<PAGE> 1
As filed with the Securities and Exchange Commission on October ___, 1997
Registration No. 333-____
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WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MERGE TECHNOLOGIES INCORPORATED
(Name of small business issuer as specified in its charter)
WISCONSIN 3669 39-1600938
------------------ ------------------------------ ----------------------
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
1126 SOUTH 70TH STREET
SUITE S107B
MILWAUKEE, WISCONSIN 53214-3151
(414) 475-4300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
WILLIAM C. MORTIMORE
PRESIDENT
1126 SOUTH 70TH STREET
SUITE S107B
MILWAUKEE, WISCONSIN 53214-3151
(414) 475-4300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
COPIES TO:
MITCHELL D. GOLDSMITH, ESQ. ELIZABETH R. HUGHES, ESQ.
Shefsky & Froelich Ltd. Venable, Baetjer and Howard, LLP
444 N. Michigan Avenue, Suite 2500 1800 Mercantile Bank & Trust Building
Chicago, IL 60611 Two Hopkins Plaza
(312)527-4000 Baltimore, Maryland 21201-2978
(410) 244-7400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, check the following box: [ ]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED BE PRICE OFFERING REGISTRATION
REGISTERED(1) PER SHARE(2) PRICE FEE
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<S> <C> <C> <C> <C>
Common Stock 2,185,000 $8.00 $17,480,000 $5,297
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</TABLE>
(1) Includes 285,000 Shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
1,900,000 SHARES
[MERGE LOGO]
MERGE TECHNOLOGIES INCORPORATED
COMMON STOCK
---------------------
The 1,900,000 shares of common stock, par value $0.01 per share (the
"Common Stock") offered hereby are being issued and sold by Merge Technologies
Incorporated (the "Company"). Prior to the offering contemplated hereby (the
"Offering"), there has been no public market for the Common Stock. It is
anticipated that the initial public offering price will be between $7.00 and
$8.00 per Share. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price. The Company has applied to
have the Common Stock included for quotation on the Nasdaq SmallCap Market under
the symbol "MRGE."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
SUBSTANTIAL IMMEDIATE DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share...................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3)....................... $ $ $
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</TABLE>
(1) Excludes a non-accountable expense allowance equal to three percent (3.0%)
of the total proceeds from the sale of the Common Stock payable to H.C.
Wainwright & Co., Inc. (the "Representative") and the value of warrants to
be issued to the Representative to purchase the number of shares of Common
Stock equal to ten percent (10%) of the number of shares being offered
hereby at an exercise price of 120% of the Price to Public (the
"Representative's Warrants"). The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $ , ($ , if the Underwriters' over-allotment option
is exercised in full) including the Representative's non-accountable expense
allowance. See "Underwriting."
(3) The Company has granted the Underwriters a 30-day option to purchase up to
285,000 additional shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If the Underwriters exercise
such option in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
---------------------
The shares of Common Stock are being offered severally by the Underwriters
named herein, subject to prior sale, when, as and if issued to and accepted by
them, subject to the approval of certain legal matters by counsel for the
Underwriters and to certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the shares of Common Stock will be made in
Boston, Massachusetts on or about , 1997.
H.C. WAINWRIGHT & CO., INC.
The date of this Prospectus is , 1997.
<PAGE> 3
INSIDE FRONT COVER PAGE
The top half of the front cover page contains a large oval with a Merge
logo in the center. Pictures of various medical image-producing and image-using
devices are displayed around the circumference of the oval. Radial lines connect
each medical device to the Company's logo in the center. A downward arrow points
from the center to a caption just below the oval that reads "Shared information
with outside networks." Graphics labeled "Hospitals" and "Clinics" flank this
caption.
Below the oval are six pictures (in two rows of three each) of the
Company's products. The products displayed include MergeCOM-3, MergeMVP,
MergeAPS, MergeXPI, MergeARK and CaseWorks. A caption above the product pictures
reads "Merge Product Line."
[Inside Cover Printed Here]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
MergeMVP(TM), MergeXPI(TM), MergeAPS(TM), MergeARK(TM), MergeCOM-3(TM),
MergeLINK(TM), MergeWorks(TM), CaseWorks(TM), MergeVPI(TM), MergeDPI(TM),
MergeXPI(TM), MergeReader(TM), MergeBOX(TM) and ReportManager(TM) among other
marks, are trademarks or service marks of the Company.
i
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. Potential
purchasers of the Common Stock should read carefully this Prospectus in its
entirety and should consider carefully the factors identified under "Risk
Factors." Except as otherwise indicated, the information contained herein: (i)
reflects a 6.77217-for-one stock split of Common Stock effected as a stock
dividend as of the closing of the Offering, (the "Stock Dividend"); (ii) assumes
the redemption and retirement of 424,757 shares of Common Stock held by Alpha
Capital Venture Partners, Limited ("Alpha"); (iii) assumes repayment of a
Secured Promissory Note dated June 30, 1997, in favor of Sirrom Capital
Corporation ("Sirrom") in the principal amount of $2,000,000 (the "Sirrom
Note"); (iv) assumes the issuance of 108,942 shares of Common Stock issuable
pursuant to a warrant originally issued to Sirrom to acquire for nominal
consideration 145,256 shares of Common Stock and subsequently modified as of
October 6, 1997 (the "Sirrom Warrant") (see "Certain Transactions"); (v) assumes
payment of a fee of approximately $245,000 to Sirrom in connection with the
Sirrom Warrant (the "Sirrom Termination Fee"); and (vi) assumes the
Underwriters' over-allotment option is not exercised. Unless the context
otherwise requires, the terms "Merge" and the "Company" include Merge
Technologies Incorporated, a Wisconsin corporation, and its subsidiary.
THE COMPANY
The Company provides software, hardware and systems integration products
and services that enable health care organizations to network otherwise
incompatible medical image-producing and image-using devices. Medical
image-producing devices primarily include digital x-ray, computed tomography
("CT"), magnetic resonance imaging ("MRI"), computed radiography ("CR"),
ultrasound and nuclear medicine machines. Medical image-using devices primarily
include video display terminals, specialty workstations, medical film laser
printers that facilitate the use of diagnostic medical images and digital image
archiving systems. The Company's products can support over 200 different
combinations of image-producing and image-using devices and have been installed
at over 1,000 health care facilities throughout the world. The Company's
products provide a communications bridge between incompatible medical
image-producing and image-using devices, permit radiologists to use either video
images on electronic workstations or film as a diagnostic medium and create a
diagnostic-quality electronic archive of imaging results. In addition, the
Company's products permit the information generated and used by medical imaging
devices to be included in a health care organization's information network or an
electronic patient record ("EPR").
The improvement of the exchange and storage of information by the various
participants in the health care delivery system is essential to the efficient
delivery of health care services. Such exchange and storage generally is
conducted through the manual transfer and storage of patient information in hard
copy format. If accomplished electronically, information exchange generally is
limited to text that can be transferred only among the internal departments of a
single institution. In recent years, however, the health care industry has
recognized that technology now permits the development of the EPR as a
repository of individual electronic patient information that can be exchanged
internally among the departments of a single organization, or externally among
all of the health care providers that serve an individual patient.
Until recently, despite advances in electronic information storage and
exchange technology in other sectors of health care organizations and
institutions, the exchange of imaging information produced by radiology
departments and diagnostic imaging centers was limited to hard copy format in
the form of film contained in individual patient jackets. Because the medical
image-producing and image-using devices manufactured by different original
equipment manufacturers ("OEMs") have historically utilized incompatible
proprietary communications protocols and data formats, the output of an
image-producing device manufactured by one OEM frequently cannot be used by an
image-using device produced by another OEM. As a result, such "legacy" devices
have not been compatible with the network technologies that permit electronic
exchange and storage of information. This medical image-producing and
image-using device connectivity problem has usually required the direct
connection of image-producing devices to dedicated image-using devices. Such
direct connections have required radiology departments and diagnostic imaging
2
<PAGE> 5
centers to purchase redundant equipment thereby increasing their capital
expenditures. Further, electronic storage of medical imaging information in
multiple communications protocols and data formats is not practical.
The Company's products address the incompatibility of the proprietary
communications protocols and data formats used by medical image-producing and
image-using devices by converting the output from a customer's existing base of
image-producing devices into a standard communications protocol and data format
- -- Digital Imaging Communications in Medicine ("DICOM" or the "DICOM standard").
Once in the DICOM standard, such data can be stored electronically, made
generally available on a network or converted into the particular proprietary
language required by any image-using device on the network. The Company's
products enable radiology departments, diagnostic imaging centers and the users
of their images and diagnostic reports to benefit in a variety of ways
including: (i) multiple image-producing devices can be connected to a single
workstation, film printer or other image-using device resulting in reduced
equipment expenditures; (ii) permanent electronic archives of diagnostic-quality
imaging results can be created, enabling the retrieval of these images at any
time in the future; (iii) the modular architecture of the Company's products
allows radiology departments and diagnostic imaging centers to build their
electronic image management infrastructures in an incremental, flexible and
cost-effective manner; and (iv) with the continued development of health care
information technology, diagnostic images collected and managed with the
Company's technology can be readily incorporated into a patient's EPR.
The Company's products and services available today include: (i) MergeWorks
Connectivity Products -- for retrofitting legacy stand-alone medical
image-producing and image-using devices thereby rendering such devices capable
of communicating over a DICOM network; (ii) OEM Interface Products --
connectivity software tool kits and interface board products that enable OEMs to
manufacture new radiology image-producing and image-using devices capable of
directly communicating with the DICOM standard; and (iii) Network Integration
Products and Services -- for the design and installation of DICOM networks,
including training, design assistance and testing services. In addition, the
Company has under development a line of Networked Image Management Products that
enables radiologists to select and manage specific diagnostic images which may
be incorporated into a diagnostic report or an EPR.
The Company's primary objective is to become a leading provider of
connectivity and data management solutions that facilitate the networking of
incompatible, proprietary devices in medical imaging and other diagnostic
systems. The key elements of the Company's strategy include: (i) sell MergeWorks
Connectivity Products for retrofitting legacy radiology image-producing and
image-using devices; (ii) sell OEM Interface Products for new radiology
image-producing and image-using devices; (iii) sell Network Integration Products
and Services; (iv) sell Networked Image Management Products to users of DICOM
networks; and (v) expand the Company's product and service offerings to other
image-intensive specialties and departments in the health care field.
The Company markets its products to OEMs, value-added resellers ("VARs"),
dealers and directly to end-users. The Company's customers include Siemens A.G.
("Siemens"), Philips Medical Systems Nederland B.V. ("Philips"), Toshiba Corp.
("Toshiba") and the GE Medical Systems Division of the General Electric Company
("GE"). The Company also markets its products to end-users through its direct
sales staff and through Picker International, Inc. ("Picker"), Konica Medical
Corporation and other nonexclusive third party dealers.
The Company's executive offices are located at 1126 South 70th Street,
Suite S107B Milwaukee, Wisconsin 53214-3151, its telephone number is (414)
475-4300 and its Internet address is www.merge.com.
3
<PAGE> 6
THE OFFERING
Common Stock being offered by the
Company................................... 1,900,000 shares
Common Stock to be outstanding after the
Offering(1)............................... 5,487,169 shares
Use of Proceeds........................... For: (i) repayment of the Sirrom
Note; (ii) redemption and
retirement of 424,757 shares of
Common Stock held by Alpha;
(iii) the hiring of new
personnel; (iv) payment of the
Sirrom Termination Fee; and (v)
working capital and other
general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq SmallCap Market Symbol.... MRGE
- ---------------
(1) Does not include: (i) 1,015,826 shares of Common Stock reserved for issuance
upon the exercise of options which may be granted pursuant to the Company's
1996 Stock Option Plan, of which options to purchase 939,815 of such shares
have been granted and are outstanding; and (ii) exercise of the
Representative's Warrants to purchase up to a number of shares equal to 10%
of the shares offered hereby at a price per share equal to 120% of the
initial offering price of the Common Stock. See "Use of Proceeds," and
"Underwriting."
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------- ---------------------------
1995 1996 1996 1997
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(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.............................. $ 3,718 $ 6,385 $ 2,539 $ 3,805
Cost of goods sold..................... 1,112 2,076 795 1,176
Operating costs and expenses(1)(2)..... 2,952 4,496 1,810 2,329
Operating income (loss)................ (346) (187) (66) 300
Income (loss) before extraordinary
item................................. (484) (283) (153) 115
Net income (loss)(3)................... (484) (114) 16 115
Net income (loss) before extraordinary
item per common and common equivalent
share(4)............................. $ (0.17) $ (0.07) $ (0.04) $ 0.03
Net income (loss) per common and common
equivalent share(4).................. $ (0.17) $ (0.03) $ 0.00 $ 0.03
Weighted average number of common and
common equivalent shares
outstanding(4)....................... 2,776,180 3,967,737 3,528,706 4,402,215
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
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(UNAUDITED) (UNAUDITED)
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Supplemental Statement of Operations Data:
Net income before non-recurring and extraordinary
items(5)................................................ $ 81 $ 115
Net income before non-recurring and extraordinary items
per common and common equivalent share(4)............... $ 0.02 $ 0.03
Pro forma net income(6)................................... $ 161 $ 159
Pro forma net income per common and common equivalent
share(6)(7)............................................. $ 0.03 $ 0.03
Pro forma weighted average common and common equivalent
shares outstanding(7)................................... 5,409,094 5,760,771
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
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ACTUAL AS ADJUSTED(9)
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(UNAUDITED)
<S> <C> <C>
Balance Sheet Data:
Working capital........................................... $1,386 $10,736
Total assets.............................................. 6,389 15,676
Long-term debt, less current portion...................... 956 45
Put options related to redeemable common stock and stock
warrants(8)............................................ 1,425 --
Total shareholders' equity................................ 2,527 14,149
</TABLE>
(footnotes on following page)
5
<PAGE> 8
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(1) Effective May 1, 1995, the Company acquired all the outstanding shares of
Signal Stream Technologies, Inc. The acquisition was accounted for as a
purchase. The fair value of certain acquired in-process technology in the
amount of $375,000 that had not reached technological feasibility was
charged to operations in May 1995.
(2) The Company recognized $364,000 in fees in December 1996 in preparation for
an initial public offering that was canceled.
(3) In May 1996, the Company discharged $463,000 of subordinated notes payable
to Alpha and related accrued interest with the issuance of 33,861 shares of
the Common Stock and a cash payment of $375,000. The Company realized an
extraordinary gain of $169,000.
(4) Net income (loss) per share data has been computed using the weighted
average number of shares of common and common equivalent shares from stock
options (when dilutive using the treasury stock method). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock, warrants and options issued during the twelve month period
immediately preceding the Company's proposed initial public offering have
been included in the calculation as if they were outstanding for all periods
presented (even if antidilutive, using the treasury stock method and the
anticipated offering price).
(5) Does not give effect to: (i) the extraordinary gain on extinguishment of
debt in the amount of $169,000 which occurred in May, 1996, and (ii) the
recognition of $364,000 in fees in December 1996 which were incurred in
preparation for an initial public offering that was canceled.
(6) Pro forma income assumes the Offering had occurred at the beginning of the
earliest period presented and gives effect to the following: (i) exclusion
of the effect of a non-recurring item totaling $364,000, which relates to
fees recognized in December 1996 for preparation for an initial public
offering that was canceled; (ii) net proceeds of the offering are used to
repay outstanding bank debt, which would reduce interest expense by $40,000
and $44,000 in the fiscal year ended December 31, 1996 and the six months
ended June 30, 1997, respectively; (iii) net proceeds of the Offering are
used to repay the $878,000 of indebtedness (principal plus accrued, unpaid
interest) payable to Alpha and certain associated lenders on their
subordinated notes outstanding thereby reducing interest expense by $40,000
during the fiscal year ended December 31, 1996; and does not give effect to
the occurrence of the events referenced in footnote (3) above.
(7) Pro forma weighted average common and common equivalent shares outstanding
gives effect, as of each of the respective dates presented, to (i) the
weighted average common and common equivalent shares outstanding as
described in footnote (4) above; (ii) the sale of 1,900,000 shares of Common
Stock in the Offering; (iii) redemption and retirement of 424,757 shares of
Common Stock held by Alpha which the Company will redeem simultaneously with
the closing of the Offering; (iv) issuance of 108,942 shares of Common Stock
upon exercise of the Sirrom Warrant; (v) elimination of the Common Stock
issued in connection with the extinguishment of the subordinated debt to
Alpha during the fiscal year ended December 31, 1996, and therefore reducing
the weighted average common and common equivalent shares outstanding by
25,141 and 33,861 for the fiscal year ended December 31, 1996 and the six
months ended June 30, 1997, respectively; and (vi) elimination of the Common
Stock issued in connection with the conversion of subordinated debt to
equity during the fiscal year ended December 31, 1996, and therefore
reducing the weighted average common and common equivalent shares
outstanding by 117,687 and 191,768 for the fiscal year ended December 31,
1996 and the six months ended June 30, 1997, respectively.
(8) In connection with the Sirrom Note, the Company issued the Sirrom Warrant,
granting Sirrom the right to purchase 145,256 shares of the Common Stock at
$0.01 per share. The Sirrom Warrant is subject to a put option equal to the
fair market value of the Common Stock issuable under the Sirrom Warrant. The
value of this put option at June 30, 1997 totals $1,089,000. In addition,
424,757 shares of Common Stock are subject to a put option exercisable by
Alpha. The value of the Alpha put option at June 30, 1997 totals $336,000.
It is contemplated that the Alpha and Sirrom put options will be terminated
simultaneously with the closing of the Offering.
(9) Gives effect to: (i) the sale by the Company of 1,900,000 shares of Common
Stock in this Offering at an assumed public offering price of $7.50 per
share and the application of the net proceeds therefrom; (ii) redemption and
retirement of 424,757 shares of Common Stock held by Alpha which the Company
will redeem simultaneously with the closing of this Offering; (iii)
repayment of the Sirrom Note simultaneously with the closing of this
Offering; (iv) charge to operations of the Sirrom Note discount of
approximately $1,089,000 and deferred finance charges of approximately
$63,000; (v) issuance of 108,942 shares of Common Stock upon exercise of the
Sirrom Warrant; and (vi) payment of the Sirrom Termination Fee.
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RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS.
LACK OF CONSISTENT PROFITABILITY; HISTORY OF OPERATING LOSSES
Although the Company experienced significant revenue growth from fiscal
1995 to fiscal 1996, it incurred a net loss of approximately $114,000 in fiscal
1996 and a net loss of approximately $484,000 in fiscal 1995. Although the
Company earned net income of approximately $16,000 for the six months ended June
30, 1996, and the Company earned net income of approximately $115,000 for the
six months ended June 30, 1997, there can be no assurance that revenue growth
will continue or that the Company will consistently achieve profitability in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
OPERATING RESULTS MAY FLUCTUATE
The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors. A significant portion of the Company's
business is derived from orders placed by OEMs, and the timing of such orders
could cause material fluctuations in the Company's business and operating
results. Other factors that may cause the Company's operating results to
fluctuate include changes in sales volumes through the Company's distribution
channels, changes in the mix of products sold, the timing of new product
announcements and introductions by the Company and its competitors, market
acceptance of new or enhanced versions of the Company's products, availability
and cost of products from the Company's suppliers, competitive pricing
pressures, the gain or loss of significant customers, increased research and
development expenses associated with new product introductions and economic
conditions generally or in various geographic areas. All of the above factors
are difficult for the Company to forecast, and these or other factors can
materially affect the Company's operating results for one quarter or series of
quarters. In addition, the Company's gross margins may decrease in the future as
a result of increasing sales of lower margin products and volume discounts. The
Company expects to continue to increase its operating expenses for personnel and
new product development. If the Company does not achieve increased levels of
sales commensurate with these increased levels of operating expenses, the
Company's business and operating results will be materially adversely affected.
There can be no assurance that the Company will be profitable on a quarterly or
annual basis. Fluctuations in operating results may also result in fluctuations
in the price of the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
INCREASED CREDIT AND PAYMENT RISKS ASSOCIATED WITH END-USER SALES
The Company currently markets and sells a significant portion of its
products to OEMs. The Company has not, in the past, experienced significant
nonpayment or delays in payment on receivables from these customers. Increased
direct sales to end-users, such as hospitals, may create delays in payment of
receivables to the Company and may also increase the risk of nonpayment of
receivables. The Company may bear increased interest expense if it experiences
delays in receipt of payment on receivables as a result of increased sales
directly to end-users as a percentage of total sales. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPANY MUST RESPOND TO TECHNOLOGICAL CHANGE; RISKS OF COMPANY'S INVOLVEMENT
WITH RAPIDLY DEVELOPING TECHNOLOGY
The markets for the Company's products are characterized by rapid
technological advances, product obsolescence, changes in customer requirements
and evolving regulatory requirements and industry standards. The Company's
future prospects will depend in part on its ability to enhance its medical image
networking and management products in a timely manner and to identify, develop
and achieve market acceptance of new products that address new technologies and
standards and meet customer needs in the medical imaging network market. There
can be no assurance that the Company will be able to respond to technological
advances, changes in customer requirements or changes in regulatory requirements
or industry standards or
7
<PAGE> 10
that the Company will be able to develop and market new products successfully.
Any failure by the Company to anticipate or to respond adequately to
technological developments in its industry, changes in customer requirements, or
changes in regulatory requirements or industry standards, or any significant
delays in the development, introduction or shipment of products, could have a
material adverse effect on the Company's business and operating results. In
anticipation of new product introductions by the Company or its competitors,
customers could refrain from purchasing the Company's existing products. New
products could render certain of the Company's existing products obsolete. Any
of these events could materially adversely affect the Company's business and
operating results. In addition, third-party payors, such as governmental
programs and private insurance plans, can indirectly affect the pricing or
relative attractiveness of the Company's products by regulating the maximum
amount of reimbursement that they will provide for the taking, storing and
interpretation of medical images. A decrease in the reimbursement amounts for
radiological procedures may decrease the amount which physicians, clinics and
hospitals are able to charge patients for such services. As a result, adoption
of new technologies may slow as capital investment budgets are reduced, thereby
significantly reducing the demand for the Company's products.
MARKETS FOR THE COMPANY'S PRODUCTS ARE HIGHLY COMPETITIVE
The markets for the Company's products are highly competitive. Many of the
Company's customers purchase products from both the Company and its competitors.
The Company has one primary competitor in the imaging acquisition network
business, which includes the Company's MergeMVP product. In the DICOM software
package business, the Company primarily competes directly and indirectly with a
number of other entities, including the Radiological Society of North America,
which offers a version of DICOM (originally developed by Mallinckrodt Institute
of Radiology) as "freeware" available to be downloaded without charge from the
Internet, but which offers more limited features and no user support. See
"Competition."
In the application of MergeWorks products specifically for hardcopy film
networks, which includes MergeAPS and MergeXPI products, the Company competes
with multiple film vendors. However, since the MergeAPS works with any of the
laser film printers available from these vendors, these companies also have
purchased products from the Company when they have needed networked filming
solutions involving their competitors' products. The Company expects competition
to increase in the future from existing competitors and from other companies
that may enter the Company's existing or future markets. The Company could also
face competition from networking equipment and telecommunications manufacturers
if such companies were either to develop DICOM capability for their products, or
purchase from one of the Company's competitors products that provide DICOM
capability. Many of the Company's current and potential competitors have greater
resources than those of the Company in areas including finance, research and
development, intellectual property and marketing. Many of these competitors also
have broader product lines and longer standing relationships with customers in
the medical imaging field than those of the Company.
The Company believes that its ability to compete successfully depends on a
number of factors both within and outside of its control, including:
applications innovation; product quality and performance; price; experienced
sales, marketing and service organizations; rapid development of new products
and features; continued active involvement in the development of DICOM and other
medical communication standards; and product and policy decisions announced by
its competitors. There can be no assurance that the Company will be able to
compete successfully with existing or new competitors.
COMPANY DEPENDS ON MAJOR CUSTOMERS
The Company sells a majority of its products to a relatively limited number
of OEMs, VARs and dealers. Aggregate sales to the Company's ten largest
customers represented approximately 75% and 68% of the Company's net sales in
1995 and 1996, respectively, and approximately 77% of the Company's net sales
for the six months ended June 30, 1997. During 1996, Picker, Philips and Siemens
accounted for approximately 26%, 15% and 10%, respectively, of the Company's net
sales. For the six months ended June 30, 1997, Picker, Philips and Siemens
accounted for approximately 20%, 16% and 12%, respectively, of the Company's net
sales. There can be no assurance that the Company's current customers will
continue to place orders with the
8
<PAGE> 11
Company or that the Company will be able to obtain orders from new customers.
The loss of any one or more of the Company's major customers could materially
adversely affect the Company's business and operating results. None of the
Company's customers is subject to any minimum purchase requirements, and many of
the Company's VAR and OEM customers offer competitive systems manufactured by
third parties. Each of the Company's VAR and OEM customers and dealers,
including Picker, can cease marketing the Company's products at its respective
option, and the loss of one or more significant customers could materially
adversely affect the Company's business and operating results. See
"Business -- Sales, Marketing and Distribution."
EXPANSION OF INTERNATIONAL SALES EFFORTS; CURRENCY RISK
An important component of the Company's business plan includes increasing
its sales to customers outside the United States, which represented 39% of the
Company's net sales for the six months ended June 30, 1997. Sales receivables in
foreign currency represented approximately 8% of the Company's net sales for the
six months ended June 30, 1997; however, the Company anticipates that this
percentage may increase in the future. In order to increase overseas sales, it
may be necessary or desirable for the Company to expand its sales force, or
establish additional offices outside the United States. The increased costs of
hiring new personnel or establishing offices could have a material adverse
effect on the Company's results of operations and financial condition.
The Company does not hedge against risks associated with receipt of foreign
currency. The Company does, however, anticipate that if sales outside the United
States increase in the future, the Company may deem it advisable to hedge
against risks associated with receipt of foreign currency. No assurance can be
given that such hedging, if undertaken, will prevent the Company from incurring
losses due to currency fluctuation.
DEPENDENCE UPON KEY PERSONNEL
The Company's continued success will depend to a significant degree upon
the efforts and abilities of its senior management, in particular, William C.
Mortimore, its President and Chief Executive Officer, William L. Stafford, Vice
President -- Sales, David M. Noshay, Vice President -- Marketing, Dwight A.
Simon, Vice President -- Engineering, Colleen M. Doan, Chief Financial Officer
and Michael J. Franco, Chief Technical Officer. The loss of the services of any
of these officers could have a material adverse effect on the Company. The
Company will maintain term life insurance policies covering the life of Mr.
Mortimore in the amount of $2,000,000 and covering the lives of each of Mr.
Stafford, Mr. Noshay, Mr. Simon, Ms. Doan and Mr. Franco in the amount of
$500,000, the proceeds of which would be payable to the Company.
POTENTIAL DIFFICULTY IN HIRING ADDITIONAL SALES AND ENGINEERING PERSONNEL
The Company's ability to carry out its business plan depends in part upon
its ability to hire and retain skilled sales professionals and engineering and
marketing support staff. Although the Company believes it will be able to hire
qualified personnel for such purposes, an inability to do so could materially
adversely affect the Company's ability to market, sell and enhance its product
lines. The market for qualified experienced sales and marketing professionals
and engineering specialists has historically been, and the Company expects that
it will continue to be, intensely competitive. The inability to recruit and
retain qualified employees could materially adversely affect the Company's
results of operations and financial condition.
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
Although the Company has submitted domestic and foreign patent applications
on CaseWorks, a product currently in development, the Company generally does not
rely on patent protection with respect to its products. Instead, the Company
relies on a combination of copyright and trade secret laws, employee and
third-party confidentiality agreements and other measures to protect
intellectual property rights pertaining to its systems and technology. There can
be no assurance, however, that applicable copyright or trade secret laws or
these agreements will provide meaningful protection of the Company's copyrights,
trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such copyrights, trade
secrets, know-how or other proprietary information. In addition, the laws of
certain foreign
9
<PAGE> 12
countries do not protect the Company's intellectual property rights to the same
extent as do the laws of the United States. There can be no assurance that third
parties will not assert patent, copyright or other intellectual property
infringement claims against the Company with respect to its products or
technology or other matters. Any such claims against the Company, with or
without merit, as well as claims initiated by the Company against third parties,
can be time-consuming and expensive to defend or prosecute and resolve. To date,
the Company has not initiated any intellectual property infringement claims, and
no such claims have been asserted against it. See "Business -- Intellectual
Property."
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's products are subject to
government regulation as medical devices in the United States by the United
States Food and Drug Administration (the "FDA") and in other countries by
corresponding foreign regulatory authorities. The process of obtaining and
maintaining required regulatory clearances and approvals is lengthy, expensive
and uncertain. The Company believes that its success depends upon commercial
sales of improved versions of its products, certain of which cannot be marketed
in the United States and other regulated markets unless and until the Company
obtains clearance or approval from the FDA and its foreign counterparts. Failure
to comply with applicable regulatory requirements could result, among other
things, in warning letters, seizures of the Company's products, total or partial
suspension of the Company's production operations, refusal of the government to
grant market clearance or pre-market approval, withdrawal of approvals or
criminal prosecution.
The Company is also subject to other federal, state and local laws and
regulations relating to safe working conditions and manufacturing practices. In
addition, sales of the Company's products outside the United States are subject
to various foreign regulatory requirements. The extent of government regulation
that might result from any future legislation or administrative action cannot be
predicted. Failure to comply with domestic regulatory requirements or to obtain
any necessary foreign certifications or regulatory approvals, or any other
failure to comply with regulatory requirements outside the United States could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Government Regulation."
PRODUCT LIABILITY; RISK OF PRODUCT DEFECTS
The Company has licensing agreements with certain of its customers, which
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Furthermore, although the
Company tries to include provisions limiting its exposure to product liability
in its sales agreements, the Company is not always successful in doing so.
Moreover, some of the Company's products are sold without agreements addressing
product liability claims at all. Although the Company has not experienced any
product liability claims to date, the sale and support of products by the
Company may entail the risk of such claims, and there can be no assurance that
the Company will not be subject to such claims in the future. A successful
product liability claim brought against the Company could have a material
adverse effect on the Company's business, results of operations and financial
condition. Software products such as those offered by the Company occasionally
contain errors or failures, especially when first introduced or when new
versions are released. Although the Company conducts extensive product testing,
the Company could in the future lose or delay recognition of revenues as a
result of software errors or defects, the failure of its products to meet
customer specifications or otherwise. Although to date, the Company's business
has not been materially adversely affected by any such errors, defects or
failure to meet specifications, there can be no assurance that defects will not
be found in new products or releases after commencement of commercial shipments
or that such products will meet customer specifications, resulting in loss or
deferral of revenues, diversion of resources, damage to the Company's
reputation, or increased service and warranty and other costs, any of which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business -- Products Under Development."
10
<PAGE> 13
CONTROL BY MANAGEMENT AND DIRECTORS
After the sale of the Common Stock offered hereby, the executive officers
of the Company and members of the Company's Board of Directors, will own
1,525,106 shares (exclusive of vested options to acquire an additional 260,566
shares) of the Company's issued and outstanding Common Stock. Consequently, the
executive officers and directors will control 28% (26% if the Underwriters'
over-allotment option is exercised in full) of the total voting power of the
Company's Common Stock. By virtue of such ownership, the executive officers and
directors voting as a group may be able to influence significantly certain
matters with respect to the Company, including without limitation: (i) the
election of all of the directors; (ii) increases in authorized capital stock;
(iii) the dissolution or merger of the Company or the sale of the Company's
assets; and (iv) discretion over the day-to-day affairs of the Company. See
"Management" and "Principal Shareholders."
SIGNIFICANT UNALLOCATED NET PROCEEDS; DISCRETION OF MANAGEMENT
The Company intends to use the net proceeds of this Offering to repay the
Sirrom Note, redeem 424,757 shares of Common Stock held by Alpha, hire
additional personnel and pay the Sirrom Termination Fee. See "Use of Proceeds."
The Company intends to use the balance of the net proceeds of this Offering for
working capital and other general corporate purposes. In addition, the Company
may use a portion of the net proceeds of this Offering to acquire businesses,
products or technologies complementary to its business. Although the Company has
from time to time engaged in discussions with respect to possible acquisitions,
it has no present plans, intentions, understandings, commitments or agreements,
nor is it currently engaged in any negotiations, with respect to any such
transaction. Pending such uses, the Company intends to invest the net proceeds
from this Offering in short-term, investment-grade, interest-bearing securities.
The Company has no other specific uses for the proceeds of this Offering, and
the exact use of the proceeds will be subject to the discretion of management.
See "Use of Proceeds."
POSSIBILITY OF NASDAQ QUOTATION TERMINATION OR SUSPENSION AND DECREASE IN STOCK
PRICE
The trading of the Common Stock on the Nasdaq SmallCap Market is
conditioned upon meeting certain asset, capital and surplus, earnings and stock
price tests. To maintain eligibility on the Nasdaq SmallCap Market, the Company
must, among other things, maintain compliance with one of the following three
tests: (i) net tangible assets in excess of $2,000,000; (ii) have market
capitalization of $35,000,000; or (iii) net income of $500,000 in the latest
fiscal year or in two of the last three fiscal years. If the Company fails all
of these tests or if the Company fails to maintain an average bid price of at
least $1.00 per Share, the Common Stock may be suspended or terminated from
inclusion on the Nasdaq SmallCap Market. The effects of suspension or
termination include the limited release of the market prices of the Common Stock
and limited news coverage of the Company. Suspension or termination may restrict
investors' interest in the Common Stock and materially adversely affect the
trading market and prices for such securities and the Company's ability to issue
additional securities or to secure additional financing. In addition to the risk
of volatility of stock prices and possible suspension or termination, low price
stocks are subject to additional risks of additional federal and state
regulatory requirements and the potential loss of effective trading markets. In
particular, if trading of the Common Stock on the Nasdaq SmallCap Market was to
be suspended or terminated and the trading price of the Common Stock was less
than $5.00 per share, such Common Stock could be subject to Rule 15g-9 under the
Exchange Act, which, among other things, requires that broker/ dealers satisfy
special sales practice requirements, including making individualized written
suitability determinations and receiving any purchaser's written consent prior
to any transaction. In such case, the Common Stock could also be deemed "penny
stock" under the Securities Enforcement and Penny Stock Reform Act of 1990,
which would require additional disclosure in connection with trades in the
Common Stock, including the delivery of a disclosure schedule explaining the
nature and risks of the penny stock market. Such requirements could severely
limit the liquidity of the Common Stock and the ability of purchasers in this
Offering to sell their Common Stock in the secondary market. See "Absence of
Public Market; Negotiated Offering Price" and "Potential Adverse Impact on
Market Price of Shares Eligible for Future Sale and Registration Rights."
11
<PAGE> 14
SUBSTANTIAL AND IMMEDIATE DILUTION; SIGNIFICANT BENEFIT TO CURRENT SHAREHOLDERS
Purchasers of the Common Stock offered hereby will incur immediate dilution
of net tangible book value of approximately $5.40 per share. Shareholders of the
Company who purchased their shares prior to the public offering acquired their
shares at a cost substantially below the price offered hereby and, accordingly
purchasers of shares of the Company pursuant to this Offering will bear a
disproportionate risk of investment in the Common Stock. See "Dilution."
ABSENCE OF PUBLIC MARKET; NEGOTIATED OFFERING PRICE
Prior to this Offering there has been no market for the Common Stock.
Although the Company has applied to include the Common Stock for quotation on
the Nasdaq SmallCap Market, there can be no assurance that an active trading
market will develop for the Common Stock, or, if developed, that it will be
maintained. The price of the Common Stock offered hereby was determined through
negotiation between the Company and the Representative and may not be indicative
of the market price for the Common Stock after the Offering. The factors
considered in determining the offering price were the preliminary demand for the
Common Stock, prevailing market and economic conditions, the Company's revenue
and earnings, estimates of its business potential and prospects, the present
state of its business operations, an assessment of its management, the
consideration of these factors in relation to the market valuation of comparable
companies in related businesses and the current condition of the markets in
which it operates. Certain factors, such as subsequent sales of Common Stock
into the market by existing shareholders and market conditions generally, could
cause the market price of the Common Stock to vary substantially. Certain
existing shareholders and the Representative have registration rights for the
Common Stock they own or may acquire and/or have held their shares for over one
year and accordingly, will have the ability to exercise such rights and sell
such shares substantially free of securities law restrictions. See "Certain
Transactions," "Shares Eligible for Future Sale" and "Underwriting."
NO INTENTION TO DECLARE OR PAY DIVIDENDS
The Company does not currently intend to declare or pay any cash dividends
on the Common Stock in the foreseeable future and anticipates that earnings, if
any, will be used to finance the development and expansion of its business. The
Company also anticipates that it may in the future seek to obtain a loan,
revolving credit agreement or other financing arrangement, the terms of which
may prohibit the declaration and payment of dividends without prior lender
approval. Any payment of future dividends and the amounts thereof will be
dependent upon the Company's earnings, financial requirements and other factors
deemed relevant by the Company's Board of Directors, including the Company's
contractual obligations. See "Dividend Policy."
POTENTIAL ADVERSE IMPACT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the
Company's Board of Directors will have the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
shareholders. The rights of the holders of Common Stock will be subject to, and
may be materially adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Although the Company has no present plans to issue shares
of Preferred Stock, there can be no assurance that the Company will not do so in
the future. See "Description of Securities."
12
<PAGE> 15
ANTITAKEOVER MEASURES
The Company's Articles of Incorporation and By-Laws, along with Wisconsin
statutory law, contain provisions that could discourage potential acquisition
proposals and might delay or prevent a change in control of the Company. Such
provisions could result in the Company being less attractive to a potential
acquiror and could result in the shareholders receiving less for their Common
Stock than otherwise might be available in the event of a takeover attempt. See
"Description of Securities -- Certain Statutory and Other Provisions."
POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF SHARES ELIGIBLE FOR FUTURE SALE AND
REGISTRATION RIGHTS
Upon completion of this Offering, the Company will have outstanding
5,487,169 shares of Common Stock. After this Offering, the 1,900,000 shares of
Common Stock sold in this Offering and any shares issued in the event that the
Underwriters' over-allotment option to purchase up to 285,000 shares is
exercised, will be freely tradeable without restriction or further limitation
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company, which will be subject to the limitations imposed on "affiliates" of
the Company under Rule 144 promulgated under the Securities Act ("Rule 144").
The remaining 3,587,169 outstanding shares of Common Stock, are "restricted
securities" within the meaning of Rule 144 and may not be resold except pursuant
to a registration statement effective under the Securities Act or pursuant to an
exemption therefrom, including the exemption provided by Rule 144. Pursuant to
the Company's 1996 Stock Option Plan, options to acquire up to 938,815 shares of
Common Stock are purchasable by employees, and if exercised, such shares shall
be freely tradeable subject to certain limitations imposed by Rule 701
promulgated under the Securities Act. In addition, on the closing of the
Offering, the Company will sell to the Representative, individually and not as
representative of the Underwriters, for nominal consideration, the
Representative's Warrants entitling the Representative to purchase an aggregate
of 190,000 shares of Common Stock (218,500 shares of Common Stock if the
over-allotment option is exercised in full) at an initial exercise price per
share equal to 120% of the initial public offering price hereunder. The
Representative's Warrants will be exercisable for a period of four years
commencing one year after the effective date of this Offering and will contain
certain demand and incidental registration rights relating to the underlying
Common Stock. The holders of the Representative's Warrants may sell shares of
Common Stock acquired by exercise of the Representative's Warrants after one
year from the date of exercise thereof without registration subject to the
limitations of Rule 144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, subject to certain
restrictions, sell within any three-month period a number of shares which does
not exceed the greater of: (i) 1% of the then outstanding shares of Common
Stock; or (ii) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission as
required by Rule 144. Rule 144 also permits the sale of shares without any
volume limitation by a person who is not an affiliate of the Company and who has
satisfied a two-year holding period. The one-year holding period with respect to
3,581,047 outstanding shares of Common Stock has expired. The one-year holding
period with respect to 6,122 shares of Common Stock will expire on May 28, 1998.
All of the Company's shareholders (other than Sirrom) and all holders of
outstanding options, have agreed not to offer, pledge, sell, contract to sell,
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any securities of the Company they hold for a period of nine months
following the date of this Prospectus and, with respect to 50% of such
shareholdings, for a period of an additional six months thereafter, without the
prior written consent of the Representative. Sirrom, which will hold 108,942
shares upon completion of the offering has agreed not to offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any securities of the Company for a period of 180 days
following the date of this Prospectus, without the prior written consent of the
Representative. See "Underwriting."
Prior to this Offering, there has been no market for the Common Stock.
Further sales of Common Stock under Rule 144 in the public market could
adversely affect the market price of the Common Stock or the ability of the
Company to raise money through a public offering of its equity securities.
13
<PAGE> 16
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements including: (i)
anticipated trends in the Company's financial condition and results of
operations (including expected changes in the Company's gross profit, sales and
marketing expenses, product research and development expenses, general and
administrative expenses and professional expenses; (ii) the Company's business
strategy for future growth in the market, including the Company's plans
regarding anticipated hiring; and (iii) the Company's ability to distinguish
itself from its current and future competitors. When used in the Prospectus, the
words "believes," "intends," "anticipates," "expects," and similar expressions
are intended to identify forward-looking statements. These forward-looking
statements are based largely on the Company's current expectations and are
subject to a number of risks and uncertainties. In addition to the other risks
described elsewhere in this "Risk Factors" Section, important factors to
consider in evaluating such forward-looking statements include: (i) changes in
external competitive market factors which might impact trends in the Company's
results of operations; (ii) unanticipated working capital and other cash
requirements; (iii) general changes in the industries in which the Company
competes; and (iv) various other competitive factors that may prevent the
Company from competing successfully in the marketplace. In light of these risks
and uncertainties, many of which are described in greater detail elsewhere in
this "Risk Factors" Section, actual results could differ materially from the
forward-looking statements contained in this Prospectus.
14
<PAGE> 17
THE COMPANY
The Company is a Wisconsin corporation and was incorporated on November 25,
1987. The Company's principal executive offices are located at 1126 South 70th
Street, Suite S107B, Milwaukee, Wisconsin 53214-3151, its telephone number is
(414) 475-4300 and its Internet address is www.merge.com.
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,900,000 shares of Common
Stock offered hereby at an assumed initial public offering price per share of
$7.50, after deducting underwriting discounts, commissions and other expenses of
this Offering, are estimated to be approximately $12,375,000. Such proceeds are
anticipated to be used as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
AMOUNTS NET PROCEEDS
----------- -------------
<S> <C> <C>
Sales and Marketing....................................... $ 2,500,000 20%
Research and Development.................................. 1,000,000 8%
Redemption of 424,757 shares of Common Stock held by
Alpha................................................... 780,249 7%
Payment of the Sirrom Termination Fee..................... 245,120 2%
Repayment of the Sirrom Note.............................. 2,000,000 16%
Working Capital........................................... 5,849,631 47%
----------- ---
Net Proceeds.............................................. $12,375,000 100%
=========== ===
</TABLE>
The Sirrom Note requires payments of interest only, computed at 13.5% per
annum, payable monthly in arrears through maturity (June 30, 2002).
Approximately $1,004,000 of the proceeds of the Sirrom Note were applied toward
the repayment of the bank indebtedness and the balance toward working capital.
The net proceeds, if any, received in connection with the exercise of the
Underwriters' over-allotment option will be applied to working capital.
A portion of the net proceeds received by the Company may be used for the
acquisition of complementary businesses, products or technologies. Although the
Company has from time to time engaged in discussions with respect to possible
acquisitions, it has no present understandings, commitments or agreements, nor
is it currently engaged in any negotiations, with respect to any acquisition.
None of the net proceeds of the Offering are specifically designated for
payments to officers or directors.
Pending use of the net proceeds from this Offering, the Company intends to
invest the net proceeds received by it in bank certificates of deposit,
interest-bearing savings accounts, prime commercial paper, United States
Government obligations, money market funds or similar short-term investments.
Any income derived from these short-term investments is expected to be used for
working capital.
The amounts set forth above are estimates developed by management for the
allocation of the net proceeds to be received by the Company from this Offering
based upon the current state of the Company's existing and proposed business and
prevailing economic conditions. These estimates are subject to reallocation
among the applications listed above or to new applications and are further
subject to future events, including changes in general economic conditions, the
Company's business plan, and the financial markets in general. Since a
significant portion of the net proceeds will be applied to general corporate
purposes, as working capital, the Company will have broad discretion as to the
application of such net proceeds. See "Risk Factors -- Significant Unallocated
Net Proceeds; Discretion of Management."
15
<PAGE> 18
DILUTION
At June 30, 1997, the Company's net tangible book value was approximately
$(187,000) or $(0.05) per share of Common Stock. "Net tangible book value per
share of Common Stock" represents the amount of total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the Common Stock offered hereby by the Company at
an assumed public offering price of $7.50 per share and the application of the
net proceeds received by the Company therefrom, the repayment of the Sirrom
Note, the charge to operations of the Sirrom Note discount of approximately
$1,089,000 and deferred finance charges of approximately $63,000, the issuance
of 108,942 shares of Common Stock upon exercise of the Sirrom Warrant, the
redemption of 424,757 shares of Common Stock held by Alpha and payment of the
Sirrom Termination Fee, the pro forma net tangible book value of the Common
Stock at June 30, 1997, would have been approximately $11,499,000, or $2.10 per
share, representing an immediate increase in pro forma net tangible book value
of $2.15 per share to existing shareholders and an immediate dilution of $5.40
per share to new investors. The difference between the public offering price per
share and the pro forma net tangible book value per share of Common Stock after
the Offering constitutes dilution to investors in this Offering. The following
table illustrates the immediate per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share of Common Stock(1)......... $7.50
Net tangible book value per share of Common Stock before
the Offering........................................... (0.05)
Increase per share attributable to new investors(2)....... 2.15
Pro forma net tangible book value per share of Common Stock after
the Offering..................................................... 2.10
-----
Dilution per share to new investors(3)............................. $5.40
=====
</TABLE>
- ---------------
(1) Before deduction of underwriting discounts and commissions and offering
expenses payable by the Company.
(2) After deduction of underwriting discounts and commissions and offering
expenses payable by the Company.
(3) In addition, if the Underwriters' over-allotment option is exercised in
full, the pro forma net tangible book value per share of Common Stock after
the Offering would be approximately $2.33, representing an immediate
increase in pro forma net tangible book value of $2.38 per share to existing
shareholders and an immediate dilution of $5.17 per share to new investors.
The following table summarizes, on a pro forma basis as of June 30, 1997,
the differences between the number of shares purchased from the Company, the
total consideration paid to the Company and the average price per share paid by
the existing shareholders and by new investors (based upon an assumed initial
public offering price of $7.50 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 3,587,169 65% $ 2,984,944 17% $0.83
New investors.............. 1,900,000 35% 14,250,000 83% 7.50
--------- --- ----------- --- -----
Total............ 5,487,169 100% $17,234,944 100% $3.14
========= === =========== === =====
</TABLE>
The foregoing table does not give effect to the possible issuance of: (i)
1,015,826 shares of Common Stock reserved for issuance upon the exercise of
options which may be granted pursuant to the Company's 1996 Stock Option Plan,
options to purchase 939,815 of which have been granted and are outstanding; (ii)
285,000 shares issuable upon exercise of the Underwriters' over-allotment
option; and (iii) 190,000 (218,500 if the Underwriters' over-allotment option is
exercised in full) shares issuable upon exercise of the Representative's
Warrants and exercise the Underwriters' option to purchase 285,000 shares to
cover over-allotments. The foregoing table gives effect to (i) redemption of
424,757 shares of Common Stock held by Alpha, which the Company will redeem
simultaneously with the close of this Offering; and (ii) issuance of 108,942
shares of Common Stock upon exercise of the Sirrom Warrant. See "Use of
Proceeds" and "Underwriting."
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at June 30, 1997: (i) on an actual basis; and (ii) on an adjusted
basis to reflect: (a) the consummation of the sale by the Company of 1,900,000
shares of Common Stock offered hereby at an assumed public offering price of
$7.50 per share; (b) the application of the net proceeds therefrom, including
the redemption of 424,757 shares of Common Stock held by Alpha and repayment of
the Sirrom Note; (c) the charge to operations of the Sirrom Note discount of
approximately $1,089,000 and deferred finance charges of approximately $63,000;
(d) the issuance of 108,942 shares of Common Stock upon exercise of the Sirrom
Warrant; and (e) the payment of the Sirrom Termination Fee. This information
should be read in conjunction with the Company's Consolidated Financial
Statements and the notes thereto, appearing elsewhere in this Prospectus. See
"Use of Proceeds," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ACTUAL AS ADJUSTED(1)
------------ ---------------
(UNAUDITED)
<S> <C> <C>
Long-term debt:
Capitalized leases..................................... $ 45 $ 45
Sirrom Note payable, net of discount(2)................ 911 --
Put options related to redeemable common stock and
stock warrants...................................... 1,425 --
------ -------
2,381 45
------ -------
Shareholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common Stock, $.01 par value, 10,000,000 shares
authorized, 3,902,983 issued and outstanding, actual;
5,487,169 issued and outstanding, as adjusted(1)....... 39 55
Additional paid-in capital............................... 2,808 15,540
Accumulated deficit...................................... (345) (1,471)
Cumulative translation adjustment........................ 25 25
------ -------
Total shareholders' equity............................... 2,527 14,149
------ -------
Total capitalization..................................... $4,908 $14,194
====== =======
</TABLE>
- ---------------
(1) Does not include: (i) 1,015,826 shares of Common Stock reserved for issuance
upon the exercise of options which may be granted pursuant to the Company's
1996 Stock Option Plan, of which options to purchase 938,815 have been
granted and are outstanding; (ii) 285,000 shares issuable on conversion of
the Underwriters' overallotment option; and (iii) 190,000 shares reserved
for issuance upon the exercise of the Representative's Warrants. See
"Underwriting."
(2) See Footnote (5) to "Selected Consolidated Financial Data"; debt of $911,000
reflects the discount for the $1,089,000 fair market value of the Sirrom put
option.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation. The Company does not currently intend to declare or pay any cash
dividends on the Common Stock in the foreseeable future and anticipates that
earnings, if any, will be used to finance the development and expansion of its
business. The Company also anticipates that it may in the future seek to obtain
a loan, revolving credit agreement or other financing arrangement, the terms of
which may prohibit the declaration and payment of dividends without prior lender
approval. Any payment of future dividends and the amounts thereof will be
dependent upon the Company's earnings, financial requirements and other factors
deemed relevant by the Company's Board of Directors, including the Company's
contractual obligations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
17
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The statement of operations
data set forth below for the years ended December 31, 1995 and 1996 are derived
from the audited Consolidated Financial Statements of the Company included
elsewhere in this Prospectus. The statement of operations data for the six
months ended June 30, 1996 and 1997 and the balance sheet data at June 30, 1997
are derived from unaudited Consolidated Financial Statements, included elsewhere
in this Prospectus. Such statements have been prepared on the same basis as the
audited Consolidated Financial Statements and, in the opinion of management,
include all adjustments necessary for a fair presentation of the results for
such periods. The results of operations for the six months ended June 30, 1997
are not necessarily indicative of results expected for the full fiscal year.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ----------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales........................................... $ 3,718 $ 6,385 $ 2,539 $ 3,805
---------- ---------- ---------- ----------
Cost of goods sold:
Purchased components.............................. 752 1,627 593 881
Amortization of purchased and developed
software........................................ 360 449 202 295
---------- ---------- ---------- ----------
Total cost of goods sold............................ 1,112 2,076 795 1,176
---------- ---------- ---------- ----------
Gross profit........................................ 2,606 4,309 1,744 2,629
---------- ---------- ---------- ----------
Operating costs and expenses:
Sales and marketing............................... 881 1,527 638 989
Product research and development.................. 823 1,428 617 719
General and administrative........................ 869 1,171 552 618
Acquired in-process technology(1)................. 375 -- -- --
Professional fees related to proposed
financing(2).................................... -- 364 -- --
Amortization of other intangibles................. 4 6 3 3
---------- ---------- ---------- ----------
Total operating costs and expenses.................. 2,952 4,496 1,810 2,329
---------- ---------- ---------- ----------
Operating income (loss)............................. (346) (187) (66) 300
Other income (expense)
Interest expense.................................. (141) (134) (110) (63)
Interest income................................... 4 11 4 4
Other (expense), net.............................. (1) 27 19 (40)
---------- ---------- ---------- ----------
Total other expense, net............................ (138) (96) (87) (99)
Income (loss) before income taxes................... (484) (283) (153) 201
Income tax expense.................................. -- -- -- (86)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item............. (484) (283) (153) 115
Extraordinary gain on extinguishment of debt(3)..... -- 169 169 --
---------- ---------- ---------- ----------
Net income (loss)................................... $ (484) $ (114) $ 16 $ 115
---------- ---------- ---------- ----------
Net income (loss) before extraordinary item per
common and common equivalent share(4)............. $ (0.17) $ (0.07) $ (0.04) $ 0.03
Net income (loss) per common and common equivalent
share(4).......................................... $ (0.17) $ (0.03) $ 0.00 $ 0.03
Weighted average number of common and common
equivalent shares outstanding(4).................. 2,776,180 3,967,737 3,528,706 4,402,215
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Supplemental Statement of Operations Data:
Net income before non-recurring and extraordinary
items(5)................................................ $ 81 $ 115
Net income before non-recurring and extraordinary items
per common and common equivalent share(4)............... $ 0.02 $ 0.03
Pro forma net income(6)................................... $ 161 $ 159
Pro forma net income per common and common equivalent
share(6)(7)............................................. $ 0.03 $ 0.03
Pro forma weighted average common and common equivalent
shares outstanding(7)................................... 5,409,094 5,760,771
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------
ACTUAL AS ADJUSTED(9)
----------- --------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Data:
Working capital........................................... $1,386 $10,736
Total assets.............................................. 6,389 15,676
Long-term debt, less current portion...................... 956 45
Put options related to redeemable common stock and stock
warrants(8)............................................. 1,425 --
Total shareholders' equity................................ 2,527 14,149
</TABLE>
18
<PAGE> 21
- ---------------
(1) Effective May 1, 1995, the Company acquired all the outstanding shares of
Signal Stream Technologies, Inc. The acquisition was accounted for as a
purchase. The fair value of certain acquired in-process technology in the
amount of $375,000 that had not reached technological feasibility was
charged to operations in May 1995.
(2) The Company recognized $364,000 in fees in December 1996 in preparation for
an initial public offering that was canceled.
(3) In May 1996, the Company discharged $463,000 of subordinated notes payable
to Alpha and related accrued interest with the issuance of 33,861 shares of
the Common Stock and a cash payment of $375,000. The Company realized an
extraordinary gain of $169,000.
(4) Net income (loss) per share data has been computed using the weighted
average number of shares of common and common equivalent shares from stock
options (when dilutive using the treasury stock method). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock, warrants and options issued during the twelve month period
immediately preceding the Company's proposed initial public offering have
been included in the calculation as if they were outstanding for all periods
presented (even if antidilutive, using the treasury stock method and the
anticipated offering price).
(5) Does not give effect to: (i) the extraordinary gain on extinguishment of
debt in the amount of $169,000 which occurred in May, 1996, and (ii) the
recognition of $364,000 in fees in December 1996 which were incurred in
preparation for an initial public offering that was canceled.
(6) Pro forma income assumes the Offering had occurred at the beginning of the
earliest period presented and gives effect to the following: (i) exclusion
of the effect of a non-recurring item totaling $364,000, which relates to
fees recognized in December 1996 for preparation for an initial public
offering that was canceled; (ii) net proceeds of the Offering are used to
repay outstanding bank debt, which would reduce interest expense by $40,000
and $44,000 in the fiscal year ended December 31, 1996 and the six months
ended June 30, 1997, respectively; (iii) net proceeds of the Offering are
used to repay the $878,000 of indebtedness (principal plus accrued, unpaid
interest) payable to Alpha and certain associated lenders on their
subordinated notes outstanding thereby reducing interest expense by $40,000
during the fiscal year ended December 31, 1996; and does not give effect to
the occurrence of the events referenced in footnote (3) above.
(7) Pro forma weighted average common and common equivalent shares outstanding
gives effect as of each of the respective dates presented to (i) the
weighted average common and common equivalent shares outstanding as
described in footnote (4) above; (ii) the sale of 1,900,000 shares of Common
Stock in the Offering; (iii) redemption and retirement of 424,757 shares of
Common Stock held by Alpha which the Company will redeem simultaneously with
the closing of the Offering; (iv) issuance of 108,942 shares of Common Stock
upon exercise of the Sirrom Warrant; (v) elimination of the Common Stock
issued in connection with the extinguishment of the subordinated debt to
Alpha during the fiscal year ended December 31, 1996, and therefore reducing
the weighted average common and common equivalent shares outstanding by
25,141 and 33,861 for the fiscal year ended December 31, 1996 and the six
months ended June 30, 1997, respectively; and (vi) elimination of the Common
Stock issued in connection with the conversion of subordinated debt to
equity during the fiscal year ended December 31, 1996, and therefore
reducing the weighted average common and common equivalent shares
outstanding by 117,687 and 191,768 for the fiscal year ended December 31,
1996 and the six months ended June 30, 1997, respectively.
(8) In connection with the Sirrom Note, the Company issued the Sirrom Warrant,
granting Sirrom the right to purchase 145,256 shares of the Common Stock at
$0.01 per share. The Sirrom Warrant is subject to a put option equal to the
fair market value of the Common Stock issuable under the Sirrom Warrant. The
value of this put option at June 30, 1997 totals $1,089,000. In addition,
424,757 shares of Common Stock are subject to a put option exercisable by
Alpha. The value of the Alpha put option at June 30, 1997 totals $336,000.
It is contemplated that the Alpha and Sirrom put options will be terminated
simultaneously with the closing of the Offering.
(9) Gives effect to: (i) the sale by the Company of 1,900,000 shares of Common
Stock in this Offering at an assumed public offering price of $7.50 per
share and the application of the net proceeds therefrom; (ii) redemption and
retirement of 424,757 shares of Common Stock held by Alpha which the Company
will redeem simultaneously with the closing of this Offering; (iii)
repayment of the Sirrom Note simultaneously with the closing of this
Offering; (iv) charge to operations of the Sirrom Note discount of
approximately $1,089,000 and deferred finance charges of approximately
$63,000; (v) issuance of 108,942 shares of Common Stock upon exercise of the
Sirrom Warrant; and (vi) payment of the Sirrom Termination Fee.
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides software, hardware and systems integration products
and services that enable health care organizations to network otherwise
incompatible image-producing and image-using devices. The Company's products
provide a communications bridge between incompatible devices, permit
radiologists to use either video images on electronic workstations or film as a
diagnostic medium and create a diagnostic-quality electronic archive of imaging
results. In addition, the Company's products and services permit the information
generated and used by medical imaging devices to be included in a health care
organization's information network or an electronic patient record ("EPR").
The Company's products and services available today include: (i) MergeWorks
Connectivity Products -- for retrofitting legacy stand-alone medical
image-producing and image-using devices thereby rendering such devices capable
of communicating over a DICOM network; (ii) OEM Interface
Products -- connectivity software tool kits and interface board products that
enable original equipment manufacturers ("OEMs") to manufacture new radiology
image-producing and image-using devices capable of directly communicating with
the DICOM standard; and (iii) Network Integration Products and
Services -- systems integration products and services for the design and
installation of DICOM networks, including training, design assistance and
testing services. In addition, the Company has under development a line of
Networked Image Management Products that enables radiologists to select and
manage specific diagnostic images which may be incorporated into a diagnostic
report or an EPR.
The Company introduced the first of its MergeWorks Connectivity Products in
1989 and has continually developed and upgraded such products to provide
connectivity to additional image-producing and image-using devices. In 1992, the
Company introduced its OEM Interface Products with the release of the MergeCOM-3
software toolkit. With the acquisition of Signal Stream Technologies, Inc.
("SST") in 1995, the Company expanded into board-level interface products for
OEMs of medical imaging equipment. The Company introduced its Network
Integration Products and Services in 1996. The Company expects to continue to
add new products and additional functionality to existing products.
The components of the Company's net sales by product line are as follows.
<TABLE>
<CAPTION>
FISCAL YEARS SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
------------------ ----------------
PRODUCT LINE 1995 1996 1996 1997
------------ ------- ------- ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
MergeWorks Connectivity Products................ $2,725 $4,454 $1,625 $2,670
OEM Interface Products.......................... 993 1,457 718 995
Network Integration Products and Services....... -- 474 196 140
------ ------ ------ ------
$3,718 $6,385 $2,539 $3,805
====== ====== ====== ======
</TABLE>
The Company recognizes revenue on both hardware and software products at
the time of shipment to customer. Revenues from software maintenance, which is
part of the OEM Interface Products line, are deferred and recognized on a
straight-line basis over the contract support period, which is generally one
year.
Net sales include standard discounts to the Company's OEM and VAR
customers. In 1995, the Company began to offer increased sales discounts to
certain distribution channels.
Cost of goods sold consists of purchased components and the amortization of
software development. For the assembly of its products, the Company generally
purchases industry standard components from multiple vendors. The Company
acquired SST in 1995 to gain in-house computer hardware design and manufacturing
expertise and to give the Company more control over certain aspects of its costs
of goods sold. The Company capitalizes software development expenses once
technological feasibility has been established in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to
20
<PAGE> 23
be Sold, Leased or Otherwise Marketed. Capitalized software is amortized over
the expected life of the related product, which typically is five years.
Historically, the Company's products have primarily been distributed as
software and hardware components through OEMs and value added resellers ("VARs")
that integrate these products into their own product offerings. As the Company's
range of product offerings has grown, so have its channels of distribution. In
early 1995, the Company's three sales and marketing employees concentrated on
sales to OEM and VAR customers. The Company has expanded this staff to eight
persons at June 30, 1997, with increased concentration on: (i) sales to
end-users both directly and through dealers on a non-exclusive basis; (ii)
sales, administrative reporting and functionality to support the growing
international demand for its products (including the opening of a branch office
in The Netherlands in 1996); and (iii) sales of new product and service
offerings such as Network Integration Products and Services. Sales and marketing
expense includes salaries and incentive compensation of sales, sales management
and service personnel, as well as the cost of exhibiting at industry trade
shows, print advertisements and product brochures.
Product research and development expense consists primarily of the
compensation and related overhead expense of software and hardware engineers and
engineering management personnel. Product innovation is considered important to
the Company's success and the Company expects to continue to increase research
and development expense in absolute dollars. However, such expenditures are not
expected to increase proportionally in relation to the increase in net sales.
General and administrative expense includes the salaries and related costs
of administrative, finance, information services and general management
personnel, plus corporate overhead, such as facility rental, insurance,
depreciation and legal expenses. The Company believes that increased sales and
marketing expenditures will increase net sales faster than increases in general
and administrative expense.
21
<PAGE> 24
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
------------------ ----------------
1995 1996 1996 1997
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold:
Purchased components.................................. 20.2 25.5 23.4 23.1
Amortization of purchased and developed software...... 9.7 7.0 7.9 7.8
------ ------ ------ ------
Gross profit............................................ 70.1 67.5 68.7 69.1
Operating costs and expenses:
Sales and marketing................................... 23.7 23.9 25.1 26.0
Product research and development...................... 22.1 22.4 24.3 18.9
General and administrative............................ 23.4 18.3 21.8 16.2
Acquired in-process technology........................ 10.1 -- -- --
Professional fees related to proposed financing....... -- 5.7 -- --
Amortization of other intangibles..................... 0.1 0.1 0.1 0.1
------ ------ ------ ------
Total operating expenses.............................. 79.4 70.4 71.3 61.2
Operating income (loss)................................. (9.3) (2.9) (2.6) 7.9
Other expense, net...................................... 3.7 1.5 3.4 2.6
------ ------ ------ ------
Income (loss) before income taxes and extraordinary
item.................................................. (13.0) (4.4) (6.0) 5.3
Income tax expense...................................... -- -- -- 2.3
------ ------ ------ ------
Income (loss) before extraordinary item................. (13.0) (4.4) (6.0) 3.0
Extraordinary gain on extinguishment of debt............ -- (2.7) (6.6) --
------ ------ ------ ------
Net income (loss)....................................... (13.0)% (1.7)% 0.6% 3.0%
====== ====== ====== ======
Supplemental Information (unaudited):
Net income (loss) before non-recurring and
extraordinary items(1)............................. (3.0)% 1.3% (6.0)% 3.0%
</TABLE>
- ---------------
(1) See "Summary Consolidated Financial Data" and "Selected Consolidated
Financial Data."
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net sales. Net sales increased 50% for the six months ended June 30, 1997
to $3,805,000 from $2,539,000 during the six months ended June 30, 1996. Net
sales of MergeWorks Connectivity Products accounted for the largest increase,
rising 64% to $2,670,000 for the six months ended June 30, 1997 compared with
$1,625,000 for the six months ended June 30, 1996, primarily due to increased
distribution of products to end-users through dealers. Sales in the OEM
Interface Products category grew 39% to $995,000 for the six months ended June
30, 1997 from $718,000 for the six months ended June 30, 1996, primarily due to
an increase in licensing of MergeCOM-3 Software. Network Integration Products
and Services sales decreased to $140,000 for the six months ended June 30, 1997
from $196,000 for the six months ended June 30, 1996 as the Company redirected
its resources to meet an increased demand for component products during the six
months ended June 30, 1997.
Cost of goods sold. Cost of goods sold consists of purchased components and
amortization of purchased and developed software. The cost of purchased
components as a percentage of net sales remained level at approximately 23%,
reflecting lower material costs which were offset by higher sales discounts in
certain distribution channels. The Company expects component costs to remain at
approximately this level. Amortization of purchased and developed software
remained at approximately 8% of net sales for the six months ended June 30, 1997
and 1996.
22
<PAGE> 25
Gross profit. Gross profit increased by 51% for the six months ended June
30, 1997 to $2,629,000 from $1,744,000 for the six months ended June 30, 1996.
As a percentage of net sales, gross profit remained consistent at 69%.
Sales and marketing. Sales and marketing expense increased by 55% for the
six months ended June 30, 1997 to $989,000 from $638,000 for the six months
ended June 30, 1996. The Company retained additional field sales staff to market
and support increasing customer demand for image-acquisition and image-printing
applications. The sales and marketing department grew to eight full time people
as of June 30, 1997, from four people on June 10, 1996. These personnel are
engaged in sales and marketing activities through the OEM/VAR channel, and in
support of end-user distribution via dealers. The Company expects to continue to
make additions to its sales force in order to increase net sales.
Product research and development. Research and development expense
increased 17% for the six months ended June 30, 1997 to $719,000 from $617,000
for the six months ended June 30, 1996. The increase in this expense consists
primarily of compensation to additional product engineers engaged in software
design and development of specialized computer hardware. The Company believes
that advanced technology is a key element in the success of its business, and it
expects to continue to increase its research and development expenditures in
absolute dollars; however, this is expected to be a declining percentage of net
sales as such sales increase.
General and administrative. General and administrative expense increased
12% for the six months ended June 30, 1997 to $618,000 from $553,000 for the six
months ended June 30, 1996. This increase was due to additional overhead
expenses required to support higher sales; however, such expenses have declined
as a percentage of net sales.
Total other expense, net. Total other expense, net consists primarily of
interest expense. Interest expense of $63,000 was incurred during the six months
ended June 30, 1997 compared to $110,000 for the six months ended June 30, 1996.
The decrease reflects lower interest expense on the Company's subordinated debt,
due to its repayment in May 1996.
Income tax expense. The Company recognized an income tax expense of $86,000
for the six months ended June 30, 1997. This expense reflects an anticipated
alternative minimum tax liability. The Company did not recognize income tax
expense for the six months ended June 30, 1996 due to the incurrence of a net
loss before income taxes and the lack of alternative minimum tax liability.
Extraordinary gain on extinguishment of debt. In May 1996, the Company
satisfied $463,000 of subordinated notes and related accrued interest with the
issuance of 33,861 shares of Common Stock and a cash payment of $375,000. An
extraordinary gain of $169,000 was realized on the discharge.
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31,
1995
Net sales. Net sales increased 72% in fiscal 1996 to $6,385,000 from
$3,718,000 in fiscal 1995, primarily due to increased sales of MergeWorks
Connectivity Products. Net sales for this product line increased $1,729,000, or
63%, to $4,454,000, with the introduction of a new distribution channel of
products to end-users via dealers specifically for hardcopy film networks. Sales
of OEM Interface Products increased 47% to $1,457,000 in fiscal 1996 compared
with $993,000 in fiscal 1995 as the result of new customers for such products.
Network Integration Products and Services, introduced in fiscal 1996, generated
$474,000 in revenue.
Cost of goods sold. Cost of goods sold consists of purchased components and
amortization of purchased and developed software. The cost of purchased
components as a percentage of net sales increased to 25% in fiscal 1996 from 20%
in fiscal 1995 due to the following: (i) sales to the end-user market resulted
in lower margins than sales to the traditional OEM/VAR market; and (ii) certain
components were specially designed to meet government regulatory requirements
and had a higher cost. Amortization of purchased and developed software
increased in absolute dollars but declined as a percentage of net sales due to
an increase in net sales.
23
<PAGE> 26
Gross profit. Gross profit increased 65% in fiscal 1996 to $4,309,000 from
$2,606,000 in fiscal 1995. As a percentage of net sales, gross profit decreased
to 68% in fiscal 1996 from 70% in fiscal 1995.
Sales and marketing. Sales and marketing expenses increased by 73% in
fiscal 1996 to $1,527,000 from $881,000 in fiscal 1995. This increase resulted
from the Company's decision to expand its sales and marketing resources. The
sales and marketing department grew to six people at the end of fiscal 1996
engaged in sales and marketing activities through the Company's OEM/VAR channel
and in support of end-user distribution via dealers from three full time persons
selling to the Company's OEM/VAR customers in fiscal 1995.
Product research and development. Research and development expenses
increased by 74% in fiscal 1996 to $1,428,000 from $823,000 in fiscal 1995. The
Company believes that advanced technology is a key element in the success of its
business and expects to continue to invest in research and development.
General and administrative. General and administrative expenses increased
35% in fiscal 1996 to $1,171,000 from $870,000 in fiscal 1995, but declined as a
percentage of net sales to 18% in fiscal 1996 from 23% in fiscal 1995. Expenses
included the addition of four administrative personnel and related overhead
expenses as the Company expanded to support higher sales. The Company
anticipates that general and administrative expenses will continue to decline as
a percentage of net sales in future periods.
Acquired in-process technology. In May, 1995, Signal Stream, Incorporated,
a wholly-owned subsidiary of the Company formed to effect the acquisition of
SST, acquired all the outstanding shares of SST. The Company recorded a one-time
charge of $375,000 at the time of this transaction to account for in-process
technology which had not reached technological feasibility.
Professional fees related to proposed financing. The Company incurred
$364,000 in fees in fiscal 1996 in preparation for an initial public offering
that was canceled.
Total other expense, net. Total other expense, net which consists primarily
of interest expense, increased to $138,000 in fiscal 1996 from $96,000 in fiscal
1995. This increase is attributable to additional borrowings from the Company's
bank, offset in part by lower interest expense on its subordinated debt, which
was repaid in May, 1996.
Income taxes. The Company did not pay federal income taxes or recognize an
income tax benefit in fiscal 1996 or fiscal 1995, despite incurring losses in
such years, due to nondeductible amortization and acquired in-process
technology, and due to continued losses and uncertainty as to the future
realization of tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated cash for fiscal 1996 and
fiscal 1995 of $172,000 and $362,000, respectively. The decrease was due to cash
outflows associated with expanding sales and marketing activities, development
of new products, expanded general and administrative personnel, the canceled
initial public offering and funding higher levels of accounts receivable,
inventory and accounts payable.
Investing activities include net additions to capital equipment of $320,000
and $208,000, and additions to capitalized software of $766,000 and $673,000 in
fiscal 1996 and fiscal 1995, respectively. In fiscal 1996, the Company also used
$288,000 of cash to invest in the purchase of a software license for technology
used in CaseWorks.
Cash provided by financing activities for the fiscal 1996 and fiscal 1995
were $1,341,000 and $594,000, respectively.
The Company issued an aggregate of 1,330,731 shares of Common Stock in a
private placement completed in fiscal 1996 at $1.48 per share; the Company
received consideration in connection with this private placement of $355,000 in
fiscal 1995 and $1,610,000 in fiscal 1996. Effective May 1996, the Company
converted $222,712 of $686,064 subordinated notes payable to shareholders (the
"Shareholder Notes") and related accrued interest into 191,766 shares of Common
Stock; also in fiscal 1996, the Company settled the remaining $463,352 of the
Shareholder Notes and related accrued interest with the issuance of 33,861
shares of the Common Stock and a cash payment of $375,000. The Company increased
its borrowings in fiscal 1996
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under its lending facilities by $503,000 in 1996. In fiscal 1995, the Company
drew $250,000 from its bank line of credit and borrowed an additional $150,000
from two shareholders.
The Company had cash and cash equivalents of $287,000 and $148,000 and
working capital deficits of $438,000 and $1,243,000 at the end of fiscal 1996
and fiscal 1995, respectively.
In June, 1997, the Company replaced its working capital bank line with the
Sirrom Note. The Sirrom Note bears interest at 13.5%, payable monthly from
August, 1997 through May, 2002. The principal and any remaining interest is due
in June, 2002. The Company will repay the Sirrom Note using a portion of the net
proceeds of the Offering.
As of June 30, 1997, the Company had cash and cash equivalents of
approximately $1,065,000, and working capital of approximately $1,386,000.
The Company believes that the estimated net proceeds from this Offering,
together with current cash and cash equivalent balances and internally generated
funds will satisfy the Company's projected requirements for sales and
distribution, research and development and working capital for at least twelve
months after the Offering. Thereafter, if cash generated from operations is
insufficient to satisfy the Company's projected requirements, or if the Company
subsequently elects to use funds for acquisitions or other matters, the Company
may be required to sell additional equity or debt securities or obtain
additional bank or other credit facilities. There can be no assurance that the
Company will be able to sell such securities or obtain such credit facilities on
acceptable terms in the future, if at all. The sale of additional equity or debt
securities could result in additional dilution to the Company's shareholders.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued two new
accounting standards, Statement No. 128, Earnings Per Share, and Statement No.
130, Reporting Comprehensive Income. These statements will affect the disclosure
requirements related to the Company's fiscal 1998 financial statements.
Currently, the Company is evaluating the effect of these new statements.
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BUSINESS
OVERVIEW
The Company provides software, hardware and systems integration products
and services that enable health care organizations to network otherwise
incompatible medical image-producing and image-using devices. Medical
image-producing devices primarily include digital x-ray, computed tomography
("CT"), magnetic resonance imaging ("MRI"), computed radiography ("CR"),
ultrasound and nuclear medicine machines. Medical image-using devices primarily
include, video display terminals, specialty workstations, medical film laser
printers that facilitate the use of diagnostic medical images and digital image
archiving systems. The Company's products can support over 200 different
combinations of image-producing and image-using devices and have been installed
at over 1,000 health care facilities throughout the world. The Company's
products provide a communications bridge between incompatible medical
image-producing and image-using devices, permit radiologists to use either video
images on electronic workstations or film as a diagnostic medium and create a
diagnostic-quality electronic archive of imaging results. In addition, the
Company's products permit the information generated and used by medical imaging
devices to be included in a health care organization's information network or an
electronic patient record ("EPR").
The incompatibility of the various imaging devices in a typical radiology
department or diagnostic imaging center has historically created the need for
separate workstations, film printers and other image-using devices to support
each image-producing device. The Company's products convert the output of
medical image-producing devices into an industry standard network communications
protocol, Digital Imaging Communications for Medicine ("DICOM" or the "DICOM
standard"), in order to connect these devices to various printers and
workstations, and store the images generated by such devices in a permanent
DICOM-based compact disk ("CD") archive. Radiology departments and other
diagnostic imaging centers and the users of their images and diagnostic reports
benefit in a variety of ways including: (i) multiple image-producing devices can
be connected to a single workstation, film printer or other image-using device
resulting in reduced equipment expenditures; (ii) permanent electronic archives
of diagnostic-quality imaging results can be created, enabling the retrieval of
these images at any time in the future; (iii) the modular architecture of the
Company's products allows radiology departments and other diagnostic imaging
centers to build their electronic image management infrastructures in an
incremental, flexible and cost-effective manner; and (iv) with the continued
development of health care information technology, diagnostic images collected
and managed with the Company's technology can readily be incorporated into a
patient's EPR.
INDUSTRY BACKGROUND
In recent years, managed care has sought to control health care costs by
attempting to introduce increased efficiency to the health care delivery system.
Any attempt to increase efficiency in this area requires a dramatic improvement
in the exchange of information between the various participants in the health
care delivery system. The EPR is a patient-specific repository of medical and
financial information that can be accessed by various participants in the health
care delivery system, including, but not limited to, attending and consulting
physicians, insurance providers, medical laboratories, pharmacies, and the
various departments of a hospital, clinic, nursing home or other care providing
organization. In recent years, there has been considerable effort within the
health care industry to promote the development of the EPR to improve the
exchange of medical information.
The health care industry is working to automate the collection and storage
of clinical and financial data within their various departments of health care
institutions, and, ultimately, to create an EPR by connecting such departments
into a networked system. In a survey of health care information professionals
conducted in February of 1997 by the Health Information Management Systems
Society ("HIMSS") and the Hewlett-Packard Company, the 1997
HIMSS/Hewlett-Packard Leadership Survey, twenty percent of those professionals
indicated that their information technology budgets would grow by more than
fifty percent in the next two years and sixty-nine percent indicated that their
budgets would grow by more than ten percent in the next two years. Fifty percent
of respondents indicated that upgrading their information technology
infrastructure and integrating existing systems from multiple vendors were their
current top priorities.
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Recently developed health care information technology has greatly improved
the electronic management of textual data but, with the exception of picture
archiving and communication systems ("PACS"), such systems still lack the
ability to acquire, store and manage electronically the complete set of
diagnostic images produced by each radiological examination. While large-scale
PACS permit electronic image acquisition, transmission, storage, retrieval and
display, such systems have not been widely accepted by the diagnostic imaging
community for several reasons, including: (i) PACS are usually very expensive; a
complete PACS for a hospital radiology department or other diagnostic imaging
center performing 150,000 procedures per year may cost over $6 million; (ii) a
radiology department's or other diagnostic imaging center's existing inventory
of image-producing and image-using devices cannot typically be cost-effectively
integrated into a PACS thereby negating the department's previous capital
expenditures; (iii) there is a risk that the unedited data output of a PACS may
overload an institution's communications network; and (iv) since PACS display
medical images on video display terminals, rather than film, the acceptance of
PACS has been limited by the preference of most radiologists to use film for
diagnostic purposes. Accordingly, the distribution of medical images has
continued to be a manual, labor-intensive and inefficient process based on the
sharing of a single patient film jacket filled with individual film sets.
Electronic image management outside the PACS arena is made difficult
primarily due to the incompatibility of the communications protocols and data
formats between medical imaging devices produced by different OEMs. The OEMs
that dominate the U.S. and international markets for medical image-producing
equipment are the GE Medical Systems Division of the General Electric Company
("GE"), Philips Medical Systems Nederland B.V. ("Philips"), Picker
International, Inc. ("Picker"), Siemens A.G. ("Siemens") and Toshiba Corp.
("Toshiba"). The OEMs that dominate the U.S. and international markets for
medical image-using equipment are Sterling Diagnostic Imaging, Inc.
("Sterling"), the Eastman Kodak Company ("Kodak"), Agfa-Gevaert N.V. (a division
of Bayer Corporation) ("Agfa"), Imation Corporation ("Imation"), Fuji Photo Film
Co., Ltd. ("Fuji") and Konica Medical Corporation ("Konica"). Such OEMs have
historically designed their medical imaging devices to include proprietary
communications protocols and internal data formatting technology unique to each
company's products.
In non-medical communications network environments, equipment owners,
systems integrators and competing OEM vendors have been relatively free to
modify proprietary equipment in order to make such equipment connect with
devices manufactured by third party OEMs. However, modification of medical
imaging devices generally is not possible because such devices are subject to
government regulation. Further, OEMs have the ability to void the warranty on
their equipment if such equipment is attached to third party components that
have not been approved by the OEM.
To date, no OEM has been able to maintain a commanding technological
position in all facets of diagnostic imaging. Generally, medical institutions
have focused on diagnostic quality, cost, reliability or other attributes of
specific devices in making their capital expenditure decisions rather than on
acquiring a full suite of equipment from a single OEM. As a result, the existing
equipment base includes numerous OEM-specific communications protocols and data
formats that have historically precluded devices manufactured by different OEMs,
and sometimes by the same OEM, from communicating with each other or with
various image-using devices. This incompatibility has typically required the
purchase of redundant hardware systems, thereby increasing costs. For example, a
separate medical film printer or workstation usually must be connected directly
to each digital x-ray, MRI or CT device in a hospital radiology or other
diagnostic imaging center department instead of being shared by several such
devices.
OEM SUPPORT AGREEMENTS
In recent years, OEMs have increasingly recognized that their OEM-specific
communications protocols and data formats have interfered with the connectivity
needs of their customers and the Company has successfully negotiated agreements
under which such OEMs have supplied the Company with the technical
specifications and software algorithms necessary for communicating with their
products. Such OEMs have additionally agreed to notify the Company of any
updates to their technical specifications and software. Currently, the Company
has signed agreements with over 20 OEMs including GE, Philips, Picker, Siemens
and Toshiba, representing more than 90% of the radiological electronic imaging
device market. These
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agreements have permitted the Company to develop products that directly address
the connectivity problem associated with image-producing and image-using
devices. The Company considers its access to the proprietary communications
protocols and the data formatting technologies of these OEMs to be a substantial
competitive advantage for its business.
NETWORK COMMUNICATIONS PROTOCOLS FOR MEDICAL IMAGING APPLICATIONS
In order to solve the connectivity problem and eventually to replace the
proprietary communications protocols and data formats discussed above, a joint
committee of the American College of Radiology and the National Electrical
Manufacturers' Association ("ACR/NEMA") was formed in 1984 to create an open
standard method of describing and communicating medical images over a network.
The joint committee includes representatives of many of the major companies in
the medical imaging industry including Siemens, Philips, GE, Picker, Kodak,
Agfa, Imation, Polaroid Corporation and the Company. Version 3.0 of the DICOM
standard was released in 1992 and has become the first medical data
communications standard to be adopted worldwide. The development and use of
DICOM has made possible the efficient collection and management of clinical data
that is produced and used by medical imaging devices.
William C. Mortimore, the Company's President, has been a member of the
ACR/NEMA joint committee since its establishment in 1984. In addition, several
other Company employees occupy leadership positions on this committee. The
Company has found that its leadership in the setting of standards for medical
communications protocols has provided important technological and strategic
insights that facilitate the successful development and deployment of its
connectivity products and services.
PRODUCTS AND SERVICES
The Company's electronic imaging products and services available today
include: (i) MergeWorks Connectivity Products for retrofitting legacy radiology
image-producing and image-using devices; (ii) OEM Interface Products, including
connectivity software tool kits and interface boards for new OEM image-producing
and image-using devices; (iii) Network Integration Products and Services -- for
design and installation of DICOM networks, including training, design assistance
and testing services. An additional line of Networked Image Management Products
for facilitation of radiologists' selection and use of electronic images is
under development.
GRAPHIC MATERIAL:
DIAGRAM IN BUSINESS SECTION
The top part of this diagram consists of a row of six medical
image-producing devices labeled CT, MR, X-Ray, Ultrasound, MR (with MergeVPI),
and CT. Small Company logos and straight lines are used to connect the
individual devices to a horizontal two headed arrow. The arrow is labeled
"MergeCOM-3 (DICOM) Network." Below the arrow are several labeled boxes that
represent network hardware components. Diagrams of CaseWorks, MergeARK,
ReportManager, MergeAPS and Printer, and a DICOM workstation are included.
Everything is enclosed in a shaded rectangle. "Hospital" is written in the lower
left hand corner of the rectangle. Below the rectangle are labeled graphics that
depict a computer, server, hospital and clinic.
MergeWorks Connectivity Products
The Company sells MergeWorks Connectivity Products for retrofitting legacy
stand-alone medical image-producing and image-using devices thereby rendering
such devices capable of communicating over a DICOM network. These products,
comprising the Company's MergeWorks Connectivity Products line, address the
incompatibility of proprietary communications protocols used by medical
image-producing and image-using devices by converting the output from a
customer's existing equipment base of image-producing devices into the DICOM
standard format. Once in DICOM, such data can be made generally available on a
network and can be converted into the particular proprietary language required
by any image-using device on the network. Further, such products enable a
radiology department or other diagnostic imaging centers to store diagnostic
quality medical images in an electronic format for local or remote retrieval and
display on film or a video terminal. The MergeWorks Connectivity Products line
permits a radiology department or other
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diagnostic imaging centers to upgrade its existing medical image management
system through a relatively low cost and incremental conversion of its existing
base of stand alone medical image-producing and image-using devices. The
Company's MergeWorks Connectivity Products also permit an institution to
continue to benefit from its often substantial installed base of equipment and
devices and realize the efficiencies of a network without incurring a large
up-front capital cost as would be the case with a large scale PACS solution. The
Company's MergeWorks Connectivity Products for medical image acquisition,
display, printing and storage over a DICOM network include:
Image Acquisition -- MergeMVP -- The Company developed and introduced
its first component product, the MergeMVP converter, in 1989. The MergeMVP
converter comprises software and hardware that transforms data generated by
image-producing devices into the DICOM standard or other applicable format.
Data transformed by the MergeMVP converter into DICOM can be interpreted,
processed, manipulated and managed at video display stations, three
dimensional image processing devices, teleradiology devices and other
specialty workstations.
Image Acquisition -- MergeXPI -- The MergeXPI printer interface
converts data that is generated by image-producing devices in a variety of
proprietary languages and data formats into the DICOM standard format
specifically for the purpose of printing such data. The MergeXPI printer
interface, while similar to the MergeMVP converter in function, converts
film data or hard copy data, which is traditionally used for diagnostic
purposes, and limited patient identification data, to the DICOM format.
Hard copy data generated by the MergeXPI print interface can be stored,
managed and retrieved by other Company products. The MergeXPI product
includes two alternative interfaces: (i) the MergeDPI digital print
interface, which is used with image-producing devices that produce a
digital image; and (ii) the MergeVPI video print interface, which is used
with devices that produce an analog image.
Image Printing -- MergeAPS -- The MergeAPS print server permits DICOM
formatted data to be converted into the proprietary language of a wide
variety of medical laser film printers. The MergeAPS print server plays a
key role in transforming stand-alone medical laser film printers to print
networks thereby eliminating the need for individual printers for each
image-producing device. As component parts, MergeAPS print servers can be
used to network a group of existing printers to achieve systems
compatibility without requiring the purchase of new printers. In addition,
the MergeAPS print server contains a limited storage capacity permitting
images to be retained for a short period of time for later printing.
Image Storage -- MergeARK -- The MergeARK digital image archive is a
stand-alone device that is connected to a DICOM compatible network. The
MergeARK archive can acquire images and related clinical information from
any number of image sources including imaging devices, displays and
workstations, laser print servers and other limited storage file servers.
The MergeARK archive can store images permanently, in diagnostic quality on
CDs, for later retrieval over the network, for such applications as film
reprints, telemedicine and supporting the EPR. Without the DICOM
standardization provided by the Company's products, each incompatible
device would require its own dedicated archive. The MergeARK digital image
archive is fully scalable and a user can upgrade the size of its archive
incrementally through the installation of additional modular CD arrays.
OEM Interface Products
The Company sells software tool kits and interface board products that
enable OEMs to manufacture new radiology image-producing and image-using devices
capable of directly communicating with the DICOM standard. The Company's OEM
Interface Products include:
OEM Connectivity -- MergeCOM-3 Software -- The MergeCOM-3 software
tool kit permits OEMs to design image-producing and image-using devices
capable of communicating in the DICOM format thereby rendering such
equipment network ready and avoiding the need for the MergeMVP converter,
the MergeXPI printer interface or the MergeAPS print server. The Company
licenses the MergeCOM-3 software tool kit to over 70 OEMs of
image-producing devices. The MergeCOM-3 software tool kit is available for
over 30 different computer platforms, representing nearly all of the
technologies currently employed in medical image production and use.
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OEM Connectivity -- Interface Boards -- The Company's board level
interface products are sold to OEMs that want to build into their products
at the design stage the ability to connect to other OEMs' proprietary
systems, with or without DICOM conversion. The Company's interface boards
are also an integral part of several of the Company's products such as the
MergeMVP converter, the MergeXPI printer interface and the MergeAPS print
server. Direct sales of interface boards to OEMs for inclusion in their own
equipment permits the Company to achieve economies of scale in interface
board production.
Network Integration Products and Services
The Company has offered systems integration services for the design and
installation of DICOM networks since 1996. Such services include training,
design assistance and testing, directly to radiology departments and other
diagnostic imaging centers, as well as to VARs. The Company's purpose in
offering these services is to solve the customer's connectivity problems. The
Company finds that the solution to many customers' connectivity problems is
found within the array of products offered by the Company. The Company
anticipates that offering such services will enable the Company to enhance
product sales in the future. The Company has certain products under development
in this category. See "Products Under Development."
PRODUCTS UNDER DEVELOPMENT
Networked Image Management Products
The Company is developing DICOM Networked Image Management Products that
enable radiologists to select specific diagnostic images. Once selected, such
images may be incorporated into a patient report or the EPR.
Image Management -- CaseWorks -- The CaseWorks radiology work-flow
management tool builds on the Company's MergeWorks product line to manage
the large volume of image data generated in radiology departments and other
diagnostic imaging centers and to facilitate the integration of such data
into the EPR. Because of their clinical expertise and diagnostic
experience, radiologists are best positioned to determine specific images
that are pertinent for inclusion in the patient file from among the large
number of images generated for a patient. Historically, radiologists have
favored the use of film rather than computer workstations for diagnosis.
The CaseWorks management tool directly addresses this preference by
allowing radiologists to continue to use film as a primary diagnostic
medium while facilitating the electronic selection of images for inclusion
in the EPR. During the process of collecting and preparing images for
printing on film for diagnosis, each image is assigned a unique, machine-
readable identifier which is printed next to each image. A radiologist can
prepare a case by selecting the images to be included in the EPR using the
MergeReader hand-held unit. Thereafter, the selected images can be
retrieved, along with the text report, from the MergeARK archive for
consideration by various participants in the health care system. An
anticipated future option for CaseWorks is the support of dictation within
the MergeReader hand-held unit. The Company expects the CaseWorks
management tool to be available for sale in the first quarter of 1998.
Image Management -- ReportManager -- The ReportManager integration
tool builds upon the image collection and management capability of the
CaseWorks management tool and facilitates the automated assembly and
distribution of radiology reports containing text and pertinent diagnostic
image data. Such reports can be published in a variety of media including
facsimile, telemedicine and hypertext markup language (HTML), a format for
intranet and internet applications. The Company expects the ReportManager
integration tool to be available for sale by the end of 1998.
Other Products
The Company is continuing to develop new products and improve existing
products. For example, the Company is currently developing products that provide
a direct connection between DICOM imaging networks and hospital information
systems, facilitating a more complete EPR. These interface products will also
permit transmittal of patient demographic information to the MergeMVP converter
and the MergeXPI print interface where images are initially acquired, thus
reducing data entry errors and labor costs.
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STRATEGY
The Company's goal is to become a leading provider of connectivity and data
management solutions that facilitate the networking of incompatible, proprietary
devices in medical imaging systems. The Company intends to achieve this
objective through the implementation of the following strategy:
Sell MergeWorks Connectivity Products for retrofitting legacy radiology
image-producing and image-using
devices.
The majority of the Company's current revenue is generated through the sale
of devices that enable existing radiology image-producing and image-using
equipment to connect to a DICOM network. The Company expects sales of such
devices to grow as (i) radiology departments and other diagnostic imaging
centers that have no DICOM capability or that are partially DICOM-compliant
retrofit additional existing machines with the Company's products, and (ii)
radiology departments and other diagnostic imaging centers install new DICOM
networks that require the retrofitting of all or some of their existing
equipment base with the Company's products. The Company estimates that radiology
departments at hospitals, clinics and diagnostic imaging centers that can best
use the Company's products total 2,500 in the United States and 6,000
internationally with a total installed base of 75,000 image-producing and
image-using devices.
Sell OEM Interface Products for new radiology image-producing and image-using
devices.
The Company currently sells software tool kits that enable manufacturers of
new radiology image-producing and image-using devices to connect their machines
directly to a DICOM network. The Company expects sales of such software tool
kits and interface boards to grow as manufacturers of radiology image-producing
and image-using devices upgrade and expand their current product lines. The
Company estimates that the annual sales of new radiology image-producing and
image-using machines totals 4,000 units in the United States and 10,000 units
internationally.
Sell Network Integration Products and Services.
The Company offers its customers Network Integration and Product Services
that range from the installation of DICOM connectivity devices for
image-producing and image-using to the design and installation of entire DICOM
networks and the conversion of all existing radiology machines to the DICOM
communications protocol.
Sell Networked Image Management Products to users of DICOM networks.
The Company is developing Networked Image Management Products that enable
radiologists to select and mark for retrieval specific selections of medical
imaging data. These products are anticipated to reduce the amount of data
required to be shared over a network and facilitate the development of the EPR.
The Company expects to market these products to radiology departments and other
diagnostic imaging centers that are already connected to a DICOM network.
Expand the Company's product and service offerings to other image-intensive
departments in medical institutions.
Many devices in medical institutions produce or use images that need to be
viewed, transmitted and stored. Departments that use devices of this type
include endoscopy, pathology, radiotherapy, urology, mammography and dialysis.
The Company believes that machines used by radiology and such other departments
will ultimately be connected to the hospital's information network and that
images produced by these machines will eventually be stored in an EPR. The
Company intends to develop connectivity products for such devices by applying
its expertise in standardized communications protocols to bridge the gap between
DICOM and HL-7, the developing standard for hospital information technology
networks, and by leveraging its strong relationships with the manufacturers of
medical image-producing and image-using devices. Certain employees of the
Company have been: (i) members of the ACR/NEMA DICOM standard setting joint
committee since its formation in 1984; (ii) active members of the HL-7 standard
setting committee for
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hospital administrative information networks since 1994; and (iii) core members
of the Andover Working Group since 1997.
SALES, MARKETING AND DISTRIBUTION
The Company markets its products and services to three types of customers:
(i) OEMs that typically design and manufacture standard model devices such as
MRIs, CTs, CRs, digital x-ray machines and other products that are not
customized by the OEM for the individual customer; (ii) VARs that design and
implement customized solutions, typically utilizing products manufactured by
third parties, for their customers' particular needs; and (iii) dealers that act
as retail distributors to end-users of products manufactured by third parties.
The medical imaging device market is dominated by a limited number of high
volume vendors with multiple divisions. As a result, depending on the specific
product being sold and how it will be utilized, different divisions of a single
customer, each with separate relationships with the Company, may fall into more
than one of the types of customers listed above.
The Company markets its MergeWorks Connectivity Products, and intends to
market its Networked Image Management Products, to VARs, dealers and end-users.
The MergeWorks Connectivity Products enable VARs to connect the image-producing
and image-using devices manufactured by different OEMs into the customized
solutions that they market to their customers. Dealers market the MergeWorks
Connectivity Products directly to end-users typically as part of a catalog of
medical imaging related products.
The Company markets its MergeCOM-3 software tool kit directly to OEMs
pursuant to over 70 licensing agreements with such OEMs. Utilizing the
MergeCOM-3 software tool kit and the Company's interface boards, OEMs are able
to build DICOM capability directly into their products at the design stage. To a
more limited extent, the Company licenses the MergeCOM-3 software tool kit to
end-users that have in-house systems integration capability.
The Company's marketing relationships with OEMs are based in large part on
its long-standing relationships with the engineering and research and
development personnel of such OEMs. Such relationships have grown from the
Company's past success in negotiating OEM Support Agreements (see "OEM Support
Agreements") with such OEMs and the Company's participation in the ACR/NEMA
DICOM joint committee. Because of the limited number of medical imaging device
OEMs, the Company relies heavily on repeat sales to such OEMs. The Company's
marketing efforts with respect to VARs are focused on direct sales efforts and
advertising to the sales engineering personnel of such VARs that design and sell
customized end-user solutions. The Company has worked to leverage its
relationships with the technical personnel of such VARs to support its VAR sales
efforts. The Company employs three sales professionals to market to OEMs and
VARs. Sales to OEMs and VARs accounted for 95% of the Company's net sales in
fiscal 1995, 70% in fiscal 1996 and 76% for the six months ended June 30, 1997.
The Company's end-user sales initiative is predominantly focused on sales
through dealers. The Company has cultivated relationships with dealers that
permit Company personnel to participate in presentations to potential customers.
Pursuant to such relationships, once an end-user sale is made, the Company sells
its products to the dealer for resale to the end-user. The Company markets to
dealers and end-users through direct sales efforts, advertising and repeat
business generated by its customer support efforts. The Company employs five
sales professionals that market to dealers and end-users. Sales to end-users
accounted for 5% of the Company's net sales in fiscal 1995, 30% in fiscal 1996
and 24% for the six months ended June 30, 1997. The Company believes that sales
to end-users as a percentage of total net sales will increase in the future.
The Company supports its general marketing efforts by exhibiting its
products directly to customers in major trade shows; through its Internet
address; through direct customer support; and through its product warranty. With
respect to trade shows, the Company exhibits its products at the Radiological
Society of North America annual meeting, the European Congress of Radiology and
the Association of American Hospital Radiology Administrators annual meeting.
Because the medical imaging industry is dominated by a few large participants,
such trade shows, which employees of most such participants attend, are viewed
by the Company as an integral part of its marketing strategy. The Company's
Internet address (www.merge.com) was established in 1995, currently averages
approximately 40,000 hits per month and provides access to the Company's
marketing materials, technical product information and its technical support
staff. The Company's
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technical support staff conducts a service training course for OEM and VAR
personnel on a regular basis, providing the Company's customers with the
expertise needed to install and support the Company's products. The Company
seeks to respond quickly to customer requests for technical support and service
through a telephone hotline, on-line remote service support (a capability that
is built into the MergeWorks Connectivity Products line) and overnight exchange
of defective parts or products. The Company provides a limited one-year parts or
factory repair warranty on its products. Although the Company's warranty policy
permits customers to return the Company's products in the event of malfunction,
product returns to date have not been significant.
The Company sells a majority of its products to a relatively limited number
of OEMs, VARs and dealers. Aggregate sales to the Company's ten largest
customers represented approximately 75% of the Company's net sales in fiscal
1995, 68% in fiscal 1996 and approximately 77% in the six months ended June 30,
1997. During 1996, Picker, Philips and Siemens accounted for approximately 26%,
15% and 10%, respectively, of the Company's net sales. For the six months ended
June 30, 1997, Picker, Philips and Siemens accounted for approximately 20%, 16%
and 12%, respectively, of the Company's net sales. There can be no assurance
that the Company's current customers will continue to place orders with the
Company or that the Company will be able to obtain orders from new customers.
The loss of any one or more of the Company's major customers could materially
adversely affect the Company's business and operating results.
MANUFACTURING
The Company's manufacturing activities consist primarily of assembling and
testing hardware components and subassemblies acquired from vendors, and loading
and testing the Company's software products. The Company operates under the Good
Manufacturing Practices promulgated by the FDA and is a registered medical
device manufacturer. The Company has recently commenced an initiative to comply
with the ISO 9000 class of standards promulgated by the International Standards
Organization, which involves an audit of the Company's processes.
The Company purchases industry standard parts and components for the
assembly of its products, generally from multiple vendors. The Company has
elected to rely on a limited number of subcontractors for certain subassembly
functions in order to achieve more advantageous pricing through increased
volume. However, the Company believes that additional subcontractors are
available to perform these subassembly functions. The Company maintains good
relationships with its vendors and, to date, has not experienced any material
supply problems. Any substantial problems with suppliers, however, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The markets for the Company's products are highly competitive. Many of the
Company's customers purchase products from both the Company and its competitors.
The Company currently competes primarily with DeJarnette Research Systems, Inc.
("DeJarnette") in the retrofitting of legacy medical systems to enable DICOM
standard connectivity. The MergeCOM-3 software tool kit primarily competes
directly with DeJarnette and Mitra Imaging Inc. ("Mitra"), and indirectly with
the Radiological Society of North America, which offers a version of DICOM
(originally developed by Mallinckrodt Institute of Radiology) as "freeware"
available to be downloaded without charge from the Internet, but which offers
more limited features and no user support.
In the application of MergeWorks products specifically for hardcopy film
networks, which includes MergeAPS and MergeXPI products, the Company competes
with film vendors, including Kodak, Agfa, Sterling and Imation. However, since
the MergeAPS works with any of the laser film printers available from these
vendors, these companies have also purchased the Company's products when they
have needed networked filming solutions involving their competitors' products.
The Company expects competition to increase in the future from existing
competitors and from other companies that may enter the Company's existing or
future markets. The Company could also face competition from networking
equipment and telecommunications manufacturers if these companies were either to
develop DICOM capability for their
33
<PAGE> 36
products or purchase products which provide DICOM capability from one of the
Company's competitors. Many of the Company's current and potential competitors
have greater resources than those of the Company in areas including finance,
research and development, intellectual property and marketing. Many of these
competitors also have broader product lines and longer standing relationships
with medical imaging customers than those of the Company.
The Company believes that its ability to compete successfully depends on a
number of factors both within and outside of its control, including applications
innovation; product quality and performance; price; experienced sales, marketing
and service organizations; rapid development of new products and features;
continued active involvement in the development of DICOM and other medical
communication standards; and product and policy decisions announced by its
competitors. There can be no assurance that the Company will be able to compete
successfully with its existing or any new competitors.
INTELLECTUAL PROPERTY
Although the Company has filed foreign and domestic patent applications on
CaseWorks, the Company generally does not rely on patent protection with respect
to its products. Instead, the Company relies on a combination of copyright and
trade secret law, employee and third party nondisclosure agreements and other
protective measures to protect intellectual property rights pertaining to its
systems and technology. There can be no assurance, however, that applicable
copyright or trade secret law or these agreements will provide meaningful
protection in the event of any unauthorized use, misappropriation or disclosure
of the Company's copyrights, trade secrets, know-how or other proprietary
information. In addition, the laws of certain foreign countries do not protect
the Company's intellectual property rights to the same extent as do the laws of
the United States. There can be no assurance that third parties will not assert
patent, copyright or other intellectual property infringement claims against the
Company with respect to its products or technology or other matters. There may
be third party patents, copyrights and other intellectual property relevant to
the Company's systems and technology which are not known to the Company.
Although no third party has asserted that the Company is infringing such third
party's patents, copyrights or other intellectual property, there can be no
assurance that litigation asserting such claims will not be initiated, that the
Company would prevail in any such litigation, or that the Company would be able
to obtain any necessary licenses on reasonable terms if at all. Any such claims
against the Company, with or without merit, as well as claims initiated by the
Company against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve. To date, the Company has not initiated any
intellectual property infringement claims and, to the Company's knowledge, no
such claims have been asserted against it.
GOVERNMENT REGULATION
The manufacturing and marketing of the Company's products are subject to
government regulation as medical devices in the United States by the Food and
Drug Administration ("FDA") and in other countries by corresponding foreign
regulatory authorities. The process of obtaining and maintaining required
regulatory clearances and approvals is lengthy, expensive and uncertain. The
Company believes that its success depends upon commercial sales of improved
versions of its products, certain of which cannot be marketed in the United
States and other regulated markets unless and until the Company obtains
clearance or approval from the FDA and its foreign counterparts.
The Company has registered as a medical device manufacturer with the FDA.
The Company is inspected on a routine basis by the FDA to determine compliance
with the FDA's Good Manufacturing Practices and other applicable regulations.
The FDA requires that a manufacturer seeking to market a new medical device
or an existing medical device for a new indication obtain either a premarket
notification clearance under Section 510(k) of the Federal Food, Drug and
Cosmetic Act (the "FDC Act") if the product is substantially equivalent to a
product existing at May 28, 1976, or a premarket approval under the FDC Act
("PMA") prior to the introduction of such product into the market. Material
changes to existing medical devices are also subject to FDA review and clearance
or approval prior to commercialization in the United States. The Company is
currently relying on
34
<PAGE> 37
the Section 510(k) premarket notification method to obtain governmental
clearance ("510(k) clearance") to market its medical devices in the United
States. Although it is believed to be a shorter, less costly means of satisfying
the requirements of the FDC Act than the process to obtain a PMA, the process of
obtaining a 510(k) clearance generally requires supporting data, which can be
extensive and extend the regulatory review process for a considerable length of
time. All models of the Company's systems that are commercially available, other
than the software toolkits, have received 510(k) clearance. Since the software
toolkits are incorporated into customers' products and are not freestanding
products, they are not considered to be medical devices. There can be no
assurance that 510(k) clearance for any future product or modifications of
existing products will be granted by the FDA within a reasonable time frame, if
at all. Furthermore, the FDA may require that a request for 510(k) clearance be
supported by data from clinical trials demonstrating "substantial equivalence"
and the safety and effectiveness of the device, which may prolong the Section
510(k) notification review period for a particular device or may result in a
finding that the product does not meet the substantially equivalent test, so
that a full PMA could be required.
Failure to comply with applicable regulatory requirements could result,
among other things, in warning letters, seizures of products, total or partial
suspension of production, refusal of the government to grant market clearance or
pre-market approval, withdrawal of approvals or criminal prosecution.
The Company is also subject to other federal, state and local laws and
regulations relating to safe working conditions and manufacturing practices. The
extent of government regulation that might result from any future legislation or
administrative action cannot be predicted. Failure to comply with regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
Sales of the Company's products outside the United States are subject to
foreign regulatory requirements that vary from country to country. Additional
approvals from foreign regulatory authorities may be required, and there can be
no assurance that the Company will be able to obtain foreign marketing approvals
on a timely basis or at all, or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
In Europe, the Company has obtained the certificates necessary to enable the CE
Mark, an international symbol of adherence to quality assurance standards
promulgated by the European Union and compliance with applicable European Union
Medical Device Directives, to be affixed to the Company's products for sales in
member countries. Failure to obtain or maintain any necessary certifications or
foreign regulatory approvals or any other failure to comply with regulatory
requirements outside the United States could have a material adverse effect on
the Company's business, financial condition and results of operations.
PROPERTIES
The Company's principal facilities are located in Milwaukee, Wisconsin, in
an approximately 12,000 square-foot facility leased through September 2004 at a
rate of approximately $156,000 per year. The Company also maintains a leased
sales, administrative and service support office in Nuenen, The Netherlands. The
Company anticipates that additional space will be required as its business
expands and believes that it will be able to obtain suitable space as needed.
The Company anticipates that it will need to acquire additional office space in
fiscal 1998.
EMPLOYEES
As of June 30, 1997, the Company had 55 employees, including 24 employees
in research and development, five in manufacturing, six in quality control,
service and support, eight in sales, two in sales and marketing support
activities and ten in general administration and finance. Six of the Company's
full-time employees reside in Europe performing sales and technical customer
support roles. The Company also relies on several part-time employees and
consultants. None of the Company's employees is represented by a collective
bargaining agreement nor has the Company experienced a work stoppage. Management
believes that the Company's relationship with its employees is good.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
35
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the directors and executive officers of the Company, and their
respective ages and positions with the Company, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William C. Mortimore.............. 52 President and Chief Executive Officer, Director
William L. Stafford............... 50 Vice President -- Sales, Assistant Secretary
David M. Noshay................... 37 Vice President -- Marketing
Dwight A. Simon................... 52 Vice President -- Engineering
Michael J. Franco................. 50 Chief Technical Officer
Colleen M. Doan................... 35 Chief Financial Officer, Treasurer and Secretary
Robert T. Geras................... 60 Director and Chairman of the Board of Directors
David B. Pivan.................... 76 Director
</TABLE>
William C. Mortimore is a founder of the Company and has served as
President and Chief Executive Officer and a member of the Board of Directors of
the Company since its inception in 1987. Mr. Mortimore has served as co-founder
and a senior manager of several businesses in the fields of information
communications technology, healthcare services and real estate, and has been
responsible for securing public and private financing for these organizations.
Mr. Mortimore is an original member of the American College of
Radiology/National Association of Electrical Manufacturers ("ACR/NEMA")
committee responsible for establishing and maintaining the DICOM medical imaging
standard. Mr. Mortimore is also Chair of the Medical Imaging Information Section
and a member of the Board of Directors of the Diagnostic Imaging Division of
NEMA. Mr. Mortimore received a B.S. in Electrical Engineering from Michigan
State University, an M.E.E. from the University of Minnesota, and pursued
doctoral studies in Electrical Engineering at the University of Minnesota.
William L. Stafford has served as Vice President, Sales of the Company
since June 1994. From February 1993 until May 1994, Mr. Stafford served as the
Company's Director of Sales. From June 1983 until February 1993, Mr. Stafford
was employed by Marquette Medical Systems, Inc., a manufacturer of patient
monitoring systems. Previously, he was employed by GE Medical Systems, a
manufacturer of medical diagnostic imaging equipment, and Baxter Laboratories, a
drug manufacturer. Mr. Stafford holds a B.A. in Economics from Yale College and
an M.B.A. from Harvard University.
David M. Noshay has served as Vice President, Marketing of the Company
since August 1997. From September 1995 until July 1997, Mr. Noshay served as the
Company's Eastern Regional Sales Manager. From July 1994 until August 1995, Mr.
Noshay was Sales Manager of Scitex Medical Systems, a manufacturer of medical
image printing equipment. From February 1989 until June 1994, he was Marketing
Manager for Konica Medical Corporation, a manufacturer of medical film and image
printing equipment. Previously, he was employed by Matrix Instruments, a
manufacturer of medical imaging printing equipment, and Siemens Medical Systems,
a manufacturer of medical diagnostic imaging equipment. Mr. Noshay holds a B.S.
in Electrical Engineering and an M.S. in Biomedical Engineering from Rutgers
University.
Dwight A. Simon has served as Vice President, Engineering of the Company
since October 1992. From August 1990 until September 1992, Mr. Simon served as
Manager of Engineering Services of the Company. Mr. Simon has over 30 years of
experience in the information technology industry, with over 22 years of senior
management experience with companies in manufacturing automation, communications
and medical software applications. Mr. Simon has served as chair of several
working groups and subcommittees of the DICOM committee responsible for the
creation of the DICOM standard.
Michael J. Franco has served as Chief Technical Officer of the Company
since September 1996. From May 1995 until September 1996, Mr. Franco served as
the Company's Director of Technical Services. Mr. Franco was the founder, and
from 1993 to April 1995 was the President and Chief Technical Officer of Signal
Stream Technologies, Inc., a manufacturer of electronic equipment for
interfacing devices, which was
36
<PAGE> 39
merged into a subsidiary of the Company in May 1995. Previously, he was a
co-founder and served as President and Chief Executive Officer of Adaptive
Video, Inc., a manufacturer of medical imaging interfacing equipment for
teleradiology and medical image printing. Prior to Adaptive Video, Mr. Franco
was employed by Diasonics, Inc., a manufacturer of medical diagnostic imaging
devices and by Compression Laboratories Incorporated, a manufacturer of video
teleconferencing equipment.
Colleen M. Doan has served as Chief Financial Officer of the Company since
September 1996, Treasurer since June 1994 and as Secretary since September 1997.
Ms. Doan also served as Business Manager from September 1989 through July 1995,
and Controller from August 1995 through August 1996. Ms. Doan holds a B.A. in
Business and Management from Alverno College.
Robert T. Geras has served as Chair of the Board of Directors of the
Company since July 1997, as a Director since 1992 and has been a shareholder of
the Company since May 1989. Mr. Geras has been a private venture investor for
more than 25 years, and has participated as a director of, investor in, and
advisor to numerous small businesses in fields ranging from medical equipment,
computer software, banking, telecommunications, industrial distribution and
packaging. He has also assisted in corporate planning, capital formation and
management for his various investments. Mr. Geras holds a B.S.B.A. from
Northwestern University.
David B. Pivan has served as a Director of the Company since 1992. He has
been a private investor for more than 25 years. He has participated as an early
investor and director of several small companies which subsequently become
public corporations. Previously, Mr. Pivan was the owner of Pivan Engineering,
an electronic manufacturers' representative firm. Mr. Pivan holds a B.S. in
Electrical Engineering from Illinois Institute of Technology.
BOARD COMMITTEES AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
In the past, the Board of Directors has operated without committees, other
than the Stock Option Committee. Immediately after the Offering, the Company
plans to establish the following committees: (i) a Compensation Committee,
consisting of at least two Directors, a majority of which shall be independent
Directors, to make recommendations concerning salaries, incentive compensation
and stock option grants for officers, employees and Directors of the Company;
(ii) an Audit Committee, consisting of at least two Directors, a majority of
which shall be independent, to review the results and scope of the Company's
audits and other services provided by the Company's independent auditors and to
approve the selection of the auditors; and (iii) a Nominating Committee,
consisting of at least two Directors, to nominate additional Directors.
EXECUTIVE COMPENSATION
Set forth below is information concerning the compensation for 1996 for the
Company's President and Chief Executive Officer, and each other executive
officer of the Company whose salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996
ANNUAL COMPENSATION
-------------------
OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION SALARY GRANTED COMPENSATION
--------------------------- -------- ------- ------------
<S> <C> <C> <C>
William C. Mortimore, President and CEO.................. $130,101 67,721 2,602(2)
Michael J. Franco, Chief Technical Officer............... 102,391 150,518(1) 2,048(2)
</TABLE>
- ---------------
(1) Includes 67,721 options granted as compensation and 82,797 options granted
pursuant to an employment agreement entered into in 1995 in connection with
the Company's purchase of SST.
(2) Represents the Company's contributions to its 401(k) plan for the benefit of
its employees.
37
<PAGE> 40
OPTION GRANTS IN 1996 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ----------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William C. Mortimore............ 38,649 5% $1.48 09/28/2002 $ 76,525 $101,260
29,072 4% $1.48 11/29/2002 $ 57,563 $ 76,169
Michael J. Franco(2)............ 67,721 9% $1.48 06/01/2002 $134,088 $177,429
82,797 11% $1.48 11/29/2002 $163,938 $216,928
</TABLE>
- ---------------
(1) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates of appreciation set by the SEC and therefore do not
necessarily predict the future appreciation, if any, of the Common Stock.
(2) Includes options to purchase 67,721 shares of Common Stock granted as
compensation and options to purchase 82,797 shares of Common Stock granted
pursuant to an employment agreement entered into in 1995 in connection with
the Company's purchase of SST.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement dated as of September 1,
1997 with William C. Mortimore, which is in effect for an initial term of three
years, followed by one-year extensions unless terminated by either party, and
provides for the Company to pay Mr. Mortimore a minimum annual salary of
$160,000. The employment agreement requires Mr. Mortimore to devote his full
time and attention to the Company. The employment agreement also includes
confidentiality provisions, restricts Mr. Mortimore's ability to compete with
the Company for a period of two years after termination of his employment and
awards Mr. Mortimore three months' severance pay following termination of his
employment under certain conditions.
DIRECTORS' COMPENSATION
Directors do not receive any cash compensation for their service as members
of the Board of Directors, although they are reimbursed for certain expenses
incurred in connection with attendance at Board meetings. The Board of Directors
may, in its discretion, alter this policy in the future.
CERTAIN TRANSACTIONS
On June 30, 1997, the Company borrowed $2,000,000 from Sirrom pursuant to a
note (the "Sirrom Note") and related security agreement. The Sirrom Note
requires payments of interest only, computed at 13.5% per annum, payable monthly
in arrears through maturity (June 30, 2002). Approximately $1,004,000 of the
proceeds of the Sirrom Note were applied toward the repayment of the bank
indebtedness and the balance toward working capital. No principal payments are
required prior to maturity. Prepayment in whole or part is permitted without
penalty. The Sirrom Note is secured by a first lien on all of the Company's
assets, subject to Sirrom's agreement to subordinate its lien to a senior
revolving credit facility in an amount not to exceed $2,500,000 provided that
initially permitted borrowings under such facility may not exceed $1,500,000,
subject to increase in such permitted borrowings to (i) $2,000,000 in the event
the Company achieves earnings before deductions for interest, taxes,
depreciation and amortization ("EBITDA") of $2,000,000 for fiscal 1997; and (ii)
$2,500,000 in the event the Company achieves EBITDA of $2,000,000 for fiscal
1997 and EBITDA of $1,250,000 for any six month period thereafter.
As a condition to issuance of the Sirrom Note, the Company issued the
Sirrom Warrant, which granted Sirrom the right to acquire for nominal
consideration a base amount of 145,256 shares of Common Stock. Under the terms
of the Sirrom Warrant, in the event the loan is outstanding in whole or in part
on the following dates, the base amount would be increased to the following:
June 30, 2000 -- 203,754; June 30, 2001 -- 205,312; June 30, 2002 -- 206,923.
The Sirrom Warrant prohibits the sale of shares by the Company
38
<PAGE> 41
to third parties at below fair market value without concomitant antidilution
protection to Sirrom, but expressly permits the issuance of up to 1,354,434
shares pursuant to the 1996 Employees' Stock Option Plan ("1996 Plan") at fair
market value on the date of the option grant provided that the Company does not
grant options to purchase more than 338,609 shares of Common Stock in any year.
The Sirrom Warrant grants Sirrom the right to attend (but not vote at)
directors' meetings until such time as the Sirrom Note is paid in full. The
Sirrom Warrant grants Sirrom a put right for a period of 30 days immediately
prior to its expiration at "Fair Market Value," which is to be determined by
agreement of the parties or, in the absence of agreement, by two independent
appraisers. In valuing the Common Stock if the Company is publicly-traded, the
appraisers are to take into value the anticipated impact on the market if such
shares were all offered for sale. Sirrom has been granted piggyback registration
rights in connection with certain registered offerings of the Common Stock and
rights of co-sale to participate in sales of the Common Stock by Robert T. Geras
or William C. Mortimore.
By agreement dated October 6, 1997, the Company and Sirrom agreed that upon
the successful closing of an initial public offering of the Common Stock: (i)
the Sirrom Note would be paid in full; (ii) the Sirrom Warrant would be
exercised as to 75% (108,942) of the original number of shares issuable under
it; (iii) Sirrom will not offer, pledge, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
securities of the Company for a period of 180 days following the date of this
Prospectus without the prior written consent of the Representative; (iv)
Sirrom's right to purchase 25% (36,314) of the original number of shares
issuable under the Sirrom Warrant would be terminated; (v) the put option in
favor of Sirrom would be canceled; (vi) the Sirrom Termination Fee would be paid
to Sirrom; and (vii) the Company agreed to file a registration statement to
register shares issued to Sirrom pursuant to the Sirrom Warrant within 120 days
of the Closing of this Offering, provided in no event would such registration
statement be declared effective until at least 180 days following the initial
closing of an initial public offering of the Common Stock.
On June 1, 1996 the Company entered into a three-year consulting agreement
with Robert T. Geras calling for the payment to Mr. Geras of: (i) $160,000 on
January 1, 1997 (the "$160,000 Obligation") in consideration of financial
consulting services provided by Mr. Geras to the Company through June 30, 1996;
and (ii) the sum of $3,500 per month plus reimbursement for approved
out-of-pocket expenses.
The Company issued an aggregate of 1,330,731 shares of Common Stock in a
private placement at $1.48 per share. The Company received consideration in
connection with this private placement of $355,000 in fiscal 1995 and $1,610,000
in fiscal 1996. In connection with this private placement, one of the Company's
Directors at that time purchased Common Stock at the same price offered to other
investors, namely Mr. Geras (203,165 shares). Warren B. Cozzens, a former
director also purchased 338,609 shares in this private offering. All Common
Stock was paid for with cash, except for (i) 47,405 shares purchased by Mr.
Geras with a $70,000 note bearing interest at 10% per annum, which note was paid
in full within two months; and (ii) 135,443 shares purchased by Mr. Geras with a
fully-secured, three-year, non-interest bearing $200,000 note. The Company
subsequently approached Mr. Geras with a proposal to set off the $200,000 note
against the $160,000 Obligation, based on its belief that the $200,000 note had
an approximately equal net present value to the $160,000 Obligation. Mr. Geras
agreed to such set-off in full satisfaction of the purchase price obligation for
the 135,443 shares.
Pursuant to a Stock Redemption Agreement between the Company and Alpha
dated May 5, 1995, and amended March 1, 1997, the Company has the right to
redeem up to 424,757 shares of Common Stock held by Alpha through October, 1998.
The call price ranges from $1.56 to $2.37 per share. The Company will use
$780,249 of the net proceeds of this Offering to redeem all such shares. These
shares are also subject to put options through October 1998 at prices ranging
from $0.71 to $1.52 per share.
The Company also invested in a merger with Signal Stream Technologies (SST)
in May, 1995. All of the outstanding shares of SST, a supplier of interface
products to the diagnostic imaging industry, were acquired by Signal Stream,
Incorporated (SSI), a wholly-owned subsidiary of the Company. The purchase
price, net of cash acquired, was $55,000.
39
<PAGE> 42
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 1, 1997 and as adjusted to reflect
the sale of the shares of Common Stock offered hereby, by (i) each person that
is known by the Company to beneficially own or exercise the voting or
dispositive control over 5% or more of the outstanding shares of Common Stock;
(ii) each director; and (iii) all directors and executive officers of the
Company as a group. Except as otherwise indicated in the footnotes to the table,
the persons named below have sole voting and investment power with respect to
the shares beneficially owned by such persons. In general, a person is deemed to
be a "beneficial owner" of a security if that person has or shares the power to
vote or direct the voting of such security, or the power to dispose of or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities of which the person has the right to acquire
the beneficial ownership within 60 days. See "Certain Transactions."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
-------------------- ----------------------
NAME NUMBER PERCENT NUMBER PERCENT
---- --------- ------- ----------- -------
<S> <C> <C> <C> <C>
Alpha Capital Venture Partners, Limited.......... 546,067(2) 13% 121,309 2%
122 South Michigan Avenue
Suite 1700
Chicago, IL 60642
Robert T. Geras.................................. 728,591(3) 17% 728,591(3) 12%
2125 Valley Road
Northbrook, IL 60062
William C. Mortimore............................. 545,160(4) 13% 545,160(4) 9%
c/o Merge Technologies Incorporated
1126 South 70th Street
Suite S107B
Milwaukee, WI 53214-3151
David B. Pivan................................... 57,624 1% 57,624 (6)
1765 South Lane
Northbrook, IL 60062
Michael J. Franco................................ 225,737(5) 5% 225,737(5) 4%
c/o Merge Technologies Incorporated
1126 South 70th Street
Suite S107B
Milwaukee, WI 53214-3151
All Directors and Executive Officers as a Group(8
persons)....................................... 1,785,672 41% 1,785,672 30%
</TABLE>
- ---------------
(1) Except pursuant to applicable marital property laws or as indicated in the
footnotes to this table, to the Company's knowledge, each shareholder
identified in the table possesses sole voting and investment power with
respect to all Common Stock shown as beneficially owned by such shareholder.
(2) A portion of the net proceeds received by the Company in this Offering will
be used to redeem 424,757 shares of Common Stock currently held by Alpha.
See "Use of Proceeds" and "Certain Transactions."
(3) Reflects 203,165 shares held by trusts for the benefit of Mr. Geras' adult
children, the beneficial ownership of which Mr. Geras disclaims.
(4) Includes vested options held by Mr. Mortimore to acquire 33,861 shares.
(5) Includes vested options held by Mr. Franco to acquire 116,657 shares.
(6) Less than 1%.
40
<PAGE> 43
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $0.01 per share. As of the date of this Prospectus, there were
3,902,984 shares of Common Stock and no shares of Preferred Stock outstanding.
The following description of the capital stock of the Company is a summary
and is qualified in its entirety by the provisions of the Company's Articles of
Incorporation (the "Articles") and By-Laws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share of Common Stock
beneficially owned on each matter submitted to a vote at a meeting of
shareholders, subject to Section 180.1150 of the WBCL (described below under
"Certain Statutory and Other Provisions"). The Common Stock does not have
cumulative voting rights, which means that the holders of a majority of voting
shares voting for the election of directors can elect all of the members of the
Board of Directors. The Common Stock has no preemptive rights and no redemption
or conversion privileges. Subject to any preferences of any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive dividends
out of assets legally available at such times and in such amounts as the Board
of Directors may, from time to time, determine, and upon liquidation and
dissolution are entitled to receive all assets available for distribution to the
shareholders. The Company's Articles state that a majority vote of shares
represented at a meeting at which a quorum is present is sufficient for all
actions that require the vote of shareholders. However, under the WBCL, certain
actions require enhanced approval by either a supermajority of two-thirds of all
outstanding shares entitled to vote and certain actions require a majority of
all outstanding shares entitled to vote. See "Certain Statutory and Other
Provisions." All of the outstanding shares of the Common Stock are, and the
shares to be sold by the Company as part of the Offering when legally issued and
paid for will be, fully paid and nonassessable, except for certain statutory
liabilities which may be imposed by Section 180.0622(2)(b) of the WBCL for
unpaid employee wages.
PREFERRED STOCK
Pursuant to the Articles, the Company's Board of Directors may, without
further action by the Company's shareholders, from time to time, issue shares of
the Preferred Stock in series and may, at the time of issuance, determine the
rights, preferences, and limitations of each series. Any dividend preference of
any Preferred Stock which may be issued would reduce the amount of funds
available for the payment of dividends on Common Stock. Also, holders of the
Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution, or winding-up of the Company before
any payment is made to the holders of Common Stock. Under certain circumstances,
the issuance of such Preferred Stock may discourage bids for the Common Stock at
a premium or otherwise adversely affect the market price of the Common Stock or
may render more difficult or tend to discourage a merger, tender offer, proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. Although the Company
presently has no plans to issue any of its shares of the Preferred Stock, the
Board of Directors of the Company, without shareholder approval, may issue the
Preferred Stock with voting and conversion rights which could adversely affect
the holders of Common Stock.
LIMITATION OF DIRECTOR LIABILITY
Section 180.0828 of the WBCL provides that officers and directors of
domestic corporations may be personally liable only for intentional breaches of
fiduciary duties, criminal acts, transactions from which the director derived an
improper personal profit and wilful misconduct. These provisions may have the
effect of reducing the likelihood of derivative litigation against directors and
may discourage or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even thought such an action,
if successful, might otherwise have benefitted the Company and its shareholders.
The employment agreements of certain directors and officers contain a provision
similar to the provisions of the WBCL.
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<PAGE> 44
INDEMNIFICATION
Under the WBCL, directors and officers of the Company are entitled to
mandatory indemnification from the Company against certain liabilities and
expenses (a) to the extent such officers or directors are successful in the
defense of a proceeding and (b) in proceedings in which the director or officer
is not successful in the defense thereof, unless (in the latter case only) it is
determined that the director or officer breached or failed to perform his or her
duties to the Company and such breach or failure constituted: (i) a wilful
failure to deal fairly with the Company or its shareholders in connection with a
matter in which the director or officer had a material conflict of interest;
(ii) a violation of the criminal law unless the director or officer had
reasonable cause to believe his or her conduct was lawful or had no reasonable
cause to believe his or her conduct was unlawful; (iii) a transaction from which
the director or officer derived an improper personal profit; or (iv) wilful
misconduct. The WBCL allows a corporation to limit its obligation to indemnify
officers and directors by providing so in its articles of incorporation. The
Company's By-Laws provide for indemnification of directors and officers to the
fullest extent permitted by Wisconsin law.
CERTAIN STATUTORY AND OTHER PROVISIONS
The provisions of the Company's By-Laws and the WBCL described in this
section may delay or make more difficult acquisitions or changes of control of
the Company not approved by the Company's Board of Directors. Such provisions
have been implemented to enable the Company, particularly (but not exclusively)
in the initial years of its existence as a publicly-traded company, to develop
its business in a manner which will foster its long-term growth without
disruption caused by the threat of a takeover not deemed by its Board of
Directors to be in the best interests of the Company and its shareholders. Such
provisions could have the effect of discouraging third parties from making
proposals involving an acquisition or change of control of the Company, although
such proposals, if made, might be considered desirable by a majority of the
Company's shareholders. Such provisions may also have the effect of making it
more difficult for third parties to cause the replacement of the current
management of the Company without the concurrence of the Board of Directors.
Number of Directors; Removal; Vacancies. The By-Laws provide that the
number of directors shall be five. The authorized number of directors may be
changed by amendment of the By-Laws. The By-Laws also provide that the Company's
Board of Directors shall have the exclusive right to fill vacancies on the Board
of Directors, including vacancies created by expansion of the Board or removal
of a director, and that any director elected to fill a vacancy shall serve until
the next annual meeting of shareholders. The By-Laws further provide that
directors may be removed by the shareholders only by the affirmative vote of the
holders of at least a majority of the votes then entitled to be cast in an
election of directors and only for cause. This provision, in conjunction with
the provisions of the By-Laws authorizing the Board to fill vacant
directorships, could prevent shareholders from removing incumbent directors and
filling the resulting vacancies with their own nominees.
Amendments to the Articles of Incorporation. The WBCL provides authority to
the Company to amend its Articles at any time to add or change a provision that
is required or permitted to be included in the Articles or to delete a provision
that is not required to be included in the Articles. The Company's Board of
Directors may propose one or more amendments to the Company's Articles for
submission to shareholders and may condition its submission of the proposed
amendment on any basis if the Board of Directors notifies each shareholder,
whether or not entitled to vote, of the shareholders' meeting at which the
proposed amendment will be voted upon.
Constituency or Stakeholder Provision. Under Section 180.0827 of the WBCL
(the "Wisconsin Stakeholder Provision"), in discharging his or her duties to the
Company and in determining what he or she believes to be in the best interests
of the Company, a director or officer may, in addition to considering the
effects of any action on shareholders, consider the effects of the action on
employees, suppliers, customers, the communities in which the Company operates
and any other factors that the director or officer considers pertinent.
Wisconsin Antitakeover Statutes. Sections 180.1140 to 180.1144 of the WBCL
(the "Wisconsin Business Combination Statute") regulate the broad range of
"business combinations" between a "resident domestic
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<PAGE> 45
corporation" (such as the Company) and an "interested stockholder." The
Wisconsin Business Combination Statute define a "business combination" to
include a merger or share exchange, or a sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets equal to at least 5% of the
market value of the stock or assets of the corporation or 10% of its earning
power, or the issuance of stock or rights to purchase stock with a market value
equal to at least 5% of the outstanding stock, the adoption of a plan of
liquidation or dissolution and certain other transactions involving an
"interested stockholder," defined as a person who beneficially owns 10% of the
voting power of the outstanding voting stock of the corporation or who is an
affiliate or associate of the corporation and beneficially owned 10% of the
voting power of the then outstanding voting stock within the last three years.
Section 180.1141 of the Wisconsin Business Combination Statute prohibits a
corporation from engaging in a business combination (other than a business
combination of a type specifically excluded from the coverage of the statute)
with an interested stockholder for a period of three years following the date
such person becomes an interested stockholder, unless the board of directors
approved the business combination or the acquisition of the stock that resulted
in a person becoming an interested stockholder before such acquisition.
Accordingly, the Wisconsin Business Combination Statute's prohibition on
business combinations cannot be avoided during the three-year period by
subsequent action of the board of directors or shareholders. Business
combinations after the three-year period following the stock acquisition date
are permitted only if (i) the board of directors approved the acquisition of the
stock by the interested stockholder prior to the acquisition date, (ii) the
business combination is approved by a majority of the outstanding voting stock
not beneficially owned by the interested stockholder, or (iii) the consideration
to be received by shareholders meets certain requirements of the statute with
respect to form and amount.
In addition, the WBCL provides in Sections 180.1130 to 180.1133, that
business combinations involving a "significant shareholder" and an "issuing
public corporation" (each as defined below) are subject to a two-thirds
supermajority vote of shareholders (the "Wisconsin Fair Price Statute"), in
addition to any approval otherwise required. A "significant shareholder," with
respect to an issuing public corporation, is defined as a person who
beneficially owns, directly or indirectly, 10% or more of the voting stock of
the corporation, or an affiliate of the corporation which beneficially owned,
directly or indirectly, 10% or more of the voting stock of the corporation
within the last two years. An "issuing public corporation" is defined as a
Wisconsin corporation that has (i) total assets exceeding $1 million and a class
of equity securities held of record by 500 or more persons and (ii) at least 100
shareholders of record who have unlimited voting rights and who are residents of
Wisconsin. It is anticipated that after completion of the Offering, the Company
will be an "issuing public corporation." Under the WBCL, the business
combinations described above must be approved by 80% of the voting power of the
corporation's stock and at least two-thirds of the voting power of the
corporation's stock not beneficially held by the significant shareholder who is
party to the relevant transaction or any of its affiliates or associates, in
each case voting together as a single group, unless the following fair price
standards have been met: (i) the aggregate value of the per share consideration
is equal to the higher of (a) the highest price paid for any common stock of the
corporation by the significant shareholder in the transaction in which it became
a significant shareholder of within two years before the date of the business
combination, (b) the market value of the corporation's shares on the date of
commencement of any tender offer by the significant shareholder, the date on
which the person became a significant shareholder or the date of the first
public announcement of the proposed business combination, whichever is highest,
or (c) the highest liquidation or dissolution distribution to which holders of
the shares would be entitled, and (ii) either cash, or the form of consideration
used by the significant shareholder to acquire the largest number of shares, is
offered.
Section 180.1134 of the WBCL (the "Wisconsin Defensive Action
Restrictions") provides that, in addition to the vote otherwise required by law
or the articles of incorporation of an issuing public corporation, the approval
of the holders of a majority of the shares entitled to vote is required before
such corporation can take certain action while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Under the Wisconsin Defensive Action Restrictions, shareholder approval is
required for the corporation to (i) acquire more than 5% of the outstanding
voting shares at a price above the market price from any individual who or
organization which owns more than 3% of the outstanding voting shares and has
held such shares for less than two years, unless a similar offer is made to
acquire all voting shares, or (ii) sell or option assets of the corporation
which amount to at least 10% of the market value of the corporation, unless the
corporation has at least three independent directors (directors who are not
officers or
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<PAGE> 46
employees) and a majority of the independent directors vote not to have this
provision apply to the corporation. The restrictions described in clause (i)
above may have the effect of deterring a shareholder from acquiring shares of
the Common Stock with the goal of seeking to have the Company repurchase such
shares at a premium over the market price.
Section 180.1150 of the WBCL provides that the voting power of shares of
public Wisconsin corporations such as the Company held by any person or persons
acting as a group in excess of 20% of the voting power in the election of
directors is limited to 10% of the full voting power of those shares. This
statutory voting restriction does not apply to shares acquired directly from the
Company or in certain specified transactions or shares for which full voting
power has been restored pursuant to a vote of shareholders.
Certain Antitakeover Effects. Certain provision of the Company's Articles
and By-Laws may have significant antitakeover effects, including the inability
of the shareholders to remove directors without cause, the ability of the
remaining directors to fill vacancies, and the ability of the Board of Directors
to issue "blank check" preferred stock which, in turn, allows the directors to
adopt a so-called "rights plan" which would entitle shareholders (other than a
hostile bidder) to acquire stock of the Company at a discount.
The explicit grant in the Wisconsin Stakeholder Provision of discretion to
directors to consider nonshareholder constituencies could, in the context of an
"auction" of the Company, have antitakeover effects in situations where the
interests of stakeholders of the Company, including employees, suppliers,
customers and communities in which the Company does business, conflict with the
short-term maximization of shareholder value.
The Wisconsin Fair Price Statute may discourage any attempt by a
shareholder to squeeze out other shareholders without offering an appropriate
premium purchase price. In addition, the Wisconsin Defensive Action Restrictions
may have the effect of deterring a shareholder from acquiring the Common Stock
with the goal of seeking to have the Company repurchase the Common Stock at a
premium. The WBCL statutory provisions and the Company's Articles and By-Law
provisions referenced above are intended to encourage persons seeking to acquire
control of the Company to initiate such an acquisition through arms-length
negotiations with the Company's Board of Directors, and to ensure that
sufficient time for consideration of such a proposal, and any alternatives, is
available. Such measures are also designed to discourage investors from
attempting to accumulate a significant minority position in the Company and then
use the threat of a proxy contest as a means to pressure the Company to
repurchase shares of Common Stock at a premium over the market value. To the
extent that such measures make it more difficult for, or discourage, a proxy
contest or the assumption of control by a holder of a substantial block of the
Common Stock, they could increase the likelihood that incumbent directors will
retain their positions, and may also have the effect of discouraging a tender
offer or other attempt to obtain control of the Company, even though such
attempt might be beneficial to the Company and its shareholders.
TRANSFER AGENT AND REGISTRAR
Continental Stock & Transfer Company of Illinois will be the Transfer Agent
and Registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
5,487,169 shares of Common Stock assuming that the Underwriters do not exercise
their over-allotment option. After this Offering, the 1,900,000 shares of Common
Stock sold in this Offering and any shares issued in the event that the
Underwriters' over-allotment option to purchase up to 285,000 shares is
exercised, will be freely tradeable without restriction or further registration
under the Securities Act, except for any shares purchased by an "affiliate" of
the Company, which will be subject to the limitations imposed on "affiliates" of
the Company under Rule 144 promulgated under the Securities Act ("Rule 144").
The remaining 3,587,169 outstanding shares of Common Stock, are "restricted
securities" within the meaning of Rule 144 and may not be resold
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<PAGE> 47
except pursuant to a registration statement effective under the Securities Act
or pursuant to an exemption therefrom, including the exemption provided by Rule
144.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, subject to certain
restrictions, sell within any three-month period a number of shares which does
not exceed the greater of: (i) 1% of the then outstanding shares of Common
Stock; or (ii) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission as
required by Rule 144. Rule 144 also permits the sale of shares without any
volume limitation by a person who is not an affiliate of the Company and who has
satisfied a two-year holding period. The one-year holding period with respect to
3,581,047 outstanding shares of Common Stock has expired. The one-year holding
period with respect to 6,122 shares of Common Stock will expire on May 28, 1998.
All of the Company's shareholders and holders of outstanding options, other
than Sirrom, have agreed not to offer, pledge, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
securities of the Company for a period of 275 days and, with respect to 50% of
their current stockholdings, for a period of 455 days following the date of this
Prospectus, without the prior written consent of the Underwriter. Sirrom, which
will hold 108,942 shares upon the completion of the Offering, has agreed not to
offer, pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any securities of the Company for
a period of 180 days following the date of this Prospectus, without the prior
written consent of the Representative. See "Underwriting."
On the closing of the Offering, the Company will sell to the
Representative, individually and not as representative of the Underwriters, for
nominal consideration, the Representative's Warrants entitling the
Representative to purchase an aggregate of 190,000 shares of Common Stock
(218,500 shares of Common Stock if the over-allotment option is exercised in
full) at an initial exercise price per share equal to 120% of the initial public
offering price hereunder. The Representative's Warrants will be exercisable for
a period of four years commencing one year after the effective date of this
Offering and will contain certain demand and incidental registration rights
relating to the underlying Common Stock. The holders of the Representative's
Warrants may sell shares of Common Stock acquired by exercise of the
Representative's Warrants one year from the date of exercise thereof without
registration subject to the limitations of Rule 144. See "Underwriting."
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made as to the effect, if any, that sales of shares of Common
Stock under Rule 144 will have on the market price of the Common Stock; sales of
Common Stock under Rule 144 in the public market could adversely affect the
market price of the Common Stock or the ability of the Company to raise money
through a public offering of its equity securities. See "Risk
Factors -- Potential Adverse Impact on Market Price of Shares Eligible for
Future Sale and Registration Rights."
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<PAGE> 48
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "Underwriters"), for whom H.C. Wainwright & Co.,
Inc. is acting as Representative, and each of the Underwriters has severally
agreed to purchase from the Company, the respective number of shares of Common
Stock set forth opposite its name below at the initial public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The Underwriting Agreement provides that, subject to the terms and conditions
set forth therein, the Underwriters are obligated to purchase all of the shares
of Common Stock being sold pursuant to the Underwriting Agreement if any of the
shares of Common Stock are purchased. Under certain circumstances, under the
Underwriting Agreement, the commitments of non-defaulting Underwriters may be
increased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
H.C. Wainwright & Co., Inc. ................................
Total............................................. 1,900,000
</TABLE>
The Representative has advised the Company that the Underwriters propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $[ ] per share. The Underwriters may
allow, and such dealers may reallow, a discount not in excess of $[ ] per share
of Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The Company has granted the Underwriters an option to purchase up to an
additional 285,000 shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting discount.
Such option, which will expire 30 days after the date of this Prospectus, and
may be exercised solely to cover over-allotments, if any, made in connection
with the sale of Common Stock offered hereby. To the extent that this option is
exercised, each of the Underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof which
the number of shares of Common Stock to be purchased initially by that
Underwriter bears to the total number of shares of Common Stock to be purchased
initially by the Underwriters. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 1,900,000 shares of
Common Stock are being offered hereby.
The Company has agreed to pay the Representative a non-accountable expense
allowance of three percent (3%) of the gross proceeds of the Offering, which
will include proceeds from the over-allotment option, if exercised. The
Representative's expenses in excess of the non-accountable expense allowance,
including its legal expenses, will be borne by the Representative.
At the request of the Company, the Underwriters have reserved up to
approximately [ ] shares (the "Reserved Shares") of Common Stock for sale to
certain directors, officers, employees and friends of the Company, and certain
relatives of such directors, officers, employees and friends of the Company, who
have expressed an interest in purchasing shares of Common Stock in this
Offering. The Reserved Shares will be sold to such persons through brokerage
accounts opened specifically for such purpose through the Representative. The
price for such Reserved Shares will be the public offering price. The number of
shares available to the general public will be reduced to the extent such
persons purchase the Reserved Shares. Any Reserved Shares that are not so
purchased by such persons at the initial closing of this Offering will be sold
by the Underwriters to the general public on the same terms as the other shares
of Common Stock offered hereby.
On the closing of the Offering, the Company will sell to the
Representative, individually and not as representative of the Underwriters, for
nominal consideration, the Representative's Warrants entitling the
Representative to purchase an aggregate of 190,000 shares of Common Stock
(218,500 shares of Common Stock if the over-allotment option is exercised in
full) at an initial exercise price per share equal to 120% of the initial public
offering price hereunder. The Representative's Warrants will be exercisable for
a period of
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<PAGE> 49
four years commencing with the first anniversary of the effective date of this
Offering and will contain certain demand and incidental registration rights
relating to the underlying Common Stock. The Representative's Warrants cannot be
transferred, assigned or hypothecated, in whole or in part, for a period of
twelve months from the date of their issuance, except to any officer or partner
of the Representative. The Representative's Warrants will contain anti-dilution
provisions providing for appropriate adjustment of the exercise price and the
number of shares issuable upon exercise thereof upon the occurrence of certain
events.
For the life of the Representative's Warrants, their holders have, at
nominal cost, the opportunity to profit from a rise in the market price for the
Common Stock without assuming the risk of ownership, with a resulting dilution
in the interest of other security holders. As long as the Representative's
Warrants remain unexercised, the terms under which the Company could obtain
additional capital may be adversely affected. Moreover, the holders of the
Representative's Warrants might be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a new
offering of its securities on terms more favorable than those provided by the
Representative's Warrants. Additionally, if the Representative should exercise
its registration rights to effect a distribution of the underlying shares of
Common Stock, the Representative, prior to and during such distribution, would
be unable to make a market in the Common Stock. If the Representative must cease
making a market, the market and market price for the Common Stock may be
adversely affected and holders of the Common Stock may be unable to sell the
Common Stock.
The Company has granted H.C. Wainwright & Co., Inc. the right to act as the
Company's financial advisor on an exclusive basis until September 3, 2000 with
respect to any sale or disposition of the Company or any of its assets or the
acquisition by the Company of any securities or assets of any other business
entity. Until September 3, 2000, the Company has also granted H.C. Wainwright &
Co., Inc. the right to act as a lead underwriter with respect to any sales of
equity securities by the Company. In addition, the Company has granted to H.C.
Wainwright & Co., Inc. the right to nominate one director to the Company's Board
of Directors. While this representative director may be a director, officer,
partner, employee or affiliate of H.C. Wainwright & Co., Inc., H.C. Wainwright &
Co., Inc. presently intends to nominate an independent director to fill that
position and that this individual, initially, will serve on both the
Compensation and Audit Committees.
The Company has, subject to certain exceptions with respect to employee and
director stock options, agreed not to, directly or indirectly, sell, offer to
sell, grant any option to purchase, or otherwise dispose of, any Common Stock,
or any security convertible or exchangeable into, or exercisable for, such
Common Stock or file any registration statement with respect to any of the
foregoing, for a period of 455 days after the effective date of this Offering,
without the prior written consent of the Underwriters.
All of the Company's shareholders and holders of outstanding options, other
than Sirrom, have agreed not to offer, pledge, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
securities of the Company for a period of 275 days and, with respect to 50% of
their current stockholdings, for a period of 455 days following the date of this
Prospectus, without the prior written consent of the Underwriter. Sirrom, which
will hold 108,942 shares upon completion of the Offering, has agreed not to
offer, pledge, sell, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any securities of the Company for
a period of 180 days following the date of this Prospectus, without the prior
written consent of the Representative.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales of Common Stock offered hereby to any accounts over
which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was determined by
negotiations among the Company and the Underwriters. Among the factors
considered in such negotiations, in addition to prevailing market conditions,
were certain financial information of the Company, an assessment of the
Company's management, estimates of the business potential and earnings prospects
of the Company, the present state of the Company's development and operations,
the present state of the Company's industry in general and other factors deemed
relevant. The initial public offering price set forth on the cover page of this
Prospectus should not, however, be considered an indication of the actual value
of the Common Stock. Such price is subject to change as a result of market
conditions and other factors. There can be no assurance that an active trading
market will develop for the
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<PAGE> 50
Common Stock or that the Common Stock will trade in the public market subsequent
to the Offering at or above the initial public offering price.
In connection with the Offering, the Underwriters and certain selling group
members may engage in stabilizing, syndicate short covering transactions or
other transactions that stabilize, maintain or otherwise affect the market price
of the Common Stock. Stabilizing transactions may consist of initiating bids or
effecting purchases on the Nasdaq SmallCap Market for the purpose of preventing
or retarding a decline in the market price of the Common Stock. Bids or
purchases effected by the Underwriters or selling group members for such
purposes may be instituted at prices no higher than the initial public offering
price or the most recent independent bid, whichever is less. Such transactions
may stabilize the market price of the Common Stock at a level above that which
might otherwise prevail and, if commenced, may be discontinued at any time.
The Company has applied to include its Common Stock for quotation on the
Nasdaq SmallCap Market under the symbol MRGE.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Foley & Lardner, Milwaukee, Wisconsin. Certain legal
matters will be passed upon for the Company by Shefsky & Froelich Ltd., Chicago,
Illinois. Certain legal matters will be passed upon for the Underwriters by
Venable, Baetjer and Howard, LLP, Baltimore, Maryland. As of the date of this
Prospectus, a member of Shefsky & Froelich Ltd. beneficially owns 40,247 shares
of Common Stock and three members of Foley & Lardner beneficially own an
aggregate of 53,365 shares of Common Stock.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1996 and
the consolidated statements of operations, shareholders' equity and cash flows
for the years ended December 31, 1996 and 1995, have been included herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement (of which this Prospectus is a part)
(File No. 333- ) (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to a copy of such
contract or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission, each such statement being qualified in all
respects by such reference. For further information, reference is hereby made to
the Registration Statement and to the schedules and exhibits thereto, which can
be inspected and copied at the public reference facilities of the Commission at
its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of each such
document may be obtained at prescribed rates from the Public Reference Section
of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W.,
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<PAGE> 51
Room 1024, Washington, D.C. 20549. In addition, such material can also be
obtained from the Commission's Web site at http://www.sec.gov.
---------------------
Following this Offering, the Company will be subject to the reporting and
other requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and intends to furnish to its shareholders annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited financial statements.
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<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MERGE TECHNOLOGIES INCORPORATED
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and June
30, 1997 (unaudited)...................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995 and 1996 and the six months ended June
30, 1996 and 1997 (unaudited)............................. F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995 and 1996 and the six months
ended June 30, 1996 and 1997 (unaudited).................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996 and the six months ended June
30, 1996 and 1997 (unaudited)............................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
Board of Directors
Merge Technologies Incorporated:
We have audited the accompanying consolidated balance sheet of Merge
Technologies Incorporated and subsidiary (Company) as of December 31, 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the two-year period ending December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996, and the results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Chicago, Illinois
March 21, 1997, except as to notes 4 (a) and 4 (d), and note 1 (q),
which are as of June 30, 1997 and September 26, 1997, respectively
/s/ KPMG Peat Marwick, LLP
F-2
<PAGE> 54
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 287,098 $1,064,828
Accounts receivable, net of allowance for doubtful
accounts of $77,000 at December 31, 1996 and $75,000 at
June 30, 1997.......................................... 1,500,233 1,115,449
Inventory................................................. 404,493 666,972
Prepaid expenses and other current assets................. 24,252 19,888
---------- ----------
Total current assets........................................ 2,216,076 2,867,137
---------- ----------
Property and equipment:
Computer equipment........................................ 876,328 1,070,218
Office equipment.......................................... 208,772 217,971
---------- ----------
1,085,100 1,288,189
Less accumulated depreciation............................. 401,176 501,665
---------- ----------
Net property and equipment.................................. 683,924 786,524
License agreement, net of accumulated amortization of $0 at
December 31, 1996 and $36,778 at June 30, 1997............ 288,100 251,322
Purchased and developed software, net of accumulated
amortization of $1,175,185 at December 31, 1996 and
$1,351,335 at............................................. 2,143,044 2,352,480
Other intangibles, net of accumulated amortization of $9,874
at December 31, 1996 and $12,844 at June 30, 1997......... 49,513 46,543
Deferred financing fees..................................... -- 63,371
Other....................................................... 13,008 21,823
---------- ----------
$5,393,665 $6,389,200
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank...................................... $ 753,000 $ --
Current portion of obligations under capital leases....... 55,959 34,768
Accounts payable.......................................... 1,530,130 991,171
Customer deposits......................................... 5,294 70,938
Accrued wages, vacation and related payroll taxes......... 191,221 232,860
Accrued interest.......................................... 16,509 13,600
Accrued income taxes...................................... -- 86,484
Other accrued liabilities................................. 101,706 51,501
---------- ----------
Total current liabilities................................... 2,653,819 1,481,322
---------- ----------
Note payable, net of discount............................... -- 910,578
Obligations under capital leases, excluding current
portion................................................... 16,425 45,253
Put options related to redeemable common stock and stock
warrants.................................................. 268,266 1,424,954
---------- ----------
Total liabilities........................................... 2,938,510 3,862,107
---------- ----------
Shareholders' equity:
Preferred stock, $0.01 par value; Authorized 5,000,000, no
shares issued and outstanding.......................... -- --
Common stock, $0.01 par value; Authorized 10,000,000,
issued and outstanding 3,896,863 shares at December 31
1996 and 3,902,983 shares at June 30, 1997............. 38,969 39,030
Additional paid-in capital................................ 2,874,575 2,807,998
Accumulated deficit....................................... (459,602) (344,961)
Cumulative translation adjustment......................... 1,213 25,026
---------- ----------
Total shareholders' equity.................................. 2,455,155 2,527,093
---------- ----------
$5,393,665 $6,389,200
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 55
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996, AND
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $3,718,082 $6,384,659 $2,538,688 $3,805,423
Cost of goods sold:
Purchased components.................... 752,630 1,626,882 592,525 880,817
Amortization of purchased and developed
software............................. 359,859 449,015 201,602 294,984
---------- ---------- ---------- ----------
Total cost of goods sold.................. 1,112,489 2,075,897 794,127 1,175,801
---------- ---------- ---------- ----------
Gross profit.............................. 2,605,593 4,308,762 1,744,561 2,629,622
---------- ---------- ---------- ----------
Operating costs and expenses:
Sales and marketing..................... 880,919 1,526,853 637,914 989,217
Product research and development........ 822,690 1,427,832 617,341 718,967
General and administrative.............. 869,669 1,170,844 552,753 617,982
Acquired in-process technology.......... 375,000 -- -- --
Professional fees related to proposed
financing............................ -- 363,964 -- --
Amortization of other intangibles....... 3,959 5,915 2,969 2,970
---------- ---------- ---------- ----------
Total operating costs and expenses........ 2,952,237 4,495,408 1,810,977 2,329,136
---------- ---------- ---------- ----------
Operating income (loss)................... (346,644) (186,646) (66,416) 300,486
---------- ---------- ---------- ----------
Other income (expense):
Interest expense........................ (141,231) (134,121) (110,083) (63,350)
Interest income......................... 4,006 11,016 3,976 4,469
Other, net.............................. (504) 26,558 19,173 (40,480)
---------- ---------- ---------- ----------
Total other expense....................... (137,729) (96,547) (86,934) (99,361)
---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item...................... (484,373) (283,193) (153,350) 201,125
Income tax expense........................ -- -- -- (86,484)
---------- ---------- ---------- ----------
Income (loss) before extraordinary item... (484,373) (283,193) (153,350) 114,641
Extraordinary gain on extinguishment of
debt.................................... -- 169,514 169,514 --
---------- ---------- ---------- ----------
Net income (loss)......................... $ (484,373) $ (113,679) $ 16,164 $ 114,641
========== ========== ========== ==========
Net income (loss) before extraordinary
item per common and common equivalent
share................................... $ (0.17) $ (0.07) $ (0.04) $ 0.03
========== ========== ========== ==========
Net income (loss) per common and common
equivalent share........................ $ (0.17) $ (0.03) $ 0.00 $ 0.03
========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding.... 2,776,180 3,967,737 3,528,706 4,402,215
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 56
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996, AND
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK RECEIVABLE IN
---------------------------------------------------------------- ADDITIONAL CONNECTION WITH
CLASS A CLASS B COMMON PAID-IN PURCHASE OF
SHARES CLASS A SHARES CLASS B SHARES COMMON CAPITAL COMMON STOCK
---------- -------- -------- ------- --------- ------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994........................ 1,355,795 $ 13,558 616,674 $6,167 -- $ -- 269,055 --
---------- -------- -------- ------ --------- ------- --------- --------
Sale of common stock.......... -- -- -- -- 250,570 2,506 352,479 --
Issuance of stock to purchase
SST......................... -- -- -- -- 357,875 3,579 524,871 --
Conversion of common stock.... (1,355,795) (13,558) (616,674) (6,167) 1,972,469 19,725 -- --
Depreciation of put value..... -- -- -- -- -- -- 2,596 --
Net loss...................... -- -- -- -- -- -- -- --
---------- -------- -------- ------ --------- ------- --------- --------
Balance at December 31,
1995........................ -- -- -- -- 2,580,914 25,810 1,149,001 --
---------- -------- -------- ------ --------- ------- --------- --------
Sale of common stock.......... -- -- -- -- 1,090,319 10,903 1,599,097 (150,000)
Fees incurred in connection
with the sale of common
stock....................... -- -- -- -- -- -- (223,721) --
Interest on note receivable in
connection with purchase of
common stock................ -- -- -- -- -- -- 8,972 (8,972)
Conversion of subordinated
notes payable to common
stock....................... -- -- -- -- 225,628 2,256 330,914 --
Offset of note payable to
shareholder with note
receivable in connection
with purchase of common
stock....................... -- -- -- -- -- -- -- 158,972
Accretion of put value........ -- -- -- -- -- -- (66,406) --
Forfeiture of put feature..... -- -- -- -- -- -- 76,718 --
Net loss...................... -- -- -- -- -- -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- -- --
---------- -------- -------- ------ --------- ------- --------- --------
Balance at December 31,
1996........................ -- -- -- -- 3,896,861 38,969 2,874,575 --
---------- -------- -------- ------ --------- ------- --------- --------
Exercise of stock options..... -- -- -- -- 6,122 61 689 --
Accretion of put value........ -- -- -- -- -- -- (67,266) --
Net income.................... -- -- -- -- -- -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- -- -- --
---------- -------- -------- ------ --------- ------- --------- --------
Balance at June 30, 1997
(Unaudited)................. -- $ -- -- $ -- 3,902,983 $39,030 2,807,998 --
========== ======== ======== ====== ========= ======= ========= ========
<CAPTION>
RETAINED
EARNINGS CUMULATIVE TOTAL
(ACCUMULATED TRANSLATION SHAREHOLDERS'
DEFICIT) ADJUSTMENT EQUITY
------------ ----------- -------------
<S> <C> <C> <C>
Balance at December 31,
1994........................ 138,450 -- 427,230
-------- ------ ---------
Sale of common stock.......... -- -- 354,985
Issuance of stock to purchase
SST......................... -- -- 528,450
Conversion of common stock.... -- -- --
Depreciation of put value..... -- -- 2,596
Net loss...................... (484,373) -- (484,373)
-------- ------ ---------
Balance at December 31,
1995........................ (345,923) -- 828,888
-------- ------ ---------
Sale of common stock.......... -- -- 1,460,000
Fees incurred in connection
with the sale of common
stock....................... -- -- (223,721)
Interest on note receivable in
connection with purchase of
common stock................ -- -- --
Conversion of subordinated
notes payable to common
stock....................... -- -- 333,170
Offset of note payable to
shareholder with note
receivable in connection
with purchase of common
stock....................... -- -- 158,972
Accretion of put value........ -- -- (66,406)
Forfeiture of put feature..... -- -- 76,718
Net loss...................... (113,679) -- (113,679)
Foreign currency translation
adjustment.................. -- 1,213 1,213
-------- ------ ---------
Balance at December 31,
1996........................ (459,602) 1,213 2,455,155
-------- ------ ---------
Exercise of stock options..... -- -- 750
Accretion of put value........ -- -- (67,266)
Net income.................... 114,641 -- 114,641
Foreign currency translation
adjustment.................. -- 23,813 23,813
-------- ------ ---------
Balance at June 30, 1997
(Unaudited)................. (344,961) 25,026 2,527,093
======== ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 57
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996, AND
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- -----------------------
1995 1996 1996 1997
--------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(484,373) $ (113,679) $ 16,164 $ 114,641
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 472,831 625,719 286,145 399,571
Acquired in-process technology.......................... 375,000 -- -- --
Provision for doubtful accounts receivable.............. 40,000 44,000 -- (5,077)
Expenses related to services performed.................. -- 160,000 160,000 --
Extraordinary gain on extinguishment of debt............ -- (169,514) (169,514) --
Change in assets and liabilities, net of effects from
purchase of SST:
Accounts receivable................................... (601,059) (756,289) (218,101) 389,861
Inventory............................................. (100,101) (155,508) (116,517) (262,479)
Accounts payable...................................... 451,643 604,638 1,220 (538,959)
Accrued expenses...................................... 22,284 140,049 129,424 38,730
Customer deposits..................................... 194,415 (189,121) (35,844) 65,644
Other................................................. (8,807) (18,779) (4,704) 55,701
--------- ----------- ---------- ----------
Net cash provided by operating activities................... 361,833 171,516 48,273 257,633
--------- ----------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment....................... (208,401) (319,569) (135,119) (173,491)
Development of software................................... (672,687) (765,640) (380,713) (468,770)
Purchase of license agreement............................. -- (288,100) (75,000) --
Purchase of SST, net of cash acquired..................... (54,981) -- -- --
--------- ----------- ---------- ----------
Net cash used in investing activities....................... (936,069) (1,373,309) (590,832) (642,261)
--------- ----------- ---------- ----------
Cash flows from financing activities:
Proceeds (payments) on line of credit..................... 250,000 (250,000) (250,000) --
Proceeds from loan agreement with Sirrom.................. -- -- -- 2,000,000
Financing fees associated with loan agreement with
Sirrom.................................................. -- -- -- (63,371)
Proceeds from (repayment of) from revolving credit
agreement............................................... -- 753,000 253,000 (753,000)
Repayment of subordinated notes payable to shareholders
and related interest.................................... -- (375,000) (375,000) --
Borrowings from shareholders.............................. 150,000 -- -- --
Issuance of common stock, net of expenses................. 204,985 1,236,279 1,167,280 --
Proceeds from exercise of stock options................... -- -- -- 750
Principal payments under capital leases................... (11,596) (23,724) (16,037) (22,021)
--------- ----------- ---------- ----------
Net cash provided by financing activities................... 593,389 1,340,555 779,243 1,162,358
--------- ----------- ---------- ----------
Net increase in cash and cash equivalents................... 19,153 138,762 236,684 777,730
Cash and cash equivalents, beginning of period.............. 129,183 148,336 148,336 287,098
--------- ----------- ---------- ----------
Cash and cash equivalents, end of period.................... $ 148,336 $ 287,098 $ 385,020 $1,064,828
========= =========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash received (paid) for income taxes....................... $ (3,000) $ -- $ -- $ 17,000
Cash paid for interest...................................... 73,000 195,000 157,000 57,000
Capital lease obligations incurred.......................... 60,000 17,000 17,000 30,000
Repayment of shareholder notes through issuance of common
stock..................................................... 150,000 -- -- --
Repayment of subordinated notes payable and related interest
through issuance of common stock.......................... -- 333,000 333,000 --
Warrants issued in connection with debt agreement........... -- -- -- 1,089,000
Accretion (depreciation) of put options related to
redeemable common stock and stock warrants................ (3,000) 66,000 33,000 67,000
Forfeiture of put options related to redeemable common
stock..................................................... -- (77,000) -- --
Note payable to shareholder................................. -- 160,000 160,000 --
Issuance of common stock for acquisition of SST............. 528,000 -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 58
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996, AND
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
Merge Technologies Incorporated and its wholly-owned subsidiary, Signal
Stream, Incorporated, (together, the Company) design, manufacture, market, and
support hardware and software products used in networks for the storage,
management, and distribution of medical imaging data. The Company's products
connect diverse medical equipment and systems, providing increases in efficiency
and productivity for hospitals and clinics. The Company sells its products in
the United States and internationally. Foreign sales, denominated in U.S.
dollars, accounted for approximately 50% and 37% of the Company's net sales for
the years ended December 31, 1995 and 1996, respectively. The Company's raw
materials are readily available and the Company is not dependent on a single
supplier or only a few suppliers.
In March 1996, the Company established a sales office in The Netherlands.
As of and for the year ending December 31, 1996, the sales office generated
approximately $660,000 in revenues, incurred a net loss of approximately
$210,000, and had a net liability position of approximately $210,000.
(b) Principles of Consolidation
The consolidated financial statements include the financial statements of
Merge Technologies Incorporated and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents. Cash equivalents include a $250,000 repurchase agreement
at December 31, 1996.
(d) Inventory
Inventory, consisting principally of finished goods, is stated at the lower
of cost or market. Cost is determined using the first-in, first-out method.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of minimum lease payments.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Useful lives of the
Company's major classes of property and equipment are five years for computer
equipment and seven years for office equipment. Equipment held under capital
leases and leasehold improvements are amortized straight line over the shorter
of the lease term or estimated useful life of the asset.
(f) Purchased and Developed Software
All research and development costs incurred prior to the point at which
management believes a project has reached "technological feasibility" are
expensed. Engineering costs incurred subsequent to reaching technological
feasibility are capitalized and reported at the lower of unamortized cost or net
realizable value. Amortization of purchased and developed software is provided
on a product-by-product basis over the expected economic life of the related
software, generally five years, using the straight-line method. This
F-7
<PAGE> 59
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method results in greater amortization than the method based on the ratio that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product.
The Company assesses the recoverability of these costs by determining
whether the amortization of the capitalized costs over the remaining life of the
projects can be recovered through undiscounted future operating cash flows.
Acquired in-process technology for which technological feasibility has not
been achieved is expensed at date of purchase.
(g) Long-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, on January 1, 1996. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of SFAS No. 121 had no impact
on the Company's financial position, results of operations, or liquidity.
(h) Other Intangibles
Other intangibles represent the excess of purchase price over fair value of
net assets acquired and the customer list acquired through the acquisition of
Signal Stream Technologies, Inc. (note 2) and is amortized on a straight-line
basis over ten years, the expected period to be benefited. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability will be impacted if estimated
future operating cash flows are not achieved.
(i) Deferred Financing Fees
Deferred financing fees are amortized over the expected term of the related
debt.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company files a consolidated Federal income tax return with its
subsidiary.
F-8
<PAGE> 60
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(k) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provision of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(l) Financial Instruments
The Company's financial instruments include cash and cash equivalents,
accounts receivable, note payable to bank, accounts payable, and certain accrued
expenses. The carrying amounts approximate fair value because of the short
maturity of these instruments.
(m) Revenue Recognition
Revenue from product sales is recognized upon shipment. No significant
Company obligations exist with regard to delivery or customer acceptance
following shipment. Revenues from software maintenance are deferred and
recognized straight-line over the contract support period, which is generally
one year.
(n) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires Company management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(o) Interim Financial Information
The interim financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature, which, in the opinion
of Company management, are necessary to present fairly the financial position of
the Company at June 30, 1997, and the results of operations and cash flows for
the six months ended June 30, 1996 and 1997. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year.
(p) Net Earnings (Loss) Per Share
Net earnings (loss) per share data has been computed using the weighted
average number of shares of common stock and common equivalent shares from stock
options (when dilutive using the treasury stock method). Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, common stock warrants
and options issued during the twelve month period immediately preceding the
Company's proposed initial public offering have been included in the calculation
as if they were outstanding for all periods presented (even if antidilutive
using the treasury stock method and the anticipated initial public offering
price).
F-9
<PAGE> 61
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(q) Stock Dividend
On September 25, 1997, the Company declared a 6.77217-for-one stock split,
effective as of the date of declaration of effectiveness of the initial public
offering. The stock split will be effected as a stock dividend of 5.77217 shares
per share of Common Stock. The accompanying consolidated financial statements
and notes reflect this change in capital structure.
(2) BUSINESS COMBINATION
Effective May 1, 1995, Signal Stream, Incorporated (SSI), a wholly-owned
subsidiary of the Company formed to effect the acquisition of Signal Stream
Technologies, Inc. (SST), acquired all the outstanding shares of SST. The
purchase price consisted of 357,875 shares of Merge Technologies Incorporated
common stock. In addition, $77,328 in acquisition expenses were incurred. The
acquisition was accounted for as a purchase.
The consolidated statements of operations include the results of operations
of SST from the date of acquisition. The following unaudited pro forma summary
presents the consolidated results of operations for the year ended December 31,
1995 as if the acquisition had occurred at the beginning of the year, after
giving effect to certain adjustments, including income taxes, acquired
in-process technology, and amortization of other intangibles. The net loss
presented includes a $375,000 charge to operations for acquired in-process
technology. Pro forma results have been prepared for informative purposes only
and do not purport to be indicative of what would have occurred had the
acquisition been made as of the date stated or of results which may occur in the
future.
<TABLE>
<CAPTION>
UNAUDITED
1995
----------
<S> <C>
Revenue..................................................... $4,000,000
Net loss.................................................... (680,000)
</TABLE>
(3) LICENSE AGREEMENT
The Company entered into an agreement in 1996 with a technology supplier
under which the Company has been granted a worldwide non-exclusive license to
duplicate and distribute encoding software used by the Company in recording
identifying marks on x-ray film. The Company was also granted a worldwide
exclusive license to duplicate and distribute decoding software embedded in hand
held readers. This exclusivity will lapse on November 1, 2000. In the event that
the Company ceases to distribute both licensed products for a period of
twenty-four months, any license in effect will automatically terminate.
In addition to the initial payment for the licenses of $288,100, the
Company is obligated to pay a royalty based upon the number of the products
distributed. The agreement is being amortized over the expected period of
benefit, 47 months. No products subject to royalty were sold in 1996.
(4) INDEBTEDNESS
(a) Note Payable to Bank
The Company entered into a $1,250,000 Revolving Credit Agreement
(Agreement) with a bank in June 1996. The Agreement replaced a $250,000 bank
line of credit. Availability of loans under the Agreement were subject to a
borrowing base calculated on inventory and accounts receivable. The loans bore
interest at the bank's reference rate, as defined in the Agreement, plus 0.5%.
The Agreement was collateralized by all assets of the Company. At December 31,
1996, the Company was in default with respect to several of the Agreement's
restrictive covenants and the note payable to bank was due on demand. The
interest rate was
F-10
<PAGE> 62
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increased to the default rate, which represents the bank's reference rate plus
5.5% (13.75% at December 31, 1996).
Subsequent to year-end, the Agreement was amended to reduce the credit
limit to $753,000 in conjunction with a forbearance agreement entered into with
the bank. Under the forbearance agreement, the officers and certain shareholders
of the Company provided personal guarantees. On March 18, 1997, the Company and
the bank entered into a reinstatement agreement under which the credit limit was
increased to $1,000,000 and a term loan of $250,000 was established. In June
1997, the principal and interest outstanding under this note payable to bank
were paid in full (note 4 (d)).
(b) Subordinated Notes Payable to Shareholders
In September 1995, the Company borrowed $150,000 from two shareholders. The
borrowings and related accrued interest were subsequently converted during 1995
to common stock.
Effective May 1996, the Company converted $222,712 of $686,064 subordinated
notes payable to shareholders (Notes) and related accrued interest into 191,766
shares of common stock. In addition, the Company settled the remaining $463,352
of the Notes and related accrued interest with the issuance of 33,861 shares of
the Company's common stock and a cash payment of $375,000. The Company realized
an extraordinary gain on the settlement.
Interest expense incurred on subordinated notes payable to shareholders was
approximately $97,800 and $39,700 for the years ending December 31, 1995 and
1996, respectively.
(c) Note Payable to Shareholder
In June 1996, the Company issued a $160,000 note to a shareholder in
consideration for services the shareholder performed in assisting the Company
with raising capital. The note was due on January 1, 1997, and was non-interest
bearing. Effective December 31, 1996, the note payable to stockholder was
discharged against a note due to the Company from the shareholder in connection
with the purchase of common stock (note 8(d)).
(d) Note Payable
In June 1997, the Company entered into a $2,000,000 Loan Agreement with
Sirrom Capital Corporation (Sirrom). The Loan Agreement bears interest at a
stated rate of 13.5%, payable monthly from August 1997 through May 2002.
Principal and any remaining interest is due in June 2002. The Loan Agreement
grants a security interest in substantially all of the Company's assets.
In connection with the Loan Agreement, the Company issued stock purchase
warrants expiring in July 2002, granting Sirrom the right to purchase 145,256
shares of the Company's common stock at $0.01 per share. Additional warrants
will be issued as follows if the principal is outstanding on the specified
dates: June 2000 -- 58,498; June 2001 -- 60,056; and June 2002 -- 61,667. The
stock purchase warrants are subject to a put option whereby Sirrom may sell the
warrants to the Company in the 30-day period prior to the expiration date of the
warrants. The put option price is equal to the fair market value of the common
stock issuable under the warrants.
The Company assigned a value of $1,089,422 to the warrants issued, which is
reflected as a debt discount and put warrant liability, based on the value of
common stock on the date of the transaction. The debt discount is being
amortized to interest expense over the expected term of the loan, which is six
months. The Company will reflect future changes in the fair value of the put
option or the warrants as either an increase or decrease in interest expense and
the associated put warrant liability.
F-11
<PAGE> 63
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Proceeds from the Loan Agreement were used to fully pay the principal and
interest outstanding on the note payable to bank (note 4(a)), and are also
available to repurchase certain outstanding shares of the Company's common
stock, and provide additional working capital for sales, marketing, and product
development expenditures.
(5) EMPLOYEE BENEFIT PLAN
The Company maintains a contributory deferred profit-sharing plan (401(k))
covering employees who meet minimum service requirements and have elected to
participate. Company contributions, which are at the discretion of the Board of
Directors, totaled $15,900 and $30,800 for the years ended December 31, 1995 and
1996, respectively.
(6) INCOME TAXES
Actual income taxes vary from the expected income taxes (computed by
applying the statutory Federal income tax rate of 34% to loss before income
taxes and extraordinary item) as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1995 1996
--------- ---------
<S> <C> <C>
Expected tax benefit........................................ $(165,000) $ (96,000)
Increase (decrease) in income taxes resulting from:
Nondeductible amortization and acquired in-process
technology............................................. 161,000 50,000
Benefit of research and experimentation credit............ -- (210,000)
Nondeductible expenses.................................... 4,000 9,000
Valuation allowance....................................... -- 244,000
Other..................................................... -- 3,000
--------- ---------
Actual tax expense.......................................... $ -- $ --
========= =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts...................................... $ 15,000 $ 30,000
Accrued vacation.......................................... 15,000 70,000
Research and experimentation credit carryforward.......... 300,000 512,000
Net operating loss carryforwards.......................... 270,000 512,000
Other..................................................... -- 39,000
-------- ----------
Total gross deferred tax assets............................. 600,000 1,163,000
Less valuation allowance.................................. 85,000 329,000
-------- ----------
Net deferred tax asset...................................... 515,000 834,000
-------- ----------
Deferred tax liabilities:
Property and equipment.................................... 35,000 64,000
Computer software costs................................... 480,000 770,000
-------- ----------
Total gross deferred liabilities............................ 515,000 834,000
-------- ----------
Net deferred taxes.......................................... $ -- $ --
======== ==========
</TABLE>
F-12
<PAGE> 64
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net change in the total valuation allowance for the years ended
December 31, 1995 and 1996 was an increase of $85,000 and $244,000,
respectively. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income, management believes it is more
likely than not the Company will realize the benefits of these deductible
differences net of the existing valuation allowances. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets as of December 31, 1996 will be allocated as follows:
<TABLE>
<S> <C>
Income tax benefit that would be reported in the statement
of operations............................................. $244,000
Goodwill and other noncurrent intangible assets............. 85,000
--------
Total............................................. $329,000
========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards
totaling approximately $1,300,000 and $1,000,000 for federal and state income
tax purposes, respectively, which begin to expire in 2010.
(7) LEASES
The Company is obligated under various capital leases for computer
equipment that expire at various dates during the next three years. At December
31, 1996, the gross amount of computer equipment under capital leases was
$116,069 and related accumulated amortization was $37,553.
The Company has a noncancelable operating lease for its main office
facility. The lease is for an initial eight-year term expiring in August 2004.
The Company can terminate the lease after the expiration of the fourth year,
subject to certain termination costs. Total rent expense associated with this
lease for the years ended December 31, 1995 and 1996 was approximately $76,000
and $116,000, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1996, are:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- --------
<S> <C> <C>
1997........................................................ $ 159,100 $ 69,188
1998........................................................ 159,100 17,034
1999........................................................ 158,600 6,037
2000........................................................ 156,000 --
2001........................................................ 156,000 --
Later years, through 2004................................... 416,200 --
---------- --------
Total minimum lease payments................................ 1,205,000 92,259
Less amount representing interest......................... 19,875
---------- --------
Present value of net minimum capital lease payments......... 72,384
Less current installments of obligations under capital
leases................................................. 55,959
---------- --------
Obligations under capital leases, excluding current
installments.............................................. $ 16,425
========== ========
</TABLE>
F-13
<PAGE> 65
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) SHAREHOLDERS' EQUITY
(a) Common and Preferred Stock
In 1996, the Company sold 1,090,319 shares of common stock at approximately
$1.48 a share. The Company incurred approximately $224,000 of expenses in
connection with the sale of the common stock.
In April 1995, the Company converted each share of issued and outstanding
Class A common stock and Class B common stock into one share of newly created
common stock, par value $0.01. Each existing option to acquire Class A or Class
B common stock was also converted into an option to acquire one share of the
newly created common stock.
In 1996, 5,000,000 shares of preferred stock, $0.01 par value, were
authorized. The Company has not issued any shares of preferred stock.
(b) Stock Redemption Agreement
In May 1995, the Company entered into a Stock Redemption Agreement (SR
Agreement) with the former Class B shareholders and the former Class B option
holders. Under the terms of the SR Agreement, the Company may redeem all (but
not less than all) of the former Class B shares and the shares of common stock
that may be acquired by the exercise of a former Class B option at $1.53 per
share (the "call option"). The Company's call option was to expire on March 1,
1997.
These shares are also subject to a put option exercisable by the former
Class B shareholders, to put their shares back to the Company (for cash) at the
book value of the Company on the date exercised. The put option cannot be
exercised until June 30, 1997, and expires on June 30, 1998. The Company is
recording the redemption price of the common stock subject to the put feature by
adjusting interest expense and the put option related to the redeemable common
stock.
In March 1997, the Company amended the SR Agreement to extend the Company's
call option and the holder's put option through October 1998. The call price
ranges from $1.56 to $2.37 and the put price ranges from $0.71 to $1.52.
As of December 31, 1995, there were 616,674 shares of former Class B stock
and 60,536 former Class B options outstanding which were subject to call and put
rights. In April 1996, the number of shares and options subject to the call and
put options was reduced to 424,757 and 13,253, respectively, as a provision of
the conversion of the Notes into common shares (see note 4). During the six
months ended June 30, 1997, the 13,253 options subject to the call and put
expired.
(c) Stock Option Plan
The Company maintains a stock option plan for employees of Merge
Technologies Incorporated (Plan) which provides for the granting of a maximum of
1,015,826 shares of common stock. Under this Plan, options have an exercise
price equal to the fair market value of the stock at the date of grant. The
majority of the options vest 25% immediately with the remaining vesting over a
three-year period. The options granted under this plan expire six years from the
date of grant.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1996: expected option lives of four years, expected volatility and
dividend yield of 0%, and a risk-free interest rate of 5.63%. The weighted
average grant-date fair value of options granted in 1996 calculated using the
Black-Scholes model was $0.29. The weighted average remaining contractual life
for options granted in 1996 and outstanding at December 31, 1996 was 5.8 years.
F-14
<PAGE> 66
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. All options under the plans have been granted at
exercise prices not less than the market value at the date of the grant. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net loss available to common shareholders
As reported............................................... $(484,373) $(113,679)
Pro forma................................................. (484,373) (177,000)
Loss per common and common equivalent share
As reported............................................... (0.17) (0.03)
Pro forma................................................. (0.17) (0.04)
</TABLE>
Pro forma net loss reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
three years and compensation cost for options granted prior to January 1, 1995
is not considered.
A summary of stock options is as follows:
<TABLE>
<CAPTION>
CLASS B COMMON
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Options outstanding, December 31, 1994...... 60,536 $0.33 -- $ --
Conversion of options....................... (60,536) 0.33 60,536 0.33
Options outstanding, December 31, 1995...... -- -- 60,536 0.33
Options granted............................. -- -- 776,944 1.48
Options outstanding, December 31, 1996...... -- -- 837,480 $1.39
Options exercisable, December 31, 1996...... -- $ -- 275,472 $1.27
</TABLE>
(d) Note Receivable in Connection with Purchase of Common Stock
In June 1996, a shareholder of the Company issued a $200,000 non-interest
bearing note due on or before June 1, 1999 to purchase 135,443 shares of the
Company's common stock at $1.48 per share, the fair market value of the stock on
the date of the note. The present value of the note was $150,000. The Company
has recognized interest income on the note at an imputed interest rate of 10%.
Effective December 31, 1996, the note receivable was offset with a note payable
by the Company to the shareholder (note 4(c)).
(9) SIGNIFICANT CUSTOMERS
The Company had two customers that accounted for 32% and 12%, respectively,
of consolidated net sales for the year ending December 31, 1995. The Company had
two customers and one distributor that accounted for 15%, 10%, and 26%,
respectively, of consolidated net sales for the year ending December 31, 1996,
and two customers and one distributor that accounted for 16%, 12% and 20%,
respectively of consolidated net sales for the six months ended June 30, 1997.
Accounts receivable at December 31, 1996, from one distributor accounted for
approximately 30% of outstanding consolidated amounts (38% at June 30, 1997).
F-15
<PAGE> 67
MERGE TECHNOLOGIES INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) PROFESSIONAL FEES RELATED TO PROPOSED FINANCING
The Company incurred $364,000 in fees in preparation for an initial public
offering in 1996 that was canceled.
(11) CONSULTING AGREEMENT
In June 1996, the Company entered into a three-year consulting agreement
with one of its shareholders for financing and other business services. Pursuant
to the terms of the consulting agreement, the shareholder will be paid $3,500
per month during the term of the agreement plus out-of-pocket expenses. In the
opinion of management of the Company, such fee is representative of the fee the
Company would be required to pay an independent third-party to receive similar
financing and other business services.
F-16
<PAGE> 68
BACK COVER PAGE
The back cover page depicts a radiologist in a clinic using the CaseWorks
product. The clinic is being viewed over the left shoulder of the radiologist
who is looking at a flat panel CaseWorks screen. The right side of the diagram
shows a magnified view of the MergeReader, a film light-box and images with
machine-readable identifiers. Additional magnified images of CaseWorks features
are set off the left hand side of the diagram. The upper-left corner of the
diagram contains descriptive CaseWorks text.
[Back Cover Printed Here]
<PAGE> 69
======================================================
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, BY ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 2
Risk Factors......................... 7
The Company.......................... 15
Use of Proceeds...................... 15
Dilution............................. 16
Capitalization....................... 17
Dividend Policy...................... 17
Selected Consolidated Financial
Data............................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 26
Management........................... 36
Certain Transactions................. 38
Principal Shareholders............... 40
Description of Securities............ 41
Shares Eligible for Future Sale...... 44
Underwriting......................... 46
Legal Matters........................ 48
Experts.............................. 48
Additional Information............... 48
Index to Financial Statements........ F-1
</TABLE>
---------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
1,900,000 SHARES
MERGE TECHNOLOGIES
INCORPORATED
COMMON STOCK
----------------
PROSPECTUS
----------------
H.C. WAINWRIGHT
& CO., INC.
, 1997
======================================================
<PAGE> 70
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 180.0851 of the WBCL allows a Wisconsin corporation to limit
its obligation to indemnify officers and directors by providing so in the
articles of incorporation. The Company's By-Laws provide for indemnification of
directors and officers to the fullest extent permitted by Wisconsin law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of counsel, the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the WBCL and will be governed by the final adjudication
of such issue.
II-1
<PAGE> 71
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a schedule of the estimated expenses to be incurred by
the Company in connection with the issuance and sale of the securities being
registered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee $5,297
NASD Filing Fee $2,248
Blue Sky Fees and Expenses $35,000
Accounting Fees and Expenses $150,000
Legal Fees and Expenses $120,000
Printing Expenses $75,000
Transfer Agent and Registrar Fees $1,000
Underwriter's Non accountable Expense $456,000
NASDAQ Quotation Fee $10,000
Chicago Stock Exchange Listing $15,000
Miscellaneous $25,000*
----------
Total $894,545
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Effective May 1996, the Company converted $222,712 of $686,064
subordinated notes payable to shareholders (the "Shareholder Notes") and related
accrued interest into 191,766 shares of Common Stock. In addition, the Company
settled the remaining $463,352 of the Shareholder Notes and related accrued
interest with the issuance of 33,861 shares of the Common Stock and a cash
payment of $375,000.
The Company issued an aggregate of 1,330,731 shares of its Common Stock
in a private placement at $1.48 per share. The Company received consideration in
connection with this private placement of $335,000 in 1995 and $1,610,000 in
1996. In connection with such private offering, Mr. Geras purchased 203,165
shares at the same price offered to other investors. A former director also
purchased 338,609 shares in this private offering. These amounts reflect the
total offering price. There were no underwriting discounts or commissions in
this sale. This sale was exempt from registration under Section 4(2) of the
Securities Act.
Effective July 7, 1996, the Company's shareholders approved and adopted
the 1996 Stock Option Plan for employees of the Company (the "1996 Plan") which
currently provides for the grant of options to purchase, in the aggregate, up to
1,015,826 shares of Common Stock. The 1996 Plan provides for the grant to
employees of incentive stock options ("ISOs") and non-qualified stock options.
As of the date hereof, the Company has granted options under the 1996 Plan to
purchase 939,815 shares of Common Stock at exercise prices ranging from $1.48 to
$6.75 per share. The transaction described above was exempt from registration
under Section 3(b) of the Securities Act.
II-2
<PAGE> 72
On January 1, 1997, Registrant sold 47,405 shares of its Common Stock
to Robert Geras. The per share price was $1.48, for a total consideration of
$70,000. These amounts reflect the total offering price. There were no
underwriting discounts or commissions in this sale. This sale was exempt from
registration under Section 4(2) of the Securities Act.
On June 30, 1997 Registrant entered into a Loan Agreement, as modified
by the Merge/Sirrom Modification Agreement dated as of October 6, 1997 (the
"Sirrom Note Agreement") with Sirrom under which it issued (i) a Secured
Promissory Note dated June 30, 1997 in favor of Sirrom in the principal amount
of two million dollars ($2,000,000) (the "Sirrom Note"), and (ii) a Stock
Purchase Warrant issued to Sirrom dated June 30, 1997, as modified by the
Merge/Sirrom Modification Agreement dated as of October 6, 1997 (the "Sirrom
Warrant"). In connection with and in consideration of the Sirrom Note Agreement,
Sirrom was granted the right to acquire for nominal consideration, a base amount
of 145,256 shares of the Common Stock. Under the terms of the Sirrom Warrant, in
the event the loan is outstanding in whole or in part on the following dates,
the base amount would be increased to the following:
<TABLE>
<S> <C>
June 30, 2000 203,754
June 30, 2001 205,312
June 30, 2002 206,923
</TABLE>
The issuance of the Sirrom Note and the Sirrom Warrant were exempt from
registration under Section 4(2) of the Securities Act.
Effective May 1, 1995, Signal Stream Technologies, Inc. ("SST") was
merged with and into Signal Stream Incorporated, a Wisconsin corporation
("SSI"), a wholly-owned subsidiary of the Company, with SSI as the surviving
corporation. The Company acquired all of the outstanding shares of SST, and the
transaction was accounted for as a purchase of SST by the Company. A total of
753,742 shares of SSI's Series A Preferred Stock were converted into
1/40th of a share of the Common Stock (pre-Common Stock Dividend) and 5,142,280
shares of SST Common Stock were converted into 1/120 of a share of the Common
Stock (pre-Common Stock Dividend). All shares of the Common Stock issued to SST
shareholders were unregistered.
Except as otherwise indicated, the transactions described above were
exempt from registration under Section 4(2) of the Securities Act.
ITEM 27. EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
- ----------- --------
<S> <C>
1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Registrant.
3.2 By-Laws of Registrant.
4.1 Stock Purchase Warrant issued June 30, 1997 by Registrant to
Sirrom Capital Corporation.
4.2 Form of Lock-Up Agreement (1).
</TABLE>
II-3
<PAGE> 73
<TABLE>
<S> <C>
4.3 Form of Common Stock Certificate.
4.4 Form of Underwriters' Representative's Warrants
5.1 Opinion of Foley & Lardner regarding legality (to be filed by
amendment) To be filed by amendment (1).
10.1 Employment Agreement dated September 1, 1997 between
Registrant and William C. Mortimore.
10.2 Loan Agreement dated June 30, 1997 between Registrant and
Sirrom Capital Corporation.
10.3 Security Agreement dated June 30, 1997 between Registrant and
Sirrom Capital Corporation.
10.4 Secured Promissory Note dated June 30, 1997 between Registrant
and Sirrom Capital Corporation.
10.5 Merge/Sirrom Modification Agreement dated October 6, 1997 (1).
10.6 OEM Purchase Agreement between Registrant and Philips Medical
Systems Nederland B.V. dated September 24, 1994, and First
Amendment Agreement dated June 4, 1996 (1).
10.7 Annual Master License Agreement between Registrant and Siemens
Aktiengesellschaft dated October 15, 1995 (1).
10.8 Distribution Agreement with Picker International, Inc (1).
10.9 1996 Stock Option Plan for Employees of Registrant dated May
13, 1996.
10.10 Office Lease for West Allis Center dated May 24, 1996 between
Registrant and Whitnall Summit Company, LLC, together with
Supplement Office Space Lease dated July 3, 1997.
10.11 Alpha Capital Venture Partners Limited Agreement dated March
1, 1997.
10.12 Consulting Agreement with Robert T. Geras dated June 1, 1996 (1).
11 Statement regarding computation of per share earnings.
21 Subsidiaries of Registrant.
23.1 Consent of Foley & Lardner (see Exhibit 5.1) (1).
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney.
27.1 Financial Data Schedule.
- ----------------------------------------------------
(1) To be filed by amendment.
</TABLE>
II-4
<PAGE> 74
ITEM 28. UNDERTAKINGS
A. Supplementary and Periodic Information, Documents and Reports.
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority in that Section.
B. Provisions for Certificates.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to each
purchaser.
C. Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of counsel, the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
D. Undertakings Pursuant to Rule 430A.
For the purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the Prospectus filed as a part
of this Registration Statement in reliance on Rule 430A and contained in a form
of prospectus filed pursuant to rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be a part of this Registration Statement as of
the time it was declared effective.
For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering of those securities.
II-5
<PAGE> 75
SIGNATURES
In accordance with the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Milwaukee, State of Wisconsin, on October 30, 1997.
MERGE TECHNOLOGIES INCORPORATED
(Registrant)
By: /s/ William C. Mortimore
----------------------------
William C. Mortimore
President, Chief Executive Officer and Director
In accordance with the requirements of the Securities Act, this
Registration Statement was signed by the following persons in the capacities
indicated this 30th day of October, 1997.
<TABLE>
<CAPTION>
NAME POSITION DATE
- ---- -------- ----
<S> <C> <C>
/s/ William C. Mortimore President and Director
- ----------------------------- (Principal Executive Officer) -----------
William C. Mortimore
/s/ Colleen M. Doan Chief Financial Officer, Secretary
- ----------------------------- and Treasurer -----------
Colleen M. Doan
/s/ Robert T. Geras Director
- ----------------------------- -----------
Robert T. Geras
/s/ David B. Pivan Director
- ----------------------------- -----------
David B. Pivan
</TABLE>
II-6
<PAGE> 1
EXHIBIT 1
1,900,000 Shares1/
MERGE TECHNOLOGIES, INCORPORATED
Common Stock
UNDERWRITING AGREEMENT
__________, 1997
H.C. Wainwright & Co., Inc.
As Representative of the several Underwriters
c/o H.C. Wainwright & Co., Inc.
One Boston Place
Boston, Massachusetts 02108
Ladies and Gentlemen:
Merge Technologies Incorporated., a Wisconsin corporation (the "Company"),
proposes to issue and sell 1,900,000 shares (the "Firm Shares") of its
authorized but unissued Common Stock. The Company also proposes to grant to the
Underwriters (as defined below) an option to purchase up to 285,000 additional
shares of Common Stock (the "Optional Shares" and, with the Firm Shares,
collectively, the "Shares"). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Shares by the several underwriters, for whom you are acting,
named in Schedule I hereto (collectively, the "Underwriters," which term shall
also include any underwriter purchasing Shares pursuant to Section 2(b)
hereof). You represent and warrant that you have been authorized by each of
the other Underwriters to enter into this Underwriting Agreement (the
"Agreement") on its behalf and to act for it in the manner herein provided.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the several Underwriters as of the date
hereof and as of each Closing Date (as defined below) that:
(a) The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (No. [ ]), including the
- ---------------
1/Plus an option to purchase from the Company up to 285,000 additional shares
to cover over-allotments.
<PAGE> 2
related preliminary prospectus, for the registration under the Securities Act
of 1933, as amended (the "Securities Act") of the Shares. Copies of such
registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the requirements of Rule 430A of the
rules and regulations of the Commission) heretofore filed by the Company with
the Commission have been delivered to you.
The term Registration Statement as used in this Agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall
also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Shares first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to
such prospectus after the Effective Date, shall also mean (from and after the
filing with the Commission of such supplement or the effectiveness of such
amendment) such prospectus as so supplemented or amended. The term Preliminary
Prospectus as used in this Agreement shall mean each preliminary prospectus
included in such registration statement prior to the time it becomes effective.
(b) The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
(c) Each of the Company and its subsidiaries has been duly incorporated
and each is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus and as being conducted, and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary (except
where the failure to be so qualified would not have a material adverse effect
on the business, properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole).
(d) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21.1 to the Registration Statement. Except as otherwise described in
the Prospectus, the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all
-2-
<PAGE> 3
claims, liens, charges and encumbrances. The Company and each of its
subsidiaries are in possession of, and operating in compliance with, all
material authorizations, licenses, permits, consents, certificates and orders
material to the conduct of their respective businesses as described in the
Prospectus, all of which are valid and in full force and effect.
(e) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change in the business, properties, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
other than as set forth in the Registration Statement and the Prospectus, and
since such dates, except in the ordinary course of business, neither the
Company nor any of its subsidiaries has entered into any material transaction
not referred to in the Registration Statement and the Prospectus.
(f) The Registration Statement and the Prospectus comply and on the
Closing Date (as hereinafter defined) and any later date on which Optional
Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Optional Shares are to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this paragraph shall apply to statements in,
or omissions from, the Registration Statement or the Prospectus made in
reliance upon and in conformity with information herein or otherwise furnished
in writing to the Company by or on behalf of the Underwriters specifically for
use in the Registration Statement or the Prospectus.
(g) The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Prospectus. The issued and
outstanding shares of Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
any outstanding options to purchase, or any preemptive rights or other rights
to subscribe for or to purchase, any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its capital
stock or any such options, rights, convertible securities or obligations.
-3-
<PAGE> 4
The description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required by the Securities Act and the rules and regulations
promulgated thereunder ("Rules and Regulations") to be shown with respect to
such plans, arrangements, options and rights.
(h) The Shares will be, when issued and sold to the Underwriters as
provided herein, validly issued, fully paid and nonassessable and conform to
the description thereof in the Prospectus. No further approval or authority of
the stockholders or the Board of Directors of the Company will be required for
the issuance and sale of the Shares to be sold by the Company as contemplated
herein.
(i) The Warrants (as defined in Section 5(p) below) will conform to the
description thereof in the Prospectus and, when sold to and paid for by the
Representative in accordance with the Warrant Agreement (as defined in Section
5(p) below), will be duly authorized and validly issued and will be valid and
binding obligations of the Company entitled to all the benefits of the Warrant
Agreement. The Warrant Shares (as defined in Section 5(p) below) will be duly
authorized and reserved for issuance upon exercise of the Warrants and, when
issued upon such exercise in accordance with the terms of the Warrants and the
Warrant Agreement, will be duly and validly issued, fully paid and
nonassessable, free of preemptive rights and will conform to the description
thereof in the Prospectus.
(j) Prior to the Closing Date, (i) the Shares to be issued and sold by the
Company and (ii) the Warrant Shares, will be authorized for quotation on the
[Nasdaq SmallCap Market] upon official notice of issuance.
(k) The Shares to be sold by the Company will be sold free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest,
and will conform to the description thereof contained in the Prospectus.
Except as described in the Prospectus, no preemptive right, co-sale right,
registration right, right of first refusal or other similar right to subscribe
for or purchase securities of the Company exists with respect to the issuance
and sale of the Shares by the Company pursuant to this Agreement. No
stockholder of the Company has any right which has not been waived, or complied
with, to require the Company to register the sale of any shares owned by such
stockholder under the Securities Act in the public offering contemplated by
this Agreement.
(l) The Company has all requisite corporate power and authority to enter
into this Agreement and Warrant Agreement and perform the transactions
contemplated hereby and thereby. This Agreement and the Warrant Agreement have
been duly authorized, executed and delivered by the Company and constitute
valid and binding obligations of the Company enforceable in accordance with
their terms, except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization, moratorium laws affecting
creditors' rights generally and except as to
-4-
<PAGE> 5
those provisions relating to rights to indemnity or contribution for
liabilities arising under federal and state securities laws. The making and
performance of this Agreement and the Warrant Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby (i) will not
violate any provisions of the Certificate of Incorporation, Bylaws or other
organizational documents of the Company or any of its subsidiaries, and (ii)
will not conflict with, result in a material breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both, a
material default under (A) any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties may be bound or affected, or
(B) any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company and its subsidiaries, taken as a
whole, or to which any of their respective properties are subject. No consent,
approval, authorization or other order of any court regulatory body,
administrative agency or other governmental body that has not already been
obtained is required for the execution and delivery of this Agreement and the
Warrant Agreement or the consummation of the transactions contemplated by this
Agreement and the Warrant Agreement, except for the clearance of such offering
with the National Association of Securities Dealers, Inc. (the "NASD") and the
approval of the quotation of the Shares on the [Nasdaq SmallCap Market.]
(m) The consolidated financial statements and schedules of the Company and
the related notes thereto included in the Registration Statement and the
Prospectus present fairly on a consolidated basis the financial position of the
Company and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and cash flows of the
Company and its subsidiaries for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified, as certified by the independent accountants
named in subsection 10(f). No other financial statements or schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Capitalization" and ["Selected
Consolidated Financial Data"] fairly present the information set forth therein
on the basis stated in the Registration Statement.
(n) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and its
officers to
-5-
<PAGE> 6
its independent public accountants for the purpose of supporting the letters
referred to in Sections 9(f) and (g) are true and correct.
(o) Neither the Company nor any of its subsidiaries is (i) in violation or
default of any provision of its Certificate of Incorporation, Bylaws or other
organizational documents, or (ii) in material breach of, or default with
respect to, any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound; and
there does not exist any state of facts which, with notice or lapse of time or
both, would constitute such a breach or default on the part of the Company and
its subsidiaries, taken as a whole.
(p) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have not
been described or filed as an exhibit to the Registration Statement as
required. The contracts so described in the Prospectus are in full force and
effect on the date hereof.
(q) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits, investigations or other proceedings (formal or
informal) pending or, to the best knowledge of the Company, threatened to which
the Company or any of its subsidiaries is or is threatened to be made a party
or a subject or of which property owned or leased by the Company or any of its
subsidiaries is or has been threatened to be made the subject, which actions,
suits, investigations or other proceedings could, individually or in the
aggregate, prevent or materially adversely affect the transactions contemplated
by this Agreement or the Warrant Agreement or result in a material adverse
change in the business, properties, condition (financial or otherwise), or
results of operations of the Company and its subsidiaries, taken as a whole;
there are no outstanding claims, asserted or otherwise, against the Company,
any of its subsidiaries, or any of their respective officers or directors, for
violations of any federal or state securities laws, or any other applicable
laws, relating to any purchase, sale, or redemption of, or other transaction
with respect to, the Common Stock or shares of capital stock of any of the
Company's subsidiaries; and no labor disturbance by the employees of the
Company or any of its subsidiaries exists or is imminent which could materially
adversely affect the business, properties, condition (financial or otherwise),
or results of operations of the Company or its subsidiaries, taken as a whole.
Neither the Company nor any of its subsidiaries is a party or subject to the
provisions of any material injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body. Except as
disclosed in the Prospectus, there are no material legal or governmental
actions, suits, investigations or proceedings pending or, to the Company's best
knowledge, threatened against any executive officers or directors of the
Company.
(r) The Company or the applicable subsidiary has good title to all the
properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no lien,
mortgage, pledge, charge or
-6-
<PAGE> 7
encumbrance of any kind except (i) those, if any, reflected in such financial
statements (or elsewhere in the Prospectus), or (ii) those which are not
material in amount to the Company and its subsidiaries, taken as a whole, and
do not adversely affect the use made and proposed to be made of such property
by the Company or its subsidiaries. The Company or the applicable subsidiary
holds its leased properties under valid and binding leases. Except as
described in the Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted or as proposed to be
conducted.
(s) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not (A) incur-red any material liabilities or obligations,
indirect, direct or contingent, or (B) entered into any oral or written
agreement or other transaction, which in the case of (A) or (B) is not in the
ordinary course of business; (ii) the Company and its subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company and its subsidiaries have not paid
or declared any dividends or other distributions with respect to their
respective capital stock and the Company and its subsidiaries are not in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock of the
Company or its subsidiaries (other than upon the sale of the Shares hereunder
or upon the exercise of any options or warrants disclosed in the Prospectus);
(v) there has not been any material increase in the short- or long-term debt of
the Company and its subsidiaries; and (vi) there has not been any material
adverse change or any development involving or which may reasonably be expected
to involve a prospective material adverse change, in the business, condition
(financial or otherwise), properties, or results of operations of the Company
and its subsidiaries, taken as a whole.
(t) The Company and its subsidiaries are conducting business in compliance
with all applicable laws, rules and regulations of the jurisdictions in which
they are conducting business, except where the failure to be so in compliance
would not have a material adverse effect on the business, properties, condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole.
(u) The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns, and all such tax returns
are complete and correct in all material respects, and the Company and its
subsidiaries have not failed to pay any taxes which were payable pursuant to
said returns or any assessments with respect thereto. The Company has no
knowledge of any tax deficiency which has been or is likely to be threatened or
asserted against the Company or its subsidiaries.
(v) The Company has not distributed, and will not distribute prior to the
later to occur of (i) completion of the distribution of the Shares, or (ii) the
expiration of any time period within which a dealer is required under the
Securities Act to deliver a
-7-
<PAGE> 8
prospectus relating to the Shares, any offering material in connection with the
offering and sale of the Shares other than the Prospectus, the Registration
Statement and any other materials permitted by the Securities Act and consented
to by the Underwriters.
(w) Each of the Company and its subsidiaries maintains insurance of the
types and in the amounts generally deemed adequate for their business,
including, but not limited to, directors' and officers' insurance, insurance
covering real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full
force and effect. The Company has not been refused any insurance coverage
sought or applied for, and the Company has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially adversely affect
the business, properties, condition (financial or otherwise) or results of
operations of the Company or its subsidiaries, taken as a whole.
(x) Neither the Company nor any of its subsidiaries nor, to the best of
the Company's knowledge, any of their employees or agents has at any time
during the last five years (i) made any unlawful contribution to any candidate
for foreign office, or failed to disclose fully any contribution in violation
of law, or (ii) made any payment to any foreign, federal or state governmental
officer or official or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(y) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
(z) The Company has caused the holders of no less than ninety-five percent
(95%) of the outstanding shares of Common Stock (including shares issuable upon
the exercise or conversion of any option, warrant or other security that vests
or is exercisable prior to the 455th day following the date the Registration
Statement became effective) to furnish to the Underwriters an agreement in form
and substance satisfactory to H.C. Wainwright & Co., Inc. stating that without
the prior written consent of H. C. Wainwright & Co., Inc., such person or
entity will not: (i) until the 275th following the date the Registration
Statement became effective, directly or indirectly, offer, sell, pledge,
contract to sell, grant any option to purchase or otherwise dispose of any
shares of Common Stock beneficially owned or otherwise held by such person or
entity (including, without limitation, shares of Common Stock which may be
deemed to be beneficially owned by such person or entity in accordance with the
rules and regulations of the Securities and Exchange Commission and shares of
Common Stock which may be issued upon exercise of a stock option or warrant),
or any securities convertible into, derivative of or exercisable or
exchangeable for such Common Stock, as of the date the Registration
-8-
<PAGE> 9
Statement became effective; and (ii) until the 455th following the date the
Registration Statement became effective, directly or indirectly, offer, sell,
pledge, contract to sell, grant any option to purchase or otherwise dispose of
more than one-half of the aggregate number of shares of Common Stock
beneficially owned or otherwise held by such person or entity (including,
without limitation, shares of Common Stock which may be deemed to be
beneficially owned by such person or entity in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common
Stock which may be issued upon exercise of a stock option or warrant), or any
securities convertible into, derivative of or exercisable or exchangeable for
such Common Stock, as of the date the Registration Statement became effective;
provided, however, that if such party is an individual, he or she may transfer
any or all of the Common Stock held by such party either during his or her
lifetime or on death, by gift, will or intestacy, to his or her immediate
family or to a trust the beneficiaries of which are exclusively such party
and/or a member or members of his or her immediate family (any of such
transferees are hereinafter referred to as a "Permitted Transferee"); provided
further, that in any such case the Permitted Transferee executes a lock-up
agreement in substantially the same form covering the remainder of the lock-up
period.
(aa) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba.
(bb) Except as specifically disclosed in the Prospectus: the Company and
its subsidiaries have sufficient trademarks, trade names, patent rights,
copyrights, trade secret protections, licenses, approvals and governmental
authorizations to conduct their businesses as now conducted; the expiration or
absence of any trademarks, trade names, patent rights, copyrights, trade secret
protections, licenses, approvals or governmental authorizations would not have
a material adverse effect on the business, properties, condition (financial or
otherwise) or results of operations of the Company or its subsidiaries; the
Company has no knowledge of any infringement or of facts that suggest any
infringement by the Company or its subsidiaries of any trademark, trade name,
patent, copyright, license, trade secret or other similar rights of others; and
no claims have been made or are threatened against the Company or its
subsidiaries regarding infringement by the Company of any trademark, trade
name, patent, copyright, license, trade secret or other similar rights of
others.
(cc) Except as disclosed in the Prospectus, (i) the Company and its
subsidiaries are in compliance in all material respects with all material
rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to their business, (ii) neither the
Company nor any of its subsidiaries has received any notice from any
governmental authority or third party of an asserted claim under Environmental
Laws, (iii) no facts currently exist that will require the Company or any of
its subsidiaries to make future material capital expenditures to comply with
Environmental Laws, and (iv) to the knowledge of the Company, no property which
is or has been owned, leased or occupied by the Company or any of its
subsidiaries has been designated as a Superfund
-9-
<PAGE> 10
site pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, et seq.), or
otherwise designated as a contaminated site under applicable state or local
law.
(dd) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(ee) Except as disclosed in the Prospectus, neither the Company nor any of
its subsidiaries is in violation or or in default in the performance of any
obligation under any permits or authorizations granted by the U.S. Food and
Drug Administration, or any comparable state, local or foreign governmental
agency, to the Company. The Company is in compliance in all material respects
with the Food Drug and Cosmetic Act ("FDCA"), all applicable regulations
thereunder, including, without limitation, all applicable requirements under
the FDCA pertaining to the export of medical devices, and any comparable state,
local or foreign laws or regulations.
SECTION 2. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell the
1,900,000 Firm Shares to the several Underwriters, and each of the Underwriters
agrees to purchase from the Company the respective aggregate number of Firm
Shares set forth opposite its name in Schedule I. The price at which such Firm
Shares shall be sold by the Company and purchased by the several Underwriters
shall be $[ ] per share. The obligation of each Underwriter to the Company
shall be to purchase from the Company that number of Firm Shares which
represents the same proportion of the total number of Firm Shares to be sold by
the Company pursuant to this Agreement as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto represents of the
total number of Firm Shares to be purchased by all Underwriters pursuant to
this Agreement, as adjusted by you in such manner as you deem advisable to
avoid fractional shares. In making this Agreement, each Underwriter is
contracting severally and not jointly; except as provided in paragraphs (b) and
(c) of this Section 2, the agreement of each Underwriter is to purchase only
the respective number of shares of the Firm Shares specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay
for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of Shares which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail so to
make such arrangements
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<PAGE> 11
with respect to all such shares and portion, the number of Shares which each
non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining shares and portion which the defaulting Underwriter or Underwriters
agreed to purchase; provided, however, that the non-defaulting Underwriters
shall not be obligated to purchase the portion which the defaulting Underwriter
or Underwriters agreed to purchase if the aggregate number of such Shares
exceeds 10% of the total number of Shares which all Underwriters agreed to
purchase hereunder. If the total number of Shares which the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company shall have
the right, within 24 hours next succeeding the 24-hour period above referred
to, to make arrangements with other underwriters or purchasers satisfactory to
you for purchase of such Shares and portion on the terms herein set forth. In
any such case, either you or the Company shall have the right to postpone the
Closing Date determined as provided in Section 4 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
Section 4 in order that any necessary changes in the Registration Statement,
the Prospectus or any other documents or arrangements may be made. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 2(b) as if such party had originally been a party to this
Agreement and had been allocated the number of Shares actually purchased by it
as a result of its original commitment (if applicable) to purchase Shares and
its purchase of Shares pursuant to this Section 2(b). If neither the
non-defaulting Underwriters nor the Company shall make arrangements within the
24-hour periods stated above for the purchase of all of the Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing in this paragraph (b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly up to 285,000 Optional Shares from the Company at the
same price per share as the Underwriters shall pay for the Firm Shares. Said
option may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters and may be exercised in whole or in part at any time
on or before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
Optional Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the Optional Shares, and payment therefor, shall
be made as provided in Section 4 hereof. The number of Optional Shares to be
purchased by each Underwriter shall be the same percentage of the total number
of Optional Shares to be purchased by the several Underwriters as such
Underwriter is purchasing of the Firm Shares, as adjusted by you in such manner
as you deem advisable to avoid fractional shares.
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<PAGE> 12
(d) If the Firm Shares are purchased and sold on the Closing Date (as
defined in Section 4(a)), then the Company shall pay to the Representative on
the Closing Date an amount equal to 3% of the aggregate price to the public of
all the Firm Shares sold in the offering, which amount shall represent a
non-accountable allowance for the expenses incurred by the Representative in
connection with its duties and activities under this Agreement. If any
Optional Shares are purchased and sold on the Closing Date, then the Company
shall pay to the Representative on the Closing Date an amount equal to 3% of
the aggregate price to the public of all the Optional Shares sold in the
offering, which amount shall represent an additional non-accountable allowance
for the expenses incurred by the Representative as aforesaid. If any Optional
Shares are purchased and sold on the Option Closing Date (as defined in Section
4(b)), then the Company shall pay to the Representative on the Option Closing
Date an amount equal to 3% of the aggregate price to the public of all the
Optional Shares sold in the offering, which amount shall represent an
additional non-accountable allowance for the expenses incurred by the
Representative as aforesaid. The non-accountable expense allowance pertaining
to the Firm Shares and the non-accountable expense allowance pertaining to the
Optional Shares, if any, are collectively referred to herein as the
"Non-Accountable Expense Allowance."
SECTION 3. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Shares to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information (insofar as such information relates to the
Underwriters) set forth in the last paragraph on the front cover page and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and
the Prospectus relating to the Shares constitutes the only information
furnished by the Underwriters to the Company for inclusion in the Registration
Statement, any Preliminary Prospectus, and the Prospectus, and you on behalf of
the respective Underwriters represent and warrant to the Company that the
statements made therein are correct.
SECTION 4. DELIVERY OF AND PAYMENT FOR THE SHARES AND WARRANTS.
(a) Delivery of certificates for the Firm Shares, the Optional Shares (if
the option granted by Section 2(c) hereof shall have been exercised not later
than 10:00 a.m., Boston time, on the date two business days preceding the
Closing Date), and the Firm Warrants and the Initial Closing Option Warrants,
and payment therefor, shall be made at the offices of H.C. Wainwright & Co.,
Inc., One Boston Place, Boston, Massachusetts 02108, or such other location as
the Representative shall determine, at 10:00 a.m., Boston time, on the fourth
business day after the date of this Agreement, or at such time on such other
day, not later than seven full business days after such fourth business day, as
shall
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<PAGE> 13
be agreed upon in writing by the Company and you. The date and hour of such
delivery and payment (which may be postponed as provided in Section 2(b)
hereof) are herein called the "Closing Date."
(b) If the option granted by Section 2(c) hereof shall be exercised after
10:00 a.m., Boston time, on the date two business days preceding the Closing
Date, delivery of certificates for the shares of Optional Shares and the Option
Closing Option Warrants, and payment therefor, shall be made at the offices of
H.C. Wainwright & Co., Inc., One Boston Place, Boston, Massachusetts 02108, or
such other location as the Representative shall determine, at 10:00 a.m.,
Boston time], on the third business day after the exercise of such option. The
date and hour of such delivery and payment are herein called the "Option
Closing Date."
(c) Payment for the Firm Shares, the Optional Shares and the Warrants
purchased from the Company shall be made to the Company or its order by (i) one
or more certified or official bank check or checks in same day funds (and the
Company agrees not to deposit any such check in the bank on which drawn until
the day following the date of its delivery to the Company) or (ii) federal
funds same day wire transfer to an account designated by the Company. Such
payment shall be made upon delivery of certificates for the Shares and the
Warrants to you for your account and the respective accounts of the several
Underwriters (including without limitation by "full-fast" electronic transfer
by the Depository Trust Company) against receipt therefor signed by you and the
payment of the Non-Accountable Expense Allowance to you. Payment for the
Non-Accountable Expense Allowance shall be made to the Representative or to
their order by (i) one or more certified or official bank check or checks in
same day funds, (ii) federal funds same day wire transfer to an account
designated by the Representative or (iii) at the option of the Representative,
may be deducted from the amount transferred to the Company pursuant to this
Section 4(c). Certificates for the Shares and the Warrants to be delivered to
you shall be registered in such name or names and shall be in such
denominations as you may request at least one business day before the Closing
Date, in the case of Firm Shares, the Firm Warrants and the Initial Closing
Option Warrants (each as defined in paragraph (p) of Section 5), and at least
one business day prior to the purchase thereof, in the case of the Optional
Shares and the Option Closing Option Warrants (as defined in paragraph (p) of
Section 5). Certificates for the Firm Shares and Optional Shares will be made
available to the Underwriters for inspection, checking and packaging at such
office or such other place as the Representative may designate not later than
9:30 a.m. Boston time on the business day prior to the Closing Date or, in the
case of the Optional Shares, by 9:30 a.m., Boston time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Optional Shares
are purchased for the account of such
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<PAGE> 14
Underwriter. Any such payment by you shall not relieve such Underwriter from
any of its obligations hereunder.
SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) the Company will not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which you shall have reasonably
objected in writing or which is not in compliance with the Securities Act or
the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of (i)
the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement, (iii) the institution or notice of intended
institution of any action or proceeding for that purpose, (iv) the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction, or (v) the receipt by
the Company of notice of the initiation or threatening of any proceeding for
such purpose. The Company will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be
issued, to obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus
as you may reasonably request, and (iii) thereafter from time to time during
the period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company,
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<PAGE> 15
or of which the Company shall be advised in writing by you, shall occur as a
result of which it is necessary, in the opinion of counsel for the Company or
of counsel for the Underwriters, to supplement or amend the Prospectus in order
to make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser of the Shares, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus so that the Prospectus as so supplemented
or amended will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances existing at the time such Prospectus is
delivered to such purchaser, not misleading. If, after the initial public
offering of the Shares by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus
or an amended prospectus setting forth such variation. The Company authorizes
the Underwriters and all dealers to whom any of the Shares may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Shares in accordance with the
applicable provisions of the Securities Act and the rules and regulations
thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate when and as requested by you, in the
qualification of the Shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time
to time, prepare and file such statements, reports, and other documents as are
or may be required to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Shares.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders
of the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act).
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<PAGE> 16
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement
which need not be certified by independent certified public accountants unless
required by the Securities Act or the rules and regulations thereunder, but
which shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder, covering a period of at least twelve months beginning with
the day immediately succeeding the Effective Date.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including but not limited
to all costs and expenses incident to (i) the preparation, printing, delivering
and filing with the Commission and the NASD of the Registration Statement, any
Preliminary Prospectus and the Prospectus, (ii) the preparation, printing and
delivering to the Underwriters and, if applicable, the persons designated by
them of copies of any Preliminary Prospectus and of the several documents
required by paragraph (c) of this Section 5 to be so furnished, (iii) the
printing of this Agreement and related documents delivered to the Underwriters,
(iv) the preparation, printing and filing of all supplements and amendments to
the Prospectus referred to in paragraph (d) of this Section 5, (v) the
furnishing to you and the Underwriters of the reports and information referred
to in paragraph (g) of this Section 5, (vi) the fees, costs, expenses and taxes
(if any) relating to the delivery of stock to the Underwriters, (vii) costs of
preparing, printing and delivering share certificates, (viii) fees and expenses
of the transfer agent and registrar and (viii) fees and expenses associated
with listing the Shares on any exchange or other market.
(j) The Company agrees to reimburse you for the account of the several
Underwriters, for blue sky fees and related disbursements (including reasonable
counsel fees and reasonable disbursements and cost of printing memoranda for
the Underwriters) paid by or for the account of the Underwriters or their
counsel in qualifying the shares under state securities or blue sky laws and in
the review of the offering by the NASD.
(k) The Company acknowledges that the provisions of paragraphs (i) and (j)
of this Section 5 are intended to relieve the Underwriters from the payment of
the expenses and costs which the Company hereby agrees to pay and shall not
affect any agreement which the Company may make, or may have made, for the
sharing of any such expenses and costs.
(l) The Company hereby agrees that, without the prior written consent of
H.C. Wainwright & Co., Inc., the Company will not, prior to the 455th day
following the date the Registration Statement becomes effective, directly or
indirectly, sell, offer to sell, pledge, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock owned beneficially
or otherwise (including, without limitation, shares of Common Stock which may
be deemed to be beneficially owned in accordance with the rules and regulations
of the Securities and Exchange Commission and shares of Common Stock which may
be issued upon exercise of a stock option or warrant) or any securities
convertible into, derivative of or exercisable or exchangeable for such Common
Stock, or
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<PAGE> 17
file any registration statement or offering circular with respect to any of the
foregoing except for (i) the issuance of shares of Common Stock upon the
exercise of options to purchase Common Stock which are outstanding on the date
hereof and (ii) the granting of options pursuant to the Company's existing
stock option plan as in effect on the date of this agreement without amendment
or other modification; provided however, that any shares issuable in respect of
the options described in clause (i) or (ii) shall not be sold, offered for sale
or otherwise transferred until the 455th day following the date the
Registration Statement becomes effective.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the shares has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding
to or commenting on such rumor, publication or event.
(n) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(o) The Company agrees to maintain directors' and officers' insurance in
an amount not less than $2,000,000 for a period of two years from the date of
this Agreement.
(p) At the Closing Date, the Company will issue and sell to the
Representative or, at its direction, to its bona fide officers or partners, as
described below, for a total purchase price of $1.00, warrants entitling the
holders thereof to purchase up to an aggregate of 190,000 shares of Common
Stock (subject to adjustment) (the "Firm Warrants") for a period of [four (4)]
years, such period to commence one year after the effective date of the
Registration Statement (except as otherwise set forth in the Warrant Agreement
referred to below). If the option granted by Section 2(c) hereof shall have
been exercised not later than 10:00 a.m., Boston time, on the date two business
days preceding the Closing Date, on the Closing Date, the Company will further
issue and sell to the Representative or, at its direction, to its bona fide
officers or partners, as described below, for a total purchase price of $1.00,
warrants entitling the holders thereof to purchase up to an additional number
of shares of Common Stock equal to 10% of the number of shares of Common Stock
purchased by the Underwriters pursuant to such option (subject to adjustment)
(the "Initial Closing Option Warrants") for a period of [four (4)] years, such
period to commence one year after the effective date of the
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<PAGE> 18
Registration Statement (except as otherwise set forth in the Warrant Agreement
referred to below). If the option granted by Section 2(c) hereof shall be
exercised after 10:00 a.m., Boston time, on the date two business days
preceding the Closing Date, on the Option Closing Date, the Company will
further issue and sell to the Representative or, at its direction, to its bona
fide officers or partners, as described below, for a total purchase price of
$1.00, warrants entitling the holders thereof to purchase up to an additional
number of shares of Common Stock equal to 10% of the number of shares of Common
Stock purchased by the Underwriters pursuant to such option (subject to
adjustment) (the "Option Closing Option Warrants") for a period of [four (4)]
years, such period to commence one year after the effective date of the
Registration Statement (except as otherwise set forth in the Warrant Agreement
referred to below). The Firm Warrants, the Initial Closing Option Warrants and
the Option Closing Option Warrants are collectively referred to herein as the
"Warrants," and the shares for which the Warrants are exercisable are
collectively referred to herein as the "Warrant Shares." Said Warrants shall
contain terms and provisions set forth in the Warrant Agreement of even date
among the Company and the Representative (the "Warrant Agreement"). As
provided in the Warrant Agreement, the Representative may designate that some
or all of the Warrants be issued in varying amounts directly to its bona fide
officers or partners and not to the Representative. Such designation will be
made by the Representative only if it determines that such issuances would not
violate the rules and interpretations of the Board of Governors of the NASD
relating to the review of corporate financing arrangements and subject to
applicable federal and state securities laws. As further provided, no
transfer, assignment or hypothecation of the Warrants shall be made by the
Representative for a period of 12 months from the issuance of the Warrants,
except to its bona fide officers or partners and subject to applicable federal
and state securities laws.
(q) During the Exclusivity Period (as defined below), if the Company
determines to engage a financial advisor or investment bank to advise the
Company with respect to (i) the issuance and public sale of equity securities
of the Company, H.C. Wainwright & Co., Inc. shall have the right, but not the
obligation, to act as lead placement agents or managing underwriters, as the
case may be, or (ii) the sale or disposition of the Company or any of its
assets other than in the ordinary course of business or the acquisition other
than in the ordinary course of business by the Company of any securities or
assets of any other business entity, and H.C. Wainwright & Co., Inc. at such
time is not in default of its material obligations to the Company, the Company
agrees that H.C. Wainwright & Co., Inc. shall have the right, but not the
obligation, to act as the Company's exclusive financial advisor. In connection
with any such engagements, the Company and H.C. Wainwright & Co., Inc. shall
enter into agreements, appropriate under the circumstances, containing
provisions for compensation, indemnification, and other matters that are usual
and customary for other similar circumstances in which H.C. Wainwright & Co.,
Inc. is engaged. The "Exclusivity Period" refers to the three year period
commencing September 3, 1997 regardless of whether or not the offering is
consummated. This Section 5(q) shall survive any termination of this Agreement
pursuant to Section 9 or otherwise and any fees payable pursuant to this
section shall be
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<PAGE> 19
in addition to any payments to the Underwriters pursuant to any other Section
of this Agreement.
(r) H.C. Wainwright & Co., Inc. shall have the right to nominate one
member of the Company's Board of Directors which individual shall be a member
of the Compensation and Audit Committees.
SECTION 6. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 6, the
Company agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter within
the meaning of Section 15 of the Securities Act from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
common law or otherwise, and the Company agrees to reimburse each such
Underwriter and controlling person for any legal or other expenses (including,
except as otherwise hereinafter provided, reasonable fees and disbursements of
counsel) incurred by the respective indemnified parties in connection with
defending against any such losses, claims, damages or liabilities or in
connection with any investigation or inquiry of, or other proceeding which may
be brought against, the respective indemnified parties, in each case arising
out of or based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (including the Prospectus
as part thereof and any Rule 462(b) registration statement) or any
post-effective amendment thereto (including any Rule 462(b) registration
statement), or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged
omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreement of
the Company contained in this paragraph (a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission was made
in reliance upon and in conformity with information furnished as herein stated
in writing to the Company by or on behalf of any Underwriter specifically for
use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto, and (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Shares which is the subject thereof (or to the benefit
of any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus
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<PAGE> 20
was corrected in the Prospectus (or the Prospectus as amended or supplemented)
unless the failure is the result of noncompliance by the Company with
subparagraphs (ii) and (iii) of paragraph (c) of Section 5 hereof. The
indemnity agreement of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 1 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Exchange Act, or
the common law or otherwise and to reimburse each of them for any legal or
other expenses (including, except as otherwise hereinafter provided, reasonable
fees and disbursements of counsel) incurred by the respective indemnified
parties in connection with defending against any such losses, claims, damages
or liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented
if the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished as herein stated in writing to the Company by or on
behalf of such indemnifying Underwriter specifically for use in the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provisions of paragraphs (a) and (b)
of this Section 6 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, it
will promptly give written notice (the "Notice") of such
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<PAGE> 21
service or notification to the party or parties from whom indemnification may
be sought hereunder. No indemnification provided for in such paragraphs shall
be available to any party who shall fail so to give the Notice if the party to
whom such Notice was not given was unaware of the action, suit, investigation,
inquiry or proceeding to which the Notice would have related and was prejudiced
by the failure to give the Notice, but the omission so to notify such
indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its
own expense to participate in the defense of any action, suit or proceeding
against, or investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of the Notice by giving written notice (the "Notice of Defense")
to the indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties; and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a reasonable
time after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 6 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal expenses of one counsel for the
indemnified party or parties and other expenses incurred in connection with the
conduct of the defense as referred to in clause (i) of the proviso to the
preceding sentence and (B) the indemnifying party or parties shall bear other
expenses as it or they have authorized to be incurred by the indemnified party
or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party
or parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 6 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or
(b) of this Section 6, then each indemnifying party, in lieu of indemnifying
such indemnified party,
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<PAGE> 22
shall contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in paragraph
(a) or (b) of this Section 6(i) in such proportion as is appropriate to reflect
the relative benefits received by each indemnifying party from the offering of
the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of each indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the shares received
by the Company and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the shares. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by each indemnifying
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount
in excess of the underwriting discount applicable to the Shares purchased by
such Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 6).
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<PAGE> 23
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or
proceeding.
SECTION 7. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 6 of this Agreement, the Company hereby agrees to
reimburse on a monthly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in paragraph (a) of Section 6 of this Agreement, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 7 and the possibility that such payments
might later be held to be improper, provided, however, that (i) to the extent
any such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them; (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due; and (iii) such reimbursements will be limited to
out-of-pocket costs and will not cover the overhead costs of the Underwriters.
SECTION 8. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company in
accordance with Section 9, or if after the date of this Agreement trading in
the Common Stock shall have been suspended, or if there shall have occurred (i)
the engagement in hostilities or an escalation of major hostilities by the
United States or the declaration of war or a national emergency by the United
States on or after the date hereof, (ii) any outbreak of hostilities or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, calamity, crisis or change in
economic or political conditions in the financial markets of the United States
or the Company's industry sector would, in the Underwriters' reasonable
judgment, make the offering or delivery of the shares impracticable, (iii)
suspension of trading in securities generally or a material adverse decline in
value of securities generally on the New York Stock Exchange, the American
Stock Exchange, or The Nasdaq Stock Market, or limitations on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York
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<PAGE> 24
State authorities, (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the
securities markets in the United States, (vii) a material adverse change in the
Company's business , financial condition, results of operations, or prospects
or (viii) the discovery by the Underwriters of material facts or circumstances
that render the offering of the Shares impracticable. If this Agreement shall
be terminated pursuant to this Section 8, there shall be no liability of the
Company to the Underwriters and no liability of the Underwriters to the
Company; provided, however, that in the event of any such termination, the
Company agrees to indemnify and hold harmless the Underwriters from all costs
or expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 5 hereof and to reimburse the Representative for its
out-of-pocket expenses incurred in connection with the performance of their
obligations hereunder, including fees and disbursements of counsel to the
Underwriters; and provided further that in the event of any such termination,
the provisions of Section 5(q) shall continue in full force and effect as set
forth therein.
SECTION 9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Shares shall be subject to
the performance by the Company of all its obligations to be performed hereunder
at or prior to the Closing Date or any later date on which Optional Shares are
to be purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Shares hereunder and
the validity and form of the certificates representing the Shares, all
corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior
to the Closing Date by Venable, Baetjer and Howard, LLP, counsel for the
Underwriters.
(c) You shall have received from Shefsky & Froelich Ltd., counsel for the
Company, or other counsel acceptable to the Underwriters, an opinion, addressed
to the Underwriters and dated the Closing Date, covering the matters set forth
in Annex A hereto, and if Optional Shares are purchased at any date after the
Closing Date, additional opinions from such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements
expressed as of the Closing Date in such opinion remain valid as of such later
date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct, and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be
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<PAGE> 25
stated therein or necessary in order to make the statements therein,
respectively, not misleading; (ii) since the Effective Date, no event has
occurred which should have been set forth in a supplement or amendment to the
Prospectus which has not been set forth in such a supplement or amendment;
(iii) since the respective dates as of which information is given in the
Registration Statement in the form in which it originally became effective and
the Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change in or
affecting the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether or
not arising from transactions in the ordinary course of business, and, since
such dates, except in the ordinary course of business, neither the Company nor
any of its subsidiaries has entered into any material transaction not referred
to in the Registration Statement in the form in which it originally became
effective and the Prospectus contained therein; (iv) the Commission has not
issued any order preventing or suspending the use of the Prospectus or any
Preliminary Prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best knowledge of the
respective signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act; (v) neither the Company nor
any of its subsidiaries has any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus; (vi) there are not
any pending or known threatened legal proceedings to which the Company or any
of its subsidiaries is a party or of which property of the Company or any of
its subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus; (vii) there are not any
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as
required; and (viii) the representations and warranties of the Company herein
are true and correct in all material respects as of the Closing Date or any
later date on which Optional Shares are to be purchased, as the case may be.
(e) You shall have received on the Closing Date and on any later date on
which Optional Shares are purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (viii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received from KPMG Peat Marwick LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Optional Shares are purchased, confirming that they are
independent public accountants with respect to the Company within the meaning
of the Securities Act and the applicable published rules and regulations
thereunder and based upon the procedures described in their letter delivered to
you concurrently with the execution of this Agreement (the "Original Letter"),
but carried out to a date not more than three business
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<PAGE> 26
days prior to the Closing Date or such later date on which Optional Shares are
purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date or such later date, as the case may be, and (ii) setting forth any
revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company or any of its subsidiaries which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the Shares or
the purchase of the Optional Shares as contemplated by the Prospectus.
(g) You shall have received from KPMG Peat Marwick LLP, a letter stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their examination
of the Company's financial statements as at December 31, 1996, did not disclose
any weakness in internal controls that they considered to be material
weaknesses.
(h) You shall have been furnished evidence in usual written or telegraphic
form from the appropriate authorities of the several jurisdictions, or other
evidence satisfactory to you, of the qualification referred to in paragraph (f)
of Section 5 hereof.
(i) Prior to the Closing Date, the Shares and the Warrant Shares shall
have been duly authorized for quotation by the [Nasdaq SmallCap Market] upon
official notice of issuance.
(j) The Warrant Agreement and the Warrants shall have been executed and
delivered to the Representative on behalf of the Company.
(k) On or prior to the Closing Date, you shall have received agreements
from the holders of no less than ninety-five percent (95%) of the outstanding
shares of Common Stock (including shares issuable upon the exercise or
conversion of any option, warrant or other security that vests or is
exercisable prior to the 455th day following the date the Registration
Statement became effective), in form reasonably satisfactory to H.C. Wainwright
& Co., Inc., stating that without the prior written consent of H. C. Wainwright
& Co., Inc., such person or entity will not: (i) until the 275th day following
the date the Registration Statement became effective, directly or indirectly,
offer, sell, pledge, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock beneficially owned or otherwise
held by such person or entity (including, without limitation, shares of Common
Stock which may be deemed to be beneficially owned by such person or entity in
accordance with the rules and regulations of the Securities and Exchange
Commission and shares of Common Stock which may be issued upon exercise of a
stock option or warrant), or any securities convertible into, derivative of or
exercisable or exchangeable for such Common Stock, as of the date the
Registration Statement became effective; and (ii) until the 455th day following
the date the
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<PAGE> 27
Registration Statement became effective, directly or indirectly, offer, sell,
pledge, contract to sell, grant any option to purchase or otherwise dispose of
more than one-half of the aggregate number of shares of Common Stock
beneficially owned or otherwise held by such person or entity (including,
without limitation, shares of Common Stock which may be deemed to be
beneficially owned by such person or entity in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common
Stock which may be issued upon exercise of a stock option or warrant), or any
securities convertible into, derivative of or exercisable or exchangeable for
such Common Stock, as of the date the Registration Statement became effective
provided, however, that if such party is an individual, he or she may transfer
any or all of the Common Stock held by such party either during his or her
lifetime or on death, by gift, will or intestacy, to a Permitted Transferee;
provided further, that in any such case the Permitted Transferee executes a
lock-up agreement in substantially the same form covering the remainder of the
lock-up period.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Venable, Baetjer and Howard, LLP, counsel for the
Underwriters, shall agree that they comply in form and scope, which agreement
shall not be unreasonably withheld.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company;
provided, however, that (i) in the event of such termination, the Company
agrees to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 5 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein, to fulfill any of the conditions herein, or to
comply with any provision hereof other than by reason of a default by any of
the Underwriters, the Company will reimburse the Underwriters severally upon
demand for all out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the transactions contemplated hereby.
SECTION 10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation
of the Company to deliver the Shares shall be subject to the conditions that
(a) the Registration Statement shall have become effective and (b) no stop
order suspending the effectiveness thereof shall be in effect and no
proceedings therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
you. Any such termination shall be without liability of the Company to the
Underwriters and without
-27-
<PAGE> 28
liability of the Underwriters to the Company; provided, however, that in the
event of any such termination the Company agrees to indemnify and hold harmless
the Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 5 hereof.
SECTION 11. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company and the several Underwriters and,
with respect to the provisions of Section 6 hereof, the several parties (in
addition to the Company and the several Underwriters) indemnified under the
provisions of said Section 6, and their respective personal representatives,
successors and assigns. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any
provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the shares from
any of the several Underwriters.
SECTION 12. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telexed, telegraphed, transmitted by facsimile
transmission or delivered to H.C. Wainwright & Co., Inc., One Boston Place,
Boston, Massachusetts 02108, Attention: Stephen Barrett if to the Company,
shall be mailed, telexed, telegraphed, transmitted by facsimile transmission or
delivered to it at its office, 1126 South 70th Street, Suite S107B, Milwaukee,
Wisconsin 53214-3151, Attention: William C. Mortimore. All notices given by
telex, telegraph or facsimile transmission shall be promptly confirmed by
letter.
SECTION 13. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and
effect regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or its directors or officers, and
(c) delivery and payment for the Shares under this Agreement; provided,
however, that if this Agreement is terminated prior to the Closing Date, the
provisions of paragraph (2) of Section 1 and paragraphs (l), (m) and (n) of
Section 5 hereof shall be of no further force or effect.
SECTION 14. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made
such minor changes (and only such minor changes) as are necessary to make it
valid and enforceable.
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<PAGE> 29
SECTION 15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of The Commonwealth of Massachusetts.
SECTION 16. GENERAL. This Agreement and the Warrant Agreement constitute
the entire agreement of the parties to this Agreement and the Warrant Agreement
and supersede all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof and thereof. This Agreement may be executed in several counterparts,
each one of which shall be an original, and all of which together shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be
amended or modified, and the observance of any term of this Agreement may be
waived, only by a writing signed by the Company and you.
[Remainder of page intentionally left blank.]
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<PAGE> 30
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon
it will become a binding agreement among the Company and the several
Underwriters, including you, all in accordance with its terms.
Very truly yours,
MERGE TECHNOLOGIES INCORPORATED
By:
-------------------------
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted
by us in [Boston, Massachusetts] as of
the date first above written.
H.C. WAINWRIGHT & CO., INC.
[ ]
- ---------------------------------------------
Acting for ourself and as the Representative
of the several Underwriters named in the
attached Schedule A
BY: H.C. WAINWRIGHT & CO., INC.
By:
----------------------------
Name:
Principal
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<PAGE> 31
SCHEDULE I
UNDERWRITERS
NUMBER OF FIRM
UNDERWRITERS SHARES TO BE PURCHASED
- --------------------------------------------------------------------------------
H.C. Wainwright & Co., Inc......................................................
Total.....................................................................
I-1
<PAGE> 32
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF SHEFSKY & FROELICH LTD.
COUNSEL FOR THE COMPANY
In connection with the preparation of this opinion, we have examined, and
have relied as to matters of fact upon, originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records,
agreements, documents and other instruments and such certificates or comparable
documents of public officials, and have made such other and further
investigations as we have deemed relevant and necessary as a basis of the
opinions hereinafter set forth. We have relied upon, without independent
investigation, the representations and warranties of the Company contained in
__________ the and upon statements and representations of officers and other
representatives of the Company. In such examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. In
addition, we have, with your permission, assumed that each of the
___________ has been duly authorized, executed and delivered on behalf of the
parties thereto (other than the Company). We have also assumed that all of the
parties to the _____________ will perform their respective obligations
thereunder in accordance with their respective terms and conditions.
In connection with the opinions expressed herein as being made "to our
knowledge," our examination has been limited to (i) a review of documents in
our firm's files as to which we have represented the Company, (ii)
conversations with certain of the executive officers of the Company, and (iii)
reasonable inquiry by this firm into applicable laws. We have made no
independent investigation as to the accuracy or completeness of any
representations, warranties, data or other information, written or oral, made
or furnished by the Company to us or to you.
(i) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign corporation
and in good standing in each state of the United States of America in which the
nature of its business or its ownership or leasing of property requires such
qualification (except where the failure to be so qualified would not have a
material adverse effect on the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole)
and has full corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; all the issued
and outstanding capital stock of each of the subsidiaries of the Company has
been duly authorized and validly issued and is fully paid and nonassessable,
and is owned by the Company free and clear of all liens, encumbrances and
security interests, and to the best of such counsel's knowledge, other than as
described in the Prospectus, no options, warrants or other rights
A-1
<PAGE> 33
to purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests in
such subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of 5,000,000
shares of Preferred Stock, $0.01 par value, none of which are outstanding, and
10,000,000 shares of Common Stock, $0.01 par value, of which there are
outstanding [ ] shares; all of the outstanding shares of such capital stock
(including the Firm Shares and the Optional Shares issued, if any) have been
duly authorized and validly issued and are fully paid and nonassessable; any
Optional Shares purchased after the Closing Date have been duly authorized and,
when issued and delivered to, and paid for by, the Underwriters as provided in
the Underwriting Agreement will be validly issued and fully paid and
nonassessable; and no preemptive rights of, or rights of refusal in favor of,
stockholders exist with respect to the Shares, or the issue and sale thereof,
pursuant to the Certificate of Incorporation or Bylaws of the Company or any
other instrument and, to the knowledge of such counsel, there are no
contractual preemptive rights that have not been waived, rights of first
refusal or rights of co-sale which exist with respect to the issue and sale of
the Shares by the Company;
(iii) the Registration Statement has become effective under the Securities
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act, and with the
rules and regulations of the Commission thereunder;
(v) such counsel have no reason to believe that the Registration Statement
(except as to the financial statements and schedules and other financial and
statistical data contained therein, as to which such counsel need not express
any opinion or belief) at the Effective Date contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial and statistical data contained therein, as to which such counsel need
not express any opinion or belief) as of its date or at the Closing Date (or
any later date on which Optional Shares are purchased), contained or contains
any untrue statement of a material fact or omitted or omits to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
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<PAGE> 34
(vi) the information set forth in the Registration Statement in answer to
Items 9 (Legal Proceedings), 10 (Interests of Named Experts and Counsel)
(insofar as it relates to such counsel), 12 (Description of Securities) and 19
(Certain Relationships and Related Transactions) of Form SB-2 and under the
captions "Business--Government Regulation" and "Risk Factors--Government
Regulation" and all summaries of contracts and other documents in the
Prospectus are, to such counsel's knowledge, accurately and adequately set
forth therein in all material respects or, with respect to Items 9, 10, 12, and
19 above, if no information is provided, no response is required with respect
to such Items, and the description of the Company's stock option plan and the
options granted and which may be granted thereunder in the Prospectus
accurately and fairly presents the information required to be shown with
respect to said plan and options to the extent required by the Securities Act
and the rules and regulations of the Commission thereunder;
(vii) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(viii) all issuances and repurchases or redemptions by the Company and any
of its subsidiaries of any of their respective securities have been effected in
compliance with all federal and state securities laws;
(ix) the Underwriting Agreement and the Warrant Agreement have been duly
authorized, executed and delivered by the Company;
(x) the Company has the requisite corporate power and authority to enter
into the Underwriting Agreement and the Warrant Agreement and to sell and
deliver the Shares and the Warrants to be sold by it to the several
Underwriters;
(xi) the issue and sale by the Company of the Shares and the Warrants sold
by the Company as contemplated by the Underwriting Agreement and the Warrant
Agreement will not conflict with, or result in a breach of, or constitute a
default under the Certificate of Incorporation or Bylaws of the Company or any
of its subsidiaries or any agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a party or by which any of its
properties may be bound or any applicable law or regulation, or so far as is
known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(xii) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
A-3
<PAGE> 35
(xiii) good title to the Shares under the Underwriting Agreement, free and
clear of all liens, encumbrances, equities, security interests and claims, has
been transferred to the Underwriters who have severally purchased such Shares
under the Underwriting Agreement, assuming for the purpose of this opinion that
the Underwriters purchased the same in good faith without notice of any adverse
claims;
(xiv) good title to the Warrants under the Warrant Agreement, free and
clear of all liens, encumbrances, equities, security interests and claims, has
been transferred to the Representative who has purchased such Warrants under
the Warrant Agreement, assuming for the purpose of this opinion that the
Representative purchased the same in good faith without notice of any adverse
claims;
(xv) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as have
been obtained under the Securities Act and such as may be required under state
securities or blue sky laws in connection with the purchase and distribution of
the Shares by the Underwriters and the clearance of the offering with the NASD
and the [Nasdaq SmallCap Market];
(xvi) the Shares issued and sold by the Company and the Warrant Shares
will be duly authorized for quotation by the [Nasdaq SmallCap Market] upon
official notice of issuance;
(xvii) the Warrants conform to the description thereof in the Prospectus
(it being understood that with respect to the fair presentation of such
description and whether it is an accurate summary such counsel's opinion is
limited to that set forth in clause (vi) above) and have been duly authorized
and validly issued and are valid and binding obligations of the Company
entitled to all the benefits of the Warrant Agreement and are enforceable
against the Company (except (1) as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent
conveyance, or other similar laws now or hereinafter in effect relating to or
affecting creditors', debtors' and shareholders' rights generally and by
general principles of equity, (2) that the remedies of specific performance and
injunctive and other forms of relief are subject to general equitable
principles, whether such enforcement is sought at law or in equity, and such
enforcement may be subject to the discretion of the court before which any
proceedings therefor may be brought and (3) as rights to indemnity and
contribution may be limited by state or federal laws or by policies underlying
such laws). The Warrant Shares have been duly authorized and reserved for
issuance upon exercise of the Warrants and, when issued upon such exercise in
accordance with the terms of Warrants and the Warrant Agreement, will be duly
and validly issued, fully paid and nonassessable, free of preemptive rights and
will conform to the description thereof in the Prospectus;
(xviii) Except as specifically disclosed in the Prospectus: the Company
and its subsidiaries have sufficient trademarks, trade names, patent rights,
copyrights, trade secret protections, licenses, approvals and governmental
authorizations to conduct their
A-4
<PAGE> 36
businesses as now conducted; such counsel has no knowledge of any infringement
or of facts that suggest any infringement by the Company or its subsidiaries of
any trademark, trade name, patent, copyright, license, trade secret or other
similar rights of others; and such counsel has no knowledge of any claims that
have been made or are threatened regarding infringement by the Company or its
subsidiaries of any trademark, trade name, patent, copyright, license, trade
secret or other similar rights of others.
(xix) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits, investigations or other proceedings (formal or
informal) pending or, to our knowledge, threatened to which the Company or any
of its subsidiaries is or is threatened to be made a party or a subject or of
which property owned or leased by the Company or any of its subsidiaries is or
has been threatened to be made the subject, which actions, suits,
investigations or other proceedings could, individually or in the aggregate,
prevent or materially adversely affect the transactions contemplated by the
Underwriting Agreement or the Warrant Agreement or result in a material adverse
change in the business, properties, condition (financial or otherwise), or
results of operations of the Company and its subsidiaries, taken as a whole;
there are no outstanding claims, asserted or otherwise, against the Company,
any of its subsidiaries, or to our knowledge, any of their respective officers
or directors, for violations of any federal or state securities laws, or any
other applicable laws, relating to any purchase, sale, or redemption of, or
other transaction with respect to, the Common Stock or shares of capital stock
of any of the Company's subsidiaries; and to our knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists
or is imminent which could materially adversely affect the business,
properties, condition (financial or otherwise), or results of operations of the
Company or its subsidiaries, taken as a whole. Neither the Company nor any of
its subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body. To our knowledge, except as
disclosed in the Prospectus, there are no material legal or governmental
actions, suits, investigations or proceedings pending or threatened against any
executive officers or directors of the Company.
(xx) Except as disclosed in the Prospectus, neither the Company nor any of
its subsidiaries is in violation or or in default in the performance of any
obligation under any permits or authorizations granted by the U.S. Food and
Drug Administration, or any comparable state, local or foreign governmental
agency, to the Company. The Company is in compliance in all material respects
with the Food Drug and Cosmetic Act ("FDCA"), all applicable regulations
thereunder, including, without limitation, all applicable requirements under
the FDCA pertaining to the export of medical devices, and any comparable state,
local or foreign laws or regulations.
We express no opinion as to the laws of any state or other jurisdiction
other than as to the substantive laws of the State of Wisconsin, the General
Corporation Law of the State of Wisconsin and the federal law of the United
States, and foreign laws with respect
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<PAGE> 37
to the manufacture and sale of medical devices without giving effect to
principles relating to conflicts of law.
This opinion is rendered to you in connection with the above-described
transactions and is for your exclusive benefit. This opinion may not be relied
upon by you for any other purpose, or relied upon or furnished to any other
person, firm or corporation without our prior written consent.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States upon opinions of local counsel
satisfactory in form and scope to counsel for the Underwriters. Copies of any
opinions so relied upon shall be delivered to the Representative and to counsel
for the Underwriters and the foregoing opinion shall also state that counsel
knows of no reason the Underwriters are not entitled to rely upon the opinions
of such local counsel.
A-6
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
MERGE TECHNOLOGIES INCORPORATED
The following Restated Articles of Incorporation, duly adopted pursuant
to the authority and provisions of the Wisconsin Business Corporation Law,
supersede and take the place of the existing Articles of Incorporation and
amendments thereto:
ARTICLE I
The name of the Corporation is MERGE TECHNOLOGIES INCORPORATED.
ARTICLE II
The period of existence shall be perpetual.
ARTICLE III
The purposes shall be to engage in any lawful activity within the
purposes for which Corporations may be organized under the Wisconsin Business
Corporation Law.
ARTICLE IV
The distinguishing designation of each class of shares, the number of
shares of each class which the Corporation shall have authority to issue, the
distinguishing designation of each series within a class, if any, and the par
value are:
<TABLE>
<CAPTION>
Series No. of
Class (If Any) Shares Par Value Per Share
- ----- --------- ------ -------------------
<S> <C> <C> <C>
Common None 10,000,000 $.01
Preferred None 5,000,000 $.01
</TABLE>
ARTICLE V
The preferences, limitations, and relative rights of each class of
shares are:
(a) The Preferred Shares may be issued from time to time in one
or more series. The Board of Directors is hereby authorized, by filing
Articles of Amendment to the Corporation's Articles of Incorporation,
without vote of shareholders and in accordance with Section 180.0602 of
the Wisconsin Business Corporation Law, to fix or alter
<PAGE> 2
from time to time, the designation, powers, preferences and
rights of the shares of each such series, and the qualifications,
limitations or restrictions thereof, including without limitation the
dividend rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption (including sinking fund provisions), redemption
price or prices, and the liquidation preferences of any wholly unissued
series of Preferred Shares, and to establish from time to time the
number of shares constituting any such series and the designation
thereof, or any of them (a "Preferred Share Amendment") and to
increase or decrease the number of shares of any series subsequent to
the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of
any series shall be decreased in accordance with the foregoing
sentence, the shares constituting such decrease shall resume the status
that they had prior to the adoption of the Preferred Share Amendment
originally fixing the number of shares of such series. No share or
shares of any class or series of Preferred Shares acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise
shall be re-issued as part of such class or series and the Board of
Directors is authorized to retire any such share or shares. The
retirement of any such share or shares shall not reduce the total
authorized number of Preferred Shares.
The holders of the Preferred Shares of each series shall be
entitled to receive dividends, when and as declared by the Board of
Directors from the funds legally therefor, as they may be entitled to
in accordance with the Preferred Share Amendment adopted by the Board
of Directors providing for the issuance of such series, payable on such
dates as may be fixed in such Amendment. So long as there shall be
outstanding any Preferred Shares of any series entitled to cumulative
dividends pursuant to any such Preferred Share Amendment providing for
the issue of such series, no dividend, whether in cash or property,
shall be paid or declared, nor shall any distribution be made on the
Common Shares nor shall any Common Shares be purchased, redeemed or
otherwise acquired for value by the Corporation if at the time of
making such payment, declaration, distribution, purchase, redemption or
acquisition, the Corporation shall be in default with respect to any
dividend payable on or obligation to maintain a purchase, retirement or
sinking fund with respect to or to redeem shares of Preferred Shares of
any series. The foregoing provisions of this Section (a) shall not,
however, apply to a dividend payable in Common Shares or to the
acquisition of Common Shares in exchange for or through the application
of the
2
<PAGE> 3
proceeds of the sale of Common Shares. Subject to the foregoing
and to any further limitations prescribed in accordance with the
provisions of this Article V, the Board of Directors may declare, out
of any funds legally available therefor, dividends upon the then
outstanding Common Shares and the Preferred Shares of any series shall
not be entitled to participate therein.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the
Preferred Shares of each series shall be entitled to receive, out of
the assets of the Corporation available for distribution to its
shareholders before any distribution of assets shall be made to the
holders of the Common Shares, the amount per share, if any, fixed by
the Board of Directors in the Preferred Share Amendment, plus in each
such case an amount equal to any cumulative dividends thereon to the
date of final distribution to the holders of the Preferred Shares, and
the holders of the Common Shares shall be entitled, to the exclusion of
the holders of the Preferred Shares of any and all series, to
participate ratably in all the assets of the Corporation then remaining
in accordance with their respective rights and preferences. If upon any
liquidation, dissolution or winding up of the Corporation the assets
available for distribution shall be insufficient to pay the holders of
all outstanding Preferred Shares the full amounts to which they shall
be entitled, the holders of Preferred Shares of all series shall
participate ratably in any distribution of assets according to the
respective amounts which would be payable in respect of the Preferred
Shares held by them upon such distribution if all amounts payable in
respect of the Preferred Shares of all series were paid in full.
Neither the statutory merger nor consolidation of the Corporation into
or with any other corporation, nor the statutory merger or
consolidation of any other corporation into or with the Corporation,
nor a sale, transfer or lease of all or any part of the assets of the
Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the corporation within the meaning of this Section.
(c) The Corporation, at the option of the Board of Directors,
may redeem the whole or any part of the Preferred Shares of any series
at the price or prices and on the terms and conditions provided in the
Preferred Share Amendment adopted by the Board of Directors providing
for the issue of such series.
(d) Anything herein or in any Preferred Share Amendment adopted
by the Board of Directors providing for
3
<PAGE> 4
the issue of any series of Preferred Shares contained to the
contrary notwithstanding, the rights of the holders of all classes of
shares of the Corporation in respect of dividends and purchase,
retirement or sinking funds, if any, shall at all times be subject to
the power of the Board of Directors from time to time to set aside such
reserves and to make such other provisions, if any, as the Board of
Directors shall deem to be necessary or advisable for working capital,
for expansion of the Corporation's business (including the acquisition
of real and personal property for the purpose) and for any other
purpose of the Corporation.
(e) Except as otherwise provided by the statutes of the State
of Wisconsin or by the Preferred Share Amendment adopted by the Board
of Directors providing for the issue of any series of Preferred Shares,
the holders of the Preferred Shares shall have no right to vote. The
holders of the Preferred Shares shall not be entitled to receive notice
of any meeting of shareholders at which they are not entitled to vote
or consent.
(f) Except as otherwise provided by the statutes of the State
of Wisconsin or by the Preferred Shares Amendment adopted by the Board
of Directors providing for the issue of any series of Preferred Shares,
the vote of the holders of all or any portion of the Preferred Shares,
as a class, shall not be required for any action whatsoever to be taken
or authorized by the shareholders of the Corporation, including any
amendment of the Articles of Incorporation.
ARTICLE VI
No holder of any of the shares of this Corporation shall be
entitled, as of right, to purchase or subscribe for any unissued stock
of any class, or any additional shares of any class to be issued by
reason of any increase of the authorized shares of the Corporation of
any class, or bonds, certificates of indebtedness, debentures or other
securities convertible into shares of the Corporation, or carrying any
right to purchase any stock of any class and any unissued shares, or
such additional authorized issue of any shares or other securities
convertible into shares or carrying any rights to purchase such shares
may be issued and disposed of, pursuant to resolutions of the Board of
Directors, to such persons, firms, corporations or associations and
upon such other terms as may be deemed advisable by the Board of
Directors in the exercise of its discretion.
4
<PAGE> 5
ARTICLE VII
The address of the registered office is 1126 South 70th Street, Milwaukee,
Wisconsin, 53214.
ARTICLE VIII
The name of the registered agent is WILLIAM C. MORTIMORE.
ARTICLE IX
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal the By-Laws of the Corporation.
The undersigned officers of MERGE TECHNOLOGIES INCORPORATED certify that
the foregoing Restatement of the Articles of Incorporation of said Corporation
was adopted by the shareholders on the 11th day of July, 1996 by the following
vote,pursuant to section 180:1003:
No. of Shares VOTE ON ADOPTION
No. of Shares Entitled No. of Affirma- No. of Affirma-
Class Outstanding to Vote tive Votes Cast tive Required
- ------ ------------- ------------- --------------- --------------
Common 551,423 487,975 381,154 325,317
Executed in duplicate and sealed (if any affixed) this 9th day of July,
1996.
/s/William Mortimore /s/Colleen Doan
- -------------------- -------------------------------
President Assistant Secretary
THIS DOCUMENT WAS DRAFTED BY:
Melvin S. Newman, Esquire
Schoenberg, Fisher & Newman, Ltd.
222 South Riverside Plaza
Suite 2100
Chicago, Illinois 60606
(312) 648-2300
5
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF MERGE TECHNOLOGIES INCORPORATED
(as of July 31, 1997)
ARTICLE I
OFFICES
The principal office of the corporation in the State of Wisconsin shall
be located in the City of Milwaukee, County of Milwaukee. The corporation may
have such other offices, either within or without the State of Wisconsin, as
the Board of Directors may designate or as the business of the corporation may
require from time to time.
The registered office of the corporation required by the Wisconsin
Business Corporation Law to be maintained in the State of Wisconsin may be, but
need not be, identical with the principal office in the State of Wisconsin, and
the address of the registered office may be changed from time to time by the
Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 1 -- Annual Meeting.
The annual meeting of the shareholders for the election of directors and
for the transaction of such other business as may properly be brought before
the meeting shall be held at such time as is specified in the notice of the
meeting on either the first Friday in March of each year or on such other date
as may be fixed by the Board of Directors of the corporation prior to the
giving of the notice of the meeting. The Board of Directors acting by
resolution may postpone or reschedule any annual meeting of shareholders.
Section 2 -- Special Meetings.
Special meetings of the shareholders for any purpose or purposes shall
be called to be held at any time upon the request of the President, a majority
of the members of the Board of Directors or of the Executive Committee then in
office or upon the written request of the holders of not less than ten (10%)
percent of all outstanding shares of the corporation. Business transacted at
all special meetings shall be confined to the specific purpose
<PAGE> 2
or purposes of the persons authorized to request such special meeting as set
forth in this Section 2 and only such purpose or purposes will be set forth in
the notice of the meeting. The Board of Directors acting by resolution may
postpone or reschedule any previously scheduled special meeting of
shareholders.
Section 3 -- Place of Meeting.
All meetings of the shareholders shall be held at such place within or
without the state of Wisconsin as shall be fixed by the Board of Directors from
time to time.
Section 4 -- Notice of Meeting.
Written notice stating the place, day and hour of the meeting and, the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten nor more than ninety days before the date of the meeting, either
personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each shareholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, addressed to
the shareholder at his address as it appears on the stock record books of the
corporation, with postage thereon prepaid.
Section 5 -- Closing of Transfer Books or Fixing of Record Date.
The Board of Directors may fix a future date as the record date for one
or more voting groups in order to determine the shareholders entitled to notice
of a shareholders meeting, to demand a special meeting, or to vote or to take
any other action. The record date may not be more than seventy days nor less
than fifteen days before the meeting or action requiring a determination of
shareholders. Except as otherwise provided by these By-Laws, a determination of
shareholders entitled to notice of or to vote at a shareholders meeting is
effective for any adjournment of the meeting unless the Board of Directors
fixes a new record date, which it shall do if the meeting is adjourned to a
date more than one hundred twenty days after the date fixed for the original
meeting. The Board of Directors may from time to time fix in advance a date,
not more than seventy days prior to the date for the payment of any dividend,
or the date for the allotment of any rights, or the date when any change or
conversion or exchange of shares shall become effective, as a record for the
determination of the shareholders entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion, or exchange of shares, and only such
shareholders as shall be shareholders of record on the date so fixed shall be
entitled to receive payment of such dividend, or to receive such allotment of
rights, or to
2
<PAGE> 3
exercise such rights, notwithstanding any transfer of any shares on the books
of the corporation after any such record date so fixed.
Section 6 -- Shareholders' List For Meeting.
After fixing a record date for a meeting, the corporation shall prepare
a list of the names of all its shareholders who are entitled to notice of a
shareholders meeting. The list shall be arranged by class or series of shares
and show the address of and number of shares held by each shareholder.
The corporation shall make the shareholders' list available for
inspection by shareholders, beginning two business days after notice of the
meeting is given for which the list was prepared and continuing to the date of
the meeting, at the corporation's principal office or at a place identified in
the meeting notice in the city where the meeting will be held. A shareholder or
his or her agent or attorney may, on written demand, inspect the list, and
during regular business hours and at his or her expense, during the period that
it is available for inspection under this section copy such list, provided,
however, that the shareholder's demand to copy such list is made in good faith
and for a proper purpose, that the shareholder describes with reasonable
particularity his or her purpose and that the shareholders' list that he or she
desires to copy is directly connected with his or her purpose.
The corporation will make the shareholders' list available at the
meeting, and any shareholder or his or her agent or attorney may inspect the
list at any time during the meeting or any adjournment.
Section 7 -- Quorum.
A majority of the outstanding shares of the corporation entitled to
vote at the meeting, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. Though less than a quorum of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified.
Section 8 -- Proxies.
At all meetings of shareholders, a shareholder entitled to vote may
vote by proxy appointed in writing by the shareholder or by his duly authorized
attorney in fact. Such proxy shall be filed with the Secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from
3
<PAGE> 4
the date of its execution, unless otherwise provided in the proxy. Each proxy
shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law.
Section 9 -- Voting of Shares.
Each outstanding share shall be entitled to one vote on each matter
submitted to a vote at the meeting of shareholders, except to the extent that
the voting rights of the shares of any class are limited or denied in the
Articles of Incorporation. At each election for Directors, every shareholder
entitled to vote at such election shall have the right to vote, in person or by
proxy, the number of shares owned by him for as many persons as there are
Directors to be elected and for whose election he has a right to vote, but
without the right to cumulate votes. Except with respect to the election of
Directors, and unless required by statute or determined by the chairman of the
meeting to be advisable, the vote on any question need not be by ballot. If a
quorum is present at any meeting of shareholders, the vote of the holders of a
majority of the shares cast by the holders of shares entitled to vote on the
matter shall be sufficient for the transaction of any business, except that
directors shall be elected by a plurality of shares cast by the holders of
shares entitled to vote in the election.
Section 10 -- Voting Company's Shares.
Shares of the corporation belonging to it shall not be voted directly
or indirectly at any meeting and shall not be counted in determining the total
number of outstanding shares at any given time, but shares held by this
corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
Section 11 -- Shares in Other Corporation's Name.
Shares standing in the name of another corporation may be voted either
in person or by proxy, by the president of such corporation or any other
officer appointed by such president. A proxy executed by any principal officer
of such other corporation or assistant thereto shall be conclusive evidence of
the signer's authority to act, in the absence of express notice to this
corporation, given in writing to the secretary of this corporation, of the
designation of some other person by the board of directors or the by-laws of
such other corporation.
Section 12 -- Order of Business.
The order of business of each meeting of the shareholders of the
corporation shall be determined by the chairman of the meeting. The chairman of
the meeting shall have the right and authority to proscribe such rules,
regulations and procedures and do all acts and things as are necessary or
desirable for the
4
<PAGE> 5
conduct of the meeting, including without limitation, the establishment of
procedures for the dismissal of business not properly presented, the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the corporation, restrictions on entry to such
meetings after the time prescribed for commencement thereof and opening and
closing of the voting polls.
ARTICLE III
BOARD OF DIRECTORS
Section 1 -- General Powers.
The business and affairs of the corporation shall be managed by and
under the direction of its Board of Directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these By-Laws directed or
required to be exercised and done by the shareholders.
Section 2 -- Number, Tenure and Qualifications.
The number of directors of the corporation shall be five (5). Each
director shall hold office until the next annual meeting of shareholders and
until his successor shall have been elected and qualified. Directors need not
be residents of the State of Wisconsin or shareholders of the corporation.
Section 3 -- Annual Meetings.
Annual meetings of the Board of Directors shall be held without further
notice other than this By-Law immediately after and at the same place, as the
annual meeting of shareholders, and each adjourned session thereof. The
President of the corporation may, upon not less than five (5) days written
notice to all members of the Board of Directors, provide for a variance in the
time, date or location of any such meeting.
Section 4 -- Special Meetings.
Special meetings of the Board of Directors may be called by or at the
request of the President, Secretary or any two directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any
place, either within or without the State of Wisconsin, as the place for
holding any special meeting of the Board of Directors called by them.
<PAGE> 6
Section 5 -- Notice.
Notice of any special meeting shall be given at least 48 hours
previously thereto by written notice delivered personally or mailed to each
director at his business address, or by telegram. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company. Whenever any notice whatever is required to be given to any
director of the corporation under the provisions of these by-laws or under the
provisions of the articles of incorporation or under the provisions of any
statute, a waiver thereof in writing, signed at any time, whether before or
after the time of meeting, by the director entitled to such notice, shall be
deemed equivalent to the giving of such notice. The attendance of a director at
a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting and objects thereat to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 6 -- Quorum.
A majority of the number of directors fixed by Section 2 of this
Article III shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but though less than such quorum is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 7 -- Resignation and Removal.
Any director may resign at any time upon giving written notice to the
corporation. Any director may be removed from office by the affirmative vote of
a majority of the shares outstanding entitled to vote for the election of such
director taken at a special meeting of shareholders called for that purpose.
Section 8 -- Vacancies.
The Board of Directors may fill any vacancy (occurring by resignation,
removal or otherwise) in the board happening after any regular annual election
or any vacancy created by an increase in the authorized number of directors
until the next succeeding election, by the affirmative vote of a majority of
the directors then in office, although less than a quorum.
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<PAGE> 7
Section 9 -- Compensation.
The Board of Directors, by affirmative vote of a majority of the
directors then in office, and irrespective of any personal interest of any of
its members may establish reasonable compensation of all directors for services
to the corporation as directors, officers or otherwise, or may delegate such
authority to an appropriate committee.
Section 10 -- Presumption of Assent.
A director of the corporation who is present at a meeting of the Board
of Directors or a committee thereof at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 11 -- Committees.
The Board of Directors by resolution adopted by the affirmative vote of
a majority of the number of directors fixed by Section 2 of this Article III
may designate an Executive Committee, a Stock Option Committee, and one or more
other committees, each committee to consist of two or more directors elected by
the Board of Directors. The Board of Directors may elect one or more of its
members as alternate members of any such committee who may take the place of
any absent member or members at any meeting of such committee, upon request by
the President or upon request by the chairman of such meeting. Each such
committee shall fix its own rules governing the conduct of its activities and
shall make such reports to the Board of Directors of its activities as the
Board of Directors may request.
Any Executive Committee which to the extent provided in said
resolution, as initially adopted, and as thereafter supplemented or amended by
further resolution adopted by a like vote, shall have and may exercise, when
the Board of Directors is not in session, the powers of the Board of Directors
in the management of the business and affairs of the corporation, except as
otherwise limited by law.
7
<PAGE> 8
ARTICLE IV
OFFICERS
Section 1 -- Number.
The principal officers of the corporation shall be a President,
Vice-Presidents, a Secretary, and a Treasurer, each of whom shall be elected by
the Board of Directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the Board of Directors. Any two
or more offices may be held by the same person, except the offices of President
and Secretary and the offices of President and Vice President.
Section 2 -- Election and Term of Office.
The officers of the corporation to be elected by the Board of Directors
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified or
until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
Section 3 -- Removal.
Any officer or agent elected or appointed by the Board of Directors may
be removed by the Board of Directors whenever in its judgment the best
interests of the corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment shall not of itself create contract rights.
Section 4 -- Vacancies.
A vacancy in any principal office because of death, resignation,
removal, disqualification or otherwise, shall be filled by the Board of
Directors for the unexpired portion of the term.
Section 5 -- President.
The President shall be the principal executive officer of the
corporation and, subject to the control of the Board of Directors, shall in
general supervise and control all of the business and affairs of the
corporation. He may sign, with the Secretary or any other proper officer of the
corporation hereunto authorized by the Board of Directors, certificates for
shares of the corporation, any deeds, mortgages, bonds, contracts, or other
8
<PAGE> 9
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated
by the Board of Directors or by these by-laws to some other officer or agent of
the corporation, or shall be required by law to be otherwise signed or
executed; and in general shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
from time to time.
Section 6 -- The Vice-Presidents.
In the absence of the President or in the event of his death,
inability or refusal to act, the Vice-President (or in the event there be more
than one Vice-President, the Vice-Presidents in the order designated at the
time of their election, or in the absence of any designation, then in the order
of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the President. Any Vice-President may sign, with the Secretary or an
Assistant Secretary certificates for shares of the corporation; and shall
perform such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
Section 7 -- The Secretary.
The Secretary shall: (a) keep the minutes of the shareholders' and of
the Board of Directors' meetings in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these by-laws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents the execution of which on behalf
of the corporation under its seal is duly authorized; (d) keep a register of
the postoffice address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the President, or a
Vice-President, certificates for shares of the corporation, the issuance of
which shall have been authorized by resolution of the Board of Directors; (f)
have general charge of the stock transfer books of the corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors.
Section 8 -- The Treasurer.
If required by the Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the Board of Directors shall determine. He shall: (a) have charge
and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
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<PAGE> 10
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of Article V of these
By-Laws; and (b) in general perform all of the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 9 -- Assistant Secretaries and Assistant Treasurers.
The Assistant Secretaries, when authorized by the Board of Directors,
may sign with the President or a Vice-President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the Board of Directors
shall determine. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the
Secretary or the Treasurer, respectively, or by the President or the Board of
Directors.
Section 10 -- Salaries.
The salaries of the officers shall be fixed from time to time by the
Board of Directors and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1 -- Contracts.
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authorization may be general
or confined to specific instances.
Section 2 -- Loans.
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by or
under the authority of a resolution of the Board of Directors. Such
authorization may be general or confined to specific instances.
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<PAGE> 11
Section 3 -- Checks, Drafts, etc.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation, shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall from time to time be determined by or under the authority
of resolution of the Board of Directors.
Section 4 -- Deposits.
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as may be selected by or under the authority of
the Board of Directors.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1 -- Certificates for Shares.
The corporation shall deliver certificates representing all shares to
which shareholders are entitled. Such certificates shall be numbered and shall
be entered on the books of the corporation as they are issued and shall be
signed by the President or Vice President and the Secretary or an Assistant
Secretary of the corporation, and may be sealed with the seal of the
corporation or a facsimile thereof. The signatures of the President or Vice
President, Secretary or Assistant Secretary may be facsimiles, if the
certificate is countersigned by a transfer agent or registered by a registrar,
either of which is other than the corporation itself or an employee of the
corporation. In case any officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer at the date of its issuance. There shall
be set forth upon the face or back of the certificate a statement that the
corporation will furnish to any stockholder upon request and without charge, a
summary of the designations, preferences, limitations and relative rights
applicable to each class and, if the corporation is authorized to issue any
series, the variations in rights, preferences and limitations between the
shares of each such series so far as the same have been fixed and determined
and the authority of the Board of Directors to fix and determine the relative
rights and preferences of subsequent series. Each certificate representing
shares shall state upon the face thereof that the corporation is organized
under the laws of the State of Wisconsin, the name of the person to whom
issued, the number and class and the designation of the series, if any, which
such certificate represents and the par value of each share
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<PAGE> 12
represented by such certificate or a statement that the shares are
without par value. No certificate shall be issued for any share until the
consideration therefor has been fully paid.
Section 2 -- Transfer Agent.
The corporation may maintain one or more transfer offices or agencies,
each under control of a Transfer Agent, where the shares of the corporation may
be transferable. The corporation may maintain one or more registry offices or
agencies, each under the control of a Registrar, where the shares may be
registered. The board of directors may make such additional rules and
regulations as it may deem expedient concerning the issue, transfer, and
registration of certificates for shares of the corporation.
Section 3 -- Transfer of Shares.
Transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the corporation or with any authorized
Transfer Agent, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
Section 4 -- Lost, Stolen or Destroyed Certificates.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may require the owner of such lost, stolen
or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 5 -- Stock Regulations.
The Board of Directors shall have the power and authority to make all
such further rules and regulations not inconsistent with the statutes of the
State of Wisconsin as they may
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<PAGE> 13
deem expedient concerning the issue, transfer and registration of certificates
representing share of the corporation.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day of
January and end on the 31st day of December in each year.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its articles of incorporation.
ARTICLE IX
SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the words, "corporate Seal, Wisconsin."
ARTICLE X
INDEMNIFICATION
The corporation shall indemnify each officer and director of the
corporation to the full extent provided by applicable law and, in addition, in
accordance with any other rights such persons may have under a resolution of
the shareholders of the corporation, a resolution of its Board of Directors or
under the corporation's Articles of Incorporation, as amended and restated from
time to time, or pursuant to any insurance policy, an agreement or otherwise.
Any person entitled to indemnification or to the reimbursement or advancement
of expenses hereunder may elect, to the extent permitted by law, to have the
right of indemnification (or reimbursement or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of the
occurrence of the event or events giving rise to the action, suit or proceeding
or on the basis of the applicable law in effect as of the date these Amended
and Restated By-Laws are adopted.
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<PAGE> 14
ARTICLE XI
AMENDMENTS
Section 1 -- Board of Directors.
The Board of Directors may from time to time, by vote of a majority of
its members, adopt, amend or repeal any and all of the By-Laws of this
corporation except such By-Laws as may have been adopted by the subscribers or
Shareholders of the corporation.
Section 2 -- Shareholders.
The Shareholders may from time to time, by vote of a majority, adopt,
amend or repeal any and all of the By-Laws of the corporation.
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<PAGE> 1
EXHIBIT 4.1
STOCK PURCHASE WARRANT
----------------------
This Warrant is issued this 30th day of June, 1997, by MERGE
TECHNOLOGIES INCORPORATED, a Wisconsin corporation (the "Company"), to SIRROM
CAPITAL CORPORATION, a Tennessee corporation (SIRROM CAPITAL CORPORATION and
any subsequent assignee or transferee hereof are hereinafter referred to
collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. For and in consideration of SIRROM
CAPITAL CORPORATION making a loan to the Company in the amount of Two Million
and no/l00ths Dollars $2,000,000) pursuant to the terms of a secured
promissory note of even date herewith (the "Note") and related loan agreement
of even date herewith (the "Loan Agreement"), and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Company hereby grants to Holder the right to purchase 21,449 shares of the
Company's common stock (the "Common Stock"), which the Company represents to
equal 3.25% the shares of capital stock outstanding on the date hereof,
calculated on a fully diluted basis and assuming exercise of this Warrant
("Base Amount"), provided that in the event that any portion of the indebtedness
evidenced by the Note is outstanding on the following dates, the Base Amount
shall be increased to the corresponding number set forth below:
<TABLE>
<CAPTION>
DATE BASE AMOUNT
----------------- -----------------------------------------
<S> <C>
June 30, 2000 30,087 shares, which the Company
represents to equal 4.5% of the shares of
the Company's capital stock outstanding on
the date hereof calculated on a fully diluted
basis after exercise of this Warrant
June 30, 2001 38,955 shares, which the Company
represents to equal 5.75% of the shares of
the Company's capital stock outstanding on
the date hereof calculated on a fully diluted
basis after exercise of this Warrant
June 30, 2002 48,061 shares, which the Company
represents to equal 7% of the shares of
the Company's capital stock outstanding on
the date hereof calculated on a fully diluted
basis after exercise of this Warrant
</TABLE>
For purposes of the foregoing paragraph, "shares outstanding on a fully
diluted basis" constitutes a total of 638,528 shares (i.e. 576,327 outstanding
shares and 62,201 shares issuable pursuant to vested
<PAGE> 2
options) shall not include employee stock options outstanding on the date
hereof in favor of current or former employees of the Company that are not
vested on the date hereof or that expire on or before June 30, 1997. The
shares of Common Stock issuable upon exercise of this Warrant are hereinafter
referred to as the "Shares." This Warrant shall be exercisable at any time and
from time to time from the date hereof until July , 2002, and if not exercised
or "put" back to the Company pursuant to Section 9 hereof by such date, it
shall be deemed to have expired, and thereafter shall be null and void in all
respects.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per
share for which all or any of the Shares may be purchased pursuant to the
terms of this Warrant shall be One Cent ($.01).
3. Exercise. This Warrant may be exercised by the Holder hereof (but
only on the conditions hereinafter set forth) as to all or any increment
or increments of One Hundred (100) Shares (or the balance of the Shares if
less than such number), upon delivery of written notice of intent to
exercise to the Company at the following address: 1126 South 70th Street,
Suite S-107B, Milwaukee, Wisconsin 53214 or such other address as the
Company shall designate in a written notice to the Holder hereof, together
with this Warrant and payment to the Company of the aggregate Exercise
Price of the Shares so purchased. The Exercise Price shall be payable, at
the option of the Holder, (i) by certified or bank check, (ii) by the
surrender of the Note or portion thereof having an outstanding principal
balance equal to the aggregate Exercise Price or (iii) by the surrender of
a portion of this Warrant where the Shares subject to the portion of this
Warrant that is surrendered have a fair market value equal to the
aggregate Exercise Price. Upon exercise of this Warrant as aforesaid, the
Company shall as promptly as practicable, and in any event within fifteen
(15) days thereafter, execute and deliver to the Holder of this Warrant a
certificate or certificates for the total number of whole Shares for which
this Warrant is being exercised in such names and denominations as are
requested by such Holder. If this Warrant shall be exercised with respect
to less than all of the Shares, the Holder shall be entitled to receive a
new Warrant covering the number of Shares in respect of which this Warrant
shall not have been exercised, which new Warrant shall in all other
respects be identical to this Warrant. The Company covenants and agrees
that it will pay when due any and all state and federal issue taxes which
may be payable in respect of the issuance of this Warrant or the issuance
of any Shares upon exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended ("Securities Act") or
any state securities laws ("Blue Sky Laws"). This Warrant has been
acquired for investment purposes and not with a view to distribution
or resale and may not be sold or otherwise transferred without (i) an
effective registration statement for such Warrant under the
Securities Act and such applicable Blue Sky Laws, or (ii) an opinion
of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not
required under the Securities Act or under any applicable Blue Sky
Laws (the Company hereby acknowledges that Caldwell & Caldwell, P.C.
is acceptable counsel). Transfer of the shares issued upon the
exercise of this Warrant shall be
2
<PAGE> 3
restricted in the same manner and to the same extent as the Warrant and the
certificates representing such Shares shall bear substantially the following
legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNTIL (I)
A REGISTRATION STATEMENT UNDER THE ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (II) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER
SUCH SECURITIES ACTS AND SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect
the compliance of the issuance of this Warrant and any shares of Common
Stock issued upon exercise hereof with applicable federal and state
securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive rights, if
any, with respect thereto or to the issuance thereof. The Company shall at
all times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
(c) The Company covenants and agrees that it shall not sell any shares
of the Company's capital stock at a price per share below the fair market
value of such shares, without the prior written consent of the Holder
hereof. In the absence of an established public market for the shares of
stock sold by the Company, fair market value shall be established by the
Company's board of directors in a commercially reasonable manner. The basis
for determination shall be provided in writing to the Holder hereof. In the
event that the Company sells shares of the Company's capital stock in
violation of this Section 4(C), the number of shares issuable upon exercise
of this Warrant shall be equal to the product obtained by multiplying the
number of shares issuable pursuant to this Warrant prior to such sale by the
quotient obtained by dividing (i) the fair market value of the shares issued
in violation of this Section 4(c) by (ii) the price at which such shares
were sold. Notwithstanding the foregoing, the Company may issue up to
200,000 shares of Common Stock pursuant to the stock option plan in place on
the date hereof; provided that the exercise price per share of such options
is at least the fair market value of a share of Common Stock on the date of
grant and provided further that the Company not grant options to purchase
more than 50,000 shares of Common Stock per year.
3
<PAGE> 4
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof,
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in
the name of the assignee or assignees and in the denominations specified in
such instructions. The Company shall pay all expenses incurred by it in
connection with the preparation, issuance and delivery of Warrants under this
Section.
6. WARRANT HOLDER NOT SHAREHOLDER: RIGHTS OFFERING; PREEMPTIVE RIGHTS.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing, if the Company should offer to all of the
Company's shareholders the right to purchase any securities of the Company,
then all shares of Common Stock that are subject to this Warrant shall be deemed
to be outstanding and owned by the Holder and the Holder shall be entitled to
participate in such rights offering. The Company shall not grant any preemptive
rights with respect to any of its capital stock without the prior written
consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall receive notice
of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity and shall receive a copy of all correspondence and information
delivered to the Company's Board of Directors, from the date hereof until such
time as the indebtedness evidenced by the Note has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised
subsequent to any stock split, stock dividend, recapitalization,
combination of shares of the Company, or other similar event, occurring after
the date hereof, then the Holder exercising this Warrant shall receive, for the
aggregate price paid upon such exercise, the aggregate number and class of
shares which such Holder would have received if this Warrant had been exercised
immediately prior to such stock split, stock dividend, recapitalization,
combination of shares, or other similar event. If any adjustment under this
Section 8(a), would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares subject to this Warrant shall be the next
higher number of shares, rounding all fractions upward. Whenever there shall be
an adjustment pursuant to this Section 8(a), the Company shall forthwith notify
the Holder or Holders of this Warrant of such adjustment, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised
subsequent to any merger, consolidation, exchange of shares, separation,
reorganization or liquidation of the Company, or other similar event, occurring
after the date hereof, as a result of which shares of Common Stock shall be
changed into the same or a different number of shares of the same or another
class or classes of securities of the Company or another entity, or the holders
of Common
4
<PAGE> 5
Stock are entitled to receive cash or other property, then the Holder
exercising this Warrant shall receive, for the aggregate price paid upon such
exercise, the aggregate number and class of shares, cash or other property
which such Holder would have received if this Warrant had been exercised
immediately prior to such merger, consolidation, exchange of shares,
separation, reorganization or liquidation, or other similar event. If any
adjustment under this Section 8(b) would create a fractional share of Common
Stock or a right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares subject to this Warrant
shall be the next higher number of shares, rounding all fractions upward.
Whenever there shall be an adjustment pursuant to this Section 8(b), the
Company shall forthwith notify the Holder or Holders of this Warrant of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
9. PUT AGREEMENT
(a) The Company hereby irrevocably grants and issues to Holder the right
and option to sell to the Company (the "Put") this Warrant for a period of 30
days immediately prior to the expiration thereof, at a purchase price (the
"Purchase Price") equal to the Fair Market Value (as hereinafter defined) of
the shares of Common Stock issuable to Holder upon exercise of this Warrant.
(b) The Company shall pay to the Holder, in cash or certified or cashier's
check, the Purchase Price in exchange for the delivery to the Company of this
Warrant within thirty (30) days of the receipt of (i) written notice, addressed
as set forth in Section 3 hereto, from the Holder of its intention to exercise
the Put, or (ii) determination of the Fair Market Value, whichever is later.
(c) The Fair Market Value of the shares of Common Stock of the Company
issuable pursuant to this Warrant shall be determined as agreed to by the
Company and the Holder, or if they shall fail to agree within five (5) days
following delivery of notice of exercise of the Put, then as follows:
(i) The Company and the Holder shall each appoint an independent,
experienced appraiser who is a member of a recognized professional
association of business appraisers. The two appraisers shall determine the
value of the shares of Common Stock which would be issued upon the exercise
of the Warrant, assuming that the sale would be between a willing buyer and
a willing seller, both of whom have full knowledge of the financial and other
affairs of the Company, and neither of whom is under any compulsion to sell
or to buy. In the event the Common Stock is publicly traded, in valuing the
shares issuable to Holder, the appraisers shall take into account the
liquidity of the public market and the anticipated impact on the value that
could be realized for such shares if they were all offered for sale on the
public market.
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<PAGE> 6
(ii) If the higher of the two appraisals is not more than 10% more than
the lower of the appraisals, the Fair Market Value shall be the average of
the two appraisals. If the higher of the two appraisals is greater than 10%
more than the lower of the two appraisals, then a third appraiser shall be
appointed by the two appraisers, and if they cannot agree on a third
appraiser, the American Arbitration Association shall appoint the third
appraiser. The third appraiser, regardless of who appoints him or her, shall
have the same qualifications as the first two appraisers.
(iii) The Fair Market Value after the appointment of the third
appraiser shall be the mean of the three appraisals.
(iv) The fees and expenses of the appraisers shall be paid one-half by
the Company and one-half by the Holder.
(v) Notwithstanding anything to the contrary contained herein,
should the Company and Holder agree upon a Fair Market Value for the
shares subject to the Put, then such agreed value will apply in lieu of the
appraised value set forth above.
10. REGISTRATION.
(a) The Company and the holders of the Shares agree that if at any time
after the date hereof the Company shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable for a
secondary offering, it will give notice in writing to such effect to the
registered holder(s) of the Shares at least thirty (30) days prior to such
filing, and, at the written request of any such registered holder, made within
ten (10) days after the receipt of such notice, will include therein at the
Company's cost and expense (including the fees and expenses of counsel to such
holder(s) not to exceed in the aggregate 25% of the fees payable to the
Company's counsel for such registration, and, excluding from payment for the
benefit of such holders all underwriting discounts, commissions and filing
fees attributable to the Shares included therein) such of the Shares as such
holder(s) shall request; provided, however, that if the offering being
registered by the Company is underwritten and if the representative of the
underwriters certifies in writing that the inclusion therein of the Shares
would materially and adversely affect the sale of the securities to be sold by
the Company thereunder, then the Company shall be required to include in the
offering only that number of securities, including the Shares, which the
underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among all selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder).
6
<PAGE> 7
(b) Whenever the Company undertakes to effect the registration of any
of the Shares, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement covering such Shares and use
its best efforts to cause such registration statement to be declared
effective by the Commission as expeditiously as possible and to keep such
registration effective until the earlier of (A) the date when all Shares
covered by the registration statement have been sold or (B) two hundred
seventy (270) days from the effective date of the registration statement;
provided, that before filing a registration statement or prospectus or any
amendment or supplements thereto, the Company will furnish to each Holder
of Shares covered by such registration statement and the underwriters, if
any, copies of all such documents proposed to be filed (excluding exhibits,
unless any such person shall specifically request exhibits), which
documents will be subject to the review of such Holders and underwriters,
and the Company will not file such registration statement or any amendment
thereto or any prospectus or any supplement thereto (including any
documents incorporated by reference therein) with the Commission if (A) the
underwriters, if any, shall reasonably object to such filing or (B) if
information in such registration statement or prospectus concerning a
particular selling holder has changed and such holder or the underwriters,
if any, shall reasonably object.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the period
referred to in Section lO(b)(i) and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement, and cause the prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed with
the Commission pursuant to Rule 424 under the Securities Act.
(iii) Furnish to the selling holder(s) such numbers of copies of such
registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus), each supplement thereto and such other documents as they may
reasonably request in order to facilitate the disposition of the Shares
owned by them.
(iv) Use its best efforts to register and qualify under such other
securities laws of such jurisdictions as shall be reasonably requested
by any selling holder and do any and all other acts and things which may be
reasonably necessary or advisable to enable such selling Holder to
consummate the disposition of the Shares owned by such Holder, in such
jurisdictions, provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to qualify to transact
business or to file a general consent to service of process in any such
states or jurisdictions.
7
<PAGE> 8
(v) Promptly notify each selling holder of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any
fact necessary to make the statements therein not misleading and, at the
request of any such Holder, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Shares, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading.
(vi) Provide a transfer agent and registrar for all such Shares not
later than the effective date of such registration statement.
(vii) Enter into such customary agreements (including underwriting
agreements in customary form for a primary offering) and take all such other
actions as the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Shares (including, without limitation,
effecting a stock split or a combination of shares).
(viii) Make available for inspection by any selling holder or any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
selling Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the officers,
directors, employees and independent accountants of the Company to supply
all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement.
(ix) Promptly notify the selling holder(s) and the underwriters, if
any, of the following events and (if requested by any such person) confirm
such notification in writing: (A) the filing of the prospectus or any
prospectus supplement and the registration statement and any amendment or
post-effective amendment thereto and, with respect to the registration
statement or any post-effective amendment thereto, the declaration of the
effectiveness of such documents, (B) any requests by the Commission for
amendments or supplements to the registration statement or the prospectus or
for additional information, (C) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that purpose
and (D) the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any jurisdiction
or the initiation or threat of initiation of any proceeding for such
purposes.
(x) Make every reasonable effort to prevent the entry of any order
suspending the effectiveness of the registration statement and obtain at the
earliest possible moment the withdrawal of any such order, if entered.
8
<PAGE> 9
(xi) Cooperate with the selling holder(s) and the underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing the Shares to be sold and not bearing any restrictive legends,
and enable such Shares to be in such lots and registered in such names as
the underwriters may request at least two (2) business days prior to any
delivery of the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not later than the
effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration statement and any
post-effective amendment thereto and at each closing of an underwritten
offering, (A) make such representations and warranties to the selling
holder(s) and the underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in primary
underwritten offerings; (B) use its best efforts to obtain "cold comfort"
letters and updates thereof from the Company's independent certified public
accountants addressed to the selling holders and the underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in connection
with primary underwritten offerings; (C) deliver such documents and
certificates as may be reasonably requested (1) by the holders of a majority
of the Shares being sold, and (2) by the underwriters, if any, to evidence
compliance with clause (A) above and with any customary conditions contained
in the underwriting agreement or other agreement entered into by the
Company; and (D) obtain opinions of counsel to the Company and updates
thereof (which counsel and which opinions shall be reasonably satisfactory
to the underwriters, if any), covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by the selling Holders and underwriters or their
counsel. Such counsel shall also state that no facts have come to the
attention of such counsel which cause them to believe that such registration
statement, the prospectus contained therein, or any amendment or supplement
thereto, as of their respective effective or issue dates, contains any
untrue statement of any material fact or omits to state any material fact
necessary to make the statements therein not misleading (except that no
statement need be made with respect to any financial statements, notes
thereto or other financial data or other expertized material contained
therein). If for any reason the Company's counsel is unable to give such
opinion, the Company shall so notify the holders of the Shares and shall use
its best efforts to remove expeditiously all impediments to the rendering of
such opinion.
(xiv) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to
its security holders earnings statements satisfying the provisions of
Section 11 (a) of the Securities Act, no later than forty-five (45) days
after the end of any twelve-month period (or ninety (90) days, if such
period is a fiscal year) (A) commencing at the end of any fiscal quarter in
which the Shares are sold to underwriters in a firm or best efforts
underwritten offering, or (B) if not sold to underwriters in such an
offering, beginning with the first month of
9
<PAGE> 10
the first fiscal quarter of the Company commencing after the
effective date of the registration statement, which statements
shall cover such twelve-month periods.
(c) After date hereof, the Company shall not grant to any holder of
securities of the Company any registration rights which have a priority greater
than or equal to those granted to Holders pursuant to this Warrant without the
prior written consent of the Holder(s).
(d) The Company's obligations under Section l0(a) above with respect to
each holder of Shares are expressly conditioned upon such holder's furnishing
to the Company in writing such information concerning such holder and the
terms of such holder's proposed offering as the Company shall reasonably
request for inclusion in the registration statement. If any registration
statement including any of the Shares is filed, then the Company shall
indemnify each holder thereof (and each underwriter for such holder and each
person, if any, who controls such underwriter within the meaning of the
Securities Act) from any loss, claim, damage or liability arising out of, based
upon or in any way relating to any untrue statement of a material fact
contained in such registration statement or any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except for any such statement or omission based on
information furnished in writing by such holder of the Shares expressly for use
in connection with such registration statement; and such holder shall indemnify
the Company (and each of its officers and directors who has signed such
registration statement, each director, each person, if any, who controls the
Company within the meaning of the Securities Act, each underwriter for the
Company and each person, if any, who controls such underwriter within the
meaning of the Securities Act) and each other such holder against any loss,
claim, damage or liability arising from any such statement or omission which
was made in reliance upon information furnished in writing to the Company by
such holder of the Shares expressly for use in connection with such
registration statement.
(e) For purposes of this Section l0, all of the Shares shall be deemed
to be issued and outstanding.
11. CERTAIN NOTICES. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or make
any special dividend or other distribution to the holders of its Common Stock;
(c) offer for subscription to the holders of any of its Common Stock any
additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell of all or substantially
all of its assets to, another corporation;
10
<PAGE> 11
(e) voluntarily or involuntarily dissolve, liquidate or wind up of the
affairs of the Company; or
(f) redeem or purchase any shares of its capital stock or securities
convertible into its capital stock;
then, in any one or more of said cases, the Company shall give to the
Holder of the Warrant, by certified or registered mail, (i) at least twenty
(20) days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, and (ii) in the case of such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least twenty (20) days' prior written notice of the date when
the same shall take place. Any notice required by clause (i) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto, and
any notice required by clause (ii) shall specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the
case may be.
12. Rights of Co-Sale.
(a) Co-Sale Right. None of William Mortimore nor Robert Geras ("Management
Shareholders") shall enter into any transaction that would result in the sale
by it of any Common Stock now or hereafter owned by him, unless prior to such
sale such Management Shareholder shall give notice to holder of his intention
to effect such sale in order that holder may exercise its rights under this
Section 12 as hereinafter described. Such notice shall set forth (i) the
number of shares to be sold by such Management Shareholder, (ii) the principal
terms of the sale, including the price at which the shares are intended to be
sold, and (iii) an offer by such Management Shareholder to use his best
efforts to cause to be included with the shares to be sold by it in the sale,
on a pro rata basis and on the same terms and conditions, the Shares issuable
or issued to holder pursuant to this Warrant.
(b) Rejection of Co-Sale Offer. If holder has not accepted such offer in
writing within a period of ten (10) days from the date of receipt of the
notice, then such Management Shareholder shall thereafter be free for a period
of ninety (90) days to sell the number of shares specified in such notice, at
a price no greater than the price set forth in such notice and on otherwise no
more favorable terms to such Management Shareholder than as set forth in such
notice, without any further obligation to Holder in connection with such sale.
In the event that such Management Shareholder fails to consummate such sale
within such ninety-day period, the shares specified in such notice shall
continue to be subject to this Section.
(c) Acceptance of Co-Sale Offer. If Holder accepts such offer in writing
within ten (10) day period, such acceptance shall be irrevocable unless such
Management Shareholder
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<PAGE> 12
shall be unable to cause to be included in his sale the number of Shares
of stock held by Holder and set forth in the written acceptance. In that event,
such Management Shareholder and Holder shall participate in the sale pro rata,
with such Management Shareholder and Holder each selling that percentage of the
shares offered for sale which is equal to their respective percentages of
shares of Common Stock owned by them compared to the sum of Holder's Common
Stock plus the selling Management Shareholder's Common Stock.
13. ARTICLE AND SECTION HEADINGS. Numbered and titled article and section
headings are for convenience only and shall not be construed as amplifying or
limiting any of the provisions of this Warrant.
14. NOTICE. Any and all notices, elections or demands permitted or
required to be made under this Warrant shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or two (2) business days after the date of mailing (or the
next business day after delivery to such courier service), as the case may be,
shall be the date of such notice, election or demand. For the purposes of this
Warrant:
<TABLE>
<S> <C>
The Address of Holder is: Sirrom Capital Corporation
500 Church Street, Suite 200
Nashville, TN 37219
Attention: John Dyslin
Telecopy No. 615/726- 120S
with a copy to: Caldwell & Caldwell
500 Church Street, Suite 200
Nashville, TN 37219
Attention: Maria-Lisa Caldwell, Esq.
Telecopy No. 615/256-9958
The Address of Company is: Merge Technologies Incorporated
1126 South 70th Street
Suite S-107B
Milwaukee, W1 53214
Attention: William Mortimore
with a copy to: Shefsky & Froelich, Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attention: Mitch Goldsmith
</TABLE>
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<PAGE> 13
15. SEVERABILITY. If any provisions(s) of this Warrant or the application
thereof to any person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
16. ENTIRE AGREEMENT. This Warrant between the Company and Holder
represents the entire agreement between the parties concerning the subject
matter hereof, and all oral discussions and prior agreement are merged herein.
17. GOVERNING LAW AND AMENDMENTS. This Warrant shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts
to be wholly performed in such State. No amendment or modification hereof shall
be effective except in a writing executed by each of the parties hereto.
18. COUNTERPARTS. This Warrant may be executed in any number of
counterparts and be different parties to this Warrant in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Warrant.
19. JURISDICTION AND VENUE. The Company hereby consents to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising out of any of
its obligations arising under this Agreement or with respect to the
transactions contemplated hereby, and expressly waives any and all objections it
may have as to venue in any of such courts.
20. EQUITY PARTICIPATION. This Warrant is issued in connection with the
Loan Agreement. It is intended that this Warrant constitute an equity
participation under and pursuant to T.C.A. Section 47-24-101, et seq. and that
equity participation be permitted under said statutes and not constitute
interest on the Note. If under any circumstances whatsoever, fulfillment of any
obligation of this Warrant, the Loan Agreement, or any other agreement or
document executed in connection with the Loan Agreement, shall violate the
lawful limit of any applicable usury statue or any other applicable law with
regard to obligations of like character and amount, then the obligation to be
fulfilled shall be reduced to such lawful limit, such that in no event shall
there occur, under this Warrant, the Loan Agreement, or any other document or
instrument executed in connection with the Loan Agreement, any violation of
such lawful limit, but such obligation shall be fulfilled to the lawful limit.
If any sum is collected in excess of the lawful limit, such excess shall be
applied to reduce the principal amount of the Note.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY: MERGE TECHNOLOGIES INCORPORATED,
-------- a Wisconsin corporation
By: /s/Colleen Doan
----------------------------
Title: Chief Financial Officer
HOLDER: SIRROM CAPITAL CORPORATION, a Tennessee
------- corporation
By: /s/John Dryslin
----------------------------
Title: Vice President
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Warrant to be executed as of the date first above written for the purpose of
agreeing to the terms and conditions of Section 12 hereof.
MANAGEMENT
----------
SHAREHOLDER: /s/ William Mortimore
------------ ----------------------------
William Mortimore
/s/ Robert Geras
----------------------------
Robert Geras
Robert Geras
14
<PAGE> 1
Exhibit 4.3
NUMBER SHARES
MERGE TECHNOLOGIES INCORPORATED
A Wisconsin Corporation
Common Stock $.01 Par Value
THIS CERTIFIES THAT ________________________________________________ is the
registered holder of _________________________________________________ Shares
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed
this_____________day of_________________ A.D. 19___
_______________________ ________________________
Secretary President
<PAGE> 1
EXHIBIT 4.4
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of [ ], 1997 by and among MERGE TECHNOLOGIES
INCORPORATED, a Wisconsin corporation (the "Company"), and H.C. WAINWRIGHT &
CO., INC. ("Wainwright" or the "Representative").
WHEREAS, the Company and the Representative have entered into an
Underwriting Agreement of even date herewith (the "Underwriting Agreement");
and
WHEREAS, the Company proposes to issue to the Representative warrants as
hereinafter described (the "Warrants") to purchase up to an aggregate of [ ]
shares, subject to adjustment as hereinafter provided (the "Shares"), of the
Company's common stock, par value $0.0l per share (the "Common Stock").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth and for other good and valuable consideration, the parties
hereto agree as follows:
1. Issuance of Warrants; Form of Warrant. As more fully set forth below,
the Company will issue, sell and deliver the Warrants to the Representative or
its bona fide officers or partners, as named by the Representative in
accordance with Section [5(p)] of the Underwriting Agreement, for an aggregate
price of $[1.00], concurrently with the closing (the "Closing") and, if
applicable, the option closing (the "Option Closing"), as the case may be,
under the Underwriting Agreement relating to the public offering, pursuant to a
registration statement on Form SB-2 (File No. [ ]) (the "Registration
Statement"), of [1,900,000] shares of Common Stock (plus an option to purchase
up to an additional [285,000] shares of Common Stock to cover over-allotments)
(the "Offering"). The form of the Warrants shall be substantially as set forth
on Exhibit A, attached hereto. The Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the present or any future
Chairman of the Board, President or Vice President of the Company, under its
corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of the present or any future Secretary or Assistant Secretary or
Treasurer or Assistant Treasurer of the Company.
2. The Warrants shall be numbered and shall be registered in a Warrant
register as they are issued. The Company shall be entitled to treat the
registered holder of any Warrant on the Warrant register (the "Warrant Holder")
as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other person, and shall not be liable for any registration of
transfer of Warrants which are registered or are to be registered in the name
of or at the direction of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration of transfer, or with such knowledge of
such facts that its participation therein amounts to bad faith. The Warrants
shall be registered initially in the name of "H.C. Wainwright & Co., Inc." in
such denominations as the Representative may request in writing to the Company;
provided, however, that prior to the Closing or the Option Closing, as the case
may be, the Representative may designate that its Warrants be issued in
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<PAGE> 2
varying amounts directly to its bona fide officers or partners and not to it
directly in accordance with Section [5(p)] of the Underwriting Agreement. Such
designation will only be made by the Representative if it determines such
issuances would not violate the rules and interpretations of the Board of
Governors of the National Association of Securities Dealers, Inc. (the "NASD")
relating to the review of corporate financing arrangements, and subject to
applicable federal and state securities law.
3. Transfer of Warrants. The Warrants may not be transferred, assigned,
pledged, hypothecated, sold, made subject to a security interest, or otherwise
transferred, in part or in whole, prior to the first anniversary of the
effective date of the Registration Statement (the "Effective Date"), except to
the bona fide officers or partners of the Representative, and subject to
applicable federal and state securities law, and only on the books of the
Company upon delivery thereof duly endorsed by the Warrant Holder or by his
duly authorized attorney or representative, or accompanied by proper evidence
of succession, assignment or authority to transfer. In all cases of transfer
by an attorney, the original power of attorney, duly approved, or an official
copy thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal representative,
duly authenticated evidence of their authority shall be produced and may be
required to be deposited with the Company in its discretion. Upon any
registration of transfer, the Company shall deliver a new Warrant or new
Warrants to the persons entitled thereto. A Warrant may be exchanged at the
option of the Warrant Holder thereof for another Warrant, or other Warrants, of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause a Warrant to be transferred on its
books to any person unless the Warrant Holder thereof shall furnish to the
Company evidence of compliance with the Securities Act of 1933, as amended (the
"Act"), and applicable state securities law, in accordance with the provisions
of Section 10 of this Agreement.
4. Term of Warrants; Exercise of Warrants. Each Warrant entitles the
Warrant Holder thereof to purchase one Share at a purchase price of $[ ] per
Share (the "Exercise Price") at any time from the first anniversary of the
Effective Date (except as otherwise set forth herein) until 5:00 p.m., Boston
time (the "Close of Business"), on the day immediately preceding the fifth
anniversary of the Effective Date (the "Expiration Date"). The Exercise Price
and the number of Shares issuable upon exercise of each Warrant are subject to
adjustment upon the occurrence of certain events, pursuant to the provisions of
Section 8 of this Agreement. Subject to the provisions of this Agreement, each
Warrant Holder shall have the right, which may be exercised as set forth in
such Warrant, to purchase from the Company (and the Company shall issue and
sell to such Warrant Holder) the number of fully paid and nonassessable Shares
specified in such Warrant Holder's Warrant, upon surrender to the Company, or
its duly authorized agent, of such Warrant, with an election to purchase
attached thereto in the form of Exhibit B to this Agreement, duly completed and
signed, with (if requested by the Company within two business days of surrender
of the Warrant with the election to purchase) signatures guaranteed by a member
firm of a national securities exchange, a commercial bank (not a savings bank
or savings and loan association) or trust company located in the United States
or a member of the NASD, and upon payment to the Company of the Exercise Price,
as adjusted in accordance
2
<PAGE> 3
with the provisions of Section 8 of this Agreement, for the number of Shares in
respect of which such Warrant is then exercised. Notwithstanding the method of
exercise set forth in any Warrant (or anything to the contrary herein), in the
event that the Warrant Holder thereof has not exercised such Warrant prior to
the Close of Business on the Expiration Date and the current market price per
share of Common Stock at the Close of Business on the Expiration Date (as
determined substantially in accordance with Section 8(d), but using the closing
prices or quotations, as the case may be, on such Expiration Date rather than a
30-day average) is greater than the Exercise Price, then the Warrant Holder
thereof shall be deemed to have exercised such Warrant in full immediately
prior to the Close of Business on the Expiration Date (an "Automatic
Exercise"). Payment of the Exercise Price may be made in cash or by check
payable to the order of the Company in the amount obtained by multiplying the
number of Shares for which such Warrant is then being exercised by the Exercise
Price then in effect (such amount, the "Exercise Payment"), except that the
Warrant Holder may, at its option, elect to pay the Exercise Payment by
delivering to the Company the number of shares of Common Stock determined by
dividing the Exercise Payment by the current market price (as defined in
paragraph (d) of Section 8) of a share of Common Stock on the date of exercise
or by canceling a portion of such Warrant that is equal to the number of shares
determined by dividing the Exercise Payment by the current market price (as
defined in paragraph (d) of Section 8) of a share of Common Stock as of the
date of exercise. In the event of an Automatic Exercise of any Warrant, the
Warrant Holder thereof shall be deemed to have chosen to cancel the portion of
its Warrant that is equal to the number of shares determined by dividing the
Exercise Payment by the current market price (as defined in paragraph (d) of
Section 8) of a share of Common Stock as of the Close of Business on the
Expiration Date. Except as set forth in Section 8, no adjustment shall be made
for any dividends on any Shares issuable upon exercise of a Warrant. Upon each
surrender of Warrants and payment of the Exercise Payment as aforesaid, or upon
the occurrence of an Automatic Exercise, the Company shall issue and cause to
be delivered with all reasonable dispatch (but in any event within three (3)
business days) to or upon the written order of the Warrant Holder and (subject
to receipt of evidence of compliance with the Act and applicable state
securities laws in accordance with the provisions of Section 10 of this
Agreement) in such name or names as such Warrant Holder may designate, a
certificate or certificates for the number of full Shares so purchased upon the
exercise of such Warrant, together with cash, as provided in Section 9 of this
Agreement, in respect of any fractional Shares otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been
issued, and any person so designated to be named therein shall be deemed to
have become a holder of record of such Shares, as of the date of the surrender
of such Warrant and payment of the Exercise Payment as aforesaid, or as of the
date of the Automatic Exercise; provided, however, that if, at the date of
surrender of such Warrant and payment of such Exercise Payment, the transfer
books for the Common Stock or other class of stock purchasable upon the
exercise of such Warrant shall be closed, the certificates for the Shares shall
be issuable as of the date on which such books shall next be opened (whether
before, on or after the Expiration Date), and until such date the Company shall
be under no duty to deliver any certificate for such Shares; provided further,
however, that the transfer books of record, unless otherwise required by law,
shall not be closed at any one time for a period longer than four (4) days.
The rights of purchase represented by a Warrant shall be exercisable, at the
election of the Warrant Holder thereof, either in full or from time to time in
part and, in the event that any Warrant is exercised in respect of fewer than
all of the Shares
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<PAGE> 4
purchasable on such exercise at any time prior to the Expiration Date, a new
Warrant or new Warrants will be issued for the remaining number of Shares
specified in the Warrant or Warrants so surrendered.
5. Payment of Taxes. The Company will pay all documentary stamp taxes, if
any, attributable to the issuance of Shares upon the exercise of a Warrant;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issuance
or delivery of any certificates for Shares in a name other than that of the
Warrant Holder who exercised the Warrant in respect of which such Shares are
issued.
6. Mutilated or Missing Warrants. In case any Warrant shall be mutilated,
lost, stolen or destroyed, the Company shall issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of such Warrant or an indemnity, also reasonably satisfactory to
the Company.
7. Reservation of Shares, etc. There have been reserved, and the Company
shall at all times keep reserved, out of the authorized and unissued Common
Stock, an aggregate number of shares of Common Stock sufficient to provide for
the exercise of the rights of purchase represented by the outstanding Warrants.
In addition, upon any adjustment to the number and kind of securities
purchasable upon exercise of the Warrants, the Company shall reserve, and shall
at all times thereafter keep reserved, out of the authorized and unissued
Common Stock or such other kind of securities, an aggregate number of shares of
Common Stock or shares, units or otherwise of such other kind of securities
sufficient to provide for the exercise of the rights to purchase represented by
the outstanding Warrants. After the Effective Date, the transfer agent for
the Common Stock (the "Transfer Agent"), and every subsequent Transfer Agent,
if any, for Shares issuable upon the exercise of any of the rights of purchase
represented by the Warrants, will be irrevocably authorized and directed at all
times until the Expiration Date to reserve such aggregate number of authorized
and unissued shares of Common Stock as shall be required for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent and
with every subsequent Transfer Agent for any Shares issuable upon the exercise
of the rights of purchase represented by the Warrants. The Company will supply
any such Transfer Agent with duly executed stock certificates for such purpose
and will itself provide or otherwise make available any cash which may be
distributable as provided in Section 9 of this Agreement. Any Warrant
surrendered in the exercise of the rights thereby evidenced shall be canceled,
and until delivery to the person surrendering such Warrant of stock
certificates representing the Shares to be issued to such person as a result of
such exercise, such canceled Warrant shall constitute sufficient evidence of
the number of Shares that have been issued upon the exercise of such Warrant.
No shares of Common Stock shall be subject to reservation in respect of any
unexercised Warrant subsequent to the Expiration Date.
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<PAGE> 5
8. Adjustments of Exercise Price and Number of Shares. The Exercise Price
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment from time to time upon the happening of certain
events, as follows:
(a) In case the Company shall (i) declare a dividend on its Common Stock
in shares of Common Stock or make a distribution in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock, or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
other than any such reclassification to which paragraph (j) of this Section 8
applies, the number of Shares purchasable upon exercise of each Warrant
immediately prior thereto shall be adjusted so that the Warrant Holder thereof
shall be entitled to receive the kind and number of shares of Common Stock or
other securities of the Company which he would have owned or have been entitled
to receive after the happening of any of the events described above had such
Warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective immediately after the effective date of
such event, retroactive to the record date, if any, for such event.
(b) In case the Company shall issue rights, options or warrants to all
holders of its Common Stock, entitling them to subscribe for or to purchase
shares of Common Stock or securities convertible into or exchangeable for
Common Stock (other than "poison pill" rights referred to in paragraph (l) of
this Section 8) at a price per share (or having a conversion price per share)
that is lower on the record date for the determination of stockholders entitled
to receive such rights, options or warrants than the then current market price
per share of Common Stock (as defined in paragraph (d) below), the number of
Shares thereafter purchasable upon the exercise of each Warrant shall be
determined by multiplying the number of Shares theretofore purchasable upon
exercise of such Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on the
record date for the determination of stockholders entitled to receive such
rights, options or warrants plus the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are initially convertible), and of which the denominator
shall be the number of shares of Common Stock outstanding at the close of
business on the record date for the determination of stockholders entitled to
receive such rights, options or warrants plus the number of shares which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate initial conversion price of the convertible
securities so offered) would purchase at the then current market price per
share of Common Stock. Such adjustment shall be made whenever such rights,
options or warrants are issued, and shall become effective retroactively to the
record date for the determination of stockholders entitled to receive such
rights, options or warrants.
(c) In case the Company shall distribute to all holders of its Common
Stock shares of stock (other than Common Stock) or evidences of its
indebtedness or assets (excluding cash dividends out of retained earnings and
dividends or distributions referred to in paragraph (a) of this Section 8) or
rights, options or warrants or convertible or exchangeable securities
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<PAGE> 6
containing the right to subscribe for or purchase shares of Common Stock
(excluding those referred to in paragraph (b) above and paragraph (l) below),
then in each case the number of Shares thereafter purchasable upon the exercise
of each Warrant shall be determined by multiplying the number of Shares
theretofore purchasable upon the exercise of such Warrant by a fraction, of
which the numerator shall be the current market price per share of Common Stock
(as defined in paragraph (d) below) on the record date mentioned below in this
paragraph (c), and of which the denominator shall be the current market price
per share of Common Stock on such record date, less the then fair value (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive) of the portion of the shares of stock or assets or evidences of
indebtedness so distributed or of such subscription rights, options or
warrants, or of such convertible or exchangeable securities applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the date of distribution,
retroactive to the record date for the determination of stockholders entitled
to receive such distribution.
(d) For the purpose of any computation under paragraphs (b) and (c) of
this Section 8 or under Section 4 or Section 9, the current market price per
share of Common Stock at any date shall be deemed to be the average of the
daily closing prices per share for the 30 consecutive trading days commencing
45 trading days before the date of such computation.
The closing price for each day shall be the last reported sale price regular
way or, in case no such reported sale takes place on such day, the average of
the closing bid and asked prices regular way for such day, in either case on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading, or if the Common Stock is not listed or
admitted to trading on any national securities exchange, but is traded in the
over-the-counter market, the closing sale price of the Common Stock or, in case
no sale is publicly reported, the average of the closing bid and asked
quotations for the Common Stock on the Nasdaq National Market System ("NASDAQ")
or any comparable system, or if the Common Stock is not listed on NASDAQ or a
comparable system, the closing sale price of the Common Stock or, in case no
sale is publicly reported, the average of the closing bid and asked prices as
furnished by two members of the NASD selected from time to time by the Company
for that purpose.
(e) No adjustment in the number of Shares purchasable upon exercise of
each Warrant shall be required unless such adjustment would require an increase
or decrease of at least one percent (1%) in the number of Shares purchasable
upon the exercise of each Warrant; provided, however, that any adjustments
which by reason of this paragraph (e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one thousandth of a share.
(f) Whenever the number of Shares purchasable upon the exercise of each
Warrant is adjusted, as herein provided, the Exercise Price shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Shares purchasable upon
the exercise of each Warrant immediately prior to such adjustment, and of which
the denominator shall be the number of Shares so purchasable immediately
thereafter.
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<PAGE> 7
(g) For the purpose of this Section 8, the term "shares of Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement or (ii) any other class of stock resulting from
successive changes or reclassification of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value
to par value. In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, any Warrant Holder shall become entitled to
purchase any shares of capital stock of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of each Warrant and the Exercise Price thereof shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Shares contained in this Section 8, and
the provisions of Sections 4, 5, 7, 9 and 12, with respect to the Shares, shall
apply on like terms to any such other shares.
(h) The Company may, at its option, at any time during the term of a
Warrant, reduce, either temporarily or permanently, the then current Exercise
Price to any amount deemed appropriate by the Board of Directors of the
Company; provided, however, that any such reduction may be temporary only to
the extent that Warrant Holders receive written notice from the Company stating
the term of such temporary reduction; and further provided, that following the
expiration of such temporary reduction, the Exercise Price may not be raised to
an amount in excess of the Exercise Price in effect immediately prior to such
temporary reduction.
(i) Whenever the number of Shares purchasable upon the exercise of each
Warrant or the Exercise Price of such Shares is adjusted, as herein provided,
the Company shall promptly mail by first class mail, postage prepaid, to each
Warrant Holder notice of such adjustment or adjustments. The Company may
retain a firm of independent public accountants (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 8 and shall cause such accountants to prepare a certificate setting
forth the number of Shares purchasable upon the exercise of each Warrant and
the Exercise Price thereof after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made. Such certificate shall be
conclusive evidence of the correctness of such adjustment, and each Warrant
Holder shall have the right to inspect such certificate during reasonable
business hours.
(j) In case of any consolidation of the Company with or merger of the
Company with and into another corporation or other entity or any consolidation
with or merger of any other corporation or other entity with and into the
Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of Shares and in which the Company is the
surviving corporation) or in case of any sale or conveyance to another
corporation or other person or entity of the property of the Company as an
entirety or substantially as an entirety, (i) notwithstanding the provisions of
Section 4 hereof, each Warrant Holder shall have the right to exercise any
Warrant then held immediately prior to such consolidation, merger, sale or
conveyance upon payment of the Exercise Price then in effect and (ii) with
respect to any Warrants which are not exercised as provided in clause (i)
above, the Company or such successor or purchasing corporation or person or
entity (or an affiliate of such successor or purchasing corporation or person
or entity), as the case may be, agrees that each
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<PAGE> 8
Warrant Holder shall have the right after the happening of any such
consolidation, merger, sale or conveyance (except for a consolidation, merger,
sale or conveyance in which the consideration received by the Company's
stockholders consists solely of cash) upon payment of the Exercise Price in
effect immediately prior to such action to purchase upon exercise of each
Warrant the kind and amount of shares and other securities and property which
he would have owned or have been entitled to receive after the happening of
such consolidation, merger, sale or conveyance had such Warrant been exercised
immediately prior to such action and the securities issued upon such exercise
been held since the date of such exercise; [provided, however, that in the
event any such transaction as described above shall be effected for a
consideration per share of Common Stock consisting only of cash in an amount
less than the Exercise Price at the time (as adjusted pursuant hereto)
multiplied by two, each Warrant Holder shall have the right to receive, as of
the effective time of such transaction and in cancellation of his Warrant, the
fair value of such Warrant as of the time immediately prior to such transaction
(without taking such transaction into account) as determined in good faith by
the Board of Directors of the Company.]
The provisions of this paragraph (j) shall similarly apply to successive
consolidations, mergers, sales or conveyances.
(k) Notwithstanding any adjustment in the Exercise Price or the number
or kind of shares purchasable upon the exercise of a Warrant pursuant to this
Agreement, a certificate for a Warrant issued prior or subsequent to such
adjustment may continue to express the same price and number and kind of shares
as are initially issuable pursuant to this Agreement.
(l) Notwithstanding the foregoing, in the event that the Company shall
distribute "poison pill" rights pursuant to a "poison pill" stockholder rights
plan (the "Rights"), the Company shall, in lieu of making any adjustment
pursuant to Section 8(b) or Section 8(c) hereof, make proper provision so that
each Warrant Holder who exercises a Warrant after the record date for such
distribution and prior to the expiration or redemption of the Rights shall be
entitled to receive upon such exercise, in addition to the Shares issuable upon
such exercise, a number of Rights to be determined as follows: (i) if such
exercise occurs on or prior to the date for the distribution to the holders of
Rights of separate certificates evidencing such Rights (the "Distribution
Date"), the same number of Rights to which a holder of a number of shares of
Common Stock equal to the number of Shares issuable upon such exercise at the
time of such exercise in accordance with the terms and provisions of and
applicable to the Rights; and (ii) if such exercise occurs after the
Distribution Date, the same number of Rights to which a holder of the number of
Shares into which the Warrant so exercised was exercisable immediately prior to
the Distribution Date would have been entitled on the Distribution Date in
accordance with the terms and provisions of and applicable to the Rights.
9. Fractional Interests. The Company shall not be required to issue
fractions of Shares on the exercise of a Warrant. If more than one Warrant
shall be presented for exercise in full at the same time by the same Warrant
Holder, the number of Shares which shall be issuable upon the exercise thereof
shall be computed on the basis of the aggregate number of Shares purchasable on
exercise of the Warrants so presented. If any fraction of a Share would,
except for the provisions of this Section 9, be issuable on the exercise of any
Warrant (or specified
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<PAGE> 9
portions thereof), the Company shall purchase such fraction from the Warrant
Holder for an amount in cash equal to the same fraction of the current market
price per share of Common Stock (determined as provided in paragraph (d) of
Section 8) on the date of exercise.
10. Restrictions on Disposition. The issuance of the Warrants has not
been registered under the Act pursuant to the Registration Statement. The
Representative represents and warrants to the Company that it understands that
neither the Warrants nor the Shares may be transferred except pursuant to (i)
an effective registration statement under the Act or (ii) any available rule or
exemption from registration under the Act permitting such disposition.
11. Certificates to Bear Legends. Each Warrant shall be subject to a
stop-transfer order and the certificate or certificates therefor shall bear the
following legend:
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY
BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR (ii) ANY
AVAILABLE RULE OR EXEMPTION FROM REGISTRATION UNDER
SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES.
The Shares or other securities issued upon exercise of a Warrant shall be
subject to a stop-transfer order and the certificate or certificates evidencing
any such Shares or securities shall bear a legend in substantially the
following form:
THE SHARES OR SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND THE SHARES OR OTHER
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR (ii) ANY
AVAILABLE RULE OR EXEMPTION FROM REGISTRATION UNDER
SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES.
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<PAGE> 10
12. Registration Rights.
(a) Demand Registration Rights. The Company covenants and agrees
with the Representative and any other or subsequent Warrant Holder(s)
or registered holder(s) of Shares or registered holder(s) of other securities
for which the Warrants become exercisable (for purposes of this Section 12,
collectively, the "Warrant Holders" and each a "Warrant Holder") that, upon
written request (a "Registration Request") of the then Warrant Holder(s) of at
least a majority of the securities issued and issuable pursuant to the
Warrants, made at any time within the period commencing on the first
anniversary of the Effective Date and ending at the Close of Business on the
Expiration Date, the Company will file with all deliberate speed and, in any
event, within 45 days after receipt of such Registration Request, at its sole
expense, no more than once, and at the Warrant Holders' expense, no more than
once, a registration statement or a Regulation A offering statement (as
requested by the Warrant Holders and if permitted under the Securities Act)
registering or qualifying the Shares or other securities for which the Warrants
become exercisable for sale. Within 15 days after receiving any such notice,
the Company shall give notice to the other Warrant Holders advising that the
Company is proceeding with such registration statement or Regulation A offering
statement and offering to include therein the Shares or other securities for
which the Warrants become exercisable of such Warrant Holders. The Company
shall not be obligated to any such other Warrant Holder unless such other
Warrant Holder shall accept such offer by notice in writing to the Company
within 10 days after receipt of such notice from the Company. No other
securities of the Company shall be entitled to participate in such registration
or qualification. The Company will use its best efforts, through its officers,
directors, auditors and counsel in all matters necessary or advisable, to file
and cause to become effective such registration statement or Regulation A
offering statement (if permitted under the Securities Act) as promptly as
practicable and for a period of two years thereafter to reflect in the
registration statement or Regulation A offering statement (if permitted under
the Securities Act) financial statements which are prepared in accordance with
Section 10(a)(3) of the Securities Act and any facts or events arising that,
individually or in the aggregate, represent a fundamental or material change in
the information set forth in the registration statement or Regulation A
offering statement to enable any Warrant Holder to exercise Warrants and to
sell Shares or other securities for which the Warrants become exercisable,
during such two-year period. If any registration pursuant to this paragraph
(a) is an underwritten offering, the Company will select an underwriter (or
managing underwriter if such offering should be syndicated) approved by the
Warrant Holders of a majority of the Warrants or Shares or other securities for
which the Warrants become exercisable to be included in such registration;
provided however, that if the Company selects an underwriter of national
stature, such approval will not be unreasonably withheld. Notwithstanding the
foregoing, the Company may postpone the filing of such registration statement
or offering statement for a reasonable period of time after receipt of the
original written Registration Request (not exceeding 90 days) if, in the good
faith opinion of the Company's Board of Directors, effecting the registration
would adversely affect a material or other comparable transaction or would
require the Company to make public disclosure of information the public
disclosure of which would have a material adverse effect upon the Company.
(b) Piggyback Registration Rights. The Company covenants and agrees
with
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<PAGE> 11
the Representative and any other or subsequent Warrant Holder(s) that if, at
any time within the period commencing on the first anniversary of the Effective
Date and ending at the Close of Business on the day immediately preceding the
seventh anniversary of the Effective Date, it proposes to register any class of
security under the Act in a primary registration on behalf of the Company or in
a secondary registration on behalf of holders of such securities and the
registration form to be used may be used for registration of the Shares or
other securities for which the Warrants become exercisable, the Company will
give prompt written notice (which, in the case of a registration pursuant to
the exercise of demand registration rights other than those provided in Section
12(a) of this Agreement, shall be within 10 business days after the Company's
receipt of notice of such exercise and, in any event, shall be at least 45 days
prior to such filing) to each Warrant Holder (regardless of whether the Warrant
Holder shall have theretofore availed himself or herself of the right provided
in Section 12(a)) at the addresses appearing on the records of the Company of
its intention to effect a registration. The Company will offer to include in
such registration such number of Shares or other securities for which the
Warrants are exercisable with respect to which the Company has received written
requests for inclusion therein within 10 days after receipt of notice from the
Company: provided that in the event that: (i) such registration is to be
underwritten; (ii) such registration is a primary registration on behalf of the
Company; and (iii) with the exception of the Shares or other securities for
which the Warrants become exercisable, such registration is not a secondary
registration on behalf of the holders of outstanding securities of the Company,
the Company shall not be required to include the Shares or other securities for
which the Warrants become exercisable in such registration to the extent the
managing underwriter(s) determines in good faith that such inclusion would
materially adversely affect the offering being made by such registration. All
registrations requested pursuant to this Section 12(b) are referred to herein
as "Piggyback Registrations." This paragraph is not applicable to a
registration statement filed by the Company on Forms S-4 or S-8 or any
successor forms.
(c) Action to be Taken by the Company. In connection with the
registration of the Shares or other securities for which the Warrants become
exercisable in accordance with paragraphs (a) or (b) above, the Company agrees
to:
(i) bear the expense of any registration or qualification under
paragraph (a), on one occasion, or under paragraph (b), on any number of
occasions, including but not limited to legal, accounting and printing
fees; provided, however, that in no event shall the Company be obligated
to pay (A) any fees and disbursements of more than one set of counsel for
the Warrant Holder(s) which reimburesment shall be limited to reasonable
attorney's fees in the event of a registration or qualification under
paragraph (b), or (B) any underwriters' discount or commission in respect
to such Shares or other securities for which the Warrants become
exercisable, payment of which shall, in each case, be the sole
responsibility of the respective Warrant Holder(s) thereof;
(ii) use its best efforts to register or qualify the Shares or
other securities for which the Warrants become exercisable for offer or
sale under state securities or blue sky laws of such jurisdictions as the
Warrant Holders shall reasonably request and do any and all other acts
and things which may be necessary or advisable to
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<PAGE> 12
enable the Warrant Holders to consummate the proposed sale, transfer or
other disposition of such securities in any jurisdiction;
(iii) furnish to each holder copies of any registration statement
for the Shares or other securities for which the Warrants become
exercisable, any prospectus included in any such registration statement
and all amendments and supplements to such documents, in each case as
soon as available and in such quantities as such Warrant Holder may from
time to time reasonably request; and
(iv) if registration is to be pursuant to an underwritten offering,
enter into a cross-indemnity agreement in customary form, with each
underwriter, if any, and each Warrant Holder of securities included in
such registration statement.
13. Notices to Warrant Holders; Dissolution; Exercise Rights.
(a) Nothing contained in this Agreement or in any Warrant shall be
construed as conferring upon any Warrant Holder the right to vote or to receive
dividends or to consent or to receive notice as a stockholder in respect of the
meetings of stockholders or the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company;
provided, however, that in the event that a meeting of stockholders shall be
called to consider and take action on a proposal for the voluntary dissolution
of the Company or a consolidation, merger or sale of all or substantially all
of its property, assets, business and goodwill as an entirety, then, in that
event, the Company shall cause a notice thereof to be sent by first-class mail,
postage prepaid, at least 20 business days prior to the date fixed as a record
date or the date of closing the transfer books in relation to such meeting, to
each Warrant Holder at such Warrant Holder's address appearing on the Warrant
register. If such notice shall have been so given and if such a voluntary
dissolution shall be authorized at such meeting or any adjournment thereof,
then (i) notwithstanding the provisions of Section 4 hereof, each Warrant
Holder shall have the right, at the election of the Warrant Holder, (A) to
exercise any Warrant then held immediately prior to such voluntary dissolution
upon payment of the Exercise Price then in effect or (B) to receive, as of the
effective date of the dissolution, the fair value of such Warrant as of the
time immediately prior to the authorization of the dissolution (without taking
the dissolution into account) as determined by the Board of Directors of the
Company and
(ii) from and after the date on which such voluntary dissolution shall have
been duly authorized by the stockholders, the purchase rights represented by
such Warrant and all other rights with respect thereto shall cease and
terminate.
(b) In the event the Company intends to make any distribution on its
Common Stock (or other securities which may be purchasable in lieu thereof upon
the exercise of a Warrant), including, without limitation, any such
distribution to be made in connection with a consolidation or merger in which
the Company is the continuing corporation, or to issue subscription rights or
warrants to holders of its Common Stock, the Company shall cause a notice of
its intention to make such distribution to be sent by first-class mail, postage
prepaid, at least 10 business days prior to the date fixed as a record date or
the date of closing the transfer books in relation to such distribution, to
each registered Warrant Holder at such Warrant
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<PAGE> 13
Holder's address appearing on the Warrant register.
14. Notices. Any notice pursuant to this Agreement to be given or made by
any Warrant Holder to the Company shall be sufficiently given or made as of the
third business day following mailing if sent by first-class mail, postage
prepaid, or as of the day after mailing if sent by a nationally recognized
overnight courier, addressed as follows (or to such other address as the
Company may designate by notice given in accordance with this Section 14 to the
Warrant Holder(s)):
Merge Technologies Incorporated
1126 South 70th Street
Suite S107B
Milwaukee, Wisconsin 53214-3151
Attn.: President
Notices or demands authorized by this Agreement to be given or made by the
Company to any Warrant Holder shall be sufficiently given or made (except as
otherwise provided in this Agreement) as of the third business day following
mailing if sent by first-class mail, postage prepaid, or as of the day after
mailing if sent by a nationally recognized overnight courier, addressed to such
Warrant Holder at the address of such Warrant Holder as shown on the Warrant
register, Common Stock register or the register for such other security for
which the Warrants become exercisable.
15. Covenant as to Certain Transactions. The Company shall not consummate
any consolidation, merger, sale or conveyance (as described in Section 8(j)
hereof) unless prior thereto (a) the successor or purchasing corporation (or an
affiliate of such successor or purchasing corporation), as the case may be,
shall have a sufficient aggregate number of authorized shares and other
securities which have not been issued or reserved for issuance to permit the
exercise in full of the Warrants in accordance with Section 8(j) hereof and (b)
the Company and such successor or purchasing corporation or affiliate shall
have executed and delivered to each Warrant Holder a supplemental agreement
confirming that the requirements of Section 8(j) hereof shall be promptly
performed in accordance with their terms and that such consolidation, merger,
sale or conveyance shall not result in a default by the Company, such successor
or purchasing corporation or such affiliate under this Agreement (as the same
shall have been assumed by such successor or purchasing corporation or such
affiliate) and further providing that such successor or purchasing corporation
or such affiliate shall assume all obligations of the Company hereunder and
agree to be bound hereby. In the event of and after the happening of any such
consolidation, merger, sale or conveyance, the term "the Company," as used
herein, shall be deemed to refer to such successor or purchasing corporation or
such affiliate, as the case may be.
16. Governing Law. This Agreement and each Warrant issued hereunder shall
be governed by and construed in accordance with the substantive laws of the
State of Massachusetts without giving effect to the principles of conflict of
laws thereof.
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17. Counterparts. The Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
MERGE TECHNOLOGIES INCORPORATED
By:_______________________________________
Name:
Title:
H.C. WAINWRIGHT & CO., INC.
By:_______________________________________
Name:
Title:
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<PAGE> 15
EXHIBIT A
(Form of Warrant Certificate)
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (ii) ANY
AVAILABLE RULE OR EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES.
No._________ ______ Warrants
VOID AFTER 5:00 P.M., BOSTON TIME
ON _____________, 200[ ]
MERGE TECHNOLOGIES INCORPORATED
Warrant Certificate
THIS CERTIFIES THAT, for value received, _________________, or registered
assigns, is the owner of the number of Warrants set forth above, each of which
entitles the owner thereof to purchase at any time from[ ], (except as
otherwise set forth in the Warrant Agreement referred to below), until 5:00
p.m., Boston time on [ ] (the "Expiration Date"), one fully paid and
nonassessable share of the common stock, par value $.0l per share (the "Common
Stock"), of MERGE TECHNOLOGIES INCORPORATED, a Wisconsin corporation (the
"Company"), at the purchase price of $[ ] per share (the "Exercise Price"),
upon presentation and surrender of this Warrant Certificate with the Form of
Election to Purchase duly executed. The number of Warrants evidenced by this
Warrant Certificate (and the number of shares of Common Stock which may be
purchased upon exercise hereof) set forth above, and the Exercise Price per
share set forth above, are the number and Exercise Price as of the date of
original issuance of the Warrants, based on the shares of Common Stock of the
Company as constituted at such date.
As provided in the Warrant Agreement referred to below, the Exercise Price and
the number or kind of securities which may be purchased upon the exercise of
the Warrants evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to modification and adjustment.
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated as of [ ]
(the "Warrant Agreement") by and
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among the Company and H.C. Wainwright & Co., Inc., which Warrant Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the
rights, limitations of rights, duties and immunities hereunder of the Company
and the holder of the Warrant Certificate. Copies of the Warrant Agreement are
on file at the principal office of the Company.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Company, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor and date evidencing
Warrants entitling the holder to purchase a like aggregate number of shares of
Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates so surrendered entitled such holder to purchase. If this Warrant
Certificate shall be exercised in part, the holder hereof shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof, a cash payment
will be made by the Company, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained in the Warrant Agreement or herein be construed to confer
upon the holder hereof, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue of
stock, reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, conveyance, or otherwise) or, except as
provided in the Warrant Agreement, to receive notice of meetings or to receive
dividends or subscription rights or otherwise, until the Warrant or Warrants
evidenced by this Warrant Certificate shall have been exercised and the shares
of Common Stock or other securities shall have become deliverable as provided
in the Warrant Agreement.
If this Warrant shall be surrendered for exercise within any period during
which the transfer books for the Company's Common Stock or other securities
purchasable upon the exercise of this Warrant are closed for any purpose, the
Company shall not be required to make delivery of certificates for the shares
of Common Stock or other securities purchasable upon such exercise until the
date of the reopening of said transfer books, subject to the terms of the
Warrant Agreement.
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<PAGE> 17
IN WITNESS WHEREOF, MERGE TECHNOLOGIES INCORPORATED has caused the
signature of its President and Secretary to be printed hereon and its corporate
seal to be printed hereon.
Dated:
MERGE TECHNOLOGIES INCORPORATED
By:_______________________________________
President
Attest:
___________________________________
Secretary
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<PAGE> 18
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates.)
FOR VALUE RECEIVED, ____________________________________________ hereby
sells, assigns and transfers unto _________________________________________,
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
_______________________________________________ to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated:______________________,____
__________________________________________
Signature
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond in all respects
to the name as written upon the face of this Warrant Certificate, without
alteration, enlargement or any change whatsoever.
Accepted:
___________________________
Assignee:
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<PAGE> 19
EXHIBIT B
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate).
TO MERGE TECHNOLOGIES INCORPORATED:
The undersigned hereby irrevocably elects to exercise __________ Warrants
represented by this Warrant Certificate to purchase the shares of Common Stock
issuable upon the exercise of such Warrants and requests that certificates for
such shares be issued in the name of:
Please insert social security or other
identifying number
______________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of
such Warrants shall be registered in the name of and delivered to:
Please insert social security or other
identifying number
______________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: _______________, __
__________________________________________
Signature
Signature Guaranteed:
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<PAGE> 20
NOTICE
The signature on the foregoing election to purchase must correspond in all
respects to the name as written upon the face of this Warrant Certificate,
without alteration, enlargement or any change whatsoever.
20
<PAGE> 1
EXHIBIT 10. 1
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made and entered into as of September 1,
1997 by and between WILLIAM C. MORTIMORE (the "Executive") and MERGE
TECHNOLOGIES INCORPORATED, a Wisconsin corporation (the "Company").
R E C I T A L S:
A. The Company desires to employ the Executive and the Executive desires
to accept such employment subject to review by a Compensation Committee (as
provided below), which shall be comprised of the Company's Board of Directors
exclusive of Executive, or such other committee as the Board of Directors
shall designate;
NOW THEREFORE, in consideration of the promises, mutual covenants and
agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
the Executive do hereby agree as follows:
1. Employment and Duties. On the terms and subject to the conditions set
forth in this Agreement, the Company agrees to employ the Executive as the
President and Chief Executive Officer of the Company to perform such duties as
are consistent with such position(s) as may be assigned, from time to time, by
the Company and to render such additional services and discharge such other
responsibilities as the Company may, from time to time, stipulate.
2. Performance. The Executive accepts the employment described in Section
1 of this Agreement and agrees to devote all of his time and efforts to the
faithful and diligent performance of the services described herein, including
the performance of such other services and responsibilities as the Company
may, from time to time, stipulate. Without limiting the generality of the
foregoing, the Executive ordinarily shall devote not less than five days per
week except for regular business holidays observed by the Company, the
Executive's vacation days, and days allowed for sick leave to his employment,
and shall be present on the Company premises or actively engaged in service to
or on behalf of the Company during normal business hours Monday through
Friday. The
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Executive further agrees that he/she shall be present on the Company's premises
or actively engaged in service to or on behalf of the Company at such times
during holidays or weekends as the performance of his duties may reasonably
require.
3. Term. The term of employment under this Agreement shall commence on
September 1, 1997 (the "Commencement Date") and shall remain in effect for a
period of three (3) years, ending on August 31, 2000, unless sooner terminated
hereunder (the "Employment Period"). The Employment Period shall be
automatically renewed for successive one (1) year periods unless terminated by
either the Executive or the Company by giving written notice of termination
thirty (30) days in advance of the renewal date.
4. Salary. For all the services to be rendered by the Executive hereunder,
the Company agrees to pay, during the Employment Period, a salary at a rate of
no less than One Hundred Sixty Thousand Dollars ($160,000.00) per annum
("Salary"), payable in the manner and frequency in which the Company's payroll
is customarily handled. The Company and the Executive agree that the Salary
shall be subject to annual review by the Company's Compensation Committee no
later than February 15 of each calendar year during the term hereof ("Review
Date") for cost of living and merit factors, with any adjustments being
mutually agreed between the Company and the Executive. The Company may further
increase the Executive's Salary at any time, or from time to time, during the
Employment Period, provided, however, that the Company may not reduce the
Salary after any increase is made.
5. Incentive Compensation. In addition to the Executive's Salary, the
Company's Compensation Committee shall consider whether Executive shall
consider by each Review Date whether Executive shall be entitled to incentive
compensation for the current year's performance.
6. Bonus. During the Employment Period, the Executive shall be eligible for
such bonuses as may be deemed advisable by the Board of Directors of the
Company in consideration of the Executive's performance of his duties and the
Company's profitability. The Company, however, shall not be obligated to pay
any bonus until such bonus is declared by the Board of Directors.
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<PAGE> 3
7. Paid Time Off. The Executive shall be entitled to paid time off for
vacation, illness, holiday and personal reasons in accordance with the
Company's paid time off policy. Should such policy be rescinded or terminated,
then thereafter, the Executive would be entitled to vacation and sick leave
benefits comparable to those offered to the most senior employees of the
Company with the longest tenure.
8. [THIS SECTION IS INTENTIONALLY BLANK]
9. Insurance. During the Employment Period, the Company shall be entitled
to procure life insurance for the Company's sole benefit and the Executive
agrees to cooperate in obtaining such insurance.
10. Disability Benefit. If at any time during the Employment Period the
Executive is permanently unable to perform fully his duties hereunder by
reason of illness, accident, or other disability (as confirmed by competent
medical evidence), the Executive shall be entitled to receive periodic
payments of salary to which he/she would otherwise be entitled pursuant to
Section 4 of this Agreement by reason of his employment for the lesser of the
balance of the Employment Period or one (1) year. Notwithstanding the
foregoing provision, (i) the amounts payable to the Executive pursuant to this
Section 10 shall be reduced by any amounts received by the Executive with
respect to any such incapacity pursuant to any insurance policy, plan, or
other employee benefit provided to the Executive by the Company; and (ii) in
no event will the terms of this Agreement supersede any health or disability
benefit to which Employee is entitled under applicable state or federal law.
11. Other Benefits. Except as otherwise specifically provided herein,
during the Employment Period, the Employee shall be eligible for all non-wage
benefits the Company provides generally for its other salaried employees.
12. Business Expenses.
(a) Reimbursement. The Company shall reimburse the Executive for the
reasonable, ordinary, and necessary business expenses incurred by him/her in
connection with the performance of his duties hereunder, including, but not
limited to, ordinary and
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<PAGE> 4
necessary travel expenses and entertainment expenses and car phone expenses.
(b) Accounting. The Executive shall provide the Company with an
accounting of his expenses, which accounting shall clearly reflect which
expenses are reimbursable by the Company. The Executive shall provide the
Company with such other supporting documentation and other substantiation of
reimbursable expenses as will conform to Internal Revenue Service or other
requirements. All such reimbursements shall be payable by the Company to the
Executive within a reasonable time after receipt by the Company of appropriate
documentation therefor.
13. Termination. The Company shall have the option to terminate the
Employment Period, effective upon written notice of such termination to the
Executive, for Just Cause. For purposes of this Agreement, the term "Just
Cause" shall mean the occurrence of any one or more of the following events:
(a) the death or permanent total disability of the Executive or his absence
from employment by reason of illness or incapacity for a period of forty-five
(45) consecutive days; (b) the breach by the Executive of his covenants under
this Agreement; (c) the commission by the Executive of theft or embezzlement
of Company property or other acts of dishonesty; (d) the commission by the
Executive of a crime resulting in injury to the business, property or
reputation of the Company or any affiliate of the Company or commission of
other significant activities harmful to the business or reputation of the
Company or any affiliate of the Company; (e) the commission of an act by the
Executive in the performance of his duties hereunder determined by the Board
of Directors of the Company to amount to gross, willful, or wanton negligence;
(f) the willful refusal to perform or substantial neglect of the duties
assigned to the Executive pursuant to Section 2 hereof; (g) any significant
violation of any statutory or common law duty of loyalty to the Company; or
(h) other legally sufficient cause.
14. Surrender of Properties. Upon termination of the Executive's
employment with the Company, regardless of the cause therefor, the Executive
shall promptly surrender to the Company all property provided him/her by the
Company for use in relation to his employment, and, in addition, the employee
shall surrender to the Company any and all sales materials, lists of customers
and
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<PAGE> 5
prospective customers, price lists, files, patent applications, records,
models, or other materials and information of or pertaining to the Company or
its customers or prospective customers or the products, business, and
operations of the Company.
15. Continuation of Insurance. If, following notice of termination given
by the Company pursuant to Section 13, the Executive is unable to arrange
alternate employment before the stated effective date of such termination, the
Company shall continue the Executive's medical, disability, and life insurance
coverage for a period extending one hundred eighty (180) days following the
effective date of termination or until the Executive secures alternate
employment, whichever date occurs first.
16. Severance Pay. Upon any termination of the Employment Period by the
Company pursuant to Section 13, the Company shall pay the Executive a
severance pay benefit equal to three (3) months' Salary at the annual rate in
effect immediately prior to the effective date of termination. If the
Employment Period is so terminated, the Company shall pay to the Executive
only the unpaid portions of Salary attributable to all periods to and
including the date of such termination or as otherwise specified above.
17. Inventions and Secrecy. Except as otherwise provided in this Section
17, the Executive: (a) shall hold in a fiduciary capacity for the benefit of
the Company all secret or confidential information, knowledge, or data of the
Company or its business or production operations obtained by the Executive
during his employment by the Company, which shall not be generally known to
the public or recognized as standard practice (whether or not developed by the
Executive) and shall not, during his employment by the Company and after the
termination of such employment for any reason, communicate or divulge any such
information, knowledge or data to any person, firm or corporation other than
the Company or persons, firms or corporations designated by the Company; (b)
shall promptly disclose to the Company all inventions, ideas, devices, and
processes made or conceived by him/her alone or jointly with others, from the
time of entering the Company's employ until such employment is terminated and
with the six (6) month period immediately following such termination, relevant
or pertinent in any way, whether directly or indirectly, to the Company's
business or production operations or resulting from or suggested by any work
which he/she may have done for the Company or at its request;
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<PAGE> 6
(c) shall, at all times during his employment with the Company, assist
the Company in every proper way (entirely at the Company's expense) to obtain
and develop for the Company's benefit patents on such inventions, ideas,
devices and processes, whether or not patented; and (d) shall do all such acts
and execute, acknowledge and deliver all such instruments as may be necessary
or desirable in the opinion of the Company to vest in the Company the entire
interest in such inventions, ideas, devices, and processes referred to above.
The foregoing to the contrary notwithstanding, the Executive shall not be
required to assign or offer to assign to the Company any of the Executive's
rights in any invention for which no equipment, supplies, facility, or trade
secret information of the Company was used and which was developed entirely on
the Executive's own time, unless (a) the invention related to (i) the business
of the Company or (ii) the Company's actual or demonstrably anticipated
research or development, or (b) the invention results from any work performed
by the Executive for the Company. The Executive acknowledges his prior receipt
of written notification of the limitation set forth in the preceding sentence
on the Executive's obligation to assign or offer to assign to the Company the
Executive's rights in inventions.
18. Confidentiality of Information: Duty of Non-Disclosure.
(a) The Executive acknowledges and agrees that his employment by the
Company under this Agreement necessarily involves his understanding of and
access to certain trade secrets and confidential information pertaining to the
business of the Company. Accordingly, the Executive agrees that after the date
of this Agreement at all times he/she will not, directly or indirectly,
without the express consent of the Company, disclose to or use for the benefit
of any person, corporation or other entity, or for himself/herself any and all
files, trade secrets or other confidential information concerning the internal
affairs of the Company, including, but not limited to, information pertaining
to its clients, services, products, earnings, finances, operations, methods or
other activities, provided, however, that the foregoing shall not apply to
information which is of public record or is generally known, disclosed or
available to the general public or the industry generally. Further, the
Executive agrees that he/she shall not, directly or indirectly, remove or
retain, without the express prior written consent of the Company, and upon
termination of this Agreement for any reason shall return to the Company, any
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figures, calculations, letters, papers, records, computer disks, computer
print-outs, lists, documents, instruments, drawings, designs, programs,
brochures, sales literature, or any copies thereof, or any information or
instruments derived therefrom, or any other similar information of any type or
description, however such information might be obtained or recorded, arising
out of or in any way relating to the business of the Company or obtained as a
result of his employment by the Company. The Executive acknowledges that all
of the foregoing are proprietary information, and are the exclusive property
of the Company. The covenants contained in this Section 18 shall survive the
termination of this Agreement.
(b) The Executive agrees and acknowledges that the Company does not
have any adequate remedy at law for the breach or threatened breach by
the Executive of his covenant, and agrees that the Company shall be entitled to
injunctive relief to bar the Executive from such breach or threatened breach in
addition to any other remedies which may be available to the Company at law or
in equity.
19. Covenant Not to Compete.
(a) During Employment Period. During the Employment Period, the
Executive shall not, without the prior written consent of the Company,
which consent may be withheld at the sole discretion of the Company, engage in
any other business activity for gain, profit, or other pecuniary advantage
(excepting the investment of funds in such form or manner as will not require
any services on the part of the Executive in the operation of the affairs of
the companies in which such investments are made) or engage in or in any manner
be connected or concerned, directly or indirectly, whether as an officer,
director, stockholder, partner, owner, employee, creditor, or otherwise, with
the operation, management, or conduct of any business that competes with or is
of a nature similar to that of the Company.
(b) Following Termination of Employment Period. Within the two (2) year
period immediately following the later of the end of the Employment Period or
termination of the Executive's employment with the Company, regardless of the
reason therefor, the Executive shall not, without the prior written consent of
the Company, which consent may be withheld at the sole discretion of
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<PAGE> 8
the Company: (a) engage in or in any manner be connected or concerned,
directly or indirectly, whether as an officer, director, stockholder, partner,
owner, employee, creditor, or otherwise with the operation, management, or
conduct of any business similar to the business of the Company being conducted
at the time of such termination within a two hundred (200) mile radius from
(i) the metropolitan Milwaukee area and (ii) any other area in which the
Company is, or reasonably contemplating, doing business at the time of such
termination; (b) solicit, contact, interfere with, or divert any customer
served by the Company, or any prospective customer identified by or on behalf
of the Company, during the Executive's employment with the Company; or (c)
solicit any person then or previously employed by the Company to join the
Executive, whether as a partner, agent, employee or otherwise, in any
enterprise engaged in a business similar to the business of the Company being
conducted at the time of such termination.
(c) Acknowledgment. The Executive acknowledges that the restrictions
set forth in Section 19 are reasonable in scope and essential to the
preservation of the Company's business and proprietary properties and that the
enforcement thereof will not in any manner preclude the Executive, in the event
of the Executive's termination of employment with the Company, from becoming
gainfully employed in such manner and to such extent as to provide a standard
of living for himself/herself, the members of his family, and those dependent
upon him/her of at least the sort and fashion to which he/she and they have
become accustomed and may expect.
(d) Severability. The covenants of the Executive contained in Section
19 of this Agreement shall each be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Company of such covenants. Both parties hereby expressly
agree and contract that it is not the intention of either party to violate any
public policy, or statutory or common law, and that if any sentence, paragraph,
clause, or combination of the same of this Agreement is in violation of the
law, such sentence, paragraph, clause or combination of the same shall be void,
and the remainder of such paragraph and this Agreement shall remain binding on
the parties to make the covenants of this Agreement binding only to the extent
that it may be lawfully done. In the event that any part of
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any covenant of this Agreement is determined by a court of law to be overly
broad thereby making the covenant unenforceable, the parties hereto agree, and
it is their desire, that such court shall substitute a judicially enforceable
limitation in its place, and that as so modified the covenant shall be binding
upon the parties as if originally set forth herein.
20. Arbitration.
(a) Upon presentation of a claim or claims (collectively "Claims")
arising out of or relating to this Agreement, or the breach hereof, by an
aggrieved party, the other party shall have thirty (30) days in which to make
such inquiries of the aggrieved party and conduct such investigations as it
believes reasonably necessary to determine the validity of the Claims. At the
end of such period of investigation, the complained of party shall either pay
the amount of the Claims or the arbitration proceeding described in Section
20(b) shall be invoked.
(b) In the event that the Claims are not settled by the procedure set
forth in Section 20(a), the Claims shall be submitted to arbitration conducted
in accordance with the Commercial Arbitration Rules ("Rules") of the American
Arbitration Association ("AAA") except as amplified or otherwise varied
hereby.
(c) The parties shall submit the dispute to the Milwaukee, Wisconsin
regional office of the AAA and the situs of the arbitration shall be
Milwaukee, Wisconsin.
(d) The arbitration shall be conducted by a single arbitrator. The
parties shall appoint the single arbitrator to arbitrate the dispute within
ten (10) business days of the submission of the dispute. In the absence of
agreement as to the identity of the single arbitrator to arbitrate the dispute
within such time, the AAA is authorized to appoint an arbitrator in accordance
with the Rules, except that the arbitrator shall have as his principal place
of business the Milwaukee, Wisconsin metropolitan area.
(e) The single arbitrator selected by the AAA shall be an attorney
accountant other professional licensed to practice by the State of Illinois.
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(f) Anything in the Rules to the contrary notwithstanding, the
arbitration award shall be made in accordance with the following procedure:
Each party shall, at the commencement of the arbitration hearing, submit an
initial statement of the amount each party proposes be selected by the
arbitrator as the arbitration award ("Settlement Amount"). During the course
of the arbitration, each party may vary its proposed Settlement Amount. At the
end of the arbitration hearing, each party shall submit to the arbitrator its
final Settlement Amount ("Final Settlement Amount"), and the arbitrator shall
be required to select either one or the other Final Settlement Amounts as the
arbitration award without discretion to select any other amount as the award.
The arbitration award shall be paid within thirty (30) business days after the
award has been made, together with interest from the date of award at the rate
of nine percent (9%). Judgment upon the award may be entered in any federal or
state court having jurisdiction over the parties.
21. General Provisions.
(a) Goodwill. The Company has invested substantial time and money in
the development of its products, services, territories, advertising and
marketing thereof, soliciting clients and creating goodwill. By accepting
employment with the Company, the Executive acknowledges that the customers are
the customers of the Company, and that any goodwill created by the Executive
belongs to and shall inure to the benefit of the Company.
(b) Notices. Any notice required or permitted hereunder shall be made
in writing (i) either by actual delivery of the notice into the hands
of the party thereunder entitled, or (ii) by the mailing of the notice in the
United States mail, certified or registered mail, return receipt requested, all
postage prepaid and addressed to the party to whom the notice is to be given at
the party's respective address set forth below, or such other address as the
parties may from time to time designate by written notice as herein provided.
As addressed to the Company:
Merge Technologies Incorporated
1126 South 70th Street
Milwaukee, Wisconsin 53214-3151
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With a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attention: Mitchell D. Goldsmith, Esq.
As addressed to the Executive:
S76 W. 13054 Cambridge Court West
Muskego, Wisconsin 53150
The notice shall be deemed to be received in case (i) on the date of its
actual receipt by the party entitled thereto and in case (ii) on the date of
its mailing.
(c) Amendment and Waiver. No amendment or modification of this
Agreement shall be valid or binding upon the Company unless made in
writing and signed by an officer of the Company duly authorized by the Board of
Directors or upon the Executive unless made in writing and signed by him/her.
The waiver by the Company of the breach of any provision of this Agreement by
the Executive shall not operate or be construed as a waiver of any subsequent
breach by him/her.
(d) Entire Agreement. This Agreement constitutes the entire Agreement
between the parties with respect to the Executive's duties and compensation as
an executive of the Company, and there are no representations, warranties,
agreements or commitments between the parties hereto with respect to his
employment except as set forth herein.
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State
of Wisconsin.
(f) Severability. If any provision of this Agreement shall, for any
reason, be held unenforceable, such provision shall be severed from this
Agreement unless, as a result of such severance, the Agreement fails to
reflect the basic intent of the parties. If the Agreement continues to reflect
the basic intent of the parties, then the invalidity of such specific
provision shall
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not affect the enforceability of any other provision herein, and the remaining
provisions shall remain in full force and effect.
(g) Assignment. The Executive may not under any circumstances delegate
any of his rights and obligations hereunder without first obtaining the prior
written consent of the Company. This Agreement and all of the Company's rights
and obligations hereunder may be assigned or transferred by it, in whole or in
part, to be binding upon and inure to the benefit of any subsidiary or
successor of the Company.
(h) Costs of Enforcement. In the event of any suit or proceeding
seeking to enforce the terms, covenants, or conditions of this
Agreement, the prevailing party shall, in addition to all other remedies and
relief that may be available under this Agreement or applicable law, recover
his or its reasonable attorneys' fees and costs as shall be determined and
awarded by the court.
IN WITNESS WHEREOF, this Agreement is entered into as of
the day and year first above written.
COMPANY:
MERGE TECHNOLOGIES INCORPORATED
By: /s/ Colleen Doan
-----------------------------
Colleen Doan, Treasurer
EXECUTIVE:
By: /s/ William C. Mortimore
-----------------------------
William C. Mortimore
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Exhibit 10.2
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT ("Agreement"), dated as of the 30th day of June,
1997, is made and entered into on the terms and conditions hereinafter set
forth, by and between MERGE TECHNOLOGIES INCORPORATED, a Wisconsin corporation
("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").
RECITALS:
---------
WHEREAS, Borrower has requested that Lender make available to Borrower
a term loan in the original principal amount of Two Million and No/l00ths
Dollars ($2,000,000) (the "Loan") on the terms and conditions hereinafter set
forth, and for the purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrower, Borrower
has made certain representations to Lender, and
WHEREAS, Lender, in reliance upon the representations and inducements of
Borrower, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
--------
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms and
conditions hereof, the Lender shall make the Loan to Borrower by wire
transfer in immediately available funds. The Loan shall be evidenced by a
Secured Promissory Note in the original principal amount of Two Million and
No/l00ths Dollars ($2,000,000), substantially in the form of Exhibit A attached
hereto and incorporated herein by this reference (the "Note"), dated as of the
date hereof, executed by Borrower, in favor of Lender. The Loan shall be
payable in accordance with the terms of the Note. The Note, this Agreement and
any other instruments and documents executed by Borrower, any guarantor of
Borrower, or any shareholder, subsidiary or affiliate of Borrower, now or
hereafter evidencing, securing or in any way related to the indebtedness
evidenced by the Note are herein individually referred to as a "Loan Document"
and collectively referred to as the "Loan Documents."
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1.2 Processing Fee. Borrower shall pay Lender a processing fee of Forty
Five Thousand Dollars ($45,000), Twenty Two Thousand Five Hundred Dollars
($22,500) of which has previously been paid to Lender and Twenty Two Thousand
Five Hundred Dollars ($22,500) of which shall be paid on the date the Loan is
funded.
1.3 Prepayment. Borrower may prepay the indebtedness evidenced by the
Note in whole or in part at any time and from time to time, without penalty or
premium.
1.4 Purposes of Loan and Use of Proceeds. The purpose of the Loan shall
be to provide additional working capital for sales and marketing, product
development and the repurchase of shares of capital stock of Borrower not to
exceed $250,000 in the aggregate, and other general corporate purposes.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Borrower's Representations. Borrower hereby represents and warrants
to Lender as follows:
(a) Corporate Status. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Wisconsin;
and has the corporate power to own and operate its properties, to
carry on its business as now conducted and to enter into and to perform
its obligations under this Agreement and the other Loan Documents to which
it is a party. Borrower is duly qualified to do business and in good
standing in each state in which a failure to be so qualified would have a
material adverse effect on Borrower's financial condition or its ability
to conduct its business in the manner now conducted.
(b) Subsidiaries. Borrower neither owns nor has an interest in,
directly or indirectly, any other corporation, partnership, joint venture
or other business organization ("Subsidiaries"), except for Signal Stream
Incorporated, a wholly-owned subsidiary, which owns certain equipment, but
is not actively engaged in business at this time.
(c) Authorization. Borrower has full legal right, power and authority
to conduct its business and affairs. Borrower has full legal right,
power and authority to enter into and perform its obligations under the
Loan Documents, without the consent or approval of any other person, firm,
governmental agency or other legal entity. The execution and delivery of
this Agreement, the borrowing hereunder, the execution and delivery of
each Loan Document to which Borrower is a party, and the performance by
Borrower of its obligations thereunder are within the corporate powers of
Borrower and have been duly authorized by all necessary corporate action
properly taken, have received all necessary governmental approvals, if any
were required, and do not and will not contravene or conflict with any
provision of law, any applicable judgment, ordinance, regulation or order
of any court or governmental agency, the charter or bylaws of Borrower, or
any agreement binding upon Borrower or its properties.
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<PAGE> 3
The officer(s) executing this Agreement, the Note and all of the other Loan
Documents to which Borrower is a party are duly authorized to act on behalf of
Borrower.
(d) Validity and Binding Effect. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors generally or the application of
general equitable principles.
(e) Capitalization. As of the date hereof, the authorized capital stock
of Borrower consists solely of 5,000,000 shares of preferred stock, none
of which are issued (the "Preferred Stock"), and 10,000,000 shares of
common stock, $0.01 par value per share ("Common Stock"), of which
576,327 shares are issued and outstanding (the "Shares") and 48,061
shares of which are reserved for issuance upon exercise of the Stock
Purchase Warrant dated as of the date hereof and issued to Lender (the
"Warrant"); provided, however, that the number of shares reserved for
issuance upon exercise of the Warrant shall be increased from time to time
in accordance with the term of the Warrant. As of the date hereof,
Borrower does not have outstanding any stock or securities convertible or
exchangeable for any shares of its Common Stock or containing any profit
participation features, and does not have outstanding any rights or
options to subscribe for or to purchase its Common Stock or any stock
appreciation rights or phantom stock plans, except as set forth on
Schedule 2.1(e) and for the Warrant. Schedule 2.1(e) accurately sets forth
the following with respect to all outstanding options and rights to
acquire the Borrower's Common Stock from Borrower: (i) the total number of
shares issuable upon exercise of all outstanding options, (ii) the range
of exercise prices for all such outstanding options, (iii) the number of
shares issuable, the exercise price and the expiration date for each such
outstanding option and (iv) with respect to all outstanding options,
warrants and rights to acquire Borrower's capital stock other than the
Warrant, the holder, the number of shares covered, the exercise price and
the expiration date. As of the date hereof, Borrower is not subject to
any obligation (contingent or otherwise) to repurchase, redeem, retire or
otherwise acquire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock, except as set forth
in the Warrant or on Schedule 2.1(e). As of the date hereof, all of
the outstanding shares of Borrower's capital stock shall be validly
issued, fully paid and nonassessable. Except as set forth on Schedule
2.l(e), there are no statutory or contractual preemptive rights, rights
of first refusal, anti-dilution rights or any similar rights, held by
stockholders or option holders of Borrower, with respect to the issuance
of the Warrant or the issuance of the Common Stock upon exercise of the
Warrant. All such rights granted in the documents listed on Schedule
2.1(e) have been effectively waived with regard to the issuance of the
Warrant, the exercise of the Warrant and the issuance of the Common Stock
upon exercise of the Warrant. Borrower has not, to the best of its
knowledge, violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any of its capital stock,
and the offer, sale and issuance of the Warrant hereunder do not require
registration under the Securities Act or any applicable state securities
laws. To the best of
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<PAGE> 4
Borrower's knowledge, there are no agreements among Borrower's
stockholders with respect to any other aspect of Borrower's affairs,
except as set forth on Schedule 2.1(e).
(f) Trademarks Patents. Etc. Schedule 2.1(f) is an accurate and
complete list of all federally registered patents, trademarks,
tradenames, trademark registrations, service names, service marks,
copyrights, licenses, formulas and applications therefor owned by Borrower
or used or required by Borrower in the operation of its business, title
to each of which is, except as set forth in Schedule 2.1 (f) hereto, held
by Borrower free and clear of all adverse claims, liens, security
agreements, restrictions or other encumbrances. There is no infringement
action, lawsuit, claim or complaint which asserts that Borrower's
operations violate or infringe the rights or the trade names, trademarks,
trademark registration, service name, service mark or copyright of others
with respect to any apparatus or method of Borrower or any adversely held
trademark, trade name, trademark registration, service name, service mark
or copyright, and Borrower to the best of its knowledge is not in any way
making use of any confidential information or trade secrets of any person
except with the consent of such person.
(g) No Conflicts. Consummation of the transactions hereby contemplated
and the performance of the obligations of Borrower under and by virtue of
the Loan Documents will not result in any breach of, or constitute
a default under, any mortgage, security deed or agreement, deed of trust,
lease, bank loan or credit agreement, corporate charter or bylaws,
agreement or certificate of limited partnership, partnership agreement,
license, franchise or any other instrument or agreement to which Borrower
is a party or by which Borrower or its respective properties may be bound
or affected or to which Borrower has not obtained an effective waiver.
(h) Litigation. There are no actions, suits or proceedings pending, or,
to the knowledge of Borrower threatened, against or affecting Borrower or
involving the validity or enforceability of any of the Loan Documents at
law or in equity, or before any governmental or administrative agency; and
to Borrower's knowledge, Borrower is not in default with respect to any
order, writ, injunction, decree or demand of any court or any governmental
authority.
(i) Financial Statements. The financial statements of Borrower dated
April 30, 1997, which are attached hereto as Schedule 2.1(i)(A), are true
and correct in all material respects have been prepared on the
basis of accounting principles consistently applied, and fairly present
the financial condition of Borrower as of the date(s) thereof. No material
adverse change has occurred in the financial condition of Borrower since
the date(s) thereof, and no additional borrowings have been made by
Borrower since the date(s) thereof other than as set forth on Schedule
2.1(i)(B).
(j) Other Agreements; No Defaults. Borrower is not a party to any
indenture, loan or credit agreement, lease or other agreement or
instrument, or subject to any charter or corporate restriction,
that could have a material adverse effect on the business, properties,
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<PAGE> 5
assets, operations or conditions, financial or otherwise, of Borrower, or
the ability of Borrower to carry out its obligations under the Loan
Documents to which it is a party. Borrower, to the best of its knowledge,
is not in default in any respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained
in any agreement or instrument material to its business to which it is a
party, including but not limited to this Agreement and the other Loan
Documents, and no other default or event has occurred and is continuing
that with notice or the passage of time or both would constitute a default
or event of default under any of same.
(k) Compliance With Law. Borrower has obtained all necessary licenses,
permits and approvals and authorizations necessary or required in order to
conduct its business and affairs as heretofore conducted and as hereafter
intended to be conducted. To Borrower's knowledge, Borrower is in
compliance with all laws, regulations, decrees and orders applicable to it
(including but not limited to laws, regulations, decrees and orders
relating to environmental, occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition), to the
extent that noncompliance, in the aggregate, cannot reasonably be expected
to have a material adverse effect on its respective business, operations,
property or financial condition and will not materially adversely affect
Borrower's ability to perform its obligations under the Loan Documents.
(l) Debt. Schedule 2.1(1) is a complete and correct list of all credit
agreements, indentures, purchase agreements, promissory notes and other
evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing for
or relating to extensions of credit (including agreements and arrangements
for the issuance of letters of credit or for acceptance financing) in
respect of which the Borrower or any of the properties thereof is in any
manner directly or contingently obligated; and the maximum principal or
face amounts of the credit in question that are outstanding and that can
be outstanding are correctly stated, and all liens of any nature given or
agreed to be given as security therefor are correctly described or
indicated in such Schedule.
(m) Taxes. Borrower has filed or caused to be filed all tax returns
that to its knowledge are required to be filed (except for returns that
have been appropriately extended), and has paid, or will pay when due,
all taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith by
appropriate proceedings, for which appropriate amounts have been
reserved). No tax liens have been filed against Borrower or any of the
property thereof.
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<PAGE> 6
(n) Certain Transactions. Except as set forth on Schedule 2.1(n)
hereto, Borrower is not indebted, directly or indirectly, to any of its
shareholders, officers or directors or to their respective spouses or
children, in any amount whatsoever, none of said shareholders, officers or
directors or any members of their immediate families, are indebted to Borrower
or have any direct or indirect ownership interest in any firm or corporation
with which Borrower has a business relationship, or any firm or corporation
which competes with Borrower, except that shareholders, officers and/or
directors of Borrower may own no more than 4.9% of outstanding stock of
publicly traded companies which may compete with Borrower. No shareholder,
officer or director or any member of their immediate families, is, directly or
indirectly, interested in any material contract with Borrower. Borrower is not
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
(o) Statements Not False or Misleading. No representation or warranty
given as of the date hereof by Borrower contained in this Agreement or any
schedule attached hereto or any statement in any document, certificate or other
instrument furnished or to be furnished by Borrower to Lender pursuant hereto,
taken as a whole, contains or will (as of the time so furnished) contain any
untrue statement of a material fact, or omits or will (as of the time so
furnished) omit to state any material fact which is necessary in order to make
the statements contained therein not misleading.
(p) Margin Regulations. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or carry
any equity security of a class which is registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
(q) Significant Contracts. Schedule 2.1(q) is a complete and correct
list of all contracts, agreements and other documents pursuant to which
Borrower receives revenues in excess of $25,000 per fiscal year. Each such
contract, agreement and other document is in full force and effect as of the
date hereof and Borrower knows of no reason why such contracts, agreements and
other documents would not remain in full force and effect pursuant to the terms
thereof.
(r) Environment. Borrower has duly complied with, and its business,
operations, assets, equipment, property, leaseholds or other facilities are
in compliance with, the provisions of all federal, state and local
environmental, health, and safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder. Borrower has been issued and will maintain
all required federal, state and local permits, licenses, certificates and
approvals relating to (1) air emissions; (2) discharges to surface water or
groundwater; (3) noise emissions; (4) solid or liquid waste disposal; (5) the
use, generation, storage, transportation or disposal of toxic or hazardous
substances or wastes (which shall include any and all such materials listed in
any federal, state or local law, code or ordinance and all rules and
regulations promulgated thereunder as hazardous or potentially hazardous); or
(6) other environmental, health or safety matters. Borrower has not received
notice of, or knows of, or suspects facts which might constituteany violations
of any federal, state or local
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<PAGE> 7
environmental, health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder with respect to its businesses, operations,
assets, equipment, property, leaseholds, or other facilities. Except in
accordance with a valid governmental permit, license, certificate or approval,
there has been no emission, spill, release or discharge into or upon (1) the
air; (2) soils, or any improvements located thereon; (3) surface water or
groundwater; or (4) the sewer, septic system or waste treatment, storage or
disposal system servicing the premises, of any toxic or hazardous substances or
wastes at or from the premises; and accordingly the premises of Borrower are
free of all such toxic or hazardous substances or wastes. There has been no
complaint, order, directive, claim, citation or notice by any governmental
authority or any person or entity with respect to (1) air emissions; (2)
spills, releases or discharges to soils or improvements located thereon,
surface water, groundwater or the sewer, septic system or waste treatment,
storage or disposal systems servicing the premises; (3) noise emissions; (4)
solid or liquid waste disposal; (5) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or waste; or (6)
other environmental, health or safety matters affecting Borrower or its
business, operations, assets, equipment, property, leaseholds or other
facilities. Borrower does not have any indebtedness, obligation or liability
(absolute or contingent, matured or not matured), with respect to the storage,
treatment, cleanup or disposal of any solid wastes, hazardous wastes or other
toxic or hazardous substances (including without limitation any such
indebtedness, obligation, or liability with respect to any current regulation,
law or statute regarding such storage, treatment, cleanup or disposal).
(s) Fees/Commissions. Borrower has not agreed to pay any finder's fee,
commission, origination fee (except for the processing and commitment fees due
pursuant to Section 1.2) or other fee or charge to any person or entity with
respect to the Loan and investment transactions contemplated hereunder.
(t) ERISA. To the best of Borrower's knowledge, Borrower is in compliance
in all material respect with all applicable provisions of ERISA as defined in
Section 3.11 hereof). To the best of Borrower's knowledge, neither a reportable
event nor a prohibited transaction (as defined in ERISA) has occurred and is
continuing with respect to any Plan (as defined in Section 3.11 hereof); no
notice of intent to terminate a Plan has been filed nor has any Plan been
terminated; to the best of Borrower's knowledge, no circumstances exist which
constitute grounds entitling the Pension Benefit Guaranty Corporation (together
with any entity succeeding to or all of its functions, the "PBGC") to
institute proceedings to terminate, or appoint a trustee to administer, a Plan,
nor has the PBGC instituted any such proceedings; neither Borrower nor any
commonly controlled entity (as defined in ERISA) has completely or partially
withdrawn from a multiemployer plan(as defined in ERISA); Borrower and each
commonly controlled entity has met its minimum funding requirements under ERISA
with respect to all of its Plans and the present fair market value of all Plan
property exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA and the regulations thereunder for calculating the
potential liability of Borrower or any commonly controlled
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<PAGE> 8
entity to the PBGC or the Plan under Title IV or ERISA; and neither
Borrower nor any commonly controlled entity has incurred any liability to
the PBGC under ERISA.
(u) Title to Properties. Borrower has good, indefeasible and
insurable title to, or valid leasehold interests in, all its real
properties and good title to its other assets, free and clear of all liens
other than Permitted Liens (as defined in Section 3.15 hereof).
(v) Limited Offering of Note and Warrant. Neither Borrower nor anyone
acting on its behalf has offered the Note, the Warrant or any similar
securities for sale to, or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof, with, any
person other than Lender and not more than 35 other institutional
investors. Neither Borrower nor anyone acting on its behalf has taken, or
will take, any action which would subject the issuance or sale of the Note
and Warrant to Section 5 of the Securities Act of 1933, as amended, or the
registration or qualification provisions of the blue sky laws of any state.
(w) Registration Rights. Except as described in the Warrant,
Borrower is not under any obligation to register under the Securities Act
of 1933, as amended, or the Trust Indenture Act of 1939, as amended, any of
its presently outstanding securities or any of its securities that may
subsequently be issued.
(x) Employees. To the best of Borrower's knowledge, Borrower has no
current labor problems or disputes which have resulted or Borrower
reasonably believes could be expected to have a material adverse effect.
(y) Issuance Taxes. All taxes imposed on Borrower in connection with
the issuance, sale and delivery of the Note, the Warrant and the capital
stock issuable upon exercise of the Warrant have been or will be fully
paid, and all laws imposing such taxes have been or will be fully satisfied
by Borrower.
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrower covenants and agrees that during the term of this Agreement:
3.1 Payment of Obligations. Borrower shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other obligations of Borrower to
Lender, direct or contingent, however evidenced or denominated, and however and
whenever incurred, including but not limited to indebtedness incurred pursuant
to any present or future commitment of Lender to Borrower, together with
interest thereon, and any extensions, modifications, consolidations and/or
renewals thereof and any notes given in payment thereof.
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3.2 Financial Statements and Reports. Borrower shall furnish to Lender
(i) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of Borrower (except that with respect to the fiscal
year ended December 31, 1996, the required audited statements will be delivered
no later than forty-five (45) days following the execution of this Agreement),
an audited balance sheet of Borrower as of the close of such fiscal year, an
audited statement of earnings and retained earnings of Borrower as of the close
of such fiscal year and an audited statement of cash flows for Borrower for
such fiscal year, prepared in accordance with generally accepted accounting
principles consistently applied and accompanied by an unqualified audit report
prepared by an independent certified public accountant acceptable to Lender
showing the financial condition of Borrower at the close of such year and the
results of its operations during such year and accompanied by a certificate of
the President of Borrower, stating that to the best of the knowledge of such
officer, Borrower has kept, observed, performed and fulfilled each covenant,
term and condition of this Agreement and the other Loan Documents during the
preceding fiscal year and that no Event of Default has occurred and is
continuing (or if an Event of Default has occurred and is continuing,
specifying the nature of same, the period of existence of same and the action
Borrower proposes to take in connection therewith), (ii) within fifteen (15)
days of the end of each calendar month, a status report indicating the
financial performance of Borrower during such month and the financial position
of Borrower as of the end of such month, (iii) within thirty (30) days of the
end of each quarter, a balance sheet of Borrower as of the close of such
quarter and a statement of earnings and retained earnings of Borrower as of the
close of such quarter, all in reasonable detail, and prepared substantially in
accordance with generally accepted accounting principles consistently applied
(except for the absence of footnotes and subject to year-end adjustments), and
(iv) with reasonable promptness, such other financial data as Lender may
reasonably request. Without Lender's prior written consent, Borrower shall not
modify or change any accounting policies or procedures in effect on the date
hereof.
3.3 Maintenance of Books and Records; Inspection. Borrower shall maintain
its books, accounts and records in accordance with generally accepted
accounting principles consistently applied, and after reasonable notice from
Lender permit Lender, its officers and employees and any professionals
designated by Lender in writing, at Borrower's expense, to visit and inspect
any of its properties, corporate books and financial records, and to discuss
its accounts, affairs and finances with Borrower or the principal officers of
Borrower during reasonable business hours, all at such times as Lender may
reasonably request; provided that no such inspection shall materially interfere
with the conduct of Borrower's business.
3.4 Insurance. Without limiting any of the requirements of any of the other
Loan Documents, Borrower shall maintain, in amounts customary for entities
engaged in comparable business activities, (i) to the extent required by
applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to
be unreasonably withheld or delayed), and (ii) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts
as are customary in Borrower's business. Borrower will make reasonable efforts
to obtain and maintain public liability insurance in an amount, and at a cost,
deemed reasonable
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to the Borrower's Board of Directors. At the request of Lender, Borrower will
deliver forthwith a certificate specifying the details of such insurance in
effect.
3.5 Taxes and Assessments. Borrower shall (i) file all tax
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of delinquency, (ii) pay and discharge all
taxes, assessments and governmental charges or levies imposed upon Borrower
upon its income and profits or upon any properties belonging to it, prior to
the date on which penalties attach thereto, and (iii) pay all taxes,
assessments and governmental charges or levies that, if unpaid, might become a
lien or charge upon any of its properties; provided, however, that Borrower in
good faith may contest any such tax, assessment, governmental charge or levy
described in the foregoing clauses (ii) and (iii) so long as appropriate
reserves are maintained with respect thereto.
3.6 Corporate Existence. Borrower shall maintain its corporate existence and
good standing in the state of its incorporation, and its qualification and
good standing as a foreign corporation in each jurisdiction in which such
qualification is necessary pursuant to applicable law.
3.7 Compliance with Law and Other Agreements. Except where the failure
to do so would not materially adversely affect Borrower's operations or its
ability to fulfill its obligations under the Loan Documents, Borrower shall
maintain its business operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances governing such business operations and the use and
ownership of such property, and (ii) all material agreements, licenses,
franchises, indentures and mortgages to which Borrower is a party or by which
Borrower or any of its properties is bound. Without limiting the foregoing,
Borrower shall pay all of its indebtedness promptly in accordance with the
terms thereof.
3.8 Notice of Default. Borrower shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. Borrower shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings, instituted by any persons
whomsoever against Borrower or affecting any of the assets of Borrower wherein
the amount at issue is in excess of Twenty-Five Thousand and No/l00ths Dollars
($25,000.00), and (ii) any dispute, not resolved within sixty (60) days of
the commencement thereof, between Borrower on the one hand and any governmental
regulatory body on the other hand, which dispute might materially interfere
with the normal operations of Borrower.
3.10 Conduct of Business. Borrower will continue to engage in a business of
the same general type and manner as conducted by it on the date of this
Agreement.
3.11 ERISA Plan. If Borrower has in effect, or hereafter institutes, a
pension plan that is subject to the requirements of Title IV of the Employee
Retirement Income Security Act of 1974, Pub. L. No. 93-406, September 2, 1974,
88 Stat. 829, 29 U.S.C.A. Section 1001 et seq. (1975), as amended from time to
time ("ERISA"), then the following warranty and covenants shall be applicable
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during such period as any such plan the ("Plan") shall be in effect: (i)
Borrower hereby warrants that no fact that might constitute grounds for the
involuntary termination of the Plan, or for the appointment by the appropriate
United States District Court of a trustee to administer the Plan, exists at the
time of execution of this Agreement, (ii) Borrower hereby covenants that
throughout the existence of the Plan, Borrower's contributions under the Plan
will meet the minimum funding standards required by ERISA and Borrower will
not institute a distress termination of the Plan, and (iii) Borrower covenants
that it will send to Lender a copy of any notice of a reportable event (as
defined in ERISA) required by ERISA to be filed with the Labor Department or
the Pension Benefit Guaranty Corporation, at the time that such notice is so
filed.
3.12 Dividends, Distributions, Stock Rights, etc. Borrower shall not
declare or pay any dividend of any kind (other than stock dividends payable to
all holders of any class of capital stock), in cash or in property, on any
class of the capital stock of Borrower, or purchase, redeem, retire or
otherwise acquire for value any shares of such stock, nor make any distribution
of any kind in cash or property in respect thereof, nor make any return of
capital of shareholders, nor make any payments in cash or property in respect
of any stock options, stock bonus or similar plan (except as required or
permitted hereunder), nor grant any preemptive rights with respect to the
capital stock of Borrower, without the prior written consent of Lender.
Notwithstanding the foregoing, Borrower may (i) use up to Two Hundred Fifty
Thousand Dollars ($250,000) of the proceeds of the Loan to repurchase shares of
capital stock of the Borrower, and (ii) should Alpha Capital Venture Partners
L.P. ("Alpha") exercise its "put" right with respect to the capital stock of
Borrower owned by Alpha, then the purchase of such stock in such instance will
not be a breach of this Section 3.12.
3.13 Guaranties; Loans; Payment of Debt. Without Lender's prior express
written consent, Borrower shall not guarantee nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date of
this Agreement in connection with the obligations or indebtedness of any person
or entity whatsoever, except for the endorsement of negotiable instruments
payable to Borrower for deposit or collection in the ordinary course of
business. Without Lender's prior express written consent, which shall not
unreasonably be withheld, Borrower shall not (i) make any loan, advance or
extension of credit to any person other than in the normal course of its
business, or (ii) make any payment on any subordinated debt.
3.14 Debt. Without the express prior written consent of Lender,
Borrower shall not create, incur, assume or suffer to exist indebtedness of any
description whatsoever, excluding:
(a) the indebtedness evidenced by the Note;
(b) the endorsement of negotiable instruments payable to Borrower for deposit
or collection in the ordinary course of business;
(c) trade payables incurred in the ordinary course of business
(d) the indebtedness listed on Schedule 2.1(1) hereto; and
(e) indebtedness incurred pursuant to the terms of a senior secured
revolving credit facility (the "Senior Credit Facility") in an amount
not to exceed Two Million Five Hundred Thousand Dollars ($2,500,000),
provided that initially amounts outstanding under the Senior Credit
Facility ("Permitted Borrowings") may not exceed at any time
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One million Five Hundred Thousand Dollars ($ 1,500,000) and provided
further that Permitted Borrowings shall be increased to (i) Two Million
Dollars ($2,000,000) in the event that Borrower achieves EBITDA of Two
Million Dollars ($2,000,000) for the fiscal year ended December 31, 1997
and (ii) Two Million Five Hundred Thousand Dollars ($2,500,000) in the
event that Borrower achieves EBITDA of Two Million Dollars ($2,000,000)
for the fiscal year ended December 31, 1997 and EBITDA of One Million
Two Hundred and Fifty Thousand Dollars ($1,250,000) for any six (6)
month period thereafter. EBITDA shall be calculated in accordance with
generally accepted accounting principles consistently applied and
evidenced by audited financial statements. Notwithstanding the
foregoing, the financial statements for the six-month period need not
be audited; provided that should Lender wish to have such financial
statements audited, it may do so at Lender's sole cost and expense, by
delivery of written notice to Borrower within ten (10) days following
receipt of such statement, provided further that if such audit results
in an EBITDA of less than $1,250,000 for such six-month period, then
Borrower shall pay such expenses.
3.15 No Liens. Borrower shall not create, incur, assume or suffer to
exist any lien, security interest, security title, mortgage, deed of trust or
other encumbrance upon or with respect to any of its properties, now owned or
hereafter acquired, except the following permitted liens (the "Permitted
Liens"):
(a) liens in favor of Lender,
(b) liens for taxes or assessments or other governmental charges or levies
if not yet due and payable;
(c) liens in connection with the leasing or purchase money financing of
equipment or software in favor of the Lessor of such equipment;
(d) liens described on Schedule 2.1(1) hereto; and
(e) liens securing the indebtedness permitted under Section 3.14(e) above.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, which consent shall not be unreasonably withheld,
Borrower shall not (a) be a party to any merger, consolidation or corporate
reorganization, nor (b) purchase or otherwise acquire all or substantially all
of the assets or stock of, or any partnership or joint venture interest in, any
other person, firm or entity, nor (c) sell, transfer, convey, grant a security
interest in or lease all or any substantial part of its assets, nor (d) create
any Subsidiaries nor convey any of its assets to any Subsidiary.
3.17 Transactions With Affiliates. Except as set forth on Schedule 3.17,
Borrower shall not enter into any transaction, including, without limitation,
the purchase, sale or exchange of property or the rendering of any service,
with any affiliate, except (i) in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to Borrower than Borrower would obtain in a comparable
arm's length transaction with a person not an affiliate; or (ii) for
transactions substantially similar to those affiliate transactions
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presently in place with LaSalle Investments, Inc. For the purposes of this
Section 3.l7, "affiliate" shall mean a person, corporation, partnership or
other entity controlling, controlled by or under common control with Borrower.
3.l8 Environment. Borrower shall be and remain in compliance with the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
its premises; immediately contain and remove the same, in compliance with all
applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon,
and to inspect all books, correspondence, and records pertaining thereto; and
at Lender's request, and at Borrower's expense, provide a report of a
qualified environmental engineer, satisfactory in scope, form, and content to
Lender, and such other and further assurances reasonably satisfactory to
Lender that the condition has been corrected.
3.19 Landlord's Consent. Borrower hereby agrees to deliver to Lender within
thirty (30) days of the date hereof, a Landlord's Consent and Subordination of
Lien, executed by Borrower's landlord, in substantially the form attached
hereto as Exhibit E and incorporated herein by this reference.
ARTICLE 4
CONDITIONS TO CLOSING
4.l Closing of the Loan. The obligation of Lender to fund the Loan on the
date hereof (the "Closing Date") is subject to the fulfillment, on or prior to
the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material respects
with all of the covenants, agreements, obligations and conditions required by
this Agreement.
(b) Lender shall have received an opinion of the Borrower's counsel,
Shefsky & Froelich, Ltd., dated the Closing Date, in form and substance
satisfactory to Lender's counsel, Caldwell & Caldwell, P.C.;
(c) Borrower shall have delivered to Lender a Note executed by
Borrower, substantially in the form of Exhibit A attached hereto and
incorporated herein by this reference.
(d) Borrower shall have delivered to Lender a Stock Purchase Warrant
executed by, Borrower, substantially in the form of Exhibit B attached hereto
and incorporated herein by this reference.
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(e) Borrower shall have delivered to Lender a Security Agreement
executed by Borrower and a related UCC-1 Financing Statement executed by
Borrower, each of which is substantially in the form of Exhibit C attached
hereto and incorporated herein by this reference.
(f) Borrower shall have delivered to Lender a Copyright and Royalty
Security Agreement executed by Borrower substantially in the form of Exhibit
D attached hereto and incorporated herein by this reference.
(g) Borrower shall have delivered to Lender a Trademark and Patent
Security Agreement executed by Borrower in the form of Exhibit F attached
hereto and incorporated herein by this reference.
(h) Lender shall have received copies of the corporate charter and
other publicly filed organizational documents of Borrower, certified by the
Secretary of State or other appropriate public official in the jurisdiction
in which Borrower is incorporated.
(i) Lender shall have received certified (as of the date of this
Agreement) copies of all corporate action taken by Borrower, including
resolutions of its Board of Directors, authorizing the execution, delivery
and performance of the Loan Documents.
(j) Lender shall have received a certificate as to the legal existence
and good standing of the Borrower, issued by the Secretary of State or other
appropriate public official in the jurisdiction in which the Borrower is
incorporated.
(k) Lender shall have received certificates of the Secretaries of State
or other appropriate public officials as to Borrower's qualification to do
business and good standing in each jurisdiction in which a failure to be so
qualified would have a material adverse effect on its financial condition or
its ability to conduct its business in the manner now conducted and as
hereafter intended to be conducted.
(l) Lender shall have received an Authorization Agreement for
Pre-Authorized Payments (Debit) executed by Borrower, in substantially the
form of Exhibit G attached hereto and incorporated herein by this reference.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
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(a) Default in the payment of the principal of or interest on the
indebtedness evidenced by the Note in accordance with the terms of the Note,
which default is not cured within five (5) days;
(b) Any material misrepresentation by Borrower, any guarantor of the
Loan, or any shareholder, subsidiary or affiliate of Borrower as to any
material matter hereunder or under any of the other Loan Documents, or
delivery by Borrower of any schedule, statement, resolution, report,
certificate, notice or writing to Lender that is untrue in any material
respect on the date as of which the facts set forth therein are stated or
certified;
(c) Failure of Borrower, any guarantor of the Loan, or any shareholder,
subsidiary or affiliate of Borrower to perform any of its obligations,
covenants or agreements under this Agreement, the Note or any of the other
Loan Documents;
(d) Borrower (i) shall generally not pay or shall be unable to pay its
debts as such debts become due; or (ii) shall make an assignment for the
benefit of creditors or petition or apply to any tribunal for the appointment
of a custodian, receiver or trustee for it or a substantial part of its
assets; or (iii) shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or
(iv) shall have had any such petition or application filed or any such
proceeding commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act or
intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or trustee for it or a
substantial part of its assets; or (vi) shall suffer any such custodianship,
receivership or trusteeship to continue undischarged for a period of sixty
(60) days or more;
(e) Borrower shall be liquidated, dissolved, partitioned or terminated,
or the charter thereof shall expire or be revoked;
(f) A default or event of default shall occur under any of the other
Loan Documents and, if subject to a cure right, such default or event of
default shall not be cured within the applicable cure period;
(g) Borrower shall default in the timely payment or performance of any
obligation now or hereafter owed to Lender in connection with any other
indebtedness of Borrower now or hereafter owed to Lender;
(h) Borrower shall have defaulted and continue to be in default in the
timely payment of or performance of any covenant relating to any other
indebtedness or obligation, which in the aggregate exceeds Twenty-Five
Thousand and No/100ths Dollars ($25,000.00) or materially adversely affects
Borrower's financial condition; or
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(i) William Mortimore shall cease to serve as an executive of Borrower
and a suitable replacement agreeable to Lender shall not have been hired by
Borrower within thirty (30) days thereafter.
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a
"Curable Default"), the occurrence of such Curable Default shall not constitute
an Event of Default hereunder if such Curable Default is fully cured and/or
corrected within thirty (30) days (ten (10) days, if such Curable Default may
be cured by payment of a sum of money) of notice thereof to Borrower given in
accordance with the provisions hereof.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of any
Event of Default described in subsection 5.l(d), the indebtedness evidenced by
the Note as well as any and all other indebtedness of Borrower to Lender shall
be immediately due and payable in full; and upon the occurrence of any other
Event of Default described above, Lender at any time thereafter may at its
option accelerate the maturity of the indebtedness evidenced by the Note as
well as any and all other indebtedness of Borrower to Lender; with notice equal
to the Curable Default cure period, to the extent it is a Curable Default. Upon
the occurrence of any such Event of Default and the acceleration of the
maturity of the indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any and all rights
and remedies possessed by Lender pursuant to the terms of the Note and all of
the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies that Lender
may now or hereafter possess at law, in equity or by statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or
by statute. No delay or omission by Lender to exercise any right, power or
remedy accruing upon the occurrence of any Event of Default shall exhaust or
impair any such right, power or remedy or shall be construed to be a waiver
of any such Event of Default or an acquiescence therein, and every right,
power and remedy given by this Agreement and the other Loan Documents to Lender
may be exercised from time to time and as often as may be deemed expedient by
Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the exercise of
any or all of the foregoing remedies shall be applied as set forth in the Loan
Document(s) providing the remedy or remedies exercised; if none is specified,
or if the remedy is provided by this Agreement, then as follows:
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First, to the costs and expenses, including without limitation
reasonable attorney's fees, incurred by Lender in connection with the
exercise of its remedies;
Second, to the expenses of curing the default that has occurred, in the
event that Lender elects, in its sole discretion, to cure the default that
has occurred;
Third, to the payment of the obligations of Borrower under the Loan
Documents (the "Obligations"), including but not limited to the payment of
the principal of and interest on the indebtedness evidenced by the Note,
first against unpaid interest, and second, against principal; and
Fourth, the remainder, if any, to Borrower or to any other person
lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall remain in full
force and effect until the later of (i) the Maturity Date (as defined in the
Note), or (ii) the payment by Borrower of all amounts owed to Lender, at
which time Lender shall cancel the Note and deliver it to Borrower; provided,
however, that if at any time Borrower has satisfied all obligations to Lender,
Borrower may terminate this Agreement by providing written notice to Lender.
ARTICLE 7
MISCELLANEOUS
7.1 Performance by Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Note (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
7.2 Successors and Assigns Included in Parties. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure
to the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
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7.3 Costs and Expenses. Borrower agrees to pay all reasonable costs and
expenses incurred by Lender in connection with the making of the Loan (which
expenses shall not exceed $20,000), including but not limited to filing fees,
recording taxes and reasonable attorneys' fees, promptly upon demand of Lender.
Borrower further agrees to pay all premiums for insurance required to be
maintained by Borrower pursuant to the terms of the Loan Documents and all of
the out-of-pocket costs and expenses incurred by Lender in connection with the
collection of the Loan, amendment to the Loan Documents, or prepayment of the
Loan, including but not limited to reasonable attorneys' fees, promptly upon
demand of Lender.
7.4 Assignment. The Note, this Agreement and the other Loan Documents may
be endorsed, assigned and/or transferred in whole or in part by Lender, and any
such holder and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent transferred
and assigned. Lender may grant participations in all or any portion of its
interest in the indebtedness evidenced by the Note, and in such event Borrower
shall continue to make payments due under the Loan Documents to Lender and
Lender shall have the sole responsibility of allocating and forwarding such
payments in the appropriate manner and amounts. Borrower shall not assign any
of its rights nor delegate any of its duties hereunder or under any of the
other Loan Documents without the prior express written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrower hereunder and under
all of the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law. Anything
in this Agreement, the Note or any of the other Loan Documents to the contrary
notwithstanding, in no event whatsoever, whether by reason of advancement of
proceeds of the Loan, acceleration of the maturity of the unpaid balance of the
Loan or otherwise, shall the interest and loan charges agreed to be paid to
Lender for the use of the money advanced or to be advanced hereunder exceed the
maximum amounts collectible under applicable laws in effect from time to time.
It is understood and agreed by the parties that, if for any reason whatsoever
the interest or loan charges paid or contracted to be paid by Borrower in
respect of the indebtedness evidenced by the Note shall exceed the maximum
amounts collectible under applicable laws in effect from time to time, then
ipso facto, the obligation to pay such interest and/or loan charges shall be
reduced to the maximum amounts collectible under applicable laws in effect from
time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrower so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the note exceed the maximum amounts permitted from
time to time by applicable law.
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7.8 Article and Section Headings; Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
7.9 Notices. Any and all notices, elections or demands permitted or required
to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered
personally, telecopied, telexed, or sent by certified mail or overnight via
nationally recognized courier service (such as Federal Express), to the other
party at the address set forth below, or at such other address as may be
supplied in writing and of which receipt has been acknowledged in writing. The
date of personal delivery or telecopy or two (2) business days after the date
of mailing (or the next business day after delivery to such courier service),
as the case may be, shall be the date of such notice, election or demand. For
the purposes of this Agreement:
The Address of Lender is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: John Dyslin
Telecopy No.: 615/726- 1208
with a copy to: Caldwell & Caldwell, P.C.
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Maria-Lisa Caldwell, Esq.
Telecopy No.: 615/256-9958
The Address of Borrower is: Merge Technologies Incorporated
1126 South 70th Street
Suite S-107B
Milwaukee, WI 53214
Attention: William Mortimore
Telecopy No.: 414/475-3940
with a copy to: Shefsky & Froelich, Ltd.
444 North Michigan Avenue, Suite 2500
Chicago, IL 60611
Attention: Mitch Goldsmith
Telecopy No.: 312/527-5921
7.10 Entire Agreement. This Agreement and the other written agreements
between Borrower and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith
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with respect to the Obligations, the provision of this Agreement shall
control. The execution and delivery of this Agreement and the
other Loan Documents by the Borrower were not based upon any fact or material
provided by Lender, nor was the Borrower induced or influenced to enter into
this Agreement or the other Loan Documents by any representation, statement,
analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement and all of the Loan
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly performed in such State. No
amendment or modification hereof shall be effective except in a writing
executed by each of the parties hereto.
7.12 Survival of Representations and Warranties. All
representations and warranties contained herein or in any of the Loan
documents or made by or furnished on behalf of the Borrower in
connection herewith or in any Loan Documents shall survive the
execution and delivery of this Agreement and all other Loan
Documents.
7.13 Jurisdiction and Venue. Borrower hereby consents to the jurisdiction of
the courts of the State of Tennessee and the United States District Court for
the Middle District of Tennessee, as well as to the jurisdiction of all courts
from which an appeal may be taken from such courts, for the purpose of any
suit, action or other proceeding arising out of any of its obligations arising
under this Agreement or any other Loan Documents or with respect to the
transactions contemplated hereby, and expressly waives any and all objections
it may have as to venue in any of such courts.
7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN
CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it being
agreed that the Borrower, Lender and their respective agents have participated
in the preparation hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION, a
Tennessee corporation
By: /s/ John Dyslin
-----------------------------
John Dyslin
Title: Vice President
BORROWER:
MERGE TECHNOLOGIES INCORPORATED,
a Wisconsin corporation
By: /S/ Colleen M. Doan
------------------------------
Colleen M. Doan
Title: Chief Financial Officer
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INDEX OF SCHEDULES AND ATTACHMENTS
Exhibit A - Form of Note
Exhibit B - Form of Stock Purchase Warrant
Exhibit C - Form of Security Agreement and UCC-1
Exhibit D - Form of Copyright and Royalty Security Agreement
Exhibit E - Landlord's Consent and Subordination of Lien
Exhibit F - Form of Trademark and Patent Security Agreement
Exhibit G - Form of Authorization Agreement for Pre-Authorized Payments (Debit)
Schedule 2.1(b) - Subsidiaries
Schedule 2.1(e) - Stockholder Rights, etc.
Schedule 2.1(f) - Trademarks and Patents
Schedule 2.1(i)(A) and (B) - Financial Statements
Schedule 2.1(1) - Debt and Liens
Schedule 2.1(n) - Certain Transactions
Schedule 2.1(q) - Significant Contracts
Schedule 3.17 - Transactions with Affiliates
<PAGE> 1
Exhibit 10.3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is dated as of the 3Oth day of
June 1997, by and between MERGE TECHNOLOGIES INCORPORATED, a Wisconsin
corporation ("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee
corporation ("Lender").
WITNESSETH:
WHEREAS, Lender is making a loan (the "Loan") in the amount of
$2,000,000 to Borrower, pursuant to that certain Loan Agreement of even date
herewith by and between Borrower and Lender (the "Loan Agreement"); and
WHEREAS, in connection with the making of the Loan, Lender desires to
obtain from Borrower and Borrower desires to grant to Lender a security
interest in certain collateral more particularly described below.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Security Interest. Borrower hereby grants to Lender a
security interest in the following described property and any and all proceeds
and products thereof and accessions thereto (collectively the "Collateral"):
(a) Equipment. All equipment of Borrower of any kind and
description, whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all replacements
thereof and additions thereto;
(b) Inventory, Accounts, Contract Rights, Chattel Paper and General
Intangibles. All of Borrower's inventory and any agreements for lease of same
and rentals therefrom and all of Borrower's accounts, accounts receivable,
contract rights, chattel paper and general intangibles and the proceeds
therefrom, whether now in existence or owned or hereafter arising or
acquired, entered into or created, and wherever located; and whether held for
lease or sale, or furnished or to be furnished under contracts of service;
(c) Trademarks, Etc. All trademarks and service marks now held or
hereafter acquired by Borrower, both those that are registered with the
United States Patent and Trademark Office and any unregistered marks used by
Borrower in the United States, and trade dress, including logos and designs,
in connection with which any such marks are used, together with all
registrations regarding such marks and the rights to renewals thereof, and
the goodwill of the business of Borrower symbolized by such marks;
<PAGE> 2
(d) Copyrights. All copyrights now held or hereafter acquired by
Borrower and any applications for U.S. copyrights hereafter made by Borrower;
and
(e) Proprietary Information, Computer Data, Etc. All proprietary
information and trade secrets of Borrower with respect to Borrower's business
and all of Borrower's computer programs and the information contained therein
and all intellectual property rights with respect thereto, it is understood
and agreed that proprietary information which is owned by third parties, but
made available to Borrower pursuant to confidentiality agreements or
otherwise, is hereby expressly excluded form the Collateral.
2. Secured Indebtedness. The obligations secured hereby shall include (a)
loans to be made concurrently or in connection with this Agreement or the Loan
Agreement as evidenced by one or more promissory notes payable to the order of
Lender that shall be due and payable as set forth in such promissory notes, and
any renewals or extensions thereof, (b) the full and prompt payment and
performance of any and all other indebtednesses and other obligations of
Borrower to Lender, direct or contingent (including but not limited to
obligations incurred as indorser, guarantor or surety), however evidenced or
denominated, and however and whenever incurred, including but not limited to
indebtednesses incurred pursuant to any present or future commitment of Lender
to Borrower and (c) all future advances made by Lender for taxes, levies,
insurance and preservation of the Collateral and all attorney's fees, court
costs and expenses of whatever kind incident to the collection of any of said
indebtedness or other obligations and the enforcement and protection of the
security interest created hereby.
3. Representations, Warranties and Agreements of Borrower. Borrower
represents, warrants and agrees as follows:
(a) Borrower will promptly notify Lender, in writing, of any new place or
places of business if the Collateral is used in business, or of any change in
Borrower's residence if the Collateral is not used in business, and
regardless of use, of any change in the location of the Collateral or any
records pertaining thereto; provided however, Borrower shall not be obligated
to notify Lender of any new place in which less that $10,000 of Collateral is
located.
(b) Except as set forth on Schedule 3(b) hereto (the "Permitted
Encumbrances"), Borrower is the owner of the Collateral free and clear of any
liens and security interests. Borrower will defend the Collateral against the
claims and demands of all persons other than Permitted Encumbrances.
(c) Borrower will pay to Lender all amounts secured hereby as and when the
same shall be due and payable, whether at maturity, by acceleration or
otherwise, and will promptly perform all terms of said indebtedness and this
or any other security or loan agreement between Borrower and Lender, and will
promptly discharge all said liabilities.
(d) Borrower will at all times keep the Collateral insured against all
insurable hazards in amounts equal to the full cash value of the Collateral.
Such insurance shall be in
2
<PAGE> 3
such companies as may be acceptable to Lender, with provisions satisfactory
to Lender for payment of all losses thereunder to Lender as its interests
may appear. If required by Lender, Borrower shall deposit copies of the
policies with Lender. Any money received by Lender under said policies
may be applied to the payment of any indebtedness secured hereby, whether or
not due and payable, or at Lender's option may be delivered by Lender to
Borrower for the purpose of repairing or restoring the Collateral. Borrower
assigns to Lender all right to receive proceeds of insurance not exceeding
the amounts secured hereby, directs any insurer to pay all proceeds directly
to Lender, and appoints Lender Borrower's attorney in fact to endorse any
draft or check made payable to Borrower in order to collect the benefits of
such insurance. If Borrower fails to keep the Collateral insured as required
by Lender, Lender shall have the right to obtain such insurance at Borrower's
expense and add the cost thereof to the other amounts secured hereby.
Notwithstanding the foregoing, to the extent that Borrower is required to
make available any of such insurance proceeds to or for the benefit of any
senior secured lender as permitted under the Loan Agreement, then Borrower's
failure to assign or deliver such proceeds to Lender shall not be deemed a
default of this Section 3(d).
(e) Borrower will pay all costs of filing of financing, continuation
and termination statements with respect to the security interests created
hereby, and Lender is authorized to do all things that it deems necessary to
perfect and continue perfection of the security interests created hereby and
to protect the Collateral.
(f) The addresses set forth after Borrower's signature on this Agreement
and on Schedule 3(f) hereto are Borrower's principal place of business and
the location of all tangible Collateral and the place where the records
concerning all intangible Collateral are kept and/or maintained.
(g) Notwithstanding anything to the contrary contained hereunder,
Borrower shall have no obligation to take action necessary to perfect
Lender's security interest in or to otherwise protect from encumbrance, any
Collateral situated in any location other than Wisconsin to the extent that
the fair market value of such Collateral in such state or country in the
aggregate is less than $10,000 (except for the purposes of the state of
California, the value of such Collateral is less than $15,000). In addition,
Borrower shall have no obligation to perfect Lender's security interest in
Collateral located in Nuenen, Netherlands, or in any other foreign location
where the fair market value of the Collateral is below $10,000.
4. Default. Borrower shall be in default upon failure to observe or perform
any of Borrower's agreements herein contained, or upon the occurrence of a
default or Event of Default under the Loan Agreement or any other Loan Document
(as defined in the Loan Agreement) that has not been cured during the
applicable grace period, or if any warranty or statement by Borrower herein or
furnished in connection herewith is false or misleading in any material
respect.
5. Remedies Upon Default. Upon default hereunder, all sums secured
hereby shall immediately become due and payable at Lender's option, and Lender
may proceed to enforce payment
<PAGE> 4
of same and to exercise any and all rights and remedies provided by the Uniform
Commercial Code (Tennessee) or other applicable law, as well as all other rights
and remedies possessed by Lender, all of which shall be cumulative. Whenever
Borrower is in default hereunder, and upon demand by Lender, Borrower shall
assemble the Collateral and make it available to Lender at a place reasonably
convenient to Lender and Borrower. Any notice of sale, lease or other intended
disposition of the Collateral by Lender sent to Borrower at the address
hereinafter set forth, or at such other address of Borrower as may be shown on
Lender's records, at least five (5) business days prior to such action, shall
constitute reasonable notice to Borrower.
Lender may waive any default before or after the same has been declared
without impairing its right to declare a subsequent default hereunder, this
right being a continuing one.
6. Severability. If any provision of this Agreement is held invalid, such
invalidity shall not affect the validity or enforceability of the remaining
provisions of this Agreement.
7. Binding Effect. This Agreement shall inure to the benefit of Lender's
successors and assigns and shall bind Borrower's heirs, representatives,
successors and assigns. If Borrower is comprised of more than one person, firm
and/or entity, their obligations hereunder shall be joint and several.
8. Financial Reporting. Borrower has no material (i.e. value of $5,000 or
more) undisclosed or contingent liabilities that are not reflected in the
financial statements on file with Lender at the execution of this Agreement.
Lender shall have the right, at any time, by its own auditors, accountants or
other agents, to examine or audit any of the books and records of Borrower, or
the Collateral, all of which will be made available upon request. Such
accountants or other representatives of Lender will be permitted to make any
verification of the existence of the Collateral or accuracy of the records that
Lender deems necessary or proper. Any reasonable expenses incurred by Lender in
making such examination, inspection, verification or audit shall be paid by
Borrower promptly on demand and shall be secured by the security interest
granted hereby.
9. Termination Statement. Borrower agrees that, notwithstanding the
payment in full of all indebtedness secured hereby and whether or not there is
any outstanding obligation of Lender to make future advances, Lender shall not
be required to send Borrower a termination statement with respect to any
financing statement filed to perfect Lender's security interest(s) in any of
the Collateral, unless and until Borrower shall have made written demand
therefor. Upon receipt of proper written demand, Lender may at its option, in
lieu of sending a termination statement to Borrower, cause said termination
statement to be filed with the appropriate filing officer(s).
10. Protection of Collateral. Borrower will not permit any liens or
security interests other than those created by this Agreement and the Permitted
Encumbrances (or the Permitted Encumbrances permitted under Section 3.15 of the
Loan Agreement) to attach to any of the Collateral, nor permit any of the
Collateral to be levied upon under any legal process, nor permit anything to be
done that may impair the security intended to be afforded by this Agreement,
nor permit any tangible Collateral to become attached to or commingled with
other goods without the
4
<PAGE> 5
prior written consent of Lender.
11. Special Agreements With Respect to Certain Tangible Collateral.
Borrower additionally agrees and warrants as follows:
(a) Borrower will not permit any of the Collateral to be removed from
the location specified herein, except for temporary periods in the normal
and customary use thereof, without the prior written consent of Lender, and
will permit Lender to inspect the Collateral at any time, notwithstanding
anything to the contrary herein, Borrower shall be permitted to deliver
Collateral: (i) to suppliers in the ordinary course of business for
additional assembly work or for the provision of other value added goods or
services, and (ii) to customers for usage or testing at their places of
business, provided such Collateral provision is in the ordinary course of
business.
(b) If any of the Collateral is equipment or goods of a type normally
used in more than one state (whether or not actually so used), Borrower
will contemporaneously herewith furnish Lender a list of the states wherein
such equipment or goods (have a fair market value of $10,000 or more, for
anyone location) are or will be used, and hereafter will notify Lender in
writing (i) of any other states in which such equipment or goods are so
used, and (ii) of any change in the location of Borrower's chief place of
business.
(c) Borrower will not sell, exchange, lease or otherwise dispose of
any of the Collateral or any interest therein except in the ordinary course
of business without the prior written consent of Lender.
(d) Borrower will keep the Collateral in good condition and repair and
will pay and discharge all taxes, levies and other impositions levied
thereon as well as the cost of repairs to or maintenance of same, and will
not permit anything to be done that may impair the value of any of the
Collateral. If Borrower fails to pay such sums, Lender may do so for
Borrower's account and add the amount thereof to the other amounts secured
hereby.
(e) Until default in any of the terms hereof, or the terms of any
indebtedness secured hereby, Borrower shall be entitled to possession of
the Collateral and to use the same in any lawful manner, provided that such
use does not cause excessive wear and tear to the Collateral, cause it to
decline in value at an excessive rate, or violate the terms of any policy
of insurance thereon.
(f) Borrower will not allow the Collateral to be attached to real
estate in such manner as to become a fixture or a part of any real estate.
12. Special Agreements With Respect to Intangible and Certain Tangible
Collateral. Borrower additionally warrants and agrees as follows:
(a) So long as Borrower is not in default hereunder, Borrower shall
have the right
5
<PAGE> 6
to process and sell Borrower's inventory in the regular course of business.
Lender's security interest hereunder shall attach to all proceeds of all
sales or other dispositions of the Collateral. If at any time any such
proceeds shall be represented by any instruments, chattel paper or
documents of title, then such instruments, chattel paper or documents of
title shall be promptly delivered to Lender and subject to the security
interest granted hereby. If at any time any of Borrower's inventory is
represented by any document of title, such document of title will be
delivered promptly to Lender and subject to the security interest granted
hereby.
(b) By the execution of this Agreement, Lender shall not be obligated
to do or perform any of the acts or things provided in any contracts
covered hereby that are to be done or performed by Borrower, but if there
is a default by Borrower in the payment of any amount due in respect of any
indebtedness secured hereby, then Lender may, at its election, perform some
or all of the obligations provided in said contracts to be performed by
Borrower, and if Lender incurs any liability or expenses by reason thereof,
the same shall be payable by Borrower upon demand and shall also be secured
by this Agreement.
(c) At any time after Borrower is in default hereunder or under the
Loan Agreement, Lender shall have the right to notify the account debtors
obligated on any or all of Borrower's accounts receivable to make payment
thereof directly to Lender, and to take control of all proceeds of any such
accounts receivable. Until such time as Lender elects to exercise such
right by mailing to Borrower written notice thereof, Borrower is
authorized, as agent of the Lender, to collect and enforce said accounts
receivable.
13. Power of Attorney. Borrower hereby constitutes the Lender or its
designee, as Borrower's attorney-in-fact with power, upon the occurrence and
during the continuance of an Event of Default, to endorse Borrower name upon
any notes, acceptances, checks, drafts, money orders, or other evidences of
payment or Collateral that may come into either its or the Lender's possession;
to sign the name of Borrower on any invoice or bill of lading relating to any
of the accounts receivable, drafts against customers, assignments and
verifications of accounts receivable and notices to customers; to send
verifications of accounts receivable; to notify the Post Office authorities to
change the address for delivery of mail addressed to Borrower to such address
as the Lender may designate; to execute any of the documents referred to in
Section 3(e) hereof in order to perfect and/or maintain the security interests
and liens granted herein by Borrower to the Lender; to do all other acts and
things necessary to carry out this Security Agreement. All acts of said
attorney or designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of commission or omission (other than
acts of gross negligence or willful misconduct), nor for any error of judgment
or mistake of fact or law; this power being coupled with an interest is
irrevocable until all of the obligations secured hereby are paid in full and any
and all promissory notes executed in connection therewith are terminated and
satisfied.
14. Governing Law and Amendments. This Agreement and all of the Loan
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly, performed in such State. No
amendment or modification hereof shall be effective except in a writing
executed by each of the parties hereto.
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<PAGE> 7
15. Survival of Representations and Warranties. All representations and
warranties contained herein or made by or furnished on behalf of the Borrowers
in connection herewith shall survive the execution and delivery of this
Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
17. Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be more strictly construed
against the party that itself or through its agent prepared the same, it being
agreed that the Borrower, Lender and their respective agents have participated
in the preparation hereof.
18. Senior Debt. Notwithstanding anything to the contrary contained
herein, the parties acknowledge and agree that the Collateral may be subject to
a prior lien in favor of the issuer of a "Senior Credit Facility," as that term
is defined in the Loan Agreement, and all requirements imposed upon Borrower
pursuant to the Senior Credit Facility, including but not limited to said
Lender's priority interest in the Collateral, shall be expressly permitted
hereunder and subordinate in all respects to the rights of the Senior Credit
Facility lender, its successors and assigns, to the extent set forth in a
subordination agreement containing terms reasonably satisfactory to Lender,
executed by Lender in favor of such Senior Credit Facility lender.
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<PAGE> 8
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement, or
have caused this Agreement to be executed as of the date first above written.
BORROWER:
MERGE TECHNOLOGIES INCORPORATED
By: /s/ Colleen M. Doan
---------------------------
Title: Chief Financial Officer
------------------------
Address: 1126 South 70th Street
Suite S-107B
Milwaukee, Wi 43214
LENDER:
SIRROM CAPITAL CORPORATION
By: /s/ John Dyslia
---------------------------
Title: Vice President
------------------------
8
<PAGE> 1
EXHIBIT 10.4
SECURED PROMISSORY NOTE
$2,000,000 June 30, 1997
FOR VALUE RECEIVED, the undersigned, MERGE TECHNOLOGIES INCORPORATED, a
Wisconsin corporation ("Maker"), promises to pay to the order of SIRROM CAPITAL
CORPORATION, a Tennessee corporation ("Payee", Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at Sirrom Capital Corporation, P.O. Box 30378, Nashville, TN
37241-0378, or at such other place as Holder may designate to Maker in writing
from time to time, the principal sum of TWO MILLION AND NO/100THS DOLLARS
($2,000,000.00), together with interest on the outstanding principal balance
hereof from the date hereof at the rate of thirteen and one-half percent
(13.5%) per annum (computed on the basis of a 360-day year).
Interest only on the outstanding principal balance hereof shall be due and
payable monthly, in arrears, with the first installment being payable on the
first (1st) day of August, 1997, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until June 30, 2002 (the
"Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest, shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part, at
any time and from time to time, without penalty. Any such prepayments shall be
credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof
Time is of the essence of this Note. It is hereby expressly agreed that in
the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured following the giving of any
applicable notice and within five (5) days; or in the event that any default or
event of default shall occur under that certain Loan Agreement of even date
herewith, between Maker and Payee (the "Loan Agreement"), which default or
event of default is not cured following the giving of any applicable notice and
within any applicable cure period set forth in said Loan Agreement; or should
any default by Maker be made in the performance or observance of any covenants
or conditions contained in any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby
(subject to any applicable notice and cure period provisions that may be set
forth therein); then, and in such event, the entire outstanding principal
balance of the indebtedness evidenced hereby, together with any other sums
advanced hereunder, under the loan agreement and/or under any other instrument
or document now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby, together with all unpaid interest accrued
thereon, shall, at the option of Holder and without notice to Maker, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, at the option of Holder and without notice to Maker, all accrued and
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall
bear interest thereafter until paid at an annual rate (the "Default Rate")
equal to the lesser of (i) the rate that is three percentage points (3.0%) in
<PAGE> 2
excess of the above-specified interest rate, or (ii) the maximum rate of
interest allowed to be charged under applicable law (the "Maximum Rate"),
regardless of whether or not there has been an acceleration of the payment of
principal as set forth herein. All such interest shall be paid at the time of
and as a condition precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any indorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest and
nonpayment are hereby waived by Maker and all other parties hereto. No failure
to accelerate the indebtedness evidenced hereby by reason of default hereunder,
acceptance of a past-due installment or other indulgences granted from time to
time, shall be construed as a novation of this Note or as a waiver of such
right of acceleration or of the right of Holder thereafter to insist upon
strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by
applicable laws. No extension of the time for payment of the indebtedness
evidenced hereby or any installment due hereunder, made by agreement with any
person now or hereafter liable for payment of the indebtedness evidenced
hereby, shall operate to release, discharge, modify, change or affect the
original liability of Maker hereunder or that of any other person now or
hereafter liable for payment of the indebtedness evidenced hereby, either in
whole or in part, unless Holder agrees otherwise in writing. This Note may not
be changed orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
The indebtedness and other obligations evidenced by this Note are further
evidenced by (i) the Loan Agreement and (ii) certain other instruments and
documents, as may be required to protect and preserve the rights of Maker and
Payee as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration
of maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby shall involve the payment of interest in excess
of the Maximum Rate, then, ipso facto the obligation to pay interest hereunder
shall be reduced to the Maximum Rate; and if from any circumstance whatsoever,
Holder shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control
every other provision in any and all other agreements and instruments existing
or hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby:
<PAGE> 3
This Note is tended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to
the extent that federal law may be applicable to the determination of the
Maximum Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to include
their respective successors, legal representatives and assigns, whether by
voluntary action of the parties or by operation of law.
MAKER:
MERGE TECHNOLOGIES INCORPORATED,
a Wisconsin corporation
By: /s/Colleen M. Doan
----------------------------
Title: Chief Financial Officer
-------------------------
<PAGE> 1
EXHIBIT 10.9
STOCK OPTION PLAN FOR
EMPLOYEES OF
MERGE TECHNOLOGIES INCORPORATED
MERGE TECHNOLOGIES INCORPORATED, a corporation organized under the laws
of the State of Wisconsin, hereby adopts this Stock Option Plan for Employees
of Merge Technologies Incorporated. The purposes of this Plan are as follows:
1. To further the growth, development and financial success of the
Company by providing additional incentives to certain of its Employees who have
been or will be given responsibility for the management or administration of
the Company's business affairs, by assisting them to become owners of capital
stock of the Company and thus to benefit directly from its growth, development
and financial success.
2. To enable the Company to obtain and retain the services of the type
of professional, technical and managerial employees considered essential to the
long-range success of the Company by providing and offering them an opportunity
to become owners of capital stock of the Company under options, including
options that are intended to qualify as "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
SECTION 1.1 - BOARD
"Board" shall mean the Board of Directors of the Company.
SECTION 1.2 - CODE
"Code" shall mean the Internal Revenue Code of 1986, as amended.
SECTION 1.3 - COMMITTEE
"Committee" shall mean the Stock Option Committee of the Board,
appointed as provided in Section 6.1.
<PAGE> 2
SECTION 1.4 - COMMON STOCK
"Common Stock" shall mean the Common Stock, One Cent ($.01) par value,
of the Company.
SECTION 1.5 - COMPANY
"Company" shall mean MERGE TECHNOLOGIES INCORPORATED.
SECTION 1.6 - DIRECTOR
"Director" shall mean a member of the Board.
SECTION 1.7 - DISABILITY
"Disability" shall have the meaning set forth in Section 2.2(e)(3) of
the Code.
SECTION 1.8 - EMPLOYEE
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Subsidiary, whether
such employee is so employed at the time this Plan is adopted or becomes so
employed subsequent to the adoption of this Plan.
SECTION 1.9 - EXCHANGE ACT
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
SECTION 1.10 - INCENTIVE STOCK OPTION
"Incentive Stock Option" shall mean an Option which qualifies under
Section 422(b) of the code and which is designated as an Incentive Stock Option
by the Committee.
SECTION 1.11 - NON-QUALIFIED OPTION
"Non-Qualified Option" shall mean an Option which is not an Incentive
Stock Option.
SECTION 1.12 - OFFICER
"Officer" shall mean an officer of the Company or any Subsidiary.
2
<PAGE> 3
SECTION 1.13 - OPTION
"Option" shall mean an option to purchase Common Stock of the Company,
granted under the Plan. "Options" includes both Incentive Stock Options and
Non-Qualified Options.
SECTION 1.14 - OPTIONEE
"Optionee" shall mean an Employee to whom an Option is granted under
the Plan.
SECTION 1.15 - PLAN
"Plan" shall mean this Stock Option Plan for Employees of MERGE
TECHNOLOGIES INCORPORATED.
SECTION 1.16 - SECRETARY
"Secretary" shall mean the Secretary of the Company.
SECTION 1.17 - SECURITIES ACT
"Securities Act" shall mean the Securities Act of 1933, as amended.
SECTION 1.18 - SUBSIDIARY
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Section 1.19 - TERMINATION OF EMPLOYMENT
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding terminations where there is a simultaneous
reemployment of the Optionee by the Company or a Subsidiary. The Committee, in
its absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment resulted from a
discharge for good cause, and all questions of whether particular leaves of
absence constitute Terminations of Employment; provided, however, that, with
respect to Incentive Stock Options, a leave of absence shall constitute a
Termination of Employment if, and to the extent that, such leave of absence
interrupts employment for the purposes of
3
<PAGE> 4
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
SECTION 2.1 - SHARES SUBJECT TO PLAN
The shares of stock subject to Options shall be shares of the Company's
Common Stock. The aggregate number of such shares which may be issued upon
exercise of Options (including those granted under the Original Plan) shall not
exceed 200,000. For purposes of the foregoing limitation, any reduction in
shares issuable to an Optionee in full or part payment of the option price in
accordance with the provisions of Section 5.3(b) or (c) shall nevertheless be
deemed to have been issued.
SECTION 2.2 - UNEXERCISED OPTIONS
If any Option expires or is cancelled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
optioned hereunder, subject to the limitations of Section 2.1.
SECTION 2.3 - CHANCES IN COMMON STOCK
In the event that the outstanding shares of Common Stock of the Company
are hereafter changed into or exchanged for a different number or kind of
shares or other securities of the Company, or of another corporation, by reason
of reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, stock dividend, combination of shares or otherwise, appropriate
adjustments shall be made by the Committee in the number and kind of shares for
the purchase of which Options may be granted, including adjustments of the
limitations in Section 2.1 on the maximum number and kind of shares which may
be issued on exercise of Options.
ARTICLE III
GRANTING OF OPTIONS
SECTION 3.1 - ELIGIBILITY
Any Employee of the Company or of any corporation which is then a
Subsidiary shall be eligible to be granted Options, except as provided in
Section 3.2.
4
<PAGE> 5
SECTION 3.2 - QUALIFICATION OF INCENTIVE STOCK OPTIONS
No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option' under Section 422(b) of the
Code.
SECTION 3.3 - GRANTING OF OPTIONS
(a) The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are Employees and select from
among the Employees (including those to whom Options have been
previously granted under the Plan) such of them as in its opinion
should be granted Options; and
(ii) Determine the number of shares to be subject to such
Options granted to such selected Employees, and determine whether
such Options are to be Incentive Stock Options or Non-Qualified
Options, provided that in no event may any Employee be granted,
during any fiscal year of the Company, Options hereunder covering
more than 10,000 shares of Common Stock; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan.
Notwithstanding the above, the Committee may delegate certain powers
relating to the granting of Options as it deems appropriate to executive
officers of the Company including the power to determine the number of shares
to be subject to Options (subject to a maximum amount set by the Committee),
whether such Options are to be Incentive Stock Options or Non-Qualified Options
and to determine the terms and conditions of such Options including the
imposition of one more condition to exercise such as the execution by the
Optionee of a non-competition agreement in favor of the Company or a
Subsidiary; provided, however, that the Committee shall not delegate any powers
that are required to be exercised by the Committee under Section 16(b) of the
Exchange Act or any rules promulgated thereunder.
(b) Upon the selection of an Employee to be granted an Option, the
Committee shall instruct the Secretary to issue such Option and may impose
such conditions on the grant of such Option as it deems appropriate. Without
limiting the generality of the preceding sentence, the Committee may, in its
discretion and on such terms as it deems appropriate, require as a condition on
the grant of any Option to an Employee that the Employee surrender for
cancellation some or all of the unexercised Options which have been previously
granted to him. An Option, the grant of which is conditioned upon such
surrender, may have an option price lower (or higher) than the option price of
the surrendered Option, may cover
<PAGE> 6
the same (or a lesser or greater) number of shares as the surrendered Option,
may contain such other terms as the Committee deems appropriate and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, option period or any other term or condition of the surrendered
Option.
ARTICLE IV
TERMS OF OPTIONS
SECTION 4.1 - OPTION AGREEMENT
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized Officer of the Company and
which shall contain such terms and conditions as the Committee shall determine,
consistent with the Plan. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to qualify
such Options as "incentive stock options" under Section 422(b) of the Code.
SECTION 4.2 - OPTION PRICE
(a) The price of the shares subject to each Option shall be set by the
Committee; provided, however, that (i) the price per share of a Non-Qualified
Option shall be not less than the lesser of 85% of the fair market value of
such shares on the date such Option is granted or the average of the fair
market values of such shares on the five most recent trading days prior to the
date that such Option is granted, and (ii) the price per share of an Incentive
Stock Option shall not be less than 100% of the fair market value of such
shares on the date such Option is granted.
(b) For purposes of the Plan, the fair market value of a share of the
Company's stock as of a given date shall be: (i) the closing price of the
Common Stock on the principal national stock exchange on which the shares are
listed on such date or, if shares were not traded on such date, then on the
next preceding trading day during which a sale occurred; or (ii) if such stock
is not listed on an exchange but is quoted on NASDAQ or a successor quotation
system, (1) the last sales price (if the stock is then listed as a National
Market Issue under the NASD National Market System) or (2) the mean between the
closing representative bid and asked prices (in all other cases) for the stock
on such date as reported by NASDAQ or such successor quotation system; or (iii)
if such stock is not listed on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the stock, on such date, as determined in good faith by the Committee; or
(iv) if the Company's stock is not publicly traded, the fair market value
established by the Committee acting in good faith. In determining the fair
market value of the
6
<PAGE> 7
Company's Common Stock under subsection l(b) of this Section 4.2, the Committee
may rely on the closing price as reported in the Wall Street Journal.
SECTION 4.3 - COMMENCEMENT OF EXERCISABILITY
(a) Subject to the provisions of Sections 4.3(b), 4.3(c) and 7.3, Options
shall become exercisable at such times and in such installments (which may be
cumulative) as the Committee shall provide in the terms of each individual
Option; provided, however, that by a resolution adopted after an Option is
granted the Committee may, on such terms and conditions as it may determine to
be appropriate and subject to Sections 4.3(b), 4.3(c) and 7.3, accelerate the
time at which such Option or any portion thereof may be exercised.
(b) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
(c) Notwithstanding any other provision of this Plan, in the case of an
Incentive Stock Option, the aggregate fair market value (determined at the time
the Incentive Stock Option is granted) of the shares of the Company's stock
with respect to which "incentive stock options" (within the meaning of Section
422(b) of the Code) are exercisable for the first time by the Optionee during
any calendar year (under the Plan and all other incentive stock option plans of
the Company and any Subsidiary) shall not exceed $100,000.
SECTION 4.4 - EXPIRATION OF OPTIONS
(a) No Option may be exercised to any extent by anyone after the first to
occur of the following events:
(i) In the case of an Incentive Stock Option, the expiration of ten
years from the date the Option was granted; or in the case of an Optionee
owning (within the meaning of Section 425(d) of the Code), at the time the
Incentive Stock Option was granted, more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary, the
expiration of five years from the date the Incentive Stock Option was
granted; or
(ii) In the case of a Non-Qualified Option, the expiration of fifteen
years and one day from the date the Option was granted; or
(iii) The expiration of three months from the date of the Optionee's
Termination of Employment; or
(iv) The engagement by the Employee in willful misconduct which injures
the Company or any of its Subsidiaries.
7
<PAGE> 8
(b) Subject to the provisions of Section 4.4(a), the Committee shall
provide, in the terms of each individual Option, when such Option expires and
become unexercisable; and (without limiting the generality of the foregoing)
the Committee may provide in the terms of individual Options that said Options
expire immediately upon a Termination of Employment for any reason.
SECTION 4.5 - TENURE OF EMPLOYMENT
Nothing in this Plan or in any Stock Option Agreement hereunder shall
confer upon any Optionee any right to continue in the employ of the Company or
any Subsidiary or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
any Optionee at any time for any reason whatsoever, with or without cause.
SECTION 4.6 - ADJUSTMENTS IN OUTSTANDING OPTIONS
In the event that the outstanding shares of the stock subject to Options
are changed into or exchanged for a different number or kind of shares of the
Company or other securities of the Company by reason of merger, consolidation,
recapitalization, reclassification, stock split-up, stock dividend, combination
of shares or otherwise, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which all outstanding
Options, or portions thereof then unexercised, shall be exercisable, to the end
that after such event the Optionee's proportionate interest shall be maintained
as before the occurrence of such event. Such adjustment in an outstanding
Option shall be made without change in the total price applicable to the Option
or the unexercised portion of the Option (except for any change in the
aggregate price resulting from rounding-off of share quantities or prices) and
with any necessary corresponding adjustment in Option price per share;
provided, however, that, in the case of Incentive Stock Options, each such
adjustment shall be made in such manner as not to constitute a "modification"
within the meaning of Section 425(h)(3) of the Code. Any such adjustment made
by the Committee shall be final and binding upon all Optionees, the Company and
all other interested persons.
SECTION 4.7 - MERGER, CONSOLIDATION, ACQUISITION, LIQUIDATION OR DISSOLUTION
In the event of: (1) a merger or consolidation in which the Company is not
the surviving corporation; or (2) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then to
the extent permitted by applicable law: (i) any surviving corporation shall
assume any of the options outstanding under the Plan or shall
8
<PAGE> 9
substitute similar options for those outstanding under the Plan, or (ii) such
options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such options, or to substitute
similar options for those outstanding under the Plan, then, the time at which
such options may first be exercised shall accelerated and the options
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, any options outstanding under the Plan shall
terminate if not exercised prior to such event.
ARTICLE V
EXERCISE OF OPTIONS
SECTION 5.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise an Option
granted to him, or any portion thereof. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under Section 4.4 or Section 4.7, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
SECTION 5.2 - PARTIAL EXERCISE
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof become unexercisable under Section 4.4 or
Section 4.7, such Option or portion thereof may be exercised in whole or in
part; provided, however, that the Company shall not be required to issue
fractional shares and the Committee may, by the terms of the Option, require
any partial exercise to be with respect to a specified minimum number of
shares.
SECTION 5.3 - MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under Section 4.4 or Section 4.7:
(a) Notice in writing signed by the Optionee or other person
then entitled to exercise such Option or portion, stating that such
Option or portion is exercised, such notice complying with all
applicable rules established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is thereby exercised; or
9
<PAGE> 10
(ii) Subject to the Committee's consent, shares of Common Stock
owned by the Optionee duly endorsed for transfer to the Company,
or issuable to the Optionee upon exercise of the Option, with a
fair market value (as determinable under Section 4.2(b)) on the
date of delivery equal to the aggregate Option Price of the
shares with respect to which such Option or portion is thereby
exercised; or
(iii) Subject to the Committee's consent, full payment in any other
form approved by the Committee, consistent with applicable law
and the Plan; or
(iv) Any combination of the consideration provided in the foregoing
subsections (i), (ii) and (iii); and
(c) On or prior to the date the same is required to be withheld:
(i) Full payment (in cash or by check) of any amount that must be
withheld by the Company for federal, state and/or local tax
purposes; or
(ii) Subject to the Committee's consent, full payment by delivery to
the Company of shares of the Common Stock owned by the Optionee
duly endorsed for transfer to the Company by the Optionee or
other person then entitled to exercise such Option or portion
with an aggregate fair market value (as determinable under
Section 4.2(b)) equal to the amount that must be withheld by the
Company for federal, state and/or local tax purposes; or
(iii) Subject to the Committee's consent, full payment by retention
by the Company of shares of Common Stock to be issued pursuant
to such Option exercise with an aggregate fair market value (as
determinable under Section 4.2(b)) equal to the amount that must
be withheld by the Company for federal, state and/or local tax
purposes; or
(iv) Any combination of payments provided for in the foregoing
subsections (i), (ii) or (iii);
provided that if the Company is subject to the reporting
requirements under the Exchange Act, if and to the extent required by
Rule 16b-3 promulgated under Section 16 of the Exchange Act ("Rule
16b-3"), an election to make full payment by the means described in
Section 5.3(c)(ii) or 5.3(c)(iii) shall be made more than six months
after grant of the Option and either (x) made and the Option exercised
only during the period beginning of the third
10
<PAGE> 11
business day following the date of release of quarterly or
annual summary statements of sales and earnings of the Company and
ending on the twelfth business day following such date, or (y)
irrevocably made more than six months prior to the date the amount of
tax to be withheld is determined in the case of Sections 5.3(c)(ii) and
5.3(iii); and
(d) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act and any other
federal or state securities laws or regulations. The Committee may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer orders
to transfer agents and registrars; and
(e) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than
the Optionee, appropriate proof of the right of such person or persons
to exercise the Option or portion thereof.
SECTION 5.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the
Company. The Company shall not be required to issue or deliver any certificate
or certificates for shares of stock purchased upon the exercise of any Option
or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall, in its
absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
11
<PAGE> 12
(d) The payment to the Company (or other employer corporation) of
all amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time
for reasons of administrative convenience.
SECTION 5.5 - RIGHTS AS STOCKHOLDERS
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
SECTION 5.6 - TRANSFER RESTRICTIONS
The Committee, in its absolute discretion, may impose such restrictions on
the transferability of the shares purchasable upon the exercise of an Option as
it deems appropriate, including a commitment on behalf of the Optionee to
afford the Company first refusal rights upon a proposed sale of shares of
Common Stock or restrictions on transfer necessary or desirable, as the
Committee in its sole discretion may determine, to preserve the S corporation
status of the Company. Any such restriction shall be set forth in the
respective Stock Option Agreement or in a separate written agreement and may be
referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of stock acquired by exercise of an Incentive Stock Option, within two
years from the date of granting such Option or one year after the transfer of
such shares to such Employee. The Committee may direct that the certificates
evidencing shares acquired by exercise of an Incentive Stock Option refer to
such requirement to give prompt notice of disposition.
ARTICLE VI
ADMINISTRATION
SECTION 6.1 - STOCK OPTION COMMITTEE
(a) The Stock Option Committee shall consist of at least two Directors of
the Company (or such smaller number as may be permitted under Rule 16b-3, if
and as such Rule is then in effect) appointed by and holding office during the
pleasure of the Board. No Options may be granted to any member of the Committee
during the term of his membership on the Committee. No person shall be
12
<PAGE> 13
eligible to serve on the Committee unless he is then a "disinterested person"
within the meaning of paragraph (e)(2)(i) of Rule 16b-3.
(b) Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee shall be filled by the Board.
SECTION 6.2 - DUTIES AND POWERS OF COMMITTEE
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the Options and to adopt such
rules for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock
options" within the meaning of Section 422(b) of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and
all rights and duties of the Committee under the Plan.
SECTION 6.3 - MAJORITY RULE
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
SECTION 6.5 - COMPENSATION: PROFESSIONAL ASSISTANCE: GOOD FAITH ACTIONS
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
Officers and Directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Optionees, the Company and all other interested persons. No member of
the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Options, and
all members of the Committee shall be fully protected by the Company in respect
to any such action, determination or interpretation.
13
<PAGE> 14
ARTICLE VII
OTHER PROVISIONS
SECTION 7.1 - OPTIONS NOT TRANSFERABLE
No Option or interest or right therein or part thereof shall be liable for
the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 7.1 shall prevent transfers by
will or by the applicable laws of descent and distribution.
SECTION 7.2 - AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board. However,
to the extent required by Rule 16b-3 or the Code, no action of the Board may,
except as provided in Section 2.3, increase any limit imposed in Section 2.1 on
the maximum number of shares which may be issued on exercise of Options, modify
the eligibility requirements of Section 3.1, reduce the minimum Option price
requirements of Section 4.2(a) or extend the limit imposed in this Section 7.2
on the period during which Options may be granted without approval of the
Company's shareholders given within 12 months before or after the action by the
Board. Neither the amendment, suspension nor termination of the Plan shall,
without the consent of the holder of the Option, impair any rights or
obligations under any Option theretofore granted. No Option may be granted
during any period of suspension nor after termination of the Plan, and in no
event may any Option be granted under this Plan after the first to occur of the
following events:
(a) The expiration of ten years from the date the Plan is adopted by the
Board; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's shareholders under Section 7.4.
SECTION 7. 3 - COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the
extent any provision of this Plan or action by the Committee fails to so comply
at such time that the Company
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<PAGE> 15
is subject to the reporting requirements of the Exchange Act, it shall be
deemed null and void to the extent permitted by law and deemed advisable by the
Committee.
SECTION 7.4 - APPROVAL OF PLAN BY SHAREHOLDERS
This Plan will be submitted for the approval of the Company's
shareholders within 12 months after the date of the Board's adoption of this
Plan. Options may be granted prior to such shareholder approval, provided,
however, that Options granted after the adoption of this Plan by the Board
but prior to such shareholder approval shall not be exercisable prior to the
time when this Plan is approved by the shareholders; provided, further, that if
such approval has not been obtained at the end of said 12-month period, all
such Options granted hereunder following adoption of this Plan by the Board
shall thereupon be canceled and become null and void.
SECTION 7.5 - EFFECT OF PLAN UPON OTHER OPTION AND COMPENSATION PLANS
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary or modify the
rights of any person holding options issued pursuant to the Original Plan.
Nothing in this Plan shall be construed to limit the right of the Company or
any Subsidiary (a) to establish any other forms of incentives or compensation
for employees of the Company or any Subsidiary or (b) to grant or assume
options otherwise than under this Plan in connection with any proper corporate
purpose, including, but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
SECTION 7.6 - TITLES
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
* * * * *
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of MERGE TECHNOLOGIES INCORPORATED on May 13, 1996.
________________________
Secretary
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<PAGE> 16
* * * * *
I hereby certify that the foregoing Plan was duly approved by the
Shareholders of MERGE TECHNOLOGIES INCORPORATED on ____________________.
Executed on this ______ day of _____________, 199__.
______________________
Secretary
16
<PAGE> 1
EXHIBIT 10.10
WEST ALLIS CENTER
OFFICE LEASE
This Lease is made as of this 24th day of May, 1996, by and between
Whitnall Summit Company, LLC (hereinafter called "LESSOR") and Merge
Technologies (hereinafter called "LESSEE").
ARTICLE I
BASIC LEASE PROVISIONS
A. ADDRESS OF LEASED PREMISES: Suite S107B, 1126 South 70th Street, West
Allis, Wisconsin 53214.
B. TERM: 8 years, 0 months, 0 days, commencing September 1,
1996, and ending August 31, 2004 .
1st Floor Mezz Total
--------- ---- -----
C. AREA: Usable Area 5610 6775 12.385 square feet
Allotted Common Area 673 812 1.485 square feet
Total Area 6283 7587 13.870 square feet
D. BASE MONTHLY RENT: Thirteen Thousand, Seven and 60/100
___ dollars ($13,007.60).
E. SECURITY DEPOSIT: Thirteen Thousand, Seven and 60/100
___ dollars ($13,007.60). $13,007.60 Security Deposit Required
1,037.00 Security Deposit Paid Previously
----------
$11,970.60 Security Deposit Due
F. ADDRESS FOR NOTICES AND PAYMENTS:
LESSOR: Whitnall Summit Company, LLC
West Allis Center
1126 South 70 Street
West Allis, Wisconsin 53214-3151
LESSEE: Merge Technologies
Suite S107B
1126 South 70th Street
West Allis, Wisconsin 53214
<PAGE> 2
2
ARTICLE II
LEASED PREMISES
2.1 LESSOR hereby leases to LESSEE and LESSEE leases from LESSOR for the term,
at the rental, and upon all of the conditions set forth herein that certain
real property situated in the City of West Allis, Milwaukee County,
Wisconsin which is located at the address specified in Item A of ARTICLE I
hereto and which is more particularly shown outlined in red on the floor
plan(s) attached hereto as Exhibit A. Said property is hereinafter referred
to as the "LEASED PREMISES."
ARTICLE III
BASE RENT
3.1 In consideration of the aforesaid leasing, LESSEE hereby agrees to pay to
LESSOR, at the address stipulated in Item F of ARTICLE I hereto, or at such
other address as LESSOR may from time to time designate by written notice
to LESSEE, the monthly rent called for in Item D of ARTICLE I hereto. Said
monthly rent (hereinafter called the "BASE MONTHLY RENT") shall be payable
without demand and in advance, on the first day of each month during the
term of this Lease. The BASE MONTHLY Rent payable throughout each year
during the term of this Lease, subsequent to the first year of the lease
term, shall be adjusted in accordance with the terms of ARTICLE IV herein.
Rent for any partial month during the term of this Lease shall be prorated
on a per diem basis.
ARTICLE IV
RENT ESCALATIONS
4.1 The BASE MONTHLY RENT shall be escalated as of the first annual anniversary
date of the commencement of this Lease, and on each annual anniversary date
thereafter. The escalated rent shall be determined by increasing the BASE
MONTHLY RENT by the percentage increase, if any, in the "Consumer Price
Index." The base month for determining the increase in the Consumer Price
Index shall be the month two months prior to that in which the term of this
Lease commences. The comparison month shall be the month two months prior
to each annual anniversary date.
4.2 As used herein, the "Consumer Price Index" shall mean the "All Items" index
in the "Consumer Price Index for all Urban Consumers: U.S. City average by
expenditure category and commodity or service group (1982-84 = 100)," as
published by the U.S. Department of labor, Bureau of Labor Statistics.
4.3 Should the Consumer Price Index specified herein cease to be published, the
LESSOR shall, at its sole discretion, choose a reasonable substitute index.
4.4 Notwithstanding anything to the contrary contained herein, in no event
shall the monthly rent payable in any lease year during the term of this
Lease be less than the amount payable during the preceding lease year.
<PAGE> 3
3
ARTICLE V
RENT TAX
5.1 LESSEE shall also pay to LESSOR monthly as additional rent without demand
any rent tax, sales tax or other tax (other than LESSOR's income tax) which
may be levied by any authorized governmental authority against the BASE
MONTHLY RENT or any additional rent payable to LESSOR under this Lease.
ARTICLE VI
LATE CHARGES
6.1 LESSEE hereby acknowledges that the late payment of rent will cause LESSOR
to incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. Such costs may include processing
and accounting charges, and late charges which may be imposed on delayed
mortgage payments.
6.2 Accordingly, if any installment of rent or other payment due LESSOR is not
received by LESSOR within ten (10) days of its due date then, without any
requirement for notice to LESSEE, LESSEE shall pay to LESSOR a late charge
equal to six percent (6%) of such overdue amount. The parties hereto agree
that said late charge is a fair reimbursement to LESSOR of the costs it
will incur as a result of said late payment.
6.3 Acceptance of a late charge by LESSOR shall not be deemed a waiver of
LESSEE's default with respect to such overdue amount, nor shall it prevent
LESSOR from exercising any of the other rights and remedies granted
hereunder.
ARTICLE VII
SERVICES AND OTHER ITEMS INCLUDED IN RENT
7.1 Except as may otherwise be provided hereunder, LESSOR shall provide the
following services and pay for the following expenses which are included in
the BASE MONTHLY RENT (as such rent may, from time to time, be escalated in
accordance with the terms hereof):
A. Real property taxes, special assessments, and building insurance costs
associated with the building and underlying land areas of which the
LEASED PREMISES is a part.
B. LESSOR's liability insurance costs with respect to the property of which
the LEASED PREMISES is a part.
C. Cost incurred by LESSOR in managing, advertising, promoting, and leasing
the building of which the LEASED PREMISES is a part.
D. Legal expenses incurred by LESSOR as a result of its ownership of the
LEASED PREMISES, except as otherwise provided in this Lease.
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E. Any mortgage payments or other financing costs incurred by LESSOR.
F. The costs incurred by LESSOR in providing the following services:
I) Daily janitorial services Monday through Friday, legal holidays
excepted, in and about the LEASED PREMISES. This shall include all
normal cleaning and upkeep services; normal daily removal of trash
and rubbish; the periodic vacuuming of carpeting, dusting of
uncluttered furniture, cleaning and waxing of uncarpeted floors, and
washing of both sides of the building's exterior windows; maintenance
of towels, tissue and other restroom supplies; daily cleaning of
restroom floors and fixtures; and such other work as is customarily
performed as janitorial services in office complexes leasing at
similar per square foot annual rents in the Milwaukee, Wisconsin,
metropolitan area.
ii) Electricity for standard building lighting fixtures and for normal
incidental office use. In the event that LESSEE installs machinery,
computers, equipment or other devices requiring electrical energy in
excess of the foregoing, LESSEE shall pay to LESSOR an amount equal
to LESSOR's reasonable estimate of its increased costs occasioned
thereby, or such usage will be sub-metered, and LESSEE shall pay for
actual usage, whichever method is mutually agreeable.
iii) Heat and air conditioning when necessary for normal comfort (in
LESSOR's reasonable judgement) from 7:00 A.M. to 6:00 P.M. weekdays,
legal holidays excepted, and from 8:00 A.M. to 1:00 P.M. Saturdays.
iv) Hot and cold running water from the regular building outlets for
lavatories, restrooms, and for drinking purposes.
v) Sewer service to the extent required for LESSEE's use of the LEASED
PREMISES for ordinary office purposes.
vi) Passenger elevator service in common with other tenants to be
provided by operator-less automatic elevators. LESSOR reserves the
right to reasonably stipulate which elevators LESSEE may utilize for
passenger service. LESSOR may further stipulate which elevators may
be used for freight purposes and may restrict the hours during which
said elevators may be so used.
vii) Permits which will provide the use of non-reserved employee parking
spaces, not to exceed one permit for every 300 square feet of "Usable
Area within the LEASED PREMISES. LESSOR shall keep and maintain the
parking lots and all driveways leading thereto in good condition and
repair, and free from any unreasonable accumulation of snow.
viii) Maintenance of the roof, building exterior, structural system, the
plumbing and electrical systems exterior to the LEASED PREMISES, the
HVAC system both interior and exterior to the LEASED PREMISES, and
the common areas of the
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building of which the LEASED PREMISES are a part in a good, clean,
operable and orderly condition.
ix) Guard service or security in or about the building which contains the
LEASED PREMISES, provided however that the LESSOR may, at its sole
discretion, eliminate either or both of these services at any time
without obligation and with no reduction in the rent payable by
LESSEE hereunder.
x) Conference rooms for the use, from time to time on a first come,
first served advance registration basis, by LESSEE. Notwithstanding
the foregoing, LESSOR reserves the right to charge LESSEE for any
extraordinary cleaning costs resulting from LESSEE's use of such
conference rooms, or for any damages resulting from such use.
Further, LESSOR reserves the right to restrict the LESSEE's use of
such rooms, should said use by LESSEE become excessive in the
reasonable opinion of LESSOR.
7.2. No interruption in, or temporary stoppage of, any of the aforesaid
services caused by repairs, renewals, improvements, alterations, normal
breakdowns, strikes, lockouts, labor controversy, accidents, fire,
inability to obtain fuel or supplies, or other causes beyond the reasonable
control of LESSOR shall be deemed an eviction or disturbance of LESSEE's
use and possession, or render LESSOR liable for damages, by abatement of
rent or otherwise or relieve LESSEE from any obligation set forth herein.
ARTICLE VIII
OPTIONAL SERVICES NOT INCLUDED IN RENT
8.1 The LESSOR intends, but does not guarantee, to provide certain optional
services to LESSEE. The LESSEE shall be charged only for its actual use of
these services, which use shall be at LESSEE's sole option. These services
may include the use of:
A. LESSOR's Rolm telecommunications system.
ARTICLE IX
REPAIRS BY LESSEE
9.1 LESSEE shall, at its sole expense and at all times during the term of this
Lease, keep the LEASED PREMISES in good order, condition, and repair.
9.2 All electric lighting bulbs, tubes, ballasts, and starters shall be
replaced, when necessary, by LESSOR at the expense of LESSEE.
9.3 To the extent that LESSOR, its agents or employees, should do maintenance
for LESSEE which is the responsibility of LESSEE, or should pay bills
incurred by LESSEE, the charges therefore shall be due LESSOR, as
additional rent, within ten (10) days of the date on which LESSOR invoices
in writing for such charges.
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ARTICLE X
MODIFICATIONS AND ALTERATIONS TO THE LEASED PREMISES
10.1 No modifications or alterations to the LEASED PREMISES shall be allowed
without the prior written consent of LESSOR. LESSOR reserves the right to
require copies of working drawings and specifications for any
modifications or alterations, which working drawings and specifications
shall be prepared in a professional manner. LESSOR may also require the
posting of a bond by LESSEE in the amount of one and one-half (1-1/2)
times the cost of the modifications or alterations, as estimated by
LESSOR, guaranteeing payment for same.
10.2 LESSEE shall keep the LEASED PREMISES and other property of LESSOR free
from liens at all times, and shall promptly discharge any liens which are
placed against LESSOR's property as a result of LESSEE's actions.
ARTICLE XI
DESTRUCTION OR DAMAGE
11.1 If the building of which the LEASED PREMISES is a part is damaged or
destroyed to the extent that the cost to repair is, in the reasonable
estimate of LESSOR, 25% or less of the then replacement cost of said
building, LESSOR shall promptly repair said building. Should said damage
exceed 25% of the then replacement cost of said building, LESSOR may elect
to either promptly repair same or, by written notice to LESSEE given
within ten (10) days of the date of such damage or destruction, terminate
this Lease. If LESSOR elects to repair said building, this Lease shall
remain in full force and effect only if, in the reasonable opinion of
LESSOR, the repairs can be made within six (6) months following the date
of damage or destruction. If this Lease remains in full force and effect,
the rent on the LEASED PREMISES shall abate to the extent that they are
not usable by LESSEE. Should this Lease be terminated by LESSOR, the rent
shall abate from the date of damage or destruction.
ARTICLE XII
CONDEMNATION
12.1 If all of the LEASED PREMISES, or such portion thereof as will make the
LEASED PREMISES unusable for the purpose herein leased, be condemned by
any legally constituted authority for public use or purpose, then the term
of this Lease shall end on the date of taking, and the rent payable
hereunder shall be prorated to said date. Any compensation payable for
said taking shall be paid to LESSOR except for any portion thereof which
may be specifically awarded to LESSEE for its relocation costs.
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ARTICLE XIII
PROPERTY DAMAGE INSURANCE
13.1 LESSOR will obtain fire and extended coverage insurance on the building
and LESSOR's personalty contained therein. LESSEE will obtain insurance
coverage on all of its personalty, trade fixtures, or any leasehold
improvements which it may install on the LEASED PREMISES. LESSOR and
LESSEE hereby waive all rights or subrogation by any insurance company
issuing policies carried by either LESSOR or LESSEE with respect to the
LESSOR's building, fixtures, personal property or leasehold improvements
or to LESSEE's personal property, trade fixtures or leasehold
improvements.
13.2 If LESSEE does or permits anything to be done which increases the cost of
LESSOR's insurance on the building of which the LEASED PREMISES is a part,
the LESSEE shall, within ten (10) days of the posting of LESSOR's written
demand therefor, reimburse LESSOR for such increased premiums.
ARTICLE XIV
LIABILITY INSURANCE
14.1 LESSEE shall maintain a policy of public liability insurance in an amount
not less than one million dollars ($1,000,000) per occurrence throughout
the term of this Lease. A certificate indicating the existence of such
liability insurance and naming LESSOR as an additional insured shall be
furnished to LESSOR prior to the commencement date of this Lease. It shall
provide that said insurance policy shall not be canceled during the term
of this Lease without ten (10) days advance written notice to LESSOR.
14.2 The liability insurance coverage required herein shall insure performance
by LESSEE of the indemnity provisions contained in ARTICLE XV. The limits
of said insurance shall not, however, limit the liability of LESSEE
hereunder.
ARTICLE XV
INDEMNITY
15.1 LESSEE shall indemnify and hold LESSOR harmless from and against all
claims for injuries to persons or damages to property arising out of
LESSEE's use or occupancy of the LEASED PREMISES or areas appurtenant
thereto, except to the extent to which such injuries or damages result
from the negligence of LESSOR or his agents. Said indemnification shall
extend to all costs incurred by LESSOR in defending itself against such
claims, including attorney's fees and court costs.
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ARTICLE XVI
EXEMPTION OF LESSOR FROM LIABILITY
16.1 LESSEE hereby agrees that LESSOR shall not be liable for injury to LESSEE's
business or any loss of income therefrom or for damage to or the theft of
the goods, wares, merchandise or other property of LESSEE, LESSEE's
employees, invitees, customers, or any other person in or about the LEASED
PREMISES, nor shall LESSOR be liable for injury to the person of LESSEE,
LESSEE's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning, lighting
fixtures, windows, or from any other cause, whether the said damage or
injury results from conditions arising upon the LEASED PREMISES or upon
other portions of the building of which the LEASED PREMISES are a part, or
from other sources or places and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible to
LESSEE. Notwithstanding the foregoing, the LESSOR shall be liable for
injuries or damages resulting from the negligence of LESSOR or its agents.
LESSOR shall not be liable for any damages arising from any act or neglect
of any other tenant, if any, of the building in which the LEASE PREMISES
are located.
ARTICLE XVII
USE
17.1 The LEASED PREMISES shall be used and occupied only for business office
purposes and for no other purpose.
ARTICLE XVIII
COMPLIANCE WITH LAWS AND RULES
18.1 LESSOR shall comply, at its sole expense, with all applicable statutes,
ordinances, rules, codes, regulations and orders which govern the use of
the building of which the LEASED PREMISES are a part for ordinary and usual
business office purposes.
18.2 LESSEE shall promptly comply, at its sole expense, with all applicable
statutes, ordinances, rules, codes, regulations and orders which apply to
the LESSEE's use of the LEASED PREMISES, to the extent that said use does
not constitute ordinary and usual business office purposes.
18.3 LESSEE shall promptly comply with all rules and regulations of LESSOR, the
current form of which is attached to this LEASE as Exhibit B. LESSOR shall
have the right to amend or supplement the Rules and Regulations from time
to time provided the same do not discriminate against LESSEE and apply to
all tenants in general. LESSOR agrees to give LESSEE at least ten (10) days
notice of any changes to the Rules and Regulations.
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ARTICLE XIX
SECURITY DEPOSIT
19.1 LESSEE shall deposit with LESSOR upon execution hereof the security deposit
stipulated in ITEM E of ARTICLE I hereto, as security for LESSEE'S faithful
performance of its obligations hereunder If LESSEE fails to pay rent or
other charges due hereunder, or otherwise defaults with respect to
any provision of this Lease, LESSOR may use, apply or retain all or any
portion of said deposit for the payment of any rent or other charge in
default or for the payment of any other sum to which LESSOR may become
obligated by reason of LESSEE's default, or to compensate LESSOR for any
loss or damage which LESSOR may suffer thereby. IF LESSOR so uses or
applies all or any portion of said deposit, LESSEE shall within ten (10)
days after written demand therefore deposit cash with LESSOR in an amount
sufficient to restore said deposit to the full amount called for herein,
and LESSEE's failure to do so shall be a material breach of this Lease. If
LESSEE performs all of LESSEE's obligations hereunder, said deposit, or so
much thereof as has not been previously applied by LESSOR, shall be
returned, without payment of interest for its use, to LESSEE (or, at
LESSOR's option, to the last assigns, if any, of LESSEE's interest
hereunder) at the expiration of the term hereof, and after LESSEE has
vacated the LEASED PREMISES. The security deposit may be retained by
LESSOR with its general funds.
ARTICLE XX
RIGHTS RESERVED BY LESSOR
20.1 LESSOR reserves the following rights exercisable without notice and without
liability to LESSEE and without effecting an eviction, constructive or
actual, or disturbance of LESSEE's use or possession, or giving rise to any
claim for setoff or abatement of rent:
A. To control the design, installation, and location of any signs which
LESSEE may wish to place on or about the LEASED PREMISES, and to require
that tenant identification signage conform to a standard sign plan which
LESSOR may establish. In no event shall LESSEE utilize any signage which
is visible to the exterior of the building of which the LEASED PREMISES
is a part.
B. To retain at all times and to use in appropriate instances keys to all
doors within and into the LEASED PREMISES. No locks shall be changed
without the prior written consent of LESSOR.
C. To make repairs, alterations, additions, or improvements, whether
structural or otherwise, in and about the LEASED PREMISES, or any part
thereof, and for such purpose to enter upon the LEASED PREMISES, and
during the continuation of any said work, to temporarily close doors,
entryways, and corridors in the LEASED PREMISES and to interrupt or
temporarily suspend services and facilities. Unless warranted by an
emergency situation, such repairs or suspensions shall not unreasonably
interfere with LESSEE's ability to conduct its normal business
operations.
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D. LESSOR may require that all persons who enter or leave the West Allis Center
(hereinafter called the "CENTER") identify themselves to guards by pass,
parking permit or otherwise, and LESSOR may take such other measures as it
deems reasonably necessary for the safety and security of the CENTER. Nothing
contained herein shall, however, make LESSOR responsible in any way for the
security of LESSEE, its employees, agents, or invitees, or any property
thereof LESSOR shall be under no obligation to maintain perimeter security or
guards at the CENTER.
E. To control or prohibit the storage of explosive or inflammable materials in
or about the LEASED PREMISES. LESSEE agrees to promptly cease and correct any
practice which constitutes a fire or safety hazard in the opinion of LESSOR,
LESSOR's property insurance underwriter or its authorized agents, or any
governmental authority responsible for building and/or fire code enforcement.
LESSEE agrees to make the LEASED PREMISES available for inspection by said
parties at all times. LESSEE shall not bring into the LEASED PREMISES or the
building of which it is a part gasoline, explosives, or other highly
flammable or volatile materials.
F. To control the storage or placement of heavy objects on all structural floors
within the LEASED PREMISES. LESSEE agrees not to exceed the load limitations
of any structural floors or elevators within the LEASED PREMISES.
G. To prohibit any advertising by LESSEE which in LESSOR's reasonable opinion
impairs the reputation or desirability of the CENTER as an industrial and
commercial center. Upon written notice from LESSOR of such objections, LESSEE
shall promptly discontinue such advertising. LESSEE agrees that it shall not
conduct any advertising or publicity campaign which will so impair the
reputation or desirability of the CENTER.
H. To enforce by eviction or other means that the LEASED PREMISES not be used
for lodging or for any immoral or illegal purpose.
I. To tow away or remove, at the expense of the owner, any vehicle or other
object which is improperly parked or stored, or placed in a drive, fire
lane, or no parking zone. All vehicles shall be parked at the sole risk of
the owner, and LESSOR assumes no responsibility for any damage to or loss of
vehicles.
J. To designate, limit, restrict, control and modify any service in or to the
building of which the LEASED PREMISES is a part, and any common areas
relating to such building, provided that LESSOR shall enforce its rights
hereunder uniformly on LESSEE and all other tenants.
K. To enforce by eviction; by the termination of heat, electric, or water
service to the LEASED PREMISES; or other means, its requirement that LESSEE
not commit waste with respect to any utilities which are furnished by LESSOR.
All exterior doors and windows shall be kept closed during the heating and
air conditioning seasons, and water faucets and fountains should be turned
off when not in use.
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L. To enter the LEASED PREMISES at reasonable times for the purpose of
inspecting same, showing same to prospective purchasers, lenders,
lessees, insurance inspectors, or governmental authorities. LESSOR may,
during the last 90 days of the term hereof place on or about the LEASED
PREMISES any "For Lease" signs, all without rebate of rent or liability to
LESSEE.
M. To restrict or prohibit LESSEE's ability to conduct, either voluntarily or
involuntarily, any auction upon the LEASED PREMISES. LESSEE shall obtain
LESSOR's advance written consent prior to conducting any auction upon the
LEASED PREMISES.
N. To enforce such other reasonable rules and regulations which LESSOR or its
agent may, from time to time, adopt. Written notice of such rules and
regulations may be given to LESSEE at any time.
ARTICLE XXI
DEFAULT
21.1 Any of the following events shall constitute a default and breach of this
Lease by LESSEE:
A. The vacating or abandonment of the LEASED PREMISES by LESSEE during the
term of this Lease.
B. The failure of LESSEE to make any payment of rent or any other payment
required to be made by LESSEE hereunder, as and when due, where such
failure shall continue for a period of fifteen (15) days after written
notice thereof from LESSOR to LESSEE.
C. The failure by LESSEE to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by
LESSEE, other than described in Paragraph 21.1B above, where such failure
shall continue for a period of thirty (30) days after written notice
thereof from LESSOR to LESSEE; provided, however, that if the nature of
LESSEE's default cannot be cured by the payment of money and is such that
more than thirty (30) days are reasonably required for its cure, then
LESSEE shall not be deemed to be in default if LESSEE commenced such cure
within said 30-day period and thereafter diligently proceeds to complete
such cure.
D. (1) The making by LESSEE of any general arrangement or assignment for the
benefit of creditors; (ii) LESSEE becomes a "debtor" as defined in 11
U.S.C. 101 or any successor statute thereto (unless, in the case of a
petition filed against LESSEE, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession
of substantially all of LESSEE's assets located at the LEASED PREMISES or
of LESSEE's interest in this Lease, where possession is not restored to
LESSEE within thirty (30) days; or (iv) the attachment, execution, or
other judicial seizure of substantially all of LESSEE's assets located at
the LEASED PREMISES or of LESSEE's interest in this Lease, where such
seizure is not discharged within thirty (30) days. Notwithstanding the
foregoing, should any provision of the Paragraph 21.1D be contrary to any
applicable law, such provision shall be of no force or effect.
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E. The discovery of LESSOR that any financial statement given to LESSOR by
LESSEE, any assignee of LESSEE, any subtenant of LESSEE, any successor
in interest of LESSEE or any guarantor of LESSEE's obligation hereunder,
and any of them was materially false.
21.2 In the event of any such default or breach by LESSEE, LESSOR may at any
time thereafter, with or without notice or demand and without limiting
LESSOR in the exercise of any right or remedy which LESSOR may have by
reason of such default or breach:
(i) Terminate LESSEE's right to possession of the LEASED PREMISES by any
lawful means, in which case this Lease shall terminate and LESSEE shall
immediately surrender possession of the LEASED PREMISES to LESSOR. In
such event, LESSOR shall be entitled to recover from LESSEE all damages
incurred by LESSOR by reason of LESSEE's default including, but not
limited to, the cost of recovering possession of the LEASED PREMISES;
expenses of reletting, including necessary renovation and alteration of
the LEASED PREMISES, reasonable attorney's fees, and any real estate
commission actually paid; and the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent
for the balance of the term after the time of such award exceeds the
amount of such rental loss for the same period that LESSEE proves could
be reasonably avoided.
(ii) Maintain LESSEE's right to possession in which case this Lease shall
continue in effect whether or not LESSEE shall have abandoned the LEASED
PREMISES. In such event, LESSOR shall be entitled to enforce all of
LESSOR's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(iii) Pursue any other remedy now or hereafter available to LESSOR under the
laws or judicial decisions of the state wherein the LEASED PREMISES is
located. Unpaid installments of rent and other unpaid monetary
obligations of LESSEE under the terms of this Lease shall bear interest
from the date due at the maximum rate then allowable by law.
21.3 LESSOR shall not be in default unless LESSOR fails to perform obligations
required of LESSOR within a reasonable time, but in no event later than
thirty (30) days after written notice by LESSEE to LESSOR specifying
wherein LESSOR has failed to perform such obligation; provided, however,
that if the nature of LESSOR's obligation is such that more than thirty
(30) days are required for performance then LESSOR shall not be in
default if LESSOR commences performance within such thirty (30) day period
and thereafter diligently prosecutes the same to completion.
ARTICLE XXII
ASSIGNMENT AND SUBLETTING
22.1 LESSEE shall not assign, sublet, transfer or mortgage this lease, nor shall
any assignment occur by operation of law, without the LESSOR's advance
written consent.
22.2 Regardless of LESSOR's consent, no subletting or assignment shall release
LESSEE from its obligation to pay the rent or perform all the LESSEE's
other obligations under this Lease. The acceptance of rent by LESSOR from
any other person shall not be deemed to be a waiver by LESSOR of any
provision hereof. Consent to one assignment or subletting shall not be
deemed
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consent to any subsequent assignment or subletting. In the event of default
by any Assignee of LESSEE or successor of LESSEE, LESSOR may proceed
directly against LESSEE without the necessity of exhausting remedies
against said assignee.
ARTICLE XXII
ESTOPPEL CERTIFICATE
23.1 LESSEE shall, within ten (10) days of the date of LESSOR's written request,
execute and deliver to LESSOR a statement in writing (I) certifying that
the lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which
the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to LESSEE's knowledge, any uncured
defaults on the part of LESSOR hereunder, or specifying such defaults if
any are claimed.
ARTICLE XXIV
LESSOR'S LIABILITY
24.1 The term "LESSOR" as used herein shall mean only the owner or owners at the
time in question of the fee title or of LESSEE's interest in a ground lease
of the LEASED PREMISES, and in the event of any transfer of such title or
interest, LESSOR herein named, or any subsequent LESSOR who later transfers
the LEASED PREMISES shall be relieved from and after the date of such
transfer of all liability with respect to "LESSOR's" obligations thereafter
to be performed, providing that any prepaid rent, expenses, or security
deposit in the hands of the then LESSOR, shall be delivered to the grantee.
ARTICLE XXV
LESSOR'S RIGHT TO CONVEY
25.1 LESSOR reserves the right at all times to sell or convey all or part of the
property of which the LEASED PREMISES is a part. Such conveyance by LESSOR
shall in no way relieve LESSEE of its rights or obligations under this
Lease.
ARTICLE XXV
SEVERABILITY
26.1 The invalidity of any provision of this Lease as determined by a court of
competent jurisdiction, shall in no way affect the validity of any other
provision hereof.
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ARTICLE XXVII
TIME OF ESSENCE
27.1 Time is of the essence with respect to the payment of rent hereunder, and
with respect to all other terms and provisions of this Lease.
ARTICLE XXIX
INCORPORATION OF PRIOR AGREEMENTS: AMENDMENTS
29.1 This Lease contains all agreements of the parties hereto with respect to
any matter mentioned herein. No prior agreement or understanding between
LESSEE and any employee or agent of LESSOR with respect to any such matter
shall be effective.
ARTICLE XXX
NOTICE
30.1 Any notice required or permitted to be given hereunder shall be in writing
and shall be deemed given on the day immediately following the date same is
deposited in the U.S. mail, postage prepaid and registered or certified,
and addressed as provided under Item F of ARTICLE I hereto (or to such
other address as either party hereto may, from time to time, stipulate by
written notice to the other party).
ARTICLE XXXI
WAIVERS
31.1 No waiver by LESSOR of any provision of this Lease shall be deemed a waiver
of any other provision hereof or of any subsequent breach by LESSEE of the
same or any other provision. LESSOR's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of LESSOR's consent
to or approval of any subsequent act of LESSEE. The acceptance of rent
hereunder by LESSOR shall not be a waiver of any preceding breach by LESSEE
of any provision hereof, other than the failure of LESSEE to pay the
particular rent so accepted.
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ARTICLE XXXII
POSSESSION
32.1 Any occupancy of the LEASED PREMISES by LESSEE shall subject LESSEE to
all of the terms and conditions of the Lease, regardless of whether the
term of this Lease has yet commenced.
32.2 If LESSOR shall be unable to give possession of the LEASED PREMISES on
the date of the commencement of the term because of the refusal of a
previous tenant to vacate the LEASED PREMISES, because LESSOR's
remodeling of the LEASED PREMISES has not been sufficiently completed,
or for any other reason, LESSOR shall not be subject to any claims,
damages or liabilities for the failure to give possession on said date.
Under said circumstances, the rent reserved and covenant to pay same
shall not commence until the earlier of either the date on which
possession of the LEASED PREMISES is given to LESSEE, or the date on which
the LEASED PREMISES are available for occupancy by LESSEE, provided LESSOR
has given LESSEE three (3) day's advance written notice of their
availability. Failure to give possession on the date of commencement of
the term shall in no way affect the validity of this Lease or the
obligations of LESSEE hereunder, nor shall the same be construed in any
way to extend the expiration date of the term. Further, the commencement
date of the term of this Lease and LESSEE's obligation to pay rent
hereunder shall not be delayed due to LESSEE's failure to complete any
remodeling work which LESSEE may be responsible for.
32.3 By taking possession of the LEASED PREMISES, the LESSEE accepts it in its
then-existing condition provided, however, that LESSOR shall correct any
reasonable problems which LESSEE gives LESSOR notice of in writing within
seven (7) days following the date possession is taken.
ARTICLE XXXIII
SURRENDER OF PREMISES
33.1 On the last day of the term of this Lease, or on the sooner termination
thereof, LESSEE shall peaceably surrender the LEASED PREMISES in good
condition and repair, ordinary wear and tear excepted, consistent with
LESSEE's duty to make repairs as provided. On or before the last day of
the term of this Lease, or the sooner termination thereof, LESSEE shall,
at its expense, remove all of its trade fixtures, furniture, and
equipment from the LEASED PREMISES, and all property not removed shall be
deemed abandoned. LESSEE shall promptly reimburse LESSOR for any expenses
incurred by LESSOR with respect to removal or storage of abandoned
property and with respect to restoring the LEASED PREMISES to good order,
condition and repair. At the option of LESSOR, exercised by written notice
to LESSEE not later than twenty-one (21) days prior to the last day of the
term of this Lease or sooner termination thereof, any alterations,
additions and fixtures, other than LESSEE's trade fixtures and equipment,
which have been made or installed by LESSEE on the LEASED PREMISES in
connection with this Lease, shall be removed by LESSEE at its expense. If
such notice is not given by LESSOR, said alterations, additions and
fixtures shall remain the LESSOR's property, and shall be surrendered with
the LEASED PREMISES as a part thereof.
<PAGE> 16
16
33.2 If the LEASED PREMISES are not surrendered at the end of the lease term
or sooner termination thereof, the continued occupancy by LESSEE shall
be a tenancy from month to month, subject to all the terms and
provisions of this Lease excepting (I) rights of first refusal or renewal,
if any, granted hereunder, and (ii) that the monthly rent for each month
of occupancy following the expiration or sooner termination of this Lease
shall be two hundred percent (200%) of the BASE MONTHLY RENT for the
last full month of the term of this Lease. Further, LESSEE shall
indemnify LESSOR against any loss or liability resulting from delay by
LESSEE in surrendering the LEASED PREMISES including, without limitation,
claims made by succeeding tenants founded on such delay and any
attorney's fees resulting therefrom.
ARTICLE XXXIV
CUMULATIVE REMEDIES
34.1 No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in
equity.
ARTICLE XXXV
BINDING EFFECT
35.1 Subject to any provisions hereof restricting assignment or subletting by
LESSEE, and subject to the provisions of ARTICLE XXIV hereof, this Lease
shall bind the parties hereto, their personal representatives,
successors and assigns.
ARTICLE XXXVI
CHOICE OF LAW
36.1 This Lease shall be governed by the laws of the state of Wisconsin.
ARTICLE XXXVII
SUBORDINATION
37.1 This Lease, at LESSOR's option, shall be subordinate to any ground lease,
mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the LEASED PREMISES is
a part and to any and all advances made on the security hereof and to all
renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, LESSEE's right to quiet
possession of the LEASED PREMISES shall not be disturbed if LESSEE is not
in default and so long as LESSEE shall pay the rent and observe and
perform all of the provisions of this Lease, unless this Lease is
otherwise terminated pursuant to its terms. If any mortgagee, trustee or
ground lessor shall elect to have this Lease prior to the lien of its
mortgage, deed of trust or ground lease, and shall give written notice
thereof to LESSEE, this Lease shall be deemed prior to such mortgage, deed
of trust, or ground lease, whether this Lease is dated prior to subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
<PAGE> 17
17
37.2 LESSEE agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of
any mortgage, deed of trust or ground lease, as the case may be. LESSEE's
failure to execute such documents within 10 days after written demand
shall constitute a material default by LESSEE hereunder, or, at LESSOR's
option, LESSOR shall execute such documents on behalf of LESSEE as
LESSEE's attorney-in-fact. LESSEE does hereby make, constitute, and
irrevocably appoint LESSOR as LESSEE's attorney-in-fact and in LESSEE's
name, place and stead, to execute such documents in accordance with this
Paragraph 37.2.
ARTICLE XXXVIII
ATTORNEY'S FEES
38.1 If either party to this Lease brings an action to enforce the terms
hereof, the prevailing party in such action shall be entitled to the
prompt reimbursement of its reasonable attorney's fees from the losing
party.
ARTICLE XXXIX
QUIET POSSESSION
39.1 Upon LESSEE paying the rent for the LEASED PREMISES and observing and
performing all of the covenants, conditions and provisions on LESSEE's
part to be observed and performed hereunder, LESSEE shall have quiet
possession of the LEASED PREMISES for the entire term hereof subject to
all of the provisions of this LEASE.
ARTICLE XL
AUTHORITY
40.1 If LESSEE is a corporation, trust, or general or limited partnership,
each individual executing this Lease on behalf of such entity represents
and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If LESSEE is a corporation, trust or
partnership, LESSEE shall, concurrent with its execution of this Lease,
deliver to LESSOR evidence of such authority satisfactory to LESSOR.
40.2 The individuals executing this Lease on behalf of LESSOR represent and
warrant to LESSEE that they are fully authorized and legally capable of
executing this Lease on behalf of LESSOR and that such execution is
binding upon all parties holding an ownership interest in the LEASED
PREMISES.
<PAGE> 18
18
ARTICLE XLI
ADDENDUM
41.1 Attached hereto is an addendum or addenda containing Article(s)
XLII, XLIII, XLIV, XLV and XLIV which constitute (s) a part of this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
Whitnall Summit Company, LLC (LESSOR) Merge Technologies (LESSEE)
By: /S/ T.M. BAUMGARTNER By:/S/ WILLIAM MORTIMORE
------------------------------------ ----------------------------------
Title: Vice President & General Manager Title: President
-------------------------------- ------------------------------
<PAGE> 19
19
ADDENDUM NO. 1
To Lease dated May 24, 1996, by and between Whitnall Summit Company, LLC as
LESSOR and Merge Technologies as Lessee.
ARTICLE XLII
BROKERAGE COMMISSION
42.1 LESSOR represents and warrants to LESSEE that it has not incurred any
obligation or liability, contingent or otherwise, for brokerage or
finder's fees or agent's commission or other like payment in connection
with this Lease or the transactions contemplated hereby and LESSOR agrees
to indemnify and hold LESSEE harmless against and in respect of any such
obligation and liability based in any way upon agreements, arrangements or
understandings made or claimed to have been made by LESSOR with any third
person. Similarly, LESSEE represents and warrants to LESSOR that it has
not incurred any obligation or liability, contingent or otherwise, for
brokerage or finder's fees or agent's commission or other like payment in
connection with this Lease or the transactions contemplated hereby and
LESSEE agrees to indemnify and hold LESSOR harmless against and in respect
of any such obligation and liability based in any way upon agreements,
arrangements or understandings made or claimed to have been made by LESSEE
with any third person.
ARTICLE XLIII
LEASEHOLD IMPROVEMENTS
43.1 LESSOR shall provide to LESSEE Leasehold Improvements in accordance with
the following descriptions and Exhibit A attached at no additional costs
to the LESSEE beyond the Base Monthly Rent as shown in Article I.D.
A. Demolition to include removal of existing walls, ceilings, floor
materials, and fixtures, as required to complete new construction per
plan.
B. Steel stud and drywall partitions taped and finished including
framing at masonry walls, approximately 320 Lin. Ft. of soffits at
ceiling transition, approximately 180' Lin. Ft. of sorts at the
mezzanine ceilings to enclose existing piping, approximately 80 Lin.
Ft. of demising walls, boxing-out as required East wall to conceal
existing pipes, cables and equipment, window returns, columns and
miscellaneous patching.
C. Acoustical tile to include new 2 x 4 non-reveal edge tile and
standard grid at first floor and mezzanine west column line office
areas. Ceilings East of the column line to be open excluding the
conference room on the second floor. Common area ceiling to be
reworked as required.
D. Wood doors to include 21 - 3/0 x 7/0 and 4 - 2/0 x 7/0 oak veneer
doors.
<PAGE> 20
20
E. Hollow metal frames to include 11- 3/0 x 7/0, 2 - 3/0 x 7/0 with 2/0
sidelite, 4 - 6/0 x 7/0 and 2 - 4/0 x 7/0 frames.
F. Hardware to include closures and Best Lever locksets at the 2 exit doors
and standard Best passage sets at all others. Shipping and receiving
doors to receive large kick plates.
G. Millwork to include 12' of base cabinets with a plastic laminated counter
top in the break room, approximately 60 Lin. Ft laminate sills at the
exterior windows. Broom closet will be installed in kitchen area.
H. Floor covering to include new anti-static carpet throughout, furnished
and installed with new 4" vinyl base. Corridor carpet to be building
standard carpet.
I. Extend exterior windows to top of existing masonry openings.
J. Painting to include one coat of latex paint on all existing surfaces, two
coats of latex paint on all new drywall and enamel paint on all hollow
metal frames. Stain, seal, and varnish wood doors. We have included the
washing and painting of exposed deck and mechanicals. This includes one
coat of spray applied latex paint including 2 accent colors. Sand blast
and seal the east and south walls of the high bay. Vinyl wall covering
will be installed in the kitchen, conference rooms and lobby area.
K. Glass and glaze to include installation of the following:
i) Butt-glazed entry with sidelite at the main entryway.
ii) Installation of glass wall panels in hollow metal
frames at (2) conference rooms.
iii) Mezzanine glass partitions per plan.
L. Plumbing to include one new double compartment sink, faucet, waste, vent,
and water piping. We will utilize a waste pump for the sink unit and have
included a supplemental water heater. We have not included provisions for
a dishwasher. Waterline and hookups for Bunn coffee maker are included.
Install a sink and waterline hookup to the darkroom. Install plumbing
hookup for dishwasher. Dishwasher unit to be purchased by LESSEE.
M. Fire protection to include reconfiguration of the existing system in the
acoustical ceiling at the first floor west bay, lobby, and conference
rooms. All other areas will have exposed fire protection piping in
accordance with local codes.
N. Heating, ventilating, and air conditioning work to include remodeling of
the existing system. This work includes:
<PAGE> 21
21
i) (4) Trane rooftop heating and air conditioning units. Units to be
mounted on the roof on steel frames.
ii) Economizers with barometric dampers.
iii) Penetrations through the (4) sky lights with the necessary framing
and caulking.
iv) Supply ductwork to be spiral with sidewall discharge grilles.
v) Return ductwork to run down near the floors on each unit.
vi) Supply ductwork under and on mezzanine to be rectangular with
ceiling diffusers.
vii) Gas piping with tie into the nearest gas line.
viii) Hole coring through roof.
ix) Wall fin radiation on the perimeter walls with (11) self-contained
control valves.
x) Demo the pipe radiation on the perimeter walls and the unit on top
of the mezzanine with associated ductwork and grills.
xi) Duct insulation on ducts above the ceilings.
xii) Novar control system.
xiii) Hot water piping and pipe insulation.
xiv) Air balancing.
xv) Engineering, permits and examination fees.
xvi) Three ceiling fans
xvii) Roofing of new unit curbs and pitch pockets.
xviii) Ventilation will be provided for the networking closet.
O. Electrical work to include the following per electrical spec and plan dated
May 14, 1996. Including but not limited to:
i) Two new electrical feeders including circuit panels and
distribution.
ii) Duplex outlets.
iii) Switches.
iv) HVAC wiring.
v) High bay lighting.
vi) 2 x 4 lay-in fixtures with silver paracubes.
vii) Exit lights and emergency fixtures.
P. Floor underlayment to be installed on the entire mezzanine.
Q. Structural steel work to include a new open pan stair with landings and
railings. This includes a bridge at the north stairs and the installation
of new railings per plan and local code. Install a security alarm at the
present fire door exit from roof.
R. Masonry work to include patching of existing brick walls that remain
exposed.
S. Add blinds to conference room sidelites
<PAGE> 22
22
ARTICLE XLIV
LEASE BUYOUT
44.1 LESSEE shall have the right to terminate this Lease after the
expiration of the fourth year of the Lease Term provided that:
A. LESSEE is not in default under this Lease on or after the time such
notice is sent to LESSOR; and
B. LESSEE gives LESSOR at least four (4) months prior written notice,
which notice cannot be sent prior to the expiration of the fourth
year of the term of the Lease.
C. LESSEE shall be required to make the following payments to LESSOR
based on the points at which LESSEE terminates this Lease.
i) If the Lease is terminated effective during months 52-60,
LESSEE pays LESSOR a sum sufficient to compensate LESSOR for
the unamortized cost of Leasehold Improvements, plus 10%
interest. This amount will be $68,604 plus $6,860.40
Interest.
ii) If the Lease is terminated effective during months 61-72,
LESSEE shall pay to LESSOR three (3) months of additional
rent beyond termination.
iii) If the Lease is terminated effective during months 73-96,
LESSEE shall pay to LESSOR two (2) months of additional rent
beyond termination.
Such payment must accompany the above-referenced notice of
termination and such notice will be ineffective unless accompanied
by such payment. There shall be no right to terminate this Lease (or
send a notice of termination) prior to the expiration of the fourth
year of the Lease Term.
ARTICLE XLV
RIGHT OF FIRST OPPORTUNITY
45.1 LESSEE shall have the right of first opportunity, subject to the terms
of this paragraph on that contiguous space located west of the LEASED
PREMISES and shaded in yellow on Exhibit C hereto (hereinafter called
the "Expansion Area"). This right of first opportunity will pertain to
the following:
. Vacant office space.
. Space currently occupied and due for renewal.
Within ten (10) business days after being given written notice by
LESSOR that LESSOR has a bona fide offer, including, but not limited
to, letters of intent, to lease any or all of the Expansion Area.
LESSEE may, at its sole option accept that portion of the Expansion
Area offered by written notice
<PAGE> 23
23
to LESSOR. LESSOR shall attempt to give consideration to LESSEE
regarding the length of Lease term LESSOR signs with tenants in the
Expansion Area, however LESSEE understands that LESSOR is in the
business of leasing space and does not guarantee that the space within
the Expansion Area will be available if or when LESSEE refuses to
exercise this right of first opportunity. If LESSEE exercises its
option to expand, the following terms and conditions shall apply:
A. That portion of the Expansion Area accepted by the LESSEE shall be
added to the LEASED PREMISES as of the first day of the month
following the completion of any leasehold improvements required
for the LESSEE and in which the LESSEE exercised its option.
B. LESSOR shall contribute to LESSEE an amount for LESSEE's
construction in the Expansion Area equal to the construction
allowance ( on a cost per square foot basis) for the underlying
office space described in this Lease and adjusted in the same
manner as the underlying rent is adjusted pursuant to Article IV.
If within five (5) years after the foregoing construction
allowance is paid to LESSEE, the Lease is terminated, LESSEE
agrees to pay LESSOR the unamortized portion of such construction
allowance in a single lump sum to be paid prior to such
termination.
C. The annual rent per square foot on the Expansion Area shall be
identical to that charged for the underlying office space of the
LEASED PREMISES at that time and likewise be adjusted pursuant to
Article IV.
D. The term of the expanded area lease shall coincide with and be
co-terminus with the original LEASED PREMISES lease. All other
terms and conditions of the original lease shall also be in force
for the expanded area.
<PAGE> 24
WHITNALL SUMMIT COMPANY, LLC
SUPPLEMENTAL OFFICE SPACE LEASE
THIS SUPPLEMENTAL AGREEMENT, made and entered this 3rd day of July
1997, by and between the WHITNALL SUMMIT COMPANY, LLC, whose interest in the
property is that of owner for itself, its successors and assigns, hereinafter
called the LESSOR, and Merge Technologies Inc., hereinafter called the
LESSEE, WITNESSETH:
WHEREAS, on the 24th day of May 1996, the parties hereto entered into a
lease covering the use of property located at the West Allis Center, 1126
South 70 Street, West Allis, Wisconsin 53214, for term beginning September,
1996 and ending August 31, 2004 .
WHEREAS, the LESSEE has need for additional space, and:
WHEREAS, the LESSOR is willing to provide additional space at an
appropriate increase in rental:
NOW, THEREFORE in considerations of the premises, said Lease is amended,
effective July 3rd, 1997, in the following particulars but in no others.
: An additional 700 (784) square feet, located on the 1st floor of
building 21, #150 of the West Allis Center will be used for storage.
: the term of this Agreement (Supplemental Office Space Lease) shall
commence August 1, 1997, and end August 31, 2004.
: The additional monthly charge for this added space shall be $261.33.
All remaining terms and conditions of the original Lease dated the 24th
day of May, 1996 shall continue in force unchanged.
IN WITNESS WHEREOF, the parties have executed this supplement to the May
24, 1996 Lease as of the day and year first above written.
Whitnall Summit Company, LLC Merge Technologies, Inc.
By: /s/ T.M. Baumgartner By: /s/ Colleen Doan
----------------------------------- ---------------------------
Title: Vice President & General Manager Title: Chief Financial Officer
-------------------------------- -----------------------
<PAGE> 1
Exhibit 10.11
AGREEMENT
This Agreement (this "Agreement") made and entered into this 1st day of
March, 1997, is by and between MERGE TECHNOLOGIES INCORPORATED ("Merge"), a
Wisconsin corporation, and ALPHA CAPITAL VENTURE PARTHERS L.P. ("Alpha"), an
Illinois limited partnership.
WITNESSETH
WHEREAS, pursuant to the terms of a certain Stock Redemption Agreement
dated May 5, 1995, between Merge and Alpha, Merge has a right to redeem 62,721
shares of Common Stock of Merge (as adjusted for stock splits, subdivisions,
stock dividends, reclassifications or the like) at a price of $10.37 per share
if redeemed prior to March 1, 1997; and
WHEREAS, Merge wishes to retain such right of redemption following March
1, 1997 by obtaining an option to purchase such shares pursuant to the terms of
this Agreement; and
WHEREAS, pursuant to Section 18 of that certain agreement entered into on
June 30, 1992, by and between Merge, Alpha and others, as amended by that
certain Amendment No. 1 dated November 10, 1992 (the "1992 Agreement"), Alpha,
among others, has the right to put 62,721 shares of Merge's Common Stock to
Merge (the "Put") subject to the conditions and upon the terms therein set
forth and, pursuant to Section 3(a) of the 1992 Agreement, holds an option to
purchase 1,957 Common Shares of Merge at a purchase price of $5.60 (such
shares if purchased by Alpha and issued, being hereinafter referred to as
"Option Shares"); and
WHEREAS, the parties wish to extend, amend or modify their respective
rights to purchase or put such shares of Common Stock owned by Alpha.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. Alpha hereby grants to Merge an option to purchase from Alpha and
redeem 62,721 shares of Merge's Common Stock (as adjusted for stock splits,
subdivisions, stock dividends, reclassifications or the like) presently held
by Alpha and any Option Shares (collectively, the "Calls") at the price per
share ("Call Price") as hereinafter defined, such option to be exercised on
or before August 31, 1998.
2. During the following monthly periods, the Call Price shall be:
<TABLE>
<S> <C>
If the Call is
Exercised in : Call Price
------------------- ----------
March, 1997 $10.58
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
If the Call is
Exercised in : Call Price
---------------- ----------
April, 1997 $10.78
May, 1997 $10.99
June, 1997 $11.20
July, 1997 $11.41
August, 1997 $11.61
September, 1997 $11.82
October, 1997 $12 03
November, 1997 $12.24
December, 1997 $12.44
January, 1998 $12.65
February, 1998 $12.86
March, 1998 $14.62
April, 1998 $14.83
May, 1998 $15.04
June, 1998 $15.24
July, 1998 $15.45
August, 1998 $15.66
September, 1998 $15.87
October, 1998 $16.07
</TABLE>
3. The put price (the "Put Price") per share payable by Merge pursuant
to the provisions of Section 18 of the 1992 Agreement shall hereafter be:
<TABLE>
<S> <C>
If the Put is
Exercised in : Put Price
---------------- ---------
March, 1997 $4.80
April, 1997 $5.01
May, 1997 $5.22
June, 1997 $5.42
July, 1997 $5.63
August, 1997 $5.84
September, 1997 $6 05
October, 1997 $6.25
November, 1997 $6.46
December, 1997 $6.67
January, 1998 $6.88
February, 1998 $7.08
March, 1998 $8.85
April, 1998 $9.05
May, 1998 $9.26
June, 1998 $9.47
July, 1998 $9.67
August, 1998 $9.88
September, 1998 $10.09
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
If the Put is
Exercised in : Put Price
-------------- ---------
<S> <C>
October, 1998 $10.30
</TABLE>
4. The term of the Put is hereby extended to expire on October 31, 1998.
5. Merge's option to purchase and Alpha's Put may be initiated, on or
before October 31, 1998, by the delivery of a written notice by the party
desiring to take such action (the "Written Notice") to the other party. Within
thirty (30) calendar days of the delivery of the Written Notice, Merge shall
pay to Alpha one hundred percent (100%) of the appropriate Call Price or Put
Price, as applicable, per share by either cash or certified or cashier's check.
Concurrent with such payment, Alpha shall deliver to Merge the certificates
representing the Common Stock subject to the Call or the Put, as applicable,
duly endorsed in blank or accompanied by stock powers endorsed in blank, in
form and substance reasonably acceptable to Merge and its counsel.
6. Alpha agrees with Merge that it will not transfer any of the shares
subject to this Agreement or any interest therein until September 1, 1998.
7. If requested by Merge, the certificates evidencing the shares of
Common Stock subject to this Agreement shall bear a legend indicating that
they are subject to the terms and provisions of this Agreement.
8. Merge hereby represents and warrants to Alpha, which representations
and warranties shall survive the execution and delivery of this Agreement,
that: (a) this Agreement and the actions on Merge's part contemplated hereby
have been duly approved by all requisite action on the part of Merge
(including, without limitation, authorization by the Board of Directors of
Merge); (b) this Agreement has been duly executed and delivered and
constitutes the legally valid and binding obligation of Merge, enforceable in
accordance with its terms; and (c) the execution, delivery and performance of
this Agreement does not and will not violate or conflict with any provision of
Merge's Articles of Incorporation or By-Laws, as amended and in effect on the
date hereof, or any material contracts or agreements to which Merge is a party
or by which any of Merge's assets are bound.
9. Merge shall pay on demand any and all of the costs and expenses of
Alpha (including, without limitation, the reasonable fees and out-of-pocket
costs and expenses of Alpha's counsel) in connection with the preparation,
negotiation, execution, and delivery of this Agreement and all other
instruments, agreements, certificates or documents to be delivered or filed in
connection
-3-
<PAGE> 4
herewith and any and all amendments or modifications executed pursuant hereto.
10. This Agreement shall be governed by and constructed in accordance
with the laws of the State of Wisconsin.
11. This instrument constitutes the entire agreement of the parties with
respect to the subject matter hereto and may be modified or amended only by an
instrument in writing signed by both of the parties hereto.
12. The parties hereto agree to promptly execute and deliver any and all
other documents reasonably necessary to more fully carry out the intent of
this Agreement. This Agreement may be executed in any number of counterparts
and by the different parties on separate counterparts and each such
counterpart shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument. Delivery of an executed
counterpart of this Agreement by facsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement.
[Signature Page Follows]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MERGE TECHNOLOGIES INCORPORATED
By: /s/ William Mortimore
----------------------------
Its: President
ALPHA CAPITAL VENTURE PARTNERS L.P.
By: /s/
----------------------------
Its: General Partner
<PAGE> 1
EXHIBIT 11
Merge Technologies Incorporated
Statement Regarding Computation of Net Loss per share of Common Stock
<TABLE>
<CAPTION> YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1995 1996 1996 1997
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary item $ (484,373) $ (283,193) $ (153,350) $ 114,641
Net income (loss) $ (484,373) $ (113,679) $ 16,164 $ 114,641
Weighted average Common
Shares outstanding 2,273,432 3,464,989 3,025,958 3,899,467
Additional shares pursuant
to SAB 83 computation 502,748 502,748 502,748 502,748
------------- ------------- ------------- -----------
Shares used in computing
net income (loss)
per share of Common Stock 2,776,180 3,967,737 3,528,706 4,402,215
============= ============= ============= ===========
Net income (loss) before extraordinary item per
share of Common Stock $ (0.17) $ (0.07) $ (0.04) $ 0.03
============= ============= ============= ===========
Net income (loss) per
share of Common Stock $ (0.17) $ (0.03) $ 0.00 $ 0.03
============= ============= ============= ===========
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of Registrant
Signal, Stream Incorporated
<PAGE> 1
EXHIBIT 23.2
Consent of KPMG Peat Marwick LLP
The Board of Directors
Merge Technologies, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
October 30, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints William C.
Mortimore his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to the Registration
Statement on Form SB-2 (including post-effective amendments), and to file the
same, with all exhibits thereto, and all documents in connection therewith, with
the Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME POSITION DATE
<S> <C> <C>
/s/ Colleen M. Doan Chief Financial Officer, Secretary
- ---------------------------- and Treasurer ------------
Colleen M. Doan
/s/ Robert T. Geras Director
- ---------------------------- ------------
Robert T. Geras
/s/ David B. Pivan Director
- ---------------------------- ------------
David B. Pivan
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 287,098
<SECURITIES> 0
<RECEIVABLES> 1,577,233
<ALLOWANCES> 77,000
<INVENTORY> 404,493
<CURRENT-ASSETS> 2,216,076
<PP&E> 1,085,100
<DEPRECIATION> 401,176
<TOTAL-ASSETS> 5,393,665
<CURRENT-LIABILITIES> 2,653,819
<BONDS> 0
0
0
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