<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
MEDIRISK, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
(Medirisk Logo)
TWO PIEDMONT CENTER, SUITE 400
3565 PIEDMONT ROAD, N.E.
ATLANTA, GEORGIA 30305-1502
June , 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Medirisk, Inc., which will be held at the principal executive offices of the
Company at Two Piedmont Center, Suite 400, 3565 Piedmont Road, N.E., Atlanta,
Georgia, on Wednesday, July 29, 1998 at 10:30 A.M. local time.
The items of business to be conducted at the Annual Meeting are explained
in the accompanying Proxy Statement. The scheduled items of business are to
elect two directors, to approve two new employee incentive plans, and to approve
the issuance of Common Stock or Series 1998-A Preferred Stock by the Company to
the former shareholders of Healthdemographics, a corporation recently acquired
by the Company, to the extent such issuance could result in the Company's
issuing more than twenty (20%) percent of the issued and outstanding Common
Stock of the Company as of March 31, 1998, as such approval is required by the
listing requirements of the Nasdaq Stock Market's National Market. No
presentations or Company briefings are on the agenda for this meeting.
Even if you plan to attend, please complete the enclosed proxy card and
return it in the enclosed envelope so that your shares will be voted. You will
still be able to vote your shares in person if you attend the Annual Meeting and
would like to revoke your proxy.
We sincerely appreciate your past support, and we look forward to your
continued support during the next year.
If you have any questions about the Annual Meeting, Proxy Statement or the
accompanying 1997 Annual Report, please contact our Corporate Secretary, Barry
W. Burt, at (404) 364-6700.
Sincerely,
Mark A. Kaiser
Chairman of the Board &
Chief Executive Officer
<PAGE> 3
MEDIRISK, INC.
TWO PIEDMONT CENTER, SUITE 400
3565 PIEDMONT ROAD, N.E.
ATLANTA, GEORGIA 30305-1502
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 29, 1998
Notice is hereby given to the holders of Common Stock of Medirisk, Inc.
(the "Company" or "Medirisk") that the 1998 Annual Meeting of Stockholders (the
"Annual Meeting") of the Company will be held at the principal executive offices
of the Company at Two Piedmont Center, Suite 400, 3565 Piedmont Road, N.E.,
Atlanta, Georgia, on Wednesday, July 29, 1998, at 10:30 A.M., local time, for
the following purposes:
(i) To elect two persons to serve as directors of the Company;
(ii) To approve the Medirisk, Inc. 1998 Employee Stock Purchase Plan;
(iii) To approve the Medirisk, Inc. 1998 Long-Term Incentive Plan;
(iv) To approve the issuance of Common Stock or Series 1998-A
Preferred Stock by the Company to the former shareholders of
Healthdemographics, a corporation recently acquired by the Company, to the
extent such issuance could result in the Company's issuing more than twenty
(20%) percent of the issued and outstanding Common Stock of the Company as
of March 31, 1998, as such approval is required by the listing requirements
of the Nasdaq Stock Market's National Market; and
(v) To consider and act upon such other business as may properly come
before the Annual Meeting or any adjournments thereof.
Information relating to the above matters is set forth in the attached
Proxy Statement.
Only those stockholders of record at the close of business on June 19, 1998
are entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof. A complete list of stockholders entitled to vote at the Annual Meeting
will be available for examination by any stockholder at the Annual Meeting.
By Order of the Board of Directors.
Barry W. Burt
Secretary
June , 1998
Atlanta, Georgia
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE VOTE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED BUSINESS REPLY
ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING YOU MAY, IF YOU WISH, WITHDRAW YOUR
PROXY AND VOTE IN PERSON.
<PAGE> 4
MEDIRISK, INC.
TWO PIEDMONT CENTER, SUITE 400
3565 PIEDMONT ROAD, N.E.
ATLANTA, GEORGIA 30305-1502
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 29, 1998
This Proxy Statement is furnished to holders of the common stock ("Common
Stock") of Medirisk, Inc., a Delaware corporation ("Medirisk" or the "Company"),
in connection with the solicitation of proxies by the Company's Board of
Directors from holders of the outstanding shares of Common Stock at the 1998
Annual Meeting of Stockholders to be held at 10:30 A.M., local time, at the
principal executive offices of the Company at Two Piedmont Center, Suite 400,
3565 Piedmont Road, N.E., Atlanta, Georgia, on Wednesday, July 29, 1998, and at
any adjournments thereof (the "Annual Meeting").
The Annual Meeting will be held for the following purposes:
(i) To elect two persons to serve as directors of the Company;
(ii) To approve the Medirisk, Inc. 1998 Employee Stock Purchase Plan;
(iii) To approve the Medirisk, Inc. 1998 Long-Term Incentive Plan;
(iv) To approve the issuance of Common Stock or Series 1998-A
Preferred Stock by the Company to the former shareholders of
Healthdemographics, a corporation recently acquired by the Company, to the
extent such issuance could result in the Company's issuing more than twenty
(20%) percent of the issued and outstanding Common Stock of the Company as
of March 31, 1998, as such approval is required by the listing requirements
of the Nasdaq Stock Market's National Market (the "Healthdemographics
Issuance"); and
(v) To consider and act upon such other business as may properly come
before the Annual Meeting or any adjournments thereof.
This Proxy Statement and the accompanying Proxy are first being mailed to
stockholders of the Company on or about June , 1998. The Company's Annual
Report for the fiscal year ended December 31, 1997, including financial
statements, is being sent to stockholders with this Proxy Statement.
STOCKHOLDERS ENTITLED TO VOTE
Only record holders of the Common Stock at the close of business on June
19, 1998 (the "Record Date") will be entitled to notice of, and to vote at, the
Annual Meeting. On the Record Date there were [ ] shares of Common Stock
issued and outstanding held by approximately [ ] stockholders of record.
Notwithstanding the Record Date specified above, the Company's stock transfer
books will not be closed, and shares may be transferred after the Record Date.
However, all votes must be cast in the names of stockholders of record on the
Record Date.
QUORUM AND VOTING REQUIREMENTS
Pursuant to the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), holders of Common Stock will be entitled to one
vote for each share held. The election of directors requires the affirmative
vote of a plurality of the shares of Common Stock represented and entitled to
vote at the Annual Meeting, provided a quorum is present; therefore, abstentions
and "broker nonvotes" (which occur when shares held by brokers or nominees for
beneficial owners are voted on some matters but not on others) will have no
effect. With respect to the election of directors, stockholders may (i) vote in
favor of both of the nominees, (ii) withhold authority to vote for both of the
nominees or (iii) withhold authority to vote for one of the nominees, but vote
in favor of the other nominee. Pursuant to the Company's Bylaws (the "Bylaws"),
a
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<PAGE> 5
majority of the shares of Common Stock must be present to establish a quorum.
For purposes of determining the presence of a quorum, abstentions will be
counted as present, but broker nonvotes will not be counted.
The Company believes that approximately [ ] shares owned or controlled
on the Record Date by the directors and executive officers of the Company (or by
companies or funds affiliated with directors of the Company), constituting
approximately [ . ]% of the outstanding Common Stock, will be voted in
favor of each of the proposals.
The approval of each of the Medirisk, Inc. 1998 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan"), the Medirisk, Inc. 1998 Long-Term
Incentive Plan (the "Long-Term Incentive Plan") and the Healthdemographics
Issuance requires the affirmative vote of a majority of the shares of Common
Stock represented and entitled to vote at the Annual Meeting, provided a quorum
is present; therefore, abstentions and "broker nonvotes" will have no effect.
With respect to the approval of each of the Employee Stock Purchase Plan, the
Long-Term Incentive Plan and the Healthdemographics Issuance, stockholders may
(i) vote for the approval of such plan and/or issuance, (ii) vote against such
plan and/or issuance or (iii) abstain.
PROXIES
If the enclosed Proxy is executed, returned in time and not revoked, the
shares represented thereby will be voted in accordance with the instructions
indicated in such Proxy. IF NO INSTRUCTIONS ARE INDICATED, PROXIES WILL BE VOTED
(I) FOR THE ELECTION OF BOTH NOMINEES FOR DIRECTOR OF THE COMPANY, (II) FOR THE
APPROVAL OF THE MEDIRISK, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN, (III) FOR THE
APPROVAL OF THE MEDIRISK, INC. 1998 LONG-TERM INCENTIVE PLAN, (IV) FOR THE
APPROVAL OF THE HEALTHDEMOGRAPHICS ISSUANCE, AND (V) IN THE BEST JUDGMENT OF
SUCH PROXIES AS TO ANY OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENTS THEREOF.
A stockholder who has given a Proxy may revoke it at any time prior to its
exercise at the Annual Meeting by either (i) giving written notice of revocation
to the Secretary of the Company, (ii) properly submitting to the Company a duly
executed Proxy bearing a later date, or (iii) appearing at the Annual Meeting
and voting in person. All written notices of revocation of Proxies should be
addressed to Medirisk, Inc., Two Piedmont Center, Suite 400, 3565 Piedmont Road,
N.E., Atlanta, Georgia 30305-1502, Attention: Barry W. Burt, Secretary.
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<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based solely on information furnished to the Company, the following table
sets forth certain information with respect to the beneficial ownership of
Common Stock as of June 10, 1998 by (i) each person who is known by the Company
to own beneficially 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 30305-1502. As of June 10, 1998, there were
4,853,298 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT
NAME BENEFICIALLY OWNED(1) OF CLASS(2)
- - ---- --------------------- -----------
<S> <C> <C>
Brantley Venture Partners II, L.P.(3)....................... 522,745(4) 10.6%
HealthPlan Services Corporation(5).......................... 298,150 6.1
Mark A. Kaiser.............................................. 314,406(6) 6.3
Keith O. Cowan.............................................. 4,333(7) *
Michael J. Finn............................................. 527,578(8) 10.6
William M. McClatchey, M.D.................................. 45,333(9) 1.0
James K. Murray, III........................................ 301,483(10) 6.2
Robert P. Pinkas............................................ 531,078(11) 10.7
Kenneth M. Goins, Jr........................................ 49,120(12) 1.0
O. B. Rawls, IV............................................. -- *
Thomas C. Kuhn III.......................................... 4,498(13) *
Laurence H. Powell(14)...................................... 270,921 5.6
Robert Fleming, Inc.(15).................................... 287,600 5.9
All directors and executive officers as a group
(10 members).............................................. 1,255,084(16) 24.6
</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) Applicable percentages of ownership are based on 4,853,928 shares of Common
Stock outstanding on June 10, 1998, adjusted as required by rules
promulgated by the Securities and Exchange Commission (the "SEC"). This
table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G (if any) filed with the
SEC. Unless otherwise indicated in the Footnotes to this table and subject
to community property laws where applicable, the Company believes that each
of the stockholders named in this table has sole voting and investment
power with respect to the shares indicated as beneficially owned. Any
security that any person named above has the right to acquire within 60
days is deemed to be outstanding for purposes of calculating the percentage
ownership of such person, but is not deemed to be outstanding for purposes
of calculating the ownership percentage of any other person.
(3) The address of Brantley Venture Partners II, L.P. ("Brantley") is 20600
Chagrin Boulevard, Suite 1150 Tower East, Cleveland, Ohio 44122.
(4) Includes warrants to purchase 97,440 shares of Common Stock.
(5) The address of HealthPlan Services Corporation ("HPSC") is 3501 Frontage
Road, Tampa, Florida 33607.
(6) Includes options to purchase 139,014 shares of Common Stock.
(7) Includes options to purchase 3,333 shares of Common Stock.
(8) Includes (i) options to purchase 3,333 shares of Common Stock, (ii) 522,745
shares owned by Brantley. Mr. Finn is a partner of a partnership which is
itself a general partner of Brantley and, as such, may be deemed to share
voting and investment power with respect to the shares owned by Brantley.
See Note 4 above.
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<PAGE> 7
(9) Includes (i) options to purchase 3,333 shares of Common Stock; (ii) 10,000
shares owned by Dr. McClatchey's wife; (iii) 4,000 shares owned by a trust
for the benefit of Dr. McClatchey's adult child, of which Dr. McClatchey is
trustee; and (iv) 2,000 shares owned by a trust for the benefit of Dr.
McClatchey's minor child, of which Dr. McClatchey is trustee.
(10) Includes (i) options to purchase 3,333 shares of Common Stock and (ii)
298,150 shares owned by HPSC. Mr. Murray was an executive officer of HPSC
during a portion of 1997 and is currently an executive officer of an
affiliate of HPSC and, as such, may be deemed to share voting and
investment power with respect to the shares owned by HPSC.
(11) Includes (i) options to purchase 3,333 shares of Common Stock, (ii) 522,745
shares owned by Brantley. Mr. Pinkas is a partner of a partnership which is
itself a general partner of Brantley and, as such, may be deemed to share
voting and investment power with respect to the shares owned by Brantley.
See Note 4 above.
(12) Includes (i) options to purchase 16,240 shares of Common Stock; and (ii)
200 shares held by Mr. Goins' minor children.
(13) Includes options to purchase 2,598 shares of Common Stock.
(14) The address of Mr. Powell is P.O. Box 501085, Atlanta, Georgia 31150
(15) The address of Robert Fleming, Inc. is 320 Park Avenue, 11th Floor, New
York, New York 10022
(16) Includes an aggregate of 271,957 shares of Common Stock issuable upon
exercise of outstanding options and warrants.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Company's Board of Directors shall
consist of not less than three and not more than twelve individuals, with the
exact number to be determined by resolution of a majority of the Board of
Directors. The Board of Directors has by resolution set the number of directors
at six. The Company's Bylaws provide that the Board of Directors shall consist
of three classes of directors serving staggered terms of office, with each class
to consist, as nearly as possible, of one-third of the total number of directors
constituting the entire Board of Directors. Upon the expiration of the term of
office for a class of directors, the nominees for that class will be elected for
a three-year term to serve until the election and qualification of their
successors. The two current Class 2 directors, Michael J. Finn and James K.
Murray, III, have been nominated for re-election at the Annual Meeting for a
three-year term. The Class 3 and Class 1 directors, named below, have one year
and two years, respectively, remaining on their terms of office and will not be
voted upon at the Annual Meeting.
It is the intention of the persons named as proxies to vote the Proxies for
election of each of Mr. Finn and Mr. Murray as a Class 2 director of the
Company, unless stockholders direct otherwise in their Proxies. Each Class 2
director will be elected to hold office until the 2001 Annual Meeting of
Stockholders or until his earlier death, resignation or removal. Each of Mr.
Finn and Mr. Murray has consented to continue to serve as a director of the
Company if re-elected. In the unanticipated event that Mr. Finn or Mr. Murray
refuses or is unable to serve as a director, the Board of Directors, in its
discretion, may designate a substitute nominee or nominees (in which case the
persons named as proxies will vote all valid Proxies for the election of such
substitute nominee or nominees), allow the vacancy or vacancies to remain open
until the Board locates a suitable candidate or candidates or by resolution
reduce the authorized number of directors. The Board of Directors has no reason
to believe that either of the nominees will be unable or will decline to serve
as a director.
DIRECTOR AND NOMINEE INFORMATION
Based upon information supplied by them, set forth below is certain
information concerning the nominees for election as Class 2 and the directors in
Classes 3 and 1 whose terms of office will continue after the Annual Meeting,
including the name and age of each, their current principal occupations (which
have continued for at least the past five years unless otherwise indicated), the
names and principal businesses of the corporations or
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<PAGE> 8
other organizations in which their occupations are carried on, the year each was
elected to the Board of Directors of the Company, their positions with the
Company and their directorships in other publicly held companies.
CLASS 2 NOMINEES FOR DIRECTOR (CURRENT TERMS EXPIRE 1998)
Michael J. Finn (age 48) has been a Director of the Company since 1992. Mr.
Finn is President and a Director of Brantley Capital Corporation, a
publicly-traded closed-end investment company ("BCC"), and is President and a
director of Brantley Capital Management, Ltd., investment advisor to BCC. Since
1995, Mr. Finn has also served as a general partner of the general partners of
Brantley Venture Partners II, L.P. ("BVP II") and Brantley Venture Partners III,
L.P. ("BVP III"), venture capital firms located in Cleveland, Ohio. From 1987 to
1995, Mr. Finn was Vice President of the Venture Capital Group of Sears
Investment Management Co. in Chicago, Illinois. Mr. Finn is also a director of
Rhomas Group, Inc., Silvon Software, and Pediatric Services of America, Inc. Mr.
Finn has been an active investor in small businesses since 1976 and holds a
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 (age 35) has been a Director of the Company since
1996. Since December 1997, Mr. Murray has been Executive Vice President and
Chief Financial Officer of Sykes HealthPlan Services, Inc. ("SHPS"), a joint
venture between HealthPlan Services Corporation ("HPSC") and Sykes Enterprises,
Incorporated. SHPS is an information technology company that provides a full
complement of outsourcing services to companies worldwide. From 1995 until 1997,
Mr. Murray was Executive Vice President and Chief Financial Officer of HPSC, a
Tampa, Florida-based healthcare services company providing marketing,
distribution, administrative and cost containment services on behalf of
healthcare payors. Prior to joining HPSC from 1990 until October 1995, Mr.
Murray was President and Chief Executive Officer of Plant State Bank, 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE TWO CLASS
2 NOMINEES LISTED ABOVE. THE AFFIRMATIVE VOTE OF THE HOLDERS OF A PLURALITY OF
THE SHARES REPRESENTED AND ENTITLED TO VOTE IN THE ELECTION AT THE ANNUAL
MEETING AT WHICH A QUORUM IS PRESENT IS REQUIRED FOR THE ELECTION OF THE
NOMINEES.
CLASS 3 DIRECTORS CONTINUING IN OFFICE (TERMS EXPIRE 1999)
Mark A. Kaiser (age 40) joined the Company in 1991 and has served as
Chairman of the Board, Chief Executive Officer and President of the Company. Mr.
Kaiser has been a director of the Company since 1991. Prior to being recruited
to Medirisk, Mr. Kaiser's experience included senior and executive management
positions in sales and marketing for healthcare 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.
Robert P. Pinkas (age 43) has been a Director of the Company since 1991.
Mr. Pinkas is currently Chairman of the Board, Chief Executive Officer,
Treasurer and a director of BCC. Mr. Pinkas was the founding partner of Brantley
Venture Partners, L.P., a venture capital fund started in 1987 ("BVP I"). Mr.
Pinkas also led the formation of BVP II and BVP III. He serves as a general
partner of the general partners of BVP I, BVP II, and BVP III and has worked
with these and related investment partnerships since 1981. Mr. Pinkas currently
serves as Chairman of the Board of Gliatech, Inc. as well as a director of Quad
Systems Corporation, Pediatric Services of America, Inc. and Waterlink, Inc. Mr.
Pinkas holds Bachelor of
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<PAGE> 9
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.
CLASS 1 DIRECTORS CONTINUING IN OFFICE (TERMS EXPIRE 2000)
Keith O. Cowan (age 41) Keith O. Cowan has been a Director of the Company
since 1997. Mr. Cowan has served as Vice President -- Corporate Development for
BellSouth Corporation since May 1996. He is responsible for managing the merger
and acquisition activities of BellSouth and its operating subsidiaries,
including the identification of acquisition candidates, and the structuring and
negotiation of transactions. Prior to joining BellSouth, Mr. Cowan was
associated with Alston & Bird LLP, a law firm based in Atlanta, Georgia, for 14
years, becoming a partner in the firm in 1990. His experience included the
representation of public and private clients in corporate and securities
transactions. During his last five years at Alston & Bird, Mr. Cowan specialized
in the healthcare and insurance industries. Alston & Bird is the Company's
primary outside legal counsel. Mr. Cowan holds a Bachelor of Arts degree from
the University of North Carolina and a Juris Doctor degree from the University
of Virginia.
William M. McClatchey, M.D., F.A.C.P., F.A.C.R. (age 49) has been a
Director of the Company since 1997. Dr. McClatchey is a physician practicing in
Atlanta, Georgia, specializing in primary care internal medicine and
rheumatology. Dr. McClatchey has practiced medicine at the Piedmont Clinic in
Atlanta since 1979. Dr. McClatchey was a member of the Board of Directors of
BankSouth Corporation, N.A., and served as Chairman of its Community Development
Committee. He is a member of the American College of Physicians, serving on its
Committee on Medical Informatics from 1986 until 1992 and as Chairman of that
committee from 1990 to 1992. Dr. McClatchey was a member of the Health Policy
Advisory Committee of the Center for Strategic and International Studies in 1993
and served as Chairman of the Study Group on Preventive Health and
Infrastructure in 1993. Dr. McClatchey is President and serves on the Board of
Trustees of Georgia Health Decisions, Inc. a community-based not-for-profit
organization working for comprehensive healthcare reform in Georgia. Dr.
McClatchey is a member of the Georgia Coalition for Health, a 32-member group
charged by Governor Zell Miller to devise a proposal to reform Georgia's
Medicaid program. In addition, Dr. McClatchey is a member of the Board of
Directors and Executive Committee of the Georgia Health Policy Center at Georgia
State University and a member of the Information Systems Steering Committee for
Promina Health System, Atlanta, Georgia.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has established standing Audit, Compensation and
Nonmanagement Directors' Stock Option Plan Committees. The Company does not have
a standing nominating committee.
Audit Committee. The Audit Committee, presently composed of Messrs. Finn
and Murray (Chairman) and Dr. McClatchey, is responsible for recommending
independent auditors, reviewing the scope and results of the audit engagement
with the independent auditors and establishing and monitoring the Company's
financial policies and control procedures. The Audit Committee met twice during
1997.
Compensation Committee. The Compensation Committee, presently composed of
Messrs. Cowan and Pinkas (Chairman), is responsible for establishing salaries,
bonuses and other compensation for the Company's executive officers and for
administering the Company's Stock Incentive Plans (other than the Medirisk, Inc.
Non-management Directors' Stock Option Plan). During 1997, the Compensation
Committee did not formally meet, but took action by written consent on five
occasions.
Nonmanagement Directors' Stock Option Plan Committee. The Nonmanagement
Directors' Stock Option Plan Committee, which is comprised of Messrs. Kaiser and
Pinkas, is responsible for administering the Medirisk, Inc. Nonmanagement
Directors' Stock Option Plan. The Nonmanagement Directors' Stock Option Plan
Committee did not meet during 1997.
The Board of Directors as a whole functions as the nominating committee to
select management's nominees for election as directors of the Company. The Board
of Directors will consider nominees submitted
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<PAGE> 10
by holders of Common Stock if submitted to the Company on or before December 15,
1998. See "Stockholder Proposals for 1999 Annual Meeting of Stockholders."
During 1997, the Board of Directors met five times. Each director, during
the period he was a director, attended at least 75% of the meetings of the Board
of Directors and at least 75% of the total number of all meetings of all of the
committees on which he served.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not officers of the Company
receive (i) an annual retainer of $5,000; (ii) a fee of $1,000 for each meeting
of the Board of Directors that such member attends in person; (iii) a fee of
$250 for each meeting of the Board of Directors that such member attends by
telephone; and (iv) a fee of $250 for each meeting of a committee of the Board
of Directors that such member attends in person or by telephone.
The Company has also established the Medirisk, Inc. Nonmanagement
Directors' Stock Option Plan (the "Directors' Plan"), which provides for the
issuance of nonqualified stock options to directors of the Company who are not
employed by the Company. Messrs. Cowan, Finn, Murray and Pinkas and Dr.
McClatchey are eligible to participate in the Directors Plan. Pursuant to the
Directors' Plan, in 1997 each eligible director received an initial grant of
10,000 options upon the completion of the Company's initial public offering at a
price equal to $11.00, the initial public offering price, and a further grant of
5,000 options on December 31, 1997, at a price also equal to $11.00, which was
the per share closing price on that date for shares of Common Stock on the
Nasdaq National Market. The Directors' Plan provides that each eligible director
who is first elected or appointed to serve as a director following the Company's
initial public offering will be granted an option as of the first business day
following his or her first day of service as a director to purchase 10,000
shares of Common Stock. An option granted under either of the foregoing
circumstances is hereinafter referred to as an "Initial Option." Thereafter,
each eligible director will be granted as of the last business day of each
fiscal year an option to purchase 5,000 shares of Common Stock (an "Annual
Option"), provided that the eligible director continues to serve as director as
of the last business day of that fiscal year. In addition, each eligible
director will be granted, as of the date of exercise of any Initial Option or
Annual Option, an option to purchase a number of shares equal to the number, if
any, of the shares of Common Stock tendered in payment of the exercise price as
described below, provided that the optionee is a member of the Board of
Directors as of the exercise date. No options will be granted to an eligible
director who is otherwise precluded from receiving a grant of Common Stock. If
the remaining number of shares reserved for issuance under the Directors' Plan
is insufficient to grant options for the appropriate number of shares to all
eligible directors as of any grant date, then no options will be granted as of
that grant date.
The exercise price of an option will be equal to the fair market value of a
share of Common Stock on the date of grant. All options granted under the
Directors' Plan will become exercisable in one-third increments over three years
following the date of grant, provided, however, that in the event of a
director's death or disability, any such option will become exercisable
immediately in full upon the later of (i) the optionee's death or disability or
(ii) six months following the date of grant. The Directors' Plan is administered
by the Nonmanagement Directors' Stock Option Plan Committee.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are Mr. Kaiser (who is discussed
above), Kenneth M. Goins, Jr., O.B. Rawls, IV, and Thomas C. Kuhn III.
Kenneth M. Goins, Jr. (age 39) has served as Vice President, Finance and
Administration and as Chief Financial Officer of the Company from joining
Medirisk in April 1996 until December 1996 when he was also elected Executive
Vice President. Prior to joining the Company, from 1985 until April 1996 Mr.
Goins served in various capacities with First Data Corporation ("FDC") and its
predecessors First Financial Management Corporation ("FFMC") and MicroBilt
Corporation ("MBC"). From 1995 until April 1996, Mr. Goins was Vice President of
Financial Planning and Analysis for FDC, a major financial information services
company
7
<PAGE> 11
based in Atlanta. FDC acquired FFMC in October of 1995, where Mr. Goins served
as Vice President of Financial Planning and Analysis from June 1994 until
October 1995. During the last half of his tenure at FFMC and FDC, Mr. Goins also
served as Chief Financial Officer for Unified Merchant Services ("UMS"), a
credit card processing joint venture with NationsBank, N.A. ("NationsBank").
From 1985 until June 1994, when it was acquired by FFMC, Mr. Goins was an
officer of MBC. He served at various times as the Executive Vice President,
Chief Financial Officer and Controller of MBC, an Atlanta-based computer
software services company, from 1985 through its initial public offering and
until MBC was acquired by FFMC. While at MBC 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.
O.B. Rawls, IV (age 48) has been Senior Vice President and Group General
Manager of the Company since he joined the Company in December 1997. Prior to
joining the Company, from April 1995 to December 1997 Mr. Rawls held several
positions with FDC; his most recent being from June 1997 until December 1997 as
General Manager International Partnership in which he negotiated and implemented
an international merchant processing joint venture. From August 1995 until May
1997 Mr. Rawls also served as President of UMS. From 1983 until 1995, Mr. Rawls
was an executive with NationsBank and its predecessor NCNB National Bank, his
final position being Senior Vice President/Division Executive of Merchant Card
Services for NationsBank from 1993 until 1995. Mr. Rawls holds a Bachelor of
Science Degree from East Carolina University and an Executive Masters of
Business Administration from Queens College.
Thomas C. Kuhn III (age 35) has been Controller of the Company since he
joined Medirisk in 1996. Mr. Kuhn was appointed Principal Accounting Officer of
the Company in March 1998, after having been appointed Vice President -- Finance
and Administration of the Company in August 1997. Prior to joining the Company,
from 1992 to 1996 Mr. Kuhn served in various capacities with FDC and its
predecessors FFMC and MBC. From May 1995 until joining the Company in May 1996,
Mr. Kuhn was Vice President of Working Capital Management for FFMC as well as
having additional financial planning and analysis responsibilities with FDC.
From March 1992 until May of 1995, Mr. Kuhn served as Controller of MBC. Prior
to his employment at MBC, Mr. Kuhn was in public accounting with Clayton, Miller
and Company in Atlanta, Georgia, from August 1987 until March 1992, and with
Arthur Young and Company in Atlanta, Georgia, from September of 1984 until
August 1987. Mr. Kuhn holds a Bachelor of Science degree in Business
Administration from the University of South Carolina and is a Licensed Certified
Public Accountant.
8
<PAGE> 12
COMPENSATION-RELATED MATTERS
SUMMARY COMPENSATION INFORMATION
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, 1997 for the Chief
Executive Officer of the Company and the Chief Financial Officer of the Company
and for Paul A. Rodwick, former Chief Operating Officer and Executive Vice
President of the Company, who resigned those positions in October 1997. The
Chief Executive Officer and the Chief Financial Officer of the Company and Mr.
Rodwick are referred to as the "Named Executive Officers." None of the other
executive officers of the Company received total annual salary and bonus in
excess of $100,000 in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------------
NAME AND PRINCIPAL POSITIONS SALARY BONUS OTHER
- - ---------------------------- -------- ------- -------
<S> <C> <C> <C>
Mark A. Kaiser.............................................. $200,500 $95,000 --
Chairman of the Board, Chief Executive
Officer and President
Kenneth M. Goins, Jr........................................ $141,711 $50,000 --
Chief Financial Officer and Executive
Vice President
Paul A. Rodwick............................................. $157,611 -- $43,848(1)
Former Chief Operating Officer and 29,166(2)
Executive Vice President
</TABLE>
- - ---------------
(1) Represents value realized on options exercised during 1997. See "Fiscal
Year-End Option Exercises and Option Values."
(2) Represents amounts paid to Mr. Rodwick for consulting services provided to
the Company following Mr. Rodwick's resignation.
OPTION GRANTS IN FISCAL 1997
The following table presents certain summary information concerning options
granted to the Named Executive Officers in the fiscal year ending December 31,
1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SHARES OPTIONS TO APPRECIATION FOR
UNDERLYING EMPLOYEES OPTION TERM
OPTIONS IN EXERCISE EXPIRATION ---------------------
NAME GRANTED 1997(2) PRICE DATE 5% 10%
- - ---- ---------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
32,480(1) 11% $ 7.500 6/02/07 $153,199 $388,236
Mark A. Kaiser.............
16,240(1) 6 7.625 3/21/07 81,183 202,618
Kenneth M. Goins, Jr.......
26,280(1) 9 10.500 11/07/07 173,537 439,777
64,960(1) 23 7.625 3/21/07 324,731 810,474
Paul A. Rodwick............
</TABLE>
- - ---------------
(1) All options become exercisable as to 20% of the subject shares on each
anniversary of the date of grant.
(2) Does not include options issued under the Medirisk, Inc. Nonmanagement
Directors' Stock Option Plan.
9
<PAGE> 13
FISCAL YEAR-END OPTION EXERCISES AND OPTION VALUES
The following table presents certain information concerning options
exercised by the Named Executive Officers in 1997 and the fiscal year-end value
of unexercised stock options held by the Named Executive Officers.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, DECEMBER 31,
SHARES VALUE 1997(#) 1997($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark A. Kaiser............... -- -- 123,424 68,858 $1,317,532 $470,505
Kenneth M. Goins, Jr......... -- -- 6,496 68,504 67,289 337,114
Paul A. Rodwick.............. 12,992 $43,848 -- -- -- --
</TABLE>
- - ---------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option on the date of exercise and the
exercise price of the options exercised by the Named Executive Officer.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1997 and the exercise
price of the Named Executive Officers' options.
STOCK INCENTIVE PLANS
Medirisk 1996 Stock Incentive Plan. The Board of Directors of the Company
adopted and the stockholders of the Company approved the Medirisk, Inc. 1996
Stock Incentive Plan (the "1996 Incentive Plan"). Pursuant to the 1996 Incentive
Plan, awards are permitted to be granted in the form of nonqualified stock
options, incentive stock options, stock appreciation rights and shares of
restricted stock. In addition, the 1996 Incentive Plan provides for several
types of equity-based incentive compensation awards, namely performance units,
performance shares, phantom stock, unrestricted bonus stock and dividend
equivalent rights.
The 1996 Incentive Plan will be administered by the Compensation Committee
of the Board of Directors. The Compensation Committee will determine the persons
to whom, and the times at which, awards will be granted, the type of awards to
be granted and all other related terms and conditions of the awards, subject to
certain limitations set forth in the 1996 Incentive Plan. All officers and key
employees of the Company and its affiliates are eligible to participate in the
1996 Incentive Plan.
A total of 580,645 shares of Common Stock are reserved for issuance
pursuant to the 1996 Incentive Plan. In the event of a Change in Control of the
Company (as defined in the 1996 Incentive Plan), stock incentives will become
fully vested without regard to the exercisability of the award or any other
conditions or restrictions. In connection with the Company's initial public
offering, the Company caused all then-existing outstanding options (which had
not been issued under any plan) to be surrendered in exchange for options with
identical terms issued under the 1996 Incentive Plan. As of March 24, 1998,
there were options for 523,023 shares of Common Stock outstanding under the 1996
Incentive Plan.
Medirisk Nonmanagement Directors' Stock Option Plan. The Medirisk, Inc.
Nonmanagement Directors' Stock Option Plan provides for the issuance of
nonqualified stock options to directors of the Company who are not employed by
or otherwise affiliated with the Company ("eligible" directors). A total of
100,000 shares of Common Stock are reserved for issuance pursuant to the
Directors' Plan. The effective date of the Directors' Plan (the "Effective
Date") was January 28, 1997, the effective date of the Company's initial public
offering. See "Director Compensation."
New Plans. The Board of Directors has adopted, subject to stockholder
approval, the Medirisk, Inc. 1998 Employee Stock Purchase Plan and the Medirisk,
Inc. 1998 Long-Term Incentive Plan. Descriptions of such plans appear below
under Proposal 2 - "Approval of the Medirisk, Inc. 1998 Employee Stock Purchase
Plan" and Proposal 3 - "Approval of the Medirisk, Inc. 1998 Long-Term Incentive
Plan."
10
<PAGE> 14
EMPLOYMENT AGREEMENT
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 "Employment
Agreement"). The Employment 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 Employment
Agreement provides for an initial annual base salary of $190,000, which may be
increased annually at the discretion of the Compensation Committee of the
Company, 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, under
the Employment Agreement Mr. Kaiser was granted options to purchase up to 32,480
shares of Common Stock at $0.64 per share in 1996 and an additional 32,480
shares of Common Stock at $7.50 per share in May 1997. The Employment Agreement
provides that the Company shall grant Mr. Kaiser additional options to purchase
32,480 shares on each of the first and second anniversaries of the date of the
agreement. These subsequent options will have an exercise price equal to the
fair market value of the Common Stock on the date of grant. All of the options
granted under the Employment Agreement vest ratably over five years from the
date of grant or immediately upon the sale or other change of control involving
the Company. The Employment 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 Employment 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 Employment 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
James K. Murray, III, was a member of the Compensation Committee for a
portion of 1997, during which period he was also an Executive Vice President of
HPSC. Prior to Mr. Murray's joining the Board of Directors, the Company and HPSC
entered into a Securities Purchase Agreement, (the "Securities Purchase
Agreement") pursuant to which the Company issued to HPSC 280,623 shares of
Series B Convertible Preferred Stock for $2.0 million and Senior Subordinated
Notes in an original principal amount equal to $6.9 million at par. 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. Pursuant to the Securities Purchase Agreement, HPSC has
the right to name one person to be nominated to the Company's Board of Directors
so long as HPSC owns or has the right to acquire at least 162,400 shares of
Common Stock. In connection with the Company's initial public offering, during
1997 the Company repaid the HPSC Senior Subordinated Notes, and the Series B
Convertible Preferred Stock was automatically converted into 182,292 shares of
Common Stock.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Decisions and recommendations regarding the compensation of the Company's
executives are made by the Compensation Committee which is composed entirely of
directors who do not serve as officers or employees of the Company. Set forth
below is a report of the members of the Compensation Committee during 1997
concerning the Company's compensation policies for 1997. The following report is
not subject to incorporation by reference in any filings heretofore or hereafter
made by the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
Prior to the Company's initial public offering, the Compensation Committee
was comprised of Messrs. Pinkas, Finn and Murray. From February 4, 1997 through
December 31, 1997, the Committee was comprised of Messrs. Pinkas and Cowan.
11
<PAGE> 15
The Compensation Committee of the Board of Directors establishes
compensation policies and programs for the Company's Chief Executive Officer and
other senior management. The Compensation Committee establishes base
compensation (subject to any employment agreements that are in place), approves
increases in base compensation and determines bonus compensation (subject to any
employment agreements that are in place) for the Company's Chairman of the Board
and Chief Executive Officer and its Chief Financial Officer and has authority to
approve the recommendations of senior management regarding annual base and bonus
compensation for all other officers and senior employees of the Company. The
Compensation Committee also has exclusive authority to approve stock option (and
other stock incentive) grants to all executive officers and employees. The
Compensation Committee considers both internal and external data in determining
officers' compensation, including relevant industry executive compensation data.
COMPENSATION PHILOSOPHY
The Company's compensation philosophy is for a substantial portion of the
annual compensation of each executive officer to be contingent on the
performance of the Company, as well as the individual contributions of each
officer. As a result, much of each executive officer's compensation is "at
risk," with annual bonus compensation (upon attaining 100% or more of target
levels) accounting for not less than 20% of total cash compensation for senior
management. The purpose of this philosophy is to align the executive's
compensation closely with the Company's achievement of both annual and
long-range objectives, thereby serving the interests of stockholders. The
Company also seeks to provide competitive compensation packages when compared to
companies of a similar size in similar industries, which assists the Company in
attracting and retaining highly qualified executives.
COMPENSATION PROGRAM
The Company's executive compensation program has three major components,
all of which are intended to implement the Company's compensation philosophy:
1. Base Salary. Base annual salary for the Chairman of the Board and
Chief Executive Officer is established by employment contract and is
reviewed annually. Base salary for other executive officers is established
when the officer is employed and is reviewed annually. In establishing and
reviewing base salaries, the Compensation Committee bases its decisions on
competitive pay practices of comparable companies, the skills and
performance of the individual executive, the needs and resources of the
Company, and the expenses that would be incurred by the Company in
recruiting a new executive to fill a vacated position.
2. Cash Bonuses. The Company makes annual cash bonuses available to
its senior management based upon the attainment of specified business and
personal goals. Bonuses paid in 1997 were based on executives' performance
in 1996, and the amounts of such bonuses were based on the Compensation
Committee's subjective assessment of the Company's and the executive's
performance in 1996.
In 1997, the Compensation Committee adopted an incentive compensation
program for the Company's executive officers (Messrs. Kaiser, Goins and
Rodwick). The program was intended to provide cash incentive bonuses based
on the Company's achievement of short-term goals that were consistent with
the Company's long-term goals and to promote the Company's compensation
philosophy that a substantial portion of executive compensation be at risk.
It was the Compensation Committee's subjective assessment that an incentive
bonus equal to 50% of base salary (the level established for Mr. Kaiser in
his employment agreement) was an appropriate percentage for all executive
officers to have at risk on an annual basis. The annual bonus under the
incentive compensation program was to be based on the Company's performance
measured by targeted earnings-per-share for 1997. If the actual performance
for 1997 was less than the target, the bonus would be reduced, and if the
actual performance for 1997 was greater than the target, the bonus would be
increased. The Company met the earnings-per-share targets established in
the 1997 incentive compensation program, and bonuses will be paid to
Messrs. Kaiser and Goins in 1998 in accordance with the program. In light
of his resignation, Mr. Rodwick will not receive any bonus under the 1997
incentive compensation program.
12
<PAGE> 16
The Compensation Committee has adopted a similar incentive
compensation plan for Messrs. Kaiser, Goins and Rawls for the year 1998.
3. Equity-Based Incentive Compensation. The Company provides
equity-based incentives to key employees through the Medirisk, Inc. 1996
Stock 1996 Incentive Plan (the "1996 Incentive Plan"). The 1996 Incentive
Plan is administered by the Compensation Committee. As a general practice,
the Compensation Committee approves grants of stock options to key
employees commensurate with their positions when they join the Company and
considers additional discretionary grants on an annual basis based on
performance.
All options granted since the Company's initial public offering in January
1997 (including the options granted in 1997 to Messrs. Kaiser and Goins, as
discussed below) have been granted with an exercise price equal to the fair
market value of the Common Stock on the date of grant (with fair market value
being equal to the closing price of a share of Common Stock as quoted on the
Nasdaq National Market). The Compensation Committee believes that this pricing
practice will generally continue in the future. Historically, all options have
vested over five years from the date of grant to provide incentive to key
employees to remain with the Company, and the Compensation Committee intends to
continue this practice. The Compensation Committee has the authority to shorten
this vesting period in its discretion. The purpose of the 1996 Incentive Plan is
to provide the economic incentives of ownership, create management incentives to
improve stockholder value and, through the use of vesting periods, to encourage
executives to remain with the Company and focus on long-term results. The
Company has not granted stock appreciation rights, restricted stock awards or
long-term incentive bonuses, but the 1996 Incentive Plan permits grants of these
types of incentives.
The Company and Mark A. Kaiser, Chairman of the Board, Chief Executive
Officer and President of the Company, entered into a three-year Employment
Agreement effective on May 31, 1996. As required by that Employment Agreement,
on June 2, 1997, the Company granted 32,480 options to Mr. Kaiser with an
exercise price of $7.50 per share. The Employment Agreement also requires the
Company to grant an additional 32,480 options on May 31, 1998. During 1997 the
Compensation Committee also approved grants of a total of 42,520 options to
Kenneth M. Goins, Jr., Executive Vice President and Chief Financial Officer of
the Company, 16,240 of which have an exercise price of $7.625 per share, and the
remaining 26,280 of which have an exercise price of $10.50 per share. All
options granted to Messrs. Kaiser and Goins in 1997 vest over five years from
the date of grant, subject to acceleration upon a change in control of the
Company.
OTHER EXECUTIVE COMPENSATION
The Company's executives also participate in the benefit programs that are
available to all of the Company's employees, including a 401(k) savings plan
(which permits matching contributions), medical, and life and disability
insurance benefits. The Company does not maintain any other pension or
retirement programs. The Company generally does not provide executive
perquisites such as club memberships.
The Securities and Exchange Commission requires all Compensation Committees
to discuss how they intend to deal with the cap on deductibility of compensation
over $1.0 million for executive officers. Given the Company's current
compensation levels, the Compensation Committee does not believe it is necessary
to consider this issue at this time. The Company intends to take necessary steps
to ensure that its compensation policies maximize the deductibility of
compensation paid to executives; however, the Compensation Committee may
determine that nondeductible payments are appropriate in light of a particular
executive's performance or particular circumstances.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Mr. Kaiser's 1997 compensation was derived from commitments under his
Employment Agreement. The Compensation Committee approved a discretionary
increase in Mr. Kaiser's base salary to $202,000 (a 6.3% increase over his prior
base salary for 1996) in February 1997. In approving such increase, the
Compensation Committee considered its experience with, and knowledge of, the
compensation of chief executive officers of similar companies, as well as Mr.
Kaiser's importance to the Company and its operations. At that time Mr. Kaiser
also received bonus compensation of $95,000 (which represented 50% of his 1996
base salary) in
13
<PAGE> 17
recognition of his efforts in overseeing and completing the Company's initial
public offering and the implementation of the Company's 1996 operating plan. Mr.
Kaiser's target annual bonus of 50% of base salary is established in the
Employment Agreement. The Employment Agreement also provides that the amount of
bonus is determined upon the Company's performance with respect to goals
established by the Compensation Committee. Pursuant to the Employment Agreement,
the Company granted Mr. Kaiser 32,480 options in June 1997 as discussed above.
When it approved the Employment Agreement, the Compensation Committee determined
that these additional equity-based compensation awards were necessary for the
retention of Mr. Kaiser and to provide added incentive to achieve the Company's
short-term and long-term goals.
Compensation Committee
(During All or Part of 1997)
Robert P. Pinkas, Chairman
Keith O. Cowan
Michael J. Finn
James K. Murray, III
14
<PAGE> 18
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following is a comparative performance graph which compares the
percentage change of cumulative total stockholder return on the Company's Common
Stock with (a) the performance of a broad equity market indicator and (b) the
performance of a published industry index or peer group. The following graph
compares the percentage change of cumulative total stockholder return on the
Company's Common Stock with (a) the performance of the Nasdaq National Market
(U.S.) ("Nasdaq") and (b) the performance of the H&Q Technology Index, the
Company's peer group ("Technology"). The graph begins on February 3, 1997, the
date on which the Company's Common Stock first began trading on the Nasdaq Stock
Market, assumes the investment on such date of $100 in the Company's Common
Stock, Nasdaq and Technology, and assumes that all dividends, if any, were
reinvested at the time they were paid.
The comparison in the graph below is based on historical data and is not
intended to forecast the possible future performance of the Company's Common
Stock.
<TABLE>
<CAPTION>
Nasdaq Stock
Measurement Period Market H&Q
(Fiscal Year Covered) Medirisk, Inc. (U.S.) Technology
<S> <C> <C> <C>
02/03/97 100 100 100
12/31/97 107 115 107
</TABLE>
PROPOSAL 2
APPROVAL OF THE MEDIRISK, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors on March 11, 1998 adopted, subject to stockholder
approval at the Annual Meeting, the Medirisk, Inc. 1998 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan"). If approved by the stockholders at
the Annual Meeting, the Employee Stock Purchase Plan will be effective as of its
adoption by the stockholders.
A summary of the Employee Stock Purchase Plan is set forth below. The
summary is qualified in its entirety by reference to the full text of the
Employee Stock Purchase Plan attached to this Proxy Statement as Exhibit "A."
15
<PAGE> 19
GENERAL
The purpose of the Employee Stock Purchase Plan is to encourage employees
of the Company and any participating subsidiaries to acquire a proprietary
interest, or to increase their existing proprietary interest, in the Company.
The Board of Directors believes that employee ownership of the Company's Common
Stock will serve as an incentive, encouraging employees to continue employment
and to perform diligently their duties as employees.
The Employee Stock Purchase Plan is proposed to be adopted with 200,000
shares available for purchase.
ELIGIBILITY
Each employee of the Company and each employee of any designated subsidiary
corporation of the Company that has adopted the Employee Stock Purchase Plan for
the benefit of its employees (the Company and each such other corporation being
referred to herein as a "Participating Company") is eligible to participate in
the Employee Stock Purchase Plan, provided such employee: (i) is regularly
scheduled to work at least twenty (20) hours each week and at least five (5)
months in the calendar year, and (ii) immediately after the grant of an option
to him under the Employee Stock Purchase Plan would own less than five percent
of the total combined voting power or value of all classes of stock of the
Company or any of its subsidiaries. As of June 10, 1998, there were
approximately 245 employees eligible to participate in the Employee Stock
Purchase Plan.
An eligible employee may elect to become a participant in the Employee
Stock Purchase Plan by filing with the Compensation Committee of the Board of
Directors of the Company an election form authorizing specified regular payroll
deductions over the next succeeding purchase period. Unless an employee files a
new election form or withdraws from the Employee Stock Purchase Plan, the
election form continues from one purchase period to succeeding purchase periods
as long as the Employee Stock Purchase Plan remains in effect. An employee may
authorize payroll deductions in an amount not less than one (1%) percent but not
more than ten (10%) percent of the employee's total compensation, including base
pay or salary and any bonuses or commissions. Deductions may not be increased or
decreased during a purchase period, but a participant may withdraw in full from
the Employee Stock Purchase Plan at any time. A participant may not make cash
contributions or payments to the Employee Stock Purchase Plan.
ADMINISTRATION
The Compensation Committee of the Board of Directors will have the
authority to interpret and construe all provisions of the Employee Stock
Purchase Plan and will have general responsibility for the administration of the
Plan, including the authority to appoint an administrator for the Plan (the
"ESPP Administrator").
SHARES SUBJECT TO PLAN
Shares subject to the Employee Stock Purchase Plan may be authorized but
unissued shares or shares that were once issued and subsequently reacquired by
the Company. The total number of shares of Common Stock for which options may be
granted under the Employee Stock Purchase Plan is 200,000 shares, subject to
adjustment in accordance with the Employee Stock Purchase Plan.
TERMS AND CONDITIONS OF PARTICIPATION
Participant Accounts. The ESPP Administrator will establish a bookkeeping
account for each participant and credit such participant's payroll deductions to
his account. Any funds actually held in accounts will remain part of the general
assets of the Company and may be used by the Company for any corporate purpose.
No interest will accrue or be paid on any payroll deductions contributed to the
Employee Stock Purchase Plan or credited to the account of any participant.
Purchase Periods. Under the Employee Stock Purchase Plan, the purchase
periods during which payroll deductions will be accumulated under the Employee
Stock Purchase Plan are the three-month periods commencing on or about January
1, April 1, July 1 and October 1 of each calendar year. The first purchase
16
<PAGE> 20
period commencing after the effective date of the Employee Stock Purchase Plan
will be the three-month period from October 1, 1998, through December 31, 1998.
Grant of Options. On the first business day of each purchase period, the
Company will grant to each participant in the Employee Stock Purchase Plan an
option to purchase on the last day of such purchase period whole shares of
Common Stock. The participant will be entitled to exercise such option to the
extent of the participant's accumulated payroll deductions on the last day of
such purchase period; provided, however, that the maximum number of shares of
Common Stock that the participant will be eligible to purchase with respect to
each of the first four purchase periods is 1,250 shares per period. If the
participant's accumulated payroll deductions on the last day of each of the
initial four purchase periods would enable the participant to purchase more than
1,250 shares with respect to such period, the excess of the amount of the
accumulated payroll deductions over the aggregate purchase price of the 1,250
shares will be refunded to the participant, without interest. The Option Price
for each purchase period will be the lesser of (i) 85% of the fair market value
of the Common Stock on the first business day of the purchase period, or (ii)
85% of the fair market value of the Common Stock on the last business day of the
purchase period.
Exercise of Options. Each eligible employee who continues to be a
participant in the Employee Stock Purchase Plan on the last business day of a
purchase period will be deemed to have exercised his option on such date for
such number of full shares of Common Stock as his accumulated payroll deductions
on such date will pay for at the Option Price, subject to the 1,250-share limit
of the option for each of the first four purchase periods. Only full shares of
Common Stock may be purchased under the Employee Stock Purchase Plan. Unused
payroll deductions remaining in an employee's account at the end of a purchase
period (other than amounts refunded to the employee as set forth above) will be
carried forward to the succeeding purchase period, without interest.
Special Limitations. No option will be granted to a participant if such
option, when combined with all other options granted under all of the Code,
employee stock purchase plans of the Company maintained in accordance with
Section 423 of the Code, its parents and its subsidiary corporations, would
permit such participant to purchase shares of Common Stock of the Company having
a fair market value in excess of $25,000 per year.
Withdrawals. An employee may withdraw from the Employee Stock Purchase
Plan at any time prior to the last business day of each purchase period by
delivering a withdrawal notice to the ESPP Administrator, in which event the
Company will refund the entire balance of the employee's deductions not
previously used to purchase stock under the Employee Stock Purchase Plan. To
re-enter the Employee Stock Purchase Plan, an employee who has previously
withdrawn must file a new authorization at least ten (10) days before the
beginning date of the next purchase period. A participant who elects to withdraw
from the Employee Stock Purchase Plan may not participate again until the
beginning of the next purchase period.
Adjustments. If the shares of Common Stock are subdivided or combined into
a greater or smaller number of shares or if, upon a reorganization, split-up,
liquidation, recapitalization or the like of the Company, shares of Common Stock
are exchanged for other securities of the Company, each optionee will be
entitled to purchase such number of shares of Common Stock or amount of other
securities of the Company as were exchangeable for the number of shares of
Common Stock such optionee would otherwise have been entitled to purchase, and
appropriate adjustments will be made in the exercise price per share to reflect
such subdivision, combination or exchange. In the event of a stock dividend,
each optionee upon exercising such an option will be entitled to receive the
shares as to which he or she is exercising the option and the stock dividend on
such shares. In any of the above events, appropriate adjustments will also be
made to the number of shares available for purchase under the Employee Stock
Purchase Plan. Any of the above adjustments will be made only to the extent that
they will not require stockholder approval under Section 423(b)(2) of the Code.
In the event of an acquisition of the Company or substantially all of its stock
or assets, each optionee shall be entitled to receive at the end of the
applicable purchase period, upon the exercise of such purchase right for each
share Common Stock as to which such purchase right shall be exercised, as nearly
as reasonably may be determined, the cash, securities, or property which a
holder of one (1) share of the Common Stock was entitled to receive upon and at
the time of such transaction. The Board of Directors will take such steps in
connection with such
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transactions as the Board deems necessary or appropriate to assure that the
foregoing provision shall thereafter be applicable, as nearly as reasonably may
be determined, in relation to the cash, securities, or property which the holder
of such purchase right may thereafter be entitled to receive. In lieu of the
foregoing, the Compensation Committee may terminate the Employee Stock Purchase
Plan in accordance with the terms thereof.
Delivery of Common Stock; Stockholder Rights. As soon as practicable after
the end of each purchase period, the Company will issue to each participant the
shares of Common Stock of the Company, if any, purchased for such participant.
During such time, if any, as the Company participates in a direct registration
system, shares of Common Stock so issued shall be directly registered in the
name of the participant. If the Company does not participate in a direct
registration system, then until distribution of the shares from the Employee
Stock Purchase Plan is requested by a participant, stock certificates evidencing
the participant's shares of Common Stock acquired upon exercise of a Purchase
Right shall be held by the ESPP Administrator as the nominee for the
participant. These shares shall be credited to the participant's account.
Certificates shall be held by the ESPP Administrator as nominee for participants
solely as a matter of convenience. A participant shall have all ownership rights
as to the shares credited to his or her account, and neither the ESPP
Administrator nor the Company shall have any ownership or other rights of any
kind with respect to any such certificates or the shares represented thereby.
Restrictions on Transfer. An employee's rights under the Employee Stock
Purchase Plan may not be transferred other than by will or the laws of descent
and distribution. Any option granted under the Employee Stock Purchase Plan to
an employee may be exercised, during the employee's lifetime, only by the
employee.
Termination of Employee's Rights. An employee's rights under the Employee
Stock Purchase Plan will terminate when he ceases to be an employee because of
retirement, voluntary or involuntary termination, resignation, lay-off,
discharge, death, change of status or for any other reason, except that if an
employee is on a leave of absence from work during the last three months of any
purchase period, he will be deemed to be a participant in the Employee Stock
Purchase Plan on the last day of that purchase period. A withdrawal notice will
be considered as having been received from the employee on the day his
employment ceases, and all payroll deductions not used to purchase stock will be
refunded. If an employee's payroll deductions are interrupted by any legal
process, a withdrawal notice will be considered as having been received from the
employee an the day the interruption occurs.
TERMINATION AND AMENDMENT
The Employee Stock Purchase Plan has no pre-established expiration date and
may be terminated at any time by the Compensation Committee, but such
termination will not affect options then outstanding. The Employee Stock
Purchase Plan will terminate in any case when all or substantially all of the
unissued shares of stock reserved for the purposes of the Employee Stock
Purchase Plan have been purchased. If at any time shares of stock reserved for
the Employee Stock Purchase Plan remain available for purchase but not in
sufficient number to satisfy all then unfilled purchase requirements, the
available shares will be apportioned among participants in proportion to their
options and the Employee Stock Purchase Plan will terminate. Upon termination,
all payroll deductions not used to purchase stock will be refunded. The
Compensation Committee may from time to time amend the Employee Stock Purchase
Plan provided that, without the approval of the stockholders, no amendment may
(i) increase the number of shares that may be issued or change the class of
employees eligible to receive options under the Employee Stock Purchase Plan or
(ii) cause Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to become inapplicable to the Employee Stock Purchase Plan.
FEDERAL INCOME TAX EFFECTS
The Employee Stock Purchase Plan is intended to qualify for the favorable
federal income tax consequences of Code Section 423. Neither the grant nor the
exercise of options granted under the Employee Stock Purchase Plan will have a
tax impact on the participant or the Company. A participant receives a tax basis
in the purchased stock equal to his own contributions. If a participant disposes
of the stock acquired upon
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the exercise of his options after at least two years from the date of grant and
one year from the date of exercise (the "required holding period"), then the
participant will recognize as ordinary income the amount by which the lesser of
(i) the fair market value of the stock at the time of disposition, or (ii) the
fair market value of the stock at the date of grant (i.e., at the beginning of
the purchase period) exceeds the participant's tax basis in such stock. Any gain
in addition to this amount will be treated as a capital gain. If a participant
holds stock at the time of his death, the required holding period will
automatically be deemed to have been satisfied and ordinary income must be
realized by the participant in the amount by which the lesser of (i) the fair
market value of the stock at the time of death, or (ii) the fair market value of
the stock at the date of grant (i.e., at the beginning of the purchase period)
exceeds the participant's tax basis in such stock. The Company will not be
entitled to a deduction if the holding period requirements are satisfied.
If a participant disposes of stock before the expiration of the required
holding period, then the participant must recognize as ordinary income the
excess of the fair market value of the stock on the date of exercise of the
option over the participant's tax basis in such stock. Any additional gain will
be treated as long-term or short-term capital gain or loss, as the case may be.
The Company will be allowed a deduction equal to the amount of ordinary income
recognized by the participant (subject to the provisions of Section 162(m) of
the Code).
At the time the option is exercised, in whole or in part, or at the time
some or all of the Common Stock issued under the Employee Stock Purchase Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of such stock. At any time, the
Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the participant.
RESTRICTIONS ON RESALE
If an employee is not an "affiliate" of the Company, he may resell the
Common Stock acquired under the Employee Stock Purchase Plan without compliance
with the requirements of Rule 144 of the Exchange Act ("Rule 144"). Otherwise,
resales of Common Stock acquired under the Employee Stock Purchase Plan may be
sold only in compliance with all of the provisions of Rule 144, other than the
one-year holding period requirement, or pursuant to a separate registration for
the sale of such shares. In general, under Rule 144, an "affiliate" (which term
includes executive officers and directors of the Company and persons whose
shares are aggregated with such affiliate) is entitled to sell within any
three-month period a number of shares (including shares received other than
pursuant to the Employee Stock Purchase Plan) that does not exceed the greater
of one percent of the then-outstanding shares of the Company's Common Stock or
the average weekly trading volume in the Nasdaq National Market during the four
calendar weeks preceding the sale.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
Directors who are not employees are not entitled to participate in the
Employee Stock Purchase Plan. Participation in the Employee Stock Purchase Plan
is entirely voluntary. Therefore, it is not presently possible to determine the
benefits or amounts that will be received pursuant to the Employee Stock
Purchase Plan by the following persons: (i) the Named Executive Officers, (ii)
all current executive officers as a group, or (iii) all employees, including all
current officers who are not executive officers, as a group.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares present or
represented by proxy and entitled to vote at the Annual Meeting on this proposal
will constitute approval of the Employee Stock Purchase Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE MEDIRISK, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN.
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PROPOSAL 3
APPROVAL OF THE MEDIRISK, INC.
1998 LONG-TERM INCENTIVE PLAN
The Company currently maintains the Medirisk, Inc. 1996 Stock Incentive
Plan, under which stock options, stock purchase rights and restricted stock may
be awarded to employees, officers, consultants and directors of the Company.
There are currently 11,080 shares remaining available for awards under the 1996
Incentive Plan. On March 11, 1998, the Board of Directors adopted the Medirisk,
Inc. 1998 Long-Term Incentive Plan (the "Long-Term Incentive Plan"), subject to
stockholder approval, at the Annual Meeting. If the stockholders approve the
Incentive Plan, the Company will grant awards for the remaining shares available
under the 1996 Incentive Plan. The Company has reserved 500,000 shares of its
Common Stock for issuance in connection with options and awards under the
Long-Term Incentive Plan. If approved by the stockholders at the Annual Meeting,
the Long-Term Incentive Plan will be effective as of its adoption by the
stockholders.
A summary of the Long-Term Incentive Plan is set forth below. The summary
is qualified in its entirety by reference to the full text of the Long-Term
Incentive Plan attached to this Proxy Statement as Exhibit "B."
GENERAL
The purpose of the Long-Term Incentive Plan is to promote the success, and
enhance the value, of the Company by linking the personal interests of
employees, officers, consultants and directors to those of the stockholders, and
by providing such persons with an incentive for outstanding performance. As of
June 10, 1998, there were approximately 250 persons eligible to participate in
the Long-Term Incentive Plan.
The Long-Term Incentive Plan authorizes the granting of awards ("Awards")
to employees, officers, consultants and directors of the Company or its
affiliated companies in the following forms: (i) options to purchase shares of
Common Stock ("Options"), which may be incentive stock options or nonqualified
stock options, (ii) stock appreciation rights ("SARs"); (iii) performance units
("Performance Units"); (iv) restricted stock ("Restricted Stock"); (v) dividend
equivalents ("Dividend Equivalents"); and (vi) other stock-based awards.
Pursuant to Code Section 162(m), the Company may not deduct compensation in
excess of $1 million paid to the Chief Executive Officer and the four next most
highly compensated executive officers of the Company. The Long-Term Incentive
Plan is designed to comply with Code Section 162(m) so that the grant of Options
and SARs under the plan, and other Awards, such as Performance Units, that are
conditioned on the performance goals described in the plan, will be excluded
from the calculation of annual compensation for purposes of Code Section 162(m)
and will be fully deductible by the Company.
Subject to adjustment as provided in the Long-Term Incentive Plan, the
aggregate number of shares of Common Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a SAR or Performance Unit) is 500,000, of which
no more than 20% may be granted in the form of restricted stock awards. The
maximum number of shares of Common Stock with respect to one or more Options
and/or SARs that may be granted during any one calendar year under the Long-Term
Incentive Plan to any one participant is 100,000. The maximum fair market value
(measured as of the date of grant) of any Awards other than Options and SARs
that may be received by a participant (less any consideration paid by the
participant for such Award) during any one calendar year under the Incentive
Plan is $1,000,000.00.
ADMINISTRATION
The Long-Term Incentive Plan will be administered by the Compensation
Committee of the Board of Directors of the Company. The Compensation Committee
has the power, authority and discretion to designate participants; determine the
type or types of Awards to be granted to each participant and the terms and
conditions thereof; establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Long-Term Incentive Plan; and
make all other decisions and determinations that may be
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required under, or as the Compensation Committee deems necessary or advisable to
administer, the Long-Term Incentive Plan.
AWARDS
Stock Options. The Compensation Committee is authorized to grant Options,
which may be incentive stock options ("ISOs") or nonqualified stock options
("NQSOs"), to participants. All Options will be evidenced by a written Award
Agreement between the Company and the participant, which will include such
provisions as may be specified by the Compensation Committee. The terms of any
ISO must meet the requirements of Code Section 422.
Stock Appreciation Rights. The Compensation Committee may grant SARs to
participants. Upon the exercise of a SAR, the participant has the right to
receive the excess, if any, of: the fair market value of one share of Common
Stock on the date of exercise, over the grant price of the SAR as determined by
the Compensation Committee, which will not be less than the fair market value of
one share of Common Stock on the date of grant in the case of any SAR related to
an ISO. All awards of SARs will be evidenced by an Award Agreement, reflecting
the terms, methods of exercise, methods of settlement, form of consideration
payable in settlement, and any other terms and conditions of the SAR, as
determined by the Compensation Committee at the time of grant.
Performance Units. The Compensation Committee may grant Performance Units
to participants on such terms and conditions as may be selected by the
Compensation Committee. The Compensation Committee will have the complete
discretion to determine the number of Performance Units granted to each
participant and to set performance goals and other terms or conditions to
payment of the Performance Units in its discretion which, depending on the
extent to which they are met, will determine the number and value of Performance
Units that will be paid to the participant.
Restricted Stock Awards. The Compensation Committee may make awards of
Restricted Stock to participants, which will be subject to such restrictions on
transferability and other restrictions as the Compensation Committee may impose
(including, without limitation, limitations on the right to vote Restricted
Stock or the right to receive dividends, if any, on the Restricted Stock).
Dividend Equivalents. The Compensation Committee is authorized to grant
Dividend Equivalents to participants subject to such terms and conditions as may
be selected by the Compensation Committee. Dividend Equivalents entitle the
participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Common Stock subject to an Award, as
determined by the Compensation Committee. The Compensation Committee may provide
that Dividend Equivalents be paid or distributed when accrued or be deemed to
have been reinvested in additional shares of Common Stock, or otherwise
reinvested.
Other Stock-Based Awards. The Compensation Committee may, subject to
limitations under applicable law, grant to participants such other Awards that
are payable in, valued in whole or in part by reference to, or otherwise based
on or related to shares of Common Stock, as deemed by the Compensation Committee
to be consistent with the purposes of the Long-Term Incentive Plan, including
without limitation shares of Common Stock awarded purely as a "bonus" and not
subject to any restrictions or conditions, convertible or exchangeable debt
securities, other rights convertible or exchangeable into shares of Common
Stock, and Awards valued by reference to book value of shares of Common Stock or
the value of securities of or the performance of specified affiliated companies
of the Company. The Compensation Committee will determine the terms and
conditions of any such Awards.
Performance Goals. The Compensation Committee may determine that any Award
will be determined solely on the basis of (a) the achievement by the Company or
a parent or subsidiary of a specified target return, or target growth in return,
on equity or on assets, (b) the Company's or a parent's or subsidiary's stock
price, (c) the achievement by an individual or a business unit of the Company or
a parent or subsidiary of a specified target, or target growth in, revenues, net
income or earnings per share, or (d) any combination of the goals set forth in
(a) through (c) above. If an Award is made on such basis, the Compensation
Committee
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must establish goals prior to the beginning of the period for which such
performance goal relates (or such later date as may be permitted under Code
Section 162(m)), and the Compensation Committee may for any reason reduce (but
not increase) any Award, notwithstanding the achievement of a specified goal.
Any payment of an Award granted with performance goals will be conditioned on
the written certification of the Compensation Committee in each case that the
performance goals and any other material conditions were satisfied.
Limitations on Transfer; Beneficiaries. No unexercised or restricted Award
will be assignable or transferable by a participant other than by will or the
laws of descent and distribution or, except in the case of an ISO, pursuant to a
qualifying domestic relations order; provided, however, that the Compensation
Committee may (but need not) permit other transfers where the Compensation
Committee concludes that such transferability (i) does not result in accelerated
taxation, (ii) does not cause any Option intended to be an ISO to fail to be
described in Code Section 422(b), and (iii) is otherwise appropriate and
desirable, taking into account any factors deemed relevant, including without
limitation, any state or federal tax or securities laws or regulations
applicable to transferable Awards. A participant may, in the manner determined
by the Compensation Committee, designate a beneficiary to exercise the rights of
the participant and to receive any distribution with respect to any Award upon
the participant's death.
Acceleration Upon Certain Events. Upon the participant's death or
disability, all outstanding Options, SARs, and other Awards in the nature of
rights that may be exercised will become fully exercisable and all restrictions
on outstanding Awards will lapse. Any Options or SARs will thereafter continue
or lapse in accordance with the other provisions of the Long-Term Incentive Plan
and the Award Agreement. In the event of a Change in Control of the Company (as
defined in the Long-Term Incentive Plan), all outstanding Options, SARs, and
other Awards in the nature of rights that may be exercised will become fully
vested and all restrictions on all outstanding Awards will lapse. In the event
of the occurrence of any circumstance, transaction or event not constituting a
Change in Control but which the Board of Directors deems to be, or to be
reasonably likely to lead to, an effective change in control of the Company, the
Compensation Committee or the Board may in its sole discretion declare all
outstanding Options, SARs, and other Awards in the nature of rights that may be
exercised to become fully vested, and/or all restrictions on all outstanding
Awards to lapse, in each case as of such date as the Compensation Committee or
the Board may, in its sole discretion, declare, which may be on or before the
consummation of such transaction or event.
TERMINATION AND AMENDMENT
With the approval of the Board, at any time and from time to time, the
Compensation Committee may terminate, amend or modify the Long-Term Incentive
Plan without shareholder approval; provided, however, that the Compensation
Committee may condition any amendment on the approval of shareholders of the
Company if such approval is necessary or deemed advisable with respect to tax,
securities or other applicable laws, policies or regulations. No termination,
amendment, or modification of the Long-Term Incentive Plan may adversely affect
any Award previously granted under the Incentive Plan, without the written
consent of the participant.
CERTAIN FEDERAL INCOME TAX EFFECTS
Nonqualified Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
participant upon the grant of a nondiscounted NQSO. However, the participant
will realize ordinary income on the exercise of the NQSO in an amount equal to
the excess of the fair market value of the Common Stock acquired upon the
exercise of such option over the exercise price, and the Company will receive a
corresponding deduction (subject to the provisions of Section 162(m) of the
Code). A subsequent sale or exchange of such shares will result in gain or loss
measured by the difference between (i) the exercise price, increased by any
compensation reported upon the participant's exercise of the option, and (ii)
the amount realized on such sale or exchange. Such gain or loss will be capital
in nature if the shares were held as a capital asset and will be long-term if
such shares were held for the applicable long-term capital gain holding period.
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Incentive Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
participant upon the grant of an ISO or the exercise thereof by the participant.
If the participant holds the shares of Common Stock for the greater of two years
after the date the Option was granted or one year after the acquisition of such
shares of Common Stock (the "required holding period"), the difference between
the aggregate exercise price and the amount realized upon disposition of the
shares of Common Stock will constitute a capital gain or loss, and the Company
will not be entitled to a federal income tax deduction. If the shares of Common
Stock are disposed of in a sale, exchange or other "disqualifying disposition"
during the required holding period, the participant will realize taxable
ordinary income in an amount equal to the excess (if any) of the fair market
value of the Common Stock purchased at the time of exercise (or, if less, the
amount realized on the disposition of the shares) over the aggregate exercise
price, and the Company will be entitled to a federal income tax deduction equal
to such amount (subject to the provisions of Section 162(m) of the Code). Upon
exercise of an ISO, the participant may be subject to alternative minimum tax on
certain items of tax preference. If an ISO is exercised at a time when it no
longer qualifies as an incentive stock option, the option will be treated as an
NQSO.
SARs. Under present federal income tax regulations, a participant
receiving a nondiscounted SAR will not recognize income, and the Company will
not be allowed a tax deduction, at the time the Award is granted. When a
participant exercises the SAR, the amount of cash and the fair market value of
any shares of Common Stock received will be ordinary income to the participant
and will be allowed as a deduction for federal income tax purposes to the
Company.
Performance Units. Under present federal income tax regulations, a
participant receiving Performance Units will not recognize income and the
Company will not be allowed a tax deduction at the time the Award is granted.
When a participant receives payment of Performance Units, the amount of cash and
the fair market value of any shares of Common Stock received will be ordinary
income to the participant, and the Company will be entitled to a corresponding
tax deduction at that time.
Restricted Stock. Under present federal income tax regulations, and unless
the participant makes an election to accelerate recognition of the income to the
date of grant, a participant receiving a Restricted Stock Award will not
recognize income, and the Company will not be allowed a tax deduction, at the
time the Award is granted. When the restrictions lapse, the participant will
recognize ordinary income equal to the fair market value of the Common Stock,
and the Company will be entitled to a corresponding tax deduction at that time.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
As of June 10, 1998, no awards had been granted or approved for grant under
the Long-Term Incentive Plan. Any future awards will be made at the discretion
of the Committee. Therefore, it is not presently possible to determine with
respect to (i) the Named Executive Officers, (ii) all current executive
officers, as a group, (iii) all current directors who are not executive
officers, as a group, or (iv) all employees, including all current officers who
are not executive officers, as a group, either the benefits or amounts that will
be received by such persons or groups pursuant to the Long-Term Incentive Plan
or the benefits or amounts that would have been received by such persons or
groups under the Long-Term Incentive Plan if it had been in effect during the
last fiscal year.
ADDITIONAL INFORMATION
The closing price of the Common Stock, as reported by the Nasdaq National
Market on June 10, 1998, was $19.375.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares present or
represented by proxy and entitled to vote at the meeting on this proposal will
constitute approval of the Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE MEDIRISK, INC. 1998 LONG-TERM INCENTIVE PLAN.
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PROPOSAL 4
APPROVAL, FOR PURPOSES OF THE LISTING REQUIREMENTS OF THE NASDAQ STOCK MARKET'S
NATIONAL MARKET, OF THE ISSUANCE OF COMMON STOCK OR SERIES 1998-A PREFERRED
STOCK BY THE COMPANY TO THE FORMER SHAREHOLDERS OF HEALTHDEMOGRAPHICS, A
CORPORATION RECENTLY ACQUIRED BY THE COMPANY, TO THE EXTENT SUCH ISSUANCE COULD
RESULT IN THE COMPANY ISSUING MORE THAN TWENTY PERCENT (20%) OF THE ISSUED AND
OUTSTANDING COMMON STOCK OF THE COMPANY AS OF MARCH 31, 1998 IN CONNECTION WITH
THE ACQUISITION OF HEALTHDEMOGRAPHICS (THE "HEALTHDEMOGRAPHICS ISSUANCE").
GENERAL
On March 26, 1998 the Company, Healthdemographics, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company ("Merger Sub"),
Healthdemographics, a California corporation ("Healthdemographics"), and certain
shareholders of Healthdemographics entered into an Acquisition Agreement and
Plan of Merger (the "Merger Agreement"). Under the Merger Agreement, the Company
acquired Healthdemographics through the merger (the "Merger") of
Healthdemographics with and into Merger Sub, with Merger Sub surviving as a
wholly-owned subsidiary of the Company. In consideration for acquiring all of
the issued and outstanding stock of Healthdemographics in the Merger, the
Company (i) issued 171,315 shares of its $0.001 par value Common Stock, (ii)
paid approximately $2.7 million in cash, (iii) assumed Healthdemographics net
liabilities, and (iv) agreed to pay certain additional consideration (the
"Contingent Consideration") to the former shareholders of Healthdemographics, if
Healthdemographics achieves certain operating income objectives. A copy of the
Merger Agreement is attached to this Proxy Statement as Exhibit "C".
BACKGROUND OF THE MERGER
Beginning in September 1997, the Company began preliminary research on
Healthdemographics. Specifically, the Company studied the scope and strength of
the market for Healthdemographics' products and the ability of
Healthdemographics to compete with other companies providing similar
decision-support software.
On November 21, 1997, the Company sent a letter to P. Timothy Garton,
President of Healthdemographics, to schedule a meeting between the Company and
Healthdemographics. Representatives of the Company and Healthdemographics met in
December 1997, and following exchanges of additional information, the Company
and Healthdemographics entered into a Confidentiality Agreement dated December
31, 1997.
In February 1998 representatives of the Company traveled to San Diego to
perform due diligence on Healthdemographics. In February and March 1998,
representatives of the Company continued to conduct due diligence and began
preliminary negotiations of acquisition terms and documents with representatives
of Healthdemographics. On March 11, 1998, the Board of Directors of the Company
approved the acquisition subject to the resolution of a number of issues,
including final transaction structure.
In late March 1998, representatives of Healthdemographics met with
representatives of the Company to resolve remaining issues, including the
initial consideration and earn-out consideration to be paid, final transaction
structure, employment issues and noncompetition agreements. The parties resolved
these issues, and acquisition documents were executed on March 26, 1998.
On March 31, 1998, after the satisfaction of various closing conditions and
the filing of a Certificate of Merger with the Secretaries of State of
California and Delaware, the Merger was completed. Following the close of the
Nasdaq Stock Market on March 31, 1998, the Company issued a press release to
announce the closing of the Merger.
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REASONS FOR THE MERGER
In reaching its decision to approve the Merger Agreement and the
transactions contemplated thereby, the Board of Directors of the Company
consulted with management of the Company and various advisors and independently
considered a number of factors. In view of the variety of factors considered in
its evaluation of the Merger, the Board of Directors did not find it practicable
to, and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination. Factors considered
include the following:
(i) The products offered by Healthdemographics will allow the Company
to expand the Company's market performance products and customer base.
(ii) By forecasting demand for healthcare services,
Healthdemographics' products will allow the Company's customers to make
more informed business decisions regarding strategic planning and marketing
planning and analysis.
(iii) The opportunities for economies of scale and operating
efficiencies that should result from the Merger including the integration
of information systems and support functions.
(iv) The belief that the combination of Healthdemographics products
and management team with the financial resources and experience of the
Company will provide a significant opportunity for the expansion of
Healthdemographics, products and customer base.
(v) On the basis of the relative earnings of both companies and the
exchange ratio, the Company believed the Merger would be accretive to its
current stockholders in the near term, and would be more so in the future
if certain synergies are achieved.
(vi) By including in the Merger Agreement incentive for future growth
through the payment of the Contingent Consideration, the Company has
provided the Healthdemographics' management team incentive to continue to
expand Healthdemographics' operating income.
CONSIDERATION ISSUED IN THE MERGER
At the effective time of the Merger, each share of Healthdemographics
capital stock was converted into (i) the right to receive its pro rata portion
of the aggregate merger consideration in cash and stock, and (ii) the right to
receive the Contingent Consideration. The aggregate initial consideration issued
and delivered to shareholders of Healthdemographics was 171,315 shares of Common
Stock and approximately $2.7 million in cash.
The payment of the Contingent Consideration is contingent upon
Healthdemographics achieving certain quarterly operating income targets. The
parties negotiated these operating income targets at arm's length prior to
entering into the Merger Agreement. The Contingent Consideration payable by the
Company is a multiple of Healthdemographics' operating income over predetermined
operating income targets. The predetermined targets were established based on
the Company's projections concerning Healthdemographics' business and growth.
The multiple to be applied to operating income in excess of these targets varies
according to the amount, if any, by which actual operating income exceeds the
predetermined targets. Payments of Contingent Consideration will be made 50% in
cash and 50% in either Common Stock or Series 1998-A Preferred Stock. The
Company's obligation to make the Contingent Consideration payments extends
through the year 2000. There is no minimum Contingent Consideration guaranteed,
and the former shareholders of Healthdemographics could receive no additional
payments. In addition, there is no upper limit on the Contingent Consideration.
As noted above, the Contingent Consideration will be payable in a
combination of cash and Common Stock or Series 1998-A Preferred Stock. The
Series 1998-A Preferred Stock will be issuable only if, at the time a payment of
Contingent Consideration is due, the market price for Common Stock is less than
$22.6094 per share. If the Series 1998-A Preferred Stock is issued, it will be
issued at its liquidation preference of $10,000 per share.
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DESCRIPTION OF SERIES 1998-A PREFERRED STOCK
To satisfy the Company's obligation to make payments of Contingent
Consideration in stock of the Company in order to preserve the tax treatment of
the Merger, the Company's Board of Directors created a new series of Preferred
Stock of the Company, par value $0.001, designated as the Series 1998-A
Preferred Stock. The Board of Directors designated 5,000 of the previously
undesignated shares of Preferred Stock as Series 1998-A Preferred Stock. The
principal features of the Series 1998-A Preferred Stock, which will apply if it
is issued and until its conversion, are summarized below. The following
description of the Series 1998-A Preferred Stock is only a summary of certain
provisions and is qualified in its entirety by reference to the copy of the
Certificate of Designation for the Series 1998-A Preferred Stock attached as
Exhibit "D" to this Proxy Statement (the "Certificate of Designation").
Dividends: The holders of Series 1998-A Preferred Stock are entitled to
receive cash dividends payable before any dividends are paid to holders of
Common Stock or any other securities ranking junior to the Series 1998-A
Preferred Stock at the rate of 5% per annum of the initial liquidation
preference per share of the Series 1998-A Preferred Stock ($10,000). Dividends
on the Series 1998-A Preferred Stock accrue from and after the date shares are
issued and are payable annually on December 31 of each year. The Company may, in
the discretion of the Board of Directors, declare and pay dividends or
distributions, or make provision for the payment thereof, on Common Stock or any
security ranking junior to the Series 1998-A Preferred Stock, but only if all
accrued dividends on the Series 1998-A Preferred Stock have been paid in full
prior to the date of any such declaration, payment or provision.
Liquidation Rights: Upon any liquidation, dissolution and winding up of
the Company, holders of Series 1998-A Preferred Stock will be entitled to
receive, from the assets of the Company available for distribution to
stockholders of the Company, an amount equal to $10,000 per share plus any
accrued and unpaid dividends on the Series 1998-A Preferred Stock (the
"Liquidation Preference") before any distribution is made to holders of Common
Stock or any other class of stock ranking junior upon liquidation, dissolution
and winding up to the Series 1998-A Preferred Stock.
Voting Rights: Each share of Series 1998-A Preferred Stock is entitled to
a number of votes equal to the number of shares of Common Stock into which such
share of Series 1998-A Preferred Stock is then convertible. Except as otherwise
provided by the Delaware General Corporation law, the holders of Series 1998-A
Preferred Stock will vote together with the holders of Common Stock as a single
class on all matters on which the holders of Common Stock are entitled to vote.
Redemption: Beginning on the fifth anniversary of any issue date of shares
of Series 1998-A Preferred Stock, the Company may, but is not required to,
redeem all of the shares of Series 1998-A Preferred Stock that were issued on
such issue date and that remain outstanding. Effective as of the twentieth
anniversary of each issue date of shares of Series 1998-A Preferred Stock, the
Company is required to redeem all of the shares of Series 1998-A Preferred Stock
that were issued on such issue date and that remain outstanding. Upon any
redemption of the Series 1998-A Preferred Stock, the Company will pay in cash
the Liquidation Preference in effect on the date established for redemption, and
dividends shall cease to accrue on that date. The Company will not establish any
retirement or sinking fund for the redemption of the Series 1998-A Preferred
Stock.
Conversion: Each share of Series 1998-A Preferred Stock is subject to
automatic conversion into Common Stock if, at any time, the Market Value (as
defined in the Certificate of Designation) of Common Stock equals or exceeds
$22.6094 (the "Conversion Price"). In such event, each share of Series 1998-A
Preferred Stock will, automatically and without action on the part of the holder
or the Company, be converted into a number of shares of Common Stock that
results from dividing the Liquidation Preference in effect at the time by the
Conversion Price. To protect against dilution, the Conversion Price is subject
to adjustment if the Company effects a subdivision or combination of Common
Stock (whether by stock split, stock dividend or otherwise). The Conversion
Price and securities issuable upon conversion are also subject to adjustment if
the company (i) conducts a capital reorganization of Common Stock, (ii) engages
in a merger, consolidation or statutory share exchange in which the stockholders
of the Company prior to such transaction own less than
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a majority of the voting stock of the resulting, surviving or exchanging
corporation, or (iii) sells all or substantially all of its properties or assets
or capital stock.
Rank: The Series 1998-A Preferred Stock ranks prior to Common Stock with
respect to the payment of dividends and distributions of assets upon the
dissolution, liquidation and winding up of the Company. The Board of Directors
may at any time and from time to time include additional shares in the
designation of the Series 1998-A Preferred Stock, designate one or more series
or classes of preferred stock with liquidation preferences, voting rights,
dividend rights and other rights and privileges senior to the Series 1998-A
Preferred Stock without the vote or consent of, or notice to, the holders of
Series 1998-A Preferred Stock.
FRACTIONAL SHARES
No certificates representing fractional shares of Common Stock were issued
as a result of the Merger. Any fractional interest to which a former shareholder
of Healthdemographics was entitled was satisfied through the payment of cash in
an amount equal to such fractional part of a share of Common Stock multiplied by
$22.6094.
EFFECT OF THE MERGER ON THE COMPANY'S SHAREHOLDERS
Consummation of the Merger and the issuance of Common Stock in connection
with the Merger did not result in any change in the rights of the holders of
Common Stock under the provisions of the General Corporation Law of the State of
Delaware or the Company's Certificate of Incorporation or Bylaws. Although the
rights of the Common Stock were not modified as a result of the Merger, the
Series 1998-A Preferred Stock that may be issued as Additional Consideration has
rights and preferences superior to the rights of Common Stock.
CERTAIN FEDERAL TAX CONSEQUENCES
The following discussion is a summary of certain of the federal income tax
consequences of the Merger This discussion is not a complete description of all
the consequences of the Merger. Each Healthdemographics shareholder's individual
circumstances may affect the tax consequences of the Merger to him or her. For
example, the discussion does not address the effect of the Merger to certain
classes of taxpayers, including, without limitation, shareholders of
Healthdemographics who held their stock other than as a capital asset, who
received their stock upon the exercise of employee stock options or otherwise as
compensation, and shareholders who were foreign persons, insurance companies,
financial institutions or securities dealers. In addition, no information is
provided herein with respect to the tax consequences of the Merger under
applicable foreign, state or local laws. Accordingly, each shareholder of
Healthdemographics is urged to consult his or her own tax advisor as to the
specific federal income tax consequences to such shareholder, based on his or
her own particular status and circumstances, and also as to any state, local,
foreign or other tax consequences arising out of the Merger to him or her.
The discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), regulations and rulings as now in effect or proposed thereunder,
current administrative rulings and practice, and judicial precedent, all of
which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences discussed herein. Furthermore,
there can be no assurance that the Internal Revenue Service will not take a view
contrary to those expressed herein. In the discussion below, all Section
references are to the Code, and the term Company Stock refers to shares of stock
of the Company issued in the Merger as consideration, whether at of the time the
Merger became effective, or later as Contingent Consideration.
Based on presently applicable federal income tax law, the Merger had the
following federal income tax consequences:
(i) The Merger qualified as a reorganization within the meaning of
Section 368(a) of the Code and each of Company, Healthdemographics and
Merger Sub was a party to the reorganization within the meaning of Section
368(b) of the Code.
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(ii) No gain or loss was recognized by Company, Healthdemographics or
Merger Sub as a consequence of the Merger.
(iii) No loss was or will be recognized by shareholders of
Healthdemographics upon the exchange of Healthdemographics shares of stock
for shares of Company Stock and any cash consideration received in the
Merger. Subject to the opinion set forth in paragraph (iv) below, gain, if
any, will be recognized by each shareholder of Healthdemographics in an
amount equal to the excess of the fair market value of Company Stock
received plus any cash consideration received over such shareholder's tax
basis in the Healthdemographics shares exchanged therefor, but not in
excess of the total cash received. The general rule is that any such gain
will be treated as capital gain but if the exchange has the effect of a
distribution of a dividend, then the amount of gain recognized, that is not
in excess of the shareholder's ratable share of the undistributed earnings
and profits of Healthdemographics, will be treated as a dividend, rather
than capital gain. The determination of whether the exchange has the effect
of the distribution of a dividend will be made on a shareholder by
shareholder basis. The exchange will not have the effect of the
distribution of a dividend, provided that one of the safe-harbors of
Section 302(b) of the Code is met or the distribution otherwise is
considered not to have the effect of a dividend. Most shareholders of
Healthdemographics likely will meet the "substantially disproportionate"
safe-harbor of Section 302(b)(2) of the Code, and thus have their gain
treated as capital gain. The substantially disproportionate test will be
met if after the transaction Healthdemographics shareholder will own less
than fifty percent (50%) of all Company Stock and if his or her percentage
ownership of Company Stock after the transaction is less than eighty
percent (80%) of what his or her percentage ownership of Company Stock
would have been if Company Stock instead of cash consideration had been
received by the shareholder in connection with the Merger, in each case
determined with application of Section 318 of the Code attributing stock
ownership among family members and related entities.
(iv) To the extent any portion of the Contingent Consideration is
treated as interest, such amount will be treated as taxable ordinary income
to shareholders of Healthdemographics.
(v) A shareholder of Healthdemographics who receives cash in the
Merger in lieu of a fractional share interest in Healthdemographics Stock,
or because of the exercise of the right to dissent, would be treated as
having received cash in redemption of the Company Stock that would have
been received by such shareholder had Company Stock been issued instead of
cash, subject to the provisions of Section 302 of the Code. The receipt of
cash by such shareholder generally should result in capital gain or loss
equal to the difference between the amount of cash received and the
shareholder's basis in the shares of Healthdemographics stock, or
fractional interest in a share of Healthdemographics stock.
(vii) Except to the extent any Company Stock is treated as interest,
the holding period of the Company Stock received by a shareholder of
Healthdemographics includes the holding period of the Healthdemographics
stock surrendered in exchange therefor, provided the Healthdemographics
stock was held as a capital asset on the date of the exchange.
Although not entirely clear, the basis of the Company Stock received by a
shareholder of Healthdemographics in the Merger (other than Company Stock
treated as interest) should, in the aggregate, be the same as the aggregate
basis of the Healthdemographics Stock surrendered in exchange therefor (less the
basis allocated to any fractional share of Company Stock settled by cash
payment), decreased by any cash received, and increased by the amount treated as
a dividend, the amount of the gain recognized by such shareholder with respect
to the Merger, and any portion of the Contingent Consideration treated as
interest. Until the final payment of the Company Common or Preferred Stock
issued as Contingent Consideration has been made, such basis should be
determined as though the maximum number of shares of Company Stock that the
shareholder of Healthdemographics reasonably estimates she or he will receive
had been issued (not including any shares of Company Stock treated as interest)
under the Agreement to the shareholder as Contingent Consideration.
The Merger Agreement provides that notwithstanding any provisions of the
Merger Agreement, the aggregate consideration issued in the Merger will consist
not less than fifty percent (50%) of Company Stock. The discussion above assumes
that such fifty percent (50%) computation is based on the value of the
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Company Stock at the time of its issuance as consideration in the merger. The
tax consequences above may not obtain if this assumption is not valid.
NONCOMPETITION AGREEMENTS AND EMPLOYMENT AGREEMENTS
The Company entered into Noncompetition Agreements with P. Timothy Garton
and Michael D. Chermak. Pursuant to the terms of these Noncompetition
Agreements, Messrs. Chermak and Garton agreed for a period of five years
following the execution date of the Merger Agreement (i) not to compete with the
Company in the development, implementation, marketing or sale of software,
databases or other tools relating to the collection, maintenance or utilization
of data concerning the supply of, and demand for, healthcare related products
and services; (ii) not to hire, solicit or attempt to hire or solicit any
employee of the Company on behalf of another company; (iii) enter into or
attempt to enter into any business substantially similar to the business
operated by Healthdemographics; and (iv) not to directly or indirectly divulge
any of the Company's confidential information.
The Company also entered into Employment Agreements with Mr. Chermak (the
"Chermak Agreement") and Mr. Garton (the "Garton Agreement"). The Chermak
Agreement provides that Mr. Chermak will serve as the Vice President and General
Manager of Healthdemographics, Inc. until March 31, 2001. Under the Chermak
Agreement, the Company will pay Mr. Chermak an annual base salary of $125,000 in
accordance with the Company's current payroll practices. Any increase in Mr.
Chermak's salary, as well as the payment of any bonuses and the grant of any
stock options to Mr. Chermak, must be approved by the Board of Directors of the
Company. In addition, Mr. Chermak will be entitled to certain fringe benefits as
part of his employment, including reimbursement for reasonable and necessary
business expenses, four weeks of paid vacation per year and participation in the
Company's standard benefit programs. The Company may terminate Mr. Chermak's
employment at any time prior to March 31, 2001 for cause or upon the disability
of Mr. Chermak. If the Company terminates Mr. Chermak without cause prior to
March 31, 2001, Mr. Chermak shall be entitled to receive his base salary for the
remainder of the term of the agreement payable periodically in accordance with
the Company's payroll procedures.
The Garton Agreement provides that Mr. Garton will serve as the President
of Healthdemographics, Inc. until March 31, 2001. Under the Garton Agreement,
the Company will pay Mr. Garton an annual base salary of $125,000 payable in
accordance with the Company's current payroll practices. Any increase in Mr.
Garton's salary, as well as the payment of any bonuses and the grant of any
stock options to Mr. Garton, must be approved by the Board of Directors of the
Company. In addition, Mr. Garton will be entitled to certain fringe benefits as
part of his employment, including reimbursement for reasonable and necessary
business expenses, four weeks of paid vacation per year and participation in the
Company's standard benefit programs. The Company may terminate Mr. Garton's
employment at any time prior to March 31, 2001 for cause or upon the disability
of Mr. Garton. If the Company terminates Mr. Garton without cause prior to March
31, 2001, Mr. Garton shall be entitled to receive his base salary for the
remainder of the term of the agreement payable periodically in accordance with
the Company's payroll procedures.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
At the closing date, there was no material relationship between the Company
and Healthdemographics or any of the Healthdemographics shareholders, or any of
their respective affiliates, officers, directors or associates, except for a
$300,000 working capital loan that the Company made to Healthdemographics during
the acquisition discussions to fund current obligations of Healthdemographics.
This working capital loan was extinguished with a portion of the proceeds of the
Merger.
INDEMNIFICATION
P. Timothy Garton and Michael D. Chermak, former shareholders, officers and
directors of Healthdemographics, have agreed jointly and severally to indemnify
and hold the Company and Merger Sub harmless against any losses and expenses,
including reasonable attorney's fees, arising out of (i) the breach of any
representation or warranty of Healthdemographics, and (ii) the nonfulfillment or
breach of any covenant
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or agreement of Healthdemographics. In addition, each shareholder of
Healthdemographics has agreed, severally and not jointly, to indemnify and hold
harmless the Company and Merger Sub against any losses and expenses, including
reasonable attorney's fees arising out of (i) the breach of any representation
or warranty made by each shareholder, and (ii) the non-fulfillment of any
covenant or agreement by the former shareholders of Healthdemographics. The
Company and Merger Sub have agreed to indemnify and hold harmless the former
shareholders of Healthdemographics against any losses and expenses, including
reasonable attorney's fees, arising out of (i) the breach of any representation
or warranty of the Company and Merger Sub, and (ii) the non-fulfillment of any
covenant or agreement of the Company and Merger Sub. No initial claim for
indemnification with respect to any alleged misrepresentation or breach of
warranty may be made by any party after October 31, 2002, except that the
Company may bring claims prior to the seventh anniversary of the closing date
for breaches of certain agreed upon representations, warranties and covenants.
In addition, no claim for indemnification with respect to any alleged
misrepresentation or breach of warranty may be brought by the Company until the
aggregate amount of any loss or claim for which indemnification is sought
exceeds $100,000, and then indemnification may be asserted for amounts up to and
in excess of $100,000. No former shareholders of Healthdemographics shall be
required to satisfy an indemnification obligation in excess of 100% of the
aggregate value of the consideration received by such shareholder, and the
Company and Merger Sub shall not be required to satisfy an indemnification
obligation in excess of 100% of the aggregate value of all consideration paid by
the Company to the former shareholders of Healthdemographics. In order to
satisfy the indemnification obligations of the former shareholders of
Healthdemographics, the Company has the right to offset the amount of any
indemnification obligations owed to the Company against the payment of the
Contingent Consideration.
REGULATORY APPROVALS
Neither the Company nor Healthdemographics was required to comply with any
material federal or state regulatory requirements in connection with the Merger.
As noted above, the Merger has been already consummated, and this approval is
sought solely in connection with the potential Healthdemographics Issuance in
payment of Contingent Consideration.
ACCOUNTING TREATMENT
The Merger was accounted for using the purchase method of accounting. The
Merger resulted in estimated purchased in-process research and development costs
of approximately $5.3 million, estimated acquired products of approximately
$500,000, and estimated excess of cost over net assets acquired of approximately
$1.1 million. The Contingent Consideration paid, if any, will be added to the
excess of cost over net assets acquired and amortized prospectively.
VOTE REQUIRED
For companies listed on the Nasdaq Stock Market's National Market, the
National Association of Securities Dealers, Inc. (the "NASD"), requires
shareholder approval if the listed company issues more than 20% of the company's
outstanding shares of common stock and voting power in connection with a
transaction. At the effective time of the Merger, the Company did not issue more
than 20% of its outstanding Common Stock or voting power. However, because the
payment of the Contingent Consideration to the former shareholders of
Healthdemographics may result in the issuance by the Company of more than 20% of
the Company's outstanding Common Stock, the shareholders of the Company are
being asked to approve the issuance by the Company of any additional shares of
Common Stock in excess of 20% of the outstanding Common Stock of the Company as
of March 31, 1998. The affirmative vote of the holders of a majority of the
shares present or represented by proxy and entitled to vote at the Annual
Meeting on this proposal will constitute approval of the Healthdemographics
Issuance.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE HEALTHDEMOGRAPHICS ISSUANCE.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Quarterly Report on Form 10-Q for its fiscal quarter
ended March 31, 1998, filed with the Commission on May 6, 1998;
(2) The Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1997, filed with the Commission on March 30, 1998, as amended
by Amendment No. 1 on Form 10-K/A, filed with the Commission April 29,
1998, and as amended by Amendment No. 2 on Form 10-K/A, filed with the
Commission on May 20, 1998;
(3) The Company's Current Report on Form 8-K regarding the Company's
acquisition of Successful Solutions, Inc., filed with the Commission on May
29, 1998, as amended by Form 8-K/A filed with the Commission on June 5,
1998;
(4) The Company's Current Report on Form 8-K regarding the Company's
acquisition of Healthdemographics, filed with the Commission on April 13,
1998;
(5) The Company's Current Report on Form 8-K regarding the Company's
acquisition of CareData Reports, Inc., filed with the Commission on
September 15, 1997, as amended by Form 8-K/A, filed with the Commission on
November 14, 1997;
(6) The Company's Current Report on Form 8-K regarding the Company's
acquisition of CIVS, Inc., filed with the Commission on July 9, 1997, as
amended by Form 8-K/A, filed with the Commission on September 5, 1997;
(7) The description of the Common Stock contained in the Company's
Form 8-A, filed with the Commission on January 17, 1997.
MATERIAL CHANGES
Since December 31, 1997, in addition to the acquisition of
Healthdemographics, the Company has experienced the following material changes:
RECENT ACQUISITION
On May 28, 1998, the Company acquired by merger all of the capital stock of
Successful Solutions, Inc., a Georgia corporation ("Successful Solutions"), for
190,000 shares of the Company's $0.001 par value per share common stock (the
"Common Stock") and approximately $2.9 million in cash (the "Acquisition").
Contingent Consideration in stock and cash is payable if Successful Solutions
achieves certain performance objectives. Medirisk expects to record a
nonrecurring charge of approximately $4.0 million in the second quarter of 1998
relating to acquired in-process research and development costs and approximately
$400,000 during 1998 for planned integration costs. The Company will account for
the Acquisition as a purchase transaction. The Acquisition was made pursuant to
an Acquisition Agreement and Plan of Merger dated as of May 28, 1998 by and
among the Company, a newly formed merger subsidiary of the Company, Successful
Solutions and the shareholders of Successful Solutions (the "Acquisition
Agreement").
To finance the cash portion of the purchase price, the Company used
borrowings under its existing resolving credit facility with NationsBank. As a
result of these borrowings, at May 28, 1998 the Company had $9.8 million in
borrowings outstanding under its credit facility.
The Company and Successful Solutions also entered into Employment
Agreements with a senior executive of Successful Solutions. The purchase price
and other terms of the Acquisition were determined as a result of arms' length
negotiations between unrelated parties. At the closing date, there was no
material relationship between the Company and Successful Solutions or any of the
Successful Solutions shareholders, or any of their respective affiliates,
officers, directors or associates.
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Successful Solutions, based in Vidalia, Georgia, provides decision-support
tools, consulting services and training materials to hospitals and physician
group practices to assist them in improving patient outcomes, achieving the
efficient delivery of care and in establishing billing and coding practices that
comply with industry requirements. Successful Solutions collects clinical and
billing data from its customers and profiles the relative performance of
individual physicians using its analytical tools and statistical algorithms.
Successful Solutions implements on-site education through physician consultants
and medical record specialists to influence physician behavior and promote the
effective and efficient delivery of healthcare. Successful Solutions' analytical
tools and services for bill coding and medical record documentation help its
customers achieve optimal and appropriate reimbursement for services delivered,
while improving the quality of data for future comparative analysis.
PUBLIC OFFERING
On June 10, 1998, the Company's Registration Statement on Form S-3 with
respect to an offering by the Company and certain selling stockholders of an
aggregate of 2,500,000 shares of Common Stock (2,250,000 being offered by the
Company and 250,000 by the selling stockholders) was declared effective. On June
16, 1998, the offering was consummated, and the Company received net proceeds of
$41,118,750, $9.8 million of which was used to repay outstanding indebtedness
under the Company's revolving credit facility with NationsBank.
BUSINESS OF HEALTHDEMOGRAPHICS
Healthdemographics of San Diego, California, was founded in April 1993 to
be a provider of databases and decision-support tools that allow customers to
forecast the supply of and demand for healthcare services. Healthdemographics
products are used by healthcare delivery organizations, insurers, equipment
suppliers, consultants and other healthcare industry participants to make more
informed business decisions regarding strategic planning and market planning and
analysis.
PRODUCTS
Healthdemographics principal products are the decision-support application
Avenir(R) and the HealthPac,(TM) database. These products are described below:
Avenir(R). Avenir is a Windows(R)-based decision-support application
that integrates HealthPac data sets with reporting, mapping and graphics
software. Avenir allows hospitals, health plans and other healthcare
industry participants to conduct detailed market analysis, forecasting and
strategic planning.
HealthPact(TM). HealthPacs is a database that includes current year
estimated and five-year forecasts of healthcare utilization, supply and
demand in specific geographic markets across the United States. HealthPac
data sets include demographic information concerning 369 separate
geographic areas, population-based models of the incidence or prevalence of
diseases by category, estimates of the demand for healthcare services by
treatment setting and estimates of the supply of local providers able to
meet the identified demand.
CUSTOMERS
Healthdemographics markets its products to healthcare providers, insurers,
consulting firms, equipment suppliers, pharmaceutical firms, physician practices
and various other participants in the healthcare industry. During 1997 and 1996,
one customer accounted for approximately 15% and 6%, and another customer
accounted for approximately 3% and 21% of total revenues, respectively.
EMPLOYEES
On March 31, 1998, Healthdemographics had 26 full-time employees, two
part-time employees and eight independent contractors. None of
Healthdemographics' employees is covered by a collective bargaining agreement.
Healthdemographics considers relations with its employees to be good.
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PROPERTIES
Healthdemographics headquarters occupy 5,800 square feet of space located
at 4901 Morena Boulevard in San Diego, California under a lease expiring in June
2001. Healthdemographics also leases space in Nashville, Tennessee.
Healthdemographics believes that such offices are adequate to meet its current
requirements.
LEGAL PROCEEDINGS
Healthdemographics is subject to claims and suits in the ordinary 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 business, results of operations or financial
condition of Healthdemographics or the Company.
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SELECTED FINANCIAL DATA OF HEALTHDEMOGRAPHICS
(IN THOUSANDS)
The selected financial data presented below as of and for the years ended
December 31, 1996 and 1997 have been derived from the audited financial
statements of Healthdemographics. The financial statements and related notes as
of December 31, 1996 and 1997 and for each of the years in the two-year period
ended December 31, 1997, together with the report of KPMG Peat Marwick LLP,
independent certified public accountants, are included in the Company's Current
Report on Form 8-K with respect to the acquisition of Healthdemographics filed
with the Securities and Exchange Commission on April 13, 1998 (the "Form 8-K").
The selected financial data presented below as of and for the years ended
December 31, 1993, 1994 and 1995 and as of March 31, 1998 and for the three
month periods ended March 31, 1997 and 1998 have been derived from the unaudited
financial statements of Healthdemographics which have been provided by
management of Healthdemographics. The selected financial data of
Healthdemographics should be read in conjunction with "Healthdemographics
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included in the Form
8-K.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998(1)
---- ---- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue............................................. $217 $300 $ 829 $ 411 $ 905 $ 218 $ 467
Salaries, wages and benefits........................ 62 110 407 257 971 213 638
Other operating expenses............................ 156 164 766 367 752 97 450
Depreciation and amortization....................... 2 6 11 4 18 12 15
Acquired in-process research and development costs
and integration costs(2).......................... -- -- -- -- -- -- 5,250
---- ---- ----- ----- ----- ----- -------
Operating income (loss)............................. (3) 20 (355) (217) (836) (104) (5,886)
Interest expense, net............................... -- -- (6) (8) (26) (10) (2)
Provision for income taxes.......................... -- -- -- -- -- -- --
---- ---- ----- ----- ----- ----- -------
Income (loss) before extraordinary item............. (3) 20 (361) (225) (862) (114) (5,888)
Extraordinary item -- loss on early extinguishment
of debt(3)........................................ -- -- -- -- -- -- (136)
---- ---- ----- ----- ----- ----- -------
Net income (loss)................................... $ (3) $ 20 $(361) $(225) $(862) $(114) $(6,024)
==== ==== ===== ===== ===== ===== =======
YEAR ENDED DECEMBER 31,
----------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998(4)
---- ---- ----- ----- ----- ---------
BALANCE SHEET DATA:
Working capital (deficit)........................... $(24) $ 12 $ (84) $(383) $(598) $ (899)
Total assets........................................ 66 98 258 105 215 1,799
Long-term debt and capital lease obligations
excluding current portion......................... -- -- -- 125 246 5,945
Stockholders' equity (deficit)...................... (10) 51 (260) (482) (762) (5,167)
</TABLE>
- - ---------------
(1) The amounts shown for the three months ended March 31, 1998 include all
activity for the quarter both prior to and after the acquisition effective
date.
(2) In connection with the acquisition of Healthdemographics by Medirisk in
1998, Medirisk acquired the ongoing research and development activities of
the entity. At the effective date of the acquisition, Medirisk recorded a
nonrecurring charge resulting from expensing the acquired in-process
research and development costs. Such charge is presented herein as though
"pushed down" to Healthdemographics.
(3) In connection with the acquisition of Healthdemographics by Medirisk in
1998, Healthdemographics incurred a one-time, nonrecurring, noncash charge
of approximately $136,000 with respect to accelerated amortization of
discounts on certain notes payable.
(4) Amounts shown are presented as though "pushed down" to Healthdemographics
and reflect all purchase price allocations recorded on the effective date of
the acquisition. Stockholders deficit reflects the net deficit from the
effective date of this acquisition through March 31, 1998.
34
<PAGE> 38
HEALTHDEMOGRAPHICS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Healthdemographics was incorporated in 1993 and provides databases and
decision-support applications to forecast the supply of and demand for
healthcare services. Healthcare delivery organizations, insurers, equipment
suppliers, consultants and other healthcare industry participants use the
information and software provided by Healthdemographics to make more informed
business decisions regarding strategic planning and market planning and
analysis.
Healthdemographics has recognized revenue on the sale of data upon shipment
of the data. Revenue arising from the right to use Healthdemographics' software
and data is derived primarily pursuant to single-and multi-year contracts that
provide for the payment of nonrefundable annual fees. Revenue from these
licenses and data sales is recognized annually upon shipment of the software.
Revenue from customer services, which include a six-month software and data
update and telephone support services, is recognized ratably over the service
contract period. All other revenue, including consulting fees and other
miscellaneous services, is recognized upon the performance of the applicable
services.
The following table sets forth, for the periods indicated, the percentage
of revenue represented by the respective items.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- ----------------
1995 1996 1997 1997 1998
---- ---- ---- ----- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue................................................ 100% 100% 100% 100% 100%
Salaries, wages and benefits........................... 49 63 107 98 137
Other operating expenses............................... 93 89 83 44 96
Depreciation and amortization.......................... 1 1 2 6 3
Acquired in-process research and development costs and
integration costs(1)................................. -- -- -- -- 1,124
--- --- --- --- ------
Operating income (loss)................................ (43) (53) (92) (48) (1,260)
Interest expense, net.................................. (1) (2) (3) (4) (1)
Provision for income taxes............................. -- -- -- -- --
Extraordinary item -- loss on early extinguishment of
debt(2).............................................. -- -- -- -- (29)
--- --- --- --- ------
Net income (loss)...................................... (44)% (55)% (95)% (52)% (1,290)%
=== === === === ======
</TABLE>
- - ---------------
(1) In connection with the acquisition of Healthdemographics by Medirisk in
1998, Medirisk acquired the ongoing research and development activities of
the entity. At the effective date of the acquisition, Medirisk recorded a
nonrecurring charge resulting from expensing the acquired in-process
research and development costs. Such charge is presented herein as though
"pushed down" to Healthdemographics.
(2) In connection with the acquisition of Healthdemographics by Medirisk in
1998, Healthdemographics incurred a one-time, nonrecurring, noncash charge
of approximately $136,000 with respect to accelerated amortization of
discounts on certain notes payable.
35
<PAGE> 39
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Revenue. Revenue for the three months ended March 31, 1998 was $467,000,
an increase of $249,000 or 114% over the same period in the prior year. The
increase was primarily the result of Healthdemographics' release of its Avenir
product in April of 1997.
Salaries, wages and benefits. Salaries, wages and benefits for the three
months ended March 31, 1998 were $638,000, an increase of $425,000 or 200% over
the same period in the prior year. The increase was due to the increase in
headcount, an increase in average salary and an increase in management bonuses
of $125,000. Salaries, wages and benefits as a percentage of revenue increased
to 137% from 98% in the same period in the prior year.
Other operating expenses. Other operating expenses for the three months
ended March 31, 1998 were $450,000, an increase of $353,000 or 364% over the
same period in the prior year. This increase is primarily related to vendor
royalties and travel costs associated with the sale of the Avenir product. Other
operating expenses increased as a percentage of revenue to 96% as compared to
44% in the same period in the prior year.
Depreciation and amortization. Depreciation and amortization for the three
months ended March 31, 1998 was $15,000, an increase of $3,000 or 25% over the
same period in the prior year. The increase was primarily the result of the
amortization of intangible assets recorded as a result of the acquisition by
Medirisk in 1998. Depreciation and amortization decreased as a percentage of
revenue to 3% as compared to 6% in the same period in the prior year.
Acquired in-process research and development costs. In connection with the
acquisition of Healthdemographics by Medirisk in 1998, Medirisk acquired the
ongoing research and development activities of the entity. At the effective date
of the acquisition, Healthdemographics recorded a nonrecurring charge resulting
from expensing the acquired in-process research and development costs. This
charge was $5.3 million, or 1,124% of revenue for the three months ended March
31, 1998.
Interest income (expense), net. Net interest expense for the three months
ended March 31, 1998 was $2,000, compared to $10,000 for the same period in the
prior year.
Extraordinary item. In connection with the acquisition of
Healthdemographics by Medirisk in 1998, Healthdemographics incurred a one-time
nonrecurring, noncash charge of approximately $136,000 with respect to
accelerated amortization of discounts on certain notes payable.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Revenue in 1997 was $905,000, an increase of $494,000 or 120%
over 1996. The increase was primarily the result of the Healthdemographics'
release of its Avenir product in April of 1997.
Salaries, wages and benefits. Salaries, wages and benefits in 1997 were
$971,000, an increase of $714,000 or 278% over 1996. The increase was primarily
the result of an increase in the number of employees from five to 23 and an
increase of 78% in average salaries resulting from the additional personnel
supporting the Avenir product. Salaries, wages and benefits as a percentage of
revenue increased during 1997 to 107% from 63% in 1996.
Other operating expenses. Other operating expenses 1997 were $752,000, an
increase of $385,000 or 105% over 1996. This increase is primarily related to
increase in vendor royalties, travel costs, advertising and support costs
associated with the sale of the Avenir product. Other operating expenses
decreased as a percentage of revenue during 1997 to 83% as compared to 89% in
1996.
Depreciation and amortization. Depreciation and amortization in 1997 was
$18,000, an increase of $14,000 or 350% over 1996. The increase was primarily
the result of the depreciation associated with purchases of property, plant, and
equipment in 1997. Depreciation and amortization increased as a percentage of
revenue during 1997 to 2% as compared to 1% in 1996.
Interest income (expense), net. Net interest expense in 1997 was $26,000,
an increase of $18,000 over 1996. The increase was a result of the increase in
debt during 1997.
36
<PAGE> 40
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Company's Board of Directors has selected KPMG Peat Marwick LLP to
conduct the audit of the annual financial statements of the Company and its
consolidated subsidiaries for 1998. KPMG Peat Marwick LLP has no financial
interest in the Company and does not have any connection with the Company except
in its professional capacity as an independent auditor.
The Audit Committee approves all material nonaudit services to be provided
by KPMG Peat Marwick LLP and believes that these services have no effect on
audit independence. Representatives of KPMG Peat Marwick LLP will be present at
the Annual Meeting and will have an opportunity to make a statement if they so
desire and to respond to questions.
STOCKHOLDER PROPOSALS
FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders, including nominations for the Board of
Directors, intended to be presented to the annual meeting of stockholders to be
held in 1999 should be submitted by certified mail, return receipt requested,
and must be received by the Company at its principal executive offices in
Atlanta, Georgia on or before December 15, 1998, to be eligible for inclusion in
the Company's Proxy Statement and Proxy relating to that meeting. Any
stockholder proposal must be in writing and must set forth (i) a description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (ii) the name and address, as they
appear on the Company's books, of the stockholder submitting the proposal; (iii)
the class and number of shares that are owned by such stockholder; (iv) the
dates on which the stockholder acquired the shares; (v) documentary support for
any claim of beneficial ownership; (vi) any material interest of the stockholder
in the proposal; and (vii) any other information required by the rules and
regulations of the SEC.
OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNER REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, as well as persons who own more than 10% of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission and the Nasdaq National Market initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Executive officers, directors and greater than 10% stockholders
are required by the rules of the Securities and Exchange Commission to furnish
the Company with copies of all reports they file under Section 16(a). To the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations from its executive officers
and directors that no other reports were required, all Section 16(a) filing
requirements applicable to the Company's executive officers, directors and
greater than 10% beneficial owners were complied with by such persons during the
fiscal year ended December 31, 1997, except that: (i) Mr. Finn failed to file a
timely Form 4 Report with respect to his purchase of 1,500 shares of Common
Stock in January 1997; (ii) Mr. Goins failed to file timely Form 4 Reports with
respect to a purchase for the benefit of his minor son of 100 shares of Common
Stock in January 1997 and a purchase for the benefit of his minor daughter of
100 shares of Common Stock in January 1997; (iii) Dr. McClatchey failed to file
timely Form 4 Reports with respect to the following transactions: (a) a direct
purchase of 10,000 shares of Common Stock in January 1997, (b) a purchase in
January 1997 of 10,000 shares of Common Stock by a trust for the benefit of Dr.
McClatchey's wife, of which Dr. McClatchey was then a trustee, (c) two purchases
in November 1997 each of 2,000 shares of Common Stock by a trust for the benefit
of Dr. McClatchey's adult son, of which Dr. McClatchey is trustee, (d) a
purchase in November 1997 of 2,000 shares of Common Stock by a trust for the
benefit of Dr. McClatchey's minor daughter, of which Dr. McClatchey is trustee,
and (e) the termination in December 1997 of a trust for the benefit of Dr.
McClatchey's wife, of which Dr. McClatchey had been trustee, and the resulting
disposition of 10,000
37
<PAGE> 41
shares of Common Stock to Dr. McClatchey's wife; and (iv) Mr. Pinkas failed to
file timely a Form 4 Report with respect to his purchase of 5,000 shares of
Common Stock in January 1997.
EXPENSES OF SOLICITATION
The Company will bear all costs of soliciting proxies. In addition to the
use of the mails, proxies may be solicited by directors, officers or other
employees of the Company, personally, by telephone or by facsimile. the Company
does not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers, custodians or other persons holding stock in their names or
in the names of nominees for their expenses in sending proxy materials to
principals and obtaining their instructions.
MISCELLANEOUS
Management is not aware of any matters to be brought before the Annual
Meeting other than as described in this Proxy Statement. Should any other
matters properly come before the Annual Meeting, the persons designated by
proxies will vote in accordance with their best judgment on such matters.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
ACCOMPANYING THIS PROXY STATEMENT IS A COPY OF THE COMPANY'S ANNUAL REPORT.
STOCKHOLDERS WHO WOULD LIKE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR FISCAL 1997 (INCLUDING
THE FINANCIAL STATEMENTS AND SCHEDULES THERETO) OR ANY EXHIBIT OR SCHEDULE
THERETO SHOULD DIRECT THEIR REQUESTS IN WRITING TO: MEDIRISK, INC., TWO PIEDMONT
CENTER, SUITE 400, 3565 PIEDMONT ROAD, N.E., ATLANTA, GEORGIA 30305, ATTENTION:
KENNETH M. GOINS, JR., EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER.
By Order of the Board of Directors
Barry W. Burt
Secretary
38
<PAGE> 42
EXHIBIT A
1998 MEDIRISK, INC. EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
BACKGROUND
1.1 ESTABLISHMENT OF THE PLAN. Medirisk, Inc. (the "Corporation") hereby
establishes a stock purchase plan, effective 1 July 1998, to be known as the
"Medirisk, Inc. 1998 Employee Stock Purchase Plan" (the "Plan"), as set forth in
this document. The Plan is intended to be a qualified employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended, and the regulations and rulings thereunder.
1.2 APPLICABILITY OF THE PLAN. The provisions of this Plan are applicable
only to certain individuals who, on or after 1 July 1998, are employees of the
Corporation and its subsidiaries participating in the Plan.
1.3 PURPOSE. The purpose of the Plan is to enhance the proprietary
interest among the employees of the Corporation and its participating
subsidiaries through ownership of Common Stock of the Corporation.
ARTICLE II
DEFINITIONS
Whenever capitalized in this document, the following terms shall have the
respective meanings set forth below.
2.1 ADMINISTRATOR. "Administrator" shall mean the person or persons (who
may be officers or employees of the Corporation) selected by the Committee to
operate the Plan, perform day-to-day administration of the Plan, and maintain
records of the Plan.
2.2 BOARD. "Board" shall mean the Board of Directors of the Corporation.
2.3 CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and the regulations thereunder.
2.4 COMMITTEE. "Committee" shall mean a committee which consists of
members of the Board and which has been designated by the Board to have the
general responsibility for the administration of the Plan. Unless otherwise
designated by the Board, the Compensation Committee of the Board of Directors of
the Corporation shall serve as the Committee administering the Plan. Subject to
the express provisions of the Plan, the Committee shall have plenary authority
in its sole and absolute discretion to interpret and construe any and all
provisions of the Plan, to adopt rules and regulations for administering the
Plan, and to make all other determinations necessary or advisable for
administering the Plan. The Committee's determinations on the foregoing matters
shall be conclusive and binding upon all persons.
2.5 COMMON STOCK. "Common Stock" shall mean the Common Stock, $0.001 par
value per share, of the Corporation.
2.6 COMPENSATION. "Compensation" shall mean, for any Participant, for any
period, the Participant's total compensation, as required to be reported in Form
W-2, for the respective period, subject to appropriate adjustments that would
exclude items such as noncash compensation and reimbursement of moving, travel,
trade or business expenses.
2.7 CORPORATION. "Corporation" shall mean Medirisk, Inc., a Delaware
corporation.
2.8 DIRECT REGISTRATION SYSTEM. "Direct Registration System" shall mean a
direct registration system approved by the Securities and Exchange Commission
and by the National Association of Securities Dealers, Inc., or any securities
exchange on which the Common Stock is then listed, whereby shares of Common
Stock may be registered in the holder's name in book-entry form on the books of
the Corporation.
A-1
<PAGE> 43
2.9 EFFECTIVE DATE. "Effective Date" shall mean 1 July 1998.
2.10 EMPLOYEE. "Employee" shall mean an employee of an Employer.
2.11 EMPLOYER. "Employer" shall mean the Corporation and any Subsidiary
designated by the Committee as an employer participating in the Plan.
2.12 FAIR MARKET VALUE. "Fair Market Value" of a share of Common Stock, as
of any applicable date, shall mean (i) if the Common Stock is listed on a
securities exchange or is traded over the Nasdaq National Market, the closing
sales price on such exchange or over such system on such date or, in the absence
of reported sales on such date, the closing sales price on the immediately
preceding date on which sales were reported, or (ii) if the Common Stock is not
listed on a securities exchange or traded over the Nasdaq National Market, the
mean between the bid and offered prices as quoted by Nasdaq for such date,
provided that if it is determined that the fair market value is not properly
reflected by such Nasdaq quotations, Fair Market Value will be determined by
such other method as the Committee determines in good faith to be reasonable.
2.13 OFFERING DATE. "Offering Date" shall mean the first day of each
Offering Period.
2.14 OFFERING PERIOD. "Offering Period" shall mean the three-month periods
beginning the first day of January, April, July and October, respectively, of
each year during which offers to purchase Common Stock are outstanding under the
Plan; provided, however, that the first offering period shall be the three-month
period from 1 October 1998 to 31 December 1998. No payroll deductions shall be
taken until the effective date of a Registration Statement under the Securities
Act of 1933, as amended, covering the shares to be issued under the Plan.
2.15 PARTICIPANT. "Participant" shall mean any Employee who has elected to
participate in the Plan under Section 3.3 and who has an account balance under
the Plan.
2.16 PLAN. "Plan" shall mean this Medirisk, Inc. 1998 Employee Stock
Purchase Plan, as amended and in effect from time to time.
2.17 PURCHASE DATE. "Purchase Date" shall mean the last day of each
Offering Period.
2.18 PURCHASE PRICE. "Purchase Price" shall mean the purchase price of
Common Stock determined under Section 5.1.
2.19 PURCHASE RIGHT. "Purchase Right" shall mean a right to purchase
Common Stock under the Plan.
2.20 REQUEST FORM. "Request Form" shall mean an Employee's authorization
either in writing on a form approved by the Administrator or through electronic
communication approved by the Administrator which specifies the Employee's
payroll deduction in accordance with Section 6.2, and contains such other terms
and provisions as may be required by the Administrator.
2.21 SUBSIDIARY. "Subsidiary" shall mean any present or future corporation
which is a "subsidiary corporation" of the Corporation as defined in Code
Section 424.
Except when otherwise indicated by the context, the definition of any term
herein in the singular may also include the plural.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Each Employee who is an Employee regularly scheduled to
work at least twenty (20) hours each week and at least five (5) months each
calendar year shall be eligible to participate in the Plan as of the later of:
(a) the Offering Date immediately following the Employee's last date
of hire by an Employer; or
(b) the Effective Date.
A-2
<PAGE> 44
Notwithstanding the foregoing, no Employee shall be granted a Purchase Right for
an Offering Period if, immediately after the grant, the Employee would own
stock, and/or hold outstanding options to purchase stock, possessing five (5%)
percent or more of the total combined voting power or value of all classes of
stock of the Corporation or any Subsidiary. For purposes of this Section, the
attribution rules of Code Section 424(d) shall apply in determining stock
ownership of any Employee.
3.2 LEAVE OF ABSENCE. For purposes of Section 3.1, an individual on a
leave of absence from an Employer shall be deemed to be an Employee for the
first one hundred eighty (180) days of such leave. Such individual's employment
with the Employer shall be deemed to terminate at the close of business on the
180th day of the leave, unless the individual has returned to regular employment
with an Employer before the close of business on such 180th day. Termination of
any individual's leave of absence by an Employer, other than on account of a
return to employment with an Employer, shall be deemed to terminate an
individual's employment with the Employer for all purposes of the Plan.
3.3 INITIAL PARTICIPATION. An Employee eligible to participate in the Plan
under Section 3.1 may submit a Request Form to the Administrator for an Offering
Period. The Request Form shall authorize a regular payroll deduction from the
Employee's Compensation for the Offering Period, subject to the limits and
procedures described in Section 6.1. A Participant's Request Form authorizing a
regular payroll deduction shall remain effective from Offering Period to
Offering Period until amended or canceled under Section 6.3.
ARTICLE IV
STOCK AVAILABLE
4.1 IN GENERAL. Subject to the adjustments in Sections 4.2 and 4.3, an
aggregate of two hundred thousand (200,000) shares of Common Stock shall be
available for purchase by Participants pursuant to the provisions of the Plan.
These shares may be authorized and unissued shares or may be shares issued and
subsequently acquired by the Corporation. If a Purchase Right under the Plan
expires or terminates for any reason without having been exercised in whole or
part, the shares subject to such Purchase Right that are not purchased shall
again be available for subsequent Purchase Right grants under the Plan. If the
total number of shares of Common Stock for which Purchase Rights are exercised
on any Purchase Date exceeds the maximum number of shares then available under
the Plan, the Committee shall make a pro rata allocation of the shares available
in as nearly a uniform manner as shall be practicable and as it shall determine
to be equitable, and the balance of the cash credited to Participants' accounts
shall be distributed to the Participants as soon as practicable.
4.2 ADJUSTMENT IN EVENT OF CHANGES IN CAPITALIZATION. In the event of a
stock dividend, stock split or combination of shares, recapitalization or other
change in the Corporation's capitalization or other distribution with respect to
holders of the Corporation's Common Stock other than normal cash dividends, an
automatic adjustment shall be made in the number and kind of shares as to which
outstanding Purchase Rights or portions thereof then unexercised shall be
exercisable and in the available shares set forth in Section 4.1, so that the
proportionate interest of the Participants shall be maintained as before the
occurrence of such event. This adjustment in outstanding Purchase Rights shall
be made without change in the total price applicable to the unexercised portion
of such Purchase Rights and with a corresponding adjustment in the Purchase
Price per share; provided, however, that in no event shall any adjustment be
made that would cause any Purchase Right to fail to qualify as an option
pursuant to an employee stock purchase plan within the meaning of Section 423 of
the Code.
4.3 DISSOLUTION, LIQUIDATION, OR MERGER. Upon the dissolution or
liquidation of the Corporation, or upon a reorganization, merger, or
consolidation of the Corporation with one or more corporations in which the
Corporation is not the surviving corporation, or upon a sale of substantially
all of the property or stock of the Corporation to another corporation, the
holder of each Purchase Right then outstanding under the Plan shall be entitled
to receive at the next Purchase Date upon the exercise of such Purchase Right
for each share as to which such Purchase Right shall be exercised, as nearly as
reasonably may be determined, the cash, securities, or property which a holder
of one (1) share of the Common Stock was entitled to receive upon and at the
time
A-3
<PAGE> 45
of such transaction. The Board shall take such steps in connection with these
transactions as the Board deems necessary or appropriate to assure that the
provisions of this Section shall thereafter be applicable, as nearly as
reasonably may be determined, in relation to the cash, securities, or property
which the holder of the Purchase Right may thereafter be entitled to receive. In
lieu of the foregoing, the Committee may terminate the Plan in accordance with
Section 8.2.
ARTICLE V
PURCHASE RIGHT PROVISIONS
5.1 PURCHASE PRICE. The Purchase Price of a share of Common Stock
purchased for a Participant pursuant to each exercise of a Purchase Right shall
be the lesser of:
(a) Eighty-five (85%) percent of the Fair Market Value of a share of
Common Stock on the Offering Date (or if such date is not a regular
business day, then on the first business day following the Offering Date);
or
(b) Eighty-five (85%) percent of the Fair Market Value of a share of
Common Stock on the Purchase Date (or if such date is not a regular
business day, then on the first business day preceding the Purchase Date).
5.2 CALENDAR YEAR $25,000 LIMIT. Notwithstanding anything else contained
herein, no Employee may be granted a Purchase Right which permits such Employee
rights to purchase Common Stock under this Plan and any other qualified employee
stock purchase plan (within the meaning of Code Section 423) of the Corporation
and its Subsidiaries to accrue at a rate which exceeds $25,000 of the Fair
Market Value of such Common Stock for each calendar year in which a Purchase
Right is outstanding at any time. For purposes of this Section, Fair Market
Value shall be determined as of the Offering Date.
5.3 LIMITS FOR FIRST FOUR OFFERING PERIODS. Notwithstanding anything else
contained herein, the maximum number of shares of Common Stock that a
participant shall be eligible to purchase with respect to each of the first four
(4) Offering Periods under the Plan is 1,250 shares per Offering Period.
ARTICLE VI
PURCHASING COMMON STOCK
6.1 PARTICIPANT'S ACCOUNT. The Administrator shall establish a book
account in the name of each Participant. As discussed in Section 6.2 below, a
Participant's payroll deductions shall be credited to the Participant's account,
without interest, until such cash is withdrawn, distributed, or used to purchase
Common Stock as described below.
During such time, if any, as the Corporation participates in a Direct
Registration System, shares of Common Stock acquired upon exercise of a Purchase
Right shall be directly registered in the name of the Participant. If the
Corporation does not participate in a Direct Registration System, then until
distribution is requested by a Participant pursuant to Article VII, stock
certificates evidencing the Participant's shares of Common Stock acquired upon
exercise of a Purchase Right shall be held by the Administrator as the nominee
for the Participant. These shares shall be credited to the Participant's
account. Certificates shall be held by the Administrator as nominee for
Participants solely as a matter of convenience. A Participant shall have all
ownership rights as to the shares credited to his or her account, and neither
the Administrator nor the Corporation shall have any ownership or other rights
of any kind with respect to any such certificates or the shares represented
thereby.
All cash received or held by the Corporation under the Plan may be used by
the Corporation for any corporate purpose. The Corporation shall not be
obligated to segregate any assets held under the Plan.
6.2 PAYROLL DEDUCTIONS; DIVIDENDS. (a) Payroll Deductions. By submitting
a Request Form at any time during an Offering Period (or in the case of the
first Offering Period, on or after 1 August 1998 for payroll
A-4
<PAGE> 46
deductions beginning on or after 1 October 1998) in accordance with rules
adopted by the Committee, an Employee eligible to participate in the Plan under
Section 3.1 may authorize a payroll deduction to purchase Common Stock under the
Plan for the Offering Period. The payroll deduction shall be effective on the
first pay period commencing at least thirty (30) days after receipt of the
Request Form by the Administrator. The payroll deduction shall be in any whole
percentage up to a maximum of ten percent (10%) of such Employee's Compensation
payable each pay period, and at any other time an element of Compensation is
payable. A Participant's payroll deduction shall not be less than one (1%)
percent of such Employee's Compensation payable each payroll period.
(b) Dividends. Dividends paid on Common Stock which are credited to a
Participant's account as of the dividend payment date shall be paid to the
Participant as soon as practicable.
6.3 DEDUCTION CHANGES AND DISCONTINUANCE. A Participant may increase,
decrease or completely discontinue his or her payroll deductions by filing a new
Request Form with the Administrator. This increase, decrease or discontinuance
shall be effective on the first pay period commencing at least thirty (30) days
after receipt of the Request Form by the Administrator. A Participant who
discontinues his or her payroll deductions may not resume participation in the
Plan until the following Offering Period.
Any amount held in the Participant's account after the effective date of
the discontinuance of his or her payroll deductions will either be refunded or
used to purchase Common Stock in accordance with Section 7.1.
6.4 LEAVE OF ABSENCE; TRANSFER TO INELIGIBLE STATUS. If a Participant
either begins a leave of absence, is transferred to employment with a Subsidiary
not participating in the Plan, or remains employed with an Employer but is no
longer eligible to participate in the Plan, the Participant shall cease to be
eligible for payroll deductions to his or her account pursuant to Section 6.2.
The cash standing to the credit of the Participant's account shall become
subject to the provisions of Section 7.1.
If the Participant returns from the leave of absence before being deemed to
have ceased employment with the Employer under Section 3.2, or again becomes
eligible to participate in the Plan, the Request Form, if any, in effect
immediately before the leave of absence or disqualifying change in employment
status shall be deemed void and the Participant must again complete a new
Request Form to resume participation in the Plan.
6.5 AUTOMATIC EXERCISE. Unless the cash credited to a Participant's
account is withdrawn or distributed as provided in Article VII, his or her
Purchase Right shall be deemed to have been exercised automatically on each
Purchase Date, for the purchase of the number of full shares of Common Stock
which the cash credited to his or her account at that time will purchase at the
Purchase Price. The cash balance, if any, remaining in the Participant's account
at the end of an Offering Period shall be carried over to the next Offering
Period, without interest. The amount of cash that may be used to purchase shares
of Common Stock may not exceed the Compensation restrictions set forth in
Section 6.2.
If the cash credited to a Participant's account on the Purchase Date
exceeds the applicable Compensation restrictions of Section 6.2 or exceeds the
amount necessary to purchase the maximum number of shares of Common Stock
available during the Offering Period, such excess cash shall be refunded to the
Participant. The excess cash may not be used to purchase shares of Common Stock
under the Plan nor retained in the Participant's account for a future Offering
Period.
Each Participant shall receive a statement on at least an annual basis
indicating the number of shares credited to his or her account under the Plan.
6.6 LISTING, REGISTRATION, AND QUALIFICATION OF SHARES. The granting of
Purchase Rights for, and the sale and delivery of, Common Stock under the Plan
shall be subject to the effecting by the Corporation of any listing,
registration, or qualification of the shares subject to that Purchase Right upon
any securities exchange or under any federal or state law, or the obtaining of
the consent or approval of any governmental regulatory body deemed necessary or
desirable for the issuance or purchase of the shares covered.
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ARTICLE VII
WITHDRAWALS; DISTRIBUTIONS
7.1 DISCONTINUANCE OF DEDUCTIONS; LEAVE OF ABSENCE; TRANSFER TO INELIGIBLE
STATUS. In the event of a Participant's complete discontinuance of payroll
deductions under Section 6.3 or a Participant's leave of absence or transfer to
an ineligible status under Section 6.4, the cash balance then standing to the
credit of the Participant's account shall be:
(a) returned to the Participant, in cash, without interest, as soon as
practicable, upon the Participant's written request received by the
Administrator at least thirty (30) days before the next Purchase Date; or
(b) held under the Plan and used to purchase Common Stock for the
Participant under the automatic exercise provisions of Section 6.5.
7.2 IN-SERVICE WITHDRAWALS. During such time, if any, as the Corporation
participates in a Direct Registration System, shares of Common Stock acquired
upon exercise of a Purchase Right shall be directly registered in the name of
the Participant and the Participant may withdraw certificates in accordance with
the applicable terms and conditions of such Direct Registration System. If the
Corporation does not participate in a Direct Registration System, (i) a
Participant may, while an Employee of the Corporation or any Subsidiary,
withdraw certificates for some or all of the shares of Common Stock credited to
his or her account at any time, upon thirty (30) days' written notice to the
Administrator, and (ii) each Participant shall be permitted only one withdrawal
under this Section each calendar quarter. If a Participant requests a
distribution of only a portion of the shares of Common Stock credited to his or
her account, the Administrator will distribute the oldest securities held in the
Participant's Account first, using a first in-first out methodology.
7.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH. If a
Participant terminates employment with the Corporation and the Subsidiaries for
reasons other than death, the cash balance in the Participant's account shall be
returned to the Participant in cash, without interest, as soon as practicable.
Certificates for the shares of Common Stock credited to his or her account shall
be distributed to the Participant as soon as practicable, unless the Corporation
then participates in a Direct Registration System, in which case, the
Participant shall be entitled to evidence of ownership of such shares in such
form as the terms and conditions of such Direct Registration System permit.
7.4 DEATH. In the event a Participant dies, the cash balance in his or her
account shall be distributed to the Participant's beneficiary, in cash, without
interest, as soon as practicable. Certificates for the shares of Common Stock
credited to the Participant's account shall be distributed to the beneficiary as
soon as practicable, unless the Corporation then participates in a Direct
Registration System, in which case, the beneficiary shall be entitled to
evidence of ownership of such shares in such form as the terms and conditions of
such Direct Registration System permit.
In the event of the Participant's death, the Participant's beneficiary
shall be the person or entity identified on the Participant's employee data
record maintained by the Corporation or on such other form as determined by the
Administrator. This designation of beneficiary may be changed by the Participant
in accordance with procedures established by the Administrator.
7.5 REGISTRATION. Whether represented in certificate form or by direct
registration pursuant to a Direct Registration System, shares of Common Stock
acquired upon exercise of a Purchase Right shall be directly registered in the
name of the Participant or, if the Participant so indicates on the Request Form,
(a) in the Participant's name jointly with a member of the Participant's family,
with the right of survivorship, (b) in the name of a custodian for the
Participant (in the event the Participant is under a legal disability to have
stock issued in the Participant's name), or (c) in a manner giving effect to the
status of such shares as community property. No other names may be included in
the Common Stock registration. The Corporation shall pay all issue or transfer
taxes with respect to the issuance or transfer of shares of such Common Stock,
as well as all fees and expenses necessarily incurred by the Corporation in
connection with such issuance or transfer.
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ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 AMENDMENT. The Committee shall have the right to amend or modify the
Plan, in full or in part, at any time and from time to time; provided, however,
that no amendment or modification shall:
(a) affect any right or obligation with respect to any grant
previously made, unless required by law, or
(b) unless previously approved by the stockholders of the Corporation,
where such approval is necessary to satisfy federal securities laws, the
Code, or rules of any stock exchange on which the Corporation's Common
Stock is listed:
(1) in any manner materially affect the eligibility requirements
set forth in Sections 3.1 and 3.2, or change the definition of Employer
as set forth in Section 2.11,
(2) increase the number of shares of Common Stock subject to any
options issued to Participants (except as provided in Sections 4.2 and
4.3), or
(3) materially increase the benefits to Participants under the
Plan.
8.2 TERMINATION. The Committee may terminate the Plan at any time in its
sole and absolute discretion. The Plan shall be terminated by the Committee if
at any time the number of shares of Common Stock authorized for purposes of the
Plan is not sufficient to meet all purchase requirements, except as specified in
Section 4.1.
Upon termination of the Plan, the Administrator shall give notice thereof
to Participants and shall terminate all payroll deductions. Cash balances then
credited to Participants' accounts shall be distributed as soon as practicable,
without interest.
ARTICLE IX
MISCELLANEOUS
9.1 STOCKHOLDER APPROVAL. The Plan shall be approved and ratified by the
stockholders of the Corporation, not later than twelve (12) months after
adoption of the Plan by the Board of Directors of the Corporation, pursuant to
Treasury regulation Section 1.423-2(c). If for any reason such approval is not
given by such date, the Plan shall be null and void, all payroll deductions to
the Plan shall cease, the cash balances and Common Stock credited to
Participants' accounts shall be promptly distributed to them, and any Common
Stock certificates issued and delivered to Participants prior to such date shall
remain the property of the Participants.
9.2 EMPLOYMENT RIGHTS. Neither the establishment of the Plan, nor the
grant of any Purchase Rights thereunder, nor the exercise thereof shall be
deemed to give to any Employee the right to be retained in the employ of the
Corporation or any Subsidiary or to interfere with the right of the Corporation
or any Subsidiary to discharge any Employee or otherwise modify the employment
relationship at any time.
9.3 TAX WITHHOLDING. The Administrator may make appropriate provisions for
withholding of federal, state, and local income taxes, and any other taxes, from
a Participant's Compensation to the extent the Administrator deems such
withholding to be legally required.
9.4 RIGHTS NOT TRANSFERABLE. Rights and Purchase Rights granted under this
Plan are not transferable by the Participant other than by will or by the laws
of descent and distribution and are exercisable only by the Participant during
his or her lifetime.
9.5 NO REPURCHASE OF STOCK BY CORPORATION. The Corporation is under no
obligation to repurchase from any Participant any shares of Common Stock
acquired under the Plan.
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9.6 GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of Delaware except to the extent such laws
are preempted by the laws of the United States.
9.7 STOCKHOLDER APPROVAL; REGISTRATION. The Plan was adopted by the Board
of Directors of the Corporation on 11 March 1997 to be effective as of 1 July
1998, provided that no Offering Period may begin until a Registration Statement
under the Securities Act of 1933, as amended, covering the shares to be issued
under the Plan, has become effective. The Plan is subject to approval by the
stockholders of the Corporation within twelve (12) months of approval by the
Board of Directors.
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EXHIBIT B
1998 MEDIRISK, INC.
LONG-TERM INCENTIVE PLAN
Unless otherwise herein defined, all proper terms as used herein shall have
the meanings given thereto in Article III hereof.
ARTICLE I
PURPOSE
The purpose of this Medirisk, Inc. 1998 Long-Term Incentive Plan (the
"Plan") is to promote the success, and enhance the value, of Medirisk, Inc. (the
"Corporation"), by linking the personal interests of its employees, officers and
directors to those of Corporation stockholders and by providing its employees,
officers and directors with an incentive for outstanding performance. The Plan
is further intended to provide flexibility to the Corporation in its ability to
motivate, attract, and retain the services of employees, officers and directors
upon whose judgment, interest, and special effort the successful conduct of the
Corporation's operation is largely dependent. Accordingly, the Plan permits the
grant of incentive awards from time to time to selected employees, officers and
directors
ARTICLE II
EFFECTIVE DATE
The Plan shall be effective as of the date upon which it shall be approved
by the Board. However, the Plan shall be submitted to the stockholders of the
Corporation for approval within twelve (12) months of the Board's approval
thereof. No Incentive Stock Options granted under the Plan may be exercised
prior to approval of the Plan by the stockholders, and if the stockholders fail
to approve the Plan within twelve months of the Board's approval hereof, any
Incentive Stock Options previously granted hereunder shall be automatically
converted to Nonqualified Stock Options without any further act. In the
discretion of the Committee, Awards may be made to Covered Employees which are
intended to constitute qualified performance-based compensation under Code
Section 162(m). Any such Awards shall be contingent upon the stockholders having
approved the Plan.
ARTICLE III
DEFINITIONS
When a word or phrase appears in this Plan with the initial letter
capitalized, and the word or phrase does not commence a sentence, the word or
phrase shall generally be given the meaning ascribed to it in this Article or in
Article I unless a clearly different meaning is required by the context. The
following words and phrases shall have the following meanings:
(a) "Award" means any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share Award, Dividend Equivalent Award, or Other
Stock-Based Award, or any other right or interest relating to Stock or
cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Change-in-Control" means and includes each of the following:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a "Person") of
beneficial ownership (within the
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meaning of Rule 13d-3 promulgated under the 1934 Act) of fifty (50%)
percent or more of the combined voting power of the then-outstanding
voting securities of the Corporation entitled to vote generally in the
election of directors (the "Outstanding Corporation Voting Securities");
provided, however, that for purposes of this subsection (1), the
following acquisitions shall not constitute a Change-in-Control: (i) any
acquisition by a Person who is on the Effective Date the beneficial
owner of twenty-five (25%) percent or more of the Outstanding
Corporation Voting Securities, (ii) any acquisition directly from the
Corporation, (iii) any acquisition by the Corporation, (iv) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any corporation controlled by the
Corporation, or (v) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of
subsection (3) of this definition; or
(2) Individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination
for election by the Corporation's shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(3) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of
the Corporation (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners of the
Outstanding Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than
50% of the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of
the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Corporation or all or substantially all of the Corporation's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior
to such Business Combination of the Outstanding Corporation Voting
Securities, and (ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related
trust) of the Corporation or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 25% or
more of the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" means the committee of the Board described in Article
IV.
(g) "Corporation" means Medirisk, Inc., a Delaware corporation.
(h) "Covered Employee" means a covered employee as defined in Code
Section 162(m)(3), provided that no employee shall be a Covered Employee
until the deduction limitations of Code Section 162(m) are applicable to
the Corporation and any reliance period under Code Section 162(m) has
expired, as described in Section 16.14 hereof.
(i) "Disability" shall mean any illness or other physical or mental
condition of a Participant that renders the Participant incapable of
performing his or her customary and usual duties for the Corporation, or
any medically determinable illness or other physical or mental condition
resulting from a bodily injury,
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disease or mental disorder which, in the judgment of the Committee, is
permanent and continuous in nature. The Committee may require such medical
or other evidence as it deems necessary to judge the nature and permanency
of the Participant's condition.
(j) "Dividend Equivalent" means a right granted to a Participant under
Article XI.
(k) "Effective Date" has the meaning assigned such term in Article II.
(l) "Fair Market Value," on any date, means (i) if the Stock is listed
on a securities exchange or is traded over the Nasdaq National Market, the
closing sales price on such exchange or over such system on such date or,
in the absence of reported sales on such date, the closing sales price on
the immediately preceding date on which sales were reported, or (ii) if the
Stock is not listed on a securities exchange or traded over the Nasdaq
National Market, the mean between the bid and offered prices as quoted by
Nasdaq for such date, provided that if it is determined that the fair
market value is not properly reflected by such Nasdaq quotations, Fair
Market Value will be determined by such other method as the Committee
determines in good faith to be reasonable.
(m) "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code or any successor provision
thereto.
(n) "Nonqualified Stock Option" means an Option that is not an
Incentive Stock Option.
(o) "Option" means a right granted to a Participant under Article VII
of the Plan to purchase Stock at a specified price during specified time
periods. An Option may be either an Incentive Stock Option or a
Nonqualified Stock Option.
(p) "Other Stock-Based Award" means a right, granted to a Participant
under Article XII, that relates to or is valued by reference to Stock or
other Awards relating to Stock.
(q) "Parent" means a corporation which owns or beneficially owns a
majority of the outstanding voting stock or voting power of the
Corporation. For Incentive Stock Options, the term shall have the same
meaning as set forth in Code Section 424(e).
(r) "Participant" means a person who, as an employee, officer or
director of the Corporation or any Parent or Subsidiary, has been granted
an Award under the Plan.
(s) "Performance Share" means a right granted to a Participant under
Article IX, to receive cash, Stock, or other Awards, the payment of which
is contingent upon achieving certain performance goals established by the
Committee.
(t) "Plan" means this Medirisk, Inc. 1998 Long-Term Incentive Plan, as
amended from time to time.
(u) "Restricted Stock Award" means Stock granted to a Participant
under Article X that is subject to certain restrictions and to risk of
forfeiture.
(v) "Retirement" means a Participant's termination of employment with
the Corporation, Parent or Subsidiary after attaining any normal or early
retirement age specified in any pension, profit sharing or other retirement
program sponsored by the Corporation, or, in the event of the
inapplicability thereof with respect to the person in question, as
determined by the Committee in its reasonable judgment.
(w) "Stock" means the $0.001 par value common stock of the Corporation
and such other securities of the Corporation as may be substituted for
Stock pursuant to Article XIV.
(x) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article VIII to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of
exercise of the SAR over the grant price of the SAR, all as determined
pursuant to Article VIII.
(y) "Subsidiary" means any corporation, limited liability company,
partnership or other entity of which a majority of the outstanding voting
stock or voting power is beneficially owned directly or
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indirectly by the Corporation. For Incentive Stock Options, the term shall
have the meaning set forth in Code Section 424(f).
(z) "1933 Act" means the Securities Act of 1933, as amended from time
to time.
(aa) "1934 Act" means the Securities Exchange Act of 1934, as amended
from time to time.
ARTICLE IV
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board or, at the discretion of the Board from time to time, by
the full Board or another committee of the Board so created and/or designated by
the Board as having such authority. The Committee shall consist of two or more
members of the Board who are (i) "outside directors" as that term is used in
Section 162(m) of the Code and the regulations promulgated thereunder, to the
extent that Section 162(m) is applicable to the Corporation as described in
Section 16.14 hereof, and (ii) "nonemployee directors" as such term is defined
in Rule 16b-3 promulgated under Section 16 of the 1934 Act or any successor
provision. During any time that the full Board is acting as administrator of the
Plan, it shall have all the powers of the Committee hereunder, and any reference
herein to the Committee (other than in this Section 4.1) shall include the
Board.
4.2 ACTION BY THE COMMITTEE. For purposes of administering the Plan, the
following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Corporation or
any Parent or Subsidiary, the Corporation's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Corporation to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of
shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan, including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule
for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on
such considerations as the Committee in its sole discretion determines;
(e) Accelerate the vesting or lapse of restrictions of any outstanding
Award, based in each case on such considerations as the Committee in its
sole discretion determines;
(f) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(g) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(h) Decide all other matters that must be determined in connection
with an Award;
(i) Establish, adopt or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan;
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(j) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan; and
(k) Amend the Plan or any Award Agreement as provided herein.
4.4 DECISIONS BINDING. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE V
SHARES SUBJECT TO THE PLAN
5.1 NUMBER OF SHARES. Subject to adjustment as provided in Article XIV,
the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Share
Award) shall be five hundred thousand (500,000), of which not more than twenty
(20%) percent may be granted as Restricted Stock Awards.
5.2 LAPSED AWARDS. To the extent that an Award is canceled, terminates,
expires or lapses for any reason, any shares of Stock subject to the Award will
again be available for the grant of an Award under the Plan and shares subject
to SARs or other Awards settled in cash will be available for the grant of an
Award under the Plan.
5.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4 LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to the
contrary, the maximum number of shares of Stock with respect to one or more
Options and/or SARs that may be granted during any one calendar year under the
Plan to any one Covered Employee shall be on e hundred thousand (100,000). The
maximum fair market value of any Awards (other than Options and SARs) that may
be received by a Covered Employee (less any consideration paid by the
Participant for such Award) during any one calendar year under the Plan shall be
One Million and No/100 ($1,000,000.00) Dollars.
ARTICLE VI
ELIGIBILITY
Awards may be granted only to individuals who are employees, officers or
directors of the Corporation or a Parent or Subsidiary.
ARTICLE VII
STOCK OPTIONS
7.1 GENERAL. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock under an
Option shall be determined by the Committee.
(b) Time and Conditions of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in part.
The Committee also shall determine the performance or other conditions, if
any, that must be satisfied before all or part of an Option may be
exercised. The Committee may waive any exercise provisions at any time in
whole or in part based upon factors as the Committee may determine in its
sole discretion so that the Option becomes exercisable at an earlier date.
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(c) Payment. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, shares of Stock, or other property (including
"cashless exercise" arrangements), and the methods by which shares of Stock
shall be delivered or deemed to be delivered to Participants; provided,
however, that if shares of Stock are used to pay the exercise price of an
Option, such shares must have been held by the Participant for at least six
(6) months. Without limiting the power and discretion conferred on the
Committee pursuant to the preceding sentence, the Committee may, in the
exercise of its discretion, but need not, allow a Participant to pay the
Option price by directing the Corporation to withhold from the shares of
Stock that would otherwise be issued upon exercise of the Option that
number of shares having a Fair Market Value on the exercise date equal to
the Option price, all as determined pursuant to rules and procedures
established by the Committee.
(d) Evidence of Grant. All Options shall be evidenced by a written
Award Agreement between the Corporation and the Participant. The Award
Agreement shall include such provisions, not inconsistent with the Plan, as
may be specified by the Committee.
7.2 INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) Exercise Price. The exercise price per share of Stock shall be
set by the Committee, provided that the exercise price for any Incentive
Stock Option shall not be less than the Fair Market Value as of the date of
the grant.
(b) Exercise. In no event may any Incentive Stock Option be
exercisable for more than ten (10) years from the date of its grant.
(c) Lapse of Option. An Incentive Stock Option shall lapse under the
earliest of the following circumstances; provided, however, that the
Committee may, prior to the lapse of the Incentive Stock Option under the
circumstances described in paragraphs (3), (4) and (5) below, provide in
writing that the Option will extend until a later date, but if Option is
exercised after the dates specified in paragraphs (3), (4) and (5) below,
it will automatically become a Nonqualified Stock Option:
(1) The Incentive Stock Option shall lapse as of the option
expiration date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten (10) years after it
is granted, unless an earlier time is set in the Award Agreement.
(3) If the Participant terminates employment for any reason other
than as provided in paragraph (4) or (5) below, the Incentive Stock
Option shall lapse, unless it is previously exercised, three months
after the Participant's termination of employment; provided, however,
that if the Participant's employment is terminated by the Corporation
for cause or by the Participant without the consent of the Corporation,
the Incentive Stock Option shall (to the extent not previously
exercised) lapse immediately.
(4) If the Participant terminates employment by reason of his
Disability, the Incentive Stock Option shall lapse, unless it is
previously exercised, one year after the Participant's termination of
employment.
(5) If the Participant dies while employed, or during the
three-month period described in paragraph (3)or during the one-year
period described in paragraph (4) and before the Option otherwise
lapses, the Option shall lapse one (1) year after the Participant's
death. Upon the Participant's death, any exercisable Incentive Stock
Options may be exercised by the Participant's beneficiary, determined in
accordance with Section 13.6.
Unless the exercisability of the Incentive Stock Option is accelerated as
provided in Article XIII, if a Participant exercises an Option after termination
of employment, the Option may be exercised only with respect to the shares that
were otherwise vested on the Participant's termination of employment.
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(d) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock with respect
to which Incentive Stock Options are first exercisable by a Participant in any
calendar year may not exceed One Hundred Thousand and No/100 ($100,000.00)
Dollars.
(e) Ten Percent Owners. No Incentive Stock Option shall be granted to any
individual who, at the date of grant, owns stock possessing more than ten (10%)
percent of the total combined voting power of all classes of stock of the
Corporation or any Parent or Subsidiary unless the exercise price per share of
such Option is at least one hundred ten (110%) percent of the Fair Market Value
per share of Stock at the date of grant and the Option expires no later than
five (5) years after the date of grant.
(f) Expiration of Incentive Stock Options. No Award of an Incentive Stock
Option may be made pursuant to the Plan after the day immediately prior to the
tenth (10th) anniversary of the Effective Date.
(g) Right to Exercise. During a Participant's lifetime, an Incentive Stock
Option may be exercised only by the Participant or, in the case of the
Participant's Disability, by the Participant's guardian or legal representative.
(h) Directors. The Committee may not grant an Incentive Stock Option to a
nonemployee director. The Committee may grant an Incentive Stock Option to a
director who is also an employee of the Corporation or Parent or Subsidiary but
only in that individual's position as an employee and not as a director.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
The Committee is authorized to grant SARs to Participants on the following
terms and conditions:
(a) Right to Payment. Upon the exercise of a Stock Appreciation
Right, the Participant to whom it is granted has the right to receive the
excess, if any, of:
(1) The Fair Market Value of one (1) share of Stock on the date of
exercise; over
(2) The grant price of the Stock Appreciation Right as determined
by the Committee, which shall not be less than the Fair Market Value of
one (1) share of Stock on the date of grant in the case of any SAR
related to an Incentive Stock Option.
(b) Other Terms. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by
the Committee at the time of the grant of the Award and shall be reflected
in the Award Agreement.
ARTICLE IX
PERFORMANCE SHARES
9.1 GRANT OF PERFORMANCE SHARES. The Committee is authorized to grant
Performance Shares to Participants on such terms and conditions as may be
selected by the Committee. The Committee shall have the complete discretion to
determine the number of Performance Shares granted to each Participant. All
Awards of Performance Shares shall be evidenced by an Award Agreement.
9.2 RIGHT TO PAYMENT. A grant of Performance Shares gives the Participant
rights, valued as determined by the Committee, and payable to, or exercisable
by, the Participant to whom the Performance Shares are granted, in whole or in
part, as the Committee shall establish at grant or thereafter. The Committee
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant.
9.3 OTHER TERMS. Performance Shares may be payable in cash, Stock, or
other property, and have such other terms and conditions as determined by the
Committee and reflected in the Award Agreement.
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ARTICLE X
RESTRICTED STOCK AWARDS
10.1 GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards
of Restricted Stock to Participants in such amounts and subject to such terms
and conditions as may be selected by the Committee. All Awards of Restricted
Stock shall be evidenced by a Restricted Stock Award Agreement.
10.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter.
10.3 FORFEITURE. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of employment
during the applicable restriction period or upon failure to satisfy a
performance goal during the applicable restriction period, Restricted Stock that
is at that time subject to restrictions shall be forfeited and reacquired by the
Corporation; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations resulting
from specified causes, and the Committee may in other cases waive in whole or in
part restrictions or forfeiture conditions relating to Restricted Stock.
10.4 CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, certificates must bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock.
ARTICLE XI
DIVIDEND EQUIVALENTS
The Committee is authorized to grant Dividend Equivalents to Participants
subject to such terms and conditions as may be selected by the Committee.
Dividend Equivalents shall entitle the Participant to receive payments equal to
dividends with respect to all or a portion of the number of shares of Stock
subject to an Award, as determined by the Committee. The Committee may provide
that Dividend Equivalents be paid or distributed when accrued or be deemed to
have been reinvested in additional shares of Stock, or otherwise reinvested.
ARTICLE XII
OTHER STOCK-BASED AWARDS
The Committee is authorized, subject to limitations under applicable law,
to grant to Participants such other Awards that are payable in, valued in whole
or in part by reference to, or otherwise based on or related to shares of Stock,
as deemed by the Committee to be consistent with the purposes of the Plan,
including without limitation shares of Stock awarded purely as a "bonus" and not
subject to any restrictions or conditions, convertible or exchangeable debt
securities, other rights convertible or exchangeable into shares of Stock, and
Awards valued by reference to book value of shares of Stock or the value of
securities of or the performance of specified Parents or Subsidiaries. The
Committee shall determine the terms and conditions of such Awards.
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ARTICLE XIII
PROVISIONS APPLICABLE TO AWARDS
13.1 STAND-ALONE, TANDEM AND SUBSTITUTE AWARDS. Awards granted under the
Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Award granted
under the Plan. If an Award is granted in substitution for another Award, the
Committee may require the surrender of such other Award in consideration of the
grant of the new Award. Awards granted in addition to or in tandem with other
Awards may be granted either at the same time as or at a different time from the
grant of such other Awards.
13.2 EXCHANGE PROVISIONS. The Committee may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Stock, or another
Award (subject to Article XIV), based on the terms and conditions the Committee
determines and communicates to the Participant at the time the offer is made.
13.3 TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with the
Incentive Stock Option exceed a period of ten (10) years from the date of its
grant (or, if Section 7.2(e) applies, five (5) years from the date of its
grant).
13.4 FORM OF PAYMENT FOR AWARDS. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Corporation or a Parent or Subsidiary on the grant or exercise of an Award may
be made in such form as the Committee determines at or after the time of grant,
including without limitation, cash, Stock, other Awards, or other property, or
any combination, and may be made in a single payment or transfer, in
installments, or on a deferred basis, in each case determined in accordance with
rules adopted by, and at the discretion of, the Committee.
13.5 LIMITS ON TRANSFER. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Corporation or a Parent or Subsidiary,
or shall be subject to any lien, obligation, or liability of such Participant to
any other party other than the Corporation or a Parent or Subsidiary. No
unexercised or restricted Award shall be assignable or transferable by a
Participant other than by will or the laws of descent and distribution or,
except in the case of an Incentive Stock Option, pursuant to a domestic
relations order that would satisfy Section 414(p)(1)(A) of the Code if such
Section applied to an Award under the Plan; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated taxation,
(ii) does not cause any Option intended to be an incentive stock option to fail
to be described in Code Section 422(b), and (iii) is otherwise appropriate and
desirable, taking into account any factors deemed relevant, including without
limitation, state or federal tax or securities laws applicable to transferable
Awards.
13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a Participant
at any time provided the change or revocation is filed with the Committee.
13.7 STOCK CERTIFICATES. All Stock certificates delivered under the Plan
are subject to any stop-transfer orders and other restrictions as the Committee
deems necessary or advisable to comply with federal or state securities laws,
rules and regulations and the rules of any national securities exchange or
automated quotation system on which the Stock is listed, quoted, or traded. The
Committee may place legends on any Stock certificate to reference restrictions
applicable to the Stock.
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13.8 ACCELERATION UPON DEATH OR DISABILITY. Notwithstanding any other
provision in the Plan or any Participant's Award Agreement to the contrary, upon
the Participant's death or Disability during his employment or service as a
director, all outstanding Options, Stock Appreciation Rights, and other Awards
in the nature of rights that may be exercised shall become fully exercisable and
all restrictions on outstanding Awards shall lapse. Any Option or Stock
Appreciation Rights Awards shall thereafter continue or lapse in accordance with
the other provisions of the Plan and the Award Agreement. To the extent that
this provision causes Incentive Stock Options to exceed the dollar limitation
set forth in Section 7.2(d), the excess Options shall be deemed to be
Nonqualified Stock Options.
13.9 ACCELERATION UPON A CHANGE-IN-CONTROL. Except as otherwise provided
in the Award Agreement, upon the occurrence of a Change-in-Control, all
outstanding Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully exercisable and all
restrictions on outstanding Awards shall lapse; provided, however, that such
acceleration will not occur if, in the opinion of the Company's accountants,
such acceleration would preclude the use of "pooling of interest" accounting
treatment for a Change-in-Control transaction that (a) would otherwise qualify
for such accounting treatment, and (b) is contingent upon qualifying for such
accounting treatment. To the extent that this provision causes Incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d), the excess
Options shall be deemed to be Nonqualified Stock Options.
13.10 ACCELERATION UPON CERTAIN EVENTS NOT CONSTITUTING A
CHANGE-IN-CONTROL. In the event of the occurrence of any circumstance,
transaction or event not constituting a Change-in-Control (as defined in Article
III) but which the Board of Directors deems to be, or to be reasonably likely to
lead to, an effective Change-in-Control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of the 1934
Act, the Committee may in its sole discretion declare all outstanding Options,
Stock Appreciation Rights, and other Awards in the nature of rights that may be
exercised to be fully exercisable, and/or all restrictions on all outstanding
Awards to have lapsed, in each case, as of such date as the Committee may, in
its sole discretion, declare, which may be on or before the consummation of such
transaction or event. To the extent that this provision causes Incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d), the excess
Options shall be deemed to be Nonqualified Stock Options.
13.11 ACCELERATION FOR ANY OTHER REASON. Regardless of whether an event
has occurred as described in Section 13.9 or 13.10 above, the Committee may in
its sole discretion at any time determine that all or a portion of a
Participant's Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully or partially exercisable,
and/or that all or a part of the restrictions on all or a portion of the
outstanding Awards shall lapse, in each case, as of such date as the Committee
may, in its sole discretion, declare. The Committee may discriminate among
Participants and among Awards granted to a Participant in exercising its
discretion pursuant to this Section 13.11.
13.12 EFFECT OF ACCELERATION. If an Award is accelerated under Section
13.9 or 13.10, the Committee may, in its sole discretion, provide (i) that the
Award will expire after a designated period of time after such acceleration to
the extent not then exercised, (ii) that the Award will be settled in cash
rather than Stock, (iii) that the Award will be assumed by another party to the
transaction giving rise to the acceleration or otherwise be equitably converted
in connection with such transaction, or (iv) any combination of the foregoing.
The Committee's determination need not be uniform and may be different for
different Participants whether or not such Participants are similarly situated.
13.13 PERFORMANCE GOALS. The Committee may determine that any Award
granted pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the basis
of (a) the achievement by the Corporation or a Parent or Subsidiary of a
specified target return, or target growth in return, on equity or assets, (b)
the Corporation's, Parent's or Subsidiary's stock price, (c) the achievement by
a business unit of the Corporation, Parent or Subsidiary of a specified target,
or target growth in, net income or earnings per share, or (d) any combination of
the goals set forth in (a) through (c) above. Furthermore, the Committee
reserves the right for any reason to reduce (but not increase) any Award,
notwithstanding the achievement of a specified goal. If an Award is made on such
basis, the Committee shall establish goals prior to the beginning of the period
for which such performance goal
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relates (or such later date as may be permitted under Code Section 162(m) or the
regulations thereunder). Any payment of an Award granted with performance goals
shall be conditioned on the written certification of the Committee in each case
that the performance goals and any other material conditions were satisfied.
13.14 TERMINATION OF EMPLOYMENT. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A termination of
employment shall not occur in a circumstance in which a Participant transfers
from the Corporation to one of its Parents or Subsidiaries, transfers from a
Parent or Subsidiary to the Corporation, or transfers from one Parent or
Subsidiary to another Parent or Subsidiary.
13.15 LOAN PROVISIONS. With the consent of the Committee, the Corporation
may make, guarantee or arrange for a loan or loans to a Participant with respect
to the exercise of any Option granted under this Plan and/or with respect to the
payment of the purchase price, if any, of any Award granted hereunder and/or
with respect to the payment by the Participant of any or all federal and/or
state income taxes due on account of the granting or exercise of any Award
hereunder. The Committee shall have full authority to decide whether to make a
loan or loans hereunder and to determine the amount, terms and provisions of any
such loan or loans, including the interest rate to be charged in respect of any
such loan or loans, whether the loan or loans are to be made with or without
recourse against the borrower, the terms on which the loan is to be repaid and
the conditions, if any, under which the loan or loans may be forgiven.
ARTICLE XIV
CHANGES IN CAPITAL STRUCTURE
In the event a stock dividend is declared upon the Stock, the shares of
Stock then subject to each Award shall be increased proportionately without any
change in the aggregate purchase price therefor. In the event the Stock shall be
changed into or exchanged for a different number or class of shares of stock or
securities of the Corporation or of another corporation, whether through
reorganization, recapitalization, reclassification, stock split-up, combination
of shares, merger or consolidation, there shall be substituted for each such
share of Stock then subject to each Award the number and class of shares into
which each outstanding share of Stock shall be so exchanged, all without any
change in the aggregate purchase price for the shares then subject to each
Award.
ARTICLE XV
AMENDMENT, MODIFICATION AND TERMINATION
15.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any time
and from time to time, amend, modify or terminate the Plan without stockholder
approval; provided, however, that the Board or Committee may condition any
amendment or modification on the approval of stockholders of the Corporation if
such approval is necessary or deemed advisable with respect to tax, securities
or other applicable laws, policies or regulations.
15.2 AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without approval
of the Participant; provided, however, that such amendment, modification or
termination shall not, without the Participant's consent, reduce or diminish the
value of such Award determined as if the Award had been exercised, vested,
cashed in or otherwise settled on the date of such amendment or termination. No
termination, amendment, or modification of the Plan shall adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant.
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ARTICLE XVI
GENERAL PROVISIONS
16.1 NO RIGHTS TO AWARDS. No Participant or employee, officer or director
shall have any claim to be granted any Award under the Plan, and neither the
Corporation nor the Committee is obligated to treat Participants and employees,
officers or directors uniformly.
16.2 NO STOCKHOLDER RIGHTS. No Award gives the Participant any of the
rights of a stockholder of the Corporation unless and until shares of Stock are
in fact issued to such person in connection with such Award.
16.3 WITHHOLDING. The Corporation or any Parent or Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Corporation, an amount sufficient to satisfy federal, state, and
local taxes (including the Participant's FICA obligation) required by law to be
withheld with respect to any taxable event arising as a result of the Plan. With
respect to withholding required upon any taxable event under the Plan, the
Committee may, at the time the Award is granted or thereafter, require that any
such withholding requirement be satisfied, in whole or in part, by withholding
shares of Stock having a Fair Market Value on the date of withholding equal to
the amount to be withheld for tax purposes, all in accordance with such
procedures as the Committee establishes.
16.4 NO RIGHT TO EMPLOYMENT OR DIRECTORSHIP. Nothing in the Plan or any
Award Agreement shall interfere with or limit in any way the right of the
Corporation or any Parent or Subsidiary to terminate any Participant's
employment or status as an officer, director or consultant at any time, nor
confer upon any Participant any right to continue as an employee, officer,
director or consultant of the Corporation or any Parent or Subsidiary.
16.5 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Corporation or any Parent or Subsidiary.
16.6 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the
Corporation or any Parent or Subsidiary unless provided otherwise in such other
plan.
16.7 EXPENSES. The expenses of administering the Plan shall be borne by
the Corporation and its Parents or Subsidiaries.
16.8 TITLES AND HEADINGS. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
16.9 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
16.10 FRACTIONAL SHARES. No fractional shares of Stock shall be issued and
the Committee shall determine, in its discretion, whether cash shall be given in
lieu of fractional shares or whether such fractional shares shall be eliminated
by rounding up.
16.11 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Corporation
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Corporation shall be under no obligation to
register under the 1933 Act, or any state securities act, any of the shares of
Stock paid under the Plan. The shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, and the
Corporation may restrict the transfer of such shares in such manner as it deems
advisable to ensure the availability of any such exemption.
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16.12 GOVERNING LAW. To the extent not governed by federal law, the Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Delaware.
16.13 ADDITIONAL PROVISIONS. Each Award Agreement may contain such other
terms and conditions as the Committee may determine, provided that such other
terms and conditions are not inconsistent with the provisions of the Plan.
16.14 CODE SECTION 162(M). The deduction limits of Code Section 162(m) and
the regulations thereunder shall not apply to compensation payable under the
Plan until the expiration of the reliance period described in Treasury
Regulation 1.162-27(f) or any successor regulation.
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EXHIBIT C
ACQUISITION AGREEMENT AND PLAN OF MERGER
THIS ACQUISITION AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made
this 26th day of March 1998, by and among Medirisk, Inc., a Delaware corporation
("Medirisk"), HEALTHDEMOGRAPHICS, INC., a Delaware corporation and wholly-owned
subsidiary of Medirisk ("Merger Sub"), HEALTHDEMOGRAPHICS, a California
corporation (the "Company"), and those shareholders of the Company executing and
delivering this Agreement (all of the shareholders of the Company being
collectively referred to as the "Shareholders," and each individually as a
"Shareholder").
W I T N E S S E T H :
WHEREAS, the parties desire to enter into this Agreement pursuant to which
the Company will merge with and into Merger Sub, such that Medirisk will
indirectly acquire all of the outstanding capital stock of the Company from the
Shareholders, upon the terms and subject to the conditions set forth herein (the
"Merger"); and
WHEREAS, the respective Boards of Directors of Medirisk, Merger Sub and the
Company have approved the transactions contemplated by this Agreement; and
WHEREAS, P. Timothy Garton ("Garton") and Michael D. Chermak ("Chermak")
are each Shareholders and are employees, officers and/or directors of the
Company, and will receive appreciable benefits from the Merger as contemplated
hereby (collectively, the "Responsible Shareholders"); and
WHEREAS, Shareholders Richard D. Propper, David Smith and Interim Advantage
Fund, together with the Responsible Shareholders, are hereinafter collectively
referred to as the "Signing Shareholders";
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
MERGER OF THE COMPANY AND MERGER SUB
1.1 MERGER. Subject to the terms and conditions of this Agreement, at the
Merger Effective Time (as defined in Section 1.2), the Company shall be merged
with and into Merger Sub in accordance with the provisions of the business
corporation act under the California General Corporation Law (the "CGCL") and
Delaware General Corporation Law (the "DGCL"). Merger Sub shall be the surviving
corporation resulting from the Merger and shall thereafter conduct the business
and operations of the Company as a wholly-owned subsidiary of Medirisk. The
Merger shall be consummated pursuant to the terms of this Agreement.
1.2 FILING OF MERGER CERTIFICATES. Subject to the provisions of this
Agreement, the parties shall file Articles or a Certificate of Merger, as
appropriate (the "California Merger Certificate") executed in accordance with
the relevant provisions of the CGCL and a Certificate of Merger executed in
accordance with the relevant provisions of the DGCL (the "Delaware Merger
Certificate") and shall make all other filings or recordings required under each
such act as soon as practicable on or after the Closing Date. The Merger shall
become effective on the date and at the time the Delaware Merger Certificate
becomes effective with the Secretary of State of Delaware (the "Merger Effective
Time"). Notwithstanding the foregoing, the parties intend that this Agreement
and the transactions contemplated hereby shall be effective for accounting
purposes on and as of the date and time specified in Section 7.1(b) of this
Agreement; provided, however, that neither the Company nor any of the
shareholders of the Company shall have any liability as a result of Medirisk's
or Merger Sub's inability to utilize for any purpose the date and time specified
in Section 7.1(b) as the Accounting Effective Date.
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1.3 ARTICLES AND BYLAWS. The Articles of Incorporation and Bylaws of
Merger Sub in effect immediately prior to the Merger Effective Time shall be the
Articles of Incorporation and Bylaws of the surviving corporation until
otherwise amended or repealed; the directors of Merger Sub immediately prior to
the Merger Effective Time shall serve as the directors of the surviving
corporation from and after the Merger Effective Time; and the officers of Merger
Sub in office immediately prior to the Merger Effective Time shall serve as the
officers of the surviving corporation from and after the Merger Effective Time.
1.4 DISSENTING SHAREHOLDERS. Any holder of shares of common stock of the
Company ("Company Stock") who perfects any available dissenters' rights or
appraisal rights in accordance with and as contemplated by the CGCL
("Dissenters' Rights") shall be entitled to receive the value of such shares in
cash from the surviving corporation after the Merger Effective Time as
determined pursuant to the CGCL; provided, however, that no such payment shall
be made to any dissenting shareholder unless and until such dissenting
shareholder has complied with the applicable provisions of the CGCL and has
surrendered to the surviving corporation the certificate or certificates
representing the shares for which payment is being made. In the event that a
dissenting shareholder of the Company fails to perfect, or effectively withdraws
or loses, its Dissenters' Rights, the surviving corporation shall deliver the
consideration to which such holder of shares of Company Stock is entitled
(without interest) upon surrender of certificates representing such shares held
by such holder.
1.5 MERGER CONSIDERATION. Subject to the provisions of this Section, and
in consideration for the transactions contemplated hereby, at the Merger
Effective Time, by virtue of the Merger and without any action on the part of
the parties hereto or the shareholders of any of the parties hereto, the shares
of the constituent corporations of the Merger shall be converted as follows:
(a) Each share of common stock of Merger Sub issued and outstanding at
the Merger Effective Time shall remain issued and outstanding after the
Merger Effective Time.
(b) Each share of Company Stock issued and outstanding at the Merger
Effective Time (excluding shares held by Shareholders who perfect their
Dissenters' Rights) shall cease to be outstanding and shall be converted
into and exchanged for the right to receive:
(i) An amount equal to (A) $2,299,500 divided by (B) the number of
Effective Company Shares (as hereinafter defined);
(ii) A number of unregistered shares of common stock of Medirisk
("Medirisk Common Stock") equal to (A) $4,270,500 divided by (B) the
Closing Market Value (as defined below), with the quotient of (A)
divided by (B) then being divided by (C) the number of Effective Company
Shares; and
(iii) The right to receive Additional Consideration (as hereinafter
defined).
(c) Certain Definitions:
(i) "Additional Consideration" means the additional consideration
payable to the Shareholders for the Company Stock as calculated and upon
the terms set forth in SCHEDULE 1.5(C)(I) attached hereto.
(ii) "Cash Initial Consideration" means the cash consideration
payable pursuant to Section 1.5(b)(i).
(iii) "Closing Market Value" means the average closing price of
Medirisk Common Stock on the Nasdaq National Market over the twenty (20)
trading days immediately preceding the Closing Date (as defined in
Section 7.1 hereof).
(iv) "Effective Company Shares" means the shares of Company Stock
deemed to be issued and outstanding at the Merger Effective Time as set
forth on SCHEDULE 2.2A (the "Effective Company Shares")
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(v) "Initial Merger Consideration" means the total consideration
payable pursuant to Sections 1.5(b)(i) and 1.5(b)(ii).
(vi) "Merger Consideration" means the total consideration payable
pursuant to Section 1.5(b).
(vii) "Stock Initial Consideration" means the Medirisk Common Stock
to be issued to the Shareholders pursuant to Sections 1.5(b)(ii).
(d) Notwithstanding the foregoing, each holder of shares of Company
Stock who would otherwise be entitled to receive a fraction of a share of
Medirisk Common Stock shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Medirisk
Common Stock multiplied by the Closing Market Value.
1.6 TAX EFFECT. Medirisk, the Company and the Signing Shareholders intend
the Merger be a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (a "Reorganization" and the "Code,"
respectively). In connection with that intention, the persons indicated below
make the following representations and warranties.
(a) The Company represents and warrants to Medirisk and Merger Sub that,
except as otherwise disclosed in the Schedules to this Agreement, the Company
has not taken or agreed to take any action, nor does the Company have any
Knowledge of any fact or circumstance that is reasonably likely to prevent the
Merger from qualifying as a Reorganization. The Company agrees to use reasonable
efforts to cause the Merger to qualify, and not to take action which would cause
the Merger not to qualify, as a Reorganization. As used in this Agreement, when
any statement is made to the "Knowledge" of a person, it means to the actual
knowledge of such person without any duty on the part of such person to
independently investigate or confirm the accuracy of such statement.
(b) Medirisk and the Merger Sub represent and warrant to the Company and
the Shareholders of the Company that, except as otherwise disclosed in the
Schedules to this Agreement, neither Medirisk nor the Merger Sub has taken or
agreed to take any action, nor do either of Medirisk or the Merger Sub have any
Knowledge of any fact or circumstance that is reasonably likely, to prevent the
Merger from qualifying as a Reorganization. Medirisk and the Merger Sub agree to
use reasonable efforts to cause the Merger to qualify, and not to take action
which would cause the Merger not to qualify, as a Reorganization; provided,
however, that nothing in this Section 1.6 shall affect the Shareholders' right
to receive the Additional Consideration as described in this Agreement.
(c) Medirisk, the Merger Sub, the Company and the Signing Shareholders
understand that (i) neither Medirisk, the Merger Sub, the Company, nor any of
the Shareholders makes any representation or warranty that the Merger will be
regarded as a Reorganization, (ii) the Closing is not subject to a condition
that an Internal Revenue Service ruling or tax opinion be obtained as to the
federal income tax consequences of this Agreement or the Merger, and (iii)
Medirisk, the Merger Sub, the Company and the Shareholders will rely solely upon
their respective advisors for advice concerning the tax consequences of the
Merger.
(d) The Company represents that, in the Merger, Merger Sub will acquire
assets representing at least ninety percent (90%) of the fair market value of
the net assets and at least seventy percent (70%) of the fair market value of
the gross assets held by the Company immediately prior to the Merger. For this
purpose, all redemptions and distributions (except for regular, normal
dividends) made by the Company immediately preceding the Merger and all amounts
paid out of the assets of the Company as Reorganization expenses will be
considered as assets held by the Company immediately prior to the Merger. In
addition, assets disposed of in contemplation of the Merger will be considered
as assets held by the Company immediately prior to the Merger.
(e) The Company warrants that the liabilities of the Company to be assumed
by Merger Sub or Medirisk in the Merger (and the liabilities to which the assets
to be transferred are subject) were incurred or will be incurred by the Company
in the ordinary course of its business.
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(f) Medirisk and Merger Sub warrant that there is not now, nor will there
be at the time of the Merger Effective Time, any intercorporate indebtedness
existing between the Company and Medirisk or between Company and Merger Sub that
was issued, acquired, or will be settled at a discount.
(g) The Company represents that the Shareholders will pay, or reimburse the
Company as provided in Section 10.5 below, direct costs and expenses incurred by
the Shareholders, or by the Company on their behalf, in connection with the
Merger. Medirisk, Merger Sub, and the Company will pay their respective
expenses, if any, incurred in connection with the Merger.
(h) Each of Medirisk, Merger Sub and the Company represents that it is not
an Investment Company. As used in this Section 1.6(h), "Investment Company"
means a regulated investment company, a real estate investment trust, or a
corporation 50 percent or more of the value of whose total assets are stock and
securities and 80 percent or more of the value of whose total assets are assets
held for investment. In making the 50-percent and 80-percent determinations
under the preceding sentence, stock and securities in any subsidiary corporation
shall be disregarded and the parent corporation shall be deemed to own its
ratable share of the subsidiary's assets, and a corporation shall be considered
a subsidiary if the parent owns 50 percent or more of the combined voting power
of all classes of stock entitled to vote, or 50 percent or more of the total
value of shares of all classes of stock outstanding.
(i) The Company and the Signing Shareholders represent that the Company is
not under the jurisdiction of a court in a case under Title 11 of the United
States Code, a receivership, foreclosure, or similar proceeding in a federal or
state court.
(j) The Company and the Signing Shareholders represent that the fair market
value of the assets to be transferred from the Company to Merger Sub as a result
of the Merger will equal or exceed the sum of the liabilities of the Company to
be assumed by Merger Sub or Medirisk (plus the amount of liabilities to which
the assets to be transferred are subject).
(k) Medirisk represents the payment of cash to the Shareholders in lieu of
fractional shares of Medirisk Stock will not be a separately bargained for
consideration, but will be undertaken solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares, and the
total cash consideration that will be paid to the Company's Shareholders in lieu
of fractional shares of Medirisk Stock will represent less than one (1%) percent
of the total consideration issued in the Merger.
(l) Garton and Chermak severally represent that none of the compensation to
be received by him for services as an employee of the Company represents
separate consideration for, or is allocable to, any of his shares of Company
Stock. Medirisk represents that any compensation to be paid to a
Shareholder-employee who continues as an employee of Medirisk or Merger Sub
subsequent to the Merger will be for services rendered and will be not greater
in amounts than amounts that would be paid to third parties bargaining at arms
length for similar services.
(m) The Company represents that it has no plan or intention to make prior
to the Merger Effective Time, and except as set forth in SCHEDULE 1.6(M), it has
not made, any distributions other than regular, normal dividends to Shareholders
in the three (3) year period prior to the Merger.
(n) The Company represents that except as set forth in SCHEDULE 1.6(N), it
has not reacquired or redeemed any of its stock within the last three years.
(o) The Company represents that at all times during the five-year period
ending on the Merger Effective Time, the fair market value of all of the
Company's United States real property interests was and will have been less than
fifty (50%) percent of the total fair market value of (A) its United States real
property interests, (B) its interests in real property located outside the
United States, and (C) its other assets used or held for use in a trade or
business. For purposes of the preceding sentence, (X) United States real
property interests include all interests (other than an interest solely as a
creditor) in real property and associated personal property (such as movable
walls and furnishings) located in the United States or the Virgin Islands and
interests in any corporation (other than a controlled corporation) owning any
United States real property interest, (Y) the Company is treated as owning its
proportionate share (based on the relative fair market value
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of its ownership interest to all ownership interests) of the assets owned by any
controlled corporation or any partnership, trust, or estate in which the Company
is a partner or beneficiary, and (Z) any such entity in turn is treated as
owning its proportionate share of the assets owned by any controlled corporation
or any partnership, trust, or estate in which the entity is a partner or
beneficiary. As used in this paragraph, "controlled corporation" means any
corporation at least fifty percent (50%) of the fair market value of the stock
of which is owned by the Company, in the case of a first-tier subsidiary of the
Company, or by a controlled corporation, in the case of a lower-tier subsidiary.
(p) The Company represents that the Company is not a party to, and holds no
assets subject to, a "safe harbor lease" under former Section 168(f)(8) of the
Code and the Regulations thereunder.
(q) The Agreement together with the other agreements to be executed and
delivered in connection with the Closing of the transactions contemplated herein
represent the entire understanding of Company, Medirisk, and Merger Sub with
respect to the Merger.
(r) Medirisk and Merger Sub represent that none of (i) Medirisk, (ii) any
member of Medirisk's affiliated group as defined in Section 1504 of the Code
without regard to Section 1504(b) of the Code, (iii) any corporation in which at
least fifty percent (50%) of the total combined voting power of all classes of
stock entitled to vote or at least fifty percent (50%) of the value of all
classes of stock is owned directly or indirectly by Medirisk or (iv) any entity
that is treated as a partnership for federal income tax purposes and has as an
owner a corporation described in (I), (ii), or (iii) of this paragraph has the
intent at the time of the Closing to acquire or redeem (directly or indirectly)
any Medirisk shares issued in connection with the transactions described herein.
(s) Medirisk and Merger Sub represent and warrant to the Company that
following the Merger, Merger Sub will not issue additional shares of Merger Sub
stock that would result in Medirisk losing control of Merger Sub within the
meaning of Section 368(c) of the Code.
(t) Medirisk represents and warrants to the Company that Medirisk has no
plan or intention to reacquire any of Medirisk's stock issued in the Merger.
(u) Medirisk represents and warrants to the Company that Medirisk has no
plan or intention to: liquidate Merger Sub, merge Merger Sub with and into
another corporation; sell or otherwise dispose of the stock of Merger Sub; or
cause Merger Sub to sell or otherwise dispose of any of the assets of the
Company acquired in the Merger, except for dispositions made in the ordinary
course of business or transfers described in Section 368(a)(2)(C) of the Code.
(v) Medirisk and Merger Sub represent and warrant to the Company that,
following the Merger, Merger Sub will continue the historic business of the
Company or use a significant portion of the Company's business assets in a
business.
(w) Medirisk represents and warrants to the Company that, prior to the
Merger, Medirisk will be in control of Merger Sub within the meaning of Section
368(c) of the Code.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Medirisk 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
California 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 it now owns or leases. Except as set forth on SCHEDULE 2.1, the Company
is duly qualified to transact business and in good standing in the other states
listed on SCHEDULE 2.1, which are the only additional jurisdictions in which
operations of the Company's business or the assets of the Company require such
qualification
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2.2 AUTHORITY AND STATUS. The Company has the corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated by this Agreement
without the necessity of any act or consent not previously obtained of any other
person whomsoever. This Agreement and each and every agreement, document and
instrument to be executed, delivered and performed in connection with this
Agreement (the "Transaction Documents") by the Company constitutes or will, when
executed and delivered, constitute the valid and legally binding obligations of
the Company, enforceable against the Company 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 COMPANY STOCK. The authorized capital
stock of the Company consists of 5,000,000 shares of no par value common stock,
and 2,500,000 shares of no par value preferred stock. The Company has 4,871,719
shares of common stock which are issued and outstanding. The Company does not
have any shares of preferred stock issued or outstanding. All of the issued and
outstanding shares or Company Stock 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. Except as set forth on SCHEDULE 2.3, 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.
2.4 SUBSIDIARIES, INVESTMENTS AND PREDECESSORS. Except as set forth on
SCHEDULE 2.4, the Company has not owned and does not currently own, directly or
indirectly, of record, beneficially or equitably any capital stock or other
equity, ownership or proprietary interest in any corporation, partnership,
limited liability company, association, trust, joint venture or other entity.
Set forth on SCHEDULE 2.4 is a listing for the last five years of all
predecessor companies of the Company, including the names of any and all
entities from which the Company previously acquired material assets, and any
other entity of which the Company has been a subsidiary or division. Except as
listed on SCHEDULE 2.4, the Company has not sold or disposed of, by way of asset
sale, stock sale, spin-off, split-up or otherwise, any material assets or
business of the Company.
2.5 LIABILITIES AND OBLIGATIONS OF THE COMPANY. (a) Attached as SCHEDULE
2.5 are true, correct and complete copies of the Company's audited balance
sheets as of 31 December 1996 and 1997 and the related statements of operations
and cash flows for the fiscal years ending on 31 December 1996 and 1997 (the
"Financial Statements"). Also attached as SCHEDULE 2.5 are true, correct and
complete copies of the Company's unaudited balance sheet as of 28 February 1998
and the related unaudited statement of operations for the two-month period then
ended (the "Interim Financial Statements"). Except as specifically described in
SCHEDULE 2.5, 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 Interim Financial Statements do not contain cash flows, any
notes thereto and are subject to normal recurring year-end adjustments, which if
made on the date hereof would not, individually or in the aggregate, have a
material adverse effect on the Company). Subject to the foregoing sentence, the
Financial Statements and the Interim Financial Statements fairly present in
accordance with generally accepted accounting principles the Company's financial
condition of the Company and the results of its operations and changes in
financial position as of the dates and for the periods reflected therein.
(b) Effective following Closing, the Company will have no indebtedness for
borrowed money after giving effect to the payments reflected on Section (ix) of
SCHEDULE 2.11(A). Except as described in SCHEDULE 2.5, 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 Company's business since the date of the Interim Financial Statements,
(iii) the liabilities and obligations of the Company under the Material
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Agreements (as that term is defined in Section 2.11), and (iv) those nonmaterial
liabilities and obligations of the Company under contracts and agreements of the
Company that are not Material Agreements.
2.6 AGREEMENT DOES NOT VIOLATE OTHER INSTRUMENTS. Except as set forth on
SCHEDULE 2.6, the execution and delivery of the Transaction Documents by the
Company does not, and the consummation of the transactions contemplated hereby
will not, (a) violate or conflict with any provision of the Articles of
Incorporation, as amended, or Bylaws, as amended, of the Company; (b) require
any consent or approval not previously obtained under, conflict with, result in
the breach, termination or acceleration of, or violate or constitute an
occurrence of default under any provision of any mortgage, deed of trust,
conveyance to secure debt, note, loan, lien, lease, agreement or instrument to
which the Company is a party or by which any of the Company's properties are
bound; (c) constitute a violation of any law, regulation, order, writ, judgment,
injunction, or decree applicable to the Company or by which any of the Company's
properties are bound; (d) result in the creation of any lien upon any of the
assets or business of the Company; or (e) have any impact on Medirisk's right
after the Closing to conduct the business of the Company as being conducted by
the Company prior to the Closing.
2.7 LITIGATION. Except as set forth on SCHEDULE 2.7, there is no suit,
action, proceeding, claim or investigation pending or, to the knowledge of the
Company, threatened against, or affecting, the Company; and to the knowledge of
the Company, there exists no basis or grounds for any such suit, action,
proceedings, claim or investigation. SCHEDULE 2.7 also contains a brief
description of any suit, action, proceeding, claim or investigation involving
the Company settled or otherwise concluded since 1 January 1993.
2.8 PERMITS. Except as set forth on Schedule 2.8, the Company holds, and
lists, all licenses, permits and other authorizations from all appropriate
federal, state or other public authorities necessary for the conduct of the
Company's business and the use of its assets, all of which are listed on
Schedule 2.8. The Company is conducting and has conducted its business so as to
comply with all applicable statutes, rules, ordinances, regulations, orders,
injunctions, decrees or any other requirement of any governmental body, agency
or authority binding on it, or relating to its property or business or its
advertising, sales or pricing practices ("Applicable Law") except where the
failure to comply with such Applicable Law would not have a material adverse
affect on the Company, its properties, operations or financial condition.
2.9 TITLE TO ASSETS. Attached as SCHEDULE 2.9 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). Except as set forth on SCHEDULE 2.9, the
Company has good and valid 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.
2.10 COMPUTER SOFTWARE, INTELLECTUAL PROPERTY. (a) Attached SCHEDULE
2.10(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, applicable to or
used by the Company in the conduct of its business, together with a complete
list of all licenses granted by or to the 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 2.10(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 2.10(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 2.10(A). The Company is not currently in
receipt of any notice of violation of, and 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.
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(b) Attached SCHEDULE 2.10(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 2.10(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 2.10(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 to any other
parties, except as set forth on SCHEDULE 2.10(B) and except pursuant to
contracts requiring such other parties to keep such Owned Software confidential.
To the knowledge of the Company, no such other party has breached any such
obligation of confidentiality.
(c) Attached SCHEDULE 2.10(C) contains a complete and accurate list of all
computer software, databases and other intellectual property that is used by the
Company and for which the Company is the licensee or lessee or otherwise has
legal rights of use (other than commercially available over-the-counter
"shrinkwrap" software) (the "Licensed Software"). SCHEDULE 2.10(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, the Company has delivered to Medirisk true and
complete copies of all agreements under which the Company has the right to use
Licensed Software. Except as described on SCHEDULE 2.10(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 other than the payment of
license or royalty fees set forth on SCHEDULE 2.10(C). The Company is in full
compliance with all provisions of any license, lease or other similar agreement
pursuant to which the Company has rights to use the Licensed Software. Except as
disclosed on SCHEDULE 2.10(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 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 2.10(D) sets forth a list of all contract programmers,
independent contractors, nonemployee agents and persons or other entities (other
than employees) who have performed computer programming services for the Company
in connection with any of the Owned Software and identifies all contracts and
agreements to which the Company is a party 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 Medirisk's ability to use the Company Software in the same
manner as such Company Software is currently used by the Company. The Company is
not infringing any intellectual property rights of any other person or entity
with respect to the Company Software, and, to the knowledge of the Company, no
other person or entity is infringing any intellectual property rights of the
Company with respect to the Company Software.
(e) The Company and, to the knowledge of 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 full
compliance with such licensing or similar arrangements and are not in breach of
their obligations with respect thereto. 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 than
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 2.10(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 2.10(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.
2.11 CONTRACTS. (a) Attached as SCHEDULE 2.11(A) 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 $5,000.00, including without limitation
contracts, agreements and other instruments concerning the following matters
(collectively the "Material Agreements"):
(i) the lease (as lessee or lessor) or license (as licensee or
licensor) of any real or personal property (tangible or intangible);
(ii) the employment, termination, severance or engagement of or with
respect to any officer, director, employee, consultant or agent;
(iii) any arrangement between or among the Company, its affiliates,
the Shareholders, any director, officer or employee thereof and/or related
persons, including without limitation loans, guarantees and credit
arrangements;
(iv) any arrangement limiting the freedom of the Company to compete in
any manner in any line of business or requiring the Company to share
profits;
(v) any arrangement that could reasonably be anticipated to have a
material adverse effect on the Company, financial or otherwise;
(vi) any arrangement not in the ordinary course of business;
(vii) any power of attorney, whether limited or general, granted by or
to the Company;
(viii) any other arrangement that requires performance for a period of
more than ten (10) days or that requires payments in excess of $5,000.00;
(ix) any loan agreement, contract or other arrangement relating to the
borrowing of money by the Company and the amount outstanding thereunder or
the guarantee by the Company of any third party obligation;
(x) any agreement or arrangement involving intellectual property
rights (other than contracts entered into in the ordinary course of
business with customers and "shrink-wrap" software licenses);
(xi) any contract or arrangement relating to the provision of data
processing, network communication or other technical services to or by the
Company or any affiliate thereof; and
(xii) any contract or arrangement relating to the provision, purchase
or sale of goods or services, other than contracts entered into in the
ordinary course of business and involving payments not in excess of
$5,000.00.
(b) Except as set forth on SCHEDULE 2.11(B), (a) the Material Agreements
are valid and effective in accordance with their terms, and (b) there is not
under any Material Agreement (i) any existing or claimed default by the Company
or (ii) to the knowledge of the Company, any existing or claimed default by any
other party. There is no actual or, to the knowledge of the Company, threatened
termination, cancellation or limitation of any Material Agreements. To the
knowledge of the Company, there is no pending or threatened bankruptcy,
insolvency or similar proceeding with respect to any other party to any of the
Material Agreements.
2.12 TAXES. (a) 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 and has timely paid, or will prior to Closing timely pay, all taxes,
including, without limitation, any and all income, sales, use, withholding,
excise and
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other taxes (collectively "Taxes") due and owing for all periods prior to
Closing. No liens have been filed and no claims are being asserted or, to the
Knowledge of each of the Shareholders and the Company, contemplated 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.
(b) 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, to the extent due, paid the same to the proper
tax depositories or collecting authorities.
(c) All ad valorem property taxes for years prior to 1997 imposed on the
Company with respect to, or which may become a lien on, its assets have been
paid in full.
2.13 EMPLOYEE BENEFIT PLANS. Attached as SCHEDULE 2.13 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 $1,000.00 per
year, agreement or understanding that involves the expenditure of more than
$1,000.00 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 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).
2.14 CUSTOMERS. Attached as SCHEDULE 2.14 is a true and correct list of
all of the customers doing in excess of $2,500.00 of business with the Company
during 1996 and 1997 and to date in 1998 setting forth as to each such customer
its name, address, telephone number and principal person of contact. The Company
has not received any notice, nor does it have 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.
2.15 OFFICERS, DIRECTORS AND BANK ACCOUNTS. SCHEDULE 2.15(A) lists the
names of all directors and officers of the Company. SCHEDULE 2.15(B) lists the
name and location of each 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.
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2.16 INTERESTED TRANSACTIONS. Except as set forth on SCHEDULE 2.16, 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);
(a) Any director or officer of the Company or any of the Shareholders;
(b) Any of the spouses, parents, siblings, children, aunts, uncles,
nieces, nephews, in-laws or grandparents of any of the persons described in
clause (a); or
(c) Any corporation, trust, partnership or other entity in which any
of the persons described in clauses (a) or (b) 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).
2.17 ABSENCE OF CERTAIN CHANGES. Since 31 December 1997, and except as set
forth on SCHEDULE 2.17: (a) the Company has operated its business in the
ordinary course; (b) there has not been any change in the business, financial
condition or results of operations of the Company that has had or is reasonably
likely to have a material adverse effect on the Company or its assets or
business; (c) there has not been any damage, destruction or loss (whether or not
covered by insurance) to the Company's assets that has had or is reasonably
likely to have a material adverse effect on the Company or its assets or
business; (d) except as disclosed in SCHEDULE 2.17(D), no customer has canceled,
discontinued or given written or oral notice of its intention to cancel,
discontinue or substantially reduce its business with the Company; and (e)
except as disclosed in SCHEDULE 2.17(E), the Company is not in default and, to
the knowledge of the Company, no customer is in default, under the Company's
contracts with any customer, and each such contract is in full force and effect
on the date of this Agreement, and such customer contracts contain no material
changes from the standard form of agreement used by the Company (including,
without limitation, any deviation from the standard warranties or limitation of
the Company's liability).
2.18 BOOKS AND RECORDS. All books, records and other information
(financial and otherwise), if any, provided by the Company or any Shareholder to
Medirisk are true and correct and accurately reflect the existence of the
Company's assets and the results of operations of the Company's business for the
periods of time stated therein, and such books, records and financial
information reflect revenues and income from the Company's business and not from
other sources, except as expressly disclosed to Medirisk.
2.19 ACCOUNTS RECEIVABLE AND PAYABLE. The accounts receivable outstanding
as of the date of the Interim Financial Statements are, and the accounts
receivable of the Company outstanding as of the Closing Date will be, (i) valid
and genuine accounts receivable arising only out of bona fide sales and delivery
of goods, performance of services and other business transactions in the
ordinary course of the Company's business consistent with past practice; (ii)
subject to no asserted defenses, counterclaims or rights of setoff, and (iii)
except as set forth on SCHEDULE 2.19, collectible within sixty (60) days after
billing at the full recorded amount thereof less the recorded allowance for
doubtful accounts reflected on the Interim Financial Statements. Except as set
forth on SCHEDULE 2.19, no accounts payable of the Company are, as of the date
of this Agreement, over thirty (30) days old.
2.20 EMPLOYMENT AND LABOR MATTERS. (a) SCHEDULE 2.20(A) sets forth (i) the
number of all full-time and part-time employees of the Company; (ii) the number
of independent contractors utilized by the Company and (iii) the name and
compensation paid to each independent contractor, employee of or consultant to
the Company who received salary, bonuses or other compensation for either of the
Company's two most recently ended fiscal years in excess of $25,000.00.
(b) To the knowledge of the Company, the Company is in compliance in all
material respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, occupational
safety and health, including laws concerning unfair labor practices within the
meaning of Section 8 of the National Labor Relations Act, and the employment of
non-residents under the Immigration Reform and Control Act of 1986.
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(c) Except as disclosed on SCHEDULE 2.20(C):
(i) There are no charges, governmental audits, investigations,
administrative proceedings or complaints concerning the Company's
employment practices pending or, to the knowledge of the Company,
threatened before any federal, state or local agency or court, and, to the
knowledge of the Company, no basis for any such matter exists;
(ii) The Company is not a party to any union or collective bargaining
agreement, and, to the knowledge of the Company, no union attempts to
organize the employees of the Company have been made, and no such attempts
are now threatened; and
(iii) The Company has not experienced any organized slowdown, work
interruption, strike, or work stoppage by its employees.
2.21 INSURANCE. Except as described on SCHEDULE 2.21, all of the assets
and business of the Company are insured in such amounts and against such losses,
casualties or risks as are customary for similar properties and businesses, and
SCHEDULE 2.21 contains a list of all policies of insurance currently in force
with respect to the Company and its assets and business.
2.22 ENVIRONMENTAL MATTERS. To the knowledge of the Company and except as
set forth in SCHEDULE 2.22, there is no present or past Environmental Condition
in any way relating to the business, properties or assets of the Company.
"Environmental Condition" means (a) the introduction into the environment of any
pollution, including without limitation any contaminant, irritant or pollutant
or other toxic or hazardous substance, in violation of any federal, state or
local law, ordinance or governmental rule or regulations, as a result of any
spill, discharge, leak, emission, escape, injection, dumping or release of any
kind whatsoever of any substance or exposure of any type in any workplaces or to
any medium, including without limitation air, land, surface waters or ground
waters, or from any generation, transportation, treatment, discharge, storage or
disposal of waste materials, raw materials, hazardous materials, biomedical
waste including blood, toxic materials or products of any kind or from the
storage, use or handling of any hazardous or toxic materials or other
substances, as a result of which the Company has or may become liable to any
person or by any reason of which any of the Assets of the Company may suffer or
be subjected to any lien, encumbrance or restriction of any nature, or (b) any
noncompliance with any federal, state or local environmental law, rule,
regulation or order as a result of or in connection with any of the foregoing.
2.23 COMPANY PRODUCTS AND SERVICES. The Company's products and services
conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided with respect
thereto by or on behalf of the Company, and there has not been during the last
three (3) years any claim made against the Company by any customer of the
Company or by any other person alleging that any product or service of the
Company (including each version thereof that has been licensed or otherwise made
available by the Company to any person) does not conform in all material
respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of the Company,
and, to the knowledge of each of the Company and the Shareholders, there is not
a reasonable basis for any such claim. No material product liability or warranty
claims have been communicated in writing to or threatened in writing against the
Company. To the knowledge of the Company, the Company's products and services,
as of the date hereof, during and after the calendar year 2000 A.D., include
design, function and performance capabilities such that the Company's products
and services shall not abnormally end and/or have invalid and/or incorrect
results from and/or performance or functional degradation because of the
then-current date. To the knowledge of the Company, the design and function of
the Company's products and services ensure year 2000 A.D. functionality and
include, but are not limited to, date data century recognition, calculations
that accommodate same century and multi-century formulas and date values, and
date data interface values that reflect the century. The Company makes no
representations or warranties with respect to whether or not the products or
services of any supplier (including licensors of software) to the Company are
Year 2000 compliant or that the performance of such products, or the provision
of such services, will not be interrupted by Year 2000 issues.
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2.24 SCHEDULES. All Schedules attached hereto are true, correct and
complete as of the date of this Agreement. Matters disclosed on each Schedule
shall be deemed disclosed only for purposes of the matters to be disclosed in
such Schedule and shall not be deemed to be disclosed for any other purpose
unless specifically provided therein.
ARTICLE IIA
2.1A CAPACITY AND AUTHORITY. Each Responsible Shareholder represents,
severally and not jointly and severally, that such Shareholder has the capacity
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated by this Agreement
without the necessity of any act or consent of any other person not previously
obtained. This Agreement and each and every agreement, document and instrument
to be executed, delivered and performed in connection with this Agreement by
such Shareholder constitutes or will, when executed and delivered, constitute
the valid and legally binding obligations of such Shareholder, enforceable
against such Shareholder 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.
2.2A CAPITALIZATION; OWNERSHIP OF COMPANY STOCK. Each Shareholder
represents, by execution and delivery of this Agreement and/or execution and
delivery of a letter of transmittal or similar instrument referred to in Section
7.2 (a) hereof, that such Shareholder is the legal and beneficial owner of the
number of shares of Company Stock reflected opposite his, her or its name on
SCHEDULE 2.2A, free and clear of all liens, claims, charges, encumbrances,
security interests, pledges or other claims.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MEDIRISK AND MERGER SUB
Medirisk and Merger Sub, jointly and severally, represent and warrant to
the Shareholders as follows:
3.1 ORGANIZATION AND STANDING. Medirisk and Merger Sub are each
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware with the full power and authority to carry on
their respective businesses in the places and as they are now being conducted.
3.2 AUTHORITY AND STATUS. Each of Medirisk and Merger Sub 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 Medirisk or Merger Sub in connection with this Agreement constitute
or will, when executed and delivered, constitute the valid and legally binding
obligations of Medirisk or Merger Sub, enforceable against Medirisk or Merger
Sub 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 the Transaction Documents by
Medirisk and Merger Sub do not, and the consummation of the transactions
contemplated hereby will not, (a) violate or conflict with any provision of the
Certificate of Incorporation, as amended, or Bylaws, as amended, of Medirisk or
Merger Sub; (b) require any consent or approval under, conflict with, result in
the breach, termination or acceleration of, or violate or constitute an
occurrence of default under any provision of any mortgage, deed of trust,
conveyance to secure debt, note, loan, lien, lease, agreement or instrument to
which Medirisk or Merger Sub is a party or by which the Company, any Shareholder
or any of their respective properties are bound; or (c) constitute a violation
of any law, regulation, order, writ, judgment, injunction, or decree applicable
to Medirisk or Merger Sub or any of Medirisk's or Merger Sub's properties.
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3.4 SEC FILINGS. True, correct and complete copies of the following
documents have been made available to the Shareholders: (i) Medirisk's Annual
Report on Form 10-K for the fiscal year ended 31 December 1996, as filed with
the Securities and Exchange Commission (the "SEC"); and (ii) Medirisk's
Quarterly Reports on Form 10-Q for the three-month period[s] ended 31 March
1997, 30 June 1997 and 30 September 1997, respectively, as filed with the SEC
(collectively the "SEC Reports"). Since 30 September 1997, there has been no
material adverse change in the condition (financial or otherwise), assets,
liabilities, business or operations of Medirisk that is unique to the business
of Medirisk and its consolidated subsidiaries and that is required to be
disclosed by applicable law or by the rules of the Nasdaq National Market. None
of the SEC Reports contains a misstatement of material fact or omits to state a
material fact necessary to be stated therein in order that the statements made
therein are not misleading.
ARTICLE IV
COVENANTS AND UNDERTAKINGS
4.1 COVENANT NOT TO COMPETE. At Closing, Garton and Chermak will each
enter into a Covenant Not to Compete with Medirisk and Merger Sub substantially
in the form of attached Exhibit 4.1 (the "Covenants Not to Compete").
4.2 EMPLOYMENT AGREEMENT AND CONSULTING AGREEMENT. At Closing, Garton and
Chermak shall each enter into an Employment Agreement with Merger Sub in
substantially the form attached hereto as EXHIBIT 4.2 (each an "Employment
Agreement").
4.3 INVESTMENT LETTER. At Closing, each Shareholder receiving Medirisk
Common Stock under Section 1.5 will execute and deliver to Medirisk an
investment letter with respect to the Medirisk Common Stock to be delivered to
such Shareholder at Closing substantially in the form of attached EXHIBIT 4.3
(the "Investment Letter").
4.4 SHAREHOLDER CONSENT. Each Shareholder shall execute and deliver a
Shareholder Consent and Power of Attorney substantially in the form of attached
EXHIBIT 4.4 (the "Shareholder Consent") appointing Michael D. Chermak to act as
his, her or its attorney-in-fact for purposes of this Agreement and the
obligations and covenants of such Shareholder hereunder. In such capacity
Michael D. Chermak (and any successor of Michael D. Chermak in such capacity as
provided in the Shareholder Consent) is referred to in this Agreement as the
"Shareholders' Representative."
4.5 CONSENTS AND APPROVALS. The Company agrees to use its 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 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 Medirisk 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) the Merger Effective Time and (ii) the termination of this
Agreement, the Company will (a) not make any distributions of its assets to any
persons except as expressly contemplated by the Schedules hereto; (b) conduct
its operations in the ordinary course of business; (c) keep and maintain its
properties and facilities in good condition, repair and working order,
reasonable wear and tear excepted, and fully insured for liability and property
damages; (d) use its reasonable best efforts to preserve intact its business;
(e) use its reasonable best efforts to retain the service of its employees,
agents and consultants involved with or employed by the Company on terms and
conditions not less favorable than those existing prior to the execution of this
Agreement; (f) cooperate with Medirisk's representatives (without disclosure of
this Agreement or the contemplated sale to the Company's customers or suppliers
without the consent of Medirisk) in reviewing facts and establishing and
implementing procedures necessary to effect the Merger as contemplated by this
Agreement; (g) conduct its activities in a manner consistent with this
Agreement; (h) not enter into, assume or make any contract, loan, license,
designation, loan commitment, purchase, sale
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or disposition of assets of the Company outside the ordinary course of business;
(i) except for mailing invoices in the ordinary course of business, not contact
any customer regarding collection of any account receivable and not discount any
account receivable; (j) not declare any dividend or comparable distribution of
assets; and (k) promptly advise Medirisk in writing of any material adverse
change in the Company's financial condition or business affairs.
4.7 TERMINATION OF EMPLOYMENT AGREEMENTS. Chermak and Garton severally
agree that any employment or management agreement to which he is a party with
the Company will be terminated effective at the Closing without any further
action by such individual, the Company or Medirisk, and no party to any such
agreement will have any liability or obligation thereunder of any nature or kind
from and after the Closing Date.
4.8 RESIGNATIONS. At the Closing, the Company will deliver to Medirisk
resignations, effective on or before the Closing Date of each officer and each
director resigning from all director and/or officer positions held by such
person with the Company.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF MEDIRISK AND MERGER SUB
The obligations of Medirisk and Merger Sub 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 the Company in this Agreement or any
document or instrument delivered to Medirisk or Merger Sub 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. The Company shall have duly performed all of the
agreements, covenants, acts and undertakings to be performed by it 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 judgment of
Medirisk, 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. The Shareholders shall have delivered to Medirisk the
written consents of third parties and all governmental consents and approvals,
if any, referred to in Section 4.5 hereof, which consents shall be in form,
scope and substance reasonably satisfactory to Medirisk and its counsel.
75.5 GOOD STANDING CERTIFICATE. Medirisk shall have received a Certificate
of Existence or Good Standing from the States of California and Tennessee, and
from each other state in which the Company is qualified to transact business as
a foreign corporation, with respect to the Company as of the most recent
practical date prior to the Closing Date.
5.6 DUE DILIGENCE. Medirisk 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.
5.7 OPINION OF COUNSEL. Medirisk shall have received an opinion of counsel
to the Company substantially in the form of attached EXHIBIT 5.7.
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ARTICLE VI
Conditions Precedent to the
Obligations of the Shareholders to Close
The obligations of the Company 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 Medirisk and Merger Sub in this Agreement
or any document or instrument delivered to the Shareholders 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. Medirisk and Merger Sub 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.
6.3 OPINION OF COUNSEL. The Shareholders shall have received an opinion of
counsel to Medirisk substantially in the form of attached EXHIBIT 6.3.
ARTICLE VII
Closing
7.1 TIME AND PLACE OF CLOSING. (a) The closing (the "Closing") of the
transactions contemplated by this Agreement will be held on 26 March 1998 or
such other date as the parties may agree. The Closing shall commence at 10:00
a.m. at the offices of Medirisk, Inc., Two Piedmont Center, Suite 400, 3565
Piedmont Road, N.E., Atlanta, Georgia 30305-1502 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."
(b) The parties hereto agree that should the Closing occur, the effective
time and date of the Merger solely for accounting purposes shall be 12:01 a.m.
Eastern Time on 23 March 1998 (the "Accounting Effective Date"). By way of
explanation, the parties intend, in light of the de facto control of the
Company's business exerted by Medirisk from and after 23 March 1998, that all
revenue generated after 23 March 1998 shall be for the benefit of Medirisk. The
parties acknowledge that while for accounting purposes the effective date of the
Merger shall be 23 March 1998, no obligations that accrue under contracts or
agreements prior to the Merger Effective Time and no accrued liabilities of the
Company shall be assumed, directly or indirectly, by Medirisk except unless and
until the Merger Effective Time, that no employees or other agents of the
Company shall directly or indirectly become employees or other agents of
Medirisk for any period prior to the Merger Effective Time, and that all
covenants, representations and warranties in the certificates to be provided by
the Shareholders pursuant to Section 5.1 shall be made and dated as of the
Closing Date. Notwithstanding the foregoing, neither the Company nor the
Shareholders shall have any liability nor bear any cost arising from or
associated with Medirisk's inability to account, for any purpose, for the
transaction contemplated hereby on the basis set forth in this Section 7.1(b).
7.2 TRANSACTIONS AT CLOSING. (a) The following deliveries shall be made at
the Closing:
(i) The Company shall deliver or cause to be delivered to Medirisk
Certificates of Good Standing of the Company, as of the most recent
practicable date, as contemplated by Section 5.5;
(ii) As contemplated by Section 4.1, Medirisk, Merger Sub and each of
Garton and Chermak shall execute and deliver to each other the Covenants
Not to Compete;
(iii) As contemplated by Section 4.2, Merger Sub and each of Garton
and Chermak shall execute and deliver to each other their Employment
Agreements;
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(iv) As contemplated by Section 4.3, each of the Shareholders
receiving Medirisk Common Stock shall execute and deliver to Medirisk an
Investment Letter;
(v) As contemplated by Section 4.4, each of the Shareholders shall
execute and deliver to Medirisk a Shareholder Consent;
(vi) Each of the Shareholders (who actually have been issued share
certificates in Company Stock) shall deliver to Medirisk certificates for
the Company Stock formerly representing their shares of Company Stock, duly
endorsed for transfer or accompanied by blank stock powers or equivalent
letter of transmittal;
(vii) Counsel for the Company shall have delivered to Medirisk the
form of opinion attached hereto as Exhibit 5.7; and
(viii) Counsel for Medirisk shall have delivered to the Shareholders'
Representative, on behalf of the Shareholders, the form of opinion attached
hereto as Exhibit 6.3.
(b) At Closing (or as soon as practicable thereafter once all the items
referred to in Section 7.2(a) have been delivered) Medirisk shall:
(i) Cause Merger Sub to disburse the Cash Initial Consideration as set
forth in SCHEDULE 1.5(C) (that portion thereof deliverable to the
Shareholders' Representative on behalf of the Shareholders who have
tendered their certificates representing Company Stock to be allocated
among such Shareholders as set forth on SCHEDULE 1.5(C) under the heading
"Allocation of Cash and Medirisk Common Stock Deliverable to
Shareholders").
(ii) Medirisk shall cause Merger Sub to deliver Medirisk Common Stock
to the Shareholders' Representative for allocation to the Shareholders as
set forth on SCHEDULE 1.5(C) under the heading "Allocation of Cash and
Medirisk Common Stock Deliverable to Shareholders."
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
The parties shall have the mutual rights of indemnification set forth on
Schedule 8.
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 the Shareholders' Representative and
Medirisk;
(b) By the Shareholders' Representative after 31 March 1998 if
Medirisk or Merger Sub 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 Medirisk after 31 March 1998, if any Shareholder 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;
(d) By the Shareholders' Representative or Medirisk at any time after
30 April 1998 if the Closing shall not have occurred for any reason on or
prior to 30 April 1998.
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(e) By either Medirisk or the Shareholders' Representative if there
shall be any order, writ, injunction or decree of any court or governmental
or regulatory agency binding on Medirisk, Merger Sub, the Company or any
Shareholder, which prohibits or restrains Medirisk, Merger Sub, the Company
and/or any Shareholder from consummating the Merger hereunder, provided
that Medirisk and the Shareholders 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 ten (10) 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 Shareholders 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 Medirisk
shall have the right to terminate this Agreement. 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
Medirisk nevertheless forgoes the right to terminate this Agreement, then the
Merger Consideration 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 Medirisk, on the one
hand, and the Shareholders, 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 Medirisk, and if said
accounting firms do not agree, they shall appoint a Designated Accountant (in
the manner prescribed in SCHEDULE 1.5(B)) to make such determination, whose
determination of the dispute shall be final and binding. For purposes of this
Section 9.4 the fees and expenses of the Designated Accountant shall be borne
one-half by Medirisk and one-half by Shareholders.
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 any Shareholder:
Michael D. Chermak, Shareholders' Representative
Suite 701
4901 Morena Boulevard
San Diego, California 92117
Facsimile: (619) 581-3495
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With a copy (which shall not constitute notice) to:
Norman C. Davis, Esq.
Suite 400
2010 Main Street
Irvine, California 92614
Facsimile: (714) 832-9405
If to Medirisk:
Medirisk, Inc.
Two Piedmont Center, Suite 400
3565 Piedmont Road
Atlanta, Georgia 30305-1502
Attention: Legal Department
Facsimile: (404) 364-6703
(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.
10.2 BROKERS. Medirisk and Merger Sub represent and warrant to the
Shareholders, and the Shareholders jointly and severally represent and warrant
to Medirisk and Merger Sub, 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.
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. The
Shareholders 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 (all such
expenses to be paid by the Shareholders from the Cash Initial Consideration
according to their proportionate interests in the Company) and that, if the
Company pays any such expenses, Shareholders 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
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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.
10.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia.
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.
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.
MEDIRISK, INC.
By:
------------------------------------
Kenneth M. Goins, Jr.
Executive Vice President &
Chief Financial Officer
Merger Sub:
HEALTHDEMOGRAPHICS, INC.
By:
------------------------------------
Kenneth M. Goins, Jr.
Executive Vice President &
Chief Financial Officer
Company:
HEALTHDEMOGRAPHICS
By:
------------------------------------
P. Timothy Garton
Chief Executive Officer
Responsible Shareholders:
--------------------------------------
Michael D. Chermak
--------------------------------------
P. Timothy Garton
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<PAGE> 83
Signing Shareholders:
(The following Shareholders join in
this Agreement solely for purposes of
those representation specifically made
by the Signing Shareholders in Section
1.6 of this Agreement):
--------------------------------------
Richard D. Propper
--------------------------------------
David Smith, both individually and as
Manager of Interim Advantage Fund, LLC
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<PAGE> 84
EXHIBIT D
CERTIFICATE OF DESIGNATION OF
SERIES 1998-A PREFERRED STOCK
OF
MEDIRISK, INC.
Pursuant to the authority in its Certificate of Incorporation and Section
151 of the Delaware General Corporation Law, as amended (the "DGCL"), Medirisk,
Inc., a Delaware corporation (the "Corporation"), hereby adopts the following
designation of the Series 1998-A Preferred Stock and certifies:
FIRST: The name of the Corporation is Medirisk, Inc.
SECOND: The following designation of preferred stock is hereby added
to the Certificate of Incorporation of the Corporation in accordance with
Section 151 of the DGCL by the addition of a provision stating the number,
designation, powers, relative, participating, optional and other special
rights of a series of preferred stock of the Corporation, as fixed by the
Board of Directors of the Corporation under authority contained in Article
IV of the Corporation's Certificate of Incorporation.
To effect the foregoing, the following provisions designating a series
of preferred stock, to be known as the Series 1998-A Preferred Stock, as
set forth in Exhibit "A" attached hereto, are hereby added to Article IV of
the Corporation's Certificate of Incorporation.
THIRD: The foregoing designation as set forth in Article Second of
this Certificate of Designation was authorized and adopted by the Board of
Directors of the Corporation by unanimous written consent effective as of
the 26th day of March 1998.
FOURTH: The designation has been duly adopted in accordance with the
provisions of Section 151 of the DGCL.
IN WITNESS WHEREOF, Medirisk, Inc. has caused this Certificate of
Designation to be executed by its duly authorized officer and declares and
certifies that this is the act and deed of the Corporation and that the facts
herein stated are true this 26th day of March 1998.
MEDIRISK, INC.
By:
------------------------------------
Barry W. Burt
Secretary
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EXHIBIT "A"
TO
CERTIFICATE OF DESIGNATION OF
SERIES 1998-A REDEEMABLE PREFERRED STOCK
1. DESIGNATION. There is hereby designated a series of preferred stock to
be known as the "Series 1998-A Redeemable Preferred Stock" consisting of Five
Thousand (5,000) shares of the undesignated preferred stock of the Corporation
(the "Series 1998-A Preferred Stock"), which series shall have the following
rights, terms and privileges:
2. DIVIDENDS. (a) The holders of record of the then outstanding Series
1998-A Preferred Stock shall be entitled to receive when, as and if declared by
the Board of Directors of the Corporation, out of the funds legally available
therefor, cumulative dividends at the annual rate of five percent (5%) per
share. Such dividends shall accrue on each share of Series 1998-A Preferred
Stock from and after the date on which each such share is issued by the
Corporation (the "Issue Date"), shall accrue from day to day, shall be declared
and paid annually on December 31 of each year, and shall be payable in cash.
(b) Subject to the provisions of this Section 2, the Corporation 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 Corporation,
but only if all accrued dividends and distributions on the Series 1998-A
Preferred Stock shall have been paid and made in full prior to the date of any
such declaration, payment, provision or distribution.
3. LIQUIDATION RIGHTS. (a) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities and
obligations of the Corporation and payment of the liquidation preference with
shares to any shares of preferred stock of the Corporation ranking senior to
Series 1998-A Preferred Stock upon dissolution, each holder of Series 1998-A
Preferred Stock then outstanding shall be entitled to be paid out of the net
assets of the Corporation available for distribution to the stockholders of the
Corporation prior and in preference to any payment or declaration and setting
apart for payment of any amount in respect of the Common Stock of the
Corporation (the "Common Stock"), an amount equal to the sum of the following:
(i) Ten Thousand Dollars ($10,000.00) per share of Series 1998-A Preferred Stock
held by such holder, and (ii) an amount equal to all accrued and unpaid
dividends thereon, whether or not declared, to and including the date full
payment shall be tendered to the holders of the Series 1998-A Preferred Stock
with respect to such liquidation, dissolution or winding up (clauses (i) and
(ii), collectively the "Series 1998-A Liquidation Preference"); if upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed to the holders of the Series 1998-A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aggregate amount of the Series 1998-A Liquidation Preference, then all
of the net assets of the Corporation available for distribution to its
shareholders shall be distributed ratably among the holders of the Series 1998-A
Preferred Stock in proportion to the then applicable Series 1998-A Liquidation
Preference.
(b) Upon the completion of the distribution required by Section 3(a) above,
if assets of the Corporation remain to be distributed, the holders of Common
Stock of the Corporation and any shares ranking on liquidation junior to the
Series 1998-A Preferred Stock shall be entitled to the remaining assets of the
Corporation.
(c) Written notice of any such liquidation, dissolution or winding up,
stating a payment date, the place where such payment shall be made, shall be
given to the holders of the Series 1998-A Preferred Stock not later than ten
(10) business days prior to such payment date.
(d) Whenever the distribution provided for in this Section 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
Corporation's Board of Directors.
4. VOTING RIGHTS. Except as otherwise expressly provided herein or as
required by law, the holders of Series 1998-A Preferred Stock shall be entitled
to vote on all matters upon which holders of Common Stock have the right to vote
and, with respect to such vote, shall be entitled to notice of any meeting of
the
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<PAGE> 86
Corporation's stockholders in accordance with the bylaws of the Corporation, and
shall be entitled to a number of votes per share of Series 1998-A Preferred
Stock equal to the number of shares of Common Stock into which a share of Series
1998-A Preferred Stock is then convertible as provided in Section 6 below.
Except as otherwise expressly provided herein, or to the extent class or series
voting is otherwise required by law, the holders of Series 1998-A Preferred
Stock and Common Stock shall vote together as a single class and not as separate
classes. Notwithstanding any provision of the Certificate of Incorporation or
the Delaware General Corporation Law, as amended, to the contrary, the Board of
Directors may at any time and from time to time include additional shares in the
designation of Series 1998-A Preferred Stock, designate one or more series or
classes of preferred stock with liquidation preferences, voting rights, dividend
rights and other rights and privileges senior to the Series 1998-A Preferred
Stock without the vote or consent of, or notice to, the holders of the Series
1998-A Preferred Stock.
5. REDEMPTION RIGHTS. (a) Effective upon the fifth anniversary of any
Issue Date, the Corporation may redeem for cash all, but not less than all, of
the shares of Series 1998-A Preferred Stock issued on such Issue Date that are
then outstanding by giving notice to the holders thereof of such redemption.
Dividends shall cease to accrue on any share of Series 1998-A Preferred Stock
for which notice of redemption has been given by the Corporation as of the date
fixed in such notice for redemption, and such shares to be redeemed shall cease
to be outstanding as of such date and shall represent only the right to receive
the Redemption Price therefor, without interest. With such notice of redemption
the Corporation shall include a letter of transmittal or other instructions
regarding the surrender of certificates representing Series 1998-A Preferred
Stock and the receipt of payment therefor. The redemption price for any shares
redeemed pursuant to this Section 5(b) shall be the Series 1998-A Liquidation
Preference (the "Redemption Price"), and the Redemption Price shall be paid by
the Corporation to the holder of Series 1998-A Preferred Stock upon surrender to
the Corporation of the certificate(s) representing the Series 1998-A Preferred
Stock being redeemed duly endorsed for transfer or accompanied by blank stock
powers.
(b) Effective upon the twentieth anniversary of each Issue Date, the
Corporation shall redeem for cash all, but not less than all, of the shares of
Series 1998-A Preferred Stock issued on such Issue Date that are then
outstanding by giving notice to the holders thereof of such redemption.
Dividends shall cease to accrue on any share of Series 1998-A Preferred Stock
for which notice of redemption has been given by the Corporation as of the date
fixed in such notice for redemption, and such shares to be redeemed shall cease
to be outstanding as of such date upon payment of, or provision for payment of,
the redemption price therefor, and shall represent only the right to receive the
Redemption Price therefor, without interest. With such notice of redemption the
Corporation shall include a letter of transmittal or other instructions
regarding the surrender of certificates representing Series 1998-A Preferred
Stock and the receipt of payment therefor. The redemption price for any shares
redeemed pursuant to this Section 5(b) shall be the Redemption Price, and the
Redemption Price shall be paid by the Corporation to the holder of Series 1998-A
Preferred Stock upon surrender to the Corporation of the certificate(s)
representing the Series 1998-A Preferred Stock being redeemed duly endorsed for
transfer or accompanied by blank stock powers.
6. MANDATORY CONVERSION. (a) If, while any shares of Series 1998-A
Preferred Stock are outstanding, the Market Value (as defined below) equals or
exceeds the Series 1998-A Conversion Price (as defined below), then each share
of Series 1998-A Preferred Stock shall automatically and without any action on
the part of the holder thereof or the Corporation be converted into a number of
shares of Common Stock that results from dividing the Series 1998-A Liquidation
Preference by the Series 1998-A Conversion Price in effect at the time of
conversion of such Series 1998-A Preferred Stock.
(b) For purposes of this Certificate of Designation, the term "Market
Value" means, on any date, the average of the daily closing prices per share of
Common Stock for the twenty (20) consecutive Trading Days (as defined below)
immediately prior to such date; provided that such twenty (20) consecutive
Trading Days shall in no event include any Trading Day (i) before the first full
Trading Day after the first public announcement of the issuance of a dividend or
other distribution on the Common Stock, or (ii) after the last full Trading Day
prior to the commencement of "ex-dividend" trading on the exchange or market
specified in the following sentence. The closing price for each day shall be the
last sale price or, in case no sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported in the principal
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<PAGE> 87
consolidated transaction reporting system with respect to the principal national
securities exchange or Nasdaq National Market on which the Common Stock is then
listed or admitted to trading or, if the Common Stock is not so listed or
admitted to trading, the last quoted sale price or, if not so quoted, the
average of the bid and asked prices in the over-the-counter market as reported
by the Nasdaq Stock Market or such other system then in use, or, if on any such
date the Common Stock is not quoted by any such organization, the average
closing bid and asked prices as furnished by a professional market maker making
a market in the Common Stock selected by the Board of Directors of the
Corporation. For purposes of this Certificate of Designation, the term "Trading
Day" means a day on which the principal securities exchange on which the Common
Stock is listed or admitted to trading is open for the transaction of business
or, if the Common Stock is not so listed or admitted to trading, any day other
than a Saturday, Sunday or a day on which banking institutions in the State of
New York are authorized or obligated by law or executive order to close.
(c) For purposes of this Certificate of Designation, the term "Series
1998-A Conversion Price" means $22.6094, adjusted as provided in the next
succeeding sentence. If the Corporation shall at any time or from time to time
after March 31, 1998 effect a subdivision or combination of its outstanding
Common Stock (whether by stock split, stock dividend or otherwise), the Series
1998-A Conversion Price in effect immediately before that subdivision or
combination shall be proportionately adjusted by multiplying the then effective
Series 1998-A Conversion Price by a fraction, (i) the numerator of which is the
number of shares of Common Stock issued and outstanding immediately prior to
such subdivision or combination, and (ii) the denominator of which is the number
of shares of Common Stock issued and outstanding immediately after such
subdivision or combination. The number of shares of Common Stock outstanding at
any time shall, for the purposes of this Section 6(c), include the number of
shares of Common Stock into which any convertible securities of the Corporation
may be converted, or for which any warrant, option or rights of the Corporation
may be exchanged. Any adjustment under this Section 6(c) shall become effective
at the close of business on the date the subdivision or combination becomes
effective.
(d) If at any time or from time to time there shall be (i) a capital
reorganization of the Common Stock (other than a subdivision or combination of
shares provided for in Section 6(c) above) or (ii) a merger, consolidation or
statutory share exchange of the Corporation with or into another corporation in
which consolidation, merger or statutory share exchange persons owning capital
stock of the Corporation 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 Corporation's properties and assets or capital stock to any other
person, then, as a part of such reorganization, merger, consolidation, share
exchange or sale (a "Transaction"), provision shall be made so that the holders
of the Series 1998-A Preferred Stock shall receive in the Transaction payment of
the Series 1998-A Liquidation Preference or shall, after the Transaction, be
entitled to receive, upon conversion of the Series 1998-A Preferred Stock, the
number of shares of stock or other securities or property of the Corporation, or
of the successor corporation resulting from the Transaction, to which a holder
of the maximum number of Common Stock into which such Series 1998-A Preferred
Stock would then be converted would have been entitled on the Transaction. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 6 with respect to the rights of the holders of the
Series 1998-A Preferred Stock after the Transaction to the end that the
provisions of this Section 6 (including adjustment of the Series 1998-A
Conversion Price then in effect and the number of shares issuable upon
conversion of the Series 1998-A Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(e) The provisions of subsections (c) and (d) of this Section 6 shall apply
to successive issuances, dividends or other distributions, subdivisions and
combinations or Transactions on or of Common Stock after March 31, 1998.
(f) In each case of an adjustment or readjustment of the Series 1998-A
Conversion Price, the Corporation, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Corporation
(who may be the independent certified public accounts then auditing the books of
the Corporation) to compute such adjustment or readjustment in accordance with
this Certificate of Designation and prepare a certificate showing such
adjustment or readjustment, and shall mail such
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certificate, by first-class mail, postage prepaid, to each registered holder of
the Series 1998-A Preferred Stock at the holder's address as shown in the
Corporation's books.
(g) No fractional shares of Common Stock shall be issued upon conversion of
Series 1998-A Preferred Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall pay cash equal to the
product of such fraction multiplied by the Market Value 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 shares of Series 1998-A
Preferred Stock held by the holder that is at the time being converted into
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
(h) The Corporation shall at all times reserve and keep available out of
its authorized but unissued Common Stock such number of shares of Common Stock
as may from time to time be required, at such time, to be issued by the
Corporation upon exercise of all then-exercisable warrants and options to
purchase shares of Common Stock or the right to convert other convertible
securities into shares of Common Stock and such number of shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series 1998-A Preferred Stock.
(i) Any notice required by the provisions of this Section 6 to be given to
the holders of the Series 1998-A Preferred Stock 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 Corporation.
(j) The Corporation will pay all taxes and other governmental charges
(other than taxes measured by the revenue or income of the holders of the Series
1998-A Preferred Stock) that may be imposed in respect of the issue or delivery
of Common Stock upon conversion of the Series 1998-A Preferred Stock.
(k) No Series 1998-A Preferred Stock acquired by the Corporation 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
Corporation shall be authorized to issue
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PROXY APPENDIX
MEDIRISK, INC.
PROXY APPOINTMENT SOLICITED BY AND ON BEHALF OF
THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 29, 1998
The undersigned Stockholder of Medirisk, Inc. (the "Company"), hereby
constitutes and appoints Mark A. Kaiser, Kenneth M. Goins, Jr., and Barry W.
Burt, or any one of them, each with full power of substitution, to vote the
number of shares of Common Stock which the undersigned would be entitled to
vote if personally present at the Annual Meeting of Stockholders to be held at
the principal offices of the Company, Two Piedmont Center, Suite 400, 3565
Piedmont Road, N.E., Atlanta, Georgia 30305-1502, on July 29, 1998, at 10:30
a.m., local time, or at any adjournments thereof (the "Annual Meeting"), upon
the proposals described in the Notice of Annual Meeting of Stockholders and
Proxy Statement, both dated June __, 1998, the receipt of which is
acknowledged, in the manner specified below.
PROPOSAL 1: ELECTION OF DIRECTORS. On the proposal to elect the following
persons to serve as Class 2 Directors for a three-year period and until their
successors are elected and qualified:
CLASS 2
Michael J. Finn
James K. Murray, III
[_] FOR [_] ABSTAIN
For, except vote withheld from the following nominee(s):
- - --------------------------------------------------------------------------------
PROPOSAL 2: MEDIRISK, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN. On the proposal
to approve the Medirisk, Inc. 1998 Employee Stock Purchase Plan:
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 3: MEDIRISK, INC. 1998 LONG-TERM INCENTIVE PLAN. On the proposal to
approve the Medirisk, Inc. 1998 Long-Term Incentive Plan:
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 4: ISSUANCE OF COMMON STOCK OR SERIES 1998-A PREFERRED STOCK BY THE
COMPANY TO THE FORMER SHAREHOLDERS OF HEALTHDEMOGRAPHICS. On the proposal to
approve, for purposes of the listing requirements of the Nasdaq Stock Market's
National Market, of the issuance of Common Stock or Series 1998-A Preferred
Stock by the Company to the former shareholders of Healthdemographics, a
corporation recently acquired by the Company, to the extent such issuance could
result in the Company issuing more than twenty percent (20%) of the issued and
outstanding Common Stock of the Company as of March 31, 1998 in connection with
the acquisition of Healthdemographics:
[_] FOR [_] AGAINST [_] ABSTAIN
<PAGE> 90
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL OF THE PROPOSALS SET FORTH ON THE REVERSE HEREOF AND WITH
DISCRETIONARY AUTHORITY ON ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.
Please sign exactly as your name appears on your stock certificate and
date. Where shares are held jointly, each Stockholder should sign. When
signing as executor, administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
SHARES HELD:
---------------------------------
---------------------------------------------
Signature of Stockholder
---------------------------------------------
Signature of Stockholder (If held Jointly)
Date: 1998
-----------------------------------
Month Day
