, upon surrender to the Company at its
principal office of the Warrant Certificate representing such Warrant, together
with a Form of Warrant Subscription in substantially the form of EXHIBIT A-2
completed and signed, and upon payment to the Company of the Exercise Price in
lawful money of the United States of America.
1.8 Issuance of Shares Upon Exercise. Upon exercise of a Warrant, the
Company shall issue and cause to be delivered to the Investor, registered in
the name of the Investor, a certificate representing the share or shares of
Series A Common Stock issuable upon the exercise of such Warrant. Such
certificate shall be deemed to have been issued, and the Investor shall be
deemed to have become a holder of record of such Series A Common Stock, as of
the date of surrender of the Warrant Certificate and payment of the Exercise
Price. The Warrants shall be exercisable, at the election of the Investor,
either as an entirety or for part only of the number of Warrants specified in
the Warrant Certificate representing such Warrants. If less than all of the
Warrants evidenced by a Warrant Certificate are exercised at any time prior to
the Expiration Date, a new Warrant Certificate or Certificates shall be issued
by the Company, registered in the name of the Investor, representing the
remaining unexercised number of Warrants evidenced by the
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<PAGE> 5
Warrant Certificate so surrendered. All Warrant Certificates surrendered upon
exercise of Warrants shall be canceled by the Company.
1.9 Payment of Expenses and Taxes. The Company shall pay all expenses
and taxes imposed by law or any governmental agency, including any documentary
stamp taxes, attributable to the issuance of Warrant Shares upon the exercise
of Warrants.
1.10 Reservation of Shares. The Company covenants and agrees that, so
long as any Warrants remain outstanding, the Company shall (i) at all times
have authorized and reserved a number of shares of Series A Common Stock
sufficient to provide for the exercise of the Warrants, and (ii) take all such
action as may be required to assure that the par value, if any, per share of
Series A Common Stock is at all times equal to or less than the Exercise Price
as in effect from time to time pursuant to this Agreement.
1.11 Securities Law Compliance. If the issuance of any shares of Series A
Common Stock required to be reserved for purposes of the exercise of any
Warrants requires the registration with, or approval of, any governmental
authority or requires listing on any national securities exchange or national
market system before such shares may be so issued, the Company shall at its
expense use its best efforts to cause such shares to be duly registered,
approved or listed, as the case may be, so that such shares may be issued in
accordance with the terms hereof; provided, however, that the foregoing shall
not apply to the extent that such issuance would require registration or
qualification as a public offering as a result of the Transfer of the Warrants.
1.12 Fractional Shares. The Company need not issue fractional shares
upon the exercise of Warrants but in lieu thereof may pay to the Investor the
Fair Value of such fractional shares; provided, however, that in the event that
the Company undertakes a reduction in the number of shares of Series A Common
Stock outstanding, it shall be required to issue fractional shares to Investor
if it exercises all or any part of its Warrants.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 By the Company. The Company represents and warrants to the Investor
as follows:
2.1.1 Legal Status; Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated. The Company is duly qualified or
licensed to do business and is in good standing as a foreign corporation in all
jurisdictions where the nature of conduct of its business as now conducted
requires such qualification. The Company has all requisite corporate power and
authority to conduct business as presently conducted and as currently proposed
to be conducted, to own, lease, sell or otherwise dispose of or operate its
properties, and to enter into and perform this Agreement.
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<PAGE> 6
2.1.2 Capitalization. Prior to giving effect to the transactions
contemplated hereunder and under the other Investment Documents, the authorized
capitalization and all outstanding shares of capital stock of the Company and
all outstanding Options and Convertible Securities are as set forth on EXHIBIT
C to the Securities Purchase Agreement.
2.1.3 Valid Issue. All shares of Series A Common Stock that may be issued
upon exercise of the Warrants are duly authorized and, upon issuance in
accordance with the provisions of this Agreement and payment therefor as herein
provided, shall be validly issued, fully paid and nonassessable and free from
all taxes, liens, charges and security interests (other than liens and security
interests created by the Investor).
2.1.4 Authority; No Conflicts. This Agreement and any other instruments
or documents to be executed and delivered on behalf of the Company pursuant to
this Agreement have been duly authorized by all necessary corporate action on
the part of the Company. Neither the execution and delivery nor the
performance of this Agreement and any other instruments or documents executed
and delivered pursuant hereto by the Company (i) conflicts with the Charter
Documents of the Company, (ii) violates any law, regulation or ordinance, or
any order or ruling of any court or governmental entity, applicable to the
Company or (iii) results in a breach or violation of, or constitutes a default
under, any term of any agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound.
2.1.5 Binding and Enforceability. This Agreement has been duly executed
and delivered by the Company and is a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium and other laws of general applicability
relating to or affecting creditors' rights and general principles of equity,
whether such enforcement is considered in a proceeding at law or in equity.
2.1.6 Governmental and Other Consents. No governmental or other consents,
approvals, authorizations, registrations, declarations or filings are required
for the execution and delivery of this Agreement on behalf of the Company and
the performance of this Agreement by the Company.
2.2 Securities Law Representations of the Investor. The Investor
represents, warrants and acknowledges to the Company as follows:
2.2.1 Investment. The Warrants issued to the Investor, and the Warrant
Shares to be issued to the Investor upon exercise of the Warrants, are being
acquired for investment only for the Investor's own account, not as a nominee
or agent, and not with a view to the resale or other distribution thereof. The
Investor has not been contacted concerning the acquisition of the Warrants or
Warrant Shares by means of any advertisement.
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<PAGE> 7
2.2.2 Sophistication. The Investor has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of the Investor's investment in the Warrants and the Warrant Shares; the
Investor has the ability to bear the economic risks of such investment; the
Investor has the capacity to protect its own interests in connection with the
transactions contemplated by this Agreement; and the Investor has had an
opportunity to obtain such financial and other information from the Company as
the Investor deems necessary or appropriate in connection with evaluating the
merits of the investment in the Warrants and the Warrant Shares; provided,
however, that none of the Investor's representations hereunder are intended in
any way to limit the scope or applicability of the Company's representations
and warranties in this Agreement and the Securities Purchase Agreement, the
truth, accuracy and completeness of which such Investor has relied upon in its
investment in the Warrants and the Warrant Shares.
2.2.3 Accredited Investor. The Investor qualifies as an Accredited
Investor.
ARTICLE 3
COVENANTS OF THE COMPANY
The Company covenants that, so long as any of the Warrants or Warrant
Shares remain outstanding, the Company shall and shall cause each of its
Subsidiaries to:
3.1 Records. Maintain adequate books and records in accordance with
GAAP, and 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.
3.2 Existence; Compliance With Law. Preserve and maintain its corporate
existence, and all of its licenses, permits, governmental approvals, rights,
privileges and franchises necessary or desirable in the normal conduct of its
business as now conducted or presently proposed to be conducted; conduct its
business in an orderly and regular manner; comply with the provisions of all
documents pursuant to which it is organized or which govern its continued
existence; and comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority and requirements for the
maintenance of its insurance, licenses, permits, governmental approvals,
rights, privileges and franchises.
3.3 Reporting Requirements. From and after the date of this Agreement
and until the earlier to occur of (i) the Company's registration of one or more
of its classes of its securities under the Securities Exchange Act of 1934, as
amended, or (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
deliver to Investor:
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<PAGE> 8
(i) as soon as available and in any event within 120 days after the end
of each Fiscal Year (other than the Fiscal Year ending December 31, 1995, in
which case on or before June 30, 1996), audited consolidated financial
statements of the Company and its Affiliated Companies (as defined in the
Securities Purchase Agreement) as of the end of and for such Fiscal Year,
together with an unqualified report thereon of the Company's independent
certified public accounting firm, such financial statements to include a
balance sheet, statements of income, shareholders' equity and cash flows, and
footnotes, all prepared in accordance with GAAP;
(ii) as soon as available and in any event within 30 days after the end
of each month, a consolidated balance sheet of the Company and its Affiliated
Companies as of the end of such month and statements of income, retained
earnings and cash flows of the Company and its Affiliated Companies for such
month and for the Fiscal Year to date, prepared in accordance with GAAP subject
to normal year-end audit adjustments applied on a basis consistent with prior
years;
(iii) as soon as possible and in any event within ten Business Days after
the Company has knowledge of the occurrence of any breach of this Agreement or
any other Investment Document (as defined in the Securities Purchase
Agreement), a statement of the chief executive officer, chief financial officer
or chief operating officer of the Company setting forth details of such event
and the action that the Company and its Affiliated Companies propose to take
with respect thereto;
(iv) as soon as possible and in any event within ten Business Days after
acquiring knowledge thereof, written notice of all litigation, actions, suits
or proceedings threatened or commenced affecting the Company or any of its
Affiliated Companies or the properties or business of the Company or any of its
Affiliated Companies if the relief sought thereunder is either unspecified as
to amount, or is for damages in excess of $10,000 or, if awarded, could
reasonably be expected to materially and adversely affect the business,
properties, condition (financial or otherwise), or operations of the Company or
any of its Affiliated Companies; and as soon as possible and in any event
within five Business Days after any material development or change in the
status of any such litigation, action, suit or proceeding, notice of such
development or change; and
(v) promptly after the furnishing thereof, copies of any statement or
report furnished to any other holder of the debt or equity securities of the
Company or any of its Affiliated Companies, including without limitation any
statement or report furnished pursuant to the terms of any stock purchase,
indenture, loan or credit or similar agreement and not otherwise required to be
furnished to Purchaser pursuant to any other clause of this Section 3.3, but
excluding (i) any statement or request delivered to any holder of the debt or
equity securities of the Company or any of its Affiliated Companies other than
in such Person's capacity as a holder of such debt or equity and (ii) routine
correspondence between the Bank (as defined in the Securities Purchase
Agreement) and the Company.
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<PAGE> 9
ARTICLE 4
ANTI-DILUTION PROTECTION
4.1 Basis for Anti-Dilution Calculations. The parties agree that as of
the date of this Agreement each Warrant issued hereunder shall entitle its
holder to receive one share of Series A Common Stock upon the exercise of such
Warrant and that the maximum number of Warrants issuable hereunder is 665,180.
The parties acknowledge and agree that the number of shares of Series A Common
Stock or other consideration to be received upon the exercise of each Warrant
is subject to adjustment as provided in this Article 4 and that such number of
shares and other consideration shall be calculated as if each Warrant issued
hereunder was issued on and as of the date of this Agreement, regardless of
when actually issued. For Example, if (i) this Agreement were executed on
January 5, 1996 (but no Warrants were issued on such date), (ii) on January 25,
1996 an event took place that, upon application of the provisions of this
Article 4, would cause the number of shares of Series A Common Stock issuable
upon the exercise of a Warrant to be adjusted to 2.5 shares per Warrant and
(iii) 200 Warrants were issued on February 1, 1996, then the Warrants issued on
February 1, 1996 would entitle the Investor to receive 500 shares of Series A
Common Stock upon the exercise of all such Warrants.
4.2 Change in Exercise Price Upon Issuance of Securities. If the Company
issues or sells any shares of Series A Common Stock, other than Series A Common
Stock Outstanding on the date hereof and Excluded Shares, or issues any
Convertible Security or Option entitling the issuee to acquire shares of Series
A Common Stock for a consideration per share less than the Fair Value in effect
immediately prior to the time of such issuance or sale, then the Exercise Price
shall be reduced to the lower of the following:
(a) the price determined by dividing (i) an amount equal to the sum of
(x) the Series A Common Stock Outstanding immediately prior to such issuance or
sale multiplied by the then Current Exercise Price, plus (y) the aggregate
consideration, if any, received by the Company upon such issuance or sale, by
(ii) the Series A Common Stock Outstanding immediately after such issuance or
sale; or
(b) the price determined by multiplying the Current Exercise Price by a
fraction (i) the numerator of which shall be the sum of (A) the Series A Common
Stock Outstanding immediately prior to such issuance or sale, plus (B) the
number of shares of Series A Common Stock that the aggregate consideration, if
any, received by the Company upon such issuance or sale would purchase at the
Fair Value on the date of such issuance or sale and (ii) the denominator of
which shall be the Series A Common Stock outstanding immediately after and
giving effect to such issuance or sale.
For the purposes of Section 4.2, the following provisions shall also be
applicable:
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<PAGE> 10
4.2.1 Cash Consideration. If the Company issues the Series A Common
Stock, Option or Convertible Security for cash, the consideration received by
the Company therefor (or, if such shares are offered by the Company for
subscription, the subscription price, or, if such shares are sold to
underwriters or dealers for public offering without a subscription offering,
the initial public offering price), after deducting therefrom any compensation
or discount paid or allowed to underwriters or dealers or others performing
similar services but without deducting therefrom any expenses incurred in
connection therewith, shall be deemed to be the consideration received by the
Company for such shares.
4.2.2 Non-Cash Consideration. If the Company issues (other than upon
conversion or issuance of a Convertible Security) the Series A Common Stock,
Option or Convertible Security for a consideration wholly or partially other
than cash, including services rendered, the fair value of such consideration,
as determined by the Board of Directors of the Company in good faith shall be
deemed to be the value, for purposes of this Section 4.2, of the consideration
other than cash received by the Company for such securities except that any
Series A Common Stock, Option or Convertible Security issued for services shall
be deemed to be issued for no consideration.
4.2.3 Options and Convertible Securities. If the Company issues or grants
any Option or any Convertible Security, and the inclusion thereof (as if
exercised or converted) in the calculation of an adjusted Exercise Price
pursuant to this Section 4.2 would result in an Exercise Price lower than if
such Option or Convertible Security were excluded, then the total maximum
number of shares of Series A Common Stock issuable upon the exercise of such
Option or upon conversion or exchange of the total maximum amount of such
Convertible Security outstanding at the time such Convertible Security first
becomes convertible or exchangeable shall be deemed to be issued and to be
outstanding for the purposes of this Section 4.2 as of the date of issue or
grant of such Option or, in the case of the issue or sale of a Convertible
Security other than where the same is issuable upon the exercise of an Option,
as of the date of such issue or sale and to have been issued for the sum of the
amount (if any) paid for such Option or Convertible Security and the amount (if
any) payable upon the exercise of such Option or upon conversion or exchange of
such Convertible Security at the time such Convertible Security becomes
convertible or exchangeable. If the inclusion of such Option or Convertible
Security (as if exercised or converted) would not result in an Exercise Price
lower than if such Option or Convertible Security were excluded, or if, at the
time of exercise, the Exercise Price which would result from deeming such an
Option or Convertible Security to have been issued on the date of exercise is
lower than that which resulted from adjustment of the Exercise Price at the
time of issuance, then such Option or Convertible Security shall not be deemed
to be issued until the close of business on the date of exercise, conversion or
exchange and issuance of Series A Common Stock pursuant thereto.
4.2.4 Reclassification. The reclassification of securities other than
Series A Common Stock into securities including Series A Common Stock shall be
deemed to
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<PAGE> 11
involve the issuance for a consideration other than cash of such Series A
Common Stock at the close of business on the date fixed for the determination
of stockholders entitled to receive such Series A Common Stock.
4.3 Change in Exercise Price or Conversion Rate of Option or Convertible
Securities.
4.3.1 Not Due to Dilution. If the purchase price provided for in any
Option, or the additional consideration (if any) payable upon the conversion or
exchange of any Convertible Security, or the rate at which any Convertible
Security is convertible into or exchangeable for shares of Series A Common
Stock changes at any time (other than under or by reason of provisions designed
to protect against dilution), the Current Exercise Price in effect at the time
of the change shall be readjusted to the Exercise Price that would have been in
effect at such time had such Option or Convertible Security still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or
sold.
4.3.2 Due to Dilution. If the purchase price provided for in any Option,
or the additional consideration (if any) payable upon the conversion or
exchange of any Convertible Security, or the rate at which any Convertible
Security is convertible into or exchangeable for shares of Series A Common
Stock is reduced at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then in case of the delivery of
shares of Series A Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security, the Current Exercise
Price then in effect hereunder shall, upon issuance of such shares of Series A
Common Stock, be adjusted to such amount as would have obtained had such Option
or Convertible Security never been issued and had adjustments been made only
upon the issuance of the shares of Series A Common Stock delivered as aforesaid
and for the consideration actually received for such Option or Convertible
Security and the Series A Common Stock.
4.4 Termination of Option or Conversion Rights. If any right to purchase
Series A Common Stock under any Option or any right to convert or exchange any
Convertible Security terminates or expires, the Current Exercise Price shall,
upon such termination, be changed to the Exercise Price that would have been in
effect at the time of such expiration or termination had such Option or
Convertible Security to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the shares of Series A Common
Stock issuable thereunder shall no longer be deemed to be Series A Common Stock
Outstanding.
4.5 Stock Splits; Etc.
4.5.1 Adjustment for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the date of this Agreement effect a
subdivision or combination of any outstanding shares of Series A Common Stock,
the Exercise Price
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<PAGE> 12
then in effect immediately before that subdivision or combination shall be
proportionately adjusted by multiplying the then effective Exercise Price by a
fraction, (i) the numerator of which shall be the number of shares of Series A
Common Stock issued and outstanding immediately prior to such subdivision or
combination, and (ii) the denominator of which shall be the number of shares of
Series A Common Stock issued and outstanding immediately after such subdivision
or combination. The number of shares of Series A Common Stock outstanding at
any time shall, for the purposes of this Section 4.5, include the number of
shares of Series A Common Stock into which any convertible securities of the
Company may be converted, or for which any warrant, option or rights of the
Company may be exchanged. Any adjustment under this Section 4.5 shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
4.5.2 Adjustments for Other Dividends and Distributions. In the event the
Company at any time or from time to time after the date of this Agreement shall
make or issue, or fix a record date for the determination of holders of shares
of Series A Common Stock entitled to receive, a dividend or other distribution
payable in (i) evidences of indebtedness of the Company, (ii) assets of the
Company (other than cash), or (iii) securities of the Company other than shares
of Series A Common Stock, then and in each such event provision shall be made
so that the holders of Warrants shall receive upon exercise thereof, in
addition to the number of shares of Series A Common Stock receivable upon the
exercise thereof, the amount of such evidences, assets or securities that they
would have received had they held, on such record date, the maximum number of
shares of Common Stock they could have received upon exercise of their
Warrants.
4.5.3 Adjustment for Reclassification, Exchange or Substitution. If the
Series A Common Stock issuable upon the exercise of the Warrants shall be
changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation or sale of assets
provided for elsewhere in this Section 4.5), then and in each such event the
holder of a Warrant shall have the right thereafter to receive upon the
exercise of such Warrant the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification
or other change, by holders of the maximum number of shares of Series A Common
Stock as the holder of a Warrant could have received upon exercise of such
Warrant immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
4.5.2 Reorganization, Mergers, Consolidations or Sales of Assets or
Capital Stock. If at any time or from time to time there shall be (i) a
capital reorganization of the Series A Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section 4.5) or (ii) a merger, consolidation or statutory share exchange
of the Company with or into another corporation in which consolidation, merger
or statutory share exchange persons owning
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<PAGE> 13
capital stock of the Company immediately prior to the consolidation, merger or
share exchange own less than a majority of the voting stock of the resulting,
surviving or exchanging corporation, or (iii) the sale of all or substantially
all the Company's properties and assets or capital stock to any other person,
then, as a part of such reorganization, merger, consolidation, share exchange
or sale, provision shall be made so that the holders of the Warrants shall
thereafter be entitled to receive, upon exercise of the Warrants, the number of
shares of stock or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, share
exchange or sale, to which a holder of the maximum number of shares of Series A
Common Stock that a holder of a Warrant could receive upon exercise thereof
would have been entitled on such capital, reorganization, merger, share
exchange, consolidation, or sale. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 4.5 with
respect to the rights of the holders of the Warrants after the reorganization,
merger, share exchange, consolidation or sale to the end that the provisions of
this Section 4.5 (including adjustment of the Exercise Price then in effect and
the number of shares purchasable upon exercise of the Warrants) shall be
applicable after that event as nearly equivalent as may be practicable.
4.6 Successive Changes. The provisions of this Article shall apply to
successive issuances, dividends or other Distributions, subdivisions and
combinations on or of shares of Series A Common Stock after the date of this
Agreement.
4.7 Adjustment of Shares Issuable Upon Exercise of Warrants. Upon each
adjustment of the Exercise Price as a result of the calculations made pursuant
to this Article 4, each Warrant outstanding prior to the making of the
adjustment in the Exercise Price shall thereafter be treated as that number of
Warrants, and shall evidence the right to purchase, at the adjusted Exercise
Price, that number of shares of Series A Common Stock (calculated to the
nearest hundredths), obtained by (i) multiplying the number of shares of Series
A Common Stock purchasable upon exercise of a Warrant prior to adjustment by
the Exercise Price in effect prior to adjustment, and (ii) dividing the product
so obtained by the Exercise Price in effect after such adjustment of the
Exercise Price.
4.8 Notice of Adjustment to Holders. Upon the occurrence of each
adjustment or readjustment of the Exercise Price, the Company at its expense
shall compute such adjustment or readjustment in accordance with the terms
hereof. Promptly, and in no case more than 60 days after the occurrence of
such adjustment or readjustment, the Company shall furnish the Investor with a
certificate signed by the Company's chief financial officer setting forth in
reasonable detail (i) the Exercise Price after such adjustment or readjustment,
(ii) the method of calculation and the facts upon which such calculation is
based and (iii) the number of shares of Series A Common Stock purchasable upon
exercise of a Warrant after such adjustment or readjustment. If, within ten
Business Days after receipt of such certificate, the Investor so requests in
writing, the Company shall at its expense cause the computation of an
adjustment or readjustment to be recalculated by independent certified public
accountants of recognized standing selected by the Company,
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<PAGE> 14
which accountants shall have had no affiliation with the Company for the five
years preceding such recalculation except to make another recalculation
hereunder or under the provisions of the Company's Articles of Incorporation
governing the Series B Convertible Preferred Stock. At any time or from time
to time, upon written request from the Investor, the Company shall at its
expense provide the Investor a certificate setting forth the current Exercise
Price and the number of shares of Series A Common Stock and the amount, if any,
of other property which at that time would be received by the Investor upon
exercise of its Warrants.
4.9 Certain Other Actions Prohibited. The Company shall not by amendment
of its Charter Documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the provisions of this Agreement, but shall at all times in good faith
assist in the carrying out of all of the provisions of this Agreement and shall
take all such action as the Investor may reasonably request to protect the
exercise privilege of the Investor against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (i) shall not
increase the par value of a share of Series A Common Stock above the Exercise
Price, (ii) shall take all such actions as may be necessary or appropriate
under local, state or federal laws of the United States of America in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Series A Common Stock upon the exercise of all Warrants from time to
time outstanding and (iii) shall not take any action which results in any
adjustment of the Exercise Price if the total number of shares of Series A
Common Stock or other securities issuable after the action upon the exercise of
all of the Warrants, Options and Convertible Securities then outstanding would
exceed the total number of shares of Series A Common Stock or other securities
then authorized by the Company's Charter Documents and available for the
purpose of issue upon such exercise.
ARTICLE 5
CERTAIN CORPORATE TRANSACTIONS
5.1 Prohibition on Dividends, Distributions. For so long as any of the
Warrants or Warrant Shares remain outstanding, the Company shall not declare or
pay any 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
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<PAGE> 15
the Investor as if all Warrants held by the Investor immediately prior to such
dividend or Distribution were exercised in full.
5.2 Reorganization. For so long as any of the Warrants or Warrant Shares
remain outstanding, the Company shall not reorganize, or consolidate with,
merge into or enter into a statutory share exchange with another corporation,
partnership or other entity (other than a reorganization, consolidation or
merger not involving a Change of Control in which the Company is the surviving
entity) or transfer all or substantially all of its assets to another entity
(any one of which shall constitute a "Reorganization") unless each Holder shall
have the right to continue to have the Warrants outstanding and receive upon
exercise thereof the consideration specified in Section 4.5.4.
5.3 Notice. Notice of any contemplated Reorganization, or of any
dissolution, winding up or liquidation, and the proposed terms thereof,
including specifically in the case of a Reorganization how compliance with the
requirements of Section 5.2 shall be secured, shall be given to the Holders at
least 30 days before (i) the proposed consummation of such Reorganization,
dissolution, winding up or liquidation or (ii) the record date therefor,
whichever is earlier.
ARTICLE 6
MISCELLANEOUS
6.1 Transfers. Prior to the earlier to occur of (i) an Initial Public
Offering by the Company or (ii) December 31, 2002, Investor may not assign this
Agreement or make a transfer of the Warrants, except to an Affiliate of
Investor, the obligations of which Affiliate the Investor unconditionally
guarantees. Following an Initial Public Offering by the Company or December
31, 2002, the Investor may transfer the Warrants to any Person subject to
compliance with applicable federal and state securities laws.
6.2 Notices. In order to be effective, any notice or other communication
required or permitted hereunder, shall, unless otherwise stated herein, be in
writing and shall be transmitted by messenger, delivery service, mail,
telecopy, as specified below:
If to Investor:
HealthPlan Services Corporation
P. O. Box 30098
Tampa, Florida 33630-3098
Telecopier: (813) 289-9559
Attention: Mr. James K. Murray III, Executive
Vice President and Chief Financial Officer
and Mary Fahy, General Counsel
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<PAGE> 16
with a copy (which shall not constitute notice) to:
Fowler, White, Gillen, Boggs, Villareal, and Banker, P.A.
501 East Kennedy Boulevard, Suite 1700
Tampa, Florida 33602
Telecopier: (813) 229-8313
Attention: David C. Shobe
If to the Company:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Telecopier: (404) 364-6711
Attention: Mark A. Kaiser, Chairman and Chief
Executive Officer
With a copy (which shall not constitute notice) to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopier: (404) 881-7777
Attention: Keith O. Cowan
or at such other address as a party shall designate in a written notice to the
other parties hereto given in accordance with this Section 6.2. All notices
and other communications shall be effective (i) if sent by messenger or
delivery service, when delivered, (ii) if sent by mail, five days after having
been sent by certified mail, with return receipt requested, or (iii) if sent by
telecopier with receipt acknowledged, when sent.
6.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that Investor may not assign this Agreement or any rights
hereunder except as provided in Section 6.1.
6.4 Costs of Enforcement. If any party to this Agreement seeks to
enforce its rights under this Agreement by legal proceedings, the
non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees.
6.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF
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<PAGE> 17
GEORGIA.
6.6 CONSENT TO EXCLUSIVE JURISDICTION, VENUE AND FORUM. THE COMPANY
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION, VENUE AND FORUM OF ANY STATE OR
FEDERAL COURT IN TAMPA, FLORIDA WITH RESPECT TO ANY ACTION, WHETHER COMMENCED
BY AN INVESTOR OR ANY OTHER PERSON, WHICH, IN WHOLE OR IN PART, IN ANY WAY
ARISES UNDER OR RELATES TO THIS AGREEMENT, AND THE COMPANY AGREES THAT ANY SUCH
ACTION FILED BY IT WILL BE FILED IN SUCH A COURT.
6.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which, when so executed, shall be deemed to be an
original and all of which, when taken together, shall constitute but one and
the same agreement.
6.8 Survival of Representations and Warranties. The representations and
warranties in this Agreement shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
notwithstanding any investigation made by any of the Investor, their agents or
representatives. All statements as to factual matters contained in any
certificate, exhibit or other instrument delivered by or on behalf of the
Company pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties of the Company
hereunder as of the date of such certificate, exhibit or instrument.
6.9 Remedies. In the event of a breach by the Company of this Agreement,
the Investor, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, shall be entitled to seek specific
performance of its rights under this Agreement. The Company agrees that in any
action seeking specific performance of this Agreement (i) it will not argue
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach of this Agreement by the Company and (ii) it will waive
the defense in any action for specific performance that a remedy at law would
be adequate.
6.10 Incorporation of Exhibits and Schedules by Reference. All Exhibits
and Schedules to this Agreement are incorporated herein by this reference.
6.11 Entire Agreement; Amendment. This Agreement (including the Exhibits,
Schedules and the parts of the Securities Purchase Agreement incorporated by
reference herein) constitute the entire agreement between the Company and the
Investor with respect to the subject matter hereof, superseding all prior or
contemporaneous negotiations, communications, discussions and correspondence
concerning the subject matter hereof. This Agreement may be modified or
amended or any provision hereof may be waived only with the written consent of
the Holders of at least two-thirds (2/3) of the aggregate number of Warrants
and Warrant Shares then outstanding.
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<PAGE> 18
(remainder of page intentionally left blank, signatures follow)
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, this Agreement
to become effective as of the date first above written.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
---------------------------------
Mark A. Kaiser, Chairman and
Chief Executive Officer
HEALTHPLAN SERVICES
CORPORATION
By: /s/ James K. Murray III
----------------------------------
James K. Murray III, Executive
Vice President and Chief Financial
Officer
<PAGE> 20
EXHIBITS
Exhibit A: Form of Warrant Certificate
A-1: Form of Assignment
A-2: Form of Warrant Subscription
B-1
<PAGE> 21
APPENDIX A
DEFINITIONS
A. Certain Defined Terms. The following terms used in this Agreement
have the following meanings:
"Accredited Investor" has the same meaning as in Section 501(a)(3) of
Regulation D promulgated under the Act.
"Act" means the Securities Act of 1933, as amended from time to time, or
any successor statute.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, controls, or is under common control with, or is controlled by,
such Person. As used in this definition, "control" (including, with its
correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of securities, or
partnership or other ownership interests, by contract or otherwise); provided
that, in any event: (i) any Person which owns directly or indirectly 50% or
more of the securities having ordinary voting power for the election of
directors or other members of the governing body of a corporation or fifty 50%
or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to
control such corporation or other Person.
"Change of Control" has the meaning set forth in the Securities Purchase
Agreement.
"Charter Documents" of a Person means the articles or certificate of
incorporation, the by-laws and any other charter documents of such Person,
including without limitation any certificate of designation, as amended or
restated and as in effect as of the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Act.
"Convertible Securities" means any indebtedness or shares of capital stock
convertible into or exchangeable for shares of Series A Common Stock.
<PAGE> 22
"Current Exercise Price" means the Exercise Price immediately before the
occurrence of any event which, pursuant to Article 4, causes an adjustment to
the Exercise Price.
"Distribution" has the meaning given such term "distribution" in Section
607.06401 of the Florida Business Corporation Act as in effect on the date of
this Agreement, including without limitation, the distribution of evidences of
the Company's indebtedness, securities other than the Company's voting common
stock, and other assets.
"Event of Default" shall have the meaning given such term in the
Securities Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute.
"Excluded Shares" has the meaning set forth in the Amended and Restated
Articles of Incorporation of the Company in effect as of the date of this
Agreement
"Exercise Price" means the price of $0.01 per share adjusted from time to
time as provided in Article 4.
"Expiration Date" means 5:00 p.m., Atlanta time, on January 8, 2003.
"Fair Value" of a share of Series A Common Stock on any specified date
means:
(i) If shares of Series A Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system, the average of the daily closing prices for the thirty (30) trading
days before such date, excluding any trades which are not bona fide, arm's
length transactions. The closing price for each day shall be the last sale
price on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices on such date, in each case as officially
reported on the principal national securities exchange or national market
system on which such shares are then listed, admitted to trading or traded.
(ii) If no shares of Series A Common Stock are then listed or admitted to
trading on any national securities exchange or traded on any national market
system, the average of the reported closing bid and asked prices thereof on
such date in the over-the-counter market as shown by the National Association
of Securities Dealers automated quotation system or, if such shares are not
then quoted in such system, as published by the National Quotation Bureau,
Incorporated or any similar successor organization, and in either case as
reported by any member firm of the New York Stock Exchange selected by the
Holder.
(iii) If no shares of Series A Common Stock are then listed or admitted to
trading on any national exchange or traded on any national market system, and
if no
<PAGE> 23
closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market, the fair value of a share of Series A Common Stock
shall be as mutually agreed by the Company and the Investor; provided, however
that if the Company and the Investor are unable to mutually agree upon the fair
value, the Company and the Investor shall, within five days from the date that
either party determines that they cannot agree, jointly retain an investment
banking firm, or a nationally recognized accounting firm or other firm
providing similar valuation services, satisfactory to each of them. If the
Company and the Investor are unable to agree on the selection of such a firm
within such five day period, the Company and the Investor shall, within twenty
days after expiration of such five day period, each retain a separate
independent investment banking firm (which firm, in either case, shall not be
the investment banking firm regularly retained by the Company or the Investor).
If either the Company or the Investor fail to retain such an investment
banking firm during such twenty day period, then the independent investment
banking firm retained by the Investor or the Company, as the case may be, shall
alone take the actions described below. Such firms shall determine within
thirty days of being retained the fair value of a share of Series A Common
Stock and deliver their opinion in writing to the Company and to the Investor
as to the fair value. If such firms cannot jointly agree upon the fair value,
then, unless otherwise directed in writing by both the Company and the
Investor, such firms, in their sole discretion, shall choose another investment
banking firm independent of the Company and the Investor, which firm shall make
such determination and render such an opinion as promptly as practicable. In
either case, the determination so made shall be conclusive and binding on the
Company and the Investor. The fees and expenses for such determination made by
any and all such investment banking or other firms shall be paid one-half by
the Company and one-half by the Investor. In the determination of the fair
value of a share of Series A Common Stock, there shall not be taken into
consideration any premium for shares representing control of the Company.
"GAAP" means generally accepted accounting principles and practices,
consistently applied, as promulgated in (i) the documents of Rule 203 of the
Code of Professional Conduct of the American Institute of Certified Public
Accountants, (ii) Statement of Accounting Standards No. 43 "Omnibus Statement
on Auditing Standards" of the Auditing Standards Board of the American
Institute of Certified Public Accountants and (iii) any superseding or
supplemental documentation of equal authority promulgating generally accepted
accounting principles and practices, all as in effect from time to time.
Accounting principles and practices are "consistently applied" when the
accounting principles and practices observed in a current period are comparable
in all material respects to the accounting principles and practices applied in
the preceding period.
"Holder" means any registered holder of Warrants or Warrant Shares.
"Initial Public Offering" has the meaning set forth in the Securities
Purchase Agreement
"Maturity Event" has the meaning set forth in Section 1.3(c).
<PAGE> 24
"New Securities" means any and all shares of the Company's capital stock,
Options or Convertible Securities other than Excluded Shares.
"Option" means any right, warrant or option to subscribe for or purchase
shares of Series A Common Stock or Convertible Securities, including the
Warrants.
"Other Credit Facility" has the meaning set forth in Section 1.1(b).
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts and other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Reorganization" has the meaning set forth in Section 5.2.
"Securities Purchase Agreement" means that certain Securities Purchase
Agreement, dated January 8, 1996, by and between the company and the Investor.
"Senior Subordinated Notes" means those promissory notes issued by the
Company pursuant to the Securities Purchase Agreement.
"Series A Common Stock" means the Series A Common Stock issued by the
Company or any successor thereto.
"Series A Common Stock Outstanding" means the number of shares of Series A
Common Stock outstanding plus the number of shares of Series A Common Stock
issuable upon exercise of all outstanding Options and upon conversion of all
outstanding Convertible Securities, including this Warrant.
"Subsequent Closing Date" means a date on which Senior Subordinated Notes
are purchased by the Investor pursuant to the Securities Purchase Agreement.
"Subsidiary" of any Person means a corporation of which more than fifty
percent (50%) of the outstanding shares of capital stock of each class entitled
to vote on the election of directors is owned by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries.
"Subordination Agreement" has the meaning set forth in the Securities
Purchase Agreement.
"Transfer" means the sale, pledge, assignment or other transfer of the
Warrants or the Warrant Shares, in whole or in part, and of the rights of the
Holders under this Agreement.
<PAGE> 25
"Warrant Certificates" means the certificates representing the Warrants,
registered in the name of the Holder, substantially in the form of EXHIBIT A.
"Warrant Multiple" has the meaning set forth in Section 1.1(a).
"Warrants" means the warrants issued pursuant to this Agreement, which,
when exercised, give the Holder thereof the right to obtain one share of Series
A Common Stock per warrant, subject to adjustment.
"Warrant Shares" means the shares of Series A Common Stock acquired or
acquirable upon exercise of the Warrants, any shares of Series A Common Stock
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such shares of Series A
Common Stock any other interest in the Company that has been or may be acquired
upon exercise of the Warrants.
B Interpretation.
Unless the context of this Agreement clearly requires otherwise,
references to the plural include the singular, to the singular include the
plural, and to the part include the whole. The term "including" is not
limiting and the term "or" has the inclusive meaning represented by the term
"and/or." The words "hereof," "herein," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. References to "Articles," "Sections,"
"Appendices," "Subsections," "Exhibits," and "Schedules" are to Articles,
Sections, Appendices, Subsections, Exhibits and Schedules, respectively, of
this Agreement, unless otherwise specifically provided. Terms defined herein
may be used in the singular or the plural. Any capitalized terms used herein
which are not specifically defined herein have the meaning given to them in the
Securities Purchase Agreement.
<PAGE> 26
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE AND THE SHARES PURCHASABLE
UPON EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND
ANY APPLICABLE STATE SECURITIES LAWS.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE ISSUED PURSUANT TO AND ARE
SUBJECT TO A WARRANT AGREEMENT THAT FIXES THE RIGHTS AND OBLIGATIONS OF THE
COMPANY AND THE HOLDER OF THESE WARRANTS AND PLACES CERTAIN RESTRICTIONS ON THE
TRANSFERABILITY OF THE WARRANTS. A COPY OF THE WARRANT AGREEMENT IS ON FILE AT
THE COMPANY'S PRINCIPAL OFFICE.
<TABLE>
<CAPTION>
SERIES A COMMON STOCK WARRANT CERTIFICATE
<S> <C>
VOID AFTER January 8, 2003 For the Purchase of _______
Shares of Series A Common Stock
</TABLE>
MEDIRISK, INC. a Florida corporation (the "Company"), hereby certifies
that, for value received, HEALTHPLAN SERVICES CORPORATION, or any permitted
assigns, is the registered holder (the "Holder") of ________________________
(_________) Warrants (the "Warrants") to purchase shares (the "Shares") of
Series A Common Stock of the Company ("Series A Common Stock"). As of January
8, 1996, each Warrant entitles the Holder to purchase from the Company one
fully paid and nonassessable share of Series A Common Stock at an initial
exercise price (the "Exercise Price") of $.01 per share; provided, however,
that the number of shares that each Warrant entitles the Holder to purchase is
subject to adjustment as provided in Article 4 of the Warrant Agreement, dated
January 8, 1996, between the Company and the Holder (the "Warrant Agreement"),
whether the event leading to such adjustment takes place before or after the
date on which this Warrant Certificate is issued.
The Holder's right to purchase Shares hereunder shall be exercised by
surrender to the Company of this Warrant Certificate, together with an executed
Form of Warrant Subscription (attached hereto) and payment of the aggregate
Exercise Price of the Warrants exercised, at the principal executive office of
the Company, upon the terms and subject to the conditions set forth in this
Warrant Certificate and in the Warrant Agreement referred to herein.
A-1
<PAGE> 27
The Warrants represented by this Warrant Certificate are part of a duly
authorized issue of up to 665,180 warrants to purchase shares of Series A
Common Stock and have been issued pursuant to the Warrant Agreement. The
Warrant Agreement is incorporated in this Warrant Certificate by this reference
and must be referred to for a description of the rights, obligations and duties
of the Company and the Holders of the Warrants issued pursuant to the Warrant
Agreement.
If, upon any exercise of Warrants represented by this Warrant Certificate,
the number of Warrants exercised is less than the total number of Warrants
represented by this Warrant Certificate, there shall be issued to the Holder or
the Holder's assignee a new Warrant Certificate representing the number of
Warrants not exercised.
This Warrant Certificate, when surrendered to the Company in accordance
with the terms of the Warrant Agreement, may be exchanged without payment of
any service charge for another Warrant Certificate or Warrant Certificates
representing in the aggregate a like number of Warrants.
Subject to and in accordance with the terms of the Warrant Agreement, any
or all of the Warrants represented by this Warrant Certificate may be
transferred by presentation to the Company accompanied by an executed Form of
Assignment (attached hereto). A new Warrant Certificate representing the
number of Warrants so transferred shall be issued to the transferee, subject to
any limitations provided in the Warrant Agreement, without charge. If the
number of Warrants so transferred is less than the total number of Warrants
represented by this Warrant Certificate, there shall be issued to the
transferor a new Warrant Certificate representing the number of Warrants not
transferred.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by the person named below thereunto duly authorized.
DATED: ____________, 199___ MEDIRISK, INC.
By:
----------------------------
Title:
----------------------------
A-2
<PAGE> 28
EXHIBIT A-1
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and
transfers unto ____________________, the Warrants represented by the within
Warrant Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ____________________ to transfer
such Warrants on the books of the within-named Corporation with full power of
substitution.
DATED: __________, 19__
Signature
--------------------------------
A-1-1
<PAGE> 29
EXHIBIT A-2
FORM OF WARRANT SUBSCRIPTION
(To be signed only upon exercise of Warrant.)
TO: __________
The undersigned, the holder of the Warrants represented by the attached
Warrant Certificate (the "Holder"), hereby irrevocably elects to exercise the
purchase right represented by such Warrants for, and to purchase thereunder,
__________* Shares of Series A Common Stock (the "Shares") of ______________
(the "Company") and herewith makes payment, as provided in the Warrant
Agreement, of US $_____________ therefor. The Holder hereby requests that the
Company issue ______ shares of Series A Common Stock and requests that the
certificate(s) for such Shares be issued in the name of, and delivered to:
--------------------
--------------------
--------------------
<TABLE>
<S> <C>
------------------------- (Signature must conform in all
------------------------- respects to name of Holder as
(Address) specified on the face of the
Warrant Certificate)
</TABLE>
Dated: __________, 19__.
* Insert here the number of Shares called for on the face of the Warrant
Certificate (or, in the case of a partial exercise, the portion thereof as
to which the Warrants are being exercised), in either case without making
any adjustment for additional Shares or any other securities or property
or cash which, pursuant to the adjustment provisions of the Warrant
Agreement, may be deliverable upon exercise.
A-2-1
<PAGE> 1
EXHIBIT 10.8
CONSENT AND MODIFICATION AGREEMENT
This Consent and Modification Agreement (this "Agreement") is made and
entered into this 8th day of January, 1996 between Medirisk, Inc., a Florida
corporation (the "Company"), Brantley Venture Partners II, L.P. ("Brantley"),
Sears Pension Trust ("Sears") and Laurence H. Powell ("Powell", with Brantley,
Sears and Powell each being referred to as a "Shareholder" and collectively
referred to as the "Shareholders").
BACKGROUND
1. The Company and HealthPlan Services Corporation, a Delaware corporation
("HPSC"), are currently negotiating a Securities Purchase Agreement (the "HPSC
Purchase Agreement") pursuant to which HPSC will purchase 280,623 shares of
Series B Convertible Preferred Stock of the Company for $2,000,000 and will
agree to purchase up to $10,000,000 in original principal amount of Senior
Subordinated Notes (the "Senior Subordinated Notes") in exchange for payment to
the Company of $10,000,000 and receipt from the Company of warrants to purchase
an aggregate of 665,180 shares of Series A Common Stock of the Company (the
"Warrants"), for the purposes of financing the Company's ongoing acquisition
program and for working capital purposes.
2. Pursuant to the Preferred Shares Purchase Agreement dated April 5, 1991
between the Company and the Shareholders, as amended on or about November 22,
1991 to include Sears as a party (collectively the "Original Purchase
Agreement"), the Company may not amend its Articles of Incorporation, sell any
shares of its capital stock, or take certain other actions contemplated by the
HPSC Purchase Agreement without the consent of the Shareholders.
3. Pursuant to the Shareholders Agreement dated April 5, 1991, by and
among the Company, the Shareholders and Dr. John P. Schmitt, as amended on or
about November 22, 1991 to include Sears as a party (the "Original Shareholders
Agreement"), Brantley and Sears have certain first refusal rights with respect
to the issuance of shares of capital stock by the Company, including the
issuance of Series B Convertible Preferred Stock contemplated by the HPSC
Purchase Agreement.
4. The Shareholders are willing to consent to all actions by the Company
contemplated by the HPSC Purchase Agreement (and the documents referred to
therein, including but not limited to the Senior Subordinated Promissory Notes,
Warrant Agreement, Registration Rights Agreement and Shareholders Agreement,
with each such document having the same meaning when used herein as defined in
the HPSC Purchase Agreement), to waive any breach of the Original Purchase
Agreement or the Shareholders Agreement as a result of the
<PAGE> 2
consummation of the transactions contemplated therein, and to amend certain
terms contained in the Original Purchase Agreement, the Original Shareholders
Agreement and the
Registration Agreement dated April 5, 1991, as amended on or about
November 22, 1991 to include Sears as a party (the "Original Registration
Agreement").
5. The Shareholders are willing to agree to approve an amendment and
restatement of the Articles of Incorporation of the Company as contemplated by
the HPSC Purchase Agreement and, in so doing, to modify or waive certain rights
to which they may be entitled as holders of Series A Preferred Stock of the
Company.
AGREEMENT
NOW, THEREFORE, the Company and the Shareholders agree as follows:
1. Consent and Waiver.
(a) The Shareholders consent to the execution and delivery by the Company
of the HPSC Purchase Agreement, and the consummation of all transactions
contemplated therein. The Shareholders waive any breaches of the Original
Purchase Agreement, the Original Shareholders Agreement or the Original
Registration Agreement which may now or hereafter occur by reason of the
Company's performance of its obligations under the HPSC Purchase Agreement, or
the exercise of rights or taking of any action by HPSC pursuant to the terms of
the HPSC Purchase Agreement or any agreement or document contemplated by the
HPSC Purchase Agreement.
(b) The Shareholders agree that neither the issuance of the Series B
Preferred Stock to HPSC under the HPSC Purchase Agreement, the conversion of
such Series B Preferred Stock into Series A Common Stock, the issuance of the
Warrants to purchase Series A Common Stock pursuant to the Warrant Agreement
nor the issuance of shares of Series A Common Stock upon the exercise of such
Warrants shall give rise to (i) any adjustment in the number of shares of
Series A Common Stock issuable to the Shareholders upon conversion of the
Series A Preferred Stock held by them or upon exercise of any warrants to
purchase Series A Common Stock held by them, whether such adjustment is
pursuant to the terms of the Company's Articles of Incorporation or any
agreement between or among the Company and any of the Shareholders. Each of
the Shareholders further agrees to waive any right on the part of such
Shareholder to purchase shares of Series B Preferred Stock, warrants or Series
A Common Stock pursuant to any rights of first refusal, preemptive rights or
similar rights which such right or rights are triggered by the issuance of the
Series B Preferred Stock to HPSC under the HPSC Purchase Agreement, the
conversion of such Series B Preferred Stock into Series
-2-
<PAGE> 3
A Common Stock, the issuance of the Warrants to purchase Series A Common Stock
pursuant to the Warrant Agreement or the issuance of shares of Series A Common
Stock upon the exercise of such Warrants.
(c) The Shareholders hereby acknowledge and agree that they have waived,
and they hereby waive and forever release, all first refusal, preemptive and
similar rights with respect to any and all transactions by the Company
involving the stock of the Company from and after the date of the Original
Purchase Agreement. The Shareholders further acknowledge and agree that no
issuance by the Company of any Series A Common Stock or security convertible
into Series A Common Stock after the date of the Original Purchase Agreement
and prior to the date of this Agreement has given rise to, or shall be deemed
to give rise to, any right to have adjusted the number of shares issuable upon
conversion of the Series A Preferred Stock or any warrants held by the
Shareholders, which right has not been, or is not hereby, waived and released
by the Shareholder in its entirety.
2. Shareholder Agreement. The Shareholders agree to execute and deliver
the Shareholder Agreement (as defined in the HPSC Purchase Agreement and in the
form attached thereto) simultaneously with the Closing as contemplated by the
HPSC Purchase Agreement.
3. Amendment and Restatement of Articles of Incorporation. The
Shareholders agree to vote all of the shares of Series A Common Stock and
Series A Preferred Stock held by them in favor of the Amended and Restated
Articles of Incorporation of the Company (as defined in the HPSC Purchase
Agreement and in the form attached thereto) and to cause such Amended and
Restated Articles to be filed with the Secretary of State of the State of
Florida immediately prior to the Closing as contemplated by the HPSC Purchase
Agreement.
4. Amendment of the Preferred Shares Purchase Agreement.
(a) The Shareholders agree that the following terms of the Original
Purchase Agreement (with the section and paragraph numbers identified below)
are hereby deleted in their entirety and replaced with the following (which are
blacklined to show all changes to the terms contained in the Original Purchase
Agreement), and that the term "Investor" as used therein has the meaning set
forth in the preamble of the Original Purchase Agreement:
SECTION 3. Covenants of the Company. So long as any of the Investor
Shares remains outstanding, the Company shall comply with the following:
3A. Financial Statements and Other Information. The Company shall
deliver to the Investor:
-3-
<PAGE> 4
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidated statements of income and cash flows of the Company for such
monthly period and for the period from the beginning of the fiscal year
to the end of such month, and unaudited consolidated balance sheets of
the Company as of the end of such monthly period, setting forth in each
case comparisons to the Annual Budget (as defined below) and to the
corresponding period in the preceding fiscal year, and all such
statements shall be prepared in accordance with generally accepted
accounting principles, consistently applied;
(ii) as soon as available and in any event within 120 days after the
end of each fiscal year (other than the fiscal year ending December 31,
1995, in which event on or before June 30, 1996), audited consolidated
statements of income and cash flows of the Company for such fiscal year,
and audited consolidated balance sheets of the Company as of the end of
such fiscal year, setting forth in each case comparisons to the preceding
fiscal year, all prepared in accordance with generally accepted
accounting principles, consistently applied, and accompanied by a copy of
such firm's annual management letter to the board of directors;
(iii) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(iv)(A) at least 30 days (but not more than 90 days) prior to the
beginning of each fiscal year, an annual budget prepared on a monthly
basis for the Company for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), based on
assumptions set forth therein reasonably believed by the Company to be
fair and reasonable in light of the historical financial performance of
the company and of current and reasonably foreseeable business conditions
(the "Annual Budget"), (B) promptly upon preparation thereof any other
significant budgets prepared by the Company and any revisions of such
annual or other budgets, and (C) within 30 days after any monthly period
in which there is a material adverse deviation from the Annual Budget, an
Officer's Certificate explaining the deviation and what actions the
Company has taken and proposes to take with respect thereto;
(v) promptly (but in any event within five business days) after the
discovery or receipt of notice of any Event of Default (as defined in the
HPSC Purchase Agreement) or any other material adverse event or
circumstance affecting the Company (including, without limitation, the
filing of any material litigation against the Company or the existence of
any dispute with any Person which involves a reasonable likelihood of
such litigation being commenced), accompanied by an Officer's Certificate
specifying the nature and period of existence thereof and what actions
the Company has taken and proposes to take with respect thereto;
-4-
<PAGE> 5
(vi) copies of all financial statements, proxy statements, reports
and any other general written communications which the Company sends to
its shareholders, and copies of all press releases and other statements
made available generally by the Company to the public concerning material
developments in the Company's business, which the Company will use its
best efforts to deliver within ten days after transmission thereof; and
(vii) with reasonable promptness, such other information and
financial data concerning the Company as the Investor reasonably
requests.
The financial statements referred to in subsections 3A(i) and 3A(ii)
shall be true and correct in all material respects as of the dates and
for the periods stated therein, subject in the case of the unaudited
financial statements to changes resulting from normal year-end
adjustments (none of which would, alone or in the aggregate, be
materially adverse to the financial condition, operating results, assets,
operations or business prospects of the Company taken as a whole).
3B. Inspection of Property. The Company shall permit any
representatives designated by the Investor, upon reasonable written
notice and during normal business hours and such other times as the
Investor may reasonably request, to (i) visit and inspect any of the
properties of the Company, (ii) examine the corporate and financial
records of the company, and make copies thereof or extracts therefrom,
and (iii) discuss the affairs, finances and accounts of any such
corporations with the directors, officers, key employees and independent
accountants of the Company. The presentation of an executed copy of this
Agreement by the Investor to the Company's independent accountants shall
constitute the Company's permission to its independent accountants to
participate in discussions with such Persons.
3C. Directors; Attendance at Company Meetings. Subject to the terms
of the Shareholders Agreement, the Company shall at all times cause the
person or persons nominated by the Investor to be elected to and remain
members of the Company's board of directors, and shall replace such
nominees with replacement nominees as from time to time directed by such
holders. Such holders' representatives on the Company's board of
directors shall be entitled to participate in all meetings of the board
of directors by telephone in accordance with applicable law. The Company
shall provide to each such representative all written materials and other
information (including, without limitation, copies of meeting minutes)
given to other directors in connection with such meetings at the same
time such materials and information are given to the other directors.
The Company shall give the person or persons nominated by such holders as
directors at least 14 days written notice of all meetings of the
Company's board of directors at the address designated by such directors.
The Company shall pay the actual and reasonable out-of-pocket expense of
such directors and the Investor incurred with respect to attendance at
any such board or committee meeting, any meeting of Shareholders or any
other meeting called by the Company or with respect to Company affairs.
-5-
<PAGE> 6
3D. Restrictions. The Company shall not, without the consent of the
holders of a majority of the Investor Shares ("Investor Shares" meaning
those Preferred Shares held by the Investors and all Common Shares
issuable upon conversion of such Preferred Shares):
(i) directly or indirectly redeem, purchase or otherwise acquire any
of the Company's equity securities (including, without limitation,
warrants, options and other rights to acquire equity securities), except
(A) the Preferred Shares pursuant to the redemption provisions in
paragraph 6 of the Shareholders Agreement, (B) Common Shares or Preferred
Shares pursuant to paragraphs 3 or 4 of the Shareholders Agreement, or
(C) Common Shares pursuant to the terms of any Stock Option Plan (as
hereinafter defined) or pursuant to any shareholders agreement between
the Company and any employee or former employee of the Company, and in
the case of any such Stock Option Plan or shareholders agreement, and in
the case of the transactions described in subparts (B) and (C), only in
an aggregate amount not to exceed $100,000;
(ii) make any loans or advances to, guarantees for the benefit of,
or otherwise become liable for the obligations of, or Investments in, any
Person, except for (A) reasonable advances to employees and consultants
in the ordinary course of business, (B) acquisitions permitted pursuant
to subsection 3D(vi) below, (C) Investments having a stated maturity no
greater than one year from the date the Company makes such Investment in
(1) obligations of the United States government or any agency thereof or
obligations guaranteed by the United States government, (2) certificates
of deposit of commercial banks having combined capital and surplus of at
least $50 million, or (3) commercial paper with a rating of at least
"Prime-1" by Moody's Investors Service, Inc.;
(iii) merge with or into, enter into a statutory share exchange or
consolidate with or into any Person, provided that the Company may (i)
acquire all of the issued and outstanding capital stock of Formations in
Health Care, Inc. from Pamela Leiter, and (ii) make acquisitions at fair
market value in arm's-length transactions which do not individually or
when taken together with all other acquisitions after the Closing Date
(as defined in the HPSC Purchase Agreement) result in a Change of Control
(as defined in the HPSC Purchase Agreement);
(iv) sell, lease or otherwise dispose of more than 25% of the assets
of the Company (computed on the basis of book value, determined in
accordance with generally accepted accounting principles consistently
applied, or fair market value, determined by the Company's board of
directors in its reasonable good faith judgment) in any transaction or
series of related transactions (other than sales in the ordinary course
of business), or sell or permanently dispose of any of its Proprietary
Rights;
-6-
<PAGE> 7
(v) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into partnership form);
(vi) this section intentionally omitted;
(vii) enter into the ownership, active management or operation of
any business substantially different from or unrelated to the
development, implementation, sale, marketing or servicing of computer
databases, software, information products or other tools (and support
services related to such databases, software, information products and
tools) to measure, track, report on, and manipulate and analyze
healthcare or insurance industry information, including, without
limitation, information concerning costs, procedures, treatments,
practitioners and protocols;
(viii) subject itself to any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's right to
perform the provisions of this Agreement and the Collateral Agreements;
(ix) except as expressly contemplated by this Agreement or any
Collateral Agreement, make any amendment to the Articles of Incorporation
or the Bylaws (collectively, the "Organizational Documents"), or file any
resolution of the board of directors with any governmental entity
containing any provisions which would adversely affect or otherwise
impair the rights or relative preferences or priorities of the holders of
the Preferred Shares under this Agreement, any Collateral Agreement, or
either Organizational Document, or otherwise impair the value of the
Common Shares or the Preferred Shares;
(x) enter into any transaction with any of its officers, directors,
shareholders or employees, any person related by blood, adoption or
marriage to any such person, or its or their Affiliates, except for
normal employment arrangements and benefit programs; provided, that no
severance arrangements or plans may be entered into with any employees of
the Company without the approval of a majority of the members of the
Board of Directors of the Company who are not employees of the Company or
any subsidiary of the Company, or the approval of a majority of the
members of the Compensation Committee of the Board of Directors of the
Company;
(xi) establish or acquire any Subsidiaries other than wholly-owned
Subsidiaries organized within the United States and its territorial
possession, except as permitted by the HPSC Purchase Agreement;
(xii) this section intentionally omitted;
(xiii) pledge, mortgage or otherwise encumber or permit any lien,
charge or security interest of any kind to exist upon, any of its assets,
except for (a) liens, pledges or deposits for worker's compensation,
unemployment insurance, old age
-7-
<PAGE> 8
benefits or similar charges, (b) the interests of lessors under
capitalized leases in the property subject thereto, (c) inchoate liens
for taxes, assessments, or the claims of materialmen and mechanics, (d)
currently outstanding liens, and (e) liens permitted by the HPSC
Purchase Agreement;
(xiv) create, incur, assume or suffer to exist any Indebtedness,
except (a) any other advances or payments in the ordinary course of the
company's business, (b) the endorsement of negotiable instruments for
deposit and collection and similar transactions in the ordinary course of
the Company's business, (c) any other Indebtedness to the extent that
such Indebtedness is permitted under the HPSC Purchase Agreement;
(xv) this section intentionally omitted;
(xvi) this section intentionally omitted;
(xvii) change its fiscal year;
(xviii) issue, sell or transfer any shares of the capital stock, or
rights to acquire shares of the capital stock, of the company to any
Person other than the Company, except for Excluded Shares (as defined in
Section II of ARTICLE FOURTH of the Articles of Incorporation of the
Company);
(xix) this section intentionally omitted;
(xx) this section intentionally omitted;
(xxi) this section intentionally omitted;
(xxii) without the approval of a majority of the members of the
Board of Directors of the Company who are not employees of the Company or
any subsidiary of the Company, or the approval of a majority of the
members of the Compensation Committee of the Board of Directors of the
Company, amend or modify in any material manner any Employee Benefit Plan
(as defined in Section 7 hereof) as in existence as of the Closing, adopt
any new Employee Benefit Plan or issue any equity securities, option or
warrant to purchase equity securities, or any securities convertible into
equity securities to its employees other than pursuant to the Company's
existing Employee Benefit Plans and any Stock Option Plan; or
(xxiii) without the approval of a majority of the members of the
Board of Directors of the Company who are not employees of the Company or
any subsidiary of the Company, adopt any qualified or non-qualified
employee stock option plan, (any such plan, a "Stock Option Plan");
(xxiv) this section intentionally omitted; or
-8-
<PAGE> 9
(xxv) this section intentionally omitted.
3F. Affirmative Covenants. The Company shall do the following:
(i) this section intentionally omitted;
(ii) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses;
(iii) maintain and keep its properties in good repair, working order
and condition, and from time to time make all necessary or desirable
repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted at all times;
(iv) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or
properties or upon the income or profits therefrom (in each case before
the same becomes delinquent and before penalties accrue thereon) and all
claims for labor, materials or supplies which if unpaid would by law
become a lien upon any of its property, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on its
books with respect thereto;
(v) comply with all other obligations which it incurs pursuant to
any contract or agreement, or the Organizational Documents, whether oral
or written, express or implied, including, without limitations, the
obligations set forth herein or in the Collateral Agreements, as such
obligations become due, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with generally accepted accounting
principles, consistently applied) have been established on its books with
respect thereto;
(vi) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the
Company;
(vii) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and
in such amounts as are customary for corporations of similar size engaged
in similar lines of business;
(viii) this section intentionally omitted; and
-9-
<PAGE> 10
(ix) maintain proper books of record and account which fairly
present its financial condition and results of operations and make
provisions on its financial statements for all such proper reserves as in
each case are required in accordance with generally accepted accounting
principles, consistently applied.
3G. Reservation and Authorization of Additional Stock. The Company
shall at all times reserve and keep available out of its authorized but
unissued Common Shares, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of its Common Shares as
shall from time to time be sufficient to effect the conversion of all
outstanding Preferred Shares, in addition to the maximum number of Common
Shares which may be required to be issued pursuant to existing Employee
Benefit Plans or any Stock Option Plan or pursuant to any outstanding
options, warrants or convertible securities, and shall take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued Common Shares to such number of
shares as shall be sufficient in order to validly and legally issue such
Common Shares.
3H. Amendment of Other Agreements. Without the consent of the
holders of a majority of the Investor Shares, the Company shall not
amend, modify or waive any provision of any Collateral Agreements, either
Organizational Document (except as contemplated hereunder), any existing
Employee Benefit Plan, or any material provision of any other material
agreement to which it is a party, and the Company shall enforce the
provisions of the Collateral Agreements and every other agreement to
which it is a party and shall avail itself of all rights and remedies
thereunder unless it is otherwise directed by such holders.
3I. Material Change; Litigation. The Company will promptly advise
all holders, from time to time, of any Investor Shares of any event which
represents a material adverse change in the business or condition,
financial or otherwise of the Company and of each suit or proceeding
commenced or threatened against the Company which, if adversely
determined, would result in such a material adverse change. The Company
will also promptly advise all holders, from time to time, of any Investor
Shares of the occurrence of any event that constitutes a material breach
of the covenant contained herein.
3J. Proprietary Rights. The Company shall possess and maintain all
material Proprietary Rights necessary to the conduct of their respective
business and own all right, title and interest in and to, or have a valid
license for, all material Proprietary Rights used by the Company in the
conduct of its business. The Company shall take no action, nor fail to
take any action, which would result in the invalidity, abuse, misuse or
unenforceability of such Proprietary Rights or which would infringe upon
any rights of other Persons.
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<PAGE> 11
3K. Current Public Information. At all times after the Company has
filed a registration statement with the Securities and Exchange
Commission pursuant to the requirements of either the Securities Act of
1933, as amended (the "Securities Act"), or the Securities Exchange Act
of 1934, as amended (the "Securities Exchange Act"), the Company shall
file all reports required to be filed by it under the Securities Act and
the Securities Exchange Act and the rules and regulations adopted by the
Securities and Exchange Commission thereunder, and shall take such
further action as the Investor may reasonably request, all to the extent
required to enable the Investor or any other holder, from time to time,
of the Preferred Shares or the Conversion Shares to sell the Preferred
Shares or the Conversion Shares pursuant to (i) Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act (as such rule
may be amended from time to time) or any similar rule or regulation
hereafter adopted by the Securities and Exchange Commission or (ii) as
and to the extent set forth in the Registration Agreement, a registration
statement on Forms S-1, S-2 or S-3 or any similar registration form
hereafter adopted by the Securities and Exchange Commission. Upon
request, the company shall deliver to the holders, from time to time, of
any Investor shares a written statement as to whether the Company as
complied with such requirements.
(b) The Shareholders agree that Sections 7 and 8 of the Original Purchase
Agreement (in the form attached hereto as EXHIBIT A) are hereby incorporated
herein in their entirety, provided however that (i) all references therein to
this "Agreement" shall mean this "Consent and Modification Agreement", (ii) all
references therein to the "Shareholder Agreement" shall mean the "Shareholder
Agreement" referred to in Section 2 of this Agreement, (iii) subsection 8A of
the attached shall be deleted in its entirety, and (iv) the addresses for
notices contained in subsection 8L of the attached shall be amended to refer to
the addresses contained in the Exhibit to the Shareholders Agreement.
5. Termination of Original Purchase Agreement. Except as provided in
Section 4 of this Agreement above, the Original Purchase Agreement is hereby
terminated, and the same hereinafter shall be null and void and of no further
force and effect from and after the date hereof.
6. Amendment of the Original Registration Agreement. The Shareholders
agree that the Original Registration Agreement in the form attached hereto as
EXHIBIT B is hereby ratified in all respects, provided however that the
following terms of the Original Registration Agreement (with the section and
paragraph numbers identified below) are hereby deleted in their entirety and
replaced with the following (which are blacklined to show all changes to the
terms contained in the Original Registration Agreement):
1. Demand Registrations.
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<PAGE> 12
(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 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 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 "Initial Public Offering" means the Company's first
offering of Series A 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 which 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.
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<PAGE> 13
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 with 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.
(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 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, that the
Company may exercise its right to postpone filings for 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 reasonable acceptable to
the Company to administer the offering.
(f) This paragraph intentionally omitted.
-13-
<PAGE> 14
2. 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 demand registration rights with respect to securities
of the Company, and 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, 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 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, 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 and 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.
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> 15
(c) Is otherwise not inconsistent with the rights granted to the
holders of Registrable Securities in this Agreement.
7. Termination of Original Shareholders Agreement. The Shareholders
hereby agree that each of their obligations to each other under the Original
Shareholders Agreement are terminated, and as between themselves, the same
hereinafter shall be null and void and of no further force and effect from and
after the date hereof. The Shareholders further acknowledge and agree that the
Original Shareholders Agreement shall continue to be in full force and effect
only with respect to their obligations to and rights to receive benefits from
Dr. John P. Schmitt.
8. Termination of Jackson Shareholder Agreement. As a condition to
entering into the Original Purchase Agreement, the Shareholders required that
Robert P. Jackson and Jaye Sloan, as shareholders of Partners Investment Group,
Inc. ("Partners"), agree to certain restrictions on transfer of the Series A
Convertible Preferred Stock owned by Partners Investment Group, Inc., which
restrictions were embodied in that certain Shareholders Agreement dated as of
April 5, 1991, by and among Partners Investment Group, Inc., Robert P. Jackson,
Jaye Sloan, Medirisk, the Shareholders, Dr. John P. Schmitt and William P.
Shaude (the "Jackson Shareholders Agreement"). The Shareholders acknowledge
and agree that the Jackson Shareholders Agreement terminated as of the date the
Company repurchased all shares of capital stock of the Company held by
Partners, and the same is of no further force and effect.
9. Accrued Dividends.
Notwithstanding any other provision in this Agreement, the Company
acknowledges its obligation to declare and pay to the Shareholders a one-time
dividend per Series A Preferred Share held by each such Shareholder on April 5,
1994 of four percent (4%) of the consideration per Series A Preferred Share
originally paid to the Company by each such Shareholder. The Shareholders
acknowledge and agree that the same have accrued and shall continue to be
outstanding from day to day hereafter without interest, and may not be declared
or paid by the Company prior to the payment in full of the Senior Subordinated
Promissory Notes and all other accrued but unpaid dividends due to the holders
of the Series A Preferred Shares and the Series B Preferred Shares. The
Company and Shareholders agree that such dividends shall be declared and paid
in cash by the Company to the Shareholders promptly following the payment in
full of the Senior Subordinated Promissory Notes issued by the Company pursuant
to the HPSC Securities Agreement and the payment in full of all other accrued
but unpaid
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<PAGE> 16
dividends due to the holders of the Series A Preferred Shares and the Series B
Preferred Shares.
-16-
<PAGE> 17
This Agreement is entered into as of the date first above written.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
-----------------------------------
Mark A. Kaiser
Chairman and Chief Executive Officer
BRANTLEY VENTURE PARTNERS II,
L.P., a Delaware limited partnership
By: Brantley Venture Management II,
L.P., general partner
By: Pinkas Family Partners, L.P.
general partner
By: /s/ Robert P. Pinkas
----------------------------
Robert P. Pinkas,
general partner
THE CHASE MANHATTAN BANK, N.A.,
as Trustee of Sears Pension Trust
By: /s/
-------------------------------
Title: Vice President
-------------------------------
/s/ Laurence A. Powell
--------------------------------------
Laurence H. Powell
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<PAGE> 18
EXHIBIT "A"
SECTIONS 7 AND 8 OF THE ORIGINAL PURCHASE AGREEMENT
-18-
<PAGE> 19
EXHIBIT "B"
ORIGINAL REGISTRATION AGREEMENT
-19-
<PAGE> 1
EXHIBIT 10.9
EXECUTION COPY
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made as of January 8,
1996, by and among MEDIRISK, INC., a Florida Corporation (the "Company"),
BRANTLEY VENTURE PARTNERS II, L.P., a Delaware limited partnership
("Brantley"), CHASE MANHATTAN BANK, N.A., as trustee for Sears Pension Trust
("Sears"), LAURENCE H. POWELL, an individual ("Powell") (Brantley, Sears and
Powell being collectively referred to as the "Original Shareholders") and
HEALTHPLAN SERVICES CORPORATION, a Delaware corporation ("HPSC") (with each of
Brantley, Sears, Powell and HPSC being sometimes referred to individually as a
"Shareholder" and collectively as the "Shareholders"). Capitalized terms not
otherwise defined shall have the meanings set forth in paragraph 13 hereof.
W I T N E S S E T H :
WHEREAS, pursuant to that certain Preferred Shares Purchase Agreement
dated April 5, 1991, by and among the Company, Brantley and Powell, as amended
on or about November 22, 1991 to include Sears as a party (the "Original
Purchase Agreement"), and the Second Preferred Shares Purchase Agreement dated
April 30, 1992, by and among the Company, Brantley and Sears (the Second
Purchase Agreement"), Brantley, Sears and Powell each purchased certain shares
of the Company's Series A Convertible Preferred Stock (the "Series A Preferred
Shares").
WHEREAS, pursuant to that certain Securities Purchase Agreement of even
date herewith, by and among the Company and HPSC (the "Securities Purchase
Agreement"), HPSC has agreed to purchase certain shares of the Company's Series
B Convertible Preferred Stock (the "Series B Preferred Shares", with the Series
A Preferred Shares and Series B Preferred Shares being collectively referred to
herein as the "Preferred Shares"), and to purchase up to $10,000,000 Senior
Subordinated Notes of the Company (the "Senior Subordinated Notes").
WHEREAS, it is a condition to the obligation of HPSC to consummate the
transaction contemplated by the Securities Purchase Agreement that the parties
hereto execute this Agreement.
WHEREAS, the parties desire to execute this Agreement for the purposes of,
among other things, (i) establishing the composition of the Company's Board of
Directors (the "Board"), (ii) assuring continuity in the management of the
Company, and (iii) limiting the manner and terms by which certain of the
capital stock of the Company may be transferred.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Termination of Original Shareholders Agreement. The Original
Shareholders are parties to that certain Shareholders Agreement dated April 5,
1991, as amended on or about November 22, 1991 (the "Original Shareholders
Agreement"), and hereby agree that each of their obligations to each other
under such Original Shareholders Agreement are terminated, and as between
themselves, the same hereinafter shall be null and void and of no further force
and effect from and after the date hereof. The Original Shareholders further
acknowledge and agree that the Original Shareholders Agreement shall continue
to be in full force and effect only with respect to their obligations to and
rights to receive benefits from Dr. John P. Schmitt ("Schmitt").
2. Board of Directors.
(a) From and after the Closing (as defined in the Securities Purchase
Agreement) and until the provisions of this paragraph 2 cease to be effective,
each Shareholder shall vote such Shares over which such Shareholder has voting
control, and will take all other necessary or desirable actions within his or
its control (whether in his or its capacity as a shareholder, director, member
of a Board committee or officer of the Company or otherwise), and the Company
will take all necessary and desirable actions within its control, in order to
cause:
(i) the authorized number of directors on the Board to be
established at six directors;
(ii) the election to the Board of one representative designated by
each of the following: (A) Brantley, (B) Sears, (C) HPSC and (D) Powell;
(iii) any committees of the Board to be created only upon the
approval of a majority of the members of the Board, and to cause the
members of the Board designated by Brantley, Sears and HPSC under (ii)
above to be a member of each such committee, if any, that is so created;
(iv) the removal from the Board (with or without cause) of any
representative designated by a party hereunder, at the written request of
such party, but only upon such written request and under no other
circumstances; and
(v) in the event that any representative designated hereunder by a
party for any reason ceases to serve as a member of the Board during such
representative's term of office, the resulting vacancy on the Board to be
filled by a representative designated by such party.
- 2 -
<PAGE> 3
(b) The Company shall pay the actual and reasonable out-of-pocket expenses
incurred by each director in connection with attending formal and informal
meetings of the Board and any committee thereof and in connection with any
projects assigned to such director by the Board and any committee thereof.
(c) The respective rights of Brantley, Sears, HPSC and Powell to designate
directors under this paragraph 2 will terminate as to such party at such time
as such party ceases to own, legally or beneficially, or have the right to
acquire at least 250,000 shares of Series A Common Stock of the Company (as
adjusted for stock splits, stock dividends and similar events occurring after
the date of this Agreement).
3. Restrictions on Transfer of Shares.
(a) Transfer of Shares. Except for a Public Sale or an Approved Sale, no
Shareholder shall pledge, mortgage or otherwise encumber any Shares, and no
Shareholder shall sell, transfer, assign or otherwise dispose of (any such
transfer, other than a Public Sale or an Approved Sale, being referred to
herein as a "Transfer") any interest in any Shares except pursuant to the
provisions of paragraph 3, 4 or 6 hereof; provided, however, that HPSC may
pledge, mortgage or encumber its shares to secure its obligations under any
credit facility that is secured by a pledge of all or substantially all of its
assets, including its current loan agreement and any replacement or refinancing
thereof, and in the event the lender takes such shares pursuant to the terms of
the Pledge, neither such lender nor its Transferee shall be bound by the terms
of this Agreement. Each Shareholder agrees not to consummate any such Transfer
until 30 days after the later of the delivery to the Company and the other
Shareholders of an Offer Notice (as defined below) or Sale Notice (as defined
below), if any, unless the parties to the Transfer have been finally determined
pursuant to this paragraph 3 prior to the expiration of such 30-day period (the
"Election Period").
(b) First Offer Right. At least 30 days prior to making any Transfer of
any Shares, the Shareholder proposing to make a Transfer (the "Transferring
Shareholder") will deliver a written notice (the "Offer Notice") to the Company
and to all other Shareholders. The Offer Notice will disclose in reasonable
detail the identity of the prospective transferees, the proposed number of
Shares to be transferred and the proposed terms and conditions of the Transfer.
First, the Company, subject to the terms of applicable covenants and other
contractual restrictions that may from time to time be in effect, may elect to
purchase some or all of the Shares specified in the Offer Notice at the price
and on the terms specified therein by delivering written notice of such
election to the Transferring Shareholder and the other Shareholders as soon as
practical but in any event within ten days after the delivery of the Offer
Notice. If the Company has not elected to purchase all of the Shares within
such ten-day period, each other Shareholder may elect to purchase all (but not
less than all) of such other Shareholder's Pro Rata Share (as defined below) of
the remaining available Shares specified in the Offer Notice at the price and
on the terms specified therein by delivering written notice of such election to
the Transferring Shareholder as soon as practical but in any event within 20
days after delivery of the Offer
- 3 -
<PAGE> 4
Notice. Any Shares not elected to be purchased by the end of such 20-day
period will be reoffered for the ten-day period prior to the expiration of the
Election Period by the Transferring Shareholder on a pro rata basis to the
other Shareholders who have elected to purchase their full respective Pro Rata
Shares. If the Company or any Shareholders has elected to purchase Shares from
the Transferring Shareholder, the transfer of such Shares will be consummated
as soon as practical after the delivery of the election notices, but in any
event within 15 days after the expiration of the Election Period. To the
extent that the Company and the other Shareholders have not elected to purchase
all of the Shares being offered, the Transferring Shareholder may, within 90
days after the expiration of the Election Period and subject to the provisions
of subparagraph (c) below, transfer such Shares to the transferees identified
in the Offer Notice at a price no less than the price per share specified in
the Offer Notice and on other terms no more favorable to the transferees) than
offered to the Company and the other Shareholders in the Offer Notice. The
purchase price specified in any Offer Notice shall be payable solely in cash or
marketable securities at the closing of the transaction or in installments over
time. For the purposes of this subparagraph (b), each other Shareholder's "Pro
Rata Share" shall be the percentage that the Shares held by such Shareholder
represents on a fully-diluted basis of the aggregate of all Shares held by all
Shareholders other than the Transferring Shareholder (the "Total Shares").
(c) Participation Rights. In the event of a proposed Transfer by a
Transferring Shareholder with respect to which the Company and the Shareholders
have not exercised their rights under subparagraph (b) to purchase all the
Shares proposed to be sold by the Transferring Shareholder:
(i) the Transferring Shareholder shall deliver a written notice (the
"Sale Notice") to Brantley, Sears and HPSC (for the purposes of this Section
3(c), each an "Eligible Shareholder"), specifying in reasonable detail the
identity of the proposed transferee(s) and the terms and conditions of the
Transfer, and the percentage of the total number of Shares then held by the
Transferring Shareholder which is the subject of the proposed Transfer (the
"Sales Percentage").
(ii) concurrently with the delivery of the Sale Notice, the Transferring
Shareholder shall offer each Eligible Shareholder the opportunity to sell to
the proposed purchaser of the Shares, or to such other purchaser or purchasers
as the Transferring Shareholder shall obtain, that percentage of the Shares
then held by each such Eligible Shareholder which is equal to the Sales
Percentage. It is agreed and understood that if the Transferring Shareholder
shall obtain a purchaser for the shares of the Eligible Shareholders, then the
terms and conditions of any sale by an Eligible Shareholder shall be on the
same terms and conditions as those applicable to the Transferring Shareholder.
(iii) in the event that the Transferring Shareholder cannot obtain
commitments from the proposed purchaser(s) to purchase that percentage of the
Shares then held by each participating Eligible Shareholder which is equal to
the Sales Percentage, then the Transferring Shareholder shall reduce the number
of Shares which it proposes to sell and
- 4 -
<PAGE> 5
allow each participating Eligible Shareholder to sell its pro rata share of the
total number of Shares proposed to be transferred by the Transferring
Shareholder, with the pro rata shares of the Transferring Shareholder and the
participating Eligible Shareholders being the percentage that the Shares held
by each such Shareholder represents on a fully-diluted basis of the aggregate
of all Shares held by the Transferring Shareholder and all participating
Eligible Shareholders.
(iv) each Shareholder shall use such Shareholder's best efforts to obtain
agreement of the prospective transferee(s) to the participation of Brantley,
Sears and HPSC in any contemplated Transfer, to the extent Brantley, Sears
and/or HPSC elects to participate in the manner set forth above, and no
Shareholder shall transfer any of its Shares to the prospective transferee(s)
if the prospective transferee(s) declines to allow such participation of
Brantley, Sears and/or HPSC. For the purposes of this Section 3(c), the number
of Shares in each case shall be deemed to be equal to the number of
fully-diluted Shares which are represented by the Shares in each case.
(d) Permitted Transfers. Subject to the provisions of paragraph 5 hereof,
the restrictions contained in this paragraph 3 shall not apply with respect to
any Transfer (i) in the case of an individual, to or among such Shareholder's
Family Group (as defined below), or (ii) in the case of an entity, to or among
its Affiliates (as defined below) (collectively referred to herein as
"Permitted Transferees"); provided, that the restrictions contained in this
paragraph 3 shall continue to be applicable to the Shares after any such
Transfer; and provided further that the transferees of such Shares shall have
agreed in writing to be bound by the provisions of this Agreement with respect
to the Shares so transferred. "Family Group" means an individual's spouse and
lineal descendants and any trust or other fiduciary solely for the benefit of
such individual and/or such individual's spouse and/or lineal descendants.
"Affiliate" of a Person means any other Person controlling, controlled by or
under common control which with such Person and any partner is a partnership.
(e) Termination of Restrictions. The restrictions on the Transfer of
Shares set forth in this paragraph 3 will continue with respect to each Share
until the date on which such Share has been transferred in a Public Sale or a
Change of Control Transaction.
4. Additional Option to Purchase.
(a) (i) In the event that (A) a Shareholder dies, (B) a Shareholder
becomes incompetent or disabled, (C) a Shareholder becomes insolvent, (D) a
Shareholder files a Petition (or a petition is filed against a Shareholder) for
relief under any applicable bankruptcy or insolvency law and such petition is
not dismissed within 60 days of such filing, (E) a Shareholder is dissolved
(other than an administrative dissolution that may be cured by reinstatement)
or liquidated, or (F) a transfer is made for the benefit of a Shareholder's
creditors generally (the events in A through F, each a "Principal Triggering
Event"), then all Shares owned by such Shareholder, whether of record or
beneficially, shall be deemed to be offered for sale to the Company and to the
other Shareholders at a
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<PAGE> 6
price per Share equal to the fair market value per Share as of the last day of
the month preceding the applicable Principal Triggering Event, in the manner
set forth in subparagraph 3(b); provided, however, that in the event that a
Shareholder dies or becomes incompetent or disabled, those of such
Shareholder's Shares that would otherwise be transferred to such Shareholder's
Family Group may be so transferred, and this paragraph 4 shall not apply in
such instance to such Shares; and provided further, that the periods of time
set forth in Section 3 for the acceptance of a deemed offer and the subsequent
transfer of Shares shall be extended as necessary to allow for the appointment
of a personal representative of the transferring Shareholder in the event of
such Shareholder's death, incompetency or disability.
(ii) "Fair market value," as used herein, shall be (A) a value mutually
agreed to by the parties; or (B) if such an agreement cannot be reached within
14 days of the occurrence of the applicable Triggering Event, then the fair
market value of the Company (which shall not include the value of any life
insurance policies of which the Company is a beneficiary or, if the applicable
Triggering Event is the death of an individual, the proceeds of any such policy
on the life of the deceased individual), divided by the number of Shares which
are then deemed to be issued and outstanding as provided in the definition of
"Shares." The foregoing fair market values shall be determined by an
independent appraiser experienced in making such appraisals, to be appointed by
the Shareholders holding a majority of the Shares. If the Shareholders cannot
agree on an appraiser within seven days of the applicable Triggering Event,
then the Shareholders each shall appoint an independent appraiser within seven
days thereof, and the appraisers so appointed shall determine a mutually
agreeable fair market value. If such appraisers cannot agree on a mutually
agreeable fair market value within 14 days of the appointment of the last of
them to be appointed, then such appraisers shall appoint another independent
appraiser within seven days thereof, whose decision shall be final. The
Shareholders exercising their rights to purchase hereunder shall bear, pro rata
in accordance with their then holdings of Shares, all of the costs and expenses
incurred by the Shareholders in appointing and compensating all of the
aforementioned appraisers.
(b) For purposes of this Agreement, an individual is deemed to have
"become disabled" or to be suffering a "disability" if, as a result of disease,
mental or emotional illness or physical injury, such individual (i) becomes
unable, or (ii) is deemed by the Board, in its judgment reasonably exercised,
to have become unable, to make the decisions which may be required in such
individual's capacity as an owner of Shares for a period of 90 days, whether
consecutive or non-consecutive, in any 12-month period.
(c) Any transaction to be entered into pursuant to this paragraph 4 shall
be closed as follows:
(i) At least 20% of the purchase price for the Shares to be
purchased, to be determined by the purchaser in the purchaser's sole
discretion, shall be paid in cash;
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<PAGE> 7
(ii) The balance of the purchase price shall be paid by the
execution and delivery by such purchaser of a promissory note, dated as
of the date of the aforementioned cash payment, providing for the payment
of principal in not more than five equal annual installments (or such
shorter installment period as the purchaser may determine in the
purchaser's sole discretion) commencing on the first anniversary of the
date thereof and continuing on until paid in full, with interest on the
unpaid principal balance thereon from time to time at a rate of 10% per
annum, payable monthly, and providing that the purchaser shall have the
right to prepay all or any portion of the outstanding balance thereof
with accrued interest thereon at any time without premium or penalty; and
(iii) Any purchaser other than the Company shall secure the complete
payment of and performance under any promissory note or notes given
hereunder by granting to the transferor (or such transferor's heirs,
legal representatives, successors or assigns, as the case may be) holding
such note or notes a security interest in (A) the Shares transferred, (B)
the share certificates representing the Shares transferred, and (C) the
documents transferring title to such Shares, pursuant to a pledge
agreement providing (1) that the transferor of such Shares shall not be
required to release such transferor's security interest in any of such
Shares until such time as all sums due and owing under such promissory
note or notes have been paid in full, (2) that the transferor shall
retain possession of such certificates and documents until such time as
all sums due and owing under such promissory note or notes shall have
been paid in full, (3) that the purchaser shall be entitled to receive
all cash dividends paid on such Shares and to exercise all voting rights
in connection therewith so long as such purchaser is not in default under
any such note, and (4) that when the entire purchase price is paid, all
title to such Shares shall be vested in the purchaser and the transferor
shall deliver to the purchaser all such certificates and documents.
5. Additional Transfer Restrictions.
(a) Notwithstanding any provision in this Agreement to the contrary, no
Transfer of any Shares or any other equity securities of the Company or rights
or warrants exercisable, exchangeable or convertible into any equity securities
of the Company may be made (i) to any third party, if such third party (or any
Affiliate, member of such third party's Family Group, or any member of any such
Affiliate's Family Group) is engaged, directly or indirectly, whether as an
owner or an employee, in a business that is similar to or in competition with
the business of the Company, (ii) unless the transferor provides, if required
by the Company in its sole discretion, an opinion of counsel satisfactory to
the Company, in its sole discretion, that such Transfer is made in compliance
with all applicable securities laws and regulations promulgated thereunder, and
(iii) unless the transferee and the Company (on behalf of itself and the
Shareholders) execute and deliver a written instrument, in form and substance
satisfactory to the Company, acknowledging the receipt of a copy of the
provisions and restrictions contained in this Agreement agreeing to comply
herewith and be bound hereby.
- 7 -
<PAGE> 8
(b) Any transferee of Shares, other equity securities of the Company or
rights or warrants exercisable, exchangeable or convertible into equity
securities of the Company, by reason of such transfer, shall become a party to
and be bound by this Agreement, as the same may be amended from time to time,
and if and when a transferee becomes the owner of any Shares, this Agreement
shall be amended by the Shareholders in any reasonable manner required to
continue to provide the rights and protections contemplated herein in
substantially the same manner in which such rights and protections were
provided prior to such transferee becoming an owner of Shares.
6. This Section Intentionally Omitted.
7. Dividends. Except as set forth in ARTICLE FOURTH of the Amended and
Restated Articles of Incorporation of the Company and subject to applicable
covenants and other contractual restrictions, without the consent of the
Shareholders holding a majority of the Shares then outstanding, the Company
shall neither directly or indirectly declare nor pay any cash or other
dividends or make any distributions upon its equity securities, nor shall any
such dividends accrue on and after the date hereof.
8. Preemptive Rights.
(a) Except for (i) the issuance of Common Shares upon the exercise of the
conversion option under the Preferred Shares or upon the exercise of up to
300,000 options or warrants currently held by the Shareholders or the Warrants
issuable to HPSC in accordance with the Warrant Agreement and the Common Shares
issuable upon conversion thereof, (ii) the issuance of equity securities or
options to purchase equity securities in connection with the acquisition by the
Company of another business, (iii) a Qualified Public Offering, (iv) a dividend
upon or with respect to the Shares, (v) the issuance of up to an aggregate of
493,850 Common Shares pursuant to the terms of any stock option agreement or
plan with any employee or former employee or under any employee benefit plan or
options issued to Pamella Leiter in connection with the Company's acquisition
of all of the stock of Formations In Health Care, Inc., or (vi) the issuance of
Shares pursuant to an Approved Sale, then if the Company authorizes the
issuance or sale of any equity securities for cash or securities containing
options or rights to acquire any shares of equity securities for cash (the
"Offered Shares"), the Company shall first offer to sell to Brantley, Sears and
HPSC (each an "Investor") a portion of the Offered Shares equal to the quotient
determined by dividing (A) the number of Shares held by such Investor, by (B)
the total number of Shares held by all Persons. Each Investor shall be
entitled to purchase such portion of the Offered Shares at the most favorable
price and on the most favorable terms as the Offered Shares are to be offered
to any other Persons. The purchase price for all Offered Shares offered to the
Investors shall be payable in cash.
(b) In order to exercise its purchase rights hereunder, an Investor must
within 15 days after receipt of written notice from the Company describing in
reasonable detail
- 8 -
<PAGE> 9
the Offered Shares, the purchase price thereof, the payment terms and such
holder's percentage allotment, deliver a written notice to the Company
describing its election hereunder.
(c) Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such of the Offered Shares which the
Investors have not elected to purchase during the 90 days following such
expiration on terms and conditions no more favorable to the purchasers thereof
than those offered to such Investors. Any Offered Shares offered or sold by
the Company after such 90-day period must be reoffered to the Investors
pursuant to the terms of this paragraph.
(d) The rights under this paragraph shall terminate upon the effectiveness
of a registration statement filed by the Company with the Securities and
Exchange Commission under the Securities Act with respect to a Qualified Public
Offering; provided that if the registration statement is withdrawn or abandoned
before any Shares are sold thereunder, the provisions of this paragraph shall
remain in effect.
9. Additional Shareholder Covenants. Each Shareholder, for such
Shareholder and such Shareholder's heirs, representatives, successors and
assigns, as the case may be, covenants to and agrees with the Company and the
other Shareholders as follows:
(a) The Shareholder shall vote any and all Shares over which such
Shareholder has voting control to cause the Company and the other Shareholders
to comply with and perform fully each of its and their respective obligations,
commitments, covenants, and agreements contained in this Agreement, the
Securities Purchase Agreement, the Consent and Modification Agreement, dated
January 8, 1996, by and among the Company, Sears, Brantley and Powell, and
shall take any and all action as a shareholder available to such Shareholder as
a shareholder of the Company as may be necessary to cause the Company to comply
with such obligations, commitments, covenants and agreements;
(b) The Shareholder shall not knowingly take any action as a stockholder
of the Company which would cause the Company to breach any of its covenants to
and agreements with any third parties; and
(c) If the Board, the Shareholders holding a majority of the Shares held
by the Shareholders as a group and the holders of a majority of the then issued
and outstanding Shares approve a Change of Control Transaction (such approved
Change of Control Transaction being referred to as an "Approved Sale") each
Shareholder will consent to and raise no objections to the Approved Sale, and:
(i) if the Approved Sale is structured as a sale of stock, each
Shareholder will agree to sell all of its Shares on the terms and conditions
approved by the Board and such holders;
- 9 -
<PAGE> 10
(ii) if the Approved Sale is structured as a merger, statutory share
exchange or consolidation, each Shareholder will vote in favor thereof and will
not exercise any dissenter's rights of appraisal it may have under applicable
law;
(iii) if the Approved Sale is structured as a sale of all or substantially
all of the assets of the Company and a subsequent dissolution and liquidation
of the Company, each Shareholder will vote in favor thereof and will vote in
favor of the subsequent dissolution and liquidation of the Company;
(iv) if the Approved Sale can be and is to be accounted for as a "pooling
of interests," each Shareholder (A) shall not exercise statutory dissenters'
rights, or take any other action involving the sale of securities of the
Company it owns, in connection with such transaction, if exercising such rights
or taking such action would cause the "pooling of interests" accounting
treatment to be unavailable for such transaction, and (B) shall, upon the
Company's written request, execute an agreement not to sell the consideration
received by such Shareholder in such transaction for the period required to
permit the Company and the other party to the transaction to account for the
transaction as a "pooling of interests;" provided, however, that no Shareholder
shall be required to agree not to sell such consideration for a period of
longer than 180 days after the consummation of the transaction to be accounted
for as a "pooling of interests;" and
(v) each Shareholder will take all necessary actions in connection with
the consummation of the Approved Sale as are reasonably requested by the
Company, which actions are not detrimental to the Shareholder and do not cause
such Shareholder to incur any out-of-pocket costs that are not reimbursed by
the Company.
Notwithstanding the above, no Shareholder is obligated to refrain from
exercising statutory dissenters' rights or obligated to execute the agreement
referred to in (iv) above if such actions will (i) have a material adverse
effect on the consolidated business and financial condition of such Shareholder
taken as a whole, (ii) cause such Shareholder to be in breach of, or legally
unable to perform, such Shareholder's obligations under any material agreement
to which such Shareholder is a party, with respect to which breach or inability
such Shareholder is unable to obtain, without incurring any out-of-pocket costs
that are not reimbursed by the Company, the waiver or consent of the other
party or parties after using its reasonable efforts to obtain such waiver or
consent, or (iii) cause such Shareholder to be unable to consummate any
transaction (not related solely to the sale or disposition of securities of the
Company held by or issuable to such Shareholder) that is actively under
consideration by such Shareholder or cause such transaction to be materially
less advantageous to such Shareholder.
10. Legend. Each certificate evidencing Shares and each certificate
issued in exchange for or upon the transfer of any Shares (if such shares
remain Shares as defined herein after such transfer) shall be stamped or
otherwise imprinted with the following legends in substantially the following
forms:
- 10 -
<PAGE> 11
(a) "The securities represented by this certificate are subject
to a Shareholders Agreement dated as of January 8, 1996, among the
issuer of such securities (the "Company") and certain of the
Company's shareholders. A copy of such Shareholders Agreement will
be furnished without charge by the Company to the holder hereof
within five days of written request."
(b) "The shares represented by the within certificate have not
been registered under the Securities Act of 1933, as amended. The
shares are subject to restrictions on transferability and resale and
may not be transferred or resold except as permitted under the
Securities Act of 1933, as amended, and applicable state securities
laws, pursuant to registration or exemption therefrom."
The Company shall imprint such legends on certificates evidencing Shares
outstanding prior to the date hereof. The legends set forth above shall be
removed from the certificates evidencing any shares which cease to be Shares in
accordance with paragraph 12 hereof.
11. Chief Executive Officer. The Company agrees that no person other than
Mark A. Kaiser shall be Chief Executive Officer of the Company without the
approval of Shareholders holding a majority of the Shares held by the
Shareholders as a group.
12. Termination. Unless otherwise terminated by a written instrument
executed by all parties hereto, this Agreement shall terminate upon (i) the
completion of a Qualified Public Offering or a Change of Control Transaction,
or (ii) as to a Particular Shareholder, at the time such Shareholder has
transferred all of his or its Shares to another Person or Persons pursuant to
the terms hereof.
13. Definitions.
"Approved Sale" has the meaning set forth in Section 9(c).
"Change of Control Transaction" means a sale to an independent third party
in an arm's length transaction of all or substantially all of the Company's
assets; a merger, statutory share exchange or consolidation in which the
Persons holding the Company's voting securities as of the date hereof (and
assuming (i) the grant to and exercise by HPSC of the greater of (A) 68.15% of
the Warrants to be issued to HPSC under the Warrant Agreement or (B) the actual
number of Warrants issued to HPSC as of the date of such transaction, and (ii)
the exercise of all warrants and options of the Company outstanding on the date
of this Agreement by the holders thereof) cease to hold more than 50% of the
Outstanding Voting Power of the surviving or resulting corporation; or a
transaction or series of transactions in which a Person or group (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), (i) who did not hold
voting securities of the Company as of the date of this Agreement, acquires
beneficial ownership of more than 50% of the
- 11 -
<PAGE> 12
Outstanding Voting Power of the Company or (ii) increased its ownership of
voting securities of the Company from the number beneficially owned by such
Person or group as of the date of this Agreement to more than 50% of the
Outstanding Voting Power of the Company.
"Common Shares" means the shares of Series A Common Stock, $.001 par value
per share, of the Company, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par
or stated value in respect to the rights of the holders thereof to participate
in dividends or in the distribution of assets upon any liquidation, dissolution
or winding up of the Company.
"Convertible Securities" means any shares or other securities convertible
into or exchangeable for Common Shares.
"Options" means any rights, warrants or options to subscribe for or to
purchase the Common Shares or any Convertible Securities.
"Outstanding Voting Power of the Company" means the total number of votes
which may be cast in the election of directors of the Company at any meeting of
shareholders of the Company if all securities (and all such securities issuable
upon the exercise or conversion of options, warrants or other convertible or
exercisable securities) entitled to vote at such meeting were present and voted
at such meeting.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Preferred Shares" means the shares of Series A Preferred Stock and Series
B Preferred Stock of the Company.
"Public Sale" means any sale of Shares by a Shareholder to the public
pursuant to an offering registered under the Securities Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule 144
adopted under the Securities Act.
"Qualified Public Offering" means the Company's first offering of Series A
Common Stock of the Company that is registered under the Securities Act on a
firm commitment basis that produces gross proceeds in excess of $10,000,000.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Series A Preferred Shares" means the shares of Series A Convertible
Preferred Stock, $.001 par value per share, of the Company.
"Series B Preferred Shares" means the shares of Series B Convertible
Preferred Stock, $.001 par value per share, of the Company.
- 12 -
<PAGE> 13
"Shares" means (i) any Common Shares or Preferred Shares purchased or
otherwise acquired by any Shareholder, (ii) any equity securities issued or
issuable directly or indirectly with respect to the Common Shares or Preferred
Shares referred to in clause (i) above by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, (iii) any options held by a Shareholder,
(iv) any other equity securities of the Company and rights or warrants
exercisable, exchangeable or convertible into equity securities of the Company
other than Warrants issued under the Warrant Agreement (as defined in the
Securities Purchase Agreement), (v) the Common Shares or other equity
securities of the Company issuable upon the exercise of greater of (A) 68.15%
of the maximum number of Warrants that may be issued under the Warrant
Agreement or (B) the number of Warrants that have in fact been issued under the
Warrant Agreement, and (vi) any voting trust certificates issued to the owners
of any of the securities referred to in clauses (i), (ii), (iii), (iv) or (v)
above in connection with the deposit of such securities into a voting trust.
"Warrants" has the meaning set forth in the Warrant Agreement.
14. Miscellaneous.
(a) Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement will be
effective unless such modification, amendment or waiver is approved in writing
by the Company and Shareholders holding 80% of the Shares held by such
Shareholders as a group. The failure of any party to enforce any of the
provisions of this Agreement will in no way be construed as a waiver of such
provisions and will not affect the right of such party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
(b) Severability. Whenever possible, each provision of this Agreement
will 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 invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Entire Agreement. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way; provided, however, that the parties acknowledge and agree
that there are covenants and agreements concerning the operations of the
Company in the Securities Purchase Agreement and the Consent and Modification
Agreement, which covenants and agreements shall, as between the Company
- 13 -
<PAGE> 14
and the Shareholder(s) that are beneficiaries thereof, apply as set forth
therein in all respects notwithstanding any provision of this Agreement or any
implication of any such provision of this Agreement.
(d) Successors and Assigns. Except as otherwise provided herein, this
Agreement will bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns, and the Shareholders and their
respective representatives, successors and assigns, so long as they hold
Shares.
(e) Counterparts. This Agreement may be executed in separate counterparts
each of which, when executed, will be an original and all of which taken
together will constitute one and the same agreement.
(f) Remedies. Each Shareholder acknowledges and agrees that, in the event
such Shareholder should fail to perform such Shareholder's obligations under
this Agreement, the remedy at law available to any party hereto aggrieved by
such failure would be inadequate and that, in addition to any other rights or
remedies such aggrieved party may have at law or in equity, such party shall be
entitled to specific performance of the provisions of this Agreement or an
injunction against any breach thereof, without the necessity of proof of actual
damage. Accordingly, with respect to any action or proceeding brought by such
aggrieved party to enforce the provisions hereof against such Shareholder, each
such Shareholder hereby waives the claim or defense that such aggrieved party
now has or hereafter shall have an adequate remedy at law and such Shareholder
hereby agrees not to assert such claim or defense in any such action or
proceeding. This provision shall not be construed as precluding such aggrieved
party from exercising any other rights, privileges or remedies to which such
party may be entitled, all of which rights, remedies and privileges shall be
deemed cumulative and none of which shall be deemed exclusive. Except as
otherwise expressly provided in this Agreement or otherwise agreed to in
writing executed by such aggrieved party, no course of dealing on the part of,
nor any omission or delay by, such aggrieved party shall operate as a waiver of
any such right, remedy or privilege, nor shall any single or partial exercise
or waiver of any such right, privilege or remedy preclude any other or further
exercise thereof or of any other right, privilege or remedy available to such
aggrieved party.
(g) Indemnification. Each Shareholder, and such Shareholder's
representatives, successors and assigns, shall defend, indemnify and hold
harmless all other Shareholders and their respective representatives,
successors and assigns from and against any and all liabilities, obligations,
claims, costs, damages and expenses, including without limitation reasonable
attorneys' fees and additional tax liabilities and interest and penalties,
incurred by such other Shareholders as a result of the failure of performance
of, or the breach by, such indemnifying Shareholder of any of such
Shareholder's obligations contained in this Agreement.
(h) Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered or mailed first class mail
(postage prepaid) or sent by
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<PAGE> 15
reputable overnight courier service (charges prepaid) to the recipient at the
address indicated on the schedule hereto as follows and to any subsequent
holder of Shares subject to this Agreement at such address as indicated by the
Company's records, or at such address or to the attention of such other person
as the recipient party has specified by prior written notice to the sending
party. All notices and other communications shall be effective (i) if sent by
messenger or delivery service, when delivered, (ii) if sent by mail, five days
after having been sent by certified mail, with return receipt requested, or
(iii) if sent by telecopier with receipt acknowledged, when sent.
(i) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Florida.
(j) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(k) Gender; Pronouns. Whenever the context of this Agreement requires,
words used in the singular shall be construed to mean and include the plural
and vice versa, and pronouns of any gender shall be deemed to include and
designate the masculine, feminine, or neuter gender.
(remainder of page intentionally left blank, signatures follow)
- 15 -
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
MEDIRISK, INC., a Florida corporation
By: /s/ Mark A. Kaiser
--------------------------------------------
Mark A. Kaiser
Chairman and Chief Executive Officer
HEALTHPLAN SERVICES CORPORATION, a Delaware
corporation
By: /s/ James K. Murray, III
--------------------------------------------
James K. Murray, III
Executive Vice President and Chief Financial
Officer
- 16 -
<PAGE> 17
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, general partner
THE CHASE MANHATTAN BANK, N.A.,
AS TRUSTEE OF SEARS PENSION TRUST
By: /s/
---------------------------------
Title: Vice President
---------------------------------
/s/ Laurence H. Powell
----------------------------------------
LAURENCE H. POWELL
ADDRESSES FOR NOTICES
(a) If to HPSC:
HealthPlan Services Corporation
P. O. Box 30098
Tampa, Florida 33630-3098
Telecopier: (813) 289-9559
Attention: Mr. James K. Murray III, Executive Vice
President and Chief Financial Officer
- 17 -
<PAGE> 18
with a copy (which shall not constitute notice) to:
Fowler, White, Gillen, Boggs, Villareal and Banker, P.A.
501 E. Kennedy Boulevard
Suite 1600
Tampa, Florida 33602
Telecopier: (813) 228-9401
Attention: David C. Shobe
(b) If to the Company:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Telecopier: (404) 364-6711
Attention: Mark A. Kaiser, Chairman and Chief
Executive Officer
With a copy (which shall not constitute notice) to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopier: (404) 881-7777
Attention: Keith O. Cowan
(c) If to Brantley Venture Partners II, L.P.:
20600 Chagrin Boulevard
Suite 1150 Tower East
Cleveland, Ohio 44122
Telecopier: (216) 283-5324
Attention: Robert P. Pinkas
(d) If to Sears Pension Trust:
Sears Investment Management Co.
Xerox Center
55 West Monroe Street
Chicago, Illinois 60603
Telecopier: (312) 875-7524
Attention: David Bogetz
<PAGE> 19
(e) If to Laurence H. Powell:
1525 Misty Oaks Drive
Atlanta, Georgia 30350
Telecopier: (770) 394-9777
Attention: Laurence H. Powell
<PAGE> 20
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, general partner
THE CHASE MANHATTAN BANK, N.A.,
AS TRUSTEE OF SEARS PENSION TRUST
By: /s/
---------------------------------------
Title: Vice President
---------------------------------------
/s/ Laurence H. Powell
---------------------------------------------
LAURENCE H. POWELL
<PAGE> 1
EXHIBIT 10.10
EXECUTION COPY
================================================================================
REGISTRATION RIGHTS AGREEMENT
DATED
JANUARY 8, 1996
BETWEEN
MEDIRISK, INC.,
AND
HEALTHPLAN SERVICES CORPORATION
================================================================================
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
January 8, 1996 by and between MEDIRISK, INC., a Florida corporation (the
"Company"), and HEALTHPLAN SERVICES CORPORATION, a Delaware corporation (the
"Shareholder").
W I T N E S S E T H
WHEREAS, the Company and the Shareholder are parties to a Securities
Purchase Agreement dated January 8, 1996 (the "Securities Purchase Agreement"),
providing for, upon the terms and subject to the conditions of the Securities
Purchase Agreement, the acquisition by the Shareholder of Series B Convertible
Preferred Stock of the Company (the "Preferred Stock") and Warrants to purchase
Series A Common Stock of the Company (the "Warrants"), and upon the conversion
of the Preferred Stock or the exercise of the Warrants the Shareholder will
receive shares of Series A Common Stock of the Company (the "Restricted
Shares"); and
WHEREAS, it is in the best interests of the Company and the Shareholder
that certain registration rights be granted to the Shareholder with respect to
the Restricted Shares;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1. DEFINITIONS.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of Tampa, Florida are authorized by law to
close.
"Closing Date" shall have the meaning set forth in the Stock Purchase
Agreement.
"Commission" means the Securities and Exchange Commission and any
successor commission or agency having similar powers.
"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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE> 3
"Initial Public Offering" means the 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.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture, or other
entity of whatever nature.
"Registrable Securities" means the Restricted Shares acquired by the
Shareholder upon conversion of the Preferred Stock or acquired upon the
exercise of the Warrants granted from time to time under the Warrant Agreement
(as defined in the Securities Purchase Agreement) and held by the Shareholder
at a given time; provided that any of such Restricted Shares shall cease to be
Registrable Securities if and when (i) a registration statement with respect to
the disposition of such Restricted Shares shall have become effective under the
Securities Act and such Restricted Shares shall have been disposed of pursuant
to such effective registration statement, (ii) such Restricted Shares have been
or could be sold to the public under circumstances in which all of the
applicable conditions of Rule 144 (or any similar rule then in force) under the
Securities Act were met or would be met, as the case may be, without limitation
on the number of Restricted Shares that could be sold by the Shareholder
thereunder, (iii) such Restricted Shares shall have been otherwise transferred,
if new certificates or other evidences for such Restricted Shares not bearing a
legend restricting further transfer and not subject to any stop transfer order
or other restrictions on transfer shall have been delivered by the Company and
subsequent disposition of such Restricted Shares shall not require registration
or qualification of such Restricted Shares under the Securities Act, or (iv)
such Restricted Shares shall have ceased to be outstanding.
"Registration Expenses" means (i) all registration and filing fees, (ii)
fees and expenses of compliance with federal or state securities or blue sky
laws (including fees and disbursements of counsel in connection with blue sky
qualification of the Registrable Securities), (iii) printing expenses, (iv)
internal expenses (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties),
(v) fees and disbursements of counsel for the Company and fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort letters
requested pursuant to Section 2.4(h) hereof), (vi) fees and expenses of any
special experts retained by the Company in connection with such registration,
(vii) fees and expenses of listing the Registrable Securities on a securities
exchange or interdealer quotation system, (viii) any documentary stamp or
similar taxes payable in connection with the issuance or sale of the
Registrable Securities, (ix) fees of the National Association of Securities
Dealers, Inc., and (x) fees of transfer agents and registrars; but shall not
include any underwriting fees, discounts or commissions attributable to the
sale of Registrable Securities, any out-of-pocket expenses of the Shareholder
(or the agents who manage the Shareholder's
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accounts) or any fees and expenses of counsel for the Shareholder or any
expenses of underwriters except as specifically indicated above.
"Securities Act" means the Securities Act of 1933, as amended.
ARTICLE 2
REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION. The Company shall, upon the written demand of
the Shareholder at any time after the closing of the Initial Public Offering by
the Company, use its reasonable best efforts to effect the registration (the
"Demand Registration") under the Securities Act of such number of Registrable
Securities held by the Shareholder as shall be indicated in a written demand
sent to the Company by the Shareholder; provided, however, that (i) the Company
shall only be obligated to effect one Demand Registration per calendar year and
a total of two Demand Registrations; (ii) the Company shall not be required to
register in any Demand Registration an amount of Registrable Securities
representing less than 2% of the number of shares of Series A Common Stock
then-outstanding or $5,000,000 in market value, whichever is less (except that
the Shareholder shall in any event be entitled to Demand Registration of all,
but not less than all, the Registrable Securities then held by it); (iii) a
Demand Registration shall not count as such until it has become effective and
the Shareholder has been able to register and sell at least 90% of the
Registrable Securities requested to be included in such registration, provided
that if, after it has become effective, the offering of Registrable Securities
pursuant to such registration is interfered with by any stop order, injunction
or other order or requirement of the Commission or other governmental entity or
court, such registration shall be deemed not have been effected unless such
stop order, injunction or other order or requirement shall subsequently have
been vacated or otherwise removed; (iv) a Demand Registration shall not count
as such if the Company (or any other shareholder of the Company) offers any of
its securities pursuant to a registration initiated in response to a demand by
the Shareholder (such registration being, instead, treated as a Piggyback
Registration as provided below); and (v) the Company shall not be required to
effect a Demand Registration if counsel for the Company reasonably acceptable
to the Shareholder shall deliver to the Shareholder an opinion reasonably
acceptable to counsel for the Shareholder that, pursuant to Rule 144 under the
Securities Act or otherwise, the Shareholder can sell Registrable Securities
proposed to be included in the Demand Registration without registration under
the Securities Act, without limitation as to the number of Registrable
Securities that are proposed to be sold by the Shareholder. The Company shall
pay all expenses in connection with a registration initiated as a Demand
Registration that, by reason of the application of the immediately preceding
sentence, does not count as a Demand Registration. If a Demand Registration is
initiated by the Shareholder, and the Company (or any other shareholder of the
Company with similar registration rights) then wishes to offer any of its
securities in connection with the registration, then the registration shall be
considered a Piggyback Registration (as defined in Section 2.2) and the
provisions of Section 2.2 and not this Section 2.1 shall apply. 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
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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 with a price range
acceptable to the Shareholder, the Company will include in such registration
prior to the inclusion of any securities that 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. Upon receipt of the Purchaser's written demand, the
Company shall expeditiously (but in any event within 90 days) file a
registration statement under the Securities Act for the Registrable Securities
and use its best efforts to have such registration statement declared effective
as soon as practicable after the filing thereof; provided that (A) the Company
shall not be required to cause any special audit to be undertaken in connection
with any such registration and (B) the Company shall not be required to file
any registration statement during any period of time (not exceeding 90 days)
when (I) the Company is contemplating a public offering of its securities and,
in the judgment of the managing underwriter thereof (or the Company, if such
offering is not underwritten) such filing would have a material adverse effect
on the contemplated offering, (II) the Company is in possession of material
information that it deems advisable not to disclose in a registration statement
or (III) the Company is engaged in any program for the repurchase of voting
securities of the Company. The Shareholder shall have the right to select the
underwriters for a Demand Registration, subject to the approval of the Company,
which approval will not be unreasonably withheld.
2.2 INCIDENTAL REGISTRATION.
(a) If the Company proposes to register any of its equity securities (the
"Priority Securities") under the Securities Act (other than a registration (i)
on Form S-8 or S-4 or any successor or similar forms, (ii) relating to equity
securities issuable upon exercise of employee stock options or in connection
with any employee benefit or similar plan of the Company, or (iii) in
connection with a direct or indirect acquisition by the Company of another
company), whether or not for sale for its own account, in a manner that would
permit registration of Registrable Securities for sale to the public under the
Securities Act, it will on each such occasion give prompt written notice to the
Shareholder of its intention to do so and of the Shareholder's rights under
this Section 2.2, at least 30 days prior to the anticipated filing date of the
registration statement relating to such registration. Any such notice shall
offer the Shareholder the opportunity to request to include in such
registration statement such number of Registrable Securities as the Shareholder
may request (the "Piggyback Registration"). Upon the written request of the
Shareholder made within 20 days after the receipt of notice from the Company
(which request shall specify the number of Registrable Securities intended to
be disposed of by the Shareholder and the intended method of disposition
thereof), the Company will use its best efforts to effect the registration
under the Securities Act of all Registrable Securities which the Company has
been so requested to register by the Shareholder, to the extent requisite to
permit the disposition (in accordance with such intended methods thereof) of
the Registrable Securities so to be registered; provided that (i) if such
registration involves an underwritten public offering, the Shareholder must
sell its Registrable Securities to the underwriters selected by the Company on
the same terms and conditions as apply to the
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<PAGE> 6
Company; and (ii) if, at any time after giving written notice of its intention
to register any securities pursuant to this Section 2.2(a) and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities, the Company shall give written notice to the Shareholder and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. If a registration pursuant to
this Section 2.2(a) involves an underwritten public offering and the
Shareholder requests shares be included in such registration, the Shareholder
may elect, by notice to the Company not less than 10 business days prior to the
anticipated effective date of the registration statement filed in connection
with such registration, not to register such shares in connection with such
registration.
(b) Priority In Incidental Registrations. If a registration pursuant to
this Section 2.2 involves an underwritten public offering and the managing
underwriter advises the Company that, in its view, the number of equity
securities (including all Registrable Securities) which the Company, the
Shareholder and any other persons intend to include in such registration
exceeds the largest number of securities that can, in the opinion of the
managing underwriter, be sold in such offering (the "Maximum Offering Size"),
the Company will include in such registration, in the following priority, up to
the Maximum Offering Size:
(i) first, all the Priority Securities (including any to be sold for
the Company's own account or for other holders of Priority Securities
exercising demand registration rights), with such priorities among them as
the Company may determine; and
(ii) second, the equity securities requested to be sold for the account
of the Shareholder and the holders of Registrable Securities and Executive
Registrable Securities (as defined in the Consent and Modification
Agreement dated January 8, 1996, by and among the Company, Brantley
Investment Partners II, L.P., Sears Pension Trust and Laurence H. Powell)
pro rata on the basis of the relative number of equity securities that all
such persons have requested to be included in such registration; and
(iii) third, the equity securities requested to be sold for the account
of all other persons pro rata on the basis of the relative number of equity
securities that all such persons have requested to be included in such
registration;
provided, however, that if securities owned by any executive officer of the
Company are included in the Priority Securities, then any Registrable
Securities that the Shareholder proposes to include in such registration shall
also be deemed Priority Securities, and to the extent securities owned by any
such executive officer are included in the registration, the Shareholder's
Registrable Securities shall be included in such registration pro rata with
those owned by the Shareholder and all executive officers on the basis of the
relative number of equity securities that the Shareholder and all such
executive officers have requested to be included in such registration.
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<PAGE> 7
2.3 HOLDBACK AGREEMENTS.
(a) If any registration of Registrable Securities shall be in connection
with an underwritten public offering and the Shareholder elects to have shares
included in such offering, the Shareholder agrees not to effect any public sale
or distribution under the Securities Act of any Registrable Securities (other
than the sale of Registrable Securities included in and as part of such
offering), and not to effect any such public sale or distribution of any other
equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such public offering) during the 5 business days
prior to, and during the 90-day period (or such longer period as requested by
the underwriters and agreed to by the Shareholder) which begins on, the
effective date of such registration statement, provided that the Shareholder
has received written notice of such registration at least two business days
prior to the anticipated beginning of the 5 business day period referred to
above.
(b) If any registration of Registrable Securities shall be in connection
with an underwritten public offering, the Company agrees not to effect any
public sale or distribution of any of its equity securities or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than any such sale or distribution of such securities in
connection with any merger or consolidation by the Company or any subsidiary of
the Company or the acquisition by the Company or a subsidiary of the Company of
the capital stock or substantially all the assets of any other person or in
connection with an employee stock ownership or other benefit plan) during the 5
business days prior to, and during the 90-day period (or such longer period as
requested by the underwriters and agreed to by the Company) which begins on,
the effective date of such registration statement.
2.4 REGISTRATION PROCEDURES. Whenever the Shareholder requests that any
Registrable Securities be registered pursuant to Section 2.1 or Section 2.2,
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 as quickly as practicable, and the Company, in connection
with any such request, will:
(a) Prepare and file with the Commission, as expeditiously as possible,
a registration statement on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate and which form
shall be available for the sale of the Registrable Securities to be
registered thereunder and which shall state, if applicable, that the
subject Registrable Securities are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act, and use its best
efforts to cause such registration statement to become and remain effective
for the period of distribution contemplated thereby (determined as
hereinafter provided).
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as
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may be necessary to keep such registration statement effective for the
period specified in this Section 2.4 and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement in accordance with the sellers' intended method
of disposition set forth in such registration statement for such period.
(c) Will, a reasonable time prior to filing a registration statement
or prospectus or any amendment or supplement thereto, furnish to the
Shareholder and each underwriter, if any, of the Registrable Securities
covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Company will furnish
to the Shareholder and underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by
reference therein), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as the
Shareholder or underwriter may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by the Shareholder.
(d) Promptly notify the Shareholder of any stop order issued or
threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered.
(e) Use its best efforts to (i) register or qualify the Registrable
Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the managing underwriter or
Shareholder shall reasonably request and (ii) cause such Registrable
Securities to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company and to do any and all other acts and things that
may be reasonably necessary or advisable to enable the Shareholder to
consummate the disposition of the Registrable Securities owned by the
Shareholder; provided that the Company will not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (e), (B) subject itself to
taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction.
(f) Immediately notify the Shareholder and each underwriter, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of any event as a result of which
the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and 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 material fact required
to be stated therein or necessary to make the
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<PAGE> 9
statements therein not misleading and promptly make available to the
Shareholder any such supplement or amendment.
(g) Make available for inspection by the Shareholder, any underwriter
participating in any disposition pursuant to such registration statement
and any attorney, accountant or other professional retained by the
Shareholder or underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the
Company and cause the Company's officers, directors and employees to
supply all information, in every instance where reasonably requested by
any Inspectors in connection with such registration statement.
(h) Will furnish to the Shareholder of Registrable Securities covered
by such registration statement and to each underwriter, if any, a signed
counterpart, addressed to the Shareholder or underwriter, of (i) an
opinion or opinions of counsel to the Company and (ii) a comfort letter or
comfort letters from the Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered
by opinions or comfort letters in such transactions.
(i) Will otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
(j) Use its best efforts to cause all such Registrable Securities to
be listed on each securities exchange or interdealer quotation system on
which the same or similar securities issued by the Company are then
listed.
For purposes of paragraphs (a) and (b) of this Section 2.4, (i) the period
of distribution of securities in an underwritten public offering shall be
deemed to extend until the later of the date each underwriter has completed the
distribution of all securities purchased by it and the termination of the
period in which prospectuses must be delivered under Rule 174 of the Securities
Act, and (ii) the period of distribution of securities in any other
registration shall be deemed to extend until the earlier of the sale of all
securities covered thereby and 60 days after the effective date thereof.
The Company may require the Shareholder promptly to furnish in writing to
the Company such information regarding the distribution of the Registrable
Securities as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration.
In connection with each registration pursuant to Section 2.1 or Section
2.2 covering an underwritten public offering, the Company and the Shareholder
agree to enter into a written agreement with the managing underwriter in such
form and containing such provisions as are customary in the securities business
for such an arrangement between major underwriters and companies of the
Company's size and investment stature, provided that such agreement shall not
contain any provision applicable to the Company that is inconsistent with the
provisions hereof.
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<PAGE> 10
The Shareholder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 2.4(f) hereof,
the Shareholder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until the Shareholder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 2.4(f) hereof. In the event that
the Company shall give such notice, the Company shall extend the period during
which such registration statement shall be maintained effective hereof by the
number of days during the period from and including the date of the giving of
notice pursuant to Section 2.4(f) hereof to the date when the Company shall
make available to the Shareholder a prospectus supplemented or amended to
conform with the requirements of Section 2.4(f) hereof.
2.5 EXPENSES. The Company will pay all Registration Expenses in
connection with any registration statement filed pursuant to Article II hereof.
All other expenses of registration, including underwriting discounts and
selling commissions and any out-of-pocket expenses incurred by the Shareholder
relating to the sale or disposition of the Shareholder's Registrable
Securities, shall be paid by the Shareholder.
2.6 INDEMNIFICATION BY THE COMPANY. If the Shareholder includes
Registrable Securities in a registration statement pursuant to Section 2.1 or
Section 2.2, the Company agrees to indemnify and hold harmless the Shareholder,
and each person, if any, who controls the Shareholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, pending or threatened claims, damages, liabilities,
joint or several (or actions in respect thereof), including, as incurred and
without limitation, reasonable legal, accounting, expert witnesses, or other
costs of investigating, preparing or defending any such claim or action
("expenses"), arising under the Securities Act or otherwise, caused by any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or prospectus relating to the Registrable Securities
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) or any preliminary prospectus, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon and in conformity with information relating to the
Shareholder or its plan of distribution of the Registrable Securities furnished
in writing to the Company by the Shareholder or on the Shareholder's behalf
expressly for use therein; provided, however, that with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, or in any prospectus, as the case may be, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expenses results from the fact that a
current copy of the prospectus (or, in the case of a prospectus, the prospectus
as amended or supplemented) was not sent or given to the person asserting
any such loss, claim, damage, liability or expenses at or prior to the written
confirmation of the sale of the Registrable Securities concerned to such person
if it is determined that the Company has provided such prospectus and it was
the responsibility
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of the Shareholder to provide such person with a current copy of the prospectus
(or such amended or supplemented prospectus, as the case may be) and such
current copy of the prospectus (or such amended or supplemented prospectus, as
the case may be) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The Company also agrees to indemnify any
underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters on substantially the same basis as
that of the indemnification of the Shareholders provided in this Section 2.6.
2.7 INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES AND
UNDERWRITERS. The Shareholder, if any of its Registrable Securities are
included in any registration statement, agrees to indemnify and hold harmless
the Company, its officers, directors and agents and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to the Shareholder, but only with respect to
information relating to the Shareholder or its plan of distribution of the
Registrable Securities furnished in writing by the Shareholder or on the
Shareholder's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Securities, or any amendment or
supplement thereto, or any preliminary prospectus. The Shareholder also agrees
to indemnify and hold harmless underwriters of the Registrable Securities,
their officers and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 2.7. In no event and under no circumstances shall
Shareholder be liable for indemnification in an amount in excess of the
proceeds received by Shareholder from the sale of Registrable Securities
pursuant to the registration statement. As a condition to including
Registrable Securities in any registration statement filed in accordance with
Article II hereof, the Company may require that it shall have received an
undertaking reasonably satisfactory to it from any underwriter to indemnify and
hold it harmless to the extent customarily provided by underwriters with
respect to similar securities.
2.8 CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to Section 2.6 or
2.7, such person (an "Indemnified Party") shall promptly notify the person
against whom such indemnity may be sought (the "Indemnifying Party") in writing
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses; provided that the failure of
any Indemnified Party so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent that the
Indemnifying Party is materially prejudiced by such failure to notify. In any
such proceeding, any Indemnified Party shall have the right to retain its own
counsel, and the fees and expenses of the counsel of such Indemnified Party
shall be at the expense of such Indemnifying Party if (i) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (ii) in the reasonable judgment
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of such Indemnified Party representation of both parties by the same counsel
would be inappropriate because there may be defenses available to the
Indemnified Party which are different from or additional to those available to
the Indemnifying Party or if the interests of the Indemnified Party reasonably
may be deemed to conflict with the interests of the Indemnifying Party. It is
understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings, in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one counsel for the Shareholder's
Indemnified Parties and one counsel for the underwriters' Indemnified Parties
(in each case in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firms for the Indemnified
Parties, such firm shall be designated in writing by the Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent which consent shall not be unreasonably
withheld, but if settled with such consent, or if there shall be a final
judgment for the plaintiff, the Indemnifying Party shall indemnify and hold
harmless such Indemnified Parties from and against any loss or liability (to
the extent stated above) by reason of such settlement or judgment. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such proceeding.
2.9 CONTRIBUTION. If the indemnification provided for in this Article II
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and expenses in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Parties in connection with the actions or inactions which resulted
in such losses, claims, damages, liabilities and expenses. The relative fault
of the Company on the one hand and of the Shareholder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Shareholder agree that it would not be just and
equitable if contribution pursuant to this Section 2.9 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.9, the Shareholder
shall not be required to contribute any amount in excess of the amount by which
the net proceeds received by the Shareholder exceeds the amount of any damages
which the Shareholder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
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2.10 PARTICIPATION IN PUBLIC OFFERING. No person may participate in any
registration hereunder unless such person (a) agrees to sell such person's
Restricted Shares on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements and this Agreement.
2.11 OTHER INDEMNIFICATION. Indemnification similar to that specified
herein (with appropriate modifications) shall be given by the Company and the
Shareholder with respect to any required registration or other qualification of
securities under any state law or regulation or governmental authority other
than the Securities Act.
ARTICLE 3
MISCELLANEOUS
3.1 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
any provisions hereof.
3.2 NO INCONSISTENT AGREEMENTS. From and after the date of this
Agreement, the Company shall not enter into any agreement with any 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 Section 2.3 of this
Agreement;
(b) Includes a provision that, in the case of a Demand
Registration, protects the Shareholder if marketing factors require a
limitation on the number of securities to be included in an underwriting in the
manner contemplated by Sections 2.1 and 2.2 of this Agreement; and
(c) Is otherwise not inconsistent with the rights granted to
the Shareholder in this Agreement.
3.3 REMEDIES. The Company acknowledges and agrees that in the event of
any breach of this Agreement by it, the Shareholder would be irreparably harmed
and could not be made whole by monetary damages. The Company accordingly
agrees (i) not to argue in any action for specific performance that a remedy at
law would be adequate, and (ii) that the Shareholder, in addition to any other
remedy to which she may be entitled at law or in equity, shall be entitled to
seek specific performance of this Agreement.
3.4 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein, and there are no restrictions, promises,
representations, warranties, covenants, or undertakings with respect to the
subject matter hereof, other than those expressly set forth
- 12 -
<PAGE> 14
or referred to herein or therein. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the
subject matter hereof.
3.5 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party hereto to another party hereto shall be in writing
and shall be deemed given upon the earlier of delivery thereof, if by hand or
upon receipt if sent by certified or registered mail, postage prepaid, return
receipt requested, or on the second next business day after deposit if sent by
a recognized overnight delivery service or upon facsimile transmission (with
request of assurance of receipt in a manner customary for communications of
such type), to the following addresses:
If to the Shareholder:
HealthPlan Services Corporation
P.O. Box 30098
Tampa, Florida 33630-3098
Facsimile #: (813) 289-9359
Attention: James K. Murray III, Executive
Vice President and Chief
Financial Officer,and
Mary Fahy, General Counsel
with a copy (which shall not constitute notice) to:
Fowler, White, Gillen, Boggs, Villareal and Banker,
P.A.
501 East Kennedy Boulevard, Suite 1700
Tampa, Florida 33602
Facsimile #: (813) 229-8313
Attention: David. C. Shobe
If to the Company:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Facsimile #: (404) 364-6711
Attention: Mark A. Kaiser
with a copy (which shall not constitute notice) to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Facsimile #: (404) 881-7777
Attention: Keith O. Cowan
- 13 -
<PAGE> 15
(b) If delivered personally or by facsimile, the date on which a notice,
request, instruction or document is delivered shall be the date on which such
delivery is made and, if delivered by mail, the date on which such notice,
request, instruction or document is received shall be the date of delivery.
(c) Any party hereto may change its address specified for notices herein
by designating a new address by notice in accordance with this Section 3.5.
3.6 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.
3.7 SEVERABILITY. The invalidity or unenforceability of any provisions
of this Agreement in any jurisdiction shall not affect the validity, legality
or enforceability of the remainder of this Agreement in such jurisdiction or
the validity, legality or enforceability of this Agreement, including any such
provision, in any other jurisdiction, it being intended that all rights and
obligations of the parties hereunder shall be enforceable to the fullest extent
permitted by law.
3.8 SUCCESSORS, ASSIGNS, TRANSFEREES. The provisions of this Agreement
shall be binding upon and accrue to the benefit of the parties hereto and their
respective heirs, successors, and assigns. Without limiting the generality of
the foregoing, the registration rights conferred herein on the Shareholder
shall inure to the benefit of any and all subsequent holders from time to time
of the Registrable Securities, unless otherwise agreed to by such subsequent
holders; provided that such subsequent holders promptly provide the Company
with their names and addresses and that such subsequent holder has acquired
such Registrable Securities in a transaction that did not violate Section 7.1
of the Securities Purchase Agreement.
3.9 COMPANY REPORTS. The Company covenants that, from and after the time
the Company engages in an Initial Public Offering, it will file the reports
required to be filed by the Company under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder; and it
will take such further action as the Shareholder may reasonably request, all to
the extent required from time to time to enable the Shareholder to sell the
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the reasonable request of
the Shareholder, the Company will deliver to the Shareholder a written
statement as to the status of the filings made by the Company with the
Commission with copies of such filings.
3.10 DEFAULTS. A default by any party to this Agreement in such party's
compliance with any of the conditions or covenants hereof or performance of any
of the obligations of such party hereunder shall not constitute a default by
any other party.
- 14 -
<PAGE> 16
3.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.
3.12 RECAPITALIZATION, ETC. In the event that any capital stock or other
securities are issued in respect of, in exchange for, or in substitution of,
any Registrable Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Restricted Shares or any other change in
capital structure of the Company, appropriate adjustments shall be made in the
provisions of this Agreement so as to fairly and equitably preserve, as far as
practicable, the original rights of the Shareholder under this Agreement.
3.13 CONSENT TO EXCLUSIVE JURISDICTION, VENUE AND FORUM. THE COMPANY
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION, VENUE AND FORUM OF ANY STATE OR
FEDERAL COURT IN TAMPA, FLORIDA WITH RESPECT TO ANY ACTION, WHETHER COMMENCED
BY THE SHAREHOLDER OR ANY OTHER PERSON, WHICH, IN WHOLE OR IN PART, IN ANY WAY
ARISES UNDER OR RELATES TO THE INVESTMENT DOCUMENTS, AND THE COMPANY AGREES
THAT ANY SUCH ACTION FILED BY IT WILL BE FILED IN SUCH A COURT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
-------------------------------------
Mark A. Kaiser
Chairman and Chief Executive Officer
HEALTHPLAN SERVICES CORPORATION
By: /s/ James K. Murray III
-------------------------------------
James K. Murray III
Executive Vice President and Chief
Financial Officer
- 15 -
<PAGE> 1
EXHIBIT 10.12
MEDIRISK, INC.
EMPLOYEE SHAREHOLDER AGREEMENT
THIS EMPLOYEE SHAREHOLDER AGREEMENT (this "Agreement") is made and entered
into this ____ day of July, 1994, by and among MEDIRISK, INC., a Florida
corporation (the "Company"), Mark A. Kaiser, a Georgia resident, Louise H.
Cumming, a Georgia resident, Lois E. Rickard, a Georgia resident, Karen D.
Knosher, a Georgia resident, and Penelope S. O'Hara, a Georgia resident
(hereinafter referred to individually as the "Shareholder" and collectively as
the "Shareholders").
WITNESSETH:
The Shareholders currently are the holders of the following number of
shares of Series A Common Stock, $1.00 par value per share (the "Common Stock")
of the Company:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<C> <C>
Mark A. Kaiser 180,000
Louise H. Cumming 15,000
Lois E. Rickard 13,000
Karen D. Knosher 9,000
Penelope S. O'Hara 2,000
</TABLE>
The Shareholders have agreed to enter into this Agreement in connection
with the purchase of the Shares pursuant to those certain Subscription
Agreements dated July ___, 1994 (the "Subscription Agreements").
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements contained in this Agreement, the parties hereto agree as follows:
I. RESTRICTIONS ON TRANSFER OF SHARES
1.1 Restrictions on Transfers. In addition to restrictions on transfer
imposed by applicable federal or state securities laws or contained in the
Articles of Incorporation or By-laws of the Company, no Shareholder shall
pledge, mortgage or otherwise encumber any shares of Common Stock purchased by
them pursuant to the Subscription
<PAGE> 2
Agreements, or subsequently acquired by them (whether by exercise of options or
otherwise) (all such shares of Common Stock now or hereafter acquired being
referred to as the "Shares"), and no Shareholder shall sell, transfer, assign
or otherwise dispose of (a "Transfer") any interest in any Shares except
pursuant to the provisions of Article II hereof, or pursuant to a Public Sale
(as defined herein). Each Shareholder agrees not to consummate any such
Transfer (other than a Public Sale) until 10 days after the delivery to the
Company of an Offer Notice (as defined below), unless the parties to the
Transfer have been finally determined pursuant to Article II prior to the
expiration of such 10-day period (the "Election Period").
1.2 Public Sale. For the purposes of this Agreement, the term "Public
Sale" shall mean any sale of any Shares to the public pursuant to an offering
registered under the Securities Act of 1933, as amended from time to time (the
"Securities Act"), or to the public through a broker, dealer or market maker
pursuant to the provisions of Rule 144 adopted under the Securities Act.
II. RIGHT OF FIRST REFUSAL
2.1 First Offer Right. At least 10 days prior to making any transfer
(other than a Public Sale) of any Shares, the transferring Shareholder (the
"Transferring Shareholder") will deliver a written notice (the "Offer Notice")
to the Company. The Offer Notice will disclose in reasonable detail the
identity of the prospective transferee(s), the proposed number of Shares to be
transferred and the proposed terms and conditions of the Transfer. The Company
may elect to purchase some or all of the Shares specified in the Offer Notice
at the price and on the terms specified therein by delivering written notice of
such election to the Transferring Shareholder as soon as practical but in any
event within ten (10) days after the delivery of the Offer Notice. If the
Company has elected to purchase Shares from the Transferring Shareholder, the
transfer of such Shares will be consummated as soon as practical after the
delivery of the election notice, but in any event within 20 days after the
expiration of the Election Period. To the extent that the Company has not
elected to purchase all of the Shares being offered, the Transferring
Shareholder may, within 90 days after the expiration of the Election Period,
transfer such Shares to the transferees identified in the Offer Notice at a
price no less than the price per share specified in the Offer Notice and on
other terms no more favorable to the transferee(s) than offered to the Company
in the Offer Notice. The purchase price specified in any Offer Notice shall be
payable solely in cash at the closing of the transaction or in installments
over time.
2.2 Permitted Transfers. The restrictions contained in this Article II
shall not apply with respect to any Transfer (i) in the case of an individual,
to or among such Shareholder's Family Group (as defined below), or (ii) in the
case of an entity, to or among its Affiliates (as defined below) (collectively
referred to herein as "Permitted
- 2 -
<PAGE> 3
Transferees"); provided, that the restrictions contained in this Article II
shall continue to be applicable to the Shares after any such Transfer; and
provided further that the transferees of such Shares shall have agreed in
writing to be bound by the provisions of this Agreement with respect to the
Shares so transferred. "Family Group" means an individual's spouse and lineal
descendants and any trust or other fiduciary solely for the benefit of such
individual and/or such individual's spouse and/or lineal descendants.
"Affiliate" of a Person means any other Person controlling, controlled by or
under common control with such Person.
2.3 Termination of Restrictions. The restrictions on the transfer of
Shares set forth in this Article II will continue with respect to each Share
(including Shares sold to a transferee other than the Company pursuant to
Section 2.1) until the date on which such Shares have been transferred in a
Public Sale.
III. MISCELLANEOUS
3.1 Specific Performance. In any action or proceeding for specific
enforcement of the provisions of this Agreement, any person (including the
Company) against whom such action or proceeding is brought hereby waives the
claim or defense therein that the plaintiff or claimant has an adequate remedy
at law, and such person will not urge the claim or defense that such remedy at
law exists. The provisions of this Section 3.1 shall not prevent any party
from seeking a remedy at law in connection with any breach of this Agreement.
3.2 Notices. All notices, designations, consents, offers, acceptances or
any other communications provided for in this Agreement shall be given in
writing by personal delivery or by registered or certified mail or by
nationally recognized overnight delivery service (such as Federal Express)
requesting confirmation of delivery, and shall be deemed effective when sent.
Any such matters shall be addressed, in the case of the Company, to its
principal office, and in the case of a Shareholder to his or her residence
address or such other address as may be designated by such person.
3.3 Separability of Provisions. If any one or more of the provisions of
this Agreement shall be determined to be invalid, illegal, or unenforceable in
any respect for any reason, then the validity, legality, and enforceability of
any such provision in every other respect and of the remaining provisions of
this Agreement shall not be impaired in any way.
3.4 Amendments. No change, amendment, or modification of this Agreement
shall be valid unless it is in writing and signed by all the parties hereto.
- 3 -
<PAGE> 4
3.5 Legend on Stock Certificates. All certificates representing the
Shares will be surrendered to the Company and endorsed (in addition to any
other applicable endorsements or legends) substantially as follows:
"The shares represented by this certificate are subject to
the terms of a Shareholder Agreement dated the ____ day of
July, 1994, among the Company and certain holders of its
Common Stock, a copy of which is on file in the office of
the Company. No transfer or encumbrance of the shares
represented hereby may be made except in accordance with
such Agreement."
After endorsement, the certificates shall be returned to the Shareholders who
shall, subject to the terms of this Agreement, be entitled to exercise all
rights of ownership of such Common Stock. All certificates for Common Stock
hereafter newly issued or transferred shall bear the same endorsement.
3.6 Waivers. Nothing contained in this Agreement shall prevent the waiver
of the provisions of this Agreement by the parties hereto. No party to this
Agreement, however, shall be deemed to have waived any of its rights under this
Agreement unless such waiver shall be in writing and signed by such party. A
waiver on any one occasion shall not be construed as a bar to or waiver of any
right on any future occasion.
3.7 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.
3.8 Benefits. All of the terms, covenants, agreements and conditions
contained in this Agreement shall be binding upon and inure to the benefit of
all of the parties and their respective heirs, executors, administrators
successors, and assigns.
3.9 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia.
3.10 Conflict with Bylaws. In the event of any conflict between the terms
and provisions of this Agreement and the terms and provisions of the Company's
Bylaws, the terms and provisions of this Agreement shall control.
3.11 Gender. In this Agreement the masculine or neuter gender shall be
construed to mean the masculine, feminine or neuter gender, as appropriate.
3.12 Applicability of Laws. Any transfer of Common Stock made pursuant to
and in accordance with the terms of this Agreement will be subject to
applicable state and federal securities and other laws, notwithstanding its
permissibility under this Agreement.
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MEDIRISK, INC.
By: /s/ Mark A. Kaiser
-------------------------------------
Mark A. Kaiser, Chairman of the Board
and Chief Executive Officer
Attest: /s/ Lois Rickard
----------------------------
Title: Secretary
----------------------
[CORPORATE SEAL]
SHAREHOLDERS:
/s/ Mark A. Kaiser (SEAL)
---------------------------
Witness:
/s/
- -------------------------------
/s/ Louise H. Cumming (SEAL)
---------------------------
Witness:
/s/
- -------------------------------
/s/ Lois B. Rickard (SEAL)
---------------------------
Witness:
/s/
- -------------------------------
/s/ Karen D. Knosher (SEAL)
---------------------------
Witness:
/s/
- -------------------------------
/s/ Penelope S. O'Hara (SEAL)
---------------------------
Witness:
/s/
- -------------------------------
- 5 -
<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 Six months ended
December 31, 1995 June 30, 1996
----------------- ----------------
<S> <C> <C>
Net loss attributable to common stock $ (431,841) $(6,784,208)
---------- -----------
Primary and fully diluted shares:
Weighted average number of common
shares outstanding 756,774 899,470
Mandatory conversion of Series A and
Series B convertible preferred stock 1,316,271 1,316,271
"Cheap Stock" issued during the previous
12 months as defined in SEC SAB No. 83 776,052 640,748
---------- -----------
2,849,097 2,856,489
---------- -----------
Pro forma net loss per share of
common stock $ (.15) $ (2.38)
========== ===========
</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
-----------------------------
KPMG PEAT MARWICK LLP
Atlanta, Georgia
September 19, 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
-----------------------------
KPMG PEAT MARWICK LLP
Atlanta, Georgia
September 19, 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
September 16, 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 JUN-30-1996
<CASH> 288,838 1,146,617
<SECURITIES> 0 0
<RECEIVABLES> 538,769 880,987
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 922,783 2,422,681
<PP&E> 842,311 1,487,905
<DEPRECIATION> 510,605 673,829
<TOTAL-ASSETS> 1,263,290 7,795,057
<CURRENT-LIABILITIES> 725,797 3,736,572
<BONDS> 151,302 7,968,991
2,302,471 0
0 1,573
<COMMON> 845 983
<OTHER-SE> (2,333,527) (4,430,268)
<TOTAL-LIABILITY-AND-EQUITY> 1,263,290 7,795,057
<SALES> 0 0
<TOTAL-REVENUES> 3,654,692 3,874,025
<CGS> 0 0
<TOTAL-COSTS> 3,726,912 4,073,857
<OTHER-EXPENSES> 0 6,180,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 65,433 265,951
<INCOME-PRETAX> (137,653) (6,683,404)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (137,653) (6,683,404)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (137,653) (6,683,404)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
