-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CMc32/E4XswXfbWoN+/jedGFDgjf+h0W03RZrOJTja7ud6fUHki6cqBbEj4QmLm6 E/N6Kh5DnSkt/M9y/8SyYQ== 0001005150-98-000566.txt : 19980605 0001005150-98-000566.hdr.sgml : 19980605 ACCESSION NUMBER: 0001005150-98-000566 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19980603 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MED E AMERICA CORP CENTRAL INDEX KEY: 0001062779 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 113270245 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-55977 FILM NUMBER: 98642096 BUSINESS ADDRESS: STREET 1: 90 MERRICK AVENUE SUITE 501 CITY: EAST MEADOW STATE: NY ZIP: 11554 BUSINESS PHONE: 5165424500 MAIL ADDRESS: STREET 1: 90 MERRICK AVENUE STREET 2: SUITE 501 CITY: EAST MEADOW STATE: NY ZIP: 11554 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998 REGISTRATION NO. 333 - ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------- MEDE AMERICA CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 7374 11-3270245 State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.) incorporation or organization) Classification Code Number)
90 MERRICK AVENUE, SUITE 501 EAST MEADOW, NEW YORK 11554 (516) 542-4500 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ----------------- DAVID M. GOLDWIN, ESQ. GENERAL COUNSEL MEDE AMERICA CORPORATION 90 MERRICK AVENUE, SUITE 501 EAST MEADOW, NEW YORK 11554 (516) 542-4500 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------- COPIES TO: MARK J. TANNENBAUM, ESQ. FREDERICK W. KANNER, ESQ. REBOUL, MACMURRAY, HEWITT, DEWEY BALLANTINE LLP MAYNARD & KRISTOL 1301 AVENUE OF THE AMERICAS 45 ROCKEFELLER PLAZA NEW YORK, NY 10019 NEW YORK, NY 10111 (212) 259-8000 (212) 841-5700 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, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE ================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE Common Stock, $.01 par value......... 4,140,000 shares $ 15.00 $62,100,000 $18,320
================================================================================ (1) Includes 540,000 shares of Common Stock that may be sold pursuant to the Underwriters' over-allotment option. See "Underwriting." (2) Estimated solely for purposes of calculating the amount of the registration fee paid pursuant to Rule 457(a) 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 THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ SUBJECT TO COMPLETION, DATED JUNE 3, 1998 PROSPECTUS 3,600,000 SHARES [LOGO] MEDE AMERICA CORPORATION COMMON STOCK ------------------ All of the shares of Common Stock offered hereby (the "Offering") are being sold by MEDE AMERICA Corporation ("MEDE AMERICA" or the "Company"). Prior to the Offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $13.00 and $15.00 per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. The Company intends to apply to have the Company's Common Stock approved for quotation on the Nasdaq National Market under the symbol "MEDE." ------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER 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. ================================================================================
PRICE UNDERWRITING PROCEEDS TO DISCOUNTS AND TO PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------- Per Share ......... $ $ $ - -------------------------------------------------------------------------------- Total(3) .......... $ $ $ ================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses estimated at $950,000, payable by the Company. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 540,000 additional shares of Common Stock on the same terms as set forth above solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and the Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------ The shares of Common Stock are being offered by the several Underwriters named herein, subject to prior sale, when, as and if delivered and accepted by them, and subject to their right to reject orders in whole or in part. It is expected that certificates for such shares of Common Stock will be made available for delivery at the offices of Smith Barney Inc., 333 West 34th Street, New York, New York 10001, on or about , 1998. ------------------ SALOMON SMITH BARNEY WILLIAM BLAIR & COMPANY VOLPE BROWN WHELAN & COMPANY , 1998 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. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING BY OVER-ALLOTMENT, STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." MEDE AMERICA is a trademark of the Company. All other trade names, trademarks or service marks appearing in this Prospectus are the property of their respective owners and are not the property of the Company. PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the financial statements, including the notes thereto, appearing elsewhere in this Prospectus. THE COMPANY MEDE AMERICA is a leading provider of electronic data interchange ("EDI") products and services to a broad range of providers and payors in the healthcare industry. The Company offers an integrated suite of EDI solutions that allows hospitals, pharmacies, physicians, dentists and other healthcare providers and provider groups to electronically edit, process and transmit claims, eligibility and enrollment data, track claims submissions throughout the claims payment process and obtain faster reimbursement for their services. In addition to offering greater processing speed, the Company's EDI products reduce processing costs, increase collection rates and result in more accurate data interchange. The Company maintains over 540 direct connections with insurance companies, Medicare and Medicaid agencies, Blue Cross and Blue Shield systems and other third party payors, as well as over 500 indirect connections with additional payors through claims clearinghouses. Currently, the Company processes over 900,000 transactions per day for over 65,000 providers located in all 50 states. Since its formation in March 1995, the Company has expanded both through internal growth and the acquisition of five healthcare EDI processing businesses. As part of its strategy of providing an integrated suite of EDI solutions to a broad range of healthcare providers, the Company has focused on acquisitions that provided entry into new markets or expanded the Company's product suite. The Company has actively pursued the integration of its acquisitions and, in the process, has either divested, closed or restructured various operations of the acquired entities in order to eliminate non-core or redundant operations and achieve cost savings and operating efficiencies. Innovations over the past decade in computer and telecommunications technologies have resulted in the development of EDI systems to electronically process and transmit information among the various participants in the healthcare industry. These systems were designed to replace the paper-based recording and transmission of information, enabling greater processing speed, reduced processing costs and more accurate data interchange. According to Health Data Directory, in 1997 over 4.1 billion electronic and paper claims were paid in all sectors of the healthcare services market. From 1993 to 1997, the proportion of total healthcare claims that were electronically processed increased from 41% to approximately 60%, at an average rate of 16% per year. The Company expects the electronic processing of healthcare claims to continue to increase as a result of increased reliance on electronic commerce and increased emphasis on cost containment in the healthcare industry. The penetration of electronic processing varies significantly among the different markets within the healthcare industry. According to Health Data Directory, in 1997 electronic processing accounted for approximately 13% of total dental claims, 38% of total physician medical claims, 83% of total hospital medical claims and 86% of total pharmacy claims. The Company believes that there is significant market potential for EDI processing in the non-claim area, including eligibility verification, remittance transactions and other data exchange transactions such as claims tracking, referrals and physician scripting. The Company believes that EDI penetration in these non-claim transaction categories is low, and as a result, the EDI transaction growth in these areas will exceed that of the EDI claims processing market. The Company believes that it has several competitive strengths which will enable it to capitalize on the significant growth opportunities in the healthcare EDI marketplace. COMPREHENSIVE SUITE OF EDI PRODUCTS AND SERVICES. The Company has followed a strategy of developing or acquiring EDI products and services that may be offered to a broad range of healthcare providers. The Company's products incorporate open architecture designs and "best of 3 breed" technology and may be purchased as modular additions to the client's existing data storage and retrieval system, or as part of a comprehensive EDI processing system. The Company believes it is well positioned to take advantage of the expected growth of EDI in areas such as eligibility, managed care transactions and physician scripting. BROAD AND DIVERSIFIED CLIENT BASE. The Company's client base is highly diversified, consisting of approximately 42,000 pharmacies, 8,000 dental offices, 1,000 hospitals and clinics and 14,000 physicians. The Company's broad and diversified client base provides it with transaction-based revenues that tend to be recurring and positions it to capitalize on the rapid consolidation taking place within the healthcare industry. DIRECT RELATIONSHIPS WITH PROVIDERS AND PAYORS. The range of MEDE AMERICA's services and the extent of its connectivity with payors provides the opportunity to achieve deeper penetration of its provider base, while at the same time offering more complete solutions to new clients. MEDE AMERICA believes that it is strongly positioned to offer reliable, one-stop shopping to providers for all their EDI needs. FOCUS ON CLIENT SERVICE. The Company has focused on implementing a wide range of client service and support functions including the use of automated client service tracking software, expanded client help desk and account executive support functions and extensive client feedback mechanisms. The Company believes that its high quality client service enhances the satisfaction of its clients and generates new revenue opportunities in the form of expanded transaction volume and sales of new products and services. LEADING TECHNOLOGY AND PRODUCT PLATFORMS. Over the past two years, MEDE AMERICA has invested significant capital in new hardware and software systems to increase its transaction processing capacity. As a result of such technology investments, MEDE AMERICA believes it is able to provide high quality service to its clients in the form of high network availability, batch transaction reliability and high rates of payor claims acceptance. MEDE AMERICA also believes that its technology platform, which is operating at approximately one-third of its total capacity, provides the Company with substantial operating leverage. EXPERIENCED MANAGEMENT TEAM. Each member of the Company's senior management team has over 15 years of experience in the information technology and transaction processing industries and has extensive background in working with emerging companies in the information processing industry. The Company believes that the range and depth of its senior management team position it to address the evolving requirements of its clients and to manage the growth required to meet its strategic goals. The Company's mission is to be the leading provider of integrated healthcare transaction processing technology, networks and databases, enabling its clients to improve the quality and efficiency of their services. To achieve this objective, the Company is pursuing a growth strategy comprised of the following elements: provide a comprehensive suite of EDI solutions; further penetrate its existing client base through cross-selling of emerging products and services; develop new EDI solutions to meet the evolving electronic transaction processing needs of its clients; continue to utilize strategic alliances with key players in the healthcare industry; and pursue strategic acquisitions in order to expand the Company's product offerings, enter new markets and capitalize on the Company's operating leverage. The Company's executive offices are located at 90 Merrick Avenue, Suite 501, East Meadow, New York 11554, and its telephone number is (516) 542-4500. 4 THE OFFERING COMMON STOCK OFFERED BY THE COMPANY.. 3,600,000 shares COMMON STOCK TO BE OUTSTANDING AFTER THE OFFERING........................ 11,567,304 shares (1)(2) USE OF PROCEEDS...................... To retire all outstanding bank and subordinated indebtedness and accrued interest thereon, and for other general corporate purposes, including working capital. PROPOSED NASDAQ NATIONAL MARKET SYMBOL........................ MEDE - ----------- (1) Reflects the proposed recapitalization of the Company's capital stock (the "Recapitalization"). The Recapitalization involves the conversion of all outstanding Preferred Stock, including accrued but unpaid dividends, into Common Stock and the exercise of all outstanding warrants, however, cash realized by the Company upon any exercise of the Underwriters' overallotment option would be applied to the payment of accrued dividends in lieu of having such dividends convert into Common Stock. (2) Excludes 483,132 shares of Common Stock issuable upon the exercise of stock options outstanding as of May 29, 1998 under the MEDE AMERICA Corporation and Its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Stock Plan"), of which 212,099 are exercisable. The weighted average exercise price of all outstanding stock options is $4.84 per share. See "Management -- Employee Benefit Plans." RISK FACTORS Prospective purchasers should consider all of the information contained in this Prospectus before making an investment in shares of Common Stock. In particular, prospective purchasers should consider the factors set forth herein under "Risk Factors." 5 SUMMARY CONSOLIDATED FINANCIAL DATA
YEAR ENDED JUNE 30, ------------------------------------------------------------------- ACTUAL PRO FORMA(1) ---------------------------------------------------- -------------- 1995 1996 1997 1997 ---------------- ---------------- ------------------ -------------- (IN THOUSANDS, EXCEPT PER SHARE AND PER TRANSACTION DATA) STATEMENT OF OPERATIONS DATA: Revenues(3) ................................ $ 16,246 $ 31,768 $ 35,279 $ 41,824 Operating expenses: Operations ................................ 9,753 19,174 16,817 18,601 Sales, marketing and client services ...... 3,615 7,064 8,769 10,450 Research and development .................. 2,051 2,132 3,278 3,513 General and administrative ................ 3,119 6,059 5,263 5,516 Depreciation and amortization ............. 2,995 5,176 5,293 7,062 Write-down of intangible assets ........... 8,191 (4) 9,965 (5) -- -- Acquired in-process research and development(6) ........................... -- -- 4,354 4,354 Other charges(7) .......................... 2,864 538 2,301 3,581 --------- --------- --------- --------- Total operating expenses ................... 32,588 50,108 46,075 53,077 --------- --------- --------- --------- Loss from operations ....................... (16,342) (18,340) (10,796) (11,253) Other (income) expense ..................... -- 313 (893) (893) Interest expense (income), net ............. 189 584 1,504 356 --------- --------- --------- --------- Loss before provision for income taxes ..... (16,531) (19,237) (11,407) (10,716) Provision for income taxes ................. 70 93 57 57 --------- --------- --------- --------- Net loss ................................... (16,601) (19,330) (11,464) (10,773) Preferred stock dividends .................. (27) (2,400) (2,400) -- --------- --------- --------- --------- Net loss applicable to common stockholders............................... $(16,628) $(21,730) $ (13,864) $ (10,773) ========= ========= ========= ========= Basic net loss per common share ............ $ (3.17) $ (4.14) $ (2.56)(8) $ (1.18) Weighted average common shares outstanding - Basic ....................... 5,238 5,245 5,425 9,131 OTHER DATA: EBITDA(9) .................................. $(13,347) $(13,164) $ (5,503) $ (4,191) Adjusted EBITDA(9) ......................... (2,292) (2,052) 2,211 4,803 Transactions processed(10) Pharmacy .................................. -- 107,032 126,201 145,903 Medical ................................... -- 16,030 23,085 27,814 Dental .................................... -- 6,021 12,188 12,188 --------- --------- ---------- --------- Total transactions processed ............. -- 129,083 161,474 185,905 Transactions per FTE(10)(11) ............... -- 324 412 474 Revenue per FTE(11) ........................ $ 44 $ 80 $ 90 $ 107 Operating expenses per transaction(10) ..... -- 0.39 0.29 0.29
NINE MONTHS ENDED MARCH 31, --------------------------------------------- ACTUAL PRO FORMA(2) ------------------------------- ------------- 1997 1998 1998 ------------ ------------------ ------------- (IN THOUSANDS, EXCEPT PER SHARE AND PER TRANSACTION DATA) STATEMENT OF OPERATIONS DATA: Revenues(3) ................................ $ 24,964 $ 30,189 $ 31,835 Operating expenses: Operations ................................ 12,104 12,485 12,730 Sales, marketing and client services ...... 6,143 7,769 8,067 Research and development .................. 2,455 2,886 2,929 General and administrative ................ 3,340 3,307 3,468 Depreciation and amortization ............. 3,502 4,846 5,156 Write-down of intangible assets ........... -- -- -- Acquired in-process research and development(6) ........................... 4,354 -- -- Other charges(7) .......................... 990 -- -- -------- --------- -------- Total operating expenses ................... 32,888 31,293 32,350 -------- --------- -------- Loss from operations ....................... (7,924) (1,104) (515) Other (income) expense ..................... (885) 13 13 Interest expense (income), net ............. 779 2,470 (134) -------- --------- -------- Loss before provision for income taxes ..... (7,818) (3,587) (394) Provision for income taxes ................. 43 37 37 -------- --------- -------- Net loss ................................... (7,861) (3,624) (431) Preferred stock dividends .................. (1,800) (1,800) -- -------- --------- -------- Net loss applicable to common stockholders............................... $ (9,661) $ (5,424) $ (431) ======== ========= ======== Basic net loss per common share ............ $ (1.81) $ (0.96)(8) $ (0.05) Weighted average common shares outstanding - Basic ....................... 5,345 5,677 9,277 OTHER DATA: EBITDA(9) .................................. $ (4,422) $ 3,742 $ 4,641 Adjusted EBITDA(9) ......................... 922 3,742 4,641 Transactions processed(10) Pharmacy .................................. 88,463 136,685 140,234 Medical ................................... 14,921 23,514 23,514 Dental .................................... 8,759 10,767 10,767 --------- ---------- -------- Total transactions processed ............. 112,143 170,966 174,515 Transactions per FTE(10)(11) ............... 291 480 487 Revenue per FTE(11) ........................ $ 65 $ 84 $ 89 Operating expenses per transaction(10) ..... 0.29 0.18 0.19
AS OF MARCH 31, 1998 --------------------------- ACTUAL AS ADJUSTED ------------ ------------ BALANCE SHEET DATA: Working capital ................................... $ 3,276 $ 7,889 Total assets ...................................... 54,179 58,363 Long-term debt, including current portion ......... 40,499 1,324 Redeemable cumulative preferred stock ............. 30,623 -- Stockholders' equity (deficit) .................... (25,337) 49,362
(Footnotes on following page) 6 (1) Gives effect to (i) the acquisition of Time-Share Computer Systems, Inc. ("TCS") in February 1997, (ii) the acquisition of The Stockton Group, Inc. ("Stockton") in November 1997, (iii) the Recapitalization and (iv) the Offering, as if they had occurred on July 1, 1996. (2) Gives effect to (i) the acquisition of Stockton in November 1997, (ii) the Recapitalization and (iii) the Offering, as if they had occurred on July 1, 1996. (3) During the periods presented, the Company made a series of acquisitions and divested certain non-core or unprofitable operations. Revenues attributable to these divested operations, which are included in the statement of operations data, were $1,595,000, $3,517,000, $2,252,000, $1,941,000 and $241,000 in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1997 and 1998, respectively. (4) Reflects the write-off of goodwill related to the acquisitions of Medical Processing Center, Inc. ("MPC") and Wellmark, Inc. ("Wellmark"). (5) Reflects the write-down of costs relating to client lists and related allocable goodwill obtained in the acquisition of General Computer Corporation, subsequently renamed MEDE AMERICA Corporation of Ohio ("MEDE OHIO"). (6) Reflects the write-off of acquired in-process research and development costs upon the consummation of the TCS acquisition. (7) Reflects (i) expenses recorded relating to contingent consideration paid to former owners of acquired businesses of $538,000, $2,301,000 and $990,000 in the fiscal years ended June 30, 1996 and 1997 and the nine months ended March 31, 1997, respectively, (ii) expenses of $2,864,000 relating to the spin-off of the Company by Card Establishment Services, Inc. ("CES") in the fiscal year ended June 30, 1995 and (iii) non-cash stock compensation of $1,280,000 relating to Stockton in the pro forma fiscal year ended June 30, 1997. (8) Supplemental net loss per share, giving effect to the Recapitalization, would be $(1.49) and $(0.46) for the fiscal year ended June 30, 1997 and the nine months ended March 31, 1998, respectively. (9) EBITDA represents net income (loss) plus provision for income taxes, net interest expense, other (income) expense and depreciation and amortization. EBITDA is not a measurement in accordance with generally accepted accounting principles ("GAAP") and should not be considered an alternative to, or more meaningful than, earnings (loss) from operations, net earnings (loss) or cash flow from operations as defined by GAAP or as a measure of the Company's profitability or liquidity. Not all companies calculate EBITDA in the same manner and, accordingly, EBITDA shown herein may not be comparable to EBITDA shown by other companies. The Company has included information concerning EBITDA herein because management believes EBITDA provides useful information. Adjusted EBITDA represents EBITDA plus certain other charges as described below. The following table summarizes EBITDA and adjusted EBITDA for all periods presented:
NINE MONTHS ENDED YEAR ENDED JUNE 30, MARCH 31, ------------------------------------------------------ ------------------------------- ACTUAL PRO FORMA ACTUAL PRO FORMA ------------------------------------------ ----------- ----------------------- ------- 1995 1996 1997 1997 1997 1998 1998 -------------- -------------- ------------ ----------- ------------ ---------- ------- (IN THOUSANDS) EBITDA ............................... $ (13,347) $ (13,164) $ (5,503) $ (4,191) $ (4,422) $ 3,742 $ 4,641 Contingent consideration paid to former owners of acquired busi- nesses ............................. -- 538 2,301 2,301 990 -- -- Write-down of intangible assets ...... 8,191 9,965 -- -- -- -- -- Acquired in-process research and development ........................ -- -- 4,354 4,354 4,354 -- -- Expenses related to the CES spin- off ................................ 2,864 -- -- -- -- -- -- Non-cash stock compensation .......... -- -- -- 1,280 -- -- -- Contract and legal settlement provi- sions .............................. -- 609 1,059 1,059 -- -- -- ---------- ---------- -------- -------- -------- ------- ------- Adjusted EBITDA ...................... $ (2,292) $ (2,052) $ 2,211 $ 4,803 $ 922 $ 3,742 $ 4,641 ========== ========== ======== ======== ======== ======= =======
- ----------- (10) Transaction volumes are not available for the fiscal year ended June 30, 1995. (11) Full-time equivalents ("FTE") represents the number of full-time employees and part-time equivalents of full-time employees as of the end of the period shown. 7 QUARTERLY FINANCIAL INFORMATION The following table summarizes revenues, EBITDA and Adjusted EBITDA for all periods presented:
THREE MONTHS ENDED ------------------------------------------------------------------------------- 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 ----------- ---------- ----------- ----------- --------- ---------- ----------- (IN THOUSANDS) Revenues ................................. $ 8,179 $ 7,831 $ 8,954 $ 10,315 $ 9,241 $ 9,849 $ 11,099 EBITDA (1) ............................... (199) (64) (4,159) (1,081) 704 1,309 1,729 Contingent consideration paid to former owners of acquired businesses ........... 330 330 330 1,311 -- -- -- Acquired in-process research and develop- ment .................................... -- -- 4,354 -- -- -- -- Contract and legal settlement provisions . -- -- -- 1,059 -- -- -- ------- ------- -------- -------- ------- ------- -------- Adjusted EBITDA(1) ....................... $ 131 $ 266 $ 525 $ 1,289 $ 704 $ 1,309 $ 1,729 ======= ======= ======== ======== ======= ======= ========
See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Operating Results." - ----------- (1) EBITDA represents net income (loss) plus provision for income taxes, net interest expense, other (income) expense and depreciation and amortization. EBITDA is not a measurement in accordance with GAAP and should not be considered an alternative to, or more meaningful than, earnings (loss) from operations, net earnings (loss) or cash flow from operations as defined by GAAP or as a measure of the Company's profitability or liquidity. Not all companies calculate EBITDA in the same manner and, accordingly, EBITDA shown herein may not be comparable to EBITDA shown by other companies. The Company has included information concerning EBITDA herein because management believes EBITDA provides useful information. Adjusted EBITDA represents EBITDA plus certain other charges as described above. - ----------- Except as otherwise noted herein, all information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option and (ii) has been adjusted to give effect to a one-for-4.5823 reverse stock split of all outstanding Common Stock (the "Reverse Stock Split"). The Company's Preferred Stock, $.01 par value ("Preferred Stock"), provides for conversion of the aggregate liquidation value of the Preferred Stock, including accrued but unpaid dividends, into Common Stock at the initial public offering price per share. However, cash realized by the Company upon any exercise of the Underwriters' overallotment option would be applied to the payment of accrued dividends in lieu of having such dividends convert into Common Stock. Except as otherwise noted herein, each reference in this Prospectus to Common Stock issuable upon conversion of all of the Preferred Stock assumes a conversion price of $14.00. Based on an aggregate liquidation preference of the Preferred Stock of $31,023,911 (including $7,028,311 of accrued dividends) as of May 29, 1998, 2,215,940 shares of Common Stock would be so issuable as of such date. In addition, concurrently with the consummation of the Offering, an additional 66,379 shares of Common Stock will be issued upon the exercise of all outstanding Common Stock purchase warrants. Such conversion of the Preferred Stock, and exercise of warrants, are referred to herein as the "Recapitalization". See "Capitalization," "Description of Common Stock," "Principal Stockholders" and "Underwriting." 8 RISK FACTORS In addition to other information contained in this Prospectus, prospective investors should carefully consider the following risk factors before purchasing the shares of Common Stock offered hereby. This Prospectus contains forward-looking statements relating to future events or the future financial performance of the Company. Prospective investors are cautioned that such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors and the matters set forth in this Prospectus generally. HISTORY OF OPERATING LOSSES; LIMITED OPERATING HISTORY The Company has experienced substantial net losses, including net losses of $16.6 million, $19.3 million, $11.5 million and $3.6 million for the fiscal years ended June 30, 1995, 1996 and 1997, respectively, and the nine months ended March 31, 1998. The Company had an accumulated deficit of approximately $51.5 million as of March 31, 1998. In connection with its acquisitions completed to date, the Company has incurred significant acquisition-related charges and will record significant amortization expense related to goodwill and other intangible assets in future periods. There can be no assurance that the Company will be able to achieve or sustain revenue growth or profitability on a quarterly or annual basis. See "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's operating history is limited. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies with limited operating histories, particularly companies in new and rapidly evolving markets such as EDI and transaction processing. Such risks include, but are not limited to, an evolving and unpredictable business model and the difficulties inherent in the management of growth. To address these risks, the Company must, among other things, maintain and increase its client base, implement and successfully execute its business and marketing strategies, continue to develop and upgrade its technology and transaction-processing systems, provide superior client service, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that the Company will be successful in addressing such risks or in achieving profitability, and the failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. ACQUISITION STRATEGY; NEED FOR ADDITIONAL CAPITAL The Company's strategy includes acquisitions of healthcare EDI businesses that complement or supplement the Company's business. The success of such a strategy will depend on many factors, including the Company's ability to identify suitable acquisition candidates, the purchase price and the availability and terms of financing. Significant competition for acquisition opportunities exists in the healthcare EDI industry, which may significantly increase the costs of and decrease the opportunities for acquisitions. Although the Company is actively pursuing possible acquisitions, there can be no assurance that any acquisition will be consummated. No assurances can be given that the Company will be able to operate any acquired businesses profitably or otherwise successfully implement its expansion strategy. The Company may finance future acquisitions through borrowings or the issuance of debt or equity securities. There can be no assurance that future lenders will extend credit on favorable terms, if at all. Further, any borrowings would increase the Company's interest expense and any issuance of equity securities could have a dilutive effect on the holders of Common Stock. The Company will not be able to account for acquisitions under the "pooling of interests" method for at least two years following the Offering. Accordingly, such future acquisitions may result in significant goodwill and a corresponding increase in the amount of amortization expense and could also result in write-downs of purchased assets, all of which could adversely affect the Company's operating results in future periods. INTEGRATION OF ACQUIRED BUSINESSES The success of the Company's acquisition strategy also depends to a large degree on the Company's ability to effectively integrate the acquired products and services, facilities, technologies, personnel and operations into the Company. The process of integration often requires substantial management atten- 9 tion and other corporate resources, and the Company may not be able to accurately predict the resources that will be needed to integrate acquired operations. There can be no assurance that the Company will be able to effectively integrate any or all acquired companies or operations. Any failure to do so could result in operating inefficiencies, redundancies, management distraction or technological difficulties (among other possible adverse consequences), any of which could have a material adverse effect on the Company's business, financial condition and results of operations. EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES The market for the Company's products and services is characterized by rapidly changing technology, evolving industry standards and the frequent introduction of new and enhanced services. The Company's success will depend upon its ability to enhance its existing services, to introduce new products and services on a timely and cost-effective basis to meet evolving client requirements, to achieve market acceptance for new products or services and to respond to emerging industry standards and other technological changes. There can be no assurance that the Company will be able to respond effectively to technological changes or new industry standards. Moreover, there can be no assurance that other companies will not develop competitive products or services, or that any such competitive products or services will not have an adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON CONNECTIONS TO PAYORS The Company's business is enhanced by the substantial number of payors (such as insurance companies, Medicare and Medicaid agencies and Blue Cross/Blue Shield organizations) to which the Company has electronic connections. These connections may either be made directly or through a clearinghouse or other intermediary. The Company has attempted to enter into suitable contractual relationships to ensure long term payor connectivity; however, there can be no assurance that the Company will be able to maintain its links with all payors with whom it currently has connections. In addition, there can be no assurance that the Company will be able to develop new connections (either directly or through clearinghouses) on satisfactory terms, if at all. Lastly, certain third-party payors provide EDI systems directly to healthcare providers, bypassing third-party processors such as the Company. The failure to maintain its existing connections with payors and clearinghouses or to develop new connections as circumstances warrant, or an increase in the utilization of direct links between providers and payors, could have a material adverse effect on the Company's business, financial condition and results of operations. DEVELOPMENT OF EDI PROCESSING IN THE HEALTHCARE INDUSTRY The Company's strategy anticipates that electronic processing of healthcare transactions, including transactions involving clinical as well as financial information, will become more widespread and that providers and third-party payors increasingly will use EDI processing networks for the processing and transmission of data. Electronic transmission of healthcare transactions is still developing, and complexities in the nature and types of transactions which must be processed have hindered, to some degree, the development and acceptance of EDI processing in this market. There can be no assurance that continued conversion from paper-based transaction processing to EDI processing in the healthcare industry will occur or that, to the extent it does occur, healthcare providers and payors will use independent processors such as the Company. Furthermore, if EDI processing extensively penetrates the healthcare market or becomes highly standardized, it is possible that competition among transaction processors will focus increasingly on pricing. If competition causes the Company to reduce its pricing in order to retain market share, the Company may suffer a material adverse change in its business, financial condition and results of operations. POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS The Company's quarterly operating results have varied significantly in the past and are likely to vary from quarter to quarter in the future. Quarterly revenues and operating results may fluctuate as a result of a variety of factors, including: integration of acquired businesses; seasonal variability of demand 10 for healthcare services generally; the number, timing and significance of announcements and releases of product enhancements and new products by the Company and its competitors; the timing and significance of announcements concerning the Company's present or prospective strategic alliances; the loss of clients due to consolidation in the healthcare industry; legislation or changes in government policies or regulations relating to healthcare EDI processing; delays in product installation requested by clients; the length of the sales cycle or the timing of sales; client budgeting cycles and changes in client budgets; marketing and sales promotional activities; software defects and other quality factors; and general economic conditions. The Company's operating expense levels, which will increase with the addition of acquired businesses, are relatively fixed. If revenues are below expectations, net income is likely to be disproportionately adversely affected. Further, in some future quarters the Company's revenues or operating results may be below the expectations of securities analysts and investors. In such event, the trading price of the Company's Common Stock would likely be materially adversely affected. See "Summary -- Quarterly Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Quarterly Operating Results." PROPOSED HEALTHCARE DATA CONFIDENTIALITY LEGISLATION Legislation that imposes restrictions on third-party processors' ability to analyze certain patient data without specific patient consent has been introduced in the U.S. Congress. Although the Company does not currently access or analyze individually identifiable patient information, such legislation, if adopted, could adversely affect the ability of third-party processors to transmit information such as treatment and clinical data, and could adversely affect the Company's ability to expand into related areas of the EDI healthcare market. In addition, the Health Insurance Portability and Accountability Act, passed in 1997, mandates the establishment of federal standards for the confidentiality, format and transmission of patient data, as well as recordkeeping and data security obligations. It is possible that the standards so developed will necessitate changes to the Company's operations, which could have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The Company faces significant competition from healthcare and non-healthcare EDI processing companies. The Company also faces potential competition from other companies, such as vendors of provider information management systems, which have added or may add their own proprietary EDI processing systems to existing or future products and services. Competition may be experienced in the form of pressure to reduce per transaction prices or eliminate per transaction pricing altogether. If EDI processing becomes the standard for claims and information processing, a number of larger and better capitalized entities may elect to enter the industry and further increase competitive pricing pressures. Many of the Company's existing and potential competitors are larger and have significantly greater financial, marketing, technological and other resources than the Company. There can be no assurance that increased competition will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Business - -- Competition." RISK OF INTERRUPTION OF DATA PROCESSING The Company currently processes its data through its facilities in Twinsburg, Ohio, Mitchel Field, New York, and Atlanta, Georgia. The Twinsburg and Mitchel Field sites are designed to be redundant. Additionally, the Company transmits data through a number of different telecommunications networks, using a variety of different technologies. However, the occurrence of an event that overcomes the data processing and transmission redundancies then in place could lead to service interruptions and could have a material adverse effect on the Company's business, financial condition and results of operations. YEAR 2000 COMPLIANCE Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, prior to January 1, 2000, computer systems 11 and/or software used by many companies (including the Company) will need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists in the software industry concerning the potential consequences of the Year 2000 phenomenon. Although the Company currently offers software products that are designed or have been modified to comply with the Year 2000 requirements, there can be no assurance that the Company's current software contains all necessary date code changes. The Company believes that certain installations of its products and certain products currently used by its clients in conjunction with third-party vendors' products are not Year 2000 compliant. While the Company has plans to address the problems related to its own products within the coming year, there can be no assurance that the costs of bringing these systems into compliance will not be significantly greater than expected or that compliance will be achieved in a timely manner. In addition, there can be no assurance that the Company's current products do not contain undetected errors or defects associated with Year 2000 date functions that may result in material costs to the Company. Moreover, even if the Company's products and services satisfy such requirements, the products and services provided to the Company's clients by other software vendors, and the systems used by certain payors, may not be Year 2000 compliant, thereby disrupting the ability of the Company's clients to use the Company's software or to obtain reimbursement in a timely manner. An adverse impact on such clients due to the Year 2000 issue could also have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Year 2000 Compliance." DEPENDENCE ON KEY PERSONNEL The Company's performance depends in significant part on the continued service of its executive officers, its product managers and other key sales, marketing and development personnel. The loss of the services of any of its executive officers or the failure to hire or retain other key employees could have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY AND CONSOLIDATION IN THE HEALTHCARE INDUSTRY The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare industry participants. Federal and state legislatures periodically consider programs to modify or amend the United States healthcare system at both the federal and state level. These programs may contain proposals to increase governmental involvement in healthcare, lower reimbursement rates or otherwise change the environment in which healthcare industry participants operate. Healthcare industry participants may react to these proposals and the uncertainty surrounding such proposals by curtailing or deferring investments, including investments in the Company's products and services. In addition, many healthcare providers are consolidating to create larger healthcare delivery organizations. This consolidation reduces the number of potential clients for the Company's services, and the increased bargaining power of these organizations could lead to reductions in the amounts paid for the Company's services. Other healthcare information companies, such as billing services and practice management vendors, which currently utilize the Company's services, could develop or acquire transaction processing and networking capabilities and may cease utilizing the Company's services in the future. The impact of these developments in the healthcare industry is difficult to predict and could have a material adverse effect on the Company's business, financial condition and results of operations. To the extent that the current trend toward consolidation in the industry continues, MEDE AMERICA may find it more difficult to obtain access to payors, information providers and practice management software vendors on whom its ability to deliver services and enroll new clients now depends. Loss of access to these industry participants could materially adversely affect the Company's business, financial condition and results of operations. DEPENDENCE ON INTELLECTUAL PROPERTY; RISK OF INFRINGEMENT The Company's ability to compete effectively depends to a significant extent on its ability to protect its proprietary information. The Company relies on a combination of statutory and common law copyright, trademark and trade secret laws, client licensing agreements, employee and third-party nondisclosure agreements and other methods to protect its proprietary rights. The Company does not include in 12 its software any mechanisms to prevent or inhibit unauthorized use, but generally enters into confidentiality agreements with its consultants, clients and potential clients and limits access to, and distribution of, its proprietary information. The Company has not filed any patent applications with respect to its intellectual property. It is the Company's policy to defend its intellectual property; however, there can be no assurance that the steps taken by the Company to protect its proprietary information will be adequate to prevent misappropriation of its technology or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technology. The Company is also subject to the risk of alleged infringement by it of intellectual property rights of others. Although the Company is not currently aware of any pending or threatened infringement claims with respect to the Company's current or future products, there can be no assurance that third parties will not assert such claims. Any such claims could require the Company to enter into license arrangements or could result in protracted and costly litigation, regardless of the merits of such claims. No assurance can be given that any necessary licenses will be available or that, if available, such licenses can be obtained on commercially reasonable terms. Furthermore, litigation may be necessary to enforce the Company's intellectual property rights, to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operations. The Company expects that software developers will increasingly be subject to such claims as the number of products and competitors providing software and services to the healthcare industry increases and overlaps occur. Any such claim, with or without merit, could result in costly litigation or might require the Company to enter into royalty or licensing agreements, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company or at all. RISK OF PRODUCT DEFECTS Products such as those offered by the Company may contain errors or experience failures, especially when initially introduced or when new versions are released. While the Company conducts extensive testing to address these errors and failures, there can be no assurance that errors or performance failures will not occur in products under development or in enhancements to current products. Any such errors or failures could result in loss of revenues and clients, delay in market acceptance, diversion of development resources, damage to the Company's reputation or increased service costs, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. CONTROL BY EXISTING STOCKHOLDERS After the Offering, 49.7% of the Common Stock will be owned by investment funds affiliated with Welsh, Carson, Anderson & Stowe, a private investment firm ("WCAS") and 7.9% will be owned by investment funds affiliated with William Blair Capital Partners L.L.C. ("WBCP"). See "Principal Shareholders" and "Description of Capital Stock -- Recapitalization." As a result of this concentration of ownership, these shareholders may be able to exercise control over matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions. Such control may have the effect of delaying or preventing a change in control of the Company. The Company's Board of Directors currently includes Thomas E. McInerney and Anthony J. de Nicola, designees of WCAS, and Timothy M. Murray, a designee of WBCP. NO PUBLIC MARKET FOR THE COMMON STOCK; PRICE AND MARKET VOLATILITY Prior to this Offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained after this Offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price has been determined by negotiations between the Company and the Representa- 13 tives of the Underwriters and may not be indicative of the market price of the Common Stock in the future. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The stock market has from time to time experienced extreme price and volume fluctuations, particularly in the securities of technology companies, which have often been unrelated to the operating performance of individual companies. Announcements of technological innovations or new and enhanced commercial products by the Company or its competitors, market conditions in the industry, developments or disputes concerning proprietary rights, changes in earnings, economic and other external factors, political and other developments and period-to-period fluctuations in financial results of the Company may have a significant impact on the market price and marketability of the Company's Common Stock. Fluctuations in the trading price of the Common Stock may also adversely affect the liquidity of the trading market for the Common Stock. POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER PROVISIONS The Company's Board of Directors is authorized 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 Company's stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any shares of Preferred Stock that may be issued in the future. While the Company has no present intention to issue shares of Preferred Stock, any such issuance, 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. In addition, such Preferred Stock may have other rights, including economic rights senior to the Common Stock, and, as a result, the issuance thereof could have a material adverse effect on the market value of the Common Stock. Furthermore, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"), which prohibits the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which such person first becomes an "interested stockholder," unless the business combination is approved in a prescribed manner. The application of these provisions could have the effect of delaying or preventing a change of control of the Company. Certain other provisions of the Amended and Restated Certificate of Incorporation and the Company's Bylaws could also have the effect of delaying or preventing changes of control or management of the Company, which could adversely affect the market price of the Company's Common Stock. See "Description of Capital Stock -- Preferred Stock" and "-- Delaware Laws and Certain Charter and Bylaw Provisions; Anti-Takeover Measures." SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE Sales of Common Stock (including Common Stock issued upon the exercise of outstanding stock options) in the public market after this Offering could materially adversely affect the market price of the Common Stock. Upon the completion of this Offering and giving effect to the Recapitalization, the Company will have 11,567,304 shares of Common Stock outstanding, assuming no exercise of stock options and no exercise of the Underwriters' over-allotment option. Of these outstanding shares of Common Stock, the 3,600,000 shares sold in this Offering will be freely tradeable, without restriction under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act. The remaining 7,967,304 shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act and were issued and sold by the Company in reliance on exemptions from the registration requirements of the Securities Act. These shares may be resold in the public market only if registered or pursuant to an exemption from registration, such as Rule 144 under the Securities Act. All officers, directors and certain holders of Common Stock beneficially owning, in the aggregate, approximately shares of Common Stock and options to purchase shares of Common Stock, have agreed, pursuant to certain lock-up agreements, that they will not sell, offer to sell, solicit an offer to purchase, contract to sell, grant any option to sell, pledge, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock owned by them, or that could be purchased by them through the exercise of options to purchase Common Stock of the Company, for a 14 period of 180 days after the date of this Prospectus without the prior written consent of Smith Barney Inc. Upon expiration of the lock-up agreements, all shares of Common Stock currently outstanding will be immediately eligible for resale, subject to the requirements of Rule 144. The Company is unable to predict the effect that sales may have on the then prevailing market price of the Common Stock. See "Management -- Employee Benefit Plans," "Description of Capital Stock" and "Shares Eligible for Future Sale." BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS Prospective investors should be aware that current holders of the Company's Common Stock and Preferred Stock will benefit from the Offering. Approximately $25.2 million of the net proceeds of the Offering will be used to prepay all then outstanding principal and accrued interest on a Senior Subordinated Note (as herein defined) held by one of the Company's principal stockholders. In addition, approximately $17.8 million of the net proceeds will be used to repay all then outstanding indebtedness under the Company's current Credit Facility (as herein defined). The Credit Facility, which is guaranteed by the Company's four principal stockholders, will be replaced with a new facility, which will not be guaranteed by a third party. See "Use of Proceeds" and "Certain Transactions." After the Offering, all existing stockholders will benefit from certain changes including the creation of a public market for the Company's Common Stock. Moreover, the current shareholders will realize an immediate increase in market and tangible book value. See "Dilution." IMMEDIATE AND SUBSTANTIAL DILUTION Purchasers of Common Stock in the Offering will incur immediate and substantial dilution in the net tangible book value per share of Common Stock in the amount of $12.98 per share, at an assumed initial public offering price of $14.00 per share. To the extent that outstanding options to purchase Common Stock are exercised, there will be further dilution. See "Dilution." ABSENCE OF DIVIDENDS No dividends have been paid on the Common Stock to date and the Company does not anticipate paying dividends on the Common Stock in the foreseeable future. See "Dividend Policy." RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS This Prospectus contains certain statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Those statements include, among other things, the discussions of the Company's business strategy and expectations concerning developments in the healthcare EDI industry, the Company's market position, future operations, transaction growth, margins and profitability, and liquidity and capital resources. Investors in the Common Stock offered hereby are cautioned that such forward-looking statement involves risks and uncertainties, and that although the Company believes that the assumptions on which the forward-looking statements contained herein are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed above. In light of these and other uncertainties, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's plans and objectives will be achieved. 15 THE COMPANY MEDE AMERICA is a leading provider of EDI products and services to a broad range of providers and payors in the healthcare industry. The Company offers an integrated suite of EDI solutions that allows hospitals, pharmacies, physicians, dentists and other healthcare providers and provider groups to electronically edit, process and transmit claims, eligibility and enrollment data, track claims submissions throughout the claims payment process and obtain faster reimbursement for their services. In addition to offering greater processing speed, the Company's EDI products reduce processing costs, increase collection rates and result in more accurate data interchange. The Company maintains over 540 direct connections with insurance companies, Medicare and Medicaid agencies, Blue Cross and Blue Shield systems and other third party payors, as well as over 500 indirect connections with additional payors through claims clearinghouses. Currently, the Company processes over 900,000 transactions per day for over 65,000 providers located in all 50 states. The Company's mission is to be the leading provider of integrated healthcare transaction processing technology, networks and databases, enabling its clients to improve the quality and efficiency of their services. The Company was formed in March 1995 through the consolidation and subsequent spin-off of three subsidiaries of Card Establishment Services, Inc. ("CES"), in connection with the acquisition by First Data Corporation of CES' credit card processing business. The three subsidiaries, MedE America, Inc., Medical Processing Center, Inc. ("MPC") and Wellmark, Inc. ("Wellmark"), which comprised the heathcare services business of CES, historically provided EDI services to hospitals and physicians. After the spin-off, the Company made several strategic acquisitions to strengthen its core hospital/medical business and to expand into the pharmaceutical and dental markets. In March 1995, the Company acquired General Computer Corporation, subsequently renamed MEDE AMERICA Corporation of Ohio (referred to herein as "MEDE OHIO"), a developer of EDI systems and services for the pharmaceutical industry, and in June 1995 the Company acquired Latpon Health Systems, Incorporated ("Latpon"), a developer of proprietary EDI claims processing software for hospitals and physicians. These acquisitions were followed by acquisitions of Electronic Claims and Funding, Inc. ("EC&F"), and Premier Dental Systems, Corp. ("Premier"), in October 1995. These companies were engaged in the EDI and management software businesses in the dental market. The Company enhanced its presence in the pharmacy market by acquiring Time-Share Computer Systems, Inc. ("TCS"), in February 1997 and The Stockton Group, Inc. ("Stockton") in November 1997. The Company's executive offices are located at 90 Merrick Avenue, Suite 501, East Meadow, New York 11554, and its telephone number is (516) 542-4500. 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered hereby, assuming an initial public offering price of $14.00 per share, are estimated to be $45.9 million ($53.0 million if the Underwriters' over-allotment option is exercised in full), after deducting the estimated offering fees and expenses payable by the Company. The Company intends to use the net proceeds from the Offering as follows: (i) approximately $25.2 million to prepay all then outstanding principal and accrued interest on its outstanding 10% Senior Subordinated Note due February 14, 2002 (the "Senior Subordinated Note"); (ii) approximately $17.8 million to repay all then outstanding indebtedness under its current credit facility (the "Credit Facility"); and (iii) the balance for general corporate and working capital purposes. Cash realized by the Company upon any exercise of the Underwriters' overallotment option would be applied to the payment of accrued dividends in lieu of having such dividends convert into Common Stock. See "Certain Transactions." Pending application to the foregoing uses, such proceeds will be invested in short-term, investment-grade, interest-bearing obligations. Outstanding borrowings under the Credit Facility currently bear interest at a weighted average rate of 7.07% per annum, are guaranteed by WCAS and WBCP and mature on October 31, 1999. The Company has received a letter from the lender under the Credit Facility committing to provide an amended credit facility (the "Amended Credit Facility") with total available credit of $10.0 million upon substantially the same terms and conditions as the Credit Facility. Borrowings under the Amended Credit Facility will not be guaranteed by any third party. It is anticipated that the Amended Credit facility will take effect upon the consummation of the Offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." DIVIDEND POLICY The Company has never declared or paid any dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain any earnings to fund future growth and the operation of its business. See "Risk Factors -- Absence of Dividends." 17 CAPITALIZATION The following table sets forth the capitalization of the Company as of March 31, 1998 on an actual basis and as adjusted to reflect the Recapitalization and the issuance and sale by the Company of 3,600,000 shares of Common Stock offered hereby, assuming an initial public offering price of $14.00 per share, after deducting the estimated offering fees and expenses payable by the Company, and the application of the net proceeds thereof as described under "Use of Proceeds." The following table should be read in conjunction with the Consolidated Financial Statements and the notes thereto and the "Unaudited Pro Forma Consolidated Financial Information" appearing elsewhere in this Prospectus.
MARCH 31, 1998 ----------------------------- ACTUAL AS ADJUSTED(1) ----------- --------------- (IN THOUSANDS) Long-term debt (including current portion) Senior Subordinated Note(2) .................. $ 23,250 $ -- Credit Facility(2) ........................... 15,925 -- Other debt ................................... 1,324 1,324 --------- --------- Total long-term debt ....................... 40,499 1,324 --------- --------- Redeemable cumulative preferred stock ......... 30,623 -- --------- --------- Stockholders' (deficit) equity Common Stock(3) .............................. 57 116 Additional paid-in capital ................... 26,069 102,555 Accumulated deficit .......................... (51,463) (53,309) --------- --------- Total stockholders' (deficit) equity ......... (25,337) 49,362 --------- --------- Total capitalization ......................... $ 45,785 $ 50,686 ========= =========
- ---------- (1) As adjusted to reflect the Recapitalization and the sale of 3,600,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $14.00 per share and the anticipated application of the estimated net proceeds therefrom. (2) As of May 29, 1998, the outstanding principal amount plus accrued interest on the Senior Subordinated Note was approximately $25.4 million and the outstanding indebtedness under the Credit Facility was approximately $16.8 million. (3) Excludes 483,132 shares of Common Stock reserved for issuance upon exercise of stock options outstanding under the Stock Plans, as of May 29, 1998, at a weighted average exercise price of $4.84 per share, of which 212,099 are exercisable. See "Management-Employee Benefit Plans." Includes 66,379 shares of Common Stock issuable upon exercise of the Common Stock purchase warrants as contemplated by the Recapitalization. See "Description of Capital Stock." 18 DILUTION The pro forma deficit in net tangible book value of the Company as of March 31, 1998, after giving effect to the Recapitalization, was approximately $(32.4) million or $(4.08) per share of Common Stock. Pro forma net deficit in tangible book value per share is determined by dividing the net tangible deficit in book value of the Company (pro forma tangible assets less total liabilities) by the number of shares of Common Stock outstanding. Dilution per share represents the difference between the amount per share paid by purchasers of shares of Common Stock in the Offering and the pro forma net tangible book value per share of Common Stock immediately after completion of the Offering. Without taking into account any changes in such pro forma net tangible book value after March 31, 1998, other than to give effect to (i) the sale of 3,600,000 shares of Common Stock by the Company in this Offering at an assumed initial public offering price of $14.00 per share and after deducting the estimated fees and offering expenses, (ii) the application of the estimated net proceeds therefrom and (iii) the Recapitalization, the pro forma net tangible book value of the Company as of March 31, 1998 would have been approximately $11.7 million or $1.02 per share. This represents an immediate increase in pro forma net tangible book value of $5.10 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $12.98 per share to new investors. The following table illustrates this dilution on a per share basis. Assumed initial public offering price per share ...................... $ 14.00 Pro forma net tangible book value per share before this Offering(1). $(4.08) ------ Increase per share attributable to new investors ................... 5.10 ------ Pro forma net tangible book value per share after this Offering ...... 1.02 ------- Dilution per share to new investors(2) ............................... $ 12.98 =======
- ---------- (1) Pro forma net tangible book value per share of Common Stock is determined by dividing the Company's pro forma deficit in net tangible book value at March 31, 1998 of $(32.4) million, by the pro forma number of shares of Common Stock outstanding, in each case after giving effect to the Recapitalization. (2) Dilution per share to new investors is determined by subtracting pro forma net tangible book value per share after this Offering from the initial public offering price per share. The following table sets forth, on a pro forma basis as of March 31, 1998, after giving effect to the Recapitalization, the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by existing stockholders (excluding the fair value of companies contributed in the March 1995 spin-off from CES) and to be paid by new investors, based on an assumed initial public offering price of $14.00 per share and before deducting estimated fees and expenses payable by the Company:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------------ -------------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ------------ --------- -------------- --------- ---------- Existing stockholders ......... 7,933,034 68.8% $28,000,000 35.7% $ 3.53 New investors ................. 3,600,000 31.2 50,400,000 64.3 14.00 --------- ----- ----------- ----- ------ Total ......................... 11,533,034 100.0% $78,400,000 100.0% ========== ===== =========== =====
The foregoing tables assume no exercise of any outstanding stock options to purchase Common Stock. At March 31, 1998 there were 488,533 shares of Common Stock issuable upon the exercise of stock options outstanding under the Company's Stock Plans, of which 212,099 were currently exercisable. Such options have a weighted average exercise price of $4.84 per share. To the extent such options are exercised, there will be further dilution to the new investors. See "Capitalization," "Management -- Employee Benefit Plans" and "Description of Capital Stock." 19 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated financial information has been prepared by the Company's management from the historical Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this Prospectus. The unaudited pro forma consolidated statements of operations for the year ended June 30, 1997 and the nine months ended March 31, 1998 include adjustments that give effect to (i) the acquisition of TCS in February 1997, (ii) the acquisition of Stockton in November 1997, (iii) the Recapitalization and (iv) the Offering, as if they had occurred as of July 1, 1996. The unaudited pro forma consolidated balance sheet as of March 31, 1998 gives effect to (i) the Recapitalization and (ii) the Offering as if they had occurred on such date. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma consolidated financial information should be read in conjunction with the historical financial statements of the Company and Stockton and the respective notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial information included herein. The unaudited pro forma consolidated financial information is provided for information purposes only and does not purport to be indicative of the results which would have been obtained had the acquisitions of TCS and Stockton, the Recapitalization and the Offering been completed on the dates indicated or which may be expected to occur in the future. 20 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
ACTUAL --------------------------------------- COMPANY TCS(1) STOCKTON(2) -------------- ---------- ------------- Revenues ...................................... $ 35,279 $ 2,743 $ 3,802 Operating expenses: Operations ................................... 16,817 1,145 563 Sales, marketing and client services ......... 8,769 781 900 Research and development ..................... 3,278 132 103 General and administrative ................... 5,263 93 160 Depreciation and amortization ................ 5,293 90 109 Non-cash stock compensation .................. -- -- 1,280 Contingent consideration paid to former owners of acquired businesses ............... 2,301 -- -- Acquired in-process research and development ................................. 4,354 -- -- ---------- ------- ------- Total operating expenses ...................... 46,075 2,241 3,115 ---------- ------- ------- Income (loss) from operations ................. (10,796) 502 687 Other (income) expense ........................ (893) -- -- Interest expense, net ......................... 1,504 -- 100 ---------- ------- ------- Income (loss) before provision for income taxes ........................................ (11,407) 502 587 Provision for income taxes .................... 57 -- -- ---------- ------- ------- Net income (loss) ............................. (11,464) 502 587 Preferred stock dividends ..................... (2,400) -- -- ---------- ------- ------- Net income (loss) applicable to common stockholders ................................. $ (13,864) $ 502 $ 587 ========== ======= ======= Basic net loss per common share ............... $ (2.56) Weighted average common shares outstanding - Basic .......................... 5,425 -- -- EBITDA(11) .................................... $ (5,503) Adjusted EBITDA(11) ........................... $ 2,211 RECAPITALIZATION AND ACQUISITIONS PRO OFFERING PRO FORMA, ADJUSTMENTS FORMA ADJUSTMENTS AS ADJUSTED ------------------ ------------- ----------------- -------------- Revenues ...................................... $ -- $ 41,824 $ -- $ 41,824 Operating expenses: Operations ................................... 76 (3) 18,601 -- 18,601 Sales, marketing and client services ......... -- 10,450 -- 10,450 Research and development ..................... -- 3,513 -- 3,513 General and administrative ................... -- 5,516 -- 5,516 Depreciation and amortization ................ 1,627 (4) 7,062 7,062 (57)(5) Non-cash stock compensation .................. -- 1,280 -- 1,280 Contingent consideration paid to former owners of acquired businesses ............... -- 2,301 -- 2,301 Acquired in-process research and development ................................. -- 4,354 -- 4,354 --------- --------- ---------- ---------- Total operating expenses ...................... (1,646) 53,077 -- 53,077 --------- --------- ---------- ---------- Income (loss) from operations ................. (1,646) (11,253) -- (11,253) Other (income) expense ........................ -- (893) -- (893) Interest expense, net ......................... 1,583 (6) 3,187 (2,831)(7) 356 --------- --------- ---------- ---------- Income (loss) before provision for income taxes ........................................ (3,229) (13,547) 2,831 (10,716) Provision for income taxes .................... -- 57 -- 57 --------- --------- ---------- ---------- Net income (loss) ............................. (3,229) (13,604) 2,831 (10,773) Preferred stock dividends ..................... 2,400 (8) -- -- -- --------- --------- ---------- ---------- Net income (loss) applicable to common stockholders ................................. $ (829) $ (13,604) $ 2,831 $ (10,773) ========= ========= ========== ========== Basic net loss per common share ............... $ (1.18) Weighted average common shares outstanding - Basic .......................... 106 (9) 5,531 3,600 (10) 9,131 EBITDA(11) .................................... $ (4,191) Adjusted EBITDA(11) ........................... $ 4,803
21 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
ACTUAL ---------------------------- COMPANY STOCKTON(12) ------------- -------------- Revenues .................................. $ 30,189 $1,646 Operating expenses: Operations ............................... 12,485 216 Sales, marketing and client services. 7,769 298 Research and development ................. 2,886 43 General and administrative ............... 3,307 161 Depreciation and amortization ............ 4,846 54 Total operating expenses .................. 31,293 772 --------- ------ Income (loss) from operations ............. (1,104) 874 Other (income) expense .................... 13 -- Interest expense (income), net ............ 2,470 27 --------- ------ Income (loss) before provision for income taxes ............................. (3,587) 847 Provision for income taxes ................ 37 -- --------- ------ Net income (loss) ......................... (3,624) 847 Preferred stock dividends ................. (1,800) -- --------- ------ Net income (loss) applicable to common stockholders ...................... $ (5,424) $ 847 ========= ====== Basic net loss per common share ........... $ (0.96) Weighted average common shares outstanding - Basic ...................... 5,677 -- EBITDA(11) ................................ $ 3,742 Adjusted EBITDA(11) ....................... $ 3,742
RECAPITALIZATION AND ACQUISITIONS OFFERING PRO FORMA, ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED ------------------ ------------- ----------------- ------------ Revenues .................................. $ -- $ 31,835 $ -- $ 31,835 Operating expenses: Operations ............................... 29 (3) 12,730 -- 12,730 Sales, marketing and client services. -- 8,067 -- 8,067 Research and development ................. -- 2,929 -- 2,929 General and administrative ............... -- 3,468 -- 3,468 Depreciation and amortization ............ 291 (4) 5,156 -- 5,156 (35)(5) --------- Total operating expenses .................. 285 32,350 -- 32,350 --------- --------- ---------- -------- Income (loss) from operations ............. (285) (515) -- (515) Other (income) expense .................... -- 13 -- 13 Interest expense (income), net ............ 258 (6) 2,755 (2,889)(7) (134) --------- --------- ---------- -------- Income (loss) before provision for income taxes ............................. (543) (3,283) 2,889 (394) Provision for income taxes ................ -- 37 -- 37 --------- --------- ---------- -------- Net income (loss) ......................... (543) (3,320) 2,889 (431) Preferred stock dividends ................. 1,800 (8) -- -- -- --------- --------- ---------- -------- Net income (loss) applicable to common stockholders ...................... $ 1,257 $ (3,320) $ 2,889 $ (431) ========= ========= ========== ======== Basic net loss per common share ........... $ (0.05) Weighted average common shares outstanding - Basic ...................... -- 5,677 3,600 (10) 9,277 EBITDA(11) ................................ $ 4,641 Adjusted EBITDA(11) ....................... $ 4,641
22 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (1) Represents the historical results of operations of TCS from July 1, 1996 through the date of acquisition by the Company in February 1997. (2) Represents the historical results of operations of Stockton from July 1, 1996 through June 30, 1997. (3) Represents rent expense relating to a new operating lease for the Stockton facility. (4) Represents adjustments for amortization expense related to the acquisitions of TCS and Stockton as if they had occurred July 1, 1996, as follows:
YEAR ENDED NINE MONTHS ENDED JUNE 30, 1997 MARCH 31, 1998 -------------------------------- ------------------ TCS STOCKTON TOTAL STOCKTON ------- ---------- --------- ------------------ (IN THOUSANDS) Purchased client lists .................... $ -- $ 148 $ 148 $ 55 Purchased software and technology ......... 509 194 703 73 Goodwill .................................. 341 435 776 163 ---- ----- ------ ----- $850 $ 777 $1,627 $ 291 ==== ===== ====== =====
The acquisitions were accounted for using the purchase method of accounting and, accordingly, the net assets acquired have been recorded at estimated fair value on the date of acquisition and the historical statement of operations data of the Company reflect the results of operations from these businesses from the date acquired. In connection with the acquisitions of TCS and Stockton, the Company acquired intangible assets as follows:
TCS STOCKTON TOTAL --------- ---------- ---------- (IN THOUSANDS) Purchased client lists .................... $ -- $ 742 $ 742 Purchased software and technology ......... 2,619 968 3,587 Goodwill .................................. 4,092 8,704 12,796 ------ ------- ------- $6,711 $10,414 $17,125 ====== ======= =======
The purchased client lists and purchased software and technology are being amortized annually on a straight-line basis over three to five years. Goodwill is being amortized annually on a straight-line basis over seven years for the TCS acquisition and over 20 years for the Stockton acquisition. (5) Represents the elimination of depreciation and amortization expenses relating to assets of Stockton that were not acquired. (6) The interest expense adjustment relating to the TCS and Stockton acquisitions is as follows:
YEAR ENDED NINE MONTHS ENDED JUNE 30, 1997 MARCH 31, 1998 --------------- ------------------ (IN THOUSANDS) Elimination of historical interest expense of Stockton . $ (111) $ (38) Interest expense on portion of Senior Subordinated Note used to fund TCS acquisition including amorti- zation of discount ................................... 939 -- Interest expense on borrowings under the Credit Facil- ity used to fund Stockton acquisition at a composite interest rate of 7.07% ............................... 755 296 ------- ------ $ 1,583 $ 258 ======= ======
23 (7) The interest expense adjustment relating to the Offering is as follows:
YEAR ENDED NINE MONTHS ENDED JUNE 30, 1997 MARCH 31, 1998 --------------- ------------------ (IN THOUSANDS) Interest expense on Senior Subordinated Note including amortization of discount ........... $ (1,992) $ (2,125) Interest expense on borrowings under the Credit Facility ..................................... (839) (764) -------- -------- $ (2,831) $ (2,889) ======== ========
(8) Represents the elimination of the dividends accrued on the Preferred Stock due to the Recapitalization. (9) Represents the pro rata portion of Common Stock issued in connection with the Senior Subordinated Note relating to the TCS acquisition. (10) Represents the sale by the Company of 3,600,000 shares of Common Stock in the Offering. (11) EBITDA represents net income (loss) plus provision for income taxes, net interest expense, other (income) expense and depreciation and amortization. EBITDA is not a measurement in accordance with GAAP and should not be considered an alternative to, or more meaningful than, earnings (loss) from operations, net earnings (loss) or cash flow from operations as defined by GAAP or as a measure of the Company's profitability or liquidity. Not all companies calculate EBITDA in the same manner and accordingly, EBITDA shown herein may not be comparable to EBITDA shown by other companies. The Company has included information concerning EBITDA herein because management believes EBITDA provides useful information. Adjusted EBITDA represents EBITDA plus certain other charges as described below. The following table summarizes EBITDA and adjusted EBITDA for all periods presented:
YEAR ENDED NINE MONTHS ENDED JUNE 30, 1997 MARCH 31, 1998 ----------------------------- ----------------------- ACTUAL PRO FORMA ACTUAL PRO FORMA ------------- ------------- ---------- ---------- (IN THOUSANDS) EBITDA ........................................... $ (5,503) $ (4,191) $ 3,742 $ 4,641 Contingent consideration paid to former owners of acquired businesses .................. 2,301 2,301 -- -- Acquired-in-process research and develop- ment ........................................... 4,354 4,354 -- -- Non-cash stock compensation ...................... -- 1,280 -- -- Contract and legal settlement provisions ......... 1,059 1,059 -- -- --------- --------- ------- ------- Adjusted EBITDA .................................. $ 2,211 $ 4,803 $ 3,742 $ 4,641 ========= ========= ======= =======
(12) Represents the historical results of operations of Stockton from July 1, 1997 through the date of acquisition by the Company in November 1997. 24 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998 ------------------------------- ADJUSTMENTS RELATING TO THE ACTUAL RECAPITALIZATION ------------ ------------------ (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents .......................... $ 1,455 $ -- Accounts receivable, less allowance for doubt- ful accounts ..................................... 7,463 -- Formulary receivables .............................. 1,502 -- Inventory .......................................... 240 -- Prepaid expenses and other current assets .......... 489 -- --------- ----------- Total current assets ............................. 11,149 -- Property and equipment, Net ......................... 4,944 -- Goodwill-Net ........................................ 32,408 -- Other intangible assets-Net ......................... 5,247 -- Other assets ........................................ 431 -- --------- ----------- Total ............................................... $ 54,179 $ -- ========= =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable ................................... $ 2,753 $ -- Accrued expenses and other current liabilities. 4,880 -- Current portion of long-term debt .................. 240 -- --------- ----------- Total current liabilities ........................ 7,873 -- Long-term debt ...................................... 40,259 -- Other long-term liabilities ......................... 761 -- Redeemable cumulative preferred stock ............... 30,623 (30,623)(1) Stockholders' equity (deficit): ..................... Common Stock ....................................... 57 22 (1) 1 (2) Additional paid-in capital ......................... 26,069 30,601 (1) (1)(2) Accumulated deficit ................................ (51,463) -- --------- ----------- Total stockholders' equity (deficit) ............. (25,337) 30,623 --------- ----------- Total ............................................... $ 54,179 $ -- ========= =========== AS OF MARCH 31, 1998 --------------------------------------------- ADJUSTMENTS RELATING TO PRO FORMA, PRO FORMA THE OFFERING AS ADJUSTED ----------- -------------------- ------------ (IN THOUSANDS) ASSETS Current Assets: Cash and cash equivalents .......................... $ 1,455 $ 4,280 (3) $ 5,735 Accounts receivable, less allowance for doubt- ful accounts ..................................... 7,463 -- 7,463 Formulary receivables .............................. 1,502 -- 1,502 Inventory .......................................... 240 -- 240 Prepaid expenses and other current assets .......... 489 -- 489 --------- ------------ --------- Total current assets ............................. 11,149 4,280 15,429 Property and equipment, Net ......................... 4,944 -- 4,944 Goodwill-Net ........................................ 32,408 -- 32,408 Other intangible assets-Net ......................... 5,247 -- 5,247 Other assets ........................................ 431 (96)(4) 335 --------- ------------ --------- Total ............................................... $ 54,179 $ 4,184 $ 58,363 ========= ============ ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable ................................... $ 2,753 -- $ 2,753 Accrued expenses and other current liabilities. 4,880 (717)(3) 4,163 Current portion of long-term debt .................. 240 384 (4) 624 --------- ------------ --------- Total current liabilities ........................ 7,873 (333)(3) 7,540 Long-term debt ...................................... 40,259 (40,925) (3) 700 1,366 (4) Other long-term liabilities ......................... 761 -- 761 Redeemable cumulative preferred stock ............... -- -- -- Stockholders' equity (deficit): ..................... Common Stock ....................................... 80 36 (3) 116 Additional paid-in capital ......................... 56,669 45,886 (3) 102,555 Accumulated deficit ................................ (51,463) (1,846)(4) (53,309) --------- ------------ --------- Total stockholders' equity (deficit) ............. 5,286 44,076 49,362 --------- ------------ --------- Total ............................................... $ 54,179 $ 4,184 $ 58,363 ========= ============ =========
25 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (1) Represents the conversion of outstanding Preferred Stock and $6,627,000 of accrued dividends on the Preferred Stock into Common Stock in connection with the Recapitalization. (2) Represents the exercise of all Common Stock purchase warrants in connection with the Recapitalization. (3) Represents the sale by the Company of 3,600,000 shares of Common Stock at an assumed public offering price of $14.00 per share and the application of the net proceeds to the Company therefrom as described under the "Use of Proceeds." (4) Represents a $96,000 decrease in other assets relating to the elimination of deferred financing costs associated with the Credit Facility and the write-off of the remaining discount on the Senior Subordinated Note of $1,750,000, both of which will be recorded as extraordinary items upon the consummation of the Offering. 26 SELECTED CONSOLIDATED FINANCIAL DATA The statement of operations data presented below for the years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1998 and the balance sheet data as of June 30, 1996 and 1997 and March 31, 1998, are derived from, and qualified by reference to, the audited consolidated financial statements of the Company included elsewhere herein. The balance sheet data as of June 30, 1995 and March 31, 1997 are derived from, and qualified by reference to, the respective audited and unaudited consolidated financial statements of the Company not included herein. The statement of operations data for the nine month period ended March 31, 1997 is derived from the unaudited consolidated financial statements of the Company included elsewhere herein. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for such period. The results for the nine month period ended March 31, 1998 are not necessarily indicative of the results to be expected for the related full fiscal year. The selected consolidated financial data should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements of the Company, the notes thereto and the other financial information included elsewhere in this Prospectus.
YEAR ENDED JUNE 30, ---------------------------------------------------- 1995 1996 1997 ---------------- ---------------- ------------------ (IN THOUSANDS, EXCEPT PER SHARE AND PER TRANSACTION DATA) STATEMENT OF OPERATIONS DATA: Revenues(1) .......................................... $ 16,246 $ 31,768 $ 35,279 Operating expenses: Operations .......................................... 9,753 19,174 16,817 Sales, marketing and client services ................ 3,615 7,064 8,769 Research and development ............................ 2,051 2,132 3,278 General and administrative .......................... 3,119 6,059 5,263 Depreciation and amortization ....................... 2,995 5,176 5,293 Write-down of intangible assets ..................... 8,191 (2) 9,965 (3) -- Acquired in-process research and development (4).. -- -- 4,354 Other charges (5) ................................... 2,864 538 2,301 --------- --------- --------- Total operating expenses ............................. 32,588 50,108 46,075 --------- --------- --------- Loss from operations ................................. (16,342) (18,340) (10,796) Other (income) expense ............................... -- 313 (893) Interest expense, net ................................ 189 584 1,504 --------- --------- --------- Loss before provision for income taxes ............... (16,531) (19,237) (11,407) Provision for income taxes ........................... 70 93 57 --------- --------- --------- Net loss ............................................. (16,601) (19,330) (11,464) Preferred stock dividends ............................ (27) (2,400) (2,400) --------- --------- --------- Net loss applicable to common stockholders ........... $(16,628) $(21,730) $ (13,864) ========= ========= ========= Basic net loss per common share ...................... $ (3.17) $ (4.14) $ (2.56)(6) Weighted average common shares outstanding-Basic ..... 5,238 5,245 5,425 OTHER DATA: EBITDA (7) ........................................... $(13,347) $(13,164) $ (5,503) Adjusted EBITDA (7) .................................. (2,292) (2,052) 2,211 Cash flows from operating activities ................. (3,561) (1,653) (4,020) Cash flows from investing activities ................. (22,074) (4,919) (12,221) Cash flows from financing activities ................. 33,434 657 15,521 Transactions processed(8) Pharmacy ............................................ -- 107,032 126,201 Medical ............................................. -- 16,030 23,085 Dental .............................................. -- 6,021 12,188 --------- --------- ---------- Total transactions processed ....................... -- 129,083 161,474 Transactions per FTE (8)(9) .......................... -- 324 412 Revenue per FTE (9) .................................. $ 44 $ 80 $ 90 Operating expenses per transaction (8) ............... -- 0.39 0.29
NINE MONTHS ENDED MARCH 31, ------------------------------- 1997 1998 ------------ ------------------ (IN THOUSANDS, EXCEPT PER SHARE AND PER TRANSACTION DATA) STATEMENT OF OPERATIONS DATA: Revenues(1) .......................................... $ 24,964 $ 30,189 Operating expenses: Operations .......................................... 12,104 12,485 Sales, marketing and client services ................ 6,143 7,769 Research and development ............................ 2,455 2,886 General and administrative .......................... 3,340 3,307 Depreciation and amortization ....................... 3,502 4,846 Write-down of intangible assets ..................... -- -- Acquired in-process research and development (4).. 4,354 -- Other charges (5) ................................... 990 -- --------- --------- Total operating expenses ............................. 32,888 31,293 --------- --------- Loss from operations ................................. (7,924) (1,104) Other (income) expense ............................... (885) 13 Interest expense, net ................................ 779 2,470 --------- --------- Loss before provision for income taxes ............... (7,818) (3,587) Provision for income taxes ........................... 43 37 --------- --------- Net loss ............................................. (7,861) (3,624) Preferred stock dividends ............................ (1,800) (1,800) --------- --------- Net loss applicable to common stockholders ........... $ (9,661) $ (5,424) ========= ========= Basic net loss per common share ...................... $ (1.81) $ (0.96)(6) Weighted average common shares outstanding-Basic ..... 5,345 5,677 OTHER DATA: EBITDA (7) ........................................... $ (4,422) $ 3,742 Adjusted EBITDA (7) .................................. 922 3,742 Cash flows from operating activities ................. (2,991) (3,861) Cash flows from investing activities ................. (11,630) (11,611) Cash flows from financing activities ................. 15,818 15,008 Transactions processed(8) Pharmacy ............................................ 88,463 136,685 Medical ............................................. 14,921 23,514 Dental .............................................. 8,759 10,767 --------- ---------- Total transactions processed ....................... 112,143 170,966 Transactions per FTE (8)(9) .......................... 291 480 Revenue per FTE (9) .................................. $ 65 $ 84 Operating expenses per transaction (8) ............... 0.29 0.18
27
AS OF JUNE 30, AS OF MARCH 31, ----------------------------------------- -------------------------- 1995 1996 1997 1997 1998 --------- ------------- ------------- ----------- ------------ (IN THOUSANDS) BALANCE SHEET DATA: Working capital ................................... $ 504 $ (4,207) $ (2,567) $ (546) $ 3,276 Total assets ...................................... 59,511 43,031 45,459 47,784 54,179 Long-term debt, including current portion ......... 5,805 11,601 25,161 25,278 40,499 Redeemable cumulative preferred stock ............. 24,023 26,423 28,823 28,223 30,623 Stockholders' equity (deficit) .................... 12,942 (8,472) (20,069) (15,916) (25,337)
- ---------- (1) During the periods presented, the Company made a series of acquisitions and divested certain non-core or unprofitable operations. Revenues attributable to these divested operations, which are included in the statement of operations data, were $1,595,000, $3,517,000, $2,252,000, $1,941,000 and $241,000 in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1997 and 1998, respectively. (2) Reflects the write-off of goodwill related to the acquisitions of MPC and Wellmark. (3) Reflects the write-down of costs relating to client lists and related allocable goodwill obtained in the acquisition of MEDE OHIO. (4) Reflects the write-off of acquired in-process research and development costs upon the consummation of the TCS acquisition. (5) Reflects: (i) expenses recorded relating to contingent consideration paid to former owners of acquired businesses of $538,000, $2,301,000, and $990,000 in the fiscal years ended June 30, 1996 and 1997 and the nine months ended March 31, 1997, respectively; and (ii) expenses of $2,864,000 relating to the spin-off of the Company by CES in the fiscal year ended June 30, 1995. (6) Supplemental net loss per share, giving effect to the Recapitalization, would be $(1.49) and $(0.46) for the fiscal year ended June 30, 1997 and the nine months ended March 31, 1998, respectively. (7) EBITDA represents net income (loss) plus provision for income taxes, net interest expense, other (income) expense and depreciation and amortization. EBITDA is not a measurement in accordance with GAAP and should not be considered an alternative to, or more meaningful than, earnings (loss) from operations, net earnings (loss) or cash flow from operations as defined by GAAP or as a measure of the Company's profitability or liquidity. Not all companies calculate EBITDA in the same manner and, accordingly, EBITDA shown herein may not be comparable to EBITDA shown by other companies. The Company has included information concerning EBITDA herein because management believes EBITDA provides useful information. Adjusted EBITDA represents EBITDA plus certain other charges as described below. The following table summarizes EBITDA and adjusted EBITDA for all periods presented:
NINE MONTHS YEAR ENDED JUNE 30, ENDED MARCH 31, ------------------------------------------ ------------------------ 1995 1996 1997 1997 1998 -------------- -------------- ------------ ------------- ---------- (IN THOUSANDS) EBITDA ............................................... $ (13,347) $ (13,164) $ (5,503) $ (4,422) $ 3,742 Contingent consideration paid to former owners of ac- quired businesses ................................... -- 538 2,301 990 -- Write-down of intangible assets ...................... 8,191 9,965 -- -- -- Acquired in-process research and development ......... -- -- 4,354 4,354 -- Expenses related to the CES spin-off ................. 2,864 -- -- Contract and legal settlement provisions ............. -- 609 1,059 -- -- ---------- ---------- -------- --------- ------- Adjusted EBITDA ...................................... $ (2,292) $ (2,052) $ 2,211 $ 922 $ 3,742 ========== ========== ======== ========= =======
- ---------- (8) Transaction volumes are not available for the fiscal year ended June 30, 1995. (9) Full-time equivalents ("FTE") represents the number of full-time employees and part-time equivalents of full-time employees as of the end of the period shown. 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements, including the notes thereto, of the Company included elsewhere in this Prospectus. This Prospectus contains forward-looking statements relating to future events or future financial performance of the Company. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the risk factors set forth under "Risk Factors" and the matters set forth in this Prospectus generally. OVERVIEW MEDE AMERICA is a leading provider of EDI products and services to a broad range of providers and payors in the healthcare industry. The Company's integrated suite of EDI solutions and services allows hospitals, pharmacies, physicians, dentists and other healthcare providers and provider groups to electronically edit, process and transmit claims, eligibility and enrollment data, track claims submissions throughout the claims payment process and obtain faster reimbursement for their services. Currently, the Company processes over 900,000 transactions per day for over 65,000 providers located in all 50 states. The Company was formed in March 1995 through the consolidation and subsequent spin-off of three subsidiaries of CES, in connection with the acquisition by First Data Corporation of CES' credit card processing business. The three subsidiaries, MedE America, Inc., MPC and Wellmark, which comprised the heathcare services business of CES, historically provided EDI services to hospitals and physicians. Their combined financial results are reflected in the fiscal 1995 financial statements on a full year basis. Since its formation, the Company has expanded both through internal growth and the acquisition of five healthcare transaction processing businesses. As part of its strategy of providing an integrated suite of EDI products to a broad range of healthcare providers, the Company has focused on acquisitions that provided entry into new markets or expanded the Company's product suite. All acquisitions have been accounted for under the purchase method of accounting. The Company has actively pursued the integration of its acquisitions and, in the process, has either divested, closed or restructured various operations of the acquired entities in order to eliminate non-core or redundant operations and achieve cost savings and operating efficiencies. These restructuring and integration activities impacted the Company's financial results in the fiscal years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1998 and are ongoing. 29 The following table summarizes the Company's acquisitions and divested products and operations:
PRIMARY PRODUCTS DIVESTED PRODUCTS DATE OF FOUNDING/ OF FOUNDING/ DATE FOUNDING COMPANIES ACQUIRED MARKET ACQUIRED COMPANY ACQUIRED COMPANY DIVESTED MedE America, Inc. 4/94(1) Medical Eligibility Verification, -- -- Enrollment MPC 5/94(1) Medical Hospital Claims, Data Entry 1/97 Physician Billing Physician Billing 12/96 Physician Billing 8/97 Wellmark 5/94(1) Medical Hospital Claims, -- -- Physician Billing COMPANIES ACQUIRED BY MEDE AMERICA MEDE OHIO 3/95 Pharmacy Switching, PBM, Practice Management 2/96 Third Party Billing Software Practice Management 12/97 Software Latpon 6/95 Medical Hospital Claims Physician Billing 3/96 EC&F/Premier 10/95 Dental Dental Claims, Practice Practice Management 3/97 Management Software Software TCS 2/97 Pharmacy/ PBM, Switching, -- -- Medical Eligibility Verification Stockton 11/97 Pharmacy PBM -- --
- ------------- (1) Represents date acquired by CES. In March 1995, the majority stockholder of the Company acquired all of the outstanding shares of MEDE OHIO for a cash purchase price of approximately $22,593,000, including transaction expenses. The majority stockholder subsequently merged MEDE OHIO into the Company. MEDE OHIO develops EDI systems for the pharmacy market and provides transaction switching/routing services. The acquisition was accounted for under the purchase method and the Company recorded total intangible assets of $25,833,000, consisting of $890,000 of software, $2,548,000 of client lists and $22,395,000 of goodwill. During fiscal year 1996, the Company wrote-down $9,965,000 of costs relating to client lists and related allocable goodwill due to a loss of approximately 25% of the acquired MEDE OHIO client base. The Company is amortizing the software over three years and the remaining value of client lists over five years. The goodwill is being amortized over 20 years. In June 1995, the Company acquired substantially all of the assets of Latpon for a cash purchase price of approximately $2,470,000, plus the assumption of approximately $963,000 of liabilities (primarily long-term debt). Latpon, a developer of claims processing software, provided EDI transaction processing services to hospitals and hospital-based physician groups. Latpon also provided electronic and manual business office administrative services. The acquisition was accounted for under the purchase method and the Company recorded total intangible assets of $2,389,000, consisting of $1,091,000 of software and client lists and $1,298,000 of goodwill. The Company is amortizing the software and client lists over five years and the goodwill over 20 years. In October 1995, the Company acquired two commonly-owned companies, EC&F, an all payor EDI dental claims processor, and Premier, a dental practice management software vendor. The acquisitions were funded with an initial cash payment of $4,050,000, including transaction expenses, and contingent 30 earnout payments based on the achievement of certain EBITDA growth targets by the EC&F business over three one-year periods ending on September 30, 1998. The Company recorded expenses of $538,000 during fiscal year 1996 relating to the first such period and an aggregate $2,301,000 during fiscal year 1997 primarily relating to the second and third such periods. The Company does not believe that any additional amounts will be payable pursuant to this earn-out arrangement. The acquisitions of EC&F and Premier were accounted for under the purchase method and the Company recorded total intangible assets of $4,350,000, consisting of $764,000 of software, and $3,586,000 of goodwill. The Company is amortizing the software over three years and the goodwill over 20 years. The Company sold Premier in January 1997 for a cash payment of $388,000. There was no gain or loss on the sale of Premier. In February 1997, the Company acquired TCS, a provider of pharmacy switching and PBM transaction processing systems and services for pharmacies and eligibility verification services for physicians, for a total cash payment of $11,465,000, including transaction expenses. The acquisition was accounted for under the purchase method and the Company recorded total intangible assets of $11,065,000, consisting of $4,354,000 of in-process research and development, $2,619,000 of software and $4,092,000 of goodwill. As of the date of the acquisition, the Company wrote off the acquired in-process research and development which had not reached technological feasibility and had no alternative future use. The Company is amortizing the software over three years and the goodwill over seven years. In November 1997, the Company acquired Stockton, a provider of PBM transaction processing systems and related services for the pharmacy market. Stockton was purchased for an initial cash payment of $10,674,000 including transaction expenses, and a contingent earnout payment based upon the achievement of certain revenue growth targets. If such revenue targets are achieved over the 12-month period ending September 30, 1998, a maximum payment of $2,600,000 (plus interest at an annual rate of 7.25%) will be made in December 1998. The acquisition was accounted for under the purchase method and the Company recorded total intangible assets of $10,414,000, consisting of $1,710,000 of software and client lists and $8,704,000 of goodwill. The Company is amortizing the software and client lists over five years and the goodwill over 20 years. Revenues Revenues are derived from the sale of transaction processing products and services primarily on a fee-for-transaction basis. Transaction fees vary depending upon transaction type and service provided. The Company currently receives fees from providers for the majority of its transactions including claims processing, eligibility verification, claims switching, pharmacy script processing and tracking and Medicaid enrollment. The Company also receives fees from payors for the transmission of electronic claims and formulary payments from pharmaceutical manufacturers relating to the Company's PBM script processing and management reporting services. These transaction-based revenues comprise the predominant portion of the Company's total revenues and tend to be recurring. Other revenue is derived from one-time payments related to installation and implementation services, software license fees and EDI systems equipment sales. See "Business -- Suite of EDI Products and Services." Transaction-based revenues and related formulary services revenues (if applicable), which constitute the majority of the Company's total revenues, are recognized at the time the transactions are processed and the services are provided. Revenues associated with software support and implementation fees, currently constituting less than 3% of the Company's revenues, are recognized ratably over the contract period or as the service is provided. Revenue from licensing of software, which also currently constitutes less than 3% of the Company's total revenues, is recognized upon installation if it is determined that the Company has no significant remaining obligations and collectibility of the resulting receivable is probable. Operating Expenses Operations Expense. Operations expense consists of data and voice telecommunications expense, salaries and benefits for operations employees and other costs associated with transaction processing and services provided to clients, such as network and telecommunications, maintenance, computer operations and systems administration, facilities and other additional indirect expenses. Since 1996, operations expense as a percentage of revenues and operations expense per transaction have declined as a result of 31 the Company's integration and restructuring efforts and increased operating leverage. Restructuring charges recorded in connection with the Company's integration activities have resulted in variability in the Company's quarterly operating results. Sales, Marketing and Client Services Expense. Sales, marketing and client services expense consists primarily of salaries, benefits, commissions and related indirect costs and expenditures for marketing programs, trade shows, advertising, help desk software and related client communications. As the Company continues to implement its growth strategy, sales, marketing and client services expenses are expected to continue to increase. Research and Development Expense. Research and development expense consists primarily of salaries, benefits and related indirect expenses associated with the design, research and development of new products and enhancements to existing current products. The development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After technological feasibility has been established, any additional software development costs are capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting For the Cost of Computer Software To Be Sold, Leased or Otherwise Marketed." Capitalized software development costs are amortized on a straight-line basis over the estimated useful product life (normally five years) and amortization begins in the period in which the related product is first made available for general release to clients. During the nine months ended March 31, 1998, the Company capitalized $319,000 of software development costs on a project for which technological feasibility had been established but was not yet available for client release. Prior to July 1, 1997, the Company did not have any software development projects for which significant development costs were incurred between the establishment of technological feasibility and general client release of the product. The Company believes that the development of enhanced and new product offerings are essential to remaining competitive and it expects that development expenses will increase in the future. General and Administrative Expense. General and administrative expense primarily consists of salaries, benefits and related indirect costs for the administrative, executive, finance, legal, human resources and internal systems personnel, as well as accounting and legal fees. As the Company implements its growth strategy, general and administrative expenses are expected to increase. Depreciation and Amortization Expense. The Company depreciates the cost of its tangible capital assets on a straight-line basis over the estimated economic life of the asset: three to five years for computer equipment, five years for furniture and fixtures, and 20 to 25 years for buildings and improvements. Acquisition-related intangible assets, which include the value of software and client lists, are amortized based on the estimated useful economic life of the asset at the time of acquisition, and therefore will vary among acquisitions. The Company recorded amortization expense relating to goodwill and other intangible assets of $3,541,000 and $3,389,000 during the fiscal year ended June 30, 1997 and the nine months ended March 31, 1998, respectively. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the consolidated statements of operations of the Company expressed as a percentage of total revenues.
NINE MONTHS ENDED YEAR ENDED JUNE 30, MARCH 31, ------------------------------ ------------------ 1995 1996 1997 1997 1998 -------- -------- -------- -------- ------- Revenues ...................................... 100% 100% 100% 100% 100% Operating Expenses: Operations ................................... 60 60 48 48 41 Sales, marketing and client services ......... 22 22 25 25 26 Research and development ..................... 13 7 9 10 10 General and administrative ................... 19 19 15 13 11 Depreciation and amortization ................ 18 16 15 14 16
32 NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997 Revenues Revenues for the nine months ended March 31, 1998 were $30.2 million compared to $25.0 million in the corresponding period of fiscal 1997, representing an increase of 21%. The increase was primarily attributable to incremental revenue from the acquisitions of TCS and Stockton in February 1997 and November 1997, respectively, partially offset by the loss of revenues from operations that were divested. The increase was also due to the growth of the existing business. The Company processed 171 million transactions in the nine months ended March 31, 1998, compared to 112 million transactions processed in the corresponding period of fiscal 1997, representing an increase of 52%. The increase resulted from the addition of new clients, increased transaction volume from existing clients and the acquisitions of TCS and Stockton. The average price per transaction received by the Company declined by 13% between such periods, as a result of the greater proportion of transactions processed under contracts with volume-based terms and pricing and a larger proportion of lower priced eligibility verification transactions as a result of the acquisition of TCS. Operating Expenses Operations expense was $12.5 million for the nine months ended March 31, 1998 compared to $12.1 million in the corresponding period of fiscal 1997, representing an increase of 3%. As a percentage of revenues, operations expense decreased from 48% for the first nine months of fiscal 1997 to 41% in the corresponding period of fiscal 1998. The containment of operations expense in the nine months ended March 31, 1998 was a result of ongoing cost reduction programs, systems consolidation for recent acquisitions and the impact of the divested operations, which results are included in the 1997 period but not the 1998 period. Sales, marketing and client services expense was $7.8 million for the nine months ended March 31, 1998 compared to $6.1 million in the corresponding period of fiscal 1997, representing an increase of 26%. As a percentage of revenues, sales, marketing and client services expense increased from 25% for the first nine months of fiscal 1997 to 26% in the corresponding period of fiscal 1998. This increase was primarily due to the inclusion of TCS and Stockton in the results of operations for the nine months ended March 31, 1998 and, to a lesser extent, increases in expenses relating to the hiring of new employees for client support and help desk service, the installation of help desk tracking software and resources devoted to telesales. Research and development expense was $2.9 million for the nine months ended March 31, 1998 compared to $2.5 million in the corresponding period of fiscal 1997, representing an increase of 18%. As a percentage of revenues, research and development expense was 10% for each such period. The Company capitalized $319,000 of software development costs in the first nine months of 1998, however, no software development costs were capitalized in the corresponding period of fiscal 1997. Prior to July 1, 1997, the Company did not have any software development projects for which significant development costs were incurred between the establishment of technological feasibility and general client release of the product. General and administrative expense was $3.3 million for the nine months ended March 31, 1998 and the corresponding period of fiscal 1997. As a percentage of revenues, general and administrative expense decreased from 13% for the first nine months of fiscal 1997 to 11% in the corresponding period of fiscal 1998. This decrease was primarily a result of cost controls and the consolidation and integration activities related to the Company's recent acquisitions. Depreciation and amortization expense was $4.8 million for the nine months ended March 31, 1998 compared to $3.5 million in the corresponding period of fiscal 1997, representing an increase of 38%. As a percentage of revenues, depreciation and amortization expense increased from 14% for the first nine months of fiscal 1997 to 16% in the corresponding period of fiscal 1998. This increase was primarily attributable to the increased amortization expense related to the acquisitions of TCS in February 1997 and Stockton in November 1997. 33 There were no acquisition-related expenses for the nine months ended March 31, 1998, as compared to $5.3 million of such expenses in the corresponding period of fiscal 1997. Included in the amount for the prior period is a $4.4 million write-off related to in-process research and development from the acquisition of TCS (for software that had not achieved technological feasibility and had no alternative use), and a contingent earnout charge of $990,000 recorded by the Company in connection with the EC&F purchase agreement. In addition, in the nine months ended March 31, 1997, the Company recorded a gain of $885,000 from a sale of securities. See Note 12 of "Notes to Consolidated Financial Statements." YEAR ENDED JUNE 30, 1997 COMPARED TO JUNE 30, 1996 Revenues Revenues for the fiscal year ended June 30, 1997 were $35.3 million compared to $31.8 million in fiscal 1996, representing an increase of 11%. The increase was primarily attributable to revenue from the acquisition of TCS in February 1997, partially offset by the loss of revenues from operations that were divested. The increase was also due to the growth of the existing business. The Company processed 161 million transactions in the fiscal year ended June 30, 1997 compared to 129 million transactions processed in fiscal 1996, representing an increase of 25%. The increase resulted from the addition of new clients, the growth of business from existing clients and the TCS acquisition. The average price per transaction in fiscal 1997 declined by 6% from fiscal 1996, primarily as a result of the divested operations having higher claims pricing. Operating Expenses Operations expense was $16.8 million for the fiscal year ended June 30, 1997 compared to $19.2 million in fiscal 1996, representing a decrease of 12%. As a percentage of revenues, operations expense decreased from 60% during the first nine months of 1996 to 48% in fiscal 1996. The operations expense improvement was a result of ongoing cost reduction programs, systems consolidation for recent acquisitions and the divestitures of non-core or unprofitable operations. Sales, marketing and client services expense was $8.8 million for the fiscal year ended June 30, 1997 compared to $7.1 million in fiscal 1996, representing an increase of 24%. As a percentage of revenues, sales, marketing and client service expense increased from 22% in fiscal 1996 to 25% in fiscal 1997. This increase was primarily due to the inclusion of the TCS acquisition in the results for five months and, to a lesser extent, to the addition of client support personnel and the increase in help desk tracking software expenses. Research and development expense was $3.3 million for the fiscal year ended June 30, 1997 compared to $2.1 million in fiscal 1996, representing an increase of 54%. As a percentage of revenues, research and development expense increased from 7% in fiscal 1996 to 9% in fiscal 1997. This increase in research and development expense was due to the hiring of new employees and other expenses related to the expansion of the Company's processing capacity and the implementation of new technology processing platforms throughout its data processing centers. General and administrative expense was $5.3 million for the fiscal year ended June 30, 1997 compared to $6.1 million in fiscal 1996, representing a decrease of 13%. As a percentage of revenues, general and administrative expense decreased from 19% in fiscal 1996 to 15% in fiscal 1997. This decrease was primarily a result of consolidation and integration activities. Depreciation and amortization expense was $5.3 million for fiscal year ended June 30, 1997 compared to $5.2 million in fiscal 1996, representing an increase of 2%. As a percentage of revenues, depreciation and amortization expense decreased from 16% in fiscal 1996 to 15% in fiscal 1997. Acquisition-related expenses for the fiscal year ended June 30, 1997 included a $4.4 million write-off related to in-process research and development from the acquisition of TCS (for software that had not achieved technological feasibility and had no alternative use), and a contingent earnout charge of $2.3 34 million recorded by the Company in connection with the EC&F purchase agreement. In addition, in the nine months ended March 31, 1997, the Company recorded a gain of $885,000 from a sale of securities. See Note 12 of "Notes to Consolidated Financial Statements." YEAR ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995 Revenues Revenues for the fiscal year ended June 30, 1996 were $31.8 million compared to $16.2 million in fiscal 1995, representing an increase of 96%. The increase in revenues was primarily attributable to the inclusion of MEDE OHIO results for the full 12 months in fiscal 1996, compared to nearly four months in fiscal 1995, the acquisition of Latpon in June 1995 and the acquisition of EC&F and Premier in October 1995. Operating Expenses Operations expense was $19.2 million in the fiscal year ended June 30, 1996 compared to $9.8 million in fiscal 1995, representing an increase of 97%. As a percentage of revenues, operations expense was 60% for both periods. Sales, marketing and client services expense was $7.1 million in the fiscal year ended June 30, 1996 compared to $3.6 million in fiscal 1995, representing an increase of 95%, reflecting the impact of acquisitions. As a percentage of revenues, sales, marketing and client services expense was 22% for both periods. Research and development expense was $2.1 million for each of the fiscal years ended June 30, 1996 and 1995. As a percentage of revenues, research and development expense decreased from 13% in fiscal 1995 to 7% in fiscal 1996. This decrease in research and development expense as a percentage of revenues resulted from the inclusion of MEDE OHIO and EC&F in the Company's operations. Their products tended to be less development intensive. General and administrative expense was $6.1 million in the fiscal year ended June 30, 1996 compared to $3.1 million in fiscal 1995, representing an increase of 94%, reflecting the impact of acquisitions. As a percentage of revenues, general and administrative expense was 19% for both periods. Depreciation and amortization expense was $5.2 million in the fiscal year ended June 30, 1996 compared to $3.0 million in fiscal 1995, representing an increase of 73%. As a percentage of revenues, depreciation and amortization expense decreased from 18% in fiscal 1995 to 16% in fiscal 1996. The increase in depreciation and amortization expense was predominantly attributable to amortization related to three acquisitions treated under purchase accounting: MEDE OHIO in March 1995; Latpon in June 1995 and EC&F/Premier in October 1995. During the fiscal year ended June 30, 1996, the Company wrote down approximately $10.0 million of costs relating to client lists and related allocable goodwill obtained in the acquisition of MEDE OHIO. Such intangible assets were written down to the net present value of the estimated future cash flows to be derived from these clients as of June 30, 1996. The write-down was required due to a loss of approximately 25% of the acquired MEDE OHIO client base. In addition, a contingent earnout charge of $538,000 was recorded in connection with the EC&F purchase agreement during the fiscal year ended June 30, 1996. 35 QUARTERLY OPERATING RESULTS
THREE MONTHS ENDED -------------------------------------------------------------------------------------- 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 ----------- ------------ ----------- ------------- ----------- ------------ ---------- (IN THOUSANDS) Revenues .................................. $ 8,179 $ 7,831 $ 8,954 $10,315 $ 9,241 $ 9,849 $11,099 Operating Expenses: Operations ............................... 4,298 3,683 4,123 4,713 4,285 3,942 4,258 Sales, marketing and client services. 1,925 1,957 2,261 2,626 2,385 2,432 2,952 Research and development ................. 783 754 918 823 806 1,059 1,021 General and administrative ............... 1,042 1,171 1,127 1,923 1,061 1,107 1,139 Depreciation and amortization ............ 1,102 1,044 1,356 1,791 1,554 1,573 1,719 Acquired in-process research and development ............................ -- -- 4,354 -- -- -- -- Payment to former owners of ac- quired businesses ...................... 330 330 330 1,311 -- -- -- -------- -------- -------- ------- -------- -------- ------- Total operating expenses .................. 9,480 8,939 14,469 13,187 10,091 10,113 11,089 -------- -------- -------- ------- -------- -------- ------- Income (loss) from operations ............. (1,301) (1,108) (5,515) (2,872) (850) (264) 10 Other (income) expense .................... -- -- (885) (8) -- -- 13 Interest expense, net ..................... 150 202 427 725 655 915 900 -------- -------- -------- --------- -------- -------- ------- Loss before provision for income taxes (1,451) (1,310) (5,057) (3,589) (1,505) (1,179) (903) Provision for income taxes ................ 14 14 15 14 12 12 13 -------- -------- -------- --------- -------- -------- ------- Net loss .................................. $ (1,465) $ (1,324) $ (5,072) $(3,603) $ (1,517) $ (1,191) $ (916) ======== ======== ======== ========= ======== ======== =======
LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has used capital from external sources to fund its internal growth and operations and to make acquisitions. Such capital requirements have been provided by (i) the Company's four principal stockholders, through periodic purchases of the Company's debt and equity securities and (ii) the Credit Facility. Since June 30, 1995 an investment fund affiliated with WCAS has purchased a Senior Subordinated Note in the principal amount of $25,000,000 and 370,994 shares of Common Stock from the Company for an aggregate $25.0 million, which was used in connection with the acquisition of TCS, to repay borrowings under the Credit Facility and for general working capital purposes. See "Certain Transactions." As of March 31, 1998, the Company had outstanding borrowings of $15,925,000 under the Credit Facility. Such borrowings currently bear interest at a weighted average rate of 7.07% per annum. The total availability under the Credit Facility is $20.0 million. See "Certain Transactions." All indebtedness under the Credit Facility has been, and currently is, guaranteed by the Company's four principal stockholders. The Company has received a letter from the lender under the Credit Facility committing to provide an amended credit facility with total available credit of $10.0 million upon substantially the same terms and conditions as the Credit Facility. Borrowings under the Amended Credit Facility will not be guaranteed by any third party. It is anticipated that the Amended Credit Facility will take effect upon the consummation of the Offering. As of March 31, 1998, the Company had cash and cash equivalents of $1.5 million and net working capital of $3.3 million. Net cash used in operations was $1.7 million, $4.0 million and $3.9 million for the fiscal years ended June 30, 1996 and 1997 and the nine months ended March 31, 1998, respectively. The $3.9 million net cash used in operations for the nine months ended March 31, 1998 was used primarily 36 for contingent earnout charges on acquisitions made in prior fiscal years, and other accounts payable and accrued expenses totaling $3.7 million. In addition, $1.1 million of the net cash used was attributable to an increase in formulary accounts receivable relating to Stockton (formulary receivables normally have a 7-12 month collection cycle). Cash used for investment purposes was $4.9 million, $12.2 million and $11.6 million for the fiscal years ended June 30, 1996 and 1997 and the nine months ended March 31, 1998, respectively. Cash used for investment purposes during the nine months ended March 31, 1998 was primarily used to acquire Stockton for $10.7 million and also to fund capital expenditures (predominantly computer and network hardware and software) in the amount of $627,000. The Company expects to spend at least $2.0 million per annum for the foreseeable future for capital investment to support growth in transaction processing. Cash provided by financing activities was $657,000, $15.5 million and $15.0 million for the fiscal years ended June 30, 1996 and 1997 and the nine months ended March 31, 1998, respectively. Cash provided by financing activities during the nine months ended March 31, 1998 was primarily provided from borrowings under the Credit Facility which was partially offset by principal repayments of debt and capital lease obligations. In the fiscal year ended June 30, 1997, cash was provided by the issuance of a Senior Subordinated Note in the principal amount of $25,000,000 and 370,994 shares of Common Stock for aggregate proceeds of $25.0 million, which proceeds were partially offset by the repayment of outstanding borrowings under the Credit Facility and principal repayments of debt and capital lease obligations. Approximately $43.0 million of the proceeds of the Offering will be applied to the repayment of the Company's outstanding indebtedness under the Credit Facility and the Senior Subordinated Note. In connection with the repayment of outstanding indebtedness under the Credit Facility and the Senior Subordinated Note, the Company will record an extraordinary charge of approximately $1.7 million relating to the elimination of deferred financing costs associated with the Credit Facility and the write-off of the remaining discount on the Senior Subordinated Note. The Company expects to use the Amended Credit Facility to finance the Company's future acquisitions and general working capital needs. The Company also expects to finance acquisitions through the issuance of additional equity and debt securities. The Company believes that the proceeds of the Offering, together with existing cash balances and cash generated by operations in the near term, and the borrowings expected to be made available under the Amended Credit Facility, will be sufficient to finance the Company's operations for at least 18 months. However, future acquisitions may require funding beyond the Company's cash resources and currently anticipated capital or operating requirements could change, with the result that the Company may be required to raise additional funds through the public or private sale of additional securities. See "Risk Factors -- Acquisition Strategy; Need for Additional Capital." YEAR 2000 COMPLIANCE The Company has reviewed the Year 2000 compliance of its systems and has adopted a program intended to ensure that it achieves compliance with respect to all products, services and internal systems in a timely manner. Under such plan, $1,020,000 has been budgeted through December 1999, of which $160,000 has been spent through April 30, 1998. The Company believes that it does not require additional technology to achieve Year 2000 compliance and that it has sufficient resources to implement its plan. The Company expects that the combined amount of budgeted expenses for Year 2000 compliance plus the ongoing product development and development expenditures will increase as a percent of revenue in future periods. However, there can be no assurance that expenditures required to achieve compliance with Year 2000 requirements will not exceed those amounts. See "Risk Factors -- Year 2000 Compliance" and "Business -- Year 2000 Compliance." IMPACT OF INFLATION Inflation has not had a material impact on the Company's historical operations or financial condition. RECENT ACCOUNTING PRONOUNCEMENTS Recent pronouncements of the Financial Accounting Standards Board, which are not required to be adopted at this date, include SFAS No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Dis- 37 closures about Segments of an Enterprise and Related Information" and SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." These pronouncements are not expected to have a material impact on the Company's financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement is not required to be adopted at this date. The Company is currently evaluating the impact of this statement on its financial statements. NET OPERATING LOSSES As of March 31, 1998, the Company had net operating loss carryforwards for federal income tax purposes of approximately $34,650,000. Such loss carryforwards expire in the fiscal years 2005 through 2013. Because of certain changes in ownership, as defined in the Internal Revenue Code, which occurred during 1996 and 1995, certain of these net operating loss carryforwards are subject to annual limitations. See Note 7 of "Notes to Consolidated Financial Statements." 38 BUSINESS GENERAL MEDE AMERICA is a leading provider of EDI products and services to a broad range of providers and payors in the healthcare industry. The Company offers an integrated suite of EDI solutions that allows hospitals, pharmacies, physicians, dentists and other healthcare providers and provider groups to electronically edit, process and transmit claims, eligibility and enrollment data, track claims submissions throughout the claims payment process and obtain faster reimbursement for their services. In addition to offering greater processing speed, the Company's EDI products and services reduce processing costs, increase collection rates and result in more accurate data interchange. The Company maintains over 540 direct connections with insurance companies, Medicare and Medicaid agencies, Blue Cross and Blue Shield systems and other third party payors, as well as over 500 indirect connections with additional payors through claims clearinghouses. Currently, the Company processes over 900,000 transactions per day for over 65,000 providers located in all 50 states. The Company's mission is to be the leading provider of integrated healthcare transaction processing technology, networks and databases, enabling its clients to improve the quality and efficiency of their services. The Company was formed in March 1995 through the consolidation and subsequent spin-off of three subsidiaries of CES, in connection with the acquisition by First Data Corporation of CES' credit card processing business. The three subsidiaries, MedE America, Inc., MPC, and Wellmark, which comprised the healthcare services business of CES, historically provided EDI services to hospitals and physicians. Since its formation, the Company has expanded both through internal growth and the acquisition of five healthcare transaction processing businesses. As part of its strategy of providing an integrated suite of EDI products and services to a broad range of healthcare providers, the Company has focused on acquisitions that provided entry into new markets or expanded the Company's product suite. The Company has actively pursued the integration of its acquisitions and, in the process, has either divested, closed or restructured various operations of the acquired entities in order to eliminate non-core or redundant operations and achieve cost savings and operating efficiencies. INDUSTRY OVERVIEW Innovations over the past decade in computer and telecommunications technologies have resulted in the development of EDI systems to electronically process and transmit information among the various participants in the healthcare industry. These systems were designed to replace paper-based recording and transmission of information, enabling greater processing speed, reduced processing costs and more accurate data interchange. Electronic processing enables providers to verify patient eligibility or obtain authorization for services at the time of appointment, registration or at the time of claim submission. The healthcare EDI processor then interfaces with the payor to obtain an eligibility or authorization confirmation, which is transmitted back to the provider. To obtain payment, providers must submit claims information in formats specified by the respective payors. Healthcare EDI processors can facilitate this process by utilizing customized software programs that can perform "edits" to the data supplied by providers and re-format that data to meet the data specifications of payors. Electronically transmitted claims are sent either directly from the provider to the payor, or through the healthcare EDI processor (which in turn transmits the claims to the payor directly or through one or more intermediaries). The claim is received and reviewed by the payor and the remittance response is communicated (usually not electronically) back to the provider. Each of these steps in the healthcare delivery process gives rise to a current or potential EDI transaction. According to Health Data Directory, in 1997 over 4.1 billion electronic and paper claims were paid in all sectors of the healthcare services market, and over the past five years healthcare claims increased at an average rate of 5.5% per year. The Company expects the volume of healthcare claims to continue to grow as the U.S. population ages and life expectancy of the U.S. population increases. The increase in claims has been accompanied by an increase in the proportion of claims that are electronically processed. From 1993 to 1997, the proportion of total healthcare claims that were electronically processed 39 increased from 41% to approximately 60% at an average rate of 16% per year. The Company expects the electronic processing of healthcare claims to continue to increase as a result of increased reliance on electronic commerce and increased emphasis on cost containment in the healthcare industry. The penetration of electronic processing varies significantly among the different markets within the healthcare industry. According to Health Data Directory, in 1997 electronic processing accounted for approximately 13% of total dental claims, 38% of total physician medical claims, 83% of total hospital medical claims and 86% of total pharmacy claims. The Company believes that there is significant market potential for EDI processing in the non-claim area, including eligibility verification, remittance transactions and other data exchange transactions such as claims tracking, referrals and physician scripting. The Company believes that EDI penetration in these non-claim transaction categories is low, and as a result, the EDI transaction growth in these areas will exceed that of the EDI claims processing market. As compared to claims processing, the electronic processing of non-claim information transactions in the healthcare industry, such as eligibility inquiries, enrollment in Medicare and Medicaid programs, referrals, formulary inquiries to pharmacy benefit managers and prescription delivery, has emerged only recently and is less pervasive. The Company believes that only a small percentage of non-claim information transactions are managed electronically. In addition to opportunities to expand its claims processing business, the Company believes that there are significant possibilities to expand electronic processing to non-claim areas in the healthcare market, for the following reasons: o As advanced technology continues to penetrate the healthcare industry, an increasing amount of healthcare data will be managed electronically. For example, healthcare providers are implementing practice management software systems to manage the clinical, financial and administrative aspects of their businesses. Increasingly, these software systems incorporate EDI processing capabilities. o Efforts by government and private insurers to contain healthcare costs are expected to motivate hospitals and physicians to use EDI not only to lower costs, but also to improve operating efficiencies and increase accuracy. For example, state Medicaid programs and some private insurance companies now encourage providers to verify patients' medical benefits eligibility electronically. o As the healthcare industry continues to undergo consolidation, the larger scale of the resulting entities may result in increased EDI use. For example, various managed care companies have encouraged their provider networks to utilize EDI for authorizations, enrollment verification, encounter reports and referrals. Currently, the EDI market is fragmented and consists of several nationally prominent EDI claims processors and several hundred regional EDI service providers who occupy selected niches in specialized markets and geographical sectors. Over the past several years, many of the regional EDI service providers have been acquired by national organizations. The Company believes that competitive conditions in the healthcare information industry will continue to favor consolidation as larger, more diversified organizations are able to reduce costs and offer an integrated package of standardized products and services. COMPETITIVE STRENGTHS The Company believes that it has several competitive strengths which will enable it to capitalize on the significant growth opportunities in the healthcare EDI marketplace. COMPREHENSIVE SUITE OF EDI PRODUCTS AND SERVICES. The Company has followed a strategy of developing or acquiring EDI products and services that may be provided to a broad range of healthcare clients. The Company's products incorporate open architecture designs and "best of breed" technology and may be purchased as modular additions to the client's existing data storage and retrieval system, or as part of a comprehensive EDI processing system. They are designed to be compatible with a broad variety of hospital, medical, pharmacy and dental practice management and billing systems. In addition, new products can be added to respond to changing client requirements, and the scalability of the Com- 40 pany's products permits the client to accommodate increasing transaction volumes without requiring substantial new investments in software and hardware. Because of these product characteristics, the Company believes it is well positioned to take advantage of the expected growth of EDI in areas such as eligibility, managed care transactions and pharmacy to physician scripting. BROAD AND DIVERSIFIED CLIENT BASE. The Company markets its products and services to a broad range of healthcare providers including the medical market, comprised of hospitals, clinics and physicians, the dental market comprised of small to medium-sized dental practice groups, and the pharmacy market, which includes retail pharmacies (independents and chains) as well as PBMs. In addition, the Company has relationships through practice management system vendors and other intermediaries. The Company's client base is highly diversified, consisting of approximately 42,000 pharmacies, 8,000 dental offices, 1,000 hospitals and clinics and 14,000 physicians. The Company's broad and diversified client base provides it with transaction-based revenues that tend to be recurring and positions it to capitalize on the rapid consolidation taking place within the healthcare industry. DIRECT RELATIONSHIPS WITH PROVIDERS AND PAYORS. The Company has developed over 540 direct connections with healthcare payors including Medicare and Medicaid agencies, Blue Cross and Blue Shield systems and commercial insurance companies, and the Company is able to access over 500 additional payors through contractual relationships with multiple claims clearinghouses. Additionally, the Company has direct client relationships with providers such as hospitals, clinics, physicians and pharmacies. The range of MEDE AMERICA's services and the extent of its connectivity with payors provides the opportunity to achieve deeper penetration of its provider base, while at the same time offering more complete solutions to new clients. MEDE AMERICA believes that it is strongly positioned to offer reliable, one-stop shopping to both providers and payors for all their EDI needs. FOCUS ON CLIENT SERVICE. The Company has focused on implementing a wide range of client service and support functions. These support activities include the use of automated client service tracking software, expanded client help desk and account executive support functions, and extensive client feedback mechanisms. This focus has enhanced the Company's awareness of client needs and improved the Company's ability to respond to those needs. As a result of these activities, of the clients that contributed to the Company's revenues in the 1997 fiscal year, approximately 90% continued as clients of the Company and contributed to the Company's revenues in the nine months ended March 31, 1998. The Company believes that its high quality client service enhances the satisfaction of its clients and generates new revenue opportunities in the form of expanded transaction volume and sales of new products and services. LEADING TECHNOLOGY AND PRODUCT PLATFORMS. The Company recognizes the critical role of technology and telecommunications platforms to ensure reliable and high quality service. Over the past two years, MEDE AMERICA has invested significant capital in new hardware and software systems resulting in an estimated three-fold increase in transaction processing capacity. The Company has designed its products on a modular client/server model, using open architecture and commonly available hardware, with redundant processing capabilities. The Company's redundancies in its computing capacity and its dual-site operations enable it to provide uninterrupted processing and data transmission with little if any downtime. As a result of such technology investments, MEDE AMERICA believes it is able to provide high quality service to its clients in the form of high network availability, batch transaction reliability and high rates of payor claims acceptance. MEDE AMERICA also believes that its technology platform, which is operating at approximately one-third of its total capacity, provides it with substantial operating leverage. EXPERIENCED MANAGEMENT TEAM. Each member of the Company's senior management team has over 15 years of experience in the information technology and transaction processing industries and has extensive background in working with emerging companies in the information processing industry. The Company believes that the range and depth of its senior management team position it to address the evolving requirements of its clients and to manage the growth required to meet its strategic goals. 41 GROWTH STRATEGY The Company's mission is to be the leading provider of integrated healthcare transaction processing technology, networks and databases, enabling its clients to improve the quality and efficiency of their services. To achieve this objective, the Company is pursuing a growth strategy comprised of the following elements: o PROVIDE COMPREHENSIVE SUITE OF EDI SOLUTIONS. The Company believes that it is critical to provide a full range of state of the art EDI solutions to clients at every stage of the healthcare transaction spectrum. The Company strives to develop fully modular products with open architecture to allow for easy installation and integration with existing systems. These features enhance the ability of the Company to offer one-stop shopping for a client's EDI needs. o FURTHER PENETRATE EXISTING CLIENT BASE. The Company believes that the market for EDI transaction processing among its current clients has significant potential. As EDI becomes more widespread in the healthcare industry, the use of emerging EDI products and services such as eligibility, enrollment, electronic credit card transactions and electronic statement processing will become increasingly commonplace. The Company believes that it is well positioned to cross sell such emerging products and services to its existing client base. o DEVELOP NEW EDI PRODUCTS AND SERVICES. The Company intends to develop new EDI solutions to meet the evolving electronic transaction processing needs of its existing and future healthcare clients. The Company believes that the use of EDI will expand to encompass an increasing range of services such as referrals, remittances and workers' compensation transactions. The Company has a team of 97 research and development and technical support professionals dedicated to developing, supporting and commercializing new and enhanced EDI solutions. In addition, the Company intends to undertake acquisitions in order to expand its suite of product offerings. o UTILIZE STRATEGIC PARTNERSHIPS TO EXPAND CLIENT BASE. MEDE AMERICA's strategic alliances with vendors, distributors and dealers of practice management software have played an important role in building relationships with small groups of physicians, pharmacists and dentists. These companies promote MEDE AMERICA's EDI products as a modular addition to their practice management software. The Company also has strategic relationships with large hospital groups, Medicaid intermediaries, PBMs and professional organizations. The Company believes that such strategic partnerships provide important opportunities for increasing the Company's revenue base. o PURSUE STRATEGIC ACQUISITIONS. Currently, the EDI market includes several hundred regional EDI service providers which occupy selected niches in specialized markets and geographical areas. The Company intends to capitalize on the fragmented market for the provision of EDI services by aggressively pursuing consolidation opportunities in order to increase its client and revenue base, expand its product suite, enter into new geographic markets, utilize its operating leverage to increase efficiency and add new talent and technical capacity in emerging areas of the EDI processing industry. SUITE OF EDI PRODUCTS AND SERVICES MEDE AMERICA's products and services enable its healthcare clients to process and transmit transactions more efficiently and accurately, reducing costs and increasing overall processing speed. The Company's EDI products incorporate open architecture designs and "best of breed" technology and may be purchased as modular additions to existing data storage and retrieval systems or as part of a comprehensive EDI processing system. They are designed to be compatible with a broad variety of hospital, medical, pharmacy and dental practice management and billing systems. In addition, new products can be added to respond to changing client requirements. The scalability of the Company's products permits its clients to accommodate increasing transaction volumes without substantial new investments in software and hardware. The following table illustrates the breadth of the Company's product and service offerings: 42 MEDE AMERICA'S SUITE OF EDI PRODUCTS AND SERVICES
NAME OF PRODUCT/SERVICE DESCRIPTION OF AND MARKETS SERVED PRODUCT/SERVICE FEATURES CLIENT BENEFITS - -------------------------- ----------------------------------------------- -------------------------------------------- HEALTHCARE CLAIM PROCESSING MEDEClaim -- o Downloads claims data from client soft- o Accelerates cash flow through faster All Markets ware applications and provides claims claim reimbursement. data entry and correction capability. Ed- o Increases cash flow through high level of its, formats and screens transaction data payor acceptance of edited claims. to meet payor-specific requirements. o Improves accounts receivables manage- ment. o Reduces administrative expenses. OTHER CLAIM SERVICES MEDE Assist -- o Bills, on a batch basis, pharmacy pre- o Improves accounts receivable manage- Pharmacy scriptions and performs non-electronic ment and accelerates cash flow. reconciliation and payor accounts re- o Reduces administrative expenses. ceivable management. Claims Tracking -- o Tracks and provides a lock box service o Improves accounts receivable manage- Dental for payor reimbursements. ment and accelerates cash flow. ELIGIBILITY VERIFICATION MEDE Eligibility -- o Verifies patients' eligibility for specific o Reduces costs by minimizing fraud. All Markets healthcare benefits for Medicaid and o Ensures patient services are supported commercial payors. by a designated health benefit plan. o Reduces administrative expenses. MEDICAID ENROLLMENT Medicaid o Processes and tracks Medicaid enrollment o Reduces expenses through on-line Enrollment Manage- applications allowing for the verification application process. ment System (MEMS) and processing of Medicaid claims. Uti- o Reduces application processing time. -- Medical lized by hospitals and government agen- o Improves Medicaid claims billing and col- cies in New York, New Jersey and lection. California. o Reduces bad debt. TRANSACTION SWITCHING MEDE Xchange -- o Routes real-time and batch transaction o Reduces costs. All Markets data from clients to facilitate transaction o Increases network availability and transmission to payors. reliability. o Supports a broad array of access methods o Provides extensive payor connectivity. including dial-up, dial to packet, ISDN and frame relay.
43
NAME OF PRODUCT/SERVICE DESCRIPTION OF AND MARKETS SERVED PRODUCT/SERVICE FEATURES CLIENT BENEFITS - ------------------------- --------------------------------------------- -------------------------------------------- REAL-TIME BENEFIT MANAGEMENT MEDE Select -- o Adjudicates on-line claims, incorporat- o Accelerates cash flow through faster All Markets ing patient eligibility and benefit review. claim reimbursement. o Increases cash flow through high level of payor acceptance of edited claims. o Improves accounts receivables manage- ment. o Reduces administrative expenses. PHARMACY PRACTICE MANAGEMENT SYSTEMS (PPM) Solution Plus -- o Facilitates dispensing, inventory and o Expands drug pricing and coverage Pharmacy pricing of products for hospital, outpa- capabilities. tient and clinic pharmacies. o Improves cash flow. o Provides on-line claims adjudication. o Improves efficiency of pharmacy management and operations. OTHER PRODUCTS AND SERVICES Link -- o Connects physicians to pharmacies for the o Reduces costs related to manual genera- Medical and Pharmacy transmission of prescriptions and related tion and transmission of prescriptions. information and approvals. o Increases accuracy and transmission speed of prescriptions. Formulary o Administers and manages formulary pro- o Reduces drug costs and increases PBM Management -- grams for PBMs. revenue through manufacturer incentives, Pharmacy o Promotes the usage by healthcare plans of o Promotes compliance with payor formu- designated drug products. laries. Patient Statements -- o Facilitates patient statement billing. o Reduces costs and improves patient All Markets relations. Credit/Debit Card and o Assists patients in making co-payments or o Reduces bad debt and enhances patient Check Guarantee -- paying other out-of-pocket charges. convenience. All Markets Additional EDI o Processes data relating to referrals, en- o Reduces practice expense and improves Transactions -- counters and benefit pre-certifications. efficiency and patient relations. All Markets
CLIENTS The Company markets its products primarily to hospitals, pharmacies, physicians, dentists and other healthcare providers and provider groups (including HMOs, PPOs and healthcare practice management vendors). The Company processes transactions for providers in all 50 states, with 75% of its revenues generated by providers in 28 states. The Company believes it is one of the largest pharmacy transaction routers in the U.S. (based on volume) serving more than 42,000 pharmacies in various EDI capacities. MEDE AMERICA has a strong presence in the medical market in New York, New Jersey, California, 44 Florida, Minnesota, and Ohio, currently providing EDI services to more than 1,000 hospitals and clinics, and 14,000 physicians. In the dental market, MEDE AMERICA serves more than 8,000 dental offices. No single client of the Company accounted for more than 2% of the Company's revenues in fiscal year 1997. SALES, MARKETING AND CLIENT SERVICES The Company markets its products through a national sales and client services organization consisting of 70 sales associates organized according to market, client type and product category. The Company also has a client services organization consisting of 56 associates dedicated to help desk and client support functions. A significant component of compensation for all sales personnel is performance based, although the Company bases quotas and bonuses on a number of factors in addition to actual sales, such as client satisfaction and collection of receivables. MEDE AMERICA's marketing efforts include direct sales, telesales, strategic partnerships with healthcare vendors, trade shows, direct marketing, telemarketing, the Internet, and specific advertising and marketing campaigns where appropriate. In the medical and pharmacy markets, the Company's current strategic business alliances include relationships with some of the country's largest hospitals, hospital networks, hospital information systems vendors, practice management software vendors, pharmacy chains, healthcare organizations and payors. The Company also maintains strategic alliances with certain state Medicaid programs. MEDE AMERICA's strategic alliances with vendors, distributors and dealers of practice management software have played an important role in building relationships with individual and small groups of physicians, pharmacies and dentists. These companies promote MEDE AMERICA's EDI products as modular additions to their practice management software. MEDE AMERICA has also won endorsements from 18 state dental associations, representing nearly half of all dentists in practice today. The Company's sales channels include targeting dental practice management companies and payor-driven programs aimed at their network providers. Recent significant expansion of MEDE AMERICA's direct connectivity to dental payors has contributed to its ability to generate revenue from this market while at the same time eliminating its dependence on other processors and clearinghouses. RESEARCH AND DEVELOPMENT As of April 30, 1998, the Company employed 65 people in the areas of product design, research and development, and 32 people in the areas of quality assurance and technical support. The Company's product development strategy is focused on continuous enhancement of its existing products to increase their functionality and ease of use, and the development of new products for additional EDI transactions and telecommunications offerings. Particular attention is devoted to the ongoing integration of developed and acquired systems and applications into a consolidated suite of EDI product offerings and supporting services for the markets served by the Company. In the Company's 1995, 1996 and 1997 fiscal years, research and development expenditures totaled $2,051,000, $2,132,000 and $3,278,000, respectively, representing approximately 13%, 7% and 9%, respectively, of the Company's total revenues. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." TECHNOLOGY AND OPERATIONS MEDE AMERICA recognizes the crucial role of technology and telecommunications in the EDI marketplace. Since the beginning of fiscal 1996, the Company has acquired new hardware and software and made data center improvements costing more than $5.0 million. As a result, the Company is currently operating at approximately one-third of its operating capacity. The continuing use of newer emerging technologies and platforms has contributed significantly to the Company's current operational position. Examples of such innovations include the use of Internet technologies for data transmissions, on-line transaction monitoring tools and development of Windows-based front-end applications for clients. 45 Advanced Open Architecture MEDE AMERICA's products and applications offer clients the benefits of an "open architecture" EDI system. As a result, a client's system can expand or change without incurring significant incremental capital expenditures for hardware or software. The open architecture of the Company's systems also improves reliability and connectivity, and facilitates the cross selling of MEDE AMERICA's products, in part because of the following characteristics: o SCALABILITY. The Company's systems are designed to take full advantage of the client/server environment, UNIX operating systems and Redundant Array of Inexpensive Disks ("RAID") technology, allowing clients to expand their processing capacity in order to accommodate the growth of their businesses. o MODULARITY. The Company's client/server systems have been developed with discrete functionality that can be replicated and utilized with additional hardware. This modularity enables MEDE AMERICA to optimize application and hardware performance. o REDUNDANCY. The implementation of a dual site, geographically dispersed On-Line Transaction Processing ("OLTP") switch (Twinsburg, Ohio and Mitchel Field, New York) and RAID technology for batch processing significantly reduces the risk of business interruption. Each site is designed to be entirely self-supporting. o OPEN SYSTEMS. Through the use of an open systems architecture MEDE AMERICA is able to add new functionality to applications without re-designing its applications or architecture. o INDUSTRY STANDARDS. Through the adoption and active use of pertinent standards for healthcare EDI processing, MEDE AMERICA can support client and payor processing requirements and provide standard interfaces to other EDI processing organizations. o EASE OF USE. The Company's products are either Windows-based or GUI-based and function in UNIX, Novell and Windows NT operating environments, thereby enhancing ease of use by MEDE AMERICA's clients. o TELECOMMUNICATIONS OFFERINGS. MEDE AMERICA is an early adopter of emerging telecommunications systems enabling the Company to migrate to newer services, such as ISDN, dial to packet, frame relay, virtual private networks and Internet communications. These new offerings provide the Company with a competitive advantage through improved service levels or pricing. To ensure reliable connectivity to its EDI clients, the Company has established relationships with multiple telecommunications vendors. COMPETITION Competition in the market for the Company's products and services is intense and is expected to increase. The EDI market is characterized by rapidly changing technology, evolving user needs and frequent introduction of new products. Many of the Company's competitors and potential competitors have significantly greater financial, technical, product development, marketing and other resources and market recognition than the Company. In addition, many of the Company's competitors also currently have, or may develop or acquire, substantial installed client bases in the healthcare industry. As a result of these factors, the Company's competitors may be able to respond more quickly to new or emerging technologies, changes in client requirements and political, economic or regulatory changes in the healthcare industry, and may be able to devote greater resources to the development, promotion and sale of their products than the Company. The Company's principal competitors include National Data Corporation, Envoy Corporation and SSI, Inc. in claims processing and eligibility verification; QuadraMed Corporation in claims processing; Medifax, Inc. and HDX Healthcare Data Exchange Corporation in eligibility verification; and Envoy Corporation in the dental market. MEDE AMERICA also may face potential competition from other companies not currently involved in healthcare electronic data transmission, which may enter the market as EDI becomes more established. The Company believes that existing and potential clients in the 46 healthcare EDI market evaluate the products and services of competing EDI providers on the basis of the compatibility of the provider's software, cost, ease of installation, the range of applications available, the quality of service and the degree of payor connectivity. See "Risk Factors -- Competition." GOVERNMENT REGULATION The healthcare industry in the United States is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare organizations. During the past several years, the healthcare industry has been subject to increasing levels of governmental regulation of, among other things, reimbursement rates and certain capital expenditures. For example, legislation has been proposed that would mandate standards and impose restrictions on the Company's ability to transmit healthcare data and recently, Congress has had under consideration proposals to reform the healthcare system. While some of these proposals, if enacted, could increase the demand for EDI products and services in the healthcare industry by emphasizing cost containment, they might change the operating environment for the Company's clients in ways that cannot be predicted. Healthcare organizations could react to these proposals by curtailing or deferring investments, including those for the Company's products and services. The confidentiality of patient records and the circumstances under which such records may be released for inclusion in the Company's databases are subject to substantial regulation. State laws and regulations govern both the disclosure and the use of confidential patient medical record information. Although compliance with these laws and regulations is at present principally the responsibility of the hospital, physician or other healthcare provider, regulations governing patient confidentiality rights are evolving rapidly. The Health Insurance Portability and Accountability Act, passed in 1997, mandates the establishment of national standards for the confidentiality of patient data, as well as record keeping, data format and data security obligations that will apply to transaction processors, among others. It is possible that standards so developed will necessitate changes to the Company's operations. Additional legislation governing the dissemination of medical record information has been proposed at both the federal and state levels. This legislation may require holders of such information to implement security measures that may require substantial expenditures by the Company. There can be no assurance that changes to state or federal laws will not materially restrict the ability of healthcare providers to submit information from patient records using the Company's products. See "Risk Factors -- Proposed Healthcare Data Confidentiality Legislation." YEAR 2000 COMPLIANCE Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, prior to January 1, 2000, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists in the software industry concerning the potential consequences of the Year 2000 phenomenon. To date, the Company has expended approximately $160,000 in addressing Year 2000 problems. The Company estimates that it will incur approximately $860,000 in additional costs relating to its Year 2000 compliance program; however, there can be no assurance that such amount will be sufficient to cover all costs relating to Year 2000 issues. The Company believes that the majority of all transactions being processed by it are running on Year 2000 compliant systems. However, the Company believes that some systems with which its own computers interact (for example, some payor and practice management systems) are not yet Year 2000 compliant, and that the failure of these systems to be made Year 2000 compliant in a timely manner may adversely affect some of the Company's operations. In addition, certain systems operated by MEDE AMERICA are not yet Year 2000 compliant. The applications running on these systems are expected to be discontinued, migrated to other systems or corrected before 2000. However, there can be no assurance that the Company's systems will achieve Year 2000 compliance in a timely manner, if at all. See "'Risk Factors -- Year 2000 Compliance." EMPLOYEES As of April 30, 1998, the Company employed 356 people, including 110 in operations, 72 in sales, 11 in marketing, 56 in client services, 65 in research and development, 14 in finance, 18 in administration and ten in corporate. None of the Company's employees is represented by a union or other collective bargaining group. The Company believes its relationship with its employees to be satisfactory. 47 FACILITIES The following chart summarizes the Company's facilities and their monthly transaction capacities:
ESTIMATED MONTHLY TRANSACTION OWNED/LEASE FACILITY PERSONNEL TRANSACTION TYPE CAPACITY EXPIRATION DATE - ------------------------------ ----------- ------------------------------ ------------- ---------------------- Ohio (Primary Medical and 152 Eligibility 2,000,000 Owned Pharmacy Data Center) Real-Time Benefit Management 6,000,000 Switching 48,000,000 New York (Secondary Medical 33 Eligibility Enrollment 2,000,000 January 2003 and Pharmacy Data Center) 25,000 Georgia (Dental Data Center) 56 Dental Claims 1,600,000 January 2001 Corporate Headquarters, 115 Real-Time Benefit Management 2,000,000 Various dates between Sales & Development January 1999 and Feb- Offices (5 sites) and ruary 2003. PBM Processing
INTELLECTUAL PROPERTY The Company considers its methodologies, computer software and many of its databases to be proprietary. The Company relies on a combination of trade secrets, copyright and trademark laws, contractual provisions and technical measures to protect its rights in various methodologies, systems, products and databases. The Company has no patents covering its software technology. Due to the nature of its application software, the Company believes that patent and trade secret protection are less significant than the Company's ability to further develop, enhance and modify its current products. However, any infringement or misappropriation of the Company's proprietary software and databases could disadvantage the Company in its efforts to retain and attract new clients in a highly competitive market and could cause the Company to lose revenues or incur substantial litigation expense. The Company seeks to protect its proprietary information through nondisclosure agreements with its consultants, clients and potential clients, and limits access to, and distribution of, its proprietary information. See "Risk Factors -- Dependence on Intellectual Property; Risk of Infringement." Substantial litigation regarding intellectual property rights exists in the software industry, and the Company expects that software products may be increasingly subject to third-party infringement claims as the number of competitors in the Company's industry segment grows and the functionality of products overlaps. Although the Company believes that its products do not infringe on the intellectual rights of others, there can be no assurance that such a claim will not be asserted against the Company in the future, or that a license or similar agreement will be available on reasonable terms in the event of an unfavorable ruling on any such claim. See "Risk Factors -- Dependence on Intellectual Property; Risk of Infringement." LEGAL PROCEEDINGS In June 1995, the Company acquired substantially all of the assets of Latpon for a purchase price of $2,470,000, plus the assumption of approximately $963,000 of liabilities. On April 20, 1998, Curtis J. Oakley, a former employee of the predecessor of Latpon filed a summons with notice with the Supreme Court of the State of New York, County of Nassau stating his intent to assert a claim against several persons including the Company, based on his alleged ownership of a 22% interest in Latpon. According to the summons, Mr. Oakley's claim is for $10 million or such other amount as may be shown at trial, based on his alleged ownership interest. The Company believes that it is fully indemnified by the former owners of Latpon under the Latpon acquisition agreement against any costs or damages arising from this claim. The Company has filed a demand for a complaint. Due to the lack of information that has been provided to date, the Company is unable to predict what effect, if any, this litigation may have on its business, financial condition or results of operations. 48 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows:
NAME AGE POSITION - ---------------------------------- ----- ----------------------------------------------------- Thomas E. McInerney(2) ........... 56 Chairman of the Board of Directors Thomas P. Staudt ................. 45 President and Chief Executive Officer, Director Richard P. Bankosky .............. 55 Chief Financial Officer, Treasurer and Secretary James T. Stinton ................. 48 Chief Information Officer William M. McManus ............... 43 Senior Vice President and General Manager -- Medical and Pharmacy Roger L. Primeau ................. 55 Senior Vice President and General Manager -- Dental Anthony J. de Nicola(1) .......... 33 Director Timothy M. Murray(1)(2) .......... 45 Director
- ---------- (1) Member of Audit Committee (2) Member of Compensation Committee Set forth below is information about each of the Company's executive officers and directors. THOMAS E. MCINERNEY has been Chairman of the Board of Directors of the Company since March 1995 and a general partner of WCAS, an investment firm which specializes in the acquisition of companies in the information services and healthcare industries, since September 1986. Prior to joining WCAS, Mr. McInerney was President and Chief Executive Officer of Dama Telecommunications Corporation, a voice and data communications services company which he co-founded in 1982. Mr. McInerney has also been President of the Brokerage Services Division and later Group Vice President-Financial Services of ADP, with responsibility for the ADP divisions that serve the securities, commodities, bank, thrift and electronic funds transfer industries, and has held positions with the American Stock Exchange, Citibank and American Airlines. Mr. McInerney holds a B.A. degree from St. Johns University, and attended New York University Graduate School of Business Administration. He is a director of Aurora Electronics, Inc., The BISYS Group, Inc. and several private companies. THOMAS P. STAUDT has been a director and the President and Chief Executive Officer of the Company since March 1995. He served as President and Chief Operating Officer of CES from May 1993, and as a director from August 1994, until the sale of CES to First Data Corporation and the formation of the Company in March 1995. At CES, Mr. Staudt was responsible for credit card and healthcare transaction processing operations. Prior to joining CES, Mr. Staudt was President and Chief Operating Officer of Harbridge Merchant Services, Inc., which he joined in December 1991. Mr. Staudt has also held positions with A.C. Nielsen, a subsidiary of Dun & Bradstreet Corporation, and Wells Fargo Bank. Mr. Staudt holds a B.S. degree from the U.S. Naval Academy and an M.B.A. from San Francisco State University. RICHARD P. BANKOSKY has been Chief Financial Officer, Treasurer and Secretary of the Company since May 1996. He served as Chief Financial Officer and Treasurer for TII Industries, Inc. from April 1995 to February 1996. Prior to joining TII, he was Chief Financial Officer, Treasurer and Secretary for TSI International Software Ltd from February 1989 to April 1995. Mr. Bankosky also served as Chief Financial Officer and Secretary for V Band Systems Inc., was founder and Chief Operating Officer of NCR Credit Corporation and served as Director of Corporate Development at NCR Corporation. He holds a B.E.E. degree in Computers and Electrical Engineering from Rensselaer Polytechnic Institute and an M.B.A. from Adelphi University. 49 JAMES T. STINTON has been Chief Information Officer of the Company since October 1995. He served as Release Manager at Charles Schwab & Company from April 1992 to September 1995. In that position he was responsible for the development, coordination, testing and implementation for the Microsoft NT and UNIX Client Server software. Prior to joining Charles Schwab & Company, he was POS Systems Architect and Vice President at Wells Fargo Bank from February 1982 to April 1992. Mr. Stinton holds a degree from ONC Business Studies, Coventry Technical College, Coventry, England, and a graduate certificate from Consumer Banking Association, Retail Banking Management, McIntire Business School of the University of Virginia. WILLIAM M. MCMANUS has been Senior Vice President and General Manager -- Pharmacy and Medical of the Company since May 1997 and Senior Vice President and General Manager -- Pharmacy since February 1996. From April 1994 through February 1996 he was head of pharmacy system sales for National Data Corporation. In that position he had overall responsibility for sales, marketing and product management programs. Prior to April 1994, Mr. McManus held senior level positions at OmniSYS, Inc., Healthcare Computer Corporation, PDX, Inc., and the computer division of Foxmeyer Corporation. Mr. McManus holds a B.S. degree in Health and Physical Education from the University of South Carolina and completed postgraduate courses in education and pharmacy at the University of South Carolina. ROGER L. PRIMEAU has been Senior Vice President and General Manager -- Dental of the Company since October 1996. From August 1989 through June 1996 he was Vice President, Administration and Customer Relations of National Electronic Information Corporation ("NEIC"). Prior to joining NEIC, Mr. Primeau worked at Columbia Life Insurance Co. and Aetna Life & Casualty in a variety of management positions. Mr. Primeau holds a B.S. degree in Biology from Holy Cross College. ANTHONY J. DE NICOLA has been a director of the Company since March 1995 and has been a general partner of WCAS since April 1994. Prior to joining WCAS, Mr. de Nicola was an associate at William Blair & Company, L.L.C., an investment banking firm with which he had been affiliated since 1990. Previously, Mr. de Nicola worked in the Mergers and Acquisitions Department of Goldman Sachs & Co. and held positions at McKinsey & Company and IBM. Mr. de Nicola holds a B.A. degree from DePauw University and an M.B.A. from Harvard Business School. He is a director of SEER Technologies, Inc. and several private companies. TIMOTHY M. MURRAY has been a director of the Company since March 1995 and is a principal of William Blair & Company, L.L.C., an investment banking firm with which he has been associated since 1979. He has also been the managing partner of William Blair Leveraged Capital Fund since its formation in 1988 and is a Managing Director of WBCP. Mr. Murray holds a B.A. degree from Duke University and an M.B.A. from the University of Chicago. He is a director of Daisytek International Corporation and several private companies. THE BOARD OF DIRECTORS COMMITTEES OF THE BOARD OF DIRECTORS The only standing committees of the Board of Directors of the Company are the Audit Committee and the Compensation Committee. The Audit Committee reviews the results and scope of audits and other services provided by the Company's independent public accountants. Its members are Messrs. de Nicola and Murray. In May 1998, the Board of Directors constituted a Compensation Committee composed of Messrs. McInerney and Murray which will be responsible for making recommendations concerning salaries and incentive compensation for executive officers of the Company. Prior to May 1998, the Board of Directors had sole responsibility for establishing executive officer compensation. Thomas E. Staudt, the Company's President and Chief Executive Officer, participated in the deliberations of the Board concerning executive compensation. COMPENSATION OF DIRECTORS Prior to the Offering, the directors of the Company received no compensation in respect of their service on the Board of Directors. Following the Offering, under the "New Stock Plan" (as defined in, and described more fully under, "-- Employee Benefit Plans"), each non-employee director who is not 50 (and is not affiliated with) a holder of 5% or more of the voting stock of the Company, will be paid an annual retainer of $7,500, plus $1,000 for each Board of Directors or committee meeting attended, and will receive annually a non-qualified stock option to purchase up to 1,000 shares of Common Stock at the fair market value of the Common Stock on the date of grant. Directors are entitled to reimbursement for out-of-pocket expenses incurred while attending meetings of the Board of Directors. EXECUTIVE COMPENSATION The following table sets forth certain information concerning the compensation paid by the Company to its Chief Executive Officer and each of the four other most highly paid executive officers of the Company (the "Named Executive Officers") in the 1997 fiscal year: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------------------------------- --------------- SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($) OPTIONS(#)(2) COMPENSATION($) - --------------------------------------- ----------------- ------------- ----------------- --------------- ---------------- Thomas P. Staudt ...................... 180,000 50,000 -- 220,414 -- President and Chief Executive Officer Richard P. Bankosky ................... 135,000 20,000 -- 29,461 -- Chief Financial Officer, Treasurer and Secretary William M. McManus .................... 125,433 20,000 65,558 29,461 -- Senior Vice President and General Manager -- Pharmacy and Medical Roger L. Primeau ...................... 85,000 (3) 12,000 -- 18,113 -- Senior Vice President and General Manager -- Dental James T. Stinton ...................... 150,000 20,000 -- 34,917 -- Chief Information Officer ............
- ---------- (1) Bonuses are granted under a bonus formula annually established by the Board of Directors, based upon the performance (measured by EBITDA) of the Company (or certain operating divisions thereof). Unless a specified percentage of the EBITDA target is achieved, no bonus is paid. EBITDA targets are adjusted to reflect accounting changes, acquisitions and other significant, one-time events. (2) Total number granted through June 30, 1997 (exercised and unexercised). (3) Mr. Primeau's employment commenced in October 1996. 51 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information regarding grants of options to purchase Common Stock in fiscal 1997 to each of the Named Executive Officers:
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM(1) -------------------------------------------------------------- ------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS GRANTED EXERCISE UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION GRANTED(#) FISCAL YEAR(2) ($/SHARE) DATE 5%($) 10%($) -------------------- ----------------- ----------- ----------- --------- --------- Thomas P. Staudt ............ 2,182 4.27% $ 5.73 2/15/07 20,400 32,400 Richard P. Bankosky ......... 2,182 4.27% $ 5.73 2/15/07 20,400 32,400 William M. McManus .......... 8,729 17.09% $ 5.73 (3) 81,600 129,600 Roger L. Primeau ............ 18,113 35.47% $ 5.73 (4) 169,320 268,920 James T. Stinton ............ 2,182 4.27% $ 5.73 2/15/07 20,400 32,400
- ---------- (1) Potential realizable value is based on the assumption that the price per share of Common Stock appreciates at the assumed annual rate of stock appreciation for the option term. The assumed 5% and 10% annual rates of appreciation (compounded annually) over the term of the option are set forth in accordance with the rules and regulations adopted by the Securities and Exchange Commission and do not represent the Company's estimate of stock price appreciation. (2) Based upon total grants of options to purchase 51,066 shares in fiscal year 1997. (3) 2,182 expire February 15, 2007, 3,273 expire June 9, 2007 and 3,274 expire December 3, 2007. (4) 16,367 expire September 16, 2006 and 1,746 expire February 15, 2007. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT JUNE 30, 1997(#) JUNE 30, 1997($) ------------------------------- ------------------------------ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ------------- --------------- ------------- -------------- Thomas P. Staudt ............ 65,469 133,121 $300,000 $612,500 Richard P. Bankosky ......... 5,456 24,005 25,000 137,500 William M. McManus .......... 7,638 19,641 38,750 112,500 Roger L. Primeau ............ 0 18,113 0 85,000 James T. Stinton ............ 6,547 28,370 30,000 132,500
SEVERANCE AGREEMENTS The Company maintains severance agreements with each of its executive officers providing for salary continuation for a period of six months (twelve months in the case of Mr. Staudt) if the executive is terminated for any reason other than malfeasance, misconduct or moral turpitude. EMPLOYEE BENEFIT PLANS Under the MEDE AMERICA Corporation and its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Stock Plan"), up to 655,000 shares of Common Stock are reserved for issuance to the officers and employees of the Company. These shares may be issued either outright, as restricted stock awards, or they may be issued pursuant to either "incentive stock options" under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"), or "non-qualified" stock options. As of May 29, 1998, options to purchase up to an aggregate 483,132 shares of Common Stock were outstanding, of which 212,099 options were exercisable. The weighted average exercise price for all options granted under the Stock Plan is $4.84 per share. Following the Offering, the Board of Directors has provided that no additional grants or awards will be made under the Stock Plan. 52 Under the MEDE AMERICA Corporation and its Subsidiaries 1998 Stock Option and Restricted Stock Purchase Plan (the "New Stock Plan"), a variety of awards, including incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), "non-qualified" stock options, restricted stock awards and other stock-based awards, may be granted to officers, employees, directors, consultants and advisors of the Company and its subsidiaries. The Board of Directors will initially administer the New Stock Plan, but may delegate such responsibility to a committee of the Board. While the Company currently anticipates that most grants under the New Stock Plan will consist of stock options, the Company may also grant restricted stock awards, which entitle recipients to acquire shares of Common Stock subject to certain conditions. Options or other awards that are granted under the New Stock Plan but expire unexercised are available for future grants. To date, no options have been granted under the New Stock Plan. Vesting of options under the New Stock Plan would be subject to acceleration at the discretion of the Board of Directors under certain circumstances. Under the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"), employees of the Company, including directors of the Company who are employees, are eligible to participate in quarterly plan offerings in which payroll deductions may be used to purchase shares of Common Stock. The purchase price of such shares is the lower of 85% of the fair market value of the Common Stock on the day the offering commences and 85% of the fair market value of the Common Stock on the date the offering terminates. The first offering period under the Purchase Plan will not commence until the completion of the Offering. In its 1998 fiscal year through May 29, 1998, the Company has granted options to purchase an aggregate 37,101 shares of Common Stock to the Named Executive Officers, as follows: 12,003 shares for Mr. McManus, 8,730 shares for Mr. Staudt and 5,456 shares for each of Messrs. Bankosky, Stinton and Primeau. Such options have an exercise price of $5.73 per share of Common Stock. 53 CERTAIN TRANSACTIONS In June 1995, the Company acquired MEDE OHIO, through a merger between the Company and the parent of MEDE OHIO ("Parent"). Parent was owned by Welsh, Carson, Anderson & Stowe V, L.P. ("WCAS V"), which had formed Parent to acquire MEDE OHIO in an all cash merger that was consummated in March 1995. The acquisition price of MEDE OHIO, including amounts required to finance the merger and to provide MEDE OHIO with working capital and pre-merger bridge financing, was approximately $22.6 million. The exchange ratio in the merger between Parent and the Company was based on the acquisition cost of MEDE OHIO and an independent valuation of the Company that was performed in connection with the spin-off of the Company by CES. In the merger and a related offering to raise working capital for the Company, the Company issued an aggregate 1,772,354 shares of Common Stock and 171,889 shares of Preferred Stock to investment funds and individuals affiliated with WCAS, and an aggregate 866,504 shares of Common Stock and 28,987 shares of Preferred Stock to investment funds affiliated with WBCP. In October 1995, WCAS V and Welsh, Carson, Anderson & Stowe VI, L.P. ("WCAS VI"), each advanced the Company $1.75 million as bridge financing for the Company's acquisition of EC&F and Premier. The loan bore interest at the rate of 10% per annum and matured on December 31, 1995. The Company repaid the loan in December 1995. On December 18, 1995, the Company issued to its four principal stockholders, WCAS V, WCAS VI, William Blair Capital Partners V, L.P. ("Blair V"), and William Blair Leveraged Capital Fund, Limited Partnership ("Blair LCF"), warrants to purchase an aggregate 52,533 shares of Common Stock at an exercise price of $4.58 per share in connection with their agreement to guarantee the Company's obligations under the Credit Facility. On January 10, 1997, the Company increased the amount of available borrowings under the Credit Facility, and in connection therewith, WCAS V, WCAS VI, Blair V and Blair LCF, each agreed to guarantee payment of a portion of the additional debt to be incurred under the increased credit line. In consideration for such guarantees, the Company issued to WCAS V, WCAS VI, Blair V and Blair LCF warrants to purchase an aggregate 18,331 shares of Common Stock. The warrants have a ten year term and the exercise price thereunder is $5.73 per share. On October 31, 1997, the Company increased the amount of available borrowings under the Credit Facility, and in connection therewith, WCAS V, WCAS VI, Blair V and Blair LCF each agreed to guarantee payment of a portion of the additional debt to be incurred under the increased credit line. In consideration for such guarantees, the Company issued to WCAS V, WCAS VI, Blair V and Blair LCF warrants to purchase an aggregate 34,201 shares of Common Stock. The warrants have a ten year term and the exercise price thereunder is $5.73 per share. On February 14, 1997 the Company issued 10% Senior Subordinated Notes due February 14, 2002 in the principal amount of $25,000,000, plus an aggregate 370,994 shares of Common Stock, to WCAS Capital Partners II, L.P. ("WCAS CP II"), for an aggregate purchase price of $25,000,000. WCAS CP II is an affiliate of each of WCAS V and WCAS VI, and Thomas McInerney and Anthony de Nicola, both directors of the Company, are general partners of the sole WCAS CP II general partner. The Company intends to use a portion of the proceeds of the Offering to repay in full the Credit Facility and the 10% Senior Subordinated Note. See "Use of Proceeds." The Company does not anticipate further borrowing from or seeking further loan guarantees from any of the entities referred to above. In connection with the Offering, the terms of the Preferred Stock will be amended to provide for conversion of the aggregate liquidation value of the Preferred Stock including accrued but unpaid dividends into Common Stock at the price per share received by the Company upon the consummation of its initial public offering; provided further, however, that cash realized by the Company upon any exercise of the Underwriters' overallotment option would be applied to the payment of accrued dividends in lieu of having such dividends convert into Common Stock. In addition, in connection with the Offering, the holders of the outstanding Common Stock purchase warrants agreed to exercise all such warrants by the net issuance exercise method for an aggregate shares of Common Stock. WCAS V, WCAS VI, Blair 54 V and Blair LCF are the owners of an aggregate 193,100 shares of Preferred Stock, and warrants to purchase 52,532 and 52,533 shares of Common Stock at exercise prices of $4.58 and $5.73 per share, respectively. Blair V and Blair LCF, and Timothy Murray, a director of the Company, are each affiliates of William Blair & Company, L.L.C., an underwriter of the Offering. See "Underwriting." PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of May 29, 1998, and as adjusted to reflect the sale of Common Stock offered hereby, by (i) each person (or group of affiliated persons) known by the Company to own beneficially more than five percent of the outstanding shares of Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers and (iv) all directors and executive officers of the Company as a group. The numbers of shares set forth below (i) give effect to the Recapitalization and the Reverse Stock Split, (ii) assume an Offering price of $14.00 per share of Common Stock, and (iii) assume a sale of 3,600,000 shares of Common Stock in the Offering. Unless otherwise indicated, the address for each stockholder is c/o the Company, 90 Merrick Avenue, Suite 501, East Meadow, New York 11554.
SHARES BENEFICIALLY OWNED(1) -------------------------------------- PERCENTAGE OWNED(2) ------------------------ BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OFFERING OFFERING - ------------------------------------------------- ----------- ---------- ----------- Welsh, Carson, Anderson & Stowe (3) ............. 5,753,534 72.21% 49.74% 320 Park Avenue, 25th Floor New York, NY 10019 William Blair & Co., L.L.C. (4) ................. 916,762 11.51% 7.93% 222 West Adams Street Chicago, Illinois 60606 Mellon Bank, as Trustee (5) ..................... 616,692 7.74% 5.33% 767 Fifth Avenue, 26th Floor New York, NY 10153 Thomas P. Staudt (6) ............................ 166,151 2.06% 1.42% Richard P. Bankosky ............................. 11,349 - - James T. Stinton (7) ............................ 16,152 - - William M. McManus (8) .......................... 13,531 - - Roger L. Primeau (9) ............................ 4,060 - - Thomas E. McInerney (10) ........................ 5,612,369 70.44% 48.52% 320 Park Avenue, 25th Floor New York, NY 10019 Anthony J. de Nicola (11) ....................... 5,588,555 70.14% 48.31% 320 Park Avenue, 25th Floor New York, NY 10019 Timothy M. Murray (12) .......................... 913,621 11.47% 7.90% 222 West Adams Street Chicago, Illinois 60606 All current directors and executive officers as a 6,747,583 83.14% 57.59% group (10 persons) .............................
- ---------- - Represents beneficial ownership of less than 1% of the Common Stock. 55 (1) Gives effect to the Recapitalization and the Reverse Stock Split. Unless otherwise indicated, the entities and individuals identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to community property laws, where applicable. (2) The percentages shown are based on 7,967,304 shares of Common Stock outstanding on May 29, 1998, plus, as to each entity or group listed unless otherwise noted, the number of shares of Common Stock deemed to be owned by such holder pursuant to Rule 13d-3 under the Exchange Act as of such date, assuming exercise of options held by such holder that are exercisable within 60 days of the date of this Prospectus. (3) Includes 2,566,414 shares of Common Stock held by WCAS V, 2,583,700 shares of Common Stock held by WCAS VI, 62,117 shares of Common Stock held by WCAS Information Partners L.P. ("WCAS Info."), 370,994 shares of Common Stock held by WCAS CP II, and 170,310 shares of Common Stock held by individual partners of WCAS. Such partners are also partners of the sole general partner of each of the foregoing limited partnerships. The partners of WCAS who are also directors of the Company are Thomas E. McInerney (who is also Chairman of the Board of Directors) and Anthony J. de Nicola, and each may be deemed to be beneficial owners of the Company's Common Stock owned by WCAS. (4) Includes 600,467 shares of Common Stock held by Blair V, 313,153 shares of Common Stock held by Blair LCF and 3,141 shares of Common Stock held by an individual affiliated with WBCP. Timothy M. Murray, a partner of WBCP, is also a director of the Company and may be deemed to be a beneficial owner of the Company's Common Stock owned by WBCP. (5) Includes 308,346 shares of Common Stock held by Mellon Bank as Trustee for the General Motors Salaried Employees Pension Trust and 308,346 shares of Common Stock held by Mellon Bank as Trustee for the General Motors Hourly Rate Employees Pension Fund. (6) Includes options to purchase up to 109,554 shares of Common Stock. (7) Includes options to purchase up to 16,152 shares of Common Stock. (8) Includes options to purchase up to 13,531 shares of Common Stock. (9) Includes options to purchase up to 4,060 shares of Common Stock. (10) Includes 2,566,414 shares of Common Stock held by WCAS V, 2,583,700 shares of Common Stock held by WCAS VI, 62,117 shares of Common Stock held by WCAS Info. and 370,994 shares of Common Stock held by WCAS CP II. Mr. McInerney disclaims beneficial ownership of such shares. (11) Includes 2,566,414 shares of Common Stock held by WCAS V, 2,583,700 shares of Common Stock held by WCAS VI, 62,117 shares of Common Stock held by WCAS Info. and 370,994 shares of Common Stock held by WCAS CP II. Mr. de Nicola disclaims beneficial ownership of such shares. (12) Includes 600,467 shares of Common Stock held by Blair V and 313,153 shares of Common Stock held by Blair LCF. Mr. Murray disclaims beneficial ownership of such shares. 56 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 30,000,000 shares of Common Stock, and 5,000,000 shares of Preferred Stock. Upon completion of this Offering, and after giving effect to the Recapitalization and the Reverse Stock Split, there will be 11,567,304 shares of Common Stock (12,107,304 shares if the Underwriters' over-allotment option is exercised) and no shares of Preferred Stock outstanding. As of May 29, 1998, before giving effect to the Recapitalization and the Reverse Stock Split there were 26,049,938 shares of Common Stock outstanding and 239,956 shares of Preferred Stock outstanding, held of record by 127 stockholders. In addition, as of May 29, 1998, before giving effect to the Recapitalization and the Reverse Stock Split there were outstanding options to purchase 2,213,600 shares of Common Stock and warrants to purchase 481,440 shares of Common Stock. Pursuant to the Recapitalization, all such warrants will be exercised (for an aggregate 66,379 post Reverse Stock Split shares), and all shares of Preferred Stock will be converted into an aggregate 2,215,940 shares of Common Stock (based on the aggregate liquidation preference of the Preferred Stock as of May 29, 1998, after giving effect to the Reverse Stock Split and assuming no exercise of the Underwriters' over-allotment option) prior to the consummation of the Offering. COMMON STOCK The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Subject to the rights and preferences of the holders of any outstanding Preferred Stock, the holders of Common Stock are entitled to receive ratably such dividends as are declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock have the right to a ratable portion of assets remaining after the payment of all debts and other liabilities, subject to the liquidation preferences of the holders of any outstanding Preferred Stock. Holders of Common Stock have neither preemptive rights nor rights to convert their Common Stock into any other securities and are not subject to future calls or assessments by the Company. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and the shares offered hereby upon issuance and sale will be, fully paid and non-assessable. The rights, preferences and privileges of the holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of Preferred Stock that the Company may designate and issue in the future. PREFERRED STOCK Upon the closing of this Offering and assuming no exercise of the Underwriters' over-allotment option, all of the outstanding shares of the Preferred Stock together with accrued but unpaid dividends thereon will be automatically converted at the public offering price into 2,215,940 shares of Common Stock. The Board of Directors is authorized, subject to certain limitations prescribed by Delaware law, without further action by the stockholders, to issue up to 5,000,000 shares of Preferred Stock, $.01 par value, in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series. The Company believes that the power to issue Preferred Stock will provide flexibility in connection with possible corporate transactions. The issuance of Preferred Stock, however, could adversely affect the voting power of holders of Common Stock and restrict their rights to receive payments upon liquidation. It could also have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no present plans to issue any shares of Preferred Stock. WARRANTS As of May 29, 1998, there were outstanding warrants to purchase 66,379 shares of Common Stock (on a "net exercise" basis) held by four investors. These warrants will be exercised in full upon the closing of this Offering. 57 DELAWARE LAWS AND CERTAIN CHARTER AND BYLAW PROVISIONS; ANTI-TAKEOVER MEASURES Upon the consummation of this Offering made hereby, the Company will be subject to the provisions of Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. For purposes of Section 203, a "business combination" is defined broadly to include a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. All directors elected to the Company's Board of Directors serve until the next annual meeting of the stockholders and the election and qualification of their successors or their earlier death, resignation or removal. The Board of Directors is authorized to create new directorships and to fill such positions so created. The Board of Directors (or its remaining members, even though less than a quorum) is also empowered to fill vacancies on the Board of Directors occurring for any reason for the remainder of the term of the vacant directorship. The Company's Bylaws provide that, for nominations to the Board of Directors or for other business to be properly brought by a stockholder before an annual meeting of stockholders, the stockholder must first have given timely notice thereof in writing to the Secretary of the Company. To be timely, a stockholder's notice generally must be delivered not less than sixty days nor more than ninety days prior to the annual meeting. The notice by a stockholder must contain, among other things, certain information about the stockholder delivering the notice and, as applicable, background information about the nominee or a description of the proposed business to be brought before the meeting. Certain of the provisions of the Amended and Restated Certificate of Incorporation and Bylaws discussed above could make more difficult or discourage a proxy contest or other change in the management of the Company or the acquisition or attempted acquisition of control by a holder of a substantial block of the Company's stock. It is possible that such provisions could make it more difficult to accomplish, or could deter, transactions which stockholders may otherwise consider to be in their best interests. As permitted by the DGCL, the Amended and Restated Certificate of Incorporation provides that Directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of their fiduciary duties as Directors, except for liability (i) for any breach of their duty of loyalty to the Company and its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions, as provided in Section 174 or successor provisions of the DGCL or (iv) for any transaction from which the Director derives an improper personal benefit. The Amended and Restated Certificate of Incorporation and Bylaws provide that the Company shall indemnify its Directors and officers to the fullest extent permitted by Delaware law (except in some circumstances, with respect to suits initiated by the Director or officer) and advance expenses to such Directors or officers to defend any action for which rights of indemnification are provided. In addition, the Amended and Restated Certificate of Incorporation and Bylaws also permit the Company to grant such rights to its employees and agents. The Bylaws also provide that the Company may enter into indemnification agreements with its Directors and officers and purchase insurance on behalf of any person whom it is required or permitted to indemnify. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as Directors, officers and employees. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is ChaseMellon Shareholder Services. 58 SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering there has been no market for the Common Stock of the Company. The Company can make no prediction as to the effect, if any, that sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of the Common Stock in the public market, or the perception that such sales may occur, could adversely affect prevailing market prices. See "Risk Factors -- Shares Eligible for Future Sale." Upon completion of this Offering, the Company expects to have 11,567,304 shares of Common Stock outstanding (excluding 483,132 shares reserved for issuance upon the exercise of outstanding stock options) (12,107,304 shares of Common Stock outstanding if the Underwriters' over-allotment option is exercised in full). Of these shares, the 3,600,000 shares offered hereby will be freely tradable without restrictions or further registration under the Securities Act, except for any shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act, which will be subject to the resale limitations imposed by Rule 144, as described below. All of the remaining 7,967,304 shares of Common Stock outstanding will be "restricted securities" within the meaning of Rule 144 and may not be resold in the absence of registration under the Securities Act, or pursuant to exemptions from such registration including, among others, the exemption provided by Rule 144 under the Securities Act. Of the restricted securities, 589,799 shares are eligible for sale in the public market immediately after this Offering pursuant to Rule 144(k) under the Securities Act. A total of 7,555,684 additional restricted securities will be eligible for sale in the public market in accordance with Rule 144 or 701 under the Securities Act beginning 90 days after the date of this Prospectus. Taking into consideration the effect of the lock-up agreements described below and the provisions of Rules 144 and 144(k), restricted shares will be eligible for sale in the public market immediately after this Offering, restricted shares (excluding shares issuable upon the exercise of outstanding stock options) will be eligible for sale beginning 90 days after the date of this Prospectus, and the remaining restricted shares will be eligible for sale upon the expiration of the lock-up agreements 180 days after the date of this Prospectus, subject to the provisions of Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are required to be aggregated) whose restricted securities have been outstanding for at least one year, including a person who may be deemed an "affiliate" of the Company, may only sell a number of shares within any three-month period which does not exceed the greater of (i) one percent of the then outstanding shares of the Company's Common Stock (approximately 115,673 shares after this Offering) or (ii) the average weekly trading volume in the Company's Common Stock in the four calendar weeks immediately preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and the availability of current public information about the Company. A person who is not an affiliate of the issuer, has not been an affiliate within three months prior to the sale and has owned the restricted securities for at least two years is entitled to sell such shares under Rule 144(k) without regard to any of the limitations described above. All officers, directors and certain holders of Common Stock beneficially owning, in the aggregate, shares of Common Stock and options to purchase shares of Common Stock, have agreed, pursuant to certain lock-up agreements, that they will not sell, offer to sell, solicit an offer to purchase, contract to sell, grant any option to sell, pledge, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock owned by them, or that could be purchased by them through the exercise of options to purchase Common Stock of the Company, for a period of 180 days after the date of this Prospectus without the prior written consent of Smith Barney Inc. Upon expiration of the lock-up agreements, all shares of Common Stock currently outstanding will be immediately eligible for resale, subject to the requirements of Rule 144. The Company is unable to predict the effect that sales may have on the then prevailing market price of the Common Stock. See "Management -- Employee Benefit Plans" and "Description of Capital Stock." 59 UNDERWRITING Under the terms and subject to the conditions contained in the Underwriting Agreement dated the date hereof, each Underwriter named below has severally agreed to purchase, and the Company has agreed to sell to such Underwriter, shares of Common Stock which equal the number of shares set forth opposite the name of such Underwriter below.
UNDERWRITER NUMBER OF SHARES - ----------------------------------------------- ----------------- Smith Barney Inc. .......................... William Blair & Company, L.L.C. ............ Volpe Brown Whelan & Company, LLC .......... ------------- Total ................................... ============
The Underwriters are obligated to take and pay for all shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters, for whom Smith Barney Inc., William Blair & Company, L.L.C. and Volpe Brown Whelan & Company, LLC are acting as representatives (the "Representatives"), propose initially to offer part of the shares of Common Stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to other Underwriters or to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed by the Underwriters. The Representatives have informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. The Company has granted to the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of 540,000 additional shares of Common Stock at the public offering price set forth on the cover page hereof less underwriting discounts and commissions. The Underwriters may exercise such option to purchase additional shares solely for the purpose of covering over-allotments, if any, incurred in connection with the sale of the shares offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares in such table. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. The Company and its executive officers and directors and certain other holders of Common Stock and securities convertible into or exercisable or exchangeable for Common Stock have agreed that for a period of 180 days after the date of this Prospectus they will not, without the prior written consent of Smith Barney Inc., sell, offer to sell, solicit an offer to purchase, contract to sell, grant any option to sell, 60 pledge or otherwise dispose of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock except in certain limited circumstances. See "Shares Eligible for Future Sale." In connection with this Offering and in accordance with applicable law and industry practice, the Underwriters may over-allot or effect transactions which stabilize, maintain or otherwise affect the market price of the Common Stock at levels above those which might otherwise prevail in the open market, including by entering stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid, or the effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of a security. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. A penalty bid means an arrangement that permits Smith Barney Inc., as managing underwriter, to reclaim a selling concession from a syndicate member in connection with the Offering when shares of Common Stock originally sold by the syndicate member are purchased in syndicate covering transactions. Such transactions may be effected on the Nasdaq National Market, in the over-the-counter market, or otherwise. The Underwriters are not required to engage in any of these activities. Any such activities, if commenced, may be discontinued at any time. Prior to this Offering, there has been no public market for the Common Stock. Consequently, the initial public offering price for the Common Stock has been determined by negotiations between the Company and the Representatives. Among the factors considered in determining the initial public offering price were the history of, and the prospects for, the Company's business and the industry in which it competes, an assessment of the Company's management, its past and present operations, the past and present results of operations of the Company and the trend of such results of operations, the prospects for earnings of the Company, the present state of the Company's development, the general condition of the securities market at the time of this Offering and the market prices of similar securities of comparable companies at the time of this Offering. William Blair & Company, L.L.C., one of the Representatives of the Underwriters, is affiliated with Blair V and Blair LCF, two of the Company's principal stockholders and, by virtue of such affiliation, is, prior to the Offering, an "affiliate" of the Company within the meaning of Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc. Accordingly, the Offering is being made in conformity with certain applicable provisions of Rule 2720. Smith Barney Inc., another Underwriter of the Offering (the "Independent Underwriter"), will act as a "qualified independent underwriter," as defined in Rule 2720, in connection with the Offering. The Independent Underwriter, in its role as qualified independent underwriter, has performed due diligence investigations and reviewed and participated in the preparation of this Prospectus and the Registration Statement of which this Prospectus forms a part. The Independent Underwriter will not receive any additional fees for serving as a qualified independent underwriter in connection with the Offering. The price of shares of Common Stock sold to the public will be no higher than that recommended by the Independent Underwriter. Timothy M. Murray, a director of the Company, is a managing director of WBCP and a principal of William Blair & Company, L.L.C. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Reboul, MacMurray, Hewitt, Maynard & Kristol and for the Underwriters by Dewey Ballantine LLP, New York, New York. EXPERTS The consolidated financial statements of the Company as of June 30, 1996 and 1997 and March 31, 1998, and for each of the three years in the period ended June 30, 1997, and for the nine months ended March 31, 1998, included in this Prospectus, and the related financial statement schedule included else- 61 where in this Registration Statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the Registration Statement, and have been so included in reliance upon such report given upon their authority as experts in accounting and auditing. The statement of operations of Stockton for the year ended June 30, 1997 included in this Prospectus has been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and has been so included in reliance upon such report given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1, including amendments thereto (the "Registration Statement"), under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules filed therewith, certain portions of which have been omitted as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to such Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being deemed to be qualified in its entirety by such reference. The Registration Statement, including all exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: the New York regional office located at 7 World Trade Center, Suite 1300, New York, New York 10048, and the Chicago regional office located at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of this material may also be obtained from the Commission's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such material may also be accessed electronically at the Commission's Internet home page: (http:// www.sec.gov). The Company intends to furnish its stockholders with annual reports containing financial statements audited by its independent public accountants, and will make available quarterly reports for the first three quarters of each fiscal year containing unaudited financial information and such other periodic reports as the Company may determine to be appropriate or as may be required by law. 62 INDEX TO FINANCIAL STATEMENTS PAGE ----- MEDE AMERICA CORPORATION: Independent Auditors' Report ........................................... F-2 Consolidated Balance Sheets as of June 30, 1996 and 1997 and March 31, 1998 ................................................................. F-3 Consolidated Statements of Operations for the Years Ended June 30, 1995, 1996 and 1997 and the Nine Months Ended March 31, 1997 (Unaudited) and 1998 ................................................................. F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended June 30, 1995, 1996 and 1997 and the Nine Months Ended March 31, 1998 ................................................................. F-5 Consolidated Statements of Cash Flows for the Years Ended June 30, 1995, 1996 and 1997 and the Nine Months Ended March 31, 1997 (Unaudited) and 1998 ................................................................. F-6 Notes to Consolidated Financial Statements ............................. F-7 THE STOCKTON GROUP, INC.: Independent Auditors' Report ........................................... F-20 Statements of Income for the Year Ended June 30, 1997 and the Three Months Ended September 30, 1997 (Unaudited)........................... F-21 Notes to Financial Statement ........................................... F-22 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of MEDE America Corporation We have audited the accompanying consolidated balance sheets of MEDE America Corporation and subsidiaries (the "Company") as of June 30, 1996 and 1997 and March 31, 1998, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 1997 and the nine months ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MEDE America Corporation and subsidiaries as of June 30, 1996 and 1997 and March 31, 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997 and the nine months ended March 31, 1998 in conformity with generally accepted accounting principles. Jericho, New York May 8, 1998 The accompanying consolidated financial statements include the effects of a reverse stock split of the Company's common stock anticipated to be approved by the Company's Board of Directors prior to the consummation of this public offering. The above opinion is in the form which will be signed by Deloitte & Touche LLP upon consummation of the reverse stock split, which is described in Note 13 of the notes to consolidated financial statements and assuming that, from May 8, 1998 to the date of such reverse stock split, no other events will have occurred that would affect the accompanying consolidated financial statements and notes thereto. DELOITTE & TOUCHE LLP Jericho, New York June 2, 1998 F-2 MEDE AMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND 1997 AND MARCH 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA STOCKHOLDERS' JUNE 30, EQUITY --------------------------- MARCH 31, MARCH 31, 1996 1997 1998 1998 ------------ ------------ ----------- -------------- (UNAUDITED) (NOTE 1.O.) ASSETS CURRENT ASSETS: Cash and cash equivalents ........................................ $ 2,639 $ 1,919 $ 1,455 Accounts receivable, less allowance for doubtful accounts of $1,400, $1,716, and $958, respectively.......................... 5,989 6,318 7,463 Formulary receivables ............................................ 74 405 1,502 Inventory ........................................................ 136 172 240 Prepaid expenses and other current assets ........................ 661 486 489 --------- --------- --------- Total current assets ........................................... 9,499 9,300 11,149 PROPERTY AND EQUIPMENT -- Net (Notes 3 and 6) ..................... 5,601 5,517 4,944 GOODWILL -- Net (Notes 1 and 2) ................................... 23,059 25,177 32,408 OTHER INTANGIBLE ASSETS -- Net (Notes 1 and 4) .................... 4,340 5,014 5,247 OTHER ASSETS ...................................................... 532 451 431 --------- --------- --------- TOTAL ............................................................. $ 43,031 $ 45,459 $ 54,179 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES: Accounts payable ................................................. $ 2,567 $ 2,134 $ 2,753 Accrued expenses and other current liabilities (Note 10) ......... 9,739 9,195 4,880 Current portion of long-term debt (Note 6) ....................... 1,400 538 240 --------- --------- --------- Total current liabilities ...................................... 13,706 11,867 7,873 --------- --------- --------- LONG-TERM DEBT (Note 6) ........................................... 10,201 24,623 40,259 --------- --------- --------- OTHER LONG-TERM LIABILITIES (Note 10) ............................. 1,173 215 761 --------- --------- --------- REDEEMABLE CUMULATIVE PREFERRED STOCK: $.01 par value; 250 shares authorized; 240 shares issued and outstanding (aggregate liquidation value of $23,996 plus ac- crued dividends) (Note 9) ...................................... 26,423 28,823 30,623 $ -- --------- --------- --------- --------- COMMITMENTS AND CONTINGENCIES (Note 11) STOCKHOLDERS' (DEFICIT) EQUITY: Common stock, $.01 par value; 6,329 shares authorized; 5,280, 5,671, and 5,680 shares issued and outstanding, respectively 53 57 57 79 Additional paid-in capital ....................................... 27,850 27,713 26,069 56,670 Accumulated (deficit) equity ..................................... (36,375) (47,839) (51,463) (51,463) --------- --------- --------- --------- Total stockholders' (deficit) equity ........................... (8,472) (20,069) (25,337) $ 5,286 --------- --------- --------- --------- TOTAL ............................................................. $ 43,031 $ 45,459 $ 54,179 ========= ========= =========
See notes to consolidated financial statements. F-3 MEDE AMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND NINE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED YEAR ENDED JUNE 30, MARCH 31, ------------------------------------------ --------------------------- 1995 1996 1997 1997 1998 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) REVENUES .......................................... $ 16,246 $ 31,768 $ 35,279 $ 24,964 $ 30,189 --------- --------- --------- -------- -------- OPERATING EXPENSES: Operations ....................................... 9,753 19,174 16,817 12,104 12,485 Sales, marketing and client services ............. 3,615 7,064 8,769 6,143 7,769 Research and development (Note 1) ................ 2,051 2,132 3,278 2,455 2,886 General and administrative ....................... 3,119 6,059 5,263 3,340 3,307 Depreciation and amortization .................... 2,995 5,176 5,293 3,502 4,846 Contingent consideration paid to former owners of acquired businesses (Note 2) ................... -- 538 2,301 990 -- Write-down of intangible assets (Note 1) ......... 8,191 9,965 -- -- -- Acquired in-process research and development (Note 2) ....................................... -- -- 4,354 4,354 -- Spin-off expense (Note 10) ....................... 2,864 -- -- -- -- --------- --------- --------- -------- -------- Total operating expenses ......................... 32,588 50,108 46,075 32,888 31,293 --------- --------- --------- -------- -------- LOSS FROM OPERATIONS .............................. (16,342) (18,340) (10,796) (7,924) (1,104) OTHER (INCOME) EXPENSE (Note 12) .................. -- 313 (893) (885) 13 INTEREST EXPENSE, Net ............................. 189 584 1,504 779 2,470 --------- --------- --------- -------- -------- LOSS BEFORE PROVISION FOR INCOME TAXES ............................................ (16,531) (19,237) (11,407) (7,818) (3,587) PROVISION FOR INCOME TAXES (Note 7) ............... 70 93 57 43 37 --------- --------- --------- -------- -------- NET LOSS .......................................... (16,601) (19,330) (11,464) (7,861) (3,624) PREFERRED STOCK DIVIDENDS ......................... (27) (2,400) (2,400) (1,800) (1,800) --------- --------- --------- -------- -------- NET LOSS APPLICABLE TO COMMON STOCKHOLDERS ..................................... $ (16,628) $ (21,730) $ (13,864) $ (9,661) $ (5,424) ========= ========= ========= ======== ======== BASIC NET LOSS PER COMMON SHARE ................... $ (3.17) $ (4.14) $ (2.56) $ (1.81) $ (0.96) --------- --------- --------- -------- -------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -- BASIC ............................. 5,238 5,245 5,425 5,345 5,677 --------- --------- --------- -------- --------
See notes to consolidated financial statements. F-4 MEDE AMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND NINE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS)
COMMON STOCK ADDITIONAL TOTAL ----------------- PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT) -------- -------- ------------ ------------- ----------------- BALANCE, JULY 1, 1994 (Note 1) ........................ -- $-- $ 23,540 $ (444) $ 23,096 Net loss ............................................. -- -- -- (16,601) (16,601) Preferred stock dividends ............................ -- -- (27) -- (27) Capital contribution by stockholders and shares issued in connection with MEDE OHIO acquisition, and capital reorganization (Note 8) .................... 5,237 52 3,952 -- 4,004 Capital contribution of intercompany debt owed to CES resulting from the Spin-off (Note 10) .............. -- -- 2,470 -- 2,470 ------ ------ -------- --------- --------- BALANCE, JUNE 30, 1995 ................................ 5,237 52 29,935 (17,045) 12,942 Net loss ............................................. -- -- -- (19,330) (19,330) Preferred stock dividends ............................ -- -- (2,400) -- (2,400) Issuance of warrants ................................. -- -- 121 -- 121 Exercise of stock options ............................ 43 1 194 -- 195 ------ ------ -------- --------- --------- BALANCE, JUNE 30, 1996 ................................ 5,280 53 27,850 (36,375) (8,472) Net loss ............................................. -- -- -- (11,464) (11,464) Preferred stock dividends ............................ -- -- (2,400) -- (2,400) Issuance of common stock ............................. 371 4 2,121 -- 2,125 Issuance of warrants ................................. -- -- 52 -- 52 Exercise of stock options ............................ 20 -- 90 -- 90 ------ ------ -------- --------- --------- BALANCE, JUNE 30, 1997 ................................ 5,671 57 27,713 (47,839) (20,069) Net loss ............................................. -- -- -- (3,624) (3,624) Preferred stock dividends ............................ -- -- (1,800) -- (1,800) Issuance of warrants ................................. -- -- 98 -- 98 Exercise of stock options ............................ 9 -- 40 -- 40 Compensation relating to grant of options ............ -- -- 18 -- 18 ====== ====== ======== ========= ========= BALANCE, MARCH 31, 1998 ............................... 5,680 $57 $ 26,069 $ (51,463) $ (25,337) ====== ====== ======== ========= =========
See notes to consolidated financial statements. F-5 MEDE AMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND NINE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND 1998 (IN THOUSANDS)
NINE MONTHS ENDED YEAR ENDED JUNE 30, MARCH 31, --------------------------------------- --------------------------- 1995 1996 1997 1997 1998 ------------ ------------ ------------- -------------- ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ..................................................... $(16,601) $ (19,330) $ (11,464) $ (7,861) $ (3,624) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ............................... 2,995 5,176 5,418 3,543 5,103 Provision for doubtful accounts ............................. 518 406 316 195 265 Write-down of intangible assets ............................. 8,191 9,965 -- -- -- Acquired in-process research and development ................ -- -- 4,354 4,354 -- (Gain) loss on sale of assets ............................... -- 313 (8) (8) (13) Non-cash compensation expense ............................... -- -- -- -- 18 Changes in operating assets and liabilities net of effects of businesses acquired: Accounts receivable ........................................ 648 977 (861) 17 (1,410) Formularly receivables ..................................... -- (74) (331) (105) (1,097) Inventory .................................................. (66) 262 (45) 9 (68) Prepaid expenses and other current assets .................. (85) (179) 175 94 (3) Other assets ............................................... 74 243 13 84 118 Accounts payable and accrued expenses and other cur- rent liabilities ......................................... (589) 997 (629) (2,368) (3,696) Other long-term liabilities ................................ 1,354 (409) (958) (945) 546 -------- --------- ---------- ---------- ---------- Net cash used in operating activities .................... (3,561) (1,653) (4,020) (2,991) (3,861) -------- --------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Business acquisitions, net of cash acquired .................. (21,566) (3,648) (11,450) (11,450) (10,674) Purchases of property and equipment, net ..................... (508) (1,271) (1,477) (703) (627) Additions to goodwill and other intangible assets ............ -- -- (143) (83) (492) Proceeds from sale of property and equipment ................. -- -- 461 218 182 Proceeds from sale of net assets of Premier .................. -- -- 388 388 -- -------- --------- ---------- ---------- ---------- Net cash used in investing activities .................... (22,074) (4,919) (12,221) (11,630) (11,611) -------- --------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Due to stockholders .......................................... 4,484 (4,484) -- -- -- Issuance of Senior Subordinated Note ......................... -- -- 22,875 22,875 -- Issuance of preferred stock .................................. 23,996 -- -- -- -- Issuance of common stock ..................................... 4,004 -- 2,125 2,125 -- Proceeds from intercompany debt due to CES ................... 1,297 -- -- -- -- Net proceeds (repayments) under Credit Facility .............. -- 8,250 (8,250) (8,250) 15,925 Principal repayments of debt ................................. (1) (2,852) (801) (636) (508) Principal repayments of capital lease obligations ............ (346) (452) (518) (336) (449) Exercise of stock options .................................... -- 195 90 40 40 --------- --------- ---------- ---------- ---------- Net cash provided by financing activities ................ 33,434 657 15,521 15,818 15,008 --------- --------- ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................................................. 7,799 (5,915) (720) 1,197 (464) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ....................................................... 755 8,554 2,639 2,639 1,919 --------- --------- ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD....................... $ 8,554 $ 2,639 $ 1,919 $ 3,836 $ 1,455 ========= ========= ========== ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest .................................................... $ 246 $ 394 $ 1,541 $ 368 $ 1,734 ========= ========= ========== ========== ========== Income taxes ................................................ $ 348 $ 69 $ 111 $ 34 $ 95 ========= ========= ========== ========== ========== Non-cash investing and financing activities: Assets acquired under capital leases or by incurring debt..... $ 848 $ 205 $ 129 $ 14 $ 120 ========= ========= ========== ========== ========== Issuance of warrants ......................................... $ -- $ 121 $ 52 $ 52 $ 98 ========= ========= ========== ========== ==========
See notes to consolidated financial statements. F-6 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1995, 1996 AND 1997 AND NINE MONTHS ENDED MARCH 31, 1997 AND 1998 (Information as it relates to the nine months ended March 31, 1997 is unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Description of Business - MEDE America Corporation and subsidiaries (the "Company") is a leading provider of electronic data interchange ("EDI") products and services to a broad range of providers and payors in the healthcare industry. The Company's integrated suite of EDI products and services permits hospitals, pharmacies, physicians, dentists, and other healthcare providers and provider groups to electronically edit, process and transmit claims, eligibility and enrollment data, track claims submissions through the claims payment process and obtain faster reimbursement for their services. The accompanying consolidated financial statements include the accounts of MEDE America Corporation and its wholly-owned subsidiaries: MEDE America, Inc. ("MEDE"), Medical Processing Center, Inc. ("MPC"), Wellmark Incorporated ("Wellmark"), Electronic Claims and Funding, Inc. ("EC&F"), Premier Dental Systems Corp. ("Premier"), and MEDE America Corporation of Ohio, Inc. ("MEDE OHIO") (formerly General Computer Corporation). MPC, Wellmark, and MEDE formerly constituted the healthcare information services business unit of Card Establishment Services ("CES"). On March 9, 1995, CES was acquired by First Data Corporation. Prior to this transaction, the former owners of CES spun off the healthcare information services business unit as a new company with MEDE America Corporation formed to serve as the holding company (the "Spin-off"). Because there was no change in ownership as a result of this Spin-off, the accompanying consolidated financial statements accounted for MEDE, MPC, and Wellmark on an historical cost basis. Effective July 1, 1997, MEDE, MPC, Wellmark, and EC&F were merged into MEDE America Corporation. The Company has instituted certain cost reduction and restructuring programs and anticipates continuing improvements in its operations. The Company anticipates that these changes, among others, should bring the Company to profitability which, when coupled with its revolving credit facility, will enable the Company to satisfy its short-term cash flow and working capital requirements. Additionally, the Company has received support from certain of its stockholders in the past and believes that continued support would be available if necessary to meet cash flow and working capital requirements. However, if the IPO (as herein defined) is consummated as proposed, such stockholders may not provide continued support (see Note 13). b. Principles of Consolidation -- All significant intercompany transactions and balances are eliminated in consolidation. c. Revenue Recognition -- Transaction and related formularly services revenues (if applicable) are recognized at the time the transactions are processed and the services are rendered. Other service revenues (including post-contract customer support) and other revenues (including revenues relating to insignificant obligations at the time sales are recorded) are recognized ratably over applicable contractual periods or as service is provided. Revenue from the licensing of software is recognized only after it is determined that the Company has no significant remaining obligations and that collectibility of the resulting receivable is probable. Revenue from hardware sales is recognized when the hardware is shipped. d. Cash and Cash Equivalents -- The Company considers all highly liquid instruments with original maturity dates of three months or less to be components of cash and cash equivalents. e. Accounts Receivable -- Accounts receivable are due primarily from companies in the healthcare industry. Credit is extended based on an evaluation of the customer's financial condition, and generally collateral is not required. F-7 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) f. Formularly Receivables -- Formularly receivables represent amounts due for pharmacy related services provided to Practice Benefit Management ("PBM") clients. Services include prescription processing from EDI transactions and collecting and distributing pharmaceutical company fees for sponsored programs to the PBM client. These receivables have a 7-12 month collection cycle which is typical in the industry. g. Inventory -- Inventory is stated at the lower of cost (first-in, first-out) or market. h. Property and Equipment -- Property and equipment is stated at cost less accumulated depreciation and amortization, and is depreciated using the straight-line method over the estimated useful lives of the related assets. i. Goodwill -- Goodwill represents the excess of cost over the fair value of net assets acquired and is amortized on a straight-line basis over 7 to 20 years. Accumulated amortization amounted to $1,858,000 $3,306,000 and $4,816,000 as of June 30, 1996 and 1997 and March 31, 1998, respectively. j. Other Intangible Assets -- Other intangible assets include purchased client lists, purchased software and technology, and capitalized software development costs and are amortized on a straight-line basis over three to five years. k. Software Development Costs -- The development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established, any additional costs are capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting For the Cost of Computer Software To Be Sold, Leased or Otherwise Marketed." Capitalized software development costs are amortized on a straight-line basis over the estimated useful product life (normally five years) and amortization begins in the period in which the related product is available for general release to customers. During the nine months ended March 31, 1998, the Company capitalized $319,000 of software development costs on a project for which technological feasibility had been established but was not yet available for customer release. Prior to July 1, 1997, the Company did not have any software development projects for which significant development costs were incurred between the establishment of technological feasibility and general customer release of the product. l. Impairment of Long-Lived Assets -- In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill and/or other intangible assets may warrant revision or that all or a portion of the remaining balance may not be recoverable. As a result of this evaluation process, during the fiscal year ended June 30, 1995, the Company wrote-off goodwill totaling $8,191,000 related to the acquisitions of MPC and Wellmark. Such write-off was required as a result of losses incurred by MPC and Wellmark, the absence of new business generated by MPC and Wellmark (which the Company's management attributed to obsolete technology), projected operating and cash flow losses for MPC and Wellmark and as a result of the June 1995 acquisition of Latpon (as hereinafter defined) whose software technology was utilized to replace the systems used by MPC and Wellmark to provide services to clients. Also, as a result of this evaluation process, during the fiscal year ended June 30, 1996, the Company wrote-down approximately $9,965,000 of costs relating to client lists and related allocable goodwill obtained in the acquisition of MEDE OHIO. Such intangible assets were written down to the net present value of the estimated future cash flows to be derived from these clients as of June 30, 1996. The write-down was required due to a loss of approximately 25% of the acquired MEDE OHIO client base. m. Income Taxes -- The Company accounts for income taxes under SFAS No. 109, "Accounting For Income Taxes," which requires recognition of deferred tax assets and liabilities for the expected F-8 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) future tax consequences of events that have been included in the Company's financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial accounting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. n. Use of Estimates in the Preparation of Financial Statements -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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. Pro Forma Stockholders' Equity -- Pro forma stockholders' equity as of March 31, 1998 reflects the conversion of 239,956 shares of preferred stock plus $6,627,000 of accrued preferred stock dividends at the assumed initial public offering ("IPO") price of $14.00 per share. See Note 13. p. Unaudited Interim Financial Statements -- In the opinion of management, the unaudited consolidated financial statements for the nine months ended March 31, 1997 are presented on a basis consistent with the audited consolidated financial statements and reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results thereof. The results of operation for interim periods are not necessarily indicative of the results to be expected for the entire year. q. Reclassifications -- Certain amounts in prior years' financial statements have been reclassified to conform with the 1998 presentation. 2. ACQUISITIONS a. MEDE OHIO -- In March 1995, the majority stockholder of the Company acquired all of the outstanding shares of MEDE OHIO for a cash purchase price of approximately $22,593,000, including transaction expenses. The majority stockholder subsequently merged MEDE OHIO into the Company (the "Merger") and contributed an additional $1,279,000 as part of the capital reorganization described in Note 8a. Purchased software and technology and client lists were valued at $890,000 and $2,548,000, respectively, and are being amortized over three and five years, respectively (see Note 1). MEDE OHIO is a developer of electronic systems which provide EDI services relating to insurance claims for prescription and other medical services. b. Latpon -- In June 1995, the Company purchased certain assets of Latpon Health Systems, Incorporated ("Latpon") for a cash purchase price of approximately $2,470,000, plus the assumption of approximately $963,000 of liabilities (primarily long-term debt). Purchased software and technology and client lists were valued at $948,000 and $143,000, respectively, and are being amortized over five years. Latpon provides electronic claims processing for hospital and hospital-based physician groups, as well as business office services that electronically and manually manage business office administration. c. EC&F and Premier -- In October 1995, the Company acquired all of the outstanding shares of EC&F and Premier, which companies had common ownership, for a cash purchase price of approximately $4,050,000, including transaction expenses. The transaction was financed through loans obtained from the Company's majority stockholder. Such loans were subsequently repaid with borrowings under the Company's Credit Facility. In addition, the Company is contingently liable for additional consideration if certain earnings levels are attained relating to EC&F during the three-year period following the consummation of the transaction. At June 30, 1996, the Company accrued $538,000 in connection with the contingent liability relating to earnings levels attained during the first year. At June 30, 1997, the Company accrued a settlement totaling $2,216,000 relating to the contingent liability for the second and third years. Purchased software and technology was valued at $764,000 and is being amortized over three years. EC&F and Premier are developers of electronic F-9 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) systems which provide EDI services to the dental industry. In March 1997, the Company sold the operating net assets of Premier for $540,000, including the buyer's assumption of $152,000 of Premier liabilities. There was no gain or loss on the sale of such net assets. d. TCS -- In February 1997, the Company purchased certain assets of Time-Share Computer Systems, Inc. ("TCS") for $11,465,000, including transaction expenses. Purchased research and development, which had not reached technological feasibility and had no alternative future use amounted to $4,354,000 and was charged to operations at the acquisition date. Purchased software and technology was valued at $2,619,000 and is being amortized over three years. TCS provides data processing and information management services to healthcare providers and pharmacies through integrated electronic data interchange systems. The acquisition was financed by a portion of the proceeds from the Senior Subordinated Note and Share Purchase Agreement (as hereinafter defined) (Note 6). e. Stockton -- In November 1997, the Company purchased certain assets and assumed certain liabilities of The Stockton Group, Inc. ("Stockton") for a cash purchase price of $10,674,000, including transaction expenses. In addition, the Company is contingently liable for additional consideration of up to $2,600,000 (plus interest at an annual rate of 7.25%) if Stockton's revenue during the 12-month period ended September 30, 1998 is at least $5,000,000. No accrual has been made for this contingent liability as of March 31, 1998. Purchased software and technology and client lists were valued at $968,000 and $742,000, respectively, and are being amortized over five years. Stockton is engaged in the business of providing EDI and transaction processing services to the healthcare industry. The transaction was financed through borrowings under the Company's revolving credit facility. These acquisitions were recorded using the purchase method of accounting and, accordingly, the results of operations of these acquired companies are included in the consolidated results of operations of the Company since the dates of their respective acquisitions. The purchase price of each acquisition has been allocated to the respective net assets acquired based upon their fair values. Goodwill, which represents the excess of cost over the estimated fair value of the net assets acquired, for these transactions were as follows: MEDE OHIO -- $22,395,000; Latpon -- $1,298,000; EC&F and Premier -- $3,586,000; TCS -- $4,092,000 and Stockton -- $8,704,000. Goodwill is being amortized over 20 years except for the goodwill recorded in connection with the acquisition of TCS which is being amortized over seven years. The following unaudited pro forma information for the year ended June 30, 1997 and the nine months ended March 31, 1998 includes the operations of the Company, inclusive of the operations of both TCS and Stockton as if the acquisitions had occurred at July 1, 1996. This pro forma information gives effect to the amortization expense associated with goodwill and other intangible assets acquired, adjustments related to the fair market value of the assets and liabilities acquired, interest expense relating to financing the acquisitions, and related income tax effects. YEAR ENDED NINE MONTHS ENDED JUNE 30, 1997 MARCH 31, 1998 --------------- ------------------ (IN THOUSANDS) Revenues ................................. $ 41,824 $ 31,835 ========= ======== Loss from operations ..................... $ (11,253) $ (515) ========= ======== Net loss ................................. $ (13,456) $ (3,320) ========= ======== Net loss applicable to common stock ...... $ (15,856) $ (5,120) ========= ======== Basic net loss per share ................. $ (2.92) $ (0.90) ========= ======== F-10 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 3. PROPERTY AND EQUIPMENT
JUNE 30, USEFUL LIVES ------------------- MARCH 31, (IN YEARS) 1996 1997 1998 -------------- -------- -------- ---------- (IN THOUSANDS) Land .......................................... $ 489 $ 210 $ 104 Building and improvements ..................... 20-25 2,452 2,190 2,156 Furniture and fixtures ........................ 5 897 1,150 1,229 Computer equipment ............................ 3-5 4,077 5,696 6,442 ------ ------ ------ 7,915 9,246 9,931 Less accumulated depreciation and amortization. 2,314 3,729 4,987 ------ ------ ------ Property and equipment -- net ................. $5,601 $5,517 $4,944 ====== ====== ======
4. OTHER INTANGIBLE ASSETS Other intangible assets consist of the following:
JUNE 30, --------------------- MARCH 31, 1996 1997 1998 --------- --------- ---------- (IN THOUSANDS) Purchased client lists .................... $2,989 $2,989 $3,732 Less, accumulated amortization ............ 925 1,518 2,016 ------ ------ ------ 2,064 1,471 1,716 ------ ------ ------ Purchased software and technology ......... 3,727 6,494 7,544 Less, accumulated amortization ............ 1,451 2,951 4,332 ------ ------ ------ 2,276 3,543 3,212 ------ ------ ------ Software development costs ................ -- -- 319 ------ ------ ------ Other intangible assets -- net ............ $4,340 $5,014 $5,247 ====== ====== ======
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following:
JUNE 30, --------------------- MARCH 31, 1996 1997 1998 --------- --------- ---------- (IN THOUSANDS) Accrued wages and related employee benefits ......... $1,020 $1,010 $1,554 Rebate liability .................................... 2,926 488 47 Pharmacy claims liability ........................... 91 576 798 Accrued professional fees ........................... 496 795 109 Deferred revenue .................................... 933 749 822 Accrued reorganization costs (Note 10) .............. 1,273 1,008 -- Due to former owners of acquired business ........... 538 2,216 -- Accrued litigation settlement ....................... -- 860 145 Accrued interest .................................... 22 5 717 Other ............................................... 2,440 1,488 688 ------ ------ ------ Total ............................................... $9,739 $9,195 $4,880 ====== ====== ======
F-11 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 6. LONG-TERM DEBT Long-term debt consists of the following:
JUNE 30, ----------------------- MARCH 31, 1996 1997 1998 ---------- ---------- ---------- (IN THOUSANDS) Senior subordinated note less unamortized discount of $2,000,000 at June 30, 1997 and $1,750,000 at March 31, 1998 (a).................... $ -- $23,000 $23,250 Credit Facility (b) ................................................... 8,250 -- 15,925 Obligations under capital leases (c) .................................. 1,158 769 440 Loan payable relating to an acquisition, collateralized by $261,000 of certificates of deposits at March 31, 1998 due in quarterly payments of $15,000 through February 2002, interest at 6.7 percent............. 392 342 291 Note payable, in connection with the sale of certain assets due in monthly installments of $6,000 through January 2000, interest at 6.8 percent .............................................................. 241 180 131 Notes payable to former shareholders of EC&F, repaid in 1998 .......... 117 95 -- Note payable, collateralized by land and building of MEDE OHIO, due in monthly installments of $19,000 through July 2000, interest at 12.5 percent .............................................................. 730 592 462 Note payable to bank, repaid in 1997 .................................. 296 -- -- Note payable to bank, repaid in 1998 .................................. 173 173 -- Other ................................................................. 244 10 -- ------- ------- ------- 11,601 25,161 40,499 Less current portion .................................................. 1,400 538 240 ------- ------- ------- Total ................................................................. $10,201 $24,623 $40,259 ======= ======= =======
- ---------- (a) On February 14, 1997, the Company entered into an agreement with an affiliate of certain shareholders of the Company under which the Company issued a $25,000,000 senior subordinated note (the "Senior Subordinated Note") and 370,994 shares of its common stock valued at $2,125,000 for total consideration of $25,000,000 (the "Senior Subordinated Note and Share Purchase Agreement"). The $2,125,000 relating to the shares of common stock was recorded as a discount on the Senior Subordinated Note and is being amortized over the term of the Senior Subordinated Note. The Senior Subordinated Note bears interest at the rate of 10% per annum, payable quarterly. One half of the principal sum is due on February 14, 2001, and the second half is due on February 14, 2002. The terms of the Senior Subordinated Note and Share Purchase Agreement place restrictions on the consolidation, merger, or sale of the Company, indebtedness, and the payment of any cash dividends. (b) The revolving line of credit from a bank (the "Credit Facility") , as currently amended on October 30, 1997, provides for maximum borrowings of $20,000,000 and expires on October 31, 1999. Borrowings under the agreement bear interest at either the bank's base rate, as defined, plus .25% or an offshore rate, as defined, plus 1.25%. The weighted average interest rate on outstanding borrowings at March 31, 1998 was 7.07%. The Company is required to pay a commitment fee of .375% per annum on the unused portion of the Credit Facility. All borrowings under the agreement are guaranteed by certain stockholders of the Company. In consideration for the granting of such guaran- F-12 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) tees, the stockholders were issued warrants to purchase 52,533 shares (valued at $121,000), 18,331 shares (valued at $52,000) and 34,201 shares (valued at $98,000) of the Company's common stock during the years ended June 30, 1996 and 1997 and the nine months ended March 31, 1998, respectively. The aggregate fair value of these warrants is recorded in other assets as deferred financing costs and is being amortized over the life of the agreement. The terms of the agreement, among other matters, require the Company to maintain certain leverage and interest coverage ratios and place restrictions on additional investments, indebtedness and the payment of any cash dividends. (c) The Company leases certain computer and office equipment under capital lease arrangements expiring through July 2000. The gross value of the equipment held under capital leases was $1,980,000, $2,110,000, and $2,247,000 as of June 30, 1996 and 1997 and March 31, 1998, respectively, and the related accumulated amortization was $994,000, $1,524,000, and $1,848,000, respectively. Maturities of long-term debt as of March 31, 1998 are as follows:
DISCOUNT YEAR ENDING JUNE 30, GROSS ON NOTE NET - -------------------------------------------------------- --------- --------- --------- (IN THOUSANDS) 1998 (three months from April 1, 1998 to June 30, 1998). $ 180 $ 92 $ 88 1999 ................................................... 580 394 186 2000 ................................................... 16,354 435 15,919 2001 ................................................... 12,591 481 12,110 2002 ................................................... 12,544 348 12,196 ------- ------ ------- Total .................................................. $42,249 $1,750 $40,499 ======= ====== =======
Based upon the borrowing rates currently available to the Company for loans with similar terms, the fair value of the Company's debt approximates the carrying amounts. 7. INCOME TAXES The provision for income taxes for the fiscal years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1997 and 1998 consists entirely of current state income taxes. The provision for income taxes varies from the amount computed by applying the statutory U.S. Federal income tax rate to the loss before provision for income taxes as a result of the following:
NINE MONTHS ENDED YEAR ENDED JUNE 30, MARCH 31, ------------------------------------------ --------------------------- 1995 1996 1997 1997 1998 ------------ ------------ ------------ ------------ ------------ (IN THOUSANDS) U.S. Federal statutory rate ................... $ (5,621) $ (6,541) $ (3,878) $ (2,478) $ (1,213) Increases (reductions) due to: Nondeductible expenses ....................... 1,169 3,674 293 220 183 State taxes .................................. 70 93 57 43 37 Net operating losses not producing current tax benefits ................................... 4,452 2,867 3,585 2,258 1,030 -------- -------- -------- -------- -------- Total ........................................ $ 70 $ 93 $ 57 $ 43 $ 37 ======== ======== ======== ======== ========
F-13 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The net deferred tax asset is comprised of the following:
JUNE 30, --------------------------- MARCH 31, 1996 1997 1998 ------------ ------------ ------------ (IN THOUSANDS) Accounts receivable .................................... $ 607 $ 685 $ 375 Inventory .............................................. 2 -- -- Property and equipment ................................. (45) (61) 57 Goodwill ............................................... 2,024 3,540 3,619 Other intangible assets ................................ (163) 366 537 Accrued expenses and other current liabilities ......... 2,026 1,264 666 Net operating loss carryforwards ....................... 10,121 12,656 13,861 --------- --------- --------- 14,572 18,450 19,115 Less valuation allowance ............................... (14,572) (18,450) (19,115) --------- --------- --------- Total .................................................. $ -- $ -- $ -- ========= ========= =========
The valuation allowance increased during the years ended June 30, 1996 and 1997 and the nine months ended March 31, 1998 primarily as a result of additional net operating loss carryforwards and net deductible temporary differences, for which realization was not considered to be more likely than not. In the event that the tax benefits relating to the valuation allowance are subsequently realized, approximately $5,600,000 of benefits would reduce goodwill. As of March 31, 1998, the Company had Federal net operating loss carryforwards of approximately $34,650,000. Such loss carryforwards expire in the fiscal years 2005 through 2013. Because of the changes in ownership, as defined in the Internal Revenue Code, which occurred during 1995 and 1996, certain net operating loss carryforwards are subject to annual limitations. 8. STOCKHOLDERS' EQUITY a. Capital Reorganization -- In connection with the acquisition and subsequent merger of MEDE OHIO into the Company (Note 2), the capital structure of the Company was adjusted such that each existing common stockholder of the Company had the right to receive, in exchange for each common share held, either (i) a cash payment of one dollar (the "MEDE Cash Consideration"), or (ii) a unit consisting of one-half of one share of MEDE America Corporation newly issued common stock and five one-thousandths of a share of MEDE America Corporation newly issued preferred stock ("MEDE Unit"), together with cash in lieu of fractional interests. The Merger agreement required that a minimum of $5,000,000 of additional capital be contributed to the Company through the issuance of additional MedE Units ("Additional MEDE Units"). Stockholders who elected to receive the MEDE Units were eligible to purchase, through a subscription agreement, Additional MEDE Units up to the number that would maintain their pre-merger ownership percentage. The majority stockholder of the Company guaranteed, by adjusting the number of additional units they would purchase, that the excess of cash received from the sale of Additional MEDE Units over the MEDE Cash Consideration would yield the minimum of $5,000,000 of additional capital. As a result of the Merger and the related capital reorganization, the Company issued 5,237,456 shares of newly issued common stock and 239,956 shares of newly issued preferred stock (Note 9). The Company distributed $4,484 of MEDE Cash Consideration during July 1995. b. Stock Option and Restricted Stock Purchase Plan -- In March 1995, the Company established a stock option and restricted stock purchase plan (the "Stock Plan"). The Stock Plan permits the F-14 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) granting of any or all of the following types of awards: incentive stock options ("ISOs"); nonqualified stock options ("NQSO"); or restricted stock. The Stock Plan authorizes the issuance of 655,000 shares of common stock. ISOs may not be granted at a price less than the fair market value of the Company's common stock on the date of grant (or 110 percent of the fair market value in the case of persons holding ten percent or more of the voting stock of the Company) and expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding ten percent or more of the voting stock of the Company). The vesting period relating to the ISOs is determined by the Option Committee of the Board of Directors at the date of grant. The exercise price, expiration date, and vesting period relating to NQSOs are determined by the Option Committee of the Board of Directors at the date of grant. The table below summarizes the activity of the Stock Plan for the years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1998:
WEIGHTED NUMBER EXERCISE AVERAGE OF PRICE EXERCISE SHARES RANGE PRICE ------------ --------------- ----------- Balance July 1, 1994 ............ -- $ -- $ -- Options granted ............... 480,328 $ 4.58 $ 4.58 ------- ------------ ------- Balance June 30, 1995 ........... 480,328 $ 4.58 $ 4.58 Options granted ............... 117,955 $ 4.58 $ 4.58 Options exercised ............. (42,555) $ 4.58 $ 4.58 Canceled/lapsed ............... (91,221) $ 4.58 $ 4.58 ------- ------------ ------- Balance, June 30, 1996 .......... 464,507 $ 4.58 $ 4.58 Options granted ............... 51,066 $ 4.58-$5.73 $ 5.18 Options exercised ............. (19,641) $ 4.58 $ 4.58 Canceled/lapsed ............... (65,688) $ 4.58 $ 4.58 ------- ------------ ------- Balance, June 30, 1997 .......... 430,244 $ 4.58-$5.73 $ 4.64 Options granted ............... 81,946 $ 5.73 $ 5.73 Options exercised ............. (8,598) $ 4.58-$5.73 $ 4.64 Canceled/lapsed ............... (15,059) $ 4.58-$5.73 $ 4.62 ------- ------------ ------- Balance, March 31, 1998 ......... 488,533 $ 4.58-$5.73 $ 4.83 ======= ============ =======
During March 1998, the Company granted 47,574 options at an exercise price of $5.73 per share. Based upon an independent valuation, the Company later learned that the value of the Company's stock at the date of grant was $6.09. As a result, the Company recorded compensation expense of $18,000 relating to the granting of these options. Significant option groups outstanding at March 31, 1998 and related weighted average price and life information were as follows:
WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE - ---------------- ------------- -------------- ---------- ------------- --------- $ 4.58 381,272 7.5 $ 4.58 201,406 $ 4.58 $ 5.73 107,261 9.6 $ 5.73 10,693 $ 5.73 ------- ------- 488,533 7.9 $ 4.84 212,099 $ 4.64 ======= =======
F-15 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The Company applies APB opinion No. 25 and related interpretations in accounting for its Option Plan. Accordingly, no compensation cost has been recognized. If compensation cost for the Company's stock options had been determined consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net loss and net loss per share for the years ended June 30, 1996 and 1997 and the nine months ended March 31, 1998 would have been as follows:
NINE MONTHS YEAR ENDED JUNE 30, ENDED ----------------------------- MARCH 31, 1996 1997 1998 ------------- ------------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Net loss -- as reported ......................... $ (19,330) $ (11,464) $ (3,624) Net loss -- pro forma ........................... (19,345) (11,518) (3,678) Basic net loss per share -- as reported ......... (4.14) (2.56) (0.96) Basic net loss per share -- pro forma ........... (4.15) (2.57) (0.96)
The weighted average fair value of the options granted for the years ended June 30, 1996 and 1997, and for the nine months ended March 31, 1998 is estimated at $1.56, $1.83, and $1.92 on the date of grant (using the minimum value option pricing model) with the following weighted average assumptions for the years ended June 30, 1996 and 1997, and for the nine months ended March 31, 1998, respectively: a risk-free interest rate of 5.93%, 6.39%, and 5.86%; an expected option life of seven years and no expected volatility or dividend yield. As required by SFAS No. 123, the impact of outstanding nonvested stock options granted prior to July 1, 1995 has been excluded from the pro forma calculation; accordingly, the 1996, 1997 and 1998 pro forma adjustments are not indicative of future period pro forma adjustments when the calculation will apply to all applicable stock options. c. Net income (loss) per share -- In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." Basic income per share is determined by using the weighted average number of shares of common stock outstanding during each period. Diluted income per share further assumes the issuance of common shares for all dilutive outstanding stock options and warrants as calculated using the treasury stock method. Diluted earnings per share is not shown for any of the periods presented because the effect of including outstanding options and warrants would be antidilutive. The calculation for the years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1997 and 1998 was as follows:
YEAR ENDED JUNE 30, ---------------------------------------------------------------------------------------------------- 1995 1996 1997 ---------------------------------- --------------------------------- ------------------------------- PER-SHARE PER-SHARE PER-SHARE LOSS SHARES AMOUNT LOSS SHARES AMOUNT LOSS SHARES AMOUNT ------------- -------- ----------- ------------- ------- ---------- ------------- -------- --------- (IN THOUSANDS) Net loss ...................... $ (16,601) $ (19,330) $ (11,464) Less: Preferred dividends ..... (27) (2,400) (2,400) --------- --------- --------- Basic net loss per share ...... $ (16,628) 5,238 $(3.17) $ (21,730) 5,245 $(4.14) $ (13,864) 5,425 $(2.56) ========= ===== ====== ========= ===== ====== ========= ===== ======
NINE MONTHS ENDED MARCH 31, ---------------------------------------------------------------------------- 1997 1998 ------------------------------------- ------------------------------------ PER-SHARE PER-SHARE LOSS SHARES AMOUNT LOSS SHARES AMOUNT ------------ -------- ----------- ------------ -------- ---------- (IN THOUSANDS) Net loss .......................... $ (7,861) $ (3,624) Less: Preferred dividends ......... (1,800) (1,800) -------- -------- Basic net loss per share .......... $ (9,661) 5,345 $(1.81) $ (5,424) 5,677 $(0.96) ======== ===== ====== ======== ===== ======
F-16 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 9. REDEEMABLE CUMULATIVE PREFERRED STOCK As of June 30, 1996 and 1997 and March 31, 1998, the Company had outstanding 239,956 shares of preferred stock. The preferred stock is subject to mandatory redemption in two equal installments on May 31, 2001 and 2002; however, the Company may redeem the preferred stock in whole at any time or in part from time to time at its option. The Company would also be required to redeem the preferred stock should it consummate a public offering of its common stock pursuant to which the Company receives aggregate net proceeds of at least $15,000,000. (See Note 13). The redemption price, as well as liquidation value, of the preferred stock is $100 per share plus any accrued but unpaid dividends. Dividends on this preferred stock, which are cumulative, are payable, if declared, at $10 per share per annum. No dividends have been declared or paid. At March 31, 1998, cumulative undeclared and unpaid dividends on this preferred stock totaled $6,627,000. 10. SPIN-OFF TRANSACTIONS a. Spin-Off Expenses -- As a result of the Spin-off (Note 1), the Company recorded a charge amounting to $2,864,000. Such charge represented amounts to be paid to former stockholders of MEDE (who remained as executives of MEDE) pursuant to contractual agreements which required such payments to be made upon a change in control. The net present value of remaining payments totaled $1,420,000 and $1,005,000 as of June 30, 1996 and 1997, respectively, of which $500,000 and $1,005,000 were included in accrued reorganization costs as of June 30, 1996 and 1997, respectively, and $920,000 was included in other long-term liabilities as of June 30, 1996. b. Capital Contribution of Intercompany Debt to CES -- On March 9, 1995, the date of the Spin-off, Wellmark and MPC owed CES $2,247,000 and $492,000, respectively. Such balances were forgiven concurrent with the Spin-off. In addition, the Company assumed approximately $269,000 of liabilities relating to CES employees. The net amount was recorded as a contribution of capital to the Company at the Spin-off date. 11. COMMITMENTS AND CONTINGENCIES a. Leases -- The Company leases certain offices and equipment under operating leases. The minimum noncancelable lease payments are as follows (in thousands): 1998 (three months from April 1, 1998 to June 30, 1998). $ 225 1999 ................................................... 909 2000 ................................................... 914 2001 ................................................... 809 2002 ................................................... 571 Thereafter ............................................. 381 ------ Total minimum lease payments ........................... $3,809 ====== Rent expense for the years ended June 30, 1995, 1996 and 1997 and the nine months ended March 31, 1997 and 1998 was $951,000, $853,000, $1,093,000, $800,000 and $837,000, respectively. b. Litigation -- The Company is engaged in various litigation in the ordinary course of business. Management, based upon the advice of legal counsel, is of the opinion that the amounts which may be awarded or assessed in connection with these matters, if any, will not have a material effect on the consolidated financial position or results of operations. c. Employment Contracts -- The Company has employment contracts with certain of its employees with annual enumeration ranging from $95,000 to $110,000. Future minimum payments under these contracts are as follows (in thousands): F-17 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) YEAR ENDING JUNE 30, ------------------------------------------------------- 1998 (three months from April 1, 1998 to June 30, 1998). $ 51 1999 ................................................... 205 2000 ................................................... 80 ---- $336 ==== d. Defined Contribution Plans -- The Company maintained four defined contribution plans (the "Plans") for all eligible employees, as defined by the Plans until April 1, 1996. On April 1, 1996, the Company combined the Plans into one defined contribution plan (the "New Plan"). The Company previously made matching contributions at various percentages to three of the Plans in accordance with the respective Plan documents and currently makes matching contributions to the New Plan in an amount equal to fifty percent of the employee salary deductions to a maximum of four percent of the employees salary in accordance with the New Plan document. The Company incurred $130,000, $197,000, $227,000, $169,000 and $148,000 for employer contributions to the Plans/New Plan for the years ended June 30, 1995, 1996, and 1997 and the nine months ended March 31, 1997 and 1998, respectively. e. Service Agreements -- The Company has entered into service agreements with telecommunications providers which require the Company to utilize certain minimum monthly amounts of the services of such providers. These agreements expire through 1999. The Company was in compliance with the terms of these agreements as of March 31, 1998. 12. OTHER INCOME In February 1997, the Company exercised 26,712 options to purchase common shares of First Data Corporation and subsequently sold the common shares resulting in a pre-tax gain of $885,000. Such options were issued to former employees of the Company prior to the Spin-off but reverted to the Company upon the termination of these employees. 13. SUBSEQUENT EVENTS a. Proposed Public Offering -- In 1998, the Company determined to work towards an IPO of the Company's common stock on a firm commitment basis. The proposed IPO contemplates that a total of 3,600,000 shares of common stock will be offered at a price between $13.00 and $15.00 per share. The net proceeds of the IPO will be used to retire all outstanding balances under its Senior Subordinated Note and its Credit Facility plus any related accrued interest (Note 6) and for other general corporate purposes including working capital. b. Reverse Stock Split and Increase in Authorized Common Stock and Preferred Stock -- In conjunction with the proposed IPO, the Company intends to authorize a reverse stock split of all issued and outstanding common shares at the rate of 1 for 4.5823, which will decrease the number of issued and outstanding shares as of March 31, 1998 from approximately 26,025,000 to approximately 5,680,000. This intended stock split has been retroactively reflected in the accompanying financial statements for all periods presented. The Company also intends to increase the number of shares of authorized common stock to 30,000,000 and the number of shares of authorized preferred stock to 5,000,000. c. Recapitalization -- In conjunction with the proposed IPO, the Company contemplates a recapitalization of its capital stock (the "Recapitalization"). The Recapitalization involves the conversion of all outstanding preferred stock into common stock (based upon liquidation value as defined in Note 9) and the exercise of all outstanding warrants (Note 6). However, cash realized by the Company upon any exercise of the underwriters' overallotment option would be applied to the payment of accrued dividends in lieu of having such dividends convert into common stock. To effect the conversion of preferred stock, the Company must first amend the preferred stock agreement to allow F-18 MEDE AMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) convertibility. The preferred stock conversion will be effected based upon the IPO price per share. Assuming an IPO price of $14.00 per share and no exercise of the underwriters' overallotment, the preferred stock will be converted into approximately 2,187,000 shares of common stock. The warrants will be converted, in a cashless exercise, into approximately 66,000 shares of common stock. d. Stock Purchase Plan -- In anticipation of the proposed IPO, the Board has approved the 1998 Employee Stock Purchase Plan (the "Purchase Plan"). Employees of the Company, including directors of the Company who are employees, are eligible to participate in quarterly plan offerings in which payroll deductions may be used to purchase shares of common stock. The purchase price of such shares is the lower of 85 percent of the fair market value of the common stock on the day the offering commences and 85 percent of the fair market value of the common stock on the date the offering terminates. The first offering period under the Purchase Plan will not commence until the completion of the IPO. e. New Stock Option and Restricted Stock Purchase Plan -- In anticipation of the proposed IPO, the Board has approved the 1998 Stock Option and Restricted Stock Purchase Plan (the "New Stock Plan"). The New Stock Plan permits the granting of any or all of the following types of awards: incentive stock options; nonqualified stock options; restricted stock; or other stock-based awards, to officers, employees, directors, consultants and advisors of the Company. To date, no options have been granted under the New Stock Plan. f. Revolving Line of Credit -- During June 1998, the Company received a letter from the lender under the Credit Facility committing to provide an amended credit facility with total available credit of $10,000,000 upon substantially the same terms and condition as the Credit Facility (the "Amended Credit Facility"). Borrowings under the Amended Credit Facility will not be guaranteed by any third party. The Amended Credit Facility will take effect upon the consummation of the IPO. F-19 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholder of The Stockton Group, Inc.: We have audited the accompanying statement of income of The Stockton Group, Inc. (the "Company") for the year ended June 30, 1997. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of income is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of income. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of income presentation. We believe that our audit of the statement of income provides a reasonable basis for our opinion. In our opinion, such statement of income presents fairly, in all material respects, the results of operations of the Company for the year ended June 30, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Charlotte, North Carolina October 7, 1997 F-20 THE STOCKTON GROUP, INC. STATEMENTS OF INCOME YEAR ENDED JUNE 30, 1997 AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
YEAR ENDED THREE MONTHS ENDED JUNE 30, 1997 SEPTEMBER 30, 1997 --------------- ------------------- (UNAUDITED) REVENUES ....................................... $ 3,801,953 $1,056,748 OPERATING EXPENSES: Operations .................................... (563,295) (137,495) Sales, marketing, and client services ......... (899,366) (203,133) Research and development ...................... (103,153) (24,405) General and administrative .................... (159,517) (72,425) Non-cash stock compensation (Note 4) .......... (1,280,000) -- Depreciation and amortization ................. (109,336) (37,411) ------------ ---------- Total operating expenses .................... (3,114,667) (474,869) ------------ ---------- INCOME FROM OPERATIONS ......................... 687,286 581,879 INTEREST EXPENSE ............................... (111,260) (22,574) OTHER INCOME ................................... 11,229 8,020 ------------ ---------- NET INCOME (Note 1) ............................ $ 587,255 $ 567,325 ============ ==========
See notes to financial statement. F-21 THE STOCKTON GROUP, INC. NOTES TO FINANCIAL STATEMENT YEAR ENDED JUNE 30, 1997 AND THE THREE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (INFORMATION AS IT RELATES TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business -- The Stockton Group, Inc. (the "Company"), was incorporated as an S Corporation in the State of South Carolina in July 1993. The Company provides computer-based prescription drug claims processing to Pharmaceutical Benefit Managers ("PBMs"), Health Maintenance Organizations ("HMOs"), Preferred Provider Organizations ("PPOs"), insurance companies, Third-Party Administrators ("TPAs"), self-insured employers, and Taft-Hartley Funds. The Company's services range from claims processing to full-service program management, including eligibility verification, drug coverages and exclusions, concurrent utilization review, drug pricing verification, supply limitations and other applicable plan design requirements. The Company supports a network of over 40,000 pharmacies nationwide. In addition to claims processing fees, the Company receives rebate revenue from drug manufacturers for prescription drug transactions that are processed through the Company's system. Use of Estimates in the Preparation of Financial Statements -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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. Major Customers -- For the year ended June 30, 1997, approximately 37% of revenues were generated from three customers who individually comprised 10% or more of total revenues. Revenue Recognition -- Revenue from prescription drug claims processing services and rebates from drug manufacturers are recognized when the services are delivered. Property and Equipment -- Property and equipment is depreciated using the double-declining balance method over the estimated useful lives of the related assets. Assets under capital leases are depreciated using the straight-line method over the lease term. Income Taxes -- The Company has elected to be taxed as an S Corporation, and as such its income is included in the current taxable income of its stockholder. Accordingly, no provision has been made in the accompanying financial statements for federal or state income taxes. Unaudited Interim Financial Statement -- In the opinion of management, the unaudited statement of income for the three months ended September 30, 1997 is presented on a basis consistent with the audited statement of income and reflects all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results thereof. The results of operations for the three months ended September 30, 1997 is not necessarily indicative of the results to be expected for the entire year. 2. NOTE PAYABLE TO STOCKHOLDER The Company had a note payable to stockholder with an outstanding principal balance of $359,621 at June 30, 1997. The note bore interest at a rate of prime plus .25% (8.75% at June 30, 1997). 3. LEASE COMMITMENTS The Company leased certain equipment under operating leases expiring at various dates through April 2000. Rent expense for the year ended June 30, 1997 was approximately $12,000. F-22 THE STOCKTON GROUP, INC. NOTES TO FINANCIAL STATEMENT - (CONTINUED) In addition, the Company leased its office facility and certain computer and office equipment under capital lease arrangements with interest rates ranging from 14.5% to 25%, expiring through July 2011. The lease arrangement for the office facility was with a corporation in which the Company's sole stockholder holds an ownership interest. 4. STOCK-BASED COMPENSATION ARRANGEMENTS During 1994, the Company granted a key employee the right to acquire common stock equivalent to a 25% equity ownership in the Company at no cost. The shares have not yet been issued. At the date of the grant, the Company recorded compensation cost equal to the fair market value of shares to be awarded to the executive. During 1997, the Company entered into an employment agreement with another new key executive. Among other things, the agreement granted the executive the right to acquire a 10% equity ownership in the Company at a nominal cost or, if the Company is sold within one year, to receive 10% of the sales proceeds as defined. Accordingly, the Company has recorded compensation cost in 1997, equal to the estimated cash settlement to be paid to the executive based upon the anticipated proceeds from the sale of the Company. (See Note 5). 5. SUBSEQUENT EVENT In November 1997, the Company sold certain computer equipment, intangible assets and the operations of the Company to MEDE America Corporation. All other assets and liabilities remained with the Company. The purchase price was $10,400,000 in cash. In addition, the purchase agreement requires additional consideration of up to $2,600,000 (plus interest at an annual rate of 7.25%) to be paid if Stockton's revenue during the 12-month period ended September 30, 1998 is at least $5,000,000. ****** F-23 ====================================== ====================================== NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE UNDERWRITERS OR BY 3,600,000 SHARES ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF [LOGO] THE SECURITIES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. 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 MEDE AMERICA DATE SUBSEQUENT TO THE DATE HEREOF. CORPORATION --------------------------------- TABLE OF CONTENTS PAGE ---- Prospectus Summary .............. 3 COMMON STOCK Risk Factors .................... 9 Use Of Proceeds ................. 17 Dividend Policy ................. 17 Capitalization .................. 18 Dilution ........................ 19 Unaudited Pro Forma Consolidated Financial Information ........ 20 -------------------------- Selected Financial Data ......... 27 Management's Discussion And PROSPECTUS Analysis Of Financial Condition And Results Of -------------------------- Operations ................... 29 Business ........................ 39 Management ...................... 49 Certain Transactions ............ 54 Principal Stockholders .......... 55 Description Of Capital Stock .... 57 Shares Eligible For Future Sale . 59 Underwriting .................... 60 Legal Matters ................... 61 Experts ......................... 61 Additional Information .......... 62 SALOMON SMITH BARNEY Index To Financial Statements ... F-1 ---------------------------------- WILLIAM BLAIR & COMPANY UNTIL _____ , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL VOLPE BROWN WHELAN & COMPANY DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN JUNE , 1998 ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================== ====================================== PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the Registrant's expenses in connection with the issuance and distribution of the securities being registered. Except for the SEC Registration Fee and the National Association of Securities Dealers, Inc. ("NASD") Filing Fee, the amounts listed below are estimates: SEC Registration Fee ......................... $18,320 NASD Filing Fee .............................. 6,710 Nasdaq Listing Fees .......................... * Legal Fees and Expenses ...................... * Blue Sky Fees and Expenses ................... 10,000 Accounting Fees and Expenses ................. * Printing and Engraving ....................... * Transfer Agent and Register Fees and Expenses. * Miscellaneous ................................ $ * ------- Total ........................................ $950,000 ======== - ---------- * To be filed by Amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Amended and Restated Certificate of Incorporation (the "Restated Certificate") provides that the Company shall indemnify to the fullest extent authorized by the Delaware General Corporation Law ("DGCL"), each person who is involved in any litigation or other proceeding because such person is or was a director or officer of the Company or is or was serving as an officer or director of another entity at the request of the Company, against all expense, loss or liability reasonably incurred or suffered in connection therewith. The Restated Certificate provides that the right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition; provided, however, that such advance payment will only be made upon delivery to the Company of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification. If the Company does not pay a proper claim for indemnification in full within 60 days after a written claim for such indemnification is received by the Company, the Restated Certificate and Restated Bylaws authorize the claimant to bring an action against the Company and prescribe what constitutes a defense to such action. Section 145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, (i.e., one brought by or on behalf of the corporation), indemnification may be made only for expenses, actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit, if such person acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. II-1 Pursuant to Section 102(b)(7) of the DGCL, the Restated Certificate eliminates the liability of a director to the corporation or its stockholders for monetary damages for such breach of fiduciary duty as a director, except for liabilities arising (i) from any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) from any transaction from which the director derived an improper personal benefit. The Company expects to obtain primary and excess insurance policies insuring the directors and officers of the Company against certain liabilities that they may incur in their capacity as directors and officers. Under such policies, the insurers, on behalf of the Company, may also pay amounts for which the Company has granted indemnification to the directors or officers. Additionally, reference is made to the Underwriting Agreement filed as Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of the Company, its directors and officers who sign the Registration Statement and persons who control the Company, under certain circumstances. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In the three years preceding the filing of this Registration Statement, the Corporation has sold the following securities that were not registered under the Securities Act: (a) Issuances of Capital Stock On June 27, 1995, in connection with the acquisition by the Registrant of MEDE Ohio and a related offering, the Registrant issued an aggregate 239,956 shares of Preferred Stock and 13,999,538 shares of Common Stock to the stockholders of the parent company of MEDE Ohio and stockholders of the Registrant. On December 18, 1995, in connection with their agreement to guarantee the Registrant's obligations under a credit agreement between the Registrant and Bank of America Illinois (the "Credit Facility"), the Registrant issued to WCAS V, WCAS VI, Blair V and Blair LCF warrants to purchase an aggregate 240,720 shares of Common Stock at an exercise price of $1.00 per share. On July 18, 1996, the Company issued 500 shares of Common Stock to Sharon Hallberg, an employee of the Company, as a performance bonus. On January 10, 1997, in connection with their agreement to guarantee additional obligations of the Registrant under and amendment to the Credit Facility, the Company issued to WCAS V, WCAS VI, Blair V and Blair LCF warrants to purchase an aggregate 84,000 share, of Common Stock at an exercise price of $1.25 per share. On February 14, 1997, the Company issued to WCAS CP II, for a purchase price of $25 million, (i) a 10% Senior Subordinated Note due February 14, 2002 in the aggregate principal amount of $25 million and (ii) 1,700,000 shares of Common Stock. On September 9, 1997, the Company issued 500 shares of Common Stock to Ed Feltner, an employee of the Company, as a performance bonus. On October 31, 1997, in connection with their agreement to guarantee additional obligations of the Registrant under the amended Credit Agreement, the Company issued to WCAS VI and Blair V warrants to purchase an aggregate 156,720 shares, of Common Stock at an exercise price of $1.25 per share. (b) Certain Grants and Exercises of Stock Options The MEDE America Corporation and its Subsidiaries Stock Option and Restricted Stock Purchase Plan was adopted by the Registrant's Board of Directors on March 22, 1995. As of May 29, 1998, options to purchase up to an aggregate 3,349,000 shares of Common Stock, had been granted to employees of II-2 the Registrant and its subsidiaries thereunder, of which options to purchase up to an aggregate 2,389,600 shares of Common Stock, at a weighted average exercise price of $1.09 per share, were outstanding as of such date. The Company has issued an aggregate 350,400 shares of Common Stock upon the exercise of such options. The securities issued in the foregoing transactions in paragraphs (a) and (b) above were offered and sold in reliance upon exemptions from Securities Act registration set forth in Section 4(2) of the Securities Act, or any regulations promulgated thereunder, relating to sales by an issuer not involving a public offering. No underwriters were involved in the foregoing sales of securities. The sale and issuance of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access, through their relationships with the Company, to information about the Registrant. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits EXHIBIT NUMBER DESCRIPTION - --------- ----------------------------------------------------------------- 1.1* -- Form of Underwriting Agreement. 2.1 -- Asset Purchase Agreement among MEDE AMERICA Corporation, General Computer Corporation, Time-Share Computer Systems, et al, dated as of February 3, 1997. 2.2 -- Asset Purchase Agreement among MEDE AMERICA Corporation, General Computer Corporation, The Stockton Group, et al, dated as of October 20, 1997. 3.1 -- Certificate of Incorporation of the Registrant as amended. 3.2* -- Form of Registrant's Amended and Restated Certificate of Incorporation. 3.3* -- Amended Bylaws of the Registrant. 3.4 -- Agreement and Plan of Merger, dated as of May 17, 1995, between MEDE AMERICA Corporation and GENCC Holdings Corporation. 4.1* -- Specimen certificate for shares of Common Stock. 4.2 -- Note and Share Purchase Agreement between MEDE AMERICA Corporation and WCAS Capital Partners II, L.P., dated as of February 14, 1997. 4.3 -- Warrant Agreement dated as of October 31, 1997 among MEDE AMERICA Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund Limited Partnership and William Blair Capital Partners V, L.P., and Warrants issued thereunder. 4.4 -- Warrant Agreement dated as of January 10, 1997 among MEDE AMERICA Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund Limited Partnership and William Blair Capital Partners V, L.P., and Warrants issued thereunder. 4.5 -- Warrant Agreement dated as of December 18, 1995 among MEDE AMERICA Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund Limited Partnership and William Blair Capital Partners V, L.P., and Warrants issued thereunder. 5.1* -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, with respect to the legality of securities being registered. II-3 EXHIBIT NUMBER DESCRIPTION - -------- ------------------------------------------------------------------ 10.1 -- MEDE AMERICA Corporation and Its Subsidiaries Stock Option and Restricted Stock Purchase Plan as amended. 10.2 -- Credit Agreement between MEDE AMERICA Corporation and Bank of America Illinois dated as of December 18, 1995 as amended, with accompanying guarantees. 10.3* -- Form of Indemnification Agreement between MEDE AMERICA Corporation and Directors thereof. 10.4* -- Agreement of Lease dated as of October 15, 1991 between HMCC Associates and MedE America, Inc. 10.5* -- Lease Agreement dated as of July 10, 1995 as amended January 3, 1997 between T&J Enterprises, LLC and Electronic Claims & Funding, Inc. 10.6 -- Letter dated June 3, 1998 from Bank of America National Trust & Savings Association to MEDE AMERICA Corporation, regarding amendment to Credit Facility. 21.1 -- Subsidiaries of the Company. 23.1* -- Consent of Deloitte & Touche LLP, independent accountants. 23.2 -- Consent of Deloitte & Touche LLP, independent accounts. 23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see Exhibit 5.1). 24.1 -- Power of Attorney (see Signature Page). 27.1 -- Financial Data Schedule. - ---------- * To be filed by amendment. (b) Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under "Item 14-Indemnification of Directors and Officers" above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 (c) The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, on June 3, 1998. MEDE AMERICA CORPORATION By: THOMAS P. STAUDT ------------------------------ Thomas P. Staudt President and Chief Executive Officer POWER OF ATTORNEY AND SIGNATURES We the undersigned officers and directors of MEDE AMERICA Corporation, hereby severally constitute and appoint Thomas P. Staudt, Richard P. Bankosky and David M. Goldwin, and each of them singly (with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any other Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.
SIGNATURES TITLE DATE - --------------------------- --------------------------------------- -------------- THOMAS P. STAUDT President and Chief Executive June 3, 1998 - ------------------------- Officer (Principal executive officer); Thomas P. Staudt Director RICHARD P. BANKOSKY Chief Financial Officer (Principal June 3, 1998 - ------------------------- financial and accounting officer) Richard P. Bankosky THOMAS E. MCINERNEY Director June 3, 1998 - ------------------------- Thomas E. McInerney ANTHONY J. DE NICOLA Director June 3, 1998 - ------------------------- Anthony J. de Nicola TIMOTHY M. MURRAY Director June 3, 1998 - ------------------------- Timothy M. Murray
II-6 SCHEDULE II MEDE AMERICA CORPORATION AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ---------------------------------- ------------ -------------------------- ----------------- ----------- ADDITIONS -------------------------- CHARGED TO BALANCE AT CHARGED TO OTHER BALANCE AT BEGINNING COST AND ACCOUNTS- DEDUCTIONS END OF DESCRIPTIONS OF PERIOD EXPENSES DESCRIBE -DESCRIBE PERIOD - ---------------------------------- ------------ ------------ ----------- ----------------- ----------- (IN THOUSANDS) Year ended June 30, 1995 - Allowance for bad debts ......... $ 868 $518 $-- $ -- (1) $1,386 ====== ==== === ======== ====== Year ended June 30, 1996 - Allowance for bad debts ......... $1,386 $406 $-- $ 392 (1) $1,400 ====== ==== === ======== ====== Year ended June 30, 1997 - Allowance for bad debts ......... $1,400 $316 $-- $ -- (1) $1,716 ====== ==== === ======== ====== Nine months ended March 31, 1998 - Allowance for bad debts ......... $1,716 $265 $ $ 1,023 (1) $ 958 ====== ==== === ======== ======
- ---------- (1) Amounts written off. S-1 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - --------- ----------------------------------------------------------------- 1.1* -- Form of Underwriting Agreement. 2.1 -- Asset Purchase Agreement among MEDE AMERICA Corporation, General Computer Corporation, Time-Share Computer Systems, et al, dated as of February 3, 1997. 2.2 -- Asset Purchase Agreement among MEDE AMERICA Corporation, General Computer Corporation, The Stockton Group, et al, dated as of October 20, 1997. 3.1 -- Certificate of Incorporation of the Registrant as amended. 3.2* -- Form of Registrant's Amended and Restated Certificate of Incorporation. 3.3* -- Amended Bylaws of the Registrant. 3.4 -- Agreement and Plan of Merger, dated as of May 17, 1995, between MEDE AMERICA Corporation and GENCC Holdings Corporation. 4.1* -- Specimen certificate for shares of Common Stock. 4.2 -- Note and Share Purchase Agreement between MEDE AMERICA Corporation and WCAS Capital Partners II, L.P., dated as of February 14, 1997. 4.3 -- Warrant Agreement dated as of October 31, 1997 among MEDE AMERICA Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund Limited Partnership and William Blair Capital Partners V, L.P., and Warrants issued thereunder. 4.4 -- Warrant Agreement dated as of January 10, 1997 among MEDE AMERICA Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund Limited Partnership and William Blair Capital Partners V, L.P., and Warrants issued thereunder. 4.5 -- Warrant Agreement dated as of December 18, 1995 among MEDE AMERICA Corporation, Welsh, Carson, Anderson & Stowe V, L.P., Welsh, Carson Anderson & Stowe VI, L.P., William Blair Leveraged Capital Fund Limited Partnership and William Blair Capital Partners V, L.P., and Warrants issued thereunder. 5.1* -- Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, with respect to the legality of securities being registered. 10.1 -- MEDE AMERICA Corporation and Its Subsidiaries Stock Option and Restricted Stock Purchase Plan as amended. 10.2 -- Credit Agreement between MEDE AMERICA Corporation and Bank of America Illinois dated as of December 18, 1995 as amended, with accompanying guarantees. 10.3* -- Form of Indemnification Agreement between MEDE AMERICA Corporation and Directors thereof. 10.4* -- Agreement of Lease dated as of October 15, 1991 between HMCC Associates and MedE America, Inc. 10.5* -- Lease Agreement dated as of July 10, 1995 as amended January 3, 1997 between T&J Enterprises, LLC and Electronic Claims & Funding, Inc. 10.6 -- Letter dated June 3, 1998 from Bank of America National Trust & Savings Association to MEDE AMERICA Corporation, regarding amendment to Credit Facility. 21.1 -- Subsidiaries of the Company. 23.1* -- Consent of Deloitte & Touche LLP, independent accountants. 23.2 -- Consent of Deloitte & Touche LLP, independent accounts. 23.3* -- Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol (see Exhibit 5.1). 24.1 -- Power of Attorney (see Signature Page). 27.1 -- Financial Data Schedule. - ---------- * To be filed by amendment. EX-2.1 2 EXHIBIT 2.1 EXHIBIT 2.1 ================================================================================ ASSET PURCHASE AGREEMENT among MEDE AMERICA CORPORATION GENERAL COMPUTER CORPORATION TIME-SHARE COMPUTER SYSTEMS JACK GUGGISBERG DAVID C. McGUIRE and DARWIN J. DeROSIER Dated as of February 3, 1997 ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I. TRANSFERS........................................................ 1 SECTION 1.01 Transfer of Assets....................................... 1 SECTION 1.02 Instruments of Conveyance and Transfer................................................. 3 SECTION 1.03 Nonassignable Contracts.................................. 3 ARTICLE II. CLOSING, PURCHASE PRICE, LIABILITIES, ETC........................ 4 SECTION 2.01 Closing.................................................. 4 SECTION 2.02 Purchase Price........................................... 4 SECTION 2.03 Payment to Seller on Closing Date........................ 4 SECTION 2.04 Non-Assumption of Certain Liabilities.................... 5 ARTICLE III. REPRESENTATIONS AND WARRANTIES................................... 6 SECTION 3.01 Representations and Warranties of Seller and the Stockholders................................... 6 SECTION 3.02 Representations and Warranties of Buyer and MedE......................................... 21 ARTICLE IV. COVENANTS........................................................ 22 SECTION 4.01 Covenants of Seller and the Stockholders................. 22 SECTION 4.02 Confidentiality.......................................... 24 SECTION 4.03 Allocation of Purchase Price............................. 24 SECTION 4.04 Preparation of Certain Financial Statement.............................................. 24 SECTION 4.05 Certain Tax Matters...................................... 24 SECTION 4.06 Insurance................................................ 25 SECTION 4.07 Collection of Accounts Receivable........................ 25 SECTION 4.08 Retention of Employees................................... 26 SECTION 4.09 Payment of Liabilities................................... 26 SECTION 4.10 Name Change.............................................. 26 ARTICLE V. CONDITIONS PRECEDENT............................................. 26 SECTION 5.01 Conditions Precedent to Obligations of Buyer and MedE...................................... 26 SECTION 5.02 Conditions Precedent to Obligations of Seller and the Stockholders......................... 28 SECTION 5.03 Deemed Satisfaction of Certain Conditions............................................. 30 ARTICLE VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION............................................. 30 SECTION 6.01 Survival of Representations.............................. 30
Page ---- SECTION 6.02 Tax Indemnity............................................ 30 SECTION 6.03 General Indemnity........................................ 31 SECTION 6.04 Conditions of Indemnification............................ 32 SECTION 6.05 Basket................................................... 33 ARTICLE VII. TERMINATION...................................................... 33 SECTION 7.01 Termination............................................. 33 SECTION 7.02 Effect of Termination................................... 34 ARTICLE VIII. MISCELLANEOUS.................................................... 34 SECTION 8.01 Specific Performance.................................... 34 SECTION 8.02 Bulk Transfer Laws...................................... 34 SECTION 8.03 Expenses, Etc........................................... 34 SECTION 8.04 Execution in Counterparts............................... 35 SECTION 8.05 Notices................................................. 35 SECTION 8.06 Waivers................................................. 36 SECTION 8.07 Amendments, Supplements, Etc............................ 36 SECTION 8.08 Entire Agreement........................................ 37 SECTION 8.09 Applicable Law.......................................... 37 SECTION 8.10 Binding Effect, Benefits................................ 37 SECTION 8.11 Assignability........................................... 37 TESTIMONIUM .................................................................... 38
(ii) INDEX TO EXHIBITS AND ANNEXES Exhibit Description - ------- ----------- A Form of Bill of Sale, Assignment and Assumption Agreement B Form of Escrow Agreement C Form of Confidentiality, Non-Solicitation and Non-Compete Agreement D Form of Opinion of Hanson & Associates E Form of Consulting Agreement F Form of Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol (iii) INDEX TO SCHEDULES Schedule Description - -------- ----------- 3.01(a) Jurisdictions 3.01(c) Capitalization 3.01(e) Effect of Agreements 3.01(f) Governmental Approvals 3.01(g) Financial Statements 3.01(h) Certain Changes or Events 3.01(i) Liens and Encumbrances 3.01(j) List of Properties, Contracts and Other Data 3.01(k) Litigation 3.01(m) Employee Benefit Plans 3.01(n) Intellectual Property Rights 3.01(o) Software 3.01(t) Taxes 3.01(v) Transactions with Affiliates 3.01(w) Governmental Authorizations and Regulations 3.01(x) Insurance 4.01(e) Written Service Agreements; Supplements to Service Agreements 4.03 Allocation of Purchase Price 4.08 Retained Employees 5.03 Critical Contracts (iv) 37 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of February 3, 1997, among MEDE AMERICA CORPORATION, a Delaware corporation ("MedE"), GENERAL COMPUTER CORPORATION, an Ohio corporation and a wholly-owned subsidiary of MedE ("Buyer"), TIME-SHARE COMPUTER SYSTEMS, Inc., a Minnesota corporation ("Seller"), Jack Guggisberg, David C. McGuire and Darwin J. DeRosier (collectively, the "Stockholders"). WHEREAS, Seller is engaged in the business of providing electronic data interchange and transaction processing services to the healthcare industry (the "Business"); and WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, all the assets and properties of Seller relating to the Business (excluding certain specified assets), and to assume certain liabilities, all on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: I. TRANSFERS SECTION 1.001. Transfer of Assets. () On the terms and subject to the conditions hereinafter set forth, on the Closing Date (as hereinafter defined), Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase from Seller, for the consideration set forth in Section 2.03 hereof, all the then existing assets and properties (of every kind, nature and description, real, personal or mixed, tangible or intangible and wherever situated, whether or not carried on the books of Seller) of Seller to the extent that such assets are necessary to, or attributable to, the Business, or used by Seller in connection with the Business, except those assets excluded pursuant to paragraph (b) below (said assets and properties so to be sold, conveyed, transferred, assigned and delivered being hereinafter collectively called the "Assets"), including, without limitation: (i) all tangible personal property, inventory, machinery, equipment, supplies, tools, fixtures, leaseholds, computer equipment, work in process, spare parts, vehicles, furniture and office furnishings, wherever situated (it being the intention hereby to assign and transfer all the tangible personal property owned or claimed by Seller; (ii) all intangible personal property of whatsoever kind or character, whether evidenced in writing or not, including but not limited to all customer lists, data bases, proprietary assays, deferred charges and prepaid expenses, bonds, claims, and causes of action (whether fixed or contingent); (iii) the patents, trademarks and trade names, trademark and trade name registrations, service marks and service mark registrations, copyrights and copyright registrations, the applications therefor and the licenses and franchises with respect thereto, in each case listed in clause (iv) of Schedule 3.01(j) hereto, together with all trade secrets, technology (including technology with respect to which Seller is a licensee, in any such case only insofar as permitted under the applicable license agreement), processes, inventions, designs, drawings, blueprints, specifications, patterns, royalties, privileges, permits and all other similar intangible personal property (collectively, the "Intellectual Property Rights"); (iv) all technical materials and guidelines, brochures, sales literature, promotional material and other selling material; (v) all papers, documents, instruments, books and records, files, agreements, books of account and other records by which the Assets might be identified or enforced, or otherwise pertaining to the Assets or the Business that are located at the offices or other locations used in connection with the Assets or the Business (including, without limitation, customer invoices, customer lists, vendor and supplier lists, drafts and other documents and materials relating to customer transactions); (vi) the rights of Seller under all contracts, agreements, licenses, leases, sales orders, purchase orders and other commitments relating to the Assets or the Business; (vii) all computer software programs, the source and object codes for such software programs and all documentation and training manuals related thereto owned, held or licensed by Seller; and (viii) all other assets and rights of every kind and nature, real or personal, tangible or intangible, that are owned or claimed by Seller and that are necessary to, or attributable to, the Business or used by Seller in connection with the Business (including, without limitation, all goodwill), whether or not such assets are reflected in the balance sheets and other financial statements of Seller, together with the right to represent that Buyer is the successor in interest to the Business. 2 Without limiting the generality of the foregoing, the Assets shall, except as set forth in paragraph (b) below, include all assets set forth or reflected on the unaudited December 31, 1996 balance sheet of Seller (the "December 31, 1996 Balance Sheet"), together with all such assets as may be acquired by Seller after said date and that would be included on a balance sheet prepared in like manner from such accounting records as of the Closing Date, except for any such assets that may be or have been disposed of after said date in the ordinary course of business on a basis consistent with past practice. (b) Anything herein contained to the contrary notwithstanding, the following assets of Seller are specifically excluded from the Assets and shall be retained by Seller: (i) all cash and cash equivalents on hand, including investment securities, bank accounts, temporary cash and petty cash held by Seller as of the Closing Date; (ii) all accounts receivable accrued on the books of Seller as of the Closing Date and resulting from the delivery of goods and services of the Business prior to the Closing Date; (iii) all accrued but unbilled rebate commissions arising on or prior to the Closing Date (in the event that such commissions are paid to Buyer after the Closing Date, Buyer shall promptly remit the same to Seller); (iv) The 1995 Jeep Cherokee used by Jack Guggisberg; and (v) any claims or rights against third parties relating to liabilities or obligations that are not assumed by the Buyer pursuant to this Agreement. SECTION 1.002. Instruments of Conveyance and Transfer. Subject to Section 1.03 below, on the Closing Date, Seller shall execute and deliver to Buyer (i) a bill of sale in the form included in the Form of Bill of Sale, Assignment and Assumption Agreement annexed hereto as Exhibit A (the "Bill of Sale, Assignment and Assumption Agreement") and (ii) such other documents of transfer that Buyer may reasonably request, transferring to Buyer the properties and assets to be acquired by Buyer under the terms of this Agreement. SECTION 1.003. Nonassignable Contracts. Nothing in this Agreement shall be construed as an attempt or agreement to assign (i) any contract, agreement, license, lease, sales order, purchase order or other commitment that is nonassignable without the consent of the other party or parties thereto unless such 3 consent shall have been given (subject, however, to the covenant of Seller and the Stockholders in Section 4.01(d) hereof), or (ii) any contract or claim as to which all the remedies for the enforcement thereof enjoyed by Seller would not pass to Buyer as an incident of the assignments provided for by this Agreement. In order, however, that the full value of every contract and claim of the character described in clauses (i) and (ii) above and all claims and demands on such contracts may be realized, Seller and the Stockholders will use its best efforts to obtain approval for assignment and, failing that, Seller shall, by itself or by its agents, at the request and expense and under the direction of Buyer, in the name of Seller or otherwise as Buyer shall specify and as shall be permitted by law, take all action and do or cause to be done all things as shall in the opinion of Buyer be reasonably necessary or proper (x) in order that the rights and obligations of Seller under such contracts shall be preserved and (y) for, and to facilitate, the collection of the moneys due and payable, and to become due and payable, to Seller in and under every such contract and claim and in respect of every such claim and demand, and Seller shall hold the same for the benefit of and shall pay the same over promptly to Buyer. II. CLOSING, PURCHASE PRICE, LIABILITIES, ETC. SECTION 2.001 Closing. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, N.Y., 10111, on February 13, 1996, or on such other date as the parties may mutually agree (such date and time of closing being herein called the "Closing Date"), and for tax and accounting purposes shall be deemed effective as of the close of business on such date. SECTION 2.002 Purchase Price. The aggregate purchase price for the Assets hereunder shall be $11,250,000 (the "Purchase Price"). SECTION 2.003 Payment to Seller on Closing Date. On the Closing Date, in full consideration for the sale, conveyance, transfer, assignment and delivery to Buyer of the Assets, Buyer shall: (a) pay to Seller $10,125,000 in cash by wire transfer to the account specified by Seller, and (b) cause $1,125,000 in cash (the "Retention") to be deposited in an escrow account pursuant to an Escrow Agreement (the "Escrow Agreement") among Buyer, MedE, Seller and 4 the Escrow Agent named therein, substantially in the form of Exhibit B hereto. Pursuant to the terms of the Escrow Agreement, the Escrow Agent shall hold the Retention to secure the indemnification obligations of Seller pursuant to Article VI hereof and the purchase price adjustment provisions of Section 2.05 hereof. SECTION 2.004 Non-Assumption of Certain Liabilities. Buyer is not assuming, and shall not be deemed to have assumed, any liabilities or obligations of Seller of any kind or nature whatsoever, except (x) executory obligations under the operating contracts of Seller assigned to Buyer and (y) those employment obligations set forth in Section 4.08 hereof, in each case only to the extent expressly provided in the Bill of Sale, Assignment and Assumption Agreement (collectively, the "Assumed Liabilities"). Without limiting the generality of the foregoing, it is hereby agreed that Buyer is not assuming any liability for and shall not have any obligation with respect to: (i) any and all (x) accrued but unpaid current liabilities and (y) non-current liabilities of Seller, in each case as determined in accordance with generally accepted accounting principles consistently applied ("GAAP"), either set forth or reflected on the December 31, 1996 Balance Sheet or incurred by Seller after December 31, 1996; (ii) any liabilities or obligations of Seller that arise under the terms of a contract, agreement, license, lease, sales order, purchase order, or other commitment which shall not be assigned to Buyer pursuant to this Agreement; (iii) any liabilities or obligations of Seller to the Stockholders and their respective affiliates (including without limitation any notes payable to the Stockholders); (iv) any liabilities or obligations of Seller under any Plan (as defined in Section 3.01(m) hereof, including any obligation to adopt or to sponsor such Plan of Seller except as Buyer may, in its sole discretion, elect to adopt or to sponsor); (v) any obligation of Seller arising out of any action, suit or proceeding based upon an event occurring or a claim arising (A) prior to or on the Closing Date or (B) after the Closing Date in the case of claims in respect of products or services sold or provided by Seller prior to the Closing Date or attributable to acts performed or omitted by Seller prior to the Closing Date; 5 (vi) any and all Taxes (as hereinafter defined) incurred by or imposed upon Seller, or any predecessor company thereof, for all periods prior to (and up to and including) the close of business on the Closing Date, including without limitation any Taxes incurred by or imposed upon Seller and arising out of the consummation of the transactions contemplated by this Agreement; and (vii) any liability in respect of any failure of Seller to conduct the Business in compliance with any Permit, law, regulation or order, including without limitation any Environmental Law or Environmental Permit (as hereinafter defined), prior to the Closing Date. III. REPRESENTATIONS AND WARRANTIES SECTION 3.001 Representations and Warranties of Seller and the Stockholders. Seller and the Stockholders, jointly and severally, represent and warrant to Buyer as follows: (a) Organization, Power, Etc. of Seller. Seller is a corporation duly formed, validly existing and in good standing under the laws of the State of Minnesota. Seller has all requisite power and authority to own, operate and lease the Assets, to carry on the Business as it is now being conducted, to execute and deliver this Agreement together with the Escrow Agreement, the Bill of Sale, Assignment and Assumption Agreement and a Confidentiality, Non-Solicitation and Non-Compete Agreement in substantially the form attached hereto as Exhibit C (collectively, the "Ancillary Agreements"), and to perform its respective obligations hereunder and thereunder. Seller is duly qualified or licensed to do business in each jurisdiction in which it owns or leases any real property or in which the nature of the business transacted by it makes such qualification necessary, unless the failure to be so licensed or qualified would not have a material adverse effect on the properties, assets, business, prospects, operations, or condition (financial or otherwise) of Seller (a "Material Adverse Effect"). Schedule 3.01(a) sets forth a complete list of the jurisdictions in which Seller is qualified to do business. (b) Subsidiaries. Seller has no direct or indirect subsidiaries, or any participating equity interest in any partnership, joint venture or other non-corporate business enterprise. As used herein, the term "subsidiary" shall mean any corporation, partnership or other business entity, a majority of whose voting capital stock (or other voting interests, as the case may be) is at the time owned by Seller and/or any subsidiaries thereof. 6 (c) Capitalization. The authorized capital stock of Seller consists of 1,000 shares of common stock, no par value, of which 1,000 shares are issued and outstanding. All issued and outstanding shares of capital stock of Seller are owned as set forth on Schedule 3.01(c) hereto. There are no outstanding options, warrants, calls or other rights to subscribe for or purchase or acquire from Seller, or any plans, contracts or commitments providing for the issuance of, or the granting of rights to acquire (i) any capital stock or partnership interests, as the case may be, of Seller or (ii) any securities convertible into or exchangeable for any capital stock of Seller. (d) Authorization of Agreements; Validity. The execution and delivery by Seller of this Agreement and the Ancillary Agreements, and the consummation by Seller of the transactions contemplated hereby and thereby, have been duly authorized by all requisite corporate action. This Agreement has been duly and validly executed by Seller and each of the Stockholders and constitutes the legal, valid and binding obligation of Seller and each of the Stockholders, enforceable in accordance with its terms. Each Ancillary Agreement, when duly executed and delivered by Seller and each Stockholder that is a party thereto, will constitute the legal, valid and binding obligation of Seller and each such Stockholder, enforceable in accordance with its terms. (e) Effect of Agreements. Except as set forth on Schedule 3.01(e) hereto, the execution and delivery by Seller and the Stockholders of this Agreement and the Ancillary Agreements to which each is a party and the performance by Seller and the Stockholders of their respective obligations hereunder and thereunder will not (x) violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation or By-laws of Seller, or any judgment, award, decree, indenture, agreement, Permit (as defined herein) or other instrument to which Seller or any Stockholder is a party, or by which Seller, any Stockholder, the Business or any of the Assets is bound or affected; (y) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement, Permit or other instrument; or (z) result in the creation or imposition of any lien, charge, security interest or encumbrance of any nature whatsoever upon any of the Assets. (f) Governmental Approvals. Except as set forth on Schedule 3.01(f) hereto, no approval, authorization, consent, order or action of or filing with any court, administrative agency or other governmental authority (i) is required for the execution and delivery by Seller and the Stockholders of this Agreement and the Ancillary Agreements to which they are party or the consummation by Seller and the Stockholders of the transac- 7 tions contemplated hereby or thereby or (ii) is necessary in order that the Business may be conducted immediately following the Closing Date substantially in the same manner as theretofore conducted. (g) Financial Statements. (i) Prior to the Closing Date, Seller will furnish to Buyer the December 31, 1996 Balance Sheet and the related unaudited statements of operations, stockholders equity and cash flows for the year then ended, (the "Financial Statements"). Except as set forth on Schedule 3.01(g), the Financial Statements (including any related schedules and/or notes) are complete and correct in all material respects and have been prepared in accordance with GAAP. Except as set forth on Schedule 3.01(g), the December 31, 1996 Balance Sheet fairly presents the financial condition of the Business as of such date, and such statements of operations, stockholders equity and cash flows fairly present the results of operations of the Business for the year then ended. (ii) Except (x) as expressly set forth in the Financial Statements, (y) as disclosed in Schedule 3.01(g) or (iii) as incurred after December 31, 1996 in the ordinary course of business consistent with past practice, Seller does not have any material liabilities or obligations of any kind or nature, whether known or unknown, secured or unsecured, absolute, accrued, contingent or otherwise, and whether due or to become due. (iii) The December 31, 1996 Balance Sheet correctly lists and/or reflects, in accordance with GAAP, substantially all of the Assets to be transferred to Buyer. (h) Absence of Certain Changes or Events. Since December 31, 1996, except as otherwise set forth on Schedule 3.01(h) hereto and except for the transactions contemplated hereby, Seller has not: (i) incurred any obligation or liability (whether fixed, absolute, accrued, contingent, known or unknown, or otherwise, of any kind or nature whatsoever), except normal trade or business obligations incurred in the ordinary course of business and consistent with past practice and except in connection with this Agreement and the transactions contemplated hereby; (ii) discharged or satisfied any material lien, security interest or encumbrance or paid any obligation or liability (fixed or contingent) of any kind or nature whatsoever, 8 other than in the ordinary course of business and consistent with past practice; (iii) mortgaged, pledged or subjected to any lien, security interest or other encumbrance any of the Assets (other than mechanic's, materialman's and similar statutory liens arising as a matter of law and purchase money security interests arising in the ordinary course of business between the date of delivery and payment); (iv) transferred, leased or otherwise disposed of any of the Assets except for a fair consideration in the ordinary course of business and consistent with past practice or, except in the ordinary course of business and consistent with past practice, acquired any assets or properties to be used by or in connection with the Business; (v) declared, set aside or paid any distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock or redeemed or otherwise acquired any of its capital stock or split, combined or otherwise similarly changed its capital stock or authorized the creation or issuance of or issued or sold any capital stock or any securities or obligations convertible into or exchangeable therefor, or given any person any right to acquire any of its capital stock, or agreed to take any such action; (vi) made any investment of a capital nature, whether by purchase of stock or securities, contributions to capital, property transfers or otherwise, in any partnership, corporation or other entity; (vii) canceled or compromised any debt or claim related to the Business, except in the ordinary course of business and consistent with past practice; (viii) waived or released any rights of material value related to the Business, except in any case for a fair consideration in the ordinary course of business and consistent with past practice; (ix) transferred or granted any rights under any concessions, leases, licenses, sublicenses, agreements, patents, inventions, trademarks, trade names, service marks or copyrights or with respect to any know-how related to the Business, except in the ordinary course of business and consistent with past practice; (x) made or granted any wage, salary or benefit increase or paid any bonus applicable to any group or clas- 9 sification of employees generally, entered into or amended the terms of any employment contract with, or made any loan to, or granted any severance benefits to or entered into or amended the terms of any material transaction of any other nature with, any officer or employee engaged in the operations of the Business; (xi) entered into any transaction, contract or commitment, except (A) contracts listed on Schedule 3.01(j) hereto, (B) this Agreement and the transactions contemplated hereby and (C) as involve payments of less than $25,000; (xii) suffered any casualty loss or damage (whether or not such loss or damage shall have been covered by insurance) or received any claim or claims in respect of the Business in excess of insurable limits, or canceled any insurance coverage, in whole or in part, under any policy the coverage limits of which exceed $25,000; (xiii) suffered any material adverse change in any of its operations or in its financial condition or in its assets, properties, business or prospects; (xiv) surrendered, had revoked or otherwise terminated or had terminated any material license, Permit or other approval, authorization or consent from any court, administrative agency or other governmental authority; or (xv) entered into any agreement or commitment to take any action described in this Section 3.01(h). (i) Title to Properties, Absence of Liens and Encumbrances. Except as set forth in Schedule 3.01(i) hereto, Seller has good and marketable title to all the Assets, free and clear of all liens, charges, pledges, security interests or other encumbrances of any nature whatsoever. Except as set forth on Schedule 3.01(i) hereto, all leases of real and personal property of Seller to be assigned to Buyer hereunder are valid and binding in accordance with their respective terms, and there is not under any such lease any existing default, or any condition, event or act which with notice or lapse of time or both would constitute such a default, nor would consummation of the transactions contemplated hereby result in a default or any such condition, event or act. (j) List of Properties, Contracts and Other Data. Annexed hereto as Schedule 3.01(j) is a list setting forth with respect to the Business, as of the dates specified on such Schedule, the following: (i) all real properties owned in fee simple by Seller; 10 (ii) all tangible assets owned by Seller with original book value in excess of $10,000; (iii) all leases of real or personal property involving payments in excess of $10,000 per annum to which Seller is a party, either as lessee or lessor; (iv) (A) all patents, trademarks and trade names, trademark and trade name registrations, service marks and service mark registrations, copyrights and copyright registrations which are unexpired as of the date hereof, all applications pending on said date for patents or for trademark, trade name, service mark or copyright registrations, and all other proprietary rights, owned or held by Seller, and (B) all licenses and sublicenses granted by or to Seller and all other agreements to which Seller is a party which relate, in whole or in part, to any items of the categories mentioned in (A) above or to other Intellectual Property Rights used by Seller in connection with the Business, whether owned by Seller or any affiliate thereof; (v) all employment and consulting agreements, executive compensation plans, collective bargaining agreements, bonus plans, deferred compensation agreements, employee pension plans or retirement plans, employee profit sharing plans, employee stock purchase and stock option plans, group life insurance, hospitalization insurance or other plans or arrangements providing for benefits to employees of Seller engaged in the Business, whether oral or written; (vi) all contracts, understandings and commitments (including, without limitation, powers of attorney, mortgages, indentures and loan agreements or obligations for borrowed money including, without limitation, guarantees), whether oral or written, to which Seller is a party or to which Seller or any of the Assets are subject and which are not specifically referred to above, and which (A) is a contract or group of related contracts which involve payments exceeding $25,000 per annum in amount, (B) is a sales contract of an open-ended or blanket nature or provides for prepaid commissions or rebates, (C) contains penalty provisions for late delivery or completion, (E) cannot be performed in the normal course within 365 days after the Closing Date or canceled within such period by Seller or its assignees without breach or penalty, or (F) contains a prohibition on the assignment thereof or any limitation on the ability of Seller to assign the same; (vii) the names and current annual compensation rates of all employees of Seller engaged in the Business earning in excess of $30,000 per annum; and 11 (viii) all agreements with third party payors. True and complete copies of all documents and complete descriptions of all oral understandings (if any) referred to in Schedule 3.01(j) hereto have been provided or made available to Buyer and its counsel. Except as disclosed in said Schedule, there is no claim that any contract referred to in said Schedule is not valid and enforceable in accordance with its terms for the periods stated therein, and there does not exist under any such contract any existing default or event of default or event which with notice or lapse of time or both would constitute such a default. (k) Litigation. Except as otherwise set forth on Schedule 3.01(k) hereto, there are no actions, suits or proceedings involving claims by or against Seller pending or, to the best knowledge of Seller, threatened against Seller or relating to any of the operations of the Business, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, nor, to the best of Seller's knowledge, is there any basis for any such claim. Except as set forth in Schedule 3.01(k) hereto, there are no orders, judgments or decrees of any court or governmental agency with respect to which Seller has been named or is a party. (l) Collective Bargaining Agreements; Labor Controversies; Etc. Seller is not a party to any labor or collective bargaining agreement, and there are no labor or collective bargaining agreements which pertain to any employees engaged in the operations of the Business. No employees of Seller are represented by any labor organization. No labor organization or group of employees of Seller has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the knowledge of Seller, threatened to be brought or filed with the National Labor Relations Board or other labor relations tribunal. There is no organizing activity involving Seller pending or, to the knowledge of Seller, threatened by any labor organization or group of employees of Seller. There are no (A) strikes, work stoppages, slowdowns, lockouts or arbitrations or (B) material grievances or other material labor disputes pending or, to the knowledge of Seller, threatened against or involving Seller. There are no unfair labor practice charges, grievances or complaints pending or, to the knowledge of Seller, threatened against or involving Seller or any group of employees of Seller. Hours worked by and payments made to employees of Seller have not been in violation of the federal Fair Labor Standards Act or any other law dealing with such matters. (m) Employee Benefit Plans. 12 (i) Schedule 3.01(m) hereto lists each employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by Seller or to which Seller contributes or is required to contribute or in which any employee of Seller participates (a "Plan"). No Plan is a defined benefit plan as defined in Section 3(35) of ERISA. Seller has complied and currently is in compliance, both as to form and operation, with the applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended (the "Code"), respectively, with respect to each Plan. (ii) Each of the Plans that is intended to qualify under Section 401(a) of the Code does so qualify and is exempt from taxation pursuant to Section 501(a) of the Code, and Seller has received favorable and unrevoked determination letters from the Internal Revenue Service to that effect. (iii) Seller has not maintained, contributed to or been required to contribute to, nor do any of its employees participate in, a "multiemployer plan" (as defined in Section 3(37) of ERISA). No amount is due or owing from Seller on account of a "multiemployer plan" (as defined in Section 3(37) of ERISA) or on account of any withdrawal therefrom. In addition, no withdrawal liability would result if there were a partial or complete withdrawal from any multiemployer plan as of the Closing Date. (iv) Notwithstanding anything else set forth herein, Seller has not incurred any liability with respect to any Plan under ERISA (including, without limitation, Title I or Title IV of ERISA), the Code or other applicable law, which has not been satisfied in full, and no event has occurred, and there exists no condition or set of circumstances which could result in the imposition of any liability under ERISA (including, without limitation, Title I or Title IV of ERISA), the Code or other applicable law with respect to any of the Plans. (v) No Plan, other than a Plan which is an employee pension benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides benefits, including without limitation death, health or medical benefits (whether or not insured), with respect to current or former employees of Seller beyond their retirement or other termination of service with Seller (other than (A) coverage mandated by applicable law, (B) deferred compensation benefits accrued as liabilities on the books of Seller, or (C) benefits the full cost of which is borne by the current or former employee (or his beneficiary)). 13 (vi) The consummation of the transactions contemplated by this Agreement will not (A) entitle any current or former employee or officer of Seller to severance pay, unemployment compensation or any other payment, or (B) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer. (vii) Seller has provided to Buyer true and complete copies of the following: (A) each of the Plans; (B) summary plan descriptions of each of the Plans; (C) each trust agreement, insurance policy or other instrument relating to the funding of each of the Plans; (D) the two most recent Annual Reports (Form 5500 series) and accompanying schedules filed with the Internal Revenue Service or United States Department of Labor with respect to each of the Plans; (E) the most recent audited financial statement for each of the Plans; (F) the most recent actuarial report of each of the Plans; (G) each policy of fiduciary liability insurance (and agreements related thereto) maintained in connection with the Plans, and (H) the most recent determination letter issued by the Internal Revenue Service with respect to each of the Plans that is intended to qualify under Section 401(a) of the Code. (n) Intellectual Property Rights. The Intellectual Property Rights listed in clause (iv) of Schedule 3.01(j) hereto, constitute all such proprietary rights that are necessary to the conduct of the Business as of the date hereof. Seller owns or has valid rights to use all such Intellectual Property Rights without conflict with the rights of others. Except as set forth on Schedule 3.01(n) hereto, no person has made or, to the best knowledge of Seller, threatened to make, any claims that the operations of the Business are in violation of or infringe upon any intellectual property rights or any other proprietary or trade rights of any third party, nor, to the best of Seller's knowledge, is there any basis for any such claim. None of the Intellectual Property Rights is the subject of any outstanding order, ruling, decree, judgment or stipulation. Seller has taken and is taking reasonable precautions to protect any material trade secrets and other confidential information included in the Intellectual Property Rights. (o) Software. (i) The operating and applications computer software programs and databases used by Seller in the conduct of the Business (other than "off-the-shelf" programs and databases that are generally commercially available at a per unit cost of less than $500) (collectively, the "Software") are listed on Schedule 3.01(o) hereto. Except as set forth on Schedule 3.01(o), Seller owns outright or holds valid licenses to all 14 copies of the Software used by it in the Business. None of the Software used by Seller, and no use thereof, infringes upon or violates any patent, copyright, trade secret or other proprietary right of any other person and, to the best knowledge of Seller, no claim with respect to any such infringement or violation is threatened, nor does any person have any basis for such a claim. Seller has taken all steps necessary to protect its right, title and interest in and to the Software owned by Seller. (ii) Seller possesses or has access to the original and all copies of all Software (including, without limitation, all source code) and all documentation relating thereto owned or used by Seller. Upon consummation of the transactions contemplated by this Agreement, Buyer will (A) own all the Software owned by Seller immediately prior to the Closing, free and clear of all claims, liens, encumbrances, obligations and liabilities and, (B) with respect to all Software licensed or leased to Seller, have valid rights to use such Software on substantially the same terms as presently apply to Seller. (iii) Any programs, modifications, enhancements or other inventions, improvements, discoveries, methods or works of authorship included in the Software that were created by employees of Seller were made in the regular course of such employees' employment with Seller using Seller's facilities and resources, and as such constitute "works made for hire". (p) Use of Real Property. The owned and leased real property listed on Schedule 3.01(h) hereto are used and operated in material compliance and conformity with all applicable leases, contracts, commitments, licenses, zoning ordinances, codes and Permits. (q) Condition of Assets. As of the Closing Date, all tangible personal property, fixtures, machinery and equipment comprising the Assets will (i) be in a good state of repair (ordinary wear and tear excepted) and operating condition and will be suitable for the purposes for which they are being used and (ii) substantially conform with all ordinances, codes, regulations and requirements applicable to them. (r) Compliance With Law. The conduct of the Business by Seller does not (x) violate in any material respect any federal, state or local laws, statutes, ordinances, regulations or other similar rules relating to either the federal Medicare program or any federal and/or state Medicaid programs, or (y) to the best knowledge of Seller and the Stockholders, violate in any material respect any other federal, state, local or foreign laws, statutes, ordinances, regulations, decrees, orders, Permits or 15 other similar rules presently in force. Seller is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. (s) Third-Party Payor and Customer Contracts. Since December 31, 1996, Seller has not lost or been notified that (whether as a result of the consummation of the transactions contemplated by this Agreement or otherwise) it will lose or suffer diminution in its relationships with any third-party payor(s) or other customer(s), other than normal attrition (at historically consistent levels) associated with independent pharmacy customers. (t) Taxes. (i) Except as set forth on Schedule 3.01(t) hereto, Seller has duly and timely filed all returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed by it in respect of any Taxes (as hereinafter defined). All Returns (including all informational Returns) were correct as filed and correctly reflect the facts regarding the income, business, assets, operations, activities and status of Seller as well as any Taxes required to be paid or collected by Seller. Seller has timely paid or withheld all Taxes that are due and payable with respect to the Returns referred to above. Seller has established, consistent with past practice, an adequate reserve on the December 31, 1996 Balance Sheet for the payment of all Taxes with respect to Seller not yet due for any taxable period or portion thereof ending on or prior to the Closing Date (or otherwise relating or attributable to the results of operations of Seller on or prior to the Closing Date). Seller has complied with all applicable laws, rules and regulations relating to the payment and withholding of Taxes, and has timely withheld from employee wages and paid over to the proper governmental authorities when due all amounts required to be so withheld and paid over (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes, state and local income and wage taxes, payroll taxes, workers' compensation and unemployment compensation taxes). (ii) Except as set forth in Schedule 3.01(t) hereto, (A) Seller is not delinquent in the payment of any Taxes and has not requested any extension of time within which to file or send any Return, which Return has not since been filed or sent; (B) there is no deficiency, claim, audit, action, suit, proceeding or investigation now pending or threatened against or with respect to Seller in respect of any Taxes; and (C) there are no requests for rulings or determinations in respect of any Taxes pending between Seller and any 16 taxing authority, and no such rulings or determinations have been received by Seller. (iii) Seller has not executed or entered into (and, prior to the Closing, Seller will not execute or enter into) with the Internal Revenue Service or any other taxing authority (A) any agreement or other document extending or having the effect of extending the period for assessments or collection of any Taxes for which Seller would be liable or (B) a closing agreement pursuant to Section 7121 of the Code, or any predecessor provision thereof or any similar provision of foreign, state or local Tax law that relates to the assets or operations of Seller. (iv) Except as set forth on Schedule 3.01(t) hereto, Seller has never (A) been a member of a consolidated, combined or unitary group for federal, state, local or foreign Tax law purposes, (B) been a party to any Tax-sharing or allocation agreement or (C) filed any election or caused any deemed election under Section 338 of the Code. (v) Seller is not a party to any agreement, contract or arrangement that would result, by reason of the consummation of any of the transactions contemplated herein, separately or in the aggregate, in the payment of any "excess parachute payment" within the meaning of Section 280G of the Code. (vi) No agreement or consent pursuant to Section 341(f) of the Code has ever been made with respect to Seller or any assets or properties of Seller (or any predecessor corporation of Seller). Further, Seller shall not make any agreement or consent pursuant to said Section 341(f) in respect of the transactions contemplated by this Agreement. (vii) Seller has been, for all Tax periods beginning on or after October 10, 1982, and ending on or before the Closing Date, a validly electing subchapter S corporation within the meaning of Section 1361 of the Code and the corresponding provisions (if any) of state and local income tax laws in all jurisdictions in which it is required to report its business operations. Schedule 3.01(t) hereto lists all the states and localities with respect to which Seller is or was required to file any Returns and sets forth whether Seller is or was treated as the equivalent of an S corporation by or with respect to each such state and/or locality. (viii) Except as set forth in Schedule 3.01(t), each of the Stockholders (x) has paid all Taxes relating to the ownership interest of such Stockholder in Seller and re- 17 quired to be paid on or prior to December 31, 1996, by such Stockholder. (ix) For purposes of this Agreement, "Tax" (and with correlative meaning, "Taxes") means (A) any net income, gross income, gross receipts, franchise, profits, license, sales, use, ad valorem, value added, property, payroll, withholding, excise, severance, transfer, employment, alternative or add-on minimum, stamp, occupation, premium, environmental or windfall profits taxes, customs duties or other taxes, governmental fees or other like assessments or charges of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental authority responsible for the imposition of any such Taxes (domestic or foreign); (B) any liability of Seller for the payment of any amounts of the type described in (A) as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability of Seller for payments of such amounts was determined or taken into account with reference to the liability of any other person for any period prior to the Closing Date; and (C) any liability of Seller with respect to the payment of any amounts described in (A) as a result of any express or implied obligation to indemnify any other person. (u) Environmental Matters. (i) Neither the business or operations of Seller nor, to the knowledge of Seller and the Stockholders, the real property used by Seller in the Business (the "Real Property") violates any applicable Environmental Law (as defined below) in any material respect. (ii) Seller has not disposed of, stored or used any pollutants, contaminants or hazardous or toxic wastes, substances or materials in violation of any Environmental Law on or at the Real Property. (iii) Seller is not the subject of any government or private litigation or proceedings involving a demand for damages or other potential liability pursuant to any Environmental Laws or Common Law Environmental Principles (as defined below). (ii) For the purposes of this Agreement, the following terms have the meanings set forth below: "Common Law Environmental Principles" means any principles of common law under which a person or entity may be held liable for the release or discharge of any pollutants, 18 contaminants or hazardous or toxic wastes, substances or materials into the environment. "Environmental Law" shall mean any law, statute, regulation, rule, order, consent decree, settlement agreement or governmental requirement of any governmental authority, as in effect on the date of this Agreement, which relates to or otherwise imposes liability or standards of conduct concerning discharges or releases of any pollutants, contaminants or hazardous or toxic wastes, substances or materials into ambient air, water or land, or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, cleanup, transport or handling of pollutants, contaminants or hazardous or toxic wastes, substances or materials. (v) Transactions with Affiliates. Except as set forth on Schedule 3.01(v) hereto, no partner, director, officer or Stockholder of Seller or any member of such individual's immediate family, owns, directly or indirectly, or has an ownership interest in (i) any business, (corporate or otherwise) which is a party to, or in any property which is the subject of, business arrangements or relationships of any kind with Seller, or (ii) any business (corporate or other) which conducts the same business, or a business similar to, that which is conducted by Seller. (w) Governmental Authorizations and Regulations. (i) Seller has all governmental licenses, franchises, permits, consents, certificates, approvals and all registrations and filings with any governmental body with respect thereto (collectively, "Permits"), required under applicable law for the conduct of the Business as currently conducted, other than any of the foregoing the failure of which to have would not have, in the aggregate, a Material Adverse Effect. Seller has made all required registrations and filings with all governmental bodies that are required to be obtained in connection with the operations of the Business. All such Permits are listed on Schedule 3.01(w) hereto. Such Permits have been validly issued by the appropriate governmental bodies and are in full force and effect. No material default or violation, or event that with the lapse of time or the giving of notice or both would become a material default or violation, has occurred in the due observance of such Permit. (ii) The Business is being conducted in material compliance with all applicable laws, ordinances, rules and regulations of all governmental authorities relating to Seller's Assets or applicable to the Business, including 19 without limitation the terms of all Permits. Seller has not received any notice of any alleged violation of any of the foregoing. (iii) Neither Seller nor any of its properties, operations or businesses is subject to any court or administrative order, judgment, injunction or decree. To the best knowledge of Seller, no action has been taken or recommended by any governmental or regulatory official, body or authority, either to revoke, withdraw or suspend any Permit. (x) Insurance. All policies of fire, liability, workers' compensation, and other forms of insurance providing insurance coverage to or for Seller are listed in Schedule 3.01(x) hereto. All premiums with respect thereto covering all periods up to and including the date as of which this representation is being made have been paid, and no notice of cancellation or termination has been received with respect to any such policy. All such policies are in full force and effect and provide insurance, including without limitation liability insurance, in such amounts and against such risks as is customary for companies engaged in similar businesses to Seller. (y) Broker's or Finders' Fees. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Seller directly with Buyer, without the intervention of any persons on behalf of Seller in such a manner to give rise to any claim by any person against Buyer for a finder's fee, brokerage commission or similar payment. (z) Termination of Certain Business Arrangements. (i) As of the Closing Date, all relationships and agreements between Seller and the so-called "MHC" business entity ("MHC") shall have been terminated, and neither Buyer nor MedE (either directly or as a successor to Seller) shall have any further obligations with respect thereto. (ii) Certain of the written contracts relating to the provision of Medicaid eligibility data to health care providers in the State of Minnesota list "MA DATA, Inc." as the party providing such data. Notwithstanding such statement in each such contract, the actual party providing such data is Seller, and each such agreement represents a valid and binding agreement between the health care provider named therein and Seller. (iii) As of the Closing Date, neither Seller, nor Buyer nor MedE shall have any obligations of any sort to Andrew Johnson. 20 SECTION 3.002. Representations and Warranties of Buyer and MedE. Buyer and MedE jointly and severally represent and warrant to Seller as follows: (a) Organization, Corporate Power, Etc. Each of Buyer and MedE is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and the State of Delaware, respectively. Each of Buyer and MedE has all requisite corporate power and authority to acquire, own, lease and operate its properties and to execute and deliver this Agreement and the Ancillary Agreements applicable to such party, and to perform its obligations hereunder and thereunder. (b) Authorization of Agreements; Validity. The execution and delivery by Buyer and MedE of this Agreement and the Ancillary Agreements, and the consummation by Buyer and MedE of the transactions contemplated hereby and thereby, have been duly authorized by all requisite corporate action. This Agreement has been duly and validly executed by Buyer and MedE and constitutes the legal, valid and binding obligation of Buyer and MedE, enforceable in accordance with its terms. Each Ancillary Agreement, when duly executed and delivered by Buyer and MedE (if a party thereto), will constitute the legal, valid and binding obligation of Buyer and MedE, enforceable in accordance with its terms. (c) Effect of Agreements. The execution and delivery by Buyer and MedE of this Agreement and the Ancillary Agreements to which each is a party and the performance by Buyer and MedE of their respective obligations hereunder and thereunder will not (x) violate any provision of law, any order of any court or other agency of government, the charter or By-laws of Buyer or MedE, or any judgment, award, decree, indenture, agreement, Permit or other instrument to which Buyer or MedE is a party, or by which Buyer or MedE is bound or affected or (y) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement, Permit or other instrument. (d) Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of Buyer and MedE, as the case may be, threatened against or affecting Buyer or MedE or any of their respective properties or rights before any court or by or before any governmental body or arbitration board or tribunal, the outcome of which, if adversely decided, would prevent the consummation of the transactions contemplated hereby. (e) Governmental Approvals. No approval, authorization, consent or order or action of or filing with any court, administrative agency or other governmental authority is required 21 for the execution and delivery by Buyer or MedE of this Agreement and the Ancillary Agreements to which each is a party or the consummation by Buyer or MedE of the transactions contemplated hereby or thereby. (f) Broker's or Finders' Fees. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Buyer and MedE directly with Seller without the intervention of any persons on behalf of Buyer or MedE in such a manner to give rise to any claim by any person against Seller for a finder's fee, brokerage commission or similar payment. IV. COVENANTS SECTION 4.001. Covenants of Seller and the Stockholders. (a) Seller and the Stockholders jointly and severally agree that, at all times between the date hereof and the Closing Date, unless Buyer and Seller shall otherwise agree in writing, Seller shall (and the Stockholders shall cause Seller to): (i) operate the Business only in the usual, regular and ordinary manner and, to the extent consistent with such operations, use its best efforts to preserve the current business organization of the Business intact, keep available the services of those officers and employees currently engaged in the operations of the Business and preserve its present relationships with customers of, and all other persons having business dealings with, the Business; (ii) maintain all its Assets in good repair, order and condition, reasonable wear and tear excepted; (iii) maintain its books of account and records in the usual, regular and ordinary manner, on a basis consistent with past practice, and use its best efforts to comply with all laws applicable to it and to the conduct of the Business and perform all its material obligations without default; (iv) not change the character of the Business in any material manner; (v) not, with respect to the Business take any action or undertake any commitment or obligation of the types described in clauses (i) through (xi) and (xiv) of Section 3.01(h) hereof; and 22 (vi) not, except in the ordinary course and consistent with past practice, amend or modify in any way adverse to the interests of Seller any contract listed on Schedule 3.01(k) hereto. (b) Between the date of this Agreement and the Closing Date, Seller will afford the representatives of Buyer reasonable access during normal business hours to the offices, facilities, books and records of Seller and the opportunity to discuss the affairs of Seller with officers and employees of Seller familiar therewith. (c) Between the date of this Agreement and the Closing Date, Seller shall not, except as required by GAAP, (i) utilize accounting principles different from those used in the preparation of the Financial Statements, (ii) change in any manner its method of maintaining its books of account and records from such methods as in effect on December 31, 1996, or (iii) accelerate booking of revenues or the deferral of expenses, other than as shall be consistent with past practice and in the ordinary course of business. (d) Between the date hereof and the Closing Date, Seller shall, with Buyer's assistance and cooperation but at the expense of Seller, promptly apply for or otherwise seek and use its best efforts (it being understood, for purposes of paragraphs (d) and (e) hereof, that "best efforts" shall not include either (i) incurring any material cash expenditures or (ii) payment of any material sums) to obtain all authorizations, consents, waivers and approvals as may be required in connection with the assignment of the contracts, agreements, licenses, leases, sales orders, purchase orders and other commitments and all Permits of which Seller is the beneficiary to be assigned to Buyer pursuant to Section 1.01(a) hereto (including without limitation those contracts listed pursuant to Section 3.01(j)(vi)(F) hereto). (e) Between the date hereof and the Closing Date, Seller shall, with Buyer's assistance and cooperation but at the expense of Seller, use its best efforts (i) to enter into written service agreements with its customers listed on Part I of Schedule 4.01(e) hereto, and (ii) to enter into supplements to its written service agreements with its customers listed on Part II of Schedule 4.01(e) hereto. The terms of such written service agreements and supplements shall be reasonably acceptable to Buyer. (f) Between the date of this Agreement and the Closing Date, Seller will not enter into any transaction or make any agreement or commitment, or permit any event to occur, which would result in any of the representations, warranties or covenants of Seller contained in this Agreement not being true and 23 correct at and as of the time immediately after the occurrence of such transaction or event. SECTION 4.002. Confidentiality. The contents of this Agreement shall be kept confidential among the parties, except that each party may reveal and discuss the contents with its respective professional advisors, including attorneys and accountants. The parties may mutually agree in writing as to the revealing of the subject transaction to current employees and to the public. In so doing, the parties shall agree to the timing and content of the release of such information. SECTION 4.003. Allocation of Purchase Price. Each of the parties hereto agrees to allocate the Purchase Price (and any liabilities assumed by Buyer from Seller) among the Assets in the manner specified in Schedule 4.03 hereto. Each of the parties hereto shall respect such allocation for all financial accounting and Tax purposes and shall file all Returns and other documents with all taxing authorities on a basis consistent therewith. Buyer and Seller shall timely complete and file a Form 8594 Asset Acquisition Statement of Allocation consistent with such allocation, and shall provide a certified copy of such form to Buyer or Seller, as the case may be, and, if applicable, shall file a certified copy of such form with its federal income Tax Return for the period that includes the Closing Date. SECTION 4.004. Preparation of Certain Financial Statements. After the date hereof, Seller and the Stockholders shall provide MedE and Buyer and their independent auditors with all reasonable assistance required to prepare audited financial statements for the Business for and as of (x) the period from January 1, 1997 through the Closing Date and (y) each of the twelve month periods ended December 31, 1996, December 31, 1995, and December 31, 1994. Seller and the Stockholders confirm and agree that such assistance shall include, without limitation, (i) providing MedE, Buyer and their representatives with all necessary financial information and data relating to the Business for such periods, (ii) making available all employees of Seller or any of its affiliates deemed necessary by MedE and Buyer to assist in the preparation of such financial statements, and (iii) delivering to MedE's independent auditors a management representation letter for such periods in a form reasonably acceptable to such auditors. Section 4.005. Certain Tax Matters. () All stamp, transfer, sales or use Taxes imposed upon or incurred by any of the parties hereto in connection with this Agreement and the transactions contemplated hereby shall be borne by Buyer. Seller and Buyer shall jointly prepare and file all necessary Returns and other documents with respect to all such stamp, transfer, sales or use taxes and each party shall bear its own expenses in 25 connection therewith. If required by applicable law, any other party hereto shall join in the execution and filing of any such Returns or other documents. (b) For all federal, state, local and foreign income and franchise Tax purposes, each of the parties hereto agrees to treat the acquisition of the Assets by Buyer, pursuant to the terms and conditions of this Agreement, as a fully taxable sale of the assets of Seller to Buyer solely in exchange for cash (and the liabilities assumed by Buyer from Seller). (c) Seller shall be responsible for and shall pay (i) any and all Taxes with respect to Seller, the Business or the Assets relating to any Tax period or portion thereof ending on or before the Closing Date and (ii) any and all Taxes incurred by or imposed upon Seller (other than any Taxes described in paragraph (a) above) as a result of the consummation of any of the transactions contemplated by this Agreement. The Stockholders shall be responsible for and shall pay all Taxes relating to the ownership interest of such Stockholders in Seller and attributable to any period (or portion thereof) ending on or prior to the Closing Date. SECTION 4.006. Insurance. Between the date of this Agreement and the Closing Date, Seller shall maintain in full force and effect all insurance policies listed on Schedule 3.01(x) hereto. SECTION 4.007. Collection of Accounts Receivable. (a) For a period of six months from the Closing Date, Buyer will use reasonable efforts to collect for the benefit of Seller, and with the risk of non-collection continuing to be the risk of Seller, the accounts receivable of Seller as of the Closing Date (such receivables being hereinafter referred to as the "Collection Receivables"). Buyer shall deposit in Seller's account, when and as received (together with appropriate statements of collection), all monies, drafts, checks and other instruments of payment received by it as payments on the Collection Receivables, provided that payments applying to both Collection Receivables and receivables of Buyer shall be deposited in Buyer's account and funds in the amount attributable to the Collection Receivables shall be promptly remitted to Seller. Buyer shall apply all collections from account debtors owing Collection Receivables to the payment in full of undisputed and matured Collection Receivables in priority to any accounts receivable from such account debtors with respect to services rendered, goods sold or work done on or after the Closing Date; provided, however, that in the event that any such collection is received from such an account debtor as to whom transaction processing services are discontinued, such collection shall be allocated between Seller and Buyer pro rata on the basis of the ratio of (A) Collection Receivables 25 payable by such account debtor to (B) receivables payable by such account debtor that accrue after the Closing Date. SECTION 4.008. Retention of Employees. Effective as of the Closing Date, except for the employees of the Business listed in Schedule 4.08 hereto, Buyer will offer to continue the employment of all employees of Seller at salaries equal to those now paid by Seller, and on such other terms as MedE and Buyer make available to their employees generally. It is understood and agreed that nothing in this Agreement shall be deemed to create any employment status other than employment at will or require Buyer to continue for the benefit of any employee any Plan or other benefits program or arrangement maintained by Seller prior to the Closing Date. SECTION 4.009. Payment of Liabilities. Seller shall, on a timely basis and in a manner consistent with past practice, pay all liabilities of Seller not assumed by Buyer. SECTION 4.10. Name Change. Within 30 days of the Closing Date, Seller shall change its name to a name that does not include the words "time," "share," "computer," "systems" or any variations thereon. V. CONDITIONS PRECEDENT SECTION 5.001. Conditions Precedent to Obligations of Buyer and MedE. The obligations of Buyer and MedE under this Agreement are subject, at the option of Buyer and MedE, to the satisfaction at or prior to the Closing Date of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of Seller and the Stockholders contained in this Agreement or in any certificate or document delivered to Buyer pursuant hereto shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that date, and Seller and the Stockholders shall have delivered to Buyer a certificate to that effect. (b) Compliance with Covenants. Seller and the Stock holders shall have performed and complied in all material respects with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by it at or prior to the Closing Date, and Seller and the Stockholders shall have delivered to Buyer a certificate to that effect. (c) Opinion of Counsel to Seller. Buyer shall have received the favorable opinion of Hanson & Associates, counsel 26 for Seller, dated the Closing Date, substantially in such form attached hereto as Exhibit D. (d) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby or which would, if adversely decided, have a Material Adverse Effect. (e) Consents; Assignment of Contracts. Seller shall have obtained all the authorizations, consents, waivers and approvals required in connection with the transfer or assignment of those Permits, contracts, agreements, licenses, leases, sales orders, purchase orders and other commitments listed on Schedule 3.01(j)(vi)(F) hereto. (f) Written Service Agreements; Supplements to Service Agreements. Seller shall have entered into written service agreements with its customers listed on Part I of Schedule 4.01(e) hereto, and shall have entered into supplements to its written service agreements with its customers listed on Part II of Schedule 4.01(e) hereto. The terms of such agreements and supplements shall be reasonably satisfactory to Buyer and its counsel. (g) Ancillary Agreements. The Ancillary Agreements shall have been executed and delivered by each party thereto, and said Agreements shall be in full force and effect as of the Closing Date. (h) Supporting Documents. Buyer and MedE shall have received copies of the following supporting documents: (i) a certificate of the Secretary of State of the State of Minnesota, dated as of a recent date, as to the due incorporation and good standing of Seller and listing all documents of Seller on file with said Secretary; and (ii) a certificate of the Secretary or an Assistant Secretary of Seller dated the Closing Date and certifying: (1) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement and the Ancillary Agreements; and (2) as to the incumbency and specimen signature of each officer of Seller furnishing any certificate or instrument pursuant hereto, and a certification by another officer of 27 Seller as to the incumbency and signature of the officer signing the certificate referred to herein. (i) All Proceedings To Be Satisfactory. All corporate and other proceedings to be taken by Seller in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Buyer and its counsel, and Buyer and said counsel shall have received all such counterpart originals or certified or other copies of such documents as it or they may reasonably request. (j) Allocation of Purchase Price. Buyer and Seller shall have agreed to an allocation of the Purchase Price among the Assets in accordance with Section 4.03 hereof. (k) MHC Acknowledgement. MHC shall have executed and delivered to Buyer an acknowledgement that (i) no contract or understanding exists between Buyer or MedE (either directly or as a successor to Seller) and MHC and (ii) no sums are payable by MedE or Buyer to MHC as of the Closing Date. The content of such acknowledgement shall be reasonably satisfactory to Buyer and its counsel. SECTION 5.002. Conditions Precedent to Obligations of Seller and the Stockholders. The obligations of Seller and the Stockholders under this Agreement are subject, at the option of Seller and the Stockholders, to the satisfaction at or prior to the Closing Date of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of Buyer and MedE contained in this Agreement or in any certificate or document delivered to Seller pursuant hereto shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that date, and Buyer and MedE shall have delivered to Buyer a certificate to that effect. (b) Compliance with Covenants. Buyer and MedE shall have performed and complied in all material respects with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by it at or prior to the Closing Date, and Buyer and MedE shall have delivered to Seller a certificate to that effect. (c) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby or which would, if adversely decided, have a Material Adverse Effect. 28 (d) Ancillary Agreements. The Ancillary Agreements shall have been executed and delivered by each party thereto, and said Agreements shall be in full force and effect as of the Closing Date. (e) Consulting Agreement. MedE shall have executed and delivered to Jack Guggisberg a Consulting Agreement substantially in the form of Exhibit E attached hereto. (f) Supporting Documents. Seller shall have received copies of the following supporting documents: (i) a certificate of the Secretary of State of the state of incorporation of each of Buyer and MedE dated as of a recent date as to the due incorporation and good standing of each of Buyer and MedE; and (ii) a certificate of the Secretary or an Assistant Secretary of Buyer and MedE dated the Closing Date and certifying: (1) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Buyer and MedE authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement and the Ancillary Agreements; and (2) as to the incumbency and specimen signature of each officer of Buyer and MedE furnishing any certificate or instrument pursuant hereto, and a certification by another officer of each of Buyer and MedE as to the incumbency and signature of the officer signing the certificate referred to herein. (g) All Proceedings To Be Satisfactory. All corporate and other proceedings to be taken by Buyer and MedE in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Seller and its counsel, and Seller and said counsel shall have received all such counterpart originals or certified or other copies of such documents as it or they may reasonably request. (h) Allocation of Purchase Price. Buyer and Seller shall have agreed to an allocation of the Purchase Price among the Assets in accordance with Section 4.03 hereof. (i) Opinion of Buyer's Counsel. Seller shall have received the favorable opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for Buyer and MedE, dated the Closing Date, substantially in such form attached hereto as Exhibit F. 29 5.003. Deemed Satisfaction of Certain Conditions. It is understood that if (i) Seller, acting diligently and in good faith, has substantially but not fully met any of the conditions set forth in Sections 5.01(e) and 5.01(f) hereof, and (ii) Buyer reasonably determines that such condition(s) will eventually be met in all material respects, then such condition(s) shall be deemed to have been satisfied (subject, however, to the continuing obligation of Seller to use its best efforts to effect the satisfaction of such condition(s) without resort to this Section 5.03). Notwithstanding the foregoing, it shall in any event be a condition to closing, at Buyer's option, that the conditions set forth in Sections 5.01(e) and 5.01(f) hereof shall have been fully satisfied with respect to each of the customers and/or contracts listed on Schedule 5.03 hereto. VI . SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION SECTION 6.001. Survival of Representations. Except as otherwise set forth below, all representations and warranties made by any party hereto in this Agreement or pursuant hereto shall survive for a period of 18 months following the Closing Date, except for the representations and warranties as to Tax and environmental matters made by any party hereto in this Agreement or pursuant hereto (which representations and warranties shall survive for the applicable statute of limitation period, including any extensions thereof). SECTION 6.002. Tax Indemnity. () Seller and the Stockholders hereby jointly and severally agree to indemnify, defend and hold Buyer and MedE harmless from and against any and all Taxes incurred by, imposed upon or attributable to Seller or any predecessor company thereof, including reasonable legal fees and expenses incurred by any party hereto and relating thereto, for any Tax period or portion thereof ending on or before the Closing Date. (b) Buyer and MedE hereby jointly and severally agree to indemnify, defend and hold Seller and the Stockholders harmless from and against any and all Taxes incurred by, imposed upon or attributable to Buyer, MedE or any predecessor company thereof, including reasonable legal fees and expenses incurred by any party hereto and relating thereto, for any Tax period or portion thereof ending after the Closing Date. (c) For purposes of this Section 6.02, any interest, penalty or additional charge included in Taxes shall be deemed to be a Tax for the period to which the item or event giving rise to such interest, penalty or additional charge is attributable, and not a Tax for the period during which such interest, penalty or additional charge accrues. 30 (d) The indemnity provided for in this Section 6.02 shall be independent of any other indemnity provision hereof and, anything in this Agreement to the contrary notwithstanding shall survive until the expiration of the applicable statutes of limitation, including any extensions thereof, for the Taxes referred to herein. Any Taxes, legal fees and expenses subject to indemnification under this Section 6.02 shall not be subject to indemnification under Section 6.03. SECTION 6.003. General Indemnity. () Subject to the terms and conditions of this Article VI, Seller and the Stockholders hereby jointly and severally agree to indemnify, defend and hold Buyer and MedE harmless from and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' fees and expenses (collectively, "Damages"), asserted against, resulting to, imposed upon or incurred by Buyer or MedE by reason of or resulting from: (i) a breach of any representation, warranty or covenant of Seller or any Stockholder contained in or made pursuant to this Agreement; (ii) any liabilities or obligations of, or claims against or imposed on Seller (whether absolute, accrued, contingent or otherwise and whether a contractual, or any other type of liability, obligation or claim) not assumed by Buyer pursuant to this Agreement; (iii) any liabilities or obligations (whether absolute, accrued, contingent or otherwise) in respect of any action, suit or proceeding relating to the conduct of the Business by Seller and based upon an event occurring or a claim arising on or prior to the Closing Date (including without limitation those actions listed on Schedule 3.01(k) hereto); and (iv) any liability in respect of any failure by Seller to conduct the Business in compliance with any Permit, law, regulation or order prior to the Closing Date. (b) Subject to the terms and conditions of this Article VI, Buyer and MedE hereby jointly and severally agree to indemnify, defend and hold Seller and the Stockholders harmless from and against all Damages asserted against, result imposed upon or incurred by Seller or any Stockholder to, by reason of or resulting from: 31 (i) a breach of any representation, warranty or covenant of Buyer or MedE contained in or made pursuant to this Agreement; (ii) the failure of Buyer to pay, perform and discharge when due any Assumed Liabilities; (iii) any liabilities or obligations (whether absolute, accrued, contingent or otherwise) in respect of any action, suit or proceeding relating to the conduct of the Business by Buyer and based upon an event occurring or a claim arising after the Closing Date; and (iv) any liability in respect of any failure by Buyer to conduct the Business in compliance with any Permit, law, regulation or order after the Closing Date. SECTION 6.004. Conditions of Indemnification. The respective obligations and liabilities of Seller, on the one hand, and Buyer, on the other hand (the "indemnifying party"), to the other (the "party to be indemnified") under Sections 6.02 and 6.03 hereof with respect to claims resulting from the assertion of liability by third parties shall be subject to the following terms and conditions: (a) within 20 days after receipt of notice of commencement of any action or the assertion in writing of any claim by a third party, the party to be indemnified shall give the indemnifying party written notice thereof together with a copy of such claim, process or other legal pleading, and the indemnifying party shall have the right to undertake the defense thereof by representatives of its own choosing; (b) in the event that the indemnifying party, by the 30th day after receipt of notice of any such claim (or, if earlier, by the tenth day preceding the day on which an answer or other pleading must be served in order to prevent judgment by default in favor of the person asserting such claim), does not elect to defend against such claim, the party to be indemnified will (upon further notice to the indemnifying party) have the right to undertake the defense, compromise or settlement of such claim on behalf of and for the account and risk of the indemnifying party, subject to the right of the indemnifying party to assume the defense of such claim at any time prior to settlement, compromise or final determination thereof, provided that the indemnifying party shall be given at least 15 days prior written notice to the effectiveness of any such proposed settlement or compromise; (c) anything in this Section 6.04 to the contrary notwithstanding (i) if there is a reasonable probability that a 32 claim may materially and adversely affect the indemnifying party other than as a result of money damages or other money payments, the indemnifying party shall have the right, at its own cost and expense, to compromise or settle such claim, but (ii) the indemnifying party shall not, without the prior written consent of the party to be indemnified, settle or compromise any claim or consent to the entry of any judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the party to be indemnified a release from all liability in respect of such claim; and (d) in connection with any such indemnification, the indemnified party will cooperate in all reasonable requests of the indemnifying party. SECTION 6.005. Basket. Notwithstanding anything to the contrary contained herein or in the Escrow Agreement, Seller and/or the Stockholders shall only be required to indemnify Buyer and/or MedE for Taxes and/or Damages pursuant to this Article VI to the extent that such Taxes and/or Damages exceed $100,000 in the aggregate. VII. TERMINATION SECTION 7.001. Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by Buyer, if the conditions set forth in Section 5.01 shall not have been complied with or performed in any material respect and such noncompliance or nonperformance shall not have been waived, cured or eliminated (or by its nature cannot be cured or eliminated) by Seller or the Stockholders on or before February 28, 1997; (b) by Seller, if the conditions set forth in Section 5.02 shall not have been complied with or performed in any material respect and such noncompliance or nonperformance shall not have been waived, cured or eliminated (or by its nature cannot be cured or eliminated) by Buyer or MedE on or before February 28, 1997; or (c) by Buyer or Seller, in the event the Closing Date has not occurred on or prior to the close of business on February 28, 1997 or such later date as the parties hereto may agree in writing (unless such event has been caused by the breach of this Agreement by the party seeking such termination). A failure to satisfy a condition hereunder (including without limitation a condition set forth in Section 5.01(e) or 5.01(f) hereof) shall not of itself constitute a breach of this Agreement. 33 SECTION 7.002. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 7.01 hereof, this Agreement shall thereafter become void and have no effect, and no party hereto shall have any liability to any other party hereto or its partners or stockholders or directors or officers in respect thereof, except that nothing herein shall relieve any party from liability for any willful breach hereof. The terms of the Non-Disclosure Agreement, dated December 6, 1996 between MedE and Seller shall survive any termination of this Agreement. Without limiting the effect of said Non-Disclosure Agreement, upon any termination of this Agreement, each of Buyer and MedE, on the one hand, and Seller and the Stockholders, on the other hand, (i) shall not use any confidential information disclosed by the other for its own benefit and (ii) shall promptly return to the other all documents, papers and other confidential information delivered to such party by the other at any time prior to the date of such termination. VII. MISCELLANEOUS SECTION 8.001. Specific Performance. Seller and the Stockholders acknowledge that the acquisition of the Assets is a vital, necessary and unique part of Buyer's strategic plan, which includes the acquisition and consolidation of other related businesses, and that any breach of this Agreement by Seller or the Stockholders could not be adequately compensated by damages. Buyer and MedE acknowledge that any breach of this Agreement by Buyer or MedE could not be adequately compensated by damages. Accordingly, each of Buyer and MedE, on the one hand, and Seller and the Stockholders, on the other hand, shall be entitled, in the event of a breach of this Agreement by the other, in addition to any other remedies that it may have, to enforcement of this Agreement by a decree of specific performance requiring that the other party or parties fulfill their respective obligations under this Agreement. SECTION 8.002. Bulk Transfer Laws. Subject to the provisions of Section 6.03 hereof, Buyer hereby waives compliance by Seller with any applicable bulk transfer laws, including, without limitation, the bulk transfer provisions of the Uniform Commercial Code of any state, or any similar statute, with respect to the transactions contemplated hereby. SECTION 8.003. Expenses, Etc. Whether or not the transactions contemplated by this Agreement are consummated, Seller and the Stockholders, on the one hand, and Buyer and MedE, on the other hand, shall not have any obligation to pay any of the fees and expenses of the other party incident to the negotiation, preparation and execution of this Agreement, including the fees and expenses of counsel, accountants, investment bankers and 34 other experts. Seller and the Stockholders, on the one hand, and Buyer and MedE, on the other hand, will indemnify the other and hold the other harmless from and against any claims for finders fees or brokerage commissions in relation to or in connection with such transactions as a result of any agreement or understanding between such indemnifying party and any third party. SECTION 8.004. Execution in Counterparts. This Agreement may be executed in one or more counterparts, or by the parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 8.005. Notices. All notices which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and delivered personally, transmitted by facsimile, sent by nationally recognized overnight courier or mailed by registered or certified mail postage prepaid, as follows: If to Seller or to Jack Guggisberg, to: Jack Guggisberg 13216 Longview Drive Burnsville, Minnesota 55337 with a copy to: Hanson & Associates 4900 IDF Center 80 South 8th Street Minneapolis, Minnesota 55402 Attention: Jack W. Hanson, Esq. Fax: (612) 332-2116 If to David C. McGuire, to: David C. McGuire 8620 Eagle Creek Boulevard Shakopee, Minnesota 55379 If to Darwin J. DeRosier, to: Darwin J. DeRosier 7260 University Avenue Suite 310 Minneapolis, Minnesota 55432 35 If to Buyer or MedE, to: MedE America Corporation 90 Merrick Avenue, Suite 501 East Meadow, New York 11554 Attention: David M. Goldwin, Esq. Fax: (516) 542-4508 with a copy to: Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 Attention: Mark J. Tannenbaum, Esq. Fax: (212) 841-5725 or such other address or addresses as Seller and the Stockholders, on the one hand, or Buyer and MedE, on the other hand, shall have designated by notice to the other in writing. SECTION 8.006. Waivers. Seller (acting on behalf of itself and the Stockholders), on the one hand, and MedE (acting on behalf of itself and Buyer), on the other hand, may, by written notice to the other, (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other contained in this Agreement or in any document delivered pursuant to this Agreement; (iii) waive compliance with any of the conditions or covenants of the other contained in this Agreement; or (iv) waive performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party shall be deemed to constitute a waiver by such party of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. SECTION 8.007. Amendments, Supplements, Etc. At any time this Agreement may be amended or supplemented by such additional agreements, articles or certificates as may be determined by the parties hereto to be necessary, desirable or expedient to further the purposes of this Agreement, or to clarify the intention of the parties hereto, or to add to or modify the covenants, terms or conditions hereof or to effect or facilitate any governmental approval or acceptance of this Agreement or to effect or facilitate the filing or recording of this Agreement or the consummation of any of the transactions contemplated hereby. Any such instrument must be in writing and signed by all parties. 36 SECTION 8.008. Entire Agreement. This Agreement, its Exhibits and Schedules, the Ancillary Agreements and the documents executed on the Closing Date in connection herewith, constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. No representation, warranty, promise, inducement or statement of intention has been made by any party which is not embodied in this Agreement or such other documents, and no party shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement or statement of intention not embodied herein or therein. SECTION 8.009. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA. SECTION 8.10. Binding Effect; Benefits. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 8.11. Assignability. Neither this Agreement nor any of the parties' rights hereunder shall be assignable by any party hereto without the prior written consent of the other parties hereto. 37 IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly executed and delivered by the parties hereto as of this 3rd day of February, 1997. GENERAL COMPUTER CORPORATION By ------------------------------ By ------------------------------ TIME-SHARE COMPUTER SYSTEMS, INC. By ------------------------------ ------------------------------ Jack Guggisberg ------------------------------ David C. McGuire ------------------------------ Darwin J. DeRosier 38 EX-2.2 3 EXHIBIT 2.2 ================================================================================ ASSET PURCHASE AGREEMENT among MEDE AMERICA CORPORATION GENERAL COMPUTER CORPORATION THE STOCKTON GROUP, INC. and JAMES S. SMITH Dated as of October 20, 1997 ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I. TRANSFERS ....................................................... 1 SECTION 1.01 Transfer of Assets....................................... 2 SECTION 1.02 Instruments of Conveyance and Transfer............................................... 3 SECTION 1.03 Nonassignable Contracts.................................. 4 SECTION 1.04 Non-Assumption of Certain Liabilities.................... 4 ARTICLE II. CLOSING, PURCHASE PRICE, ETC..................................... 5 SECTION 2.01 Closing ................................................. 5 SECTION 2.02 Purchase Price........................................... 6 SECTION 2.03 Payment to Seller on Closing Date........................ 6 SECTION 2.04 Earn-Out ................................................ 6 SECTION 2.05 Dispute Resolution....................................... 8 ARTICLE III. REPRESENTATIONS AND WARRANTIES................................... 9 SECTION 3.01 Representations and Warranties of Seller and the Stockholder.................................... 9 SECTION 3.02 Representations and Warranties of Buyer and MedE......................................... 24 ARTICLE IV. COVENANTS 25 SECTION 4.01 Covenants of Seller and the Stockholder.................. 25 SECTION 4.02 Confidentiality.......................................... 27 SECTION 4.03 Allocation of Purchase Price............................. 27 SECTION 4.04 Preparation of Certain Financial Statements............................................. 27 SECTION 4.05 Certain Tax Matters...................................... 28 SECTION 4.06 Insurance ............................................... 28 SECTION 4.07 Collection of Accounts Receivable........................ 28 SECTION 4.08 Retention of Employees................................... 29 SECTION 4.09 Payment of Certain Liabilities........................... 29 SECTION 4.10 Name Matters ............................................ 29 SECTION 4.11 Brookins and Lagnese..................................... 29 SECTION 4.12 Access to Records........................................ 30 ARTICLE V. CONDITIONS PRECEDENT............................................. 30 SECTION 5.01 Conditions Precedent to Obligations of Buyer and MedE...................................... 30 SECTION 5.02 Conditions Precedent to Obligations of Seller and the Stockholder.......................... 32
Page ---- ARTICLE VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.......................................... 34 SECTION 6.01 Survival of Representations.......................... 34 SECTION 6.02 Tax Indemnity........................................ 34 SECTION 6.03 General Indemnity.................................... 35 SECTION 6.04 Conditions of Indemnification........................ 36 ARTICLE VII. TERMINATION ................................................. 37 SECTION 7.01 Termination 37 SECTION 7.02 Effect of Termination................................ 37 ARTICLE VIII. MISCELLANEOUS................................................ 38 SECTION 8.01 Specific Performance................................. 38 SECTION 8.02 Bulk Transfer Laws................................... 38 SECTION 8.03 Expenses, Etc........................................ 38 SECTION 8.04 Execution in Counterparts............................ 38 SECTION 8.05 Notices ............................................. 39 SECTION 8.06 Waivers ............................................. 39 SECTION 8.07 Amendments, Supplements, Etc.......................... 40 SECTION 8.08 Entire Agreement...................................... 40 SECTION 8.09 Applicable Law........................................ 40 SECTION 8.10 Binding Effect; Benefits.............................. 40 SECTION 8.11 Assignability......................................... 41 TESTIMONIUM ................................................................. 42 (ii) INDEX TO EXHIBITS AND ANNEXES Exhibit Description - ------- ----------- A Form of Bill of Sale, Assignment and Assumption Agreement B Form of Non-Compete Agreement C Form of Consulting Agreement D Form of Standard Service Agreement E Form of Opinion of Parker, Poe, Adams & Bernstein F Form of Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol (iii) INDEX TO SCHEDULES Schedule Description 1.01(a)(i) Computer Equipment 1.01(a)(vi) Contracts to be Transferred 2.04 Customers of Seller 3.01(a) Jurisdictions 3.01(e) Effect of Agreements 3.01(f) Governmental Approvals 3.01(g) Financial Statements 3.01(h) Certain Changes or Events 3.01(i) Liens and Encumbrances 3.01(j) List of Properties, Contracts and Other Data 3.01(k) Litigation 3.01(m) Employee Benefit Plans 3.01(n) Intellectual Property Rights 3.01(o) Software 3.01(s) Customers 3.01(t) Taxes 3.01(v) Transactions with Affiliates 3.01(w) Governmental Authorizations and Regulations 3.01(x) Insurance 4.01(e) Written Service Agreements; Supplements to Service Agreements 4.03 Allocation of Purchase Price 4.08 Retained Employees (iv) ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of October 20, 1997, among MEDE AMERICA CORPORATION, a Delaware corporation ("MedE"), GENERAL COMPUTER CORPORATION, an Ohio corporation and a wholly-owned subsidiary of MedE ("Buyer"), THE STOCKTON GROUP, INC., a South Carolina corporation ("Seller"), and James S. Smith (the "Stockholder"). WHEREAS, Seller is engaged in the business of providing electronic data interchange and transaction processing services to the healthcare industry (the "Business"); and WHEREAS, Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, all the assets and properties of Seller relating to the Business (excluding certain specified assets), and to assume certain liabilities, all on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: I. TRANSFERS SECTION 1.001. Transfer of Assets. () On the terms and subject to the conditions hereinafter set forth, on the Closing Date (as hereinafter defined), Seller shall sell, convey, transfer, assign and deliver to Buyer, and Buyer shall purchase from Seller, for the consideration set forth in Section 2.03 hereof, all the then existing assets and properties (of every kind, nature and description, real, personal or mixed, tangible or intangible and wherever situated, whether or not carried on the books of Seller) of Seller to the extent that such assets are necessary to, or attributable to, the Business, or used by Seller in connection with the Business, except those assets excluded pursuant to paragraph (b) below (said assets and properties so to be sold, conveyed, transferred, assigned and delivered being hereinafter collectively called the "Assets"), including, without limitation: (i) all tangible personal property, inventory, machinery, equipment, supplies, tools, fixtures, leaseholds, computer equipment (including without limitation the computer hardware described on Schedule 1.01(a)(i) hereto), work in process, spare parts, vehicles, furniture and office furnishings, wherever situated (it being the intention hereby to assign and transfer all the tangible personal property owned or claimed by Seller); (ii) all intangible personal property of whatsoever kind or character, whether evidenced in writing or not, including but not limited to all customer lists, data bases, proprietary assays, deferred charges and prepaid expenses, customer accounts, bonds, claims, and causes of action (whether fixed or contingent); (iii) the patents, trademarks and trade names (including without limitation Seller's right, title and interest in and to the "PreScrip" trade name as contemplated by Section 4.10 hereof), trademark and trade name registrations, service marks and service mark registrations, copyrights and copyright registrations, the applications therefor and the licenses and franchises with respect thereto, in each case listed in clause (iv) of Schedule 3.01(j) hereto, together with all trade secrets, technology (including technology with respect to which Seller is a licensee, in any such case only insofar as permitted under the applicable license agreement), processes, inventions, designs, drawings, blueprints, specifications, patterns, royalties, privileges, permits and all other similar intangible personal property (collectively, the "Intellectual Property Rights"); (iv) all technical materials and guidelines, brochures, sales literature, promotional material and other selling material; (v) all papers, documents, instruments, books and records, files, agreements, books of account and other records by which the Assets might be identified or enforced, or otherwise pertaining to the Assets or the Business that are located at the offices or other locations used in connection with the Assets or the Business (including, without limitation, customer invoices, customer lists, vendor and supplier lists, drafts and other documents and materials relating to customer transactions); (vi) the rights of Seller under (A) all contracts, agreements, licenses, leases, sales orders, purchase orders and other commitments relating to the Assets or the Business and listed on Schedule 1.01(a)(vi) hereto, and (B) the Key Customer Contracts (as defined herein); (vii) all computer software programs, the source and object codes for such software programs and all documentation and training manuals related thereto owned, held or licensed by Seller; and (viii) all other assets and rights of every kind and nature, real or personal, tangible or intangible, that are owned or claimed by Seller and that are necessary to, or 2 attributable to, the Business or used by Seller in connection with the Business (including, without limitation, all goodwill), whether or not such assets are reflected in the balance sheets and other financial statements of Seller, together with the right to represent that Buyer is the successor in interest to the Business. Without limiting the generality of the foregoing, the Assets shall, except as set forth in paragraph (b) below, include all assets set forth or reflected on the audited balance sheet of Seller as of June 30, 1997 (the "June 30, 1997 Balance Sheet"), together with all such assets as may be acquired by Seller after said date and that would be included on a balance sheet prepared in like manner from such accounting records as of the Closing Date, except for any such assets that may be or have been disposed of after said date in the ordinary course of business on a basis consistent with past practice. (b) Anything herein contained to the contrary notwithstanding, the following assets and properties of Seller are specifically excluded from the Assets and shall be retained by Seller: (i) all cash and cash equivalents on hand, including investment securities, bank accounts, temporary cash and petty cash held by Seller as of the Closing Date; (ii) all accounts receivable accrued on the books of Seller as of the Closing Date and resulting from the delivery of goods and services of the Business prior to the Closing Date; (iii) all accrued but unbilled rebate commissions aris ing on or prior to the Closing Date (in the event that such commissions are paid to Buyer after the Closing Date, Buyer shall promptly remit the same to Seller); and (iv) any claims or rights against third parties relating to liabilities or obligations that are not assumed by Buyer pursuant to this Agreement. SECTION 1.002. Instruments of Conveyance and Transfer. Subject to Section 1.03 below, on the Closing Date, Seller shall execute and deliver to Buyer (i) a bill of sale in the form included in the Form of Bill of Sale, Assignment and Assumption Agreement annexed hereto as Exhibit A (the "Bill of Sale, Assign ment and Assumption Agreement") and (ii) such other documents of transfer that Buyer may reasonably request, transferring to Buyer the properties and assets to be acquired by Buyer under the terms of this Agreement. 4 SECTION 1.003. Nonassignable Contracts. Nothing in this Agreement shall be construed as an attempt or agreement to assign (i) any contract, agreement, license, lease, sales order, purchase order or other commitment that is nonassignable without the consent of the other party or parties thereto unless such consent shall have been given (subject, however, to the covenant of Seller and the Stockholder in Section 4.01(d) hereof), or (ii) any contract or claim as to which all the remedies for the enforcement thereof enjoyed by Seller would not pass to Buyer as an incident of the assignments provided for by this Agreement. In order, however, that the full value of every contract and claim of the character described in clauses (i) and (ii) above and all claims and demands on such contracts may be realized, Seller and the Stockholder will use their best efforts to obtain approval for assignment and, failing that, Seller shall, by itself or by its agents, at the request and expense and under the direction of Buyer, in the name of Seller or otherwise as Buyer shall specify and as shall be permitted by law, take all action and do or cause to be done all things as shall in the opinion of Buyer be reasonably necessary or proper (x) in order that the rights and obligations of Seller under such contracts shall be preserved and (y) for, and to facilitate, the collection of the moneys due and payable, and to become due and payable, to Seller in and under every such contract and claim and in respect of every such claim and demand, and Seller shall hold the same for the benefit of and shall pay the same over promptly to Buyer. SECTION 1.004. Non-Assumption of Certain Liabilities. Buyer is not assuming, and shall not be deemed to have assumed, any liabilities or obligations of Seller of any kind or nature whatsoever, except (x) executory obligations under the operating contracts of Seller assigned to Buyer and listed on Schedule 1.01(a)(vi) hereto, (y) executory obligations under the Key Customer Contracts and (z) those employment obligations set forth in Section 4.08 hereof, in each case only to the extent expressly provided in the Bill of Sale, Assignment and Assumption Agreement (collectively, the "Assumed Liabilities"). Without limiting the generality of the foregoing, it is hereby agreed that Buyer is not assuming any liability for and shall not have any obligation with respect to: (i) any and all (x) accrued but unpaid current liabilities and (y) non-current liabilities of Seller, in each case as determined in accordance with generally accepted accounting principles consistently applied ("GAAP"), either set forth or reflected on the June 30, 1997 Balance Sheet or incurred by Seller after June 30, 1997; (ii) any liabilities or obligations of Seller that arise under the terms of a contract, agreement, license, lease, sales order, purchase order, or other commitment 4 which shall not be assigned to Buyer pursuant to this Agreement (including, without limitation, any of the foregoing not listed on Schedule 1.01(a)(vi) hereto); (iii) any liabilities or obligations of Seller that arise under the terms of a contract, agreement, license, lease, sales order, purchase order, or other commitment which shall not be assigned to Buyer pursuant to this Agreement; (iv) any liabilities or obligations of Seller to the Stockholder and his affiliates (including without limitation any notes payable to the Stockholder), or to any other stockholder or purported stockholder of Seller; (v) any liabilities or obligations of Seller under any Plan (as defined in Section 3.01(m) hereof, including any obligation to adopt or to sponsor such Plan of Seller except as Buyer may, in its sole discretion, elect to adopt or to sponsor); (vi) any obligation of Seller arising out of any action, suit or proceeding based upon an event occurring or a claim arising (A) prior to or on the Closing Date or (B) after the Closing Date in the case of claims in respect of products or services sold or provided by Seller prior to the Closing Date or attributable to acts performed or omitted by Seller prior to the Closing Date; (vii) any and all Taxes (as hereinafter defined) incurred by or imposed upon Seller, or any predecessor company thereof, for all periods prior to (and up to and including) the close of business on the Closing Date, including without limitation any Taxes incurred by or imposed upon Seller and arising out of the consummation of the transactions contemplated by this Agreement; and (viii) any liability in respect of any failure of Seller to conduct the Business in compliance with any Permit (as hereinafter defined), law, regulation or order, including without limitation any Environmental Law or Common Law Environmental Principle (each as hereinafter defined), prior to the Closing Date. II. CLOSING, PURCHASE PRICE, ETC. SECTION 2.001. Closing. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York, 10111, on 5 November 15, 1997, or on such other date as the parties may mutually agree (such date and time of closing being herein called the "Closing Date"), and for tax and accounting purposes shall be deemed effective as of the close of business on such date. SECTION 2.002. Purchase Price. The aggregate purchase price for the Assets hereunder shall be () $10,400,000 in cash, payable on the Closing Date, plus () an amount (the "Earn Out Amount") up to $2,600,000, together with interest on such amount from the Closing Date to the Earn-Out Payment Date (as hereinafter defined), such amount and the rate of interest thereon to be determined in accordance with (and paid pursuant to) the provisions of Section 2.04 hereof (all such payments being collectively referred to herein as the "Purchase Price"). SECTION 2.003. Payment to Seller on Closing Date. On the Closing Date, Buyer shall pay to Seller $10,400,000 in cash by wire transfer of immediately available funds to the account specified by Seller. SECTION 2.004. Earn-Out. Subject to the terms of this Agreement, Buyer may make an additional payment to Seller in respect of the Earn-Out Period (as hereinafter defined), on the following terms: (a) For the purposes of this Agreement, the terms set forth herein have the following meanings: (i) "Customers" means those customers of Seller listed on Schedule 2.04 hereto. (ii) "Earn-Out Period" means the twelve month period ended September 30, 1998. (iii) "Revenue" means the aggregate amount of all new and recurring revenue booked by Seller during any applicable period. Revenue shall include revenue derived from rebate transactions (accounted for on an accrual basis); provided that only the portion of such revenue actually retained by Seller (i.e., excluding any portion remitted to the Customers) shall be included in Revenue. Revenue shall be computed in accordance with generally accepted accounting principles as historically applied by Buyer with regard to its business. Revenue shall not include (i) any such revenue attributable to conversion of customers of Buyer to Seller's transaction-processing system or (ii) commission uplift revenue for current and future customers of Seller. (b) The chief financial officer of Buyer shall in good faith calculate Revenue for the Earn-Out Period on or before November 30, 1998. Such computation shall be made in accordance 6 with generally accepted accounting principles as historically applied by Buyer with regard to its business. Promptly after such determination, Buyer shall deliver to Seller a written calculation of Revenue for the Earn-Out Period. If Seller objects in writing to such calculation within ten days after receipt thereof, Buyer and Seller shall use reasonable efforts to resolve any such objections. If no objection is so delivered within such ten day period, such calculation shall be final and binding as to all parties. To the extent that Buyer and Seller resolve any such objections and agree as to the calculation of Revenue for the Earn-Out Period, Buyer and Seller shall sign a certificate to that effect and such resolution shall be deemed final and binding as to all parties for purposes of this Agreement. If Seller's objections cannot be so resolved by the parties within 30 days of the date such written objection is delivered to Buyer, any remaining disputes shall be resolved by a mutually acceptable "big six" accounting firm in accordance with Section 2.05 hereof. (c) The Earn-Out Amount shall be calculated as follows: (i) in the event that Revenue for the Earn-Out Period is equal to or greater than $5,000,000, then the Earn-Out Amount shall be equal to $2,600,000, together with interest (computed on the basis of a 360-day year consisting of twelve 30-day months) on such amount at (i) the annual rate of 7.25% from the Closing Date to the last day of the month in which Revenue for the Earn-Out Period exceeds $5,000,000 (the "Target Month") and (ii) at the prime rate offered by Citibank N.A. from the first day of the month after the Target Month until the Earn-Out Payment Date (as hereinafter defined); or (ii) in the event that Revenue for the Earn-Out Period is less than the $5,000,000, then the Earn-Out Amount (if any) shall be equal to (A) $2,600,000 less (B) the difference between $5,000,000 and Revenue for the Earn-Out Period, together with interest at the annual rate of 7.25% on such amount from the Closing Date to the Earn-Out Payment Date. (d) Within five business days of the final determination of Revenue for the Earn-Out Period pursuant to paragraph (b) above (or, if applicable, pursuant to Section 2.05 hereof), Buyer shall pay the Earn-Out Amount to Seller by wire transfer to the account specified by Seller (the date of such payment being referred to herein as the "Earn-Out Payment Date"). In the event Buyer fails to so pay the Earn-Out Amount on the Earn-Out Payment Date, (i) the Earn-Out Amount shall accrue interest at the rate of 12% per annum until paid and (ii) Buyer shall pay any reason- 7 able collection fees and expenses (including attorneys' fees) actually incurred by Seller in causing such payment to be made. (e) During the Earn-Out Period, Buyer and MedE shall take reasonable actions to devote substantially such personnel and resources to the operation of the Business as is consistent with the past practice of Seller. Notwithstanding the foregoing, Seller and the Stockholder acknowledge that during the Earn-Out Period the Business will be integrated with the business of MedE and Buyer, and that any incidental effects on customer service resulting from such integration shall not constitute a breach of the obligations of MedE and Buyer set forth in the preceding sentence. In the event that a Customer ceases to do business with Buyer and MedE as a result of (i) a breach by Buyer or MedE of its service contract with such Customer or (ii) a determination by MedE to discontinue (or alter in a significant and adverse manner) services to an individual Customer, a business segment or a group of Customers, then for purposes of determining the Earn-Out Amount the Revenue for the Earn-Out Period shall be increased by (x) the Revenue received from such Customer during the last full processing month prior to such cessation multiplied by (y) the number of months (and a pro rata fraction of any partial month) remaining in the Earn-Out Period. In the event MedE and Buyer cease to provide services to a Customer as a result of (i) a breach by such Customer of its service contract with Buyer and/or MedE or (ii) the failure or refusal of such Customer to enter into or renew (as applicable) its service contract on substantially those terms set forth in the form of Standard Service Agreement (as defined herein), such cessation shall not result in an increase in the Revenue for the Earn-Out Period as provided in the preceding sentence. In the event a Customer ceases to do business with MedE and/or Buyer for any other reason during the Earn-Out Period, Buyer and Seller shall in good faith attempt to determine the degree (if any) to which Revenue should be credited for purposes of determining the Earn-Out Amount, taking into account the standards of conduct set forth in the first two sentences of this paragraph (e). In the event that Buyer and Seller cannot make a mutually agreeable determination within 20 days, they shall submit this issue to a "big six" accounting firm for resolution pursuant to Section 2.05 hereof. (f) During the Earn-Out Period, MedE will furnish to the Stockholder such monthly financial reports for the Business as MedE shall produce in the ordinary course of its business consistent with past practice. The Stockholder hereby agrees to keep any such reports confidential. SECTION 2.005. Dispute Resolution. () If and to the extent any disputes concerning (i) calculation of Revenue for the Earn-Out Period or (ii) adjustments to such Revenue as a result 8 of the loss of any Customers have not been resolved by Buyer and Seller in accordance with Section 2.04(b) or Section 2.04(e), as the case may be, Buyer and Seller shall retain a mutually acceptable "big six" accounting firm, acting through one or more audit partners (who shall be agreed to by Buyer and Seller) knowledgeable in businesses comparable to that of Seller, to review and resolve any remaining differences. The resolution of such differences by such accounting firm shall be final and binding on all parties hereto. Such accounting firm shall be directed to deliver its resolution of such differences not more than 30 days after being so retained. (b) The parties shall make available to each other and their respective accountants, and, if applicable, the "big six" accounting firm contemplated by paragraph (a) above, such books, records and other information as any of them may reasonably request in connection herewith. The fees and expenses of such accounting firm (if any) shall be borne equally by Buyer and Seller. II. REPRESENTATIONS AND WARRANTIES SECTION 3.001. Representations and Warranties of Seller and the Stockholder. Seller and the Stockholder, jointly and severally, represent and warrant to Buyer as follows: (a) Organization, Power, etc. of Seller; Power of Stockholder. Seller is a corporation duly formed, validly existing and in good standing under the laws of the State of South Carolina. Seller is duly qualified or licensed to do business in each jurisdiction in which it owns or leases any real property or in which the nature of the business transacted by it makes such qualification necessary, unless the failure to be so licensed or qualified would not have a material adverse effect on the properties, assets, business, prospects, operations, or condition (financial or otherwise) of Seller (a "Material Adverse Effect"). Schedule 3.01(a) sets forth a complete list of the jurisdictions in which Seller is qualified to do business. Seller has all requisite power and authority to own, operate and lease the Assets, to carry on the Business as it is now being conducted, to execute and deliver this Agreement together with the Bill of Sale, Assignment and Assumption Agreement and a Confidentiality, Non-Solicitation and Non-Compete Agreement in substantially the form attached hereto as Exhibit B (the "Non-Compete Agreement"), and to perform its obligations hereunder and thereunder. The Stockholder has the individual power and authority, and the legal right, to execute and deliver this Agreement, the Non-Compete Agreement and a consulting agreement substantially in the form attached hereto as Exhibit C (the "Consulting Agreement," and collectively with the Bill of Sale, Assignment and Assumption 9 Agreement and the Non-Compete Agreement, the "Ancillary Agreements"), and to perform his obligations hereunder and thereunder. (b) Subsidiaries. Seller has no direct or indirect subsidiaries, or any participating equity interest in any partnership, joint venture or other non-corporate business enterprise. As used herein, the term "subsidiary" shall mean any corporation, partnership or other business entity, a majority of whose voting capital stock (or other voting interests, as the case may be) is at the time owned by Seller and/or any subsidiaries thereof. (c) Capitalization. The authorized capital stock of Seller consists of 100,000 shares of common stock, $1 par value, of which 65,000 shares are issued and outstanding. All issued and outstanding shares of capital stock of Seller are owned of record and beneficially by the Stockholder, free and clear of any lien, charge, security interest or encumbrance of any nature whatsoever. There are no outstanding options, warrants, calls or other rights to subscribe for or purchase or acquire from Seller, or any plans, contracts or commitments providing for the issuance of, or the granting of rights to acquire (i) any capital stock or partnership interests, as the case may be, of Seller or (ii) any securities convertible into or exchangeable for any capital stock of Seller. (d) Authorization of Agreements; Validity. The execution and delivery by Seller of this Agreement and the Ancillary Agreements to which it is a party, and the consummation by Seller of the transactions contemplated hereby and thereby, have been duly authorized by all requisite corporate action. This Agreement has been duly and validly executed by Seller and the Stockholder and constitutes the legal, valid and binding obligation of Seller and the Stockholder, enforceable against each of them in accordance with its terms. Each of the Ancillary Agreements, when duly executed and delivered by Seller and/or the Stockholder, as applicable, will constitute the legal, valid and binding obligation of Seller and/or the Stockholder, as applicable, enforceable against each of them in accordance with its terms. (e) Effect of Agreements. Except as set forth on Schedule 3.01(e) hereto, the execution and delivery by Seller and the Stockholder of this Agreement and the Ancillary Agreements to which each is a party and the performance by Seller and the Stockholder of their respective obligations hereunder and thereunder will not (x) violate any provision of law, any order of any court or other agency of government, the Articles of Incorporation or By-laws of Seller, or any judgment, award, decree, indenture, agreement, Permit or other instrument to which Seller or the Stockholder is a party, or by which Seller, the Stockholder, 10 the Business or any of the Assets are bound or affected; (y) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement, Permit or other instrument; or (z) result in the creation or imposition of any lien, charge, security interest or encumbrance of any nature whatsoever upon any of the Assets. (f) Governmental Approvals. Except as set forth on Schedule 3.01(f) hereto, no approval, authorization, consent, order or action of or filing with any court, administrative agency or other governmental authority (i) is required for the execution and delivery by Seller and the Stockholder of this Agreement and the Ancillary Agreements to which they are party or the consummation by Seller and the Stockholder of the transactions contemplated hereby or thereby or (ii) is necessary in order that the Business may be conducted immediately following the Closing Date substantially in the same manner as theretofore conducted. (g) Financial Statements. (i) Prior to the Closing Date, Seller will furnish to Buyer the June 30, 1997 Balance Sheet and the related audited statements of operations, stockholders equity and cash flows for the year then ended, (the "Financial Statements"), audited by Deloitte & Touche LLP, the independent accountants retained by Seller. The Financial Statements (including any related schedules and/or notes) are complete and correct in all material respects and have been prepared in accordance with GAAP. The June 30, 1997 Balance Sheet fairly presents the financial condition of the Business as of such date, and such statements of operations, stockholders equity and cash flows fairly present the results of operations of the Business for the twelve months then ended. (ii) Except (x) as expressly set forth in the Financial Statements, (y) as set forth in Schedule 3.01(g) hereto or (z) as incurred after June 30, 1997 in the ordinary course of business consistent with past practice, Seller does not have any material liabilities or obligations of any kind or nature, whether known or unknown, secured or unsecured, absolute, accrued, contingent or otherwise, and whether due or to become due. (iii) The June 30, 1997 Balance Sheet correctly lists and/or reflects, in accordance with GAAP, substantially all of the Assets to be transferred to Buyer, other than goodwill and other intangible assets resulting from the transactions contemplated hereby. 11 (h) Absence of Certain Changes or Events. Since June 30, 1997, except as otherwise set forth on Schedule 3.01(h) hereto and except for the transactions contemplated hereby, Seller has not: (i) incurred any obligation or liability (whether fixed, absolute, accrued, contingent, known or unknown, or otherwise, of any kind or nature whatsoever), except normal trade or business obligations incurred in the ordinary course of business and consistent with past practice and except in connection with this Agreement and the transactions contemplated hereby; (ii) discharged or satisfied any material lien, security interest or encumbrance or paid any obligation or liability (fixed or contingent) of any kind or nature whatsoever, other than in the ordinary course of business and consistent with past practice; (iii) mortgaged, pledged or subjected to any lien, security interest or other encumbrance any of the Assets (other than mechanic's, materialman's and similar statutory liens arising as a matter of law and purchase money security interests arising in the ordinary course of business between the date of delivery and payment); (iv) transferred, leased or otherwise disposed of any of the Assets except for a fair consideration in the ordinary course of business and consistent with past practice or, except in the ordinary course of business and consistent with past practice, acquired any assets or properties to be used by or in connection with the Business; (v) declared, set aside or paid any distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock or redeemed or otherwise acquired any of its capital stock or split, combined or otherwise similarly changed its capital stock or authorized the creation or issuance of or issued or sold any capital stock or any securities or obligations convertible into or exchangeable therefor, or given any person any right to acquire any of its capital stock, or agreed to take any such action; (vi) made any investment of a capital nature, whether by purchase of stock or securities, contributions to capital, property transfers or otherwise, in any partnership, corporation or other entity; 12 (vii) canceled or compromised any debt or claim related to the Business, except in the ordinary course of business and consistent with past practice; (viii) waived or released any rights of material value related to the Business, except in any case for a fair consideration in the ordinary course of business and consistent with past practice; (ix) transferred or granted any rights under any concessions, leases, licenses, sublicenses, agreements, patents, inventions, trademarks, trade names, service marks or copyrights or with respect to any know-how related to the Business, except in the ordinary course of business and consistent with past practice; (x) made or granted any wage, salary or benefit increase or paid any bonus applicable to any group or classification of employees generally, entered into or amended the terms of any employment contract with, or made any loan to, or granted any severance benefits to or entered into or amended the terms of any material transaction of any other nature with, any officer or employee engaged in the operations of the Business; (xi) entered into any transaction, contract or commitment, except (A) contracts listed on Schedule 3.01(j) here to, (B) this Agreement and the transactions contemplated hereby and (C) as involve payments of less than $25,000; (xii) suffered any casualty loss or damage (whether or not such loss or damage shall have been covered by insurance) or received any claim or claims in respect of the Business in excess of insurable limits, or canceled any insurance coverage, in whole or in part, under any policy the coverage limits of which exceed $25,000; (xiii) suffered any material adverse change in any of its operations or in its financial condition or in its assets, properties, business or prospects; (xiv) surrendered, had revoked or otherwise terminated or had terminated any material license, Permit or other approval, authorization or consent from any court, administrative agency or other governmental authority; or (xv) entered into any agreement or commitment to take any action described in this Section 3.01(h). (i) Title to Properties, Absence of Liens and Encumbrances. Except as set forth in Schedule 3.01(i) hereto, Seller 13 has good and marketable title to all the Assets, free and clear of all liens, charges, pledges, security interests or other encumbrances of any nature whatsoever. Except as set forth on Schedule 3.01(i) hereto, all leases of real and personal property of Seller to be assigned to Buyer hereunder are valid and binding in accordance with their respective terms, and there is not under any such lease any existing default, or any condition, event or act which with notice or lapse of time or both would constitute such a default, nor would consummation of the transactions contemplated hereby result in a default or any such condition, event or act. (j) List of Properties, Contracts and Other Data. Annexed hereto as Schedule 3.01(j) is a list setting forth with respect to the Business, as of the dates specified on such Schedule, the following: (i) all real properties owned in fee simple by Seller; (ii) all tangible assets owned by Seller with original book value in excess of $10,000; (iii) all leases of real or personal property involving payments in excess of $10,000 per annum to which Seller is a party, either as lessee or lessor; (iv) (A) all patents, trademarks and trade names, trademark and trade name registrations, service marks and service mark registrations, copyrights and copyright registrations which are unexpired as of the date hereof, all applications pending on said date for patents or for trademark, trade name, service mark or copyright registrations, and all other proprietary rights, owned or held by Seller, and (B) all licenses and sublicenses granted by or to Seller and all other agreements to which Seller is a party which relate, in whole or in part, to any items of the categories mentioned in (A) above or to other Intellectual Property Rights used by Seller in connection with the Business, whether owned by Seller or any affiliate thereof; (v) all employment and consulting agreements, executive compensation plans, collective bargaining agreements, bonus plans, deferred compensation agreements, employee pension plans or retirement plans, employee profit sharing plans, employee stock purchase and stock option plans, group life insurance, hospitalization insurance or other plans or arrangements providing for benefits to employees of Seller engaged in the Business, whether oral or written; (vi) all contracts in respect of customer accounts that either (A) generated in excess of $10,000 in Revenue during 14 the twelve months ended December 31, 1996 or (B) Seller reasonably expects will generate in excess of $10,000 in Revenue during the twelve months ended December 31, 1997 (collectively, the "Key Customer Contracts"); (vii) all other contracts, understandings and commitments (including, without limitation, powers of attorney, mortgages, indentures and loan agreements or obligations for borrowed money including, without limitation, guarantees), whether oral or written, to which Seller is a party or to which Seller or any of the Assets are subject and which are not specifically referred to above, and which (A) is a contract or group of related contracts which involve payments exceeding $25,000 per annum in amount, (B) is a sales contract of an open-ended or blanket nature or provides for prepaid commissions or rebates, (C) contains penalty provisions for late delivery or completion, (E) cannot be performed in the normal course within 365 days after the Closing Date or canceled within such period by Seller or its assignees without breach or penalty, or (F) contains a prohibition on the assignment thereof or any limitation on the ability of Seller to assign the same; (viii) the names and current annual compensation rates of all employees of Seller engaged in the Business earning in excess of $30,000 per annum; and (ix) all agreements with third party payors. True and complete copies of all documents and complete descriptions of all oral understandings (if any) referred to in Schedule 3.01(j) hereto have been provided or made available to Buyer and its counsel. Except as disclosed in said Schedule, there is no claim that any contract referred to in said Schedule is not valid and enforceable in accordance with its terms for the periods stated therein, and there does not exist under any such contract any existing default or event of default or event which with notice or lapse of time or both would constitute such a default. (k) Litigation. Except as otherwise set forth on Schedule 3.01(k) hereto, there are no actions, suits or proceedings involving claims by or against Seller pending or, to the best knowledge of Seller, threatened against Seller or relating to any of the operations of the Business, at law or in equity, or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, nor, to the best of Seller's knowledge, is there any basis for any such claim. Except as set forth in Schedule 3.01(k) hereto, there are no orders, judgments or decrees of any court or governmental agency with respect to which Seller has been named or is a party. 15 (l) Collective Bargaining Agreements, Labor Controversies, etc. Seller is not a party to any labor or collective bargaining agreement, and there are no labor or collective bargaining agreements which pertain to any employees engaged in the operations of the Business. No employees of Seller are represented by any labor organization. No labor organization or group of employees of Seller has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the knowledge of Seller, threatened to be brought or filed with the National Labor Relations Board or other labor relations tribunal. There is no organizing activity involving Seller pending or, to the knowledge of Seller, threatened by any labor organization or group of employees of Seller. There are no (A) strikes, work stoppages, slowdowns, lockouts or arbitrations or (B) material grievances or other material labor disputes pending or, to the knowledge of Seller, threatened against or involving Seller. There are no unfair labor practice charges, grievances or complaints pending or, to the knowledge of Seller, threatened against or involving Seller or any group of employees of Seller. Hours worked by and payments made to employees of Seller have not been in violation of the federal Fair Labor Standards Act or any other law dealing with such matters. (m) Employee Benefit Plans. (i) Schedule 3.01(m) hereto lists each employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by Seller or to which Seller contributes or is required to contribute or in which any employee of Seller participates (a "Plan"). No Plan is a defined benefit plan as defined in Section 3(35) of ERISA. Seller has complied and currently is in compliance, both as to form and operation, with the applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended (the "Code"), respectively, with respect to each Plan. (ii) Each of the Plans that is intended to qualify under Section 401(a) of the Code does so qualify and is exempt from taxation pursuant to Section 501(a) of the Code, and Seller has received favorable and unrevoked determination letters from the Internal Revenue Service to that effect. (iii) Seller has not maintained, contributed to or been required to contribute to, nor do any of its employees participate in, a "multiemployer plan" (as defined in Section 3(37) of ERISA). No amount is due or owing from Seller on account of a "multiemployer plan" (as defined in Section 3(37) of ERISA) or on account of any withdrawal therefrom. 16 In addition, no withdrawal liability would result if there were a partial or complete withdrawal from any multiemployer plan as of the Closing Date. (iv) Notwithstanding anything else set forth herein, Seller has not incurred any liability with respect to any Plan under ERISA (including, without limitation, Title I or Title IV of ERISA), the Code or other applicable law, which has not been satisfied in full, and no event has occurred, and there exists no condition or set of circumstances which could result in the imposition of any liability under ERISA (including, without limitation, Title I or Title IV of ERISA), the Code or other applicable law with respect to any of the Plans. (v) No Plan, other than a Plan which is an employee pension benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides benefits, including without limitation death, health or medical benefits (whether or not insured), with respect to current or former employees of Seller beyond their retirement or other termination of service with Seller (other than (A) coverage mandated by applicable law, (B) deferred compensation benefits accrued as liabilities on the books of Seller, or (C) benefits the full cost of which is borne by the current or former employee (or his beneficiary)). (vi) The consummation of the transactions contemplated by this Agreement will not (A) entitle any current or former employee or officer of Seller to severance pay, unemployment compensation or any other payment, or (B) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer. (vii) Seller has provided to Buyer true and complete copies of the following: (A) each of the Plans; (B) summary plan descriptions of each of the Plans; (C) each trust agreement, insurance policy or other instrument relating to the funding of each of the Plans; (D) the two most recent Annual Reports (Form 5500 series) and accompanying schedules filed with the Internal Revenue Service or United States Department of Labor with respect to each of the Plans; (E) the most recent audited financial statement for each of the Plans; (F) the most recent actuarial report of each of the Plans; (G) each policy of fiduciary liability insurance (and agreements related thereto) maintained in connection with the Plans, and (H) the most recent determination letter issued by the Internal Revenue Service with respect to each of the Plans that is intended to qualify under Section 401(a) of the Code. 17 (n) Intellectual Property Rights. The Intellectual Property Rights listed in clause (iv) of Schedule 3.01(j) hereto, constitute all such proprietary rights that are necessary to the conduct of the Business as of the date hereof. Seller owns or has valid rights to use all such Intellectual Property Rights without conflict with the rights of others. Except as set forth on Schedule 3.01(n) hereto, no person has made or, to the best knowledge of Seller, threatened to make, any claims that the operations of the Business are in violation of or infringe upon any intellectual property rights or any other proprietary or trade rights of any third party, nor, to the best of Seller's knowledge, is there any basis for any such claim. None of the Intellectual Property Rights is the subject of any outstanding order, ruling, decree, judgment or stipulation. Seller has taken and is taking reasonable precautions to protect any material trade secrets and other confidential information included in the Intellectual Property Rights. (o) Software. (i) The operating and applications computer software programs and databases used by Seller in the conduct of the Business (other than "off-the-shelf" programs and databases that are generally commercially available at a per unit cost of less than $500) (collectively, the "Software") are listed on Schedule 3.01(o) hereto. Except as set forth on Schedule 3.01(o), Seller owns outright or holds valid licenses to all copies of the Software used by it in the Business. None of the Software used by Seller, and no use thereof, infringes upon or violates any patent, copyright, trade secret or other proprietary right of any other person and, to the best knowledge of Seller, no claim with respect to any such infringement or violation is threatened, nor does any person have any basis for such a claim. Seller has taken all steps necessary to protect its right, title and interest in and to the Software owned by Seller. (ii) Seller possesses or has access to the original and all copies of all Software (including, without limitation, all source code) and all documentation relating thereto owned or used by Seller. Upon consummation of the transactions contemplated by this Agreement, Buyer will (A) own all the Software owned by Seller immediately prior to the Closing, free and clear of all claims, liens, encumbrances, obligations and liabilities and, (B) with respect to all Software licensed or leased to Seller, have valid rights to use such Software on substantially the same terms as presently apply to Seller. (iii) Any programs, modifications, enhancements or other inventions, improvements, discoveries, methods or works of 18 authorship included in the Software that were created by employees of Seller were made in the regular course of such employees' employment with Seller using Seller's facilities and resources, and as such constitute "works made for hire". (p) Use of Real Property. The owned and leased real property listed on Schedule 3.01(h) hereto are used and operated in material compliance and conformity with all applicable leases, contracts, commitments, licenses, zoning ordinances, codes and Permits. (q) Condition of Assets. As of the Closing Date, all tangible personal property, fixtures, machinery and equipment comprising the Assets will (i) be in a good state of repair (ordinary wear and tear excepted) and operating condition and will be suitable for the purposes for which they are being used and (ii) substantially conform with all ordinances, codes, regulations and requirements applicable to them. (r) Compliance With Law. The conduct of the Business by Seller does not violate in any material respect any federal, state or local laws, statutes, ordinances, regulations, decrees, orders, Permits or other similar rules presently in force (including, without limitation, any of the foregoing relating to the federal Medicare program, any federal and/or state Medicaid programs or ERISA). Seller is not liable for any arrears of wages or any taxes or penalties for failure to comply with any of the foregoing. (s) Third-Party Payor and Customer Contracts. Except as otherwise set forth on Schedule 3.01(s) hereto, since June 30, 1997, Seller has not lost or been notified that (whether as a result of the consummation of the transactions contemplated by this Agreement or otherwise) it will lose or suffer diminution in its relationships with any third-party payor(s), formulary plans or other customer(s), other than normal attrition at historically consistent levels. (t) Taxes. (i) Except as set forth on Schedule 3.01(t) hereto, Seller has duly and timely filed all returns, declarations, reports, estimates, information returns and statements ("Returns") required to be filed by it in respect of any Taxes (as hereinafter defined). All Returns (including all informational Returns) were correct as filed and correctly reflect the facts regarding the income, business, assets, operations, activities and status of Seller as well as any Taxes required to be paid or collected by Seller. Seller has timely paid or withheld all Taxes that are due and payable with respect to the Returns referred to above. 19 Seller has established, consistent with past practice, an adequate reserve on the June 30, 1997 Balance Sheet for the payment of all Taxes with respect to Seller not yet due for any taxable period or portion thereof ending on or prior to the Closing Date (or otherwise relating or attributable to the results of operations of Seller on or prior to the Closing Date). Seller has complied with all applicable laws, rules and regulations relating to the payment and withholding of Taxes, and has timely withheld from employee wages and paid over to the proper governmental authorities when due all amounts required to be so withheld and paid over (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes, state and local income and wage taxes, payroll taxes, workers' compensation and unemployment compensation taxes). (ii) Except as set forth in Schedule 3.01(t) hereto, (A) Seller is not delinquent in the payment of any Taxes and has not requested any extension of time within which to file or send any Return, which Return has not since been filed or sent; (B) there is no deficiency, claim, audit, action, suit, proceeding or investigation now pending or threatened against or with respect to Seller in respect of any Taxes; and (C) there are no requests for rulings or determinations in respect of any Taxes pending between Seller and any taxing authority, and no such rulings or determinations have been received by Seller. (iii) Seller has not executed or entered into (and, prior to the Closing, Seller will not execute or enter into) with the Internal Revenue Service or any other taxing authority (A) any agreement or other document extending or having the effect of extending the period for assessments or collection of any Taxes for which Seller would be liable or (B) a closing agreement pursuant to Section 7121 of the Code, or any predecessor provision thereof or any similar provision of foreign, state or local Tax law that relates to the assets or operations of Seller. (iv) Except as set forth on Schedule 3.01(t) hereto, Seller has never (A) been a member of a consolidated, combined or unitary group for federal, state, local or foreign Tax law purposes, (B) been a party to any Tax-sharing or allocation agreement or (C) filed any election or caused any deemed election under Section 338 of the Code. (v) Seller is not a party to any agreement, contract or arrangement that would result, by reason of the consummation of any of the transactions contemplated herein, separately or in the aggregate, in the payment of any "ex- 20 cess parachute payment" within the meaning of Section 280G of the Code. (vi) No agreement or consent pursuant to Section 341(f) of the Code has ever been made with respect to Seller or any assets or properties of Seller (or any predecessor corporation of Seller). Further, Seller shall not make any agreement or consent pursuant to said Section 341(f) in respect of the transactions contemplated by this Agreement. (vii) Seller has been, for all Tax periods beginning on or after its inception, and ending on or before the Closing Date, a validly electing subchapter S corporation within the meaning of Section 1361 of the Code and the corresponding provisions (if any) of state and local income tax laws in all jurisdictions in which it is required to report its business operations. Schedule 3.01(t) hereto lists all the states and localities with respect to which Seller is or was required to file any Returns and sets forth whether Seller is or was treated as the equivalent of an S corporation by or with respect to each such state and/or locality. (viii) Except as set forth in Schedule 3.01(t), the Stockholder has paid all Taxes relating to his ownership interest in Seller and required to be paid by him on or prior to June 30, 1997. (ix) For purposes of this Agreement, "Tax" (and with correlative meaning, "Taxes") means (A) any net income, gross income, gross receipts, franchise, profits, license, sales, use, ad valorem, value added, property, payroll, withholding, excise, severance, transfer, employment, alternative or add-on minimum, stamp, occupation, premium, environmental or windfall profits taxes, customs duties or other taxes, governmental fees or other like assessments or charges of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount imposed by any governmental authority responsible for the imposition of any such Taxes (domestic or foreign); (B) any liability of Seller for the payment of any amounts of the type described in (A) as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability of Seller for payments of such amounts was determined or taken into account with reference to the liability of any other person for any period prior to the Closing Date; and (C) any liability of Seller with respect to the payment of any amounts described in (A) as a result of any express or implied obligation to indemnify any other person. 21 (u) Environmental Matters. (i) Neither the business or operations of Seller nor, to the knowledge of Seller and the Stockholder, the real property used by Seller in the Business (the "Real Property") violates any applicable Environmental Law in any material respect. (ii) Seller has not disposed of, stored or used any pollutants, contaminants or hazardous or toxic wastes, substances or materials in violation of any Environmental Law on or at the Real Property. (iii) Seller is not the subject of any government or private litigation or proceedings involving a demand for damages or other potential liability pursuant to any Environmental Laws or Common Law Environmental Principles (as defined below). (ii) For the purposes of this Agreement, the following terms have the meanings set forth below: "Common Law Environmental Principles" means any principles of common law under which a person or entity may be held liable for the release or discharge of any pollutants, contaminants or hazardous or toxic wastes, substances or materials into the environment. "Environmental Law" shall mean any law, statute, regulation, rule, order, consent decree, settlement agreement or governmental requirement of any governmental authority, as in effect on the date of this Agreement, which relates to or otherwise imposes liability or standards of conduct concerning discharges or releases of any pollutants, contaminants or hazardous or toxic wastes, substances or materials into ambient air, water or land, or otherwise relating to the manufacture, processing, generation, distribution, use, treatment, storage, disposal, cleanup, transport or handling of pollutants, contaminants or hazardous or toxic wastes, substances or materials. (v) Transactions with Affiliates. Except as set forth on Schedule 3.01(v) hereto, no partner, director or officer of Seller or any member of such individual's immediate family, owns, directly or indirectly, or has an ownership interest in (i) any business, (corporate or otherwise) which is a party to, or in any property which is the subject of, business arrangements or relationships of any kind with Seller, or (ii) any business (corporate or other) which conducts the same business, or a business similar to, that which is conducted by Seller. 22 (w) Governmental Authorizations and Regulations. (i) Seller has all governmental licenses, franchises, permits, consents, certificates, approvals and all registrations and filings with any governmental body with respect thereto (collectively, "Permits"), required under applicable law for the conduct of the Business as currently conducted, other than any of the foregoing the failure of which to have would not have, in the aggregate, a Material Adverse Effect. Seller has made all required registrations and filings with all governmental bodies that are required to be obtained in connection with the operations of the Business. All such Permits are listed on Schedule 3.01(w) hereto. Such Permits have been validly issued by the appropriate governmental bodies and are in full force and effect. No material default or violation, or event that with the lapse of time or the giving of notice or both would become a material default or violation, has occurred in the due observance of such Permit. (ii) The Business is being conducted in material compliance with all applicable laws, ordinances, rules and regulations of all governmental authorities relating to Seller's Assets or applicable to the Business, including without limitation the terms of all Permits. Seller has not received any notice of any alleged violation of any of the foregoing. (iii) Neither Seller nor any of its properties, operations or businesses is subject to any court or administrative order, judgment, injunction or decree. To the best knowledge of Seller, no action has been taken or recommended by any governmental or regulatory official, body or authority, either to revoke, withdraw or suspend any Permit. (x) Insurance. All policies of fire, liability, workers' compensation, and other forms of insurance providing insurance coverage to or for Seller are listed in Schedule 3.01(x) hereto. All premiums with respect thereto covering all periods up to and including the date as of which this representation is being made have been paid, and no notice of cancellation or termination has been received with respect to any such policy. All such policies are in full force and effect and provide insurance, including without limitation liability insurance, in such amounts and against such risks as is customary for companies engaged in similar businesses to Seller. (y) Broker's or Finders' Fees. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Seller directly with Buyer, without the intervention of any persons on behalf of Seller in 23 such a manner to give rise to any claim by any person against Buyer for a finder's fee, brokerage commission or similar payment. SECTION 3.002. Representations and Warranties of Buyer and MedE. Buyer and MedE jointly and severally represent and warrant to Seller as follows: (a) Organization, Corporate Power, Etc. Each of Buyer and MedE is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and the State of Delaware, respectively. Each of Buyer and MedE has all requisite corporate power and authority to acquire, own, lease and operate its properties and to execute and deliver this Agreement and the Ancillary Agreements applicable to such party, and to perform its obligations hereunder and thereunder. (b) Authorization of Agreements; Validity. The execution and delivery by Buyer and MedE of this Agreement and the Ancillary Agreements, and the consummation by Buyer and MedE of the transactions contemplated hereby and thereby, have been duly authorized by all requisite corporate action. This Agreement has been duly and validly executed by Buyer and MedE and constitutes the legal, valid and binding obligation of Buyer and MedE, enforceable in accordance with its terms. Each Ancillary Agreement, when duly executed and delivered by Buyer and MedE (if a party thereto), will constitute the legal, valid and binding obligation of Buyer and MedE, enforceable in accordance with its terms. (c) Effect of Agreements. The execution and delivery by Buyer and MedE of this Agreement and the Ancillary Agreements to which each is a party and the performance by Buyer and MedE of their respective obligations hereunder and thereunder will not (x) violate any provision of law, any order of any court or other agency of government, the charter or By-laws of Buyer or MedE, or any judgment, award, decree, indenture, agreement, Permit or other instrument to which Buyer or MedE is a party, or by which Buyer or MedE is bound or affected or (y) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement, Permit or other instrument. (d) Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of Buyer and MedE, as the case may be, threatened against or affecting Buyer or MedE or any of their respective properties or rights before any court or by or before any governmental body or arbitration board or tribunal, the outcome of which, if adversely decided, would prevent the consummation of the transactions contemplated hereby. 24 (e) Governmental Approvals. No approval, authorization, consent or order or action of or filing with any court, administrative agency or other governmental authority is required for the execution and delivery by Buyer or MedE of this Agreement and the Ancillary Agreements to which each is a party or the consummation by Buyer or MedE of the transactions contemplated hereby or thereby. (f) Broker's or Finders' Fees. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Buyer and MedE directly with Seller without the intervention of any persons on behalf of Buyer or MedE in such a manner to give rise to any claim by any person against Seller for a finder's fee, brokerage commission or similar payment. IV. COVENANTS SECTION 4.001. Covenants of Seller and the Stockholder. (a) Seller and the Stockholder jointly and severally agree that, at all times between the date hereof and the Closing Date, unless Buyer and Seller shall otherwise agree in writing, Seller shall (and the Stockholder shall cause Seller to): (i) operate the Business only in the usual, regular and ordinary manner and, to the extent consistent with such operations, (A) use its best efforts to preserve the current business organization of the Business and Seller's present relationships with customers of, and all other persons having business dealings with, the Business, and (B) use reasonable efforts to keep available the services of those officers and employees currently engaged in the operations of the Business; (ii) maintain all its Assets in good repair, order and condition, reasonable wear and tear excepted; (iii) maintain its books of account and records in the usual, regular and ordinary manner, on a basis consistent with past practice, and use its best efforts to comply with all laws applicable to it and to the conduct of the Business and perform all its material obligations without default; (iv) not change the character of the Business in any material manner; (v) not, with respect to the Business take any action or undertake any commitment or obligation of the types 25 described in clauses (i) through (xi) and (xiv) of Section 3.01(h) hereof; and (vi) not, except in the ordinary course and consistent with past practice or as otherwise contemplated by this Section 4.01, amend or modify in any way adverse to the interests of Seller any contract listed on Schedule 1.01 hereto. (b) Between the date of this Agreement and the Closing Date, Seller will afford the representatives of Buyer reasonable access during normal business hours to the offices, facilities, books and records of Seller and the opportunity to discuss the affairs of Seller with officers and employees of Seller familiar therewith. (c) Between the date of this Agreement and the Closing Date, Seller shall not, except as required by GAAP, (i) utilize accounting principles different from those used in the preparation of the Financial Statements, (ii) change in any manner its method of maintaining its books of account and records from such methods as in effect on June 30, 1997, or (iii) accelerate booking of revenues or the deferral of expenses, other than as shall be consistent with past practice and in the ordinary course of business. (d) Between the date hereof and the Closing Date, Seller shall, with Buyer's assistance and cooperation but at the expense of Seller, promptly apply for or otherwise seek and use reasonable efforts (it being understood, for purposes of paragraphs (d) and (e) hereof, that "reasonable efforts" shall not include either (i) incurring any material cash expenditures or (ii) payment of any material sums) to obtain all authorizations, consents, waivers and approvals as may be required in connection with the assignment of the contracts, agreements, licenses, leases, sales orders, purchase orders and other commitments and all Permits of which Seller is the beneficiary to be assigned to Buyer pursuant to Section 1.01(a) hereto (including without limitation (A) any Key Customer Contracts for which such consent is required and (B) those contracts scheduled in response to Section 3.01(j)(vii)(F) hereof). (e) Between the date hereof and the Closing Date, Seller shall, with Buyer's assistance and cooperation but at the expense of Seller, use reasonable efforts (i) to enter into written service agreements substantially in the form attached as Exhibit D hereto ("Standard Service Agreements") with respect to the Key Customer Contracts listed on Part I of Schedule 4.01(e) hereto, and (ii) to enter into supplements to the Key Customer Contracts listed on Part II of Schedule 4.01(e) hereto. The terms of such supplements shall be satisfactory to Buyer. 26 (f) Between the date of this Agreement and the Closing Date, Seller will not enter into any transaction or make any agreement or commitment, or permit any event to occur, which would result in any of the representations, warranties or covenants of Seller contained in this Agreement not being true and correct at and as of the time immediately after the occurrence of such transaction or event. SECTION 4.002. Confidentiality. The contents of this Agreement shall be kept confidential among the parties, except that each party may reveal and discuss the contents with its respective professional advisors, including attorneys and accountants. The parties may mutually agree in writing as to the revealing of the subject transaction to current employees and to the public. In so doing, the parties shall agree to the timing and content of the release of such information. SECTION 4.003. Allocation of Purchase Price. Each of the parties hereto agrees to allocate the Purchase Price (and any liabilities assumed by Buyer from Seller) among the Assets in the manner specified in Schedule 4.03 hereto. Each of the parties hereto shall respect such allocation for all financial accounting and Tax purposes and shall file all Returns and other documents with all taxing authorities on a basis consistent therewith. Buyer and Seller shall timely complete and file a Form 8594 Asset Acquisition Statement of Allocation consistent with such allocation, and shall provide a certified copy of such form to Buyer or Seller, as the case may be, and, if applicable, shall file a certified copy of such form with its federal income Tax Return for the period that includes the Closing Date. SECTION 4.004. Preparation of Certain Financial Statements. After the date hereof, Seller and the Stockholder shall provide MedE and Buyer and their independent auditors with all reasonable assistance required to prepare audited financial statements for the Business for and as of (x) the period from July 1, 1997 through the Closing Date and (y) each of the twelve-month periods ended December 31, 1996, December 31, 1995, and December 31, 1994. Seller and the Stockholder confirm and agree that such assistance shall include, without limitation, (i) providing MedE, Buyer and their representatives with all necessary financial information and data relating to the Business for such periods, (ii) making available all employees of Seller or any of its affiliates deemed necessary by MedE and Buyer to assist in the preparation of such financial statements, and (iii) delivering to MedE's independent auditors a management representation letter for such periods in a form reasonably acceptable to such auditors. 27 Section 4.005. Certain Tax Matters. () All stamp, transfer, sales or use Taxes imposed upon or incurred by any of the parties hereto in connection with this Agreement and the transactions contemplated hereby shall be borne by Buyer. Seller and Buyer shall jointly prepare and file all necessary Returns and other documents with respect to all such stamp, transfer, sales or use taxes and each party shall bear its own expenses in connection therewith. If required by applicable law, any other party hereto shall join in the execution and filing of any such Returns or other documents. (b) For all federal, state, local and foreign income and franchise Tax purposes, each of the parties hereto agrees to treat the acquisition of the Assets by Buyer, pursuant to the terms and conditions of this Agreement, as a fully taxable sale of the assets of Seller to Buyer solely in exchange for cash (and the liabilities assumed by Buyer from Seller). (c) Seller shall be responsible for and shall pay (i) any and all Taxes with respect to Seller, the Business or the Assets relating to any Tax period or portion thereof ending on or before the Closing Date and (ii) any and all Taxes incurred by or imposed upon Seller (other than any Taxes described in paragraph (a) above) as a result of the consummation of any of the transactions contemplated by this Agreement. The Stockholder shall be responsible for and shall pay all Taxes relating to his ownership interest in Seller and attributable to any period (or portion thereof) ending on or prior to the Closing Date. SECTION 4.006. Insurance. Between the date of this Agreement and the Closing Date, Seller shall maintain in full force and effect all insurance policies listed on Schedule 3.01(x) hereto. SECTION 4.007. Collection of Accounts Receivable. (a) For a period of twelve months after the Closing Date, Buyer will use reasonable efforts to collect for the benefit of Seller, and with the risk of non-collection continuing to be the risk of Seller, the accounts receivable of Seller as of the Closing Date (such receivables being hereinafter referred to as the "Collection Receivables"). Buyer shall deposit in Seller's account, when and as received (together with appropriate statements of collection), all monies, drafts, checks and other instruments of payment received by it as payments on the Collection Receivables, provided that payments applying to both Collection Receivables and receivables of Buyer shall be deposited in Buyer's account and funds in the amount attributable to the Collection Receivables shall be promptly remitted to Seller. Buyer shall apply all collections from account debtors owing Collection Receivables to the payment in full of undisputed and matured Collection Receivables in priority to any accounts receivable from such 28 account debtors with respect to services rendered, goods sold or work done on or after the Closing Date; provided, however, that in the event that any such collection is received from such an account debtor as to whom transaction processing services are discontinued, such collection shall be allocated between Seller and Buyer pro rata on the basis of the ratio of (A) Collection Receivables payable by such account debtor to (B) receivables payable by such account debtor that accrue after the Closing Date. SECTION 4.008. Retention of Employees. Effective as of the Closing Date, except for the employees of the Business listed in Schedule 4.08 hereto, Buyer will offer to continue the employment of all employees of Seller at salaries equal to those now paid by Seller, and on such other terms as MedE and Buyer make available to their employees generally. It is understood and agreed that nothing in this Agreement shall be deemed to create any employment status other than employment at will or require Buyer to continue for the benefit of any employee any Plan or other benefits program or arrangement maintained by Seller prior to the Closing Date. SECTION 4.009. Payment of Certain Liabilities. () Seller shall, on a timely basis and in a manner consistent with past practice, pay all liabilities of Seller not assumed by Buyer. (b) Prior to the Closing Date, Buyer shall pay to Seller $130,000, to be used to repay purchase money indebtedness on the computer equipment described on Schedule 1.01(a)(i) hereto. Seller shall promptly use such sum to repay such indebtedness, and shall at the Closing deliver such computer equipment free and clear of any liens, charges, pledges, security interests or other encumbrances of any nature whatsoever. SECTION 4.10. Name Matters. (a) Prior to the Closing Date, Seller shall procure from Dan Bowden and PreScrip Services, Inc., all of their respective right, title and interest in and to the name "PreScrip" and the service mark associated therewith, and the same shall be among the Assets conveyed to Buyer pursuant to Section 1.01 hereof. (b) Within 30 days of the Closing Date, Seller shall change its name to a name that does not include the word "Stockton" or any variation thereon. SECTION 4.11. Brookins and Lagnese. (a) Seller shall pay to Gerald Brookins ("Brookins") and to Christopher Lagnese ("Lagnese") amounts equal to 25% and 10%, respectively, of the Purchase Price, when and as the Purchase Price is received by Seller. 29 (b) Prior to the Closing Date, Seller and the Stockholder shall use their reasonable efforts to procure from each of Brookins and Lagnese a release whereby each waives any claim to any interest in the equity or the assets of Seller (or any other ownership interest in or relating to Seller). Such releases shall be reasonably satisfactory in form and substance to Buyer. SECTION 4.12 Access to Records. Following the Closing Date, Buyer and MedE shall grant the Stockholder, Brookins and Lagnese reasonable access to the books and records of the Company and the Business for the purposes of maintaining personal financial records and paying taxes, and for other similar purposes; provided that any such person requesting access to such information shall (i) provide reasonable notice of any such request, (ii) conduct any investigation or review of such information so as to minimize any disruption to the operations of MedE and Buyer and (iii) keep such information confidential. V. CONDITIONS PRECEDENT SECTION 5.001. Conditions Precedent to Obligations of Buyer and MedE. The obligations of Buyer and MedE under this Agreement are subject, at the option of Buyer and MedE, to the satisfaction at or prior to the Closing Date of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of Seller and the Stockholder contained in this Agreement or in any certificate or document delivered to Buyer pursuant hereto shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that date, and Seller and the Stockholder shall have delivered to Buyer a certificate to that effect. (b) Compliance with Covenants. Seller and the Stockholder shall have performed and complied in all material respects with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by it at or prior to the Closing Date, and Seller and the Stockholder shall have delivered to Buyer a certificate to that effect. (c) Opinion of Counsel to Seller. Buyer shall have received an acceptable opinion of Parker, Poe, Adams & Bernstein L.L.P., counsel for Seller, dated the Closing Date, providing for opinions substantially in the form attached hereto as Exhibit E. (d) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consumma- 30 tion of the transactions contemplated hereby or which would, if adversely decided, have a Material Adverse Effect. (e) Consents; Assignment of Contracts. Seller shall have obtained all the authorizations, consents, waivers and approvals required in connection with the transfer or assignment of each of (i) the Key Customer Contracts for which any such approval is required and (ii) those Permits, contracts, agreements, licenses, leases, sales orders, purchase orders and other commitments scheduled pursuant to Section 3.01(j)(vii)(F) hereof. (f) Written Service Agreements; Supplements to Service Agreements. Seller shall have entered into Standard Service Agreements in respect of the Key Customer Contracts listed on Part I of Schedule 4.01(e) hereto, and shall have entered into supplements to those Key Customer Contracts listed on Part II of Schedule 4.01(e) hereto. The terms of such supplements shall be reasonably satisfactory to Buyer and its counsel. (g) Audited Financial Statements. Seller shall have delivered to MedE and Buyer (x) audited financial statements for the Business for and as of the twelve-month period ended June 30, 1997, and (y) financial statements for the Business for and as of each of the twelve-month periods ended December 31, 1996, December 31, 1995, and December 31, 1994, unaudited but reviewed by the independent accountants retained by Seller. (h) Ancillary Agreements. The Ancillary Agreements shall have been executed and delivered by each party thereto, and said Agreements shall be in full force and effect as of the Closing Date. (i) Employment Arrangements. Each of Brookins and Lagnese shall have executed and delivered to MedE an Employment Agreement and a Non-Compete Agreement. The terms of such agreements shall be satisfactory to MedE and Brookins or Lagnese, as the case may be. (j) Supporting Documents. Buyer and MedE shall have received copies of the following supporting documents: (i) (A) a copy of the charter of Seller as amended through the date hereof, certified as of a recent date by the Secretary of State of the state of South Carolina, and () a certificate of said Secretary of State, dated as of a recent date, as to the due incorporation and good standing of Seller and listing all documents of Seller on file with said Secretary; and (ii) a certificate of the Secretary or an Assistant Secretary of Seller dated the Closing Date and certifying: 31 (1) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement and the Ancillary Agreements; and (2) as to the incumbency and specimen signature of each officer of Seller furnishing any certificate or instrument pursuant hereto, and a certification by another officer of Seller as to the incumbency and signature of the officer signing the certificate referred to herein. (k) All Proceedings To Be Satisfactory. All corporate and other proceedings to be taken by Seller in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Buyer and its counsel, and Buyer and said counsel shall have received all such counterpart originals or certified or other copies of such documents as it or they may reasonably request. (l) Allocation of Purchase Price. Buyer and Seller shall have agreed to an allocation of the Purchase Price among the Assets in accordance with Section 4.03 hereof. (m) Receipt of Releases. Buyer shall have received the releases to be procured pursuant to Section 4.11 hereof. SECTION 5.002. Conditions Precedent to Obligations of Seller and the Stockholder. The obligations of Seller and the Stockholder under this Agreement are subject, at the option of Seller and the Stockholder, to the satisfaction at or prior to the Closing Date of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of Buyer and MedE contained in this Agreement or in any certificate or document delivered to Seller pursuant hereto shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that date, and Buyer and MedE shall have delivered to Buyer a certificate to that effect. (b) Compliance with Covenants. Buyer and MedE shall have performed and complied in all material respects with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by it at or prior to the Closing Date, and Buyer and MedE shall have delivered to Seller a certificate to that effect. (c) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to 32 restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby or which would, if adversely decided, have a Material Adverse Effect. (d) Ancillary Agreements. The Ancillary Agreements shall have been executed and delivered by each party thereto, and said Agreements shall be in full force and effect as of the Closing Date. (e) Supporting Documents. Seller shall have received copies of the following supporting documents: (i) (A) a copy of the charter of each of Buyer and MedE as amended through the date hereof, certified as of a recent date by the Secretary of State of the state in which Buyer or MedE (as applicable) is incorporated, and () a certificate of said Secretary of State, dated as of a recent date, as to the due incorporation and good standing of Buyer or MedE (as applicable) and listing all documents of Buyer or MedE on file with said Secretary; and (ii) a certificate of the Secretary or an Assistant Secretary of Buyer and MedE dated the Closing Date and certifying: (1) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of Buyer and MedE authorizing the execution, delivery and performance of this Agreement and the Ancillary Agreements and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement and the Ancillary Agreements; and (2) as to the incumbency and specimen signature of each officer of Buyer and MedE furnishing any certificate or instrument pursuant hereto, and a certification by another officer of each of Buyer and MedE as to the incumbency and signature of the officer signing the certificate referred to herein. (f) All Proceedings To Be Satisfactory. All corporate and other proceedings to be taken by Buyer and MedE in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to Seller and its counsel, and Seller and said counsel shall have received all such counterpart originals or certified or other copies of such documents as it or they may reasonably request. (g) Allocation of Purchase Price. Buyer and Seller shall have agreed to an allocation of the Purchase Price among the Assets in accordance with Section 4.03 hereof. 33 (h) Opinion of Buyer's Counsel. Seller shall have received the favorable opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for Buyer and MedE, dated the Closing Date, substantially in such form attached hereto as Exhibit F. (i) Lease Agreement. Buyer shall have entered into a lease agreement with Troon Properties, Inc. on terms satisfactory to Buyer. VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION SECTION 6.001. Survival of Representations. Except as otherwise set forth below, all representations and warranties made by any party hereto in this Agreement or pursuant hereto shall survive for a period of 24 months following the Closing Date, except for the representations and warranties as to Tax and environmental matters made by any party hereto in this Agreement or pursuant hereto (which representations and warranties shall survive for the applicable statute of limitation period, including any extensions thereof). SECTION 6.002. Tax Indemnity. () Seller and the Stockholder hereby jointly and severally agree to indemnify, defend and hold Buyer and MedE harmless from and against any and all Taxes incurred by, imposed upon or attributable to Seller or any predecessor company thereof, including reasonable legal fees and expenses incurred by any party hereto and relating thereto, for any Tax period or portion thereof ending on or before the Closing Date. (b) Buyer and MedE hereby jointly and severally agree to indemnify, defend and hold Seller and the Stockholder harmless from and against any and all Taxes incurred by, imposed upon or attributable to Buyer, MedE or any predecessor company thereof, including reasonable legal fees and expenses incurred by any party hereto and relating thereto, for any Tax period or portion thereof ending after the Closing Date. (c) For purposes of this Section 6.02, any interest, penalty or additional charge included in Taxes shall be deemed to be a Tax for the period to which the item or event giving rise to such interest, penalty or additional charge is attributable, and not a Tax for the period during which such interest, penalty or additional charge accrues. (d) The indemnity provided for in this Section 6.02 shall be independent of any other indemnity provision hereof and, anything in this Agreement to the contrary notwithstanding shall survive until the expiration of the applicable statutes of limitation, including any extensions thereof, for the Taxes referred 34 to herein. Any Taxes, legal fees and expenses subject to indemnification under this Section 6.02 shall not be subject to indemnification under Section 6.03. SECTION 6.003. General Indemnity. (a) Subject to the terms and conditions of this Article VI, Seller and the Stockholder hereby jointly and severally agree to indemnify, defend and hold Buyer and MedE harmless from and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' fees and expenses (collectively, "Damages"), asserted against, imposed upon or incurred by Buyer or MedE by reason of or resulting from: (i) a breach of any representation, warranty or cove nant of Seller or the Stockholder contained in or made pursuant to this Agreement; (ii) any liabilities or obligations of, or claims against or imposed on Seller (whether absolute, accrued, contingent or otherwise and whether a contractual, or any other type of liability, obligation or claim) and not assumed by Buyer pursuant to this Agreement and the Bill of Sale, Assignment and Assumption Agreement; (iii) any liabilities or obligations (whether absolute, accrued, contingent or otherwise) in respect of any action, suit or proceeding relating to the conduct of the Business by Seller and based upon an event occurring or a claim arising on or prior to the Closing Date (including without limitation those actions listed on Schedule 3.01(k) hereto); and (iv) any liability in respect of any failure by Seller to conduct the Business in compliance with any Permit, law, regulation or order prior to the Closing Date. (b) Subject to the terms and conditions of this Article VI, Buyer and MedE hereby jointly and severally agree to indemnify, defend and hold Seller and the Stockholder harmless from and against all Damages asserted against, imposed upon or incurred by Seller or the Stockholder by reason of or resulting from: (i) a breach of any representation, warranty or covenant of Buyer or MedE contained in or made pursuant to this Agreement; (iii) the failure of Buyer to pay, perform and discharge when due any Assumed Liabilities; 35 (iii) any liabilities or obligations (whether absolute, accrued, contingent or otherwise) in respect of any action, suit or proceeding relating to the conduct of the Business by Buyer and based upon an event occurring or a claim arising after the Closing Date; and (iv) any liability in respect of any failure by Buyer to conduct the Business in compliance with any Permit, law, regulation or order after the Closing Date. SECTION 6.004. Conditions of Indemnification. The respective obligations and liabilities of Seller and the Stockholder, on the one hand, and Buyer and MedE, on the other hand (the "indemnifying parties"), to the others (the "parties to be indemnified") under Sections 6.02 and 6.03 hereof with respect to claims resulting from the assertion of liability by third parties shall be subject to the following terms and conditions: (a) within 20 days after receipt of notice of commencement of any action or the assertion in writing of any claim by a third party, the parties to be indemnified shall give the indemnifying parties written notice thereof together with a copy of such claim, process or other legal pleading, and the indemnifying parties shall have the right to undertake the defense thereof by representatives of its own choosing; (b) in the event that the indemnifying parties, by the 30th day after receipt of notice of any such claim (or, if earlier, by the tenth day preceding the day on which an answer or other pleading must be served in order to prevent judgment by default in favor of the person asserting such claim), does not elect to defend against such claim, the parties to be indemnified will (upon further notice to the indemnifying parties) have the right to undertake the defense, compromise or settlement of such claim on behalf of and for the account and risk of the indemnifying parties, subject to the right of the indemnifying parties to assume the defense of such claim at any time prior to settlement, compromise or final determination thereof, provided that the indemnifying parties shall be given at least 15 days prior written notice to the effectiveness of any such proposed settlement or compromise; (c) anything in this Section 6.04 to the contrary notwithstanding (i) if there is a reasonable probability that a claim may materially and adversely affect the indemnifying parties other than as a result of money damages or other money payments, the indemnifying parties shall have the right, at their own cost and expense, to compromise or settle such claim, but (ii) the indemnifying parties shall not, without the prior written consent of the party to be indemnified, settle or compromise any claim or consent to the entry of any judgment which does 36 not include as an unconditional term thereof the giving by the claimant or the plaintiff to the parties to be indemnified a release from all liability in respect of such claim; and (d) in connection with any such indemnification, the indemnified parties will cooperate in all reasonable requests of the indemnifying parties. VII. TERMINATION SECTION 7.001. Termination. This Agreement may be terminated at any time prior to the Closing Date: (a) by Buyer, if the conditions set forth in Section 5.01 shall not have been complied with or performed in any material respect and such noncompliance or nonperformance shall not have been waived, cured or eliminated (or by its nature cannot be cured or eliminated) by Seller or the Stockholder on or before November 30, 1997; (b) by Seller, if the conditions set forth in Section 5.02 shall not have been complied with or performed in any material respect and such noncompliance or nonperformance shall not have been waived, cured or eliminated (or by its nature cannot be cured or eliminated) by Buyer or MedE on or before November 30, 1997; or (c) by Buyer or Seller, in the event the Closing Date has not occurred on or prior to the close of business on November 30, 1997 or such later date as the parties hereto may agree in writing (unless such event has been caused by the breach of this Agreement by the party seeking such termination). A failure to satisfy a condition hereunder (including without limitation a condition set forth in Section 5.01(e) or 5.01(f) hereof) shall not of itself constitute a breach of this Agreement. SECTION 7.002. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 7.01 hereof, this Agreement shall thereafter become void and have no effect, and no party hereto shall have any liability to any other party hereto or its partners or stockholders or directors or officers in respect thereof, except that nothing herein shall relieve any party from liability for any willful breach hereof. The terms of the Non-Disclosure Agreement, dated as of February 24, 1997, between MedE and Seller shall survive any termination of this Agreement. Without limiting the effect of said Non-Disclosure Agreement, upon any termination of this Agreement, each of Buyer and MedE, on the one hand, and Seller and the 37 Stockholder, on the other hand, (i) shall not use any confidential information disclosed by the other for its own benefit and (ii) shall promptly return to the other all documents, papers and other confidential information delivered to such party by the other at any time prior to the date of such termination. VIII. MISCELLANEOUS SECTION 8.001. Specific Performance. Seller and the Stockholder acknowledge that the acquisition of the Assets is a vital, necessary and unique part of Buyer's strategic plan, which includes the acquisition and consolidation of other related businesses, and that any breach of this Agreement by Seller or the Stockholder could not be adequately compensated by damages. Buyer and MedE acknowledge that any breach of this Agreement by Buyer or MedE could not be adequately compensated by damages. Accordingly, each of Buyer and MedE, on the one hand, and Seller and the Stockholder, on the other hand, shall be entitled, in the event of a breach of this Agreement by the other, in addition to any other remedies that it may have, to enforcement of this Agreement by a decree of specific performance requiring that the other party or parties fulfill their respective obligations under this Agreement. SECTION 8.002. Bulk Transfer Laws. Subject to the provisions of Section 6.03 hereof, Buyer hereby waives compliance by Seller with any applicable bulk transfer laws, including, without limitation, the bulk transfer provisions of the Uniform Commercial Code of any state, or any similar statute, with respect to the transactions contemplated hereby. SECTION 8.003. Expenses, Etc. Whether or not the transactions contemplated by this Agreement are consummated, Seller and the Stockholder, on the one hand, and Buyer and MedE, on the other hand, shall not have any obligation to pay any of the fees and expenses of the other party incident to the negotiation, preparation and execution of this Agreement, including the fees and expenses of counsel, accountants, investment bankers and other experts. Seller and the Stockholder, on the one hand, and Buyer and MedE, on the other hand, will indemnify the other and hold the other harmless from and against any claims for finders fees or brokerage commissions in relation to or in connection with such transactions as a result of any agreement or understanding between such indemnifying party and any third party. SECTION 8.004. Execution in Counterparts. This Agreement may be executed in one or more counterparts, or by the parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 38 SECTION 8.005. Notices. All notices which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and delivered personally, transmitted by facsimile, sent by nationally recognized overnight courier or mailed by registered or certified mail postage prepaid, as follows: If to Seller or to the Stockholder, to: The Stockton Group, Inc. 125 Venture Blvd. Spartanburg, South Carolina 29306 Attention: President Fax: (864) 574-0424 with a copy to: Parker, Poe, Adams & Bernstein 101 West Saint John Street, Suite 203 Spartanburg, South Carolina 29306 Attention: T. Alexander Evins, Esq. Fax: (864) 591-2050 If to Buyer or MedE, to: MedE America Corporation 90 Merrick Avenue, Suite 501 East Meadow, New York 11554 Attention: David M. Goldwin, Esq. Fax: (516) 542-4508 with a copy to: Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 Attention: Mark J. Tannenbaum, Esq. Fax: (212) 841-5725 or such other address or addresses as Seller and the Stockholder, on the one hand, or Buyer and MedE, on the other hand, shall have designated by notice to the other in writing. SECTION 8.006. Waivers. Seller (acting on behalf of itself and the Stockholder), on the one hand, and MedE (acting on behalf of itself and Buyer), on the other hand, may, by written notice to the other, (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other contained in this Agreement or in any document delivered pursuant to this Agreement; (iii) waive 39 compliance with any of the conditions or covenants of the other contained in this Agreement; or (iv) waive performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party shall be deemed to constitute a waiver by such party of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. SECTION 8.007. Amendments, Supplements, Etc. At any time this Agreement may be amended or supplemented by such additional agreements, articles or certificates as may be determined by the parties hereto to be necessary, desirable or expedient to further the purposes of this Agreement, or to clarify the intention of the parties hereto, or to add to or modify the covenants, terms or conditions hereof or to effect or facilitate any governmental approval or acceptance of this Agreement or to effect or facilitate the filing or recording of this Agreement or the consummation of any of the transactions contemplated hereby. Any such instrument must be in writing and signed by all parties. SECTION 8.008. Entire Agreement. This Agreement, its Exhibits and Schedules, the Ancillary Agreements and the documents executed on the Closing Date in connection herewith, constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. No representation, warranty, promise, inducement or statement of intention has been made by any party which is not embodied in this Agreement or such other documents, and no party shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement or statement of intention not embodied herein or therein. SECTION 8.009. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 8.10. Binding Effect; Benefits. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. 40 SECTION 8.11. Assignability. Neither this Agreement nor any of the parties' rights hereunder shall be assignable by any party hereto without the prior written consent of the other parties hereto. 41 IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly executed and delivered by the parties hereto as of the date first above written. GENERAL COMPUTER CORPORATION By -------------------------------------- MEDE AMERICA CORPORATION By -------------------------------------- THE STOCKTON GROUP, INC. By -------------------------------------- -------------------------------------- James S. Smith 42 EX-3.1 4 EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF HIS HOLDINGS CORPORATION ------------------------ FIRST: The name of the Corporation is HIS HOLDINGS CORPORATION SECOND: The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is Corporation Service Company. THIRD: The purposes for which the Corporation is formed are to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 1,000 shares of the par value of $.01 per share. All such shares shall be of one class and shall be designated Common Stock. FIFTH: The name and mailing address of the sole incorporator of the Corporation are as follows: Revital D. Havazelet 45 Rockefeller Plaza New York, N.Y. 10111 1 SIXTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized and empowered to make, alter or repeal the By-laws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any By-law made by the Board of Directors. SEVENTH: The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation; and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article. EIGHTH: No person shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transac- 2 tion from which the director derived an improper personal benefit. IN WITNESS WHEREOF, the undersigned, being the incorporator hereinabove named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this Certificate, hereby declaring, certifying and acknowledging under penalties of perjury that the facts herein stated are true and that this Certificate is her act and deed, and accordingly has hereunto set her hand, this 13th day of February, 1995. -------------------------------- Revital D. Havazelet Incorporator 3 Exhibit A --------- CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF HIS HOLDINGS CORPORATION -------------------- HIS HOLDINGS CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: that the following resolutions were duly adopted by unanimous written consent of the Board of Directors of the Corporation, setting forth a proposed amendment to the Certificate of Incorporation of the Corporation; and declaring such amendment to be advisable and directing that such amendment be submitted to the stockholders of the Corporation for their approval. The resolutions are as follows: "RESOLVED that there is hereby adopted an amendment to the Corporation's amended Certificate of Incorporation pursuant to which the name of the Corporation shall be changed to MedE America Corporation, and, in connection with such change, Article FIRST of the amended Certificate of Incorporation of the Corporation shall be amended to read in its entirety as follows: 'FIRST: The name of the Corporation is MedE America Corporation .' RESOLVED that the Board of Directors declares the foregoing amendment to the Corporation's amended Certificate of Incorporation to be advisable and directs that the amendment be submitted to the stockholders of the Corporation for their approval pursuant to Section 242(b) of the General Corporation Law of the State of Delaware." SECOND: that the Amendment of the amended Certificate of Incorporation effected by this Certificate was duly authorized by the holders of a majority of the outstanding capital stock of the Corporation entitled to vote thereon, after having been declared advisable by the Board of Directors of the Corporation, all in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware and that written notice has been given as provided in such Section. 1 IN WITNESS WHEREOF, HIS HOLDINGS CORPORATION has caused its corporate seal to be hereunto affixed and this certificate to be signed by Othon Prounis, its Assistant Secretary, on this day of March, 1995. HIS HOLDINGS CORPORATION By -------------------------- Othon Prounis Assistant Secretary CERTIFICATE OF AMENDMENT to CERTIFICATE OF INCORPORATION of MEDE AMERICA CORPORATION MEDE AMERICA CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: that the following resolutions were duly adopted by unanimous written consent of the Board of Directors of the Corporation, setting forth proposed amendments to the Certificate of Incorporation of the Corporation; determining that the capital of the Corporation will not be decreased on account of such amendments; and declaring such amendments to be advisable and directing that such amendments be submitted to the stockholders of the Corporation for its approval. The resolutions are as follows: "RESOLVED, that there is hereby adopted an amendment to the Corporation's Certificate of Incorporation pursuant to which (i) the authorized capital stock of the Corporation shall be changed from 40,000 shares Common Stock, $.01 par value, to 25,011,000 shares, consisting of 11,000 shares of Preferred Stock, $.01 par value, and 25,000,000 shares of Common Stock, $.01 par value, and (ii) the relative voting, dividend, liquidation, redemption and other rights, and the qualifications, limitations and restrictions thereof, in respect of said Preferred Stock and Common Stock shall be restated; and, in connection with such changes, Article FOURTH of the Certificate of Incorporation of the Corporation shall be amended to read in its entirety as follows: 'FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 25,011,000 shares, consisting of 11,000 shares of Preferred Stock, $.01 par value ("Preferred Stock") and 25,000,000 shares of Common Stock, $.01 par value ("Common Stock"). All cross-references in each subdivision of this Article FOURTH refer to other paragraphs in such subdivision unless otherwise indicated. The following is a statement of the designations, and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of each class of stock of the Corporation: I. PREFERRED STOCK 1. Cumulative Dividends. (i) The holders of Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available for such purpose, cash dividends at the rate of $8.00 per share per annum, and no more. In the event such dividends are declared, the dividend payment dates with respect thereto shall be the immediately succeeding March 31. (ii) In no event, so long as any Preferred Stock shall remain outstanding, shall any dividend whatsoever be declared or paid upon, nor shall any distribution be made upon, any Common Stock, other than a dividend or distribution payable in shares of Common Stock, nor, without the written consent of the holders of 66 2/3% of the outstanding Preferred Stock, shall any shares of Common Stock be purchased or redeemed by the Corporation, nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of any Common Stock, unless in each instance cumulative dividends accrued and unpaid on all outstanding shares of the Preferred Stock for all past dividend periods shall have been paid in full. 2. Redemption. 2A. Mandatory Redemptions. (i) The Corporation shall redeem on March 31, 2000, all shares of Preferred Stock which shall then be outstanding, at the Redemption Price (as defined below). (ii) Upon the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offering and sale of the Corporation's Common Stock pursuant to which the Corporation receives aggregate net proceeds of at least $15 million (after underwriters', brokers' and deal- ers' fees and commissions and underwriters' discounts and any other offering expenses required to be disclosed in Part II of the applicable registration statement) (a "Qualified Public Offering"), the Corporation shall redeem all then outstanding shares of Preferred Stock at the Redemption Price. 2B. Optional Redemptions. The Preferred Stock may be redeemed in whole at any time or in part from time to time, at the option of the Corporation, at the Redemption Price. 2C. Redemption Date; Redemption Price. Any date on which the Corporation elects or is required to redeem Preferred Stock under this paragraph 2 shall be referred to as a "Redemption Date." The per share "Redemption Price" of the Preferred Stock to be redeemed on a Redemption Date shall be the sum of (x) $100.00 per share, plus (y) any accrued but unpaid dividends thereon to the date of such redemption. 2D. Notice of Redemption. Not less than 30 days before any Redemption Date, written notice shall be given by mail, postage prepaid to the holders of record of the Preferred Stock to be redeemed, addressed to each such stockholder at his or its post office address as shown by the records of the Corporation, specifying the number of shares to be redeemed, the subparagraph or subparagraphs of this paragraph 2 pursuant to which such redemption shall be made, the Redemption Price and the place at which and the date, which date shall not be a day on which banks in the City of New York are required or authorized to close, on which the shares of Preferred Stock will be redeemed. If such notice of redemption shall have been duly given and if on or before such Redemption Date the funds necessary for redemption shall have been set aside so as to be and continue to be available therefor, then, notwithstanding that any certificate for shares of Preferred Stock to be redeemed shall not have been surrendered for cancellation, after the close of business on such Redemption Date, such shares shall no longer be deemed outstanding, the dividends thereon shall cease to accrue, and all rights with respect to such shares shall forthwith after the close of business on the Redemption Date, cease, except only the right of the holders thereof to receive the Redemption Price for such shares, without interest. 2E. Redeemed or Otherwise Acquired Shares to be Retired. Any shares of Preferred Stock redeemed pursuant to this paragraph 2 or otherwise acquired by the Corporation in any manner whatsoever shall be permanently retired and shall not under any circumstances be reissued; and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized Preferred Stock accordingly. 2F. Shares to be Redeemed, Purchased or Retired. In case of the redemption, purchase or retirement, for any reason, of only a part of the outstanding shares of the Preferred Stock on a Redemption Date, all shares of Preferred Stock to be redeemed, purchased or retired shall be selected pro rata, and there shall be so redeemed, purchased or retired from each registered holder in whole shares, as nearly as practicable to the nearest share, the proportion of all the shares to be redeemed, purchased or retired which the number of shares held of record by such holder bears to the total number of shares of Preferred Stock at the time outstanding. 3. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or the sale of all or substantially all the assets of the Corporation (each such event being referred to as a "Liquidation"), a holder of the shares of Preferred Stock shall be entitled, before any distribution or payment is made upon any Common Stock, to receive out of the assets of the Corporation (x) $100.00 per share, plus (y) any accrued but unpaid dividends thereon to the date of such redemption, for each share of Preferred Stock held by such holder. If upon such Liquidation, the assets to be distributed among the holders of Preferred Stock shall be insufficient to permit payment to the holders of Preferred Stock of that amount distributable as aforesaid, then the entire assets of the Corporation to be distributed shall be distributed ratably among the holders of Preferred Stock. Upon any such Liquidation, after the holders of the Preferred Stock shall have been paid in full the amounts to which they shall be entitled, the holders of the Common Stock will share the remaining net assets of the Corporation. Written notice of such Liquidation, stating a payment date, the aggregate amount of the payments to which such holder of Preferred Stock is entitled and the place where said sums shall be payable shall be given by mail, postage prepaid, not less than 30 days prior to the payment date stated therein, to the holders of record of the Preferred Stock, such notice to be addressed to each stockholder at its post office address as shown by the records of the Corporation. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the reduction of the capital stock of the Corporation, shall be deemed to be a Liquidation. 4. Voting Rights. Except as otherwise provided by law or this Certificate of Incorporation, the holders of Preferred Stock shall not be entitled to vote on matters presented to the stockholders of the Corporation. 5. Restrictions. At any time when shares of Preferred Stock are outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by this Certificate of Incorporation, and in addition to any other vote required by law, without the prior consent of the holders of 66 2/3% of the outstanding Preferred Stock, given in person or by proxy, either in writing or at a special meeting called for that purpose, at which meeting the holders of the shares of Preferred Stock shall vote together as a class: (i) The Corporation will not create or authorize the creation of any additional class of shares unless the same ranks junior to the Preferred Stock both as to dividends and as to the distribution of assets on Liquidation, or increase the authorized amount of the Preferred Stock, or increase the authorized amount of any additional class of shares unless the same ranks junior to the Preferred Stock both as to dividends and as to the distribution of assets on Liquidation, or create or authorize any obligations or securities convertible into or exchangeable for shares of Preferred Stock or into shares of any other class unless the same ranks junior to the Preferred Stock both as to dividends and as to the distribution of assets on Liquidation, whether any such creation or authorization or increase shall be by means of amendment of the Certificate of Incorporation, merger, consolidation, recapitalization or otherwise. (ii) The Corporation will not amend, alter or repeal the Corporation's Certificate of Incorporation or By-laws in any manner, or file any directors' resolutions pursuant to Section 151(g) of the Delaware General Corporation Law containing any provision, in either case which affects the respective preferences, voting power, qualifications, special or relative rights or privileges of the Preferred Stock or the Common Stock or which in any manner adversely affects the Preferred Stock or the Common Stock or the holders thereof. II. COMMON STOCK All shares of Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges: 1. Dividends When and as dividends are declared upon the Common Stock, whether payable in cash, in property or in shares of stock of the Corporation, the holders of Common Stock shall be entitled to share equally, share for share, in such dividends. 2. Voting Rights Each holder of Common Stock shall be entitled to one vote per share.' "RESOLVED that the Board of Directors determines that the capital of the Corporation will not be decreased on account of the foregoing amendment, declares the foregoing amendment to the Corporation's Certificate of Incorporation to be advisable and directs that the amendment be submitted to the stockholders of the Corporation for their approval pursuant to Section 242(b) of the General Corporation Law of the State of Delaware." SECOND: that the Amendment of the Certificate of Incorporation effected by this Certificate was duly authorized by the holders of a majority of the outstanding capital stock of the Corporation entitled to vote thereon, after first having been declared advisable by the Board of Directors of the Corporation, all in accordance with the provisions of Section 242 of the Delaware General Corporation Law. THIRD: Effective upon the filing of this Certificate of Amendment with the Secretary of State of Delaware (the "Effective Time") each (1) share of Common Stock, $.01 par value, of the Corporation issued and outstanding at the Effective Time shall be reclassified as 611.4568797 shares of Common Stock, $.01 par value, of the Corporation. FOURTH: that the capital of the Corporation will not be reduced under, or by reason of, the foregoing amendments to the Certificate of Incorporation of the Corporation. IN WITNESS WHEREOF, MEDE AMERICA CORPORATION has caused its corporate seal to be hereunto affixed and this certificate to be signed by Othon Prounis, its Assistant Secretary, who hereby acknowledges under penalties of perjury that the facts herein stated are true and that this certificate is his act and deed, this 31st day of March, 1995. MEDE AMERICA CORPORATION By: ------------------------------ Name: Othon Prounis Title: Assistant Secretary 7 IN WITNESS WHEREOF, the undersigned, being all the Directors of the Corporation, have executed this Consent as of this 31st day of March, 1995. ------------------------------ Bruce K. Anderson ------------------------------ Anthony J. deNicola ------------------------------ Thomas E. McInerney ------------------------------ Timothy M. Murray ------------------------------ Dana J. O'Brien ------------------------------ Thomas P. Staudt 3 MEDE AMERICA CORPORATION Written Consent of Stockholders ------------------------------- ------------------------------------------- Pursuant to Section 228(a) of the General Corporation Law of the State of Delaware ------------------------------------------- The undersigned, being the holders of a majority of the issued and outstanding Common Stock, $.01 par value of MedE America Corporation, a Delaware corporation (the "Corporation"), acting pursuant to Section 228(a) of the General Corporation Law of the State of Delaware, DO HEREBY CONSENT to the adoption of, and DO HEREBY ADOPT the resolutions hereinafter set forth with the same force and effect as if they had been duly adopted at a special meeting of the stockholders of the Corporation duly called and held for such purpose, and DO HEREBY DIRECT the Secretary of the Corporation to file this Consent with the minutes of proceedings of stockholders of the Corporation: RESOLVED that, pursuant to the General Corporation Law of the State of Delaware, the Corporation be, and it hereby is, authorized and empowered, upon the terms and conditions set forth in the proposed Certificate of Amendment to Certificate of Incorporation of the Corporation attached as Exhibit A to the Unanimous Written Consent of the Board of Directors of the Corporation dated as of the date hereof ("the Certificate of Amendment"), to file with the Secretary of the State of the state of Delaware a certificate of amendment of the Corporation's Certificate of Incorporation, substantially in the form of the Certificate of Amendment, with respect to such change; RESOLVED that the form, terms and provisions of the Certificate of Amendment, a copy of which has been submitted to the undersigned stockholders of the Corporation, be, and they hereby are, in all respects, approved. 1 IN WITNESS WHEREOF, the undersigned stockholders have executed this Consent on and as of the 31st day of March, 1995. WELSH, CARSON, ANDERSON & STOWE V, L.P. By WCAS V Partners, General Partner By: ------------------------------------ Name: General Partner WCAS CAPITAL PARTNERS II, L.P. By WCAS CP Partners, General Partner By: ------------------------------------ Name: General Partner WILLIAM BLAIR LEVERAGED CAPITAL FUND, LIMITED PARTNERSHIP By General Partner By: ------------------------------------ Name: Title: PRUDENTIAL VENTURE PARTNERS II By General Partner By: ------------------------------------ Name: Title: 2 EX-3.4 5 EXHIBIT 3.4 Annex A ------- ================================================================================ AGREEMENT AND PLAN OF MERGER Between MEDE AMERICA CORPORATION and GENCC HOLDINGS CORPORATION Dated as of May 17, 1995 ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER SECTION 1.01 The Merger................................................ 2 SECTION 1.02 Effect of the Merger...................................... 2 SECTION 1.03 Consummation of the Merger................................ 3 SECTION 1.04 Charter; By-Laws; Directors and Officers.................................................. 3 SECTION 1.05 Further Assurances........................................ 3 ARTICLE II CONVERSION OF SECURITIES SECTION 2.01 Conversion of Securities of the Company............................................... 4 SECTION 2.02 Stock Options, Warrants, Etc.............................. 4 SECTION 2.03 Conversion of Securities of GENCC..................................................... 5 SECTION 2.04 Election Procedures....................................... 5 SECTION 2.05 Fractional Interests...................................... 6 SECTION 2.06 Dissenting Shares......................................... 6 SECTION 2.07 Surrender and Exchange of Shares.......................... 7 SECTION 2.08 Dissenting Shares After Payment of Fair Value..................................... 7 SECTION 2.09 Closing of Stock Transfer Books........................... 7 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01 Representations and Warranties of the Company and GENCC .................................... 7 ARTICLE IV COVENANTS SECTION 4.01 Certain Covenants......................................... 13 SECTION 4.02 Proxy Statement/Offering Memorandum....................... 13 SECTION 4.03 Other Agreements.......................................... 13 SECTION 4.04 Notification of Certain Matters........................... 14 SECTION 4.05 Consents.................................................. 14 ARTICLE V CONDITIONS PRECEDENT TO THE MERGER SECTION 5.01 Conditions Precedent to the Merger Relating to the Company .................................. 14 SECTION 5.02 Conditions Precedent to the Merger Relating to GENCC..........................................16 ARTICLE VI TERMINATION AND ABANDONMENT SECTION 6.01 Termination and Abandonment............................... 18 SECTION 6.02 Effect of Termination..................................... 18 ARTICLE VII MISCELLANEOUS SECTION 7.01 Expenses, Etc............................................. 19 SECTION 7.02 Publicity................................................. 19 SECTION 7.03 Execution in Counterparts................................. 19 SECTION 7.04 Notices................................................... 19 SECTION 7.05 Waivers................................................... 20 SECTION 7.06 Amendments, Supplements, Etc. .............................20 SECTION 7.07 Entire Agreement.......................................... 21 SECTION 7.08 Applicable Law............................................ 21 SECTION 7.09 Binding Effect, Benefits.................................. 21 SECTION 7.10 Assignability............................................. 21 INDEX TO SCHEDULES AND EXHIBITS Schedule Description - -------- ----------- I Stockholders of the Constituent Corporations 3.01(b) Subsidiaries 5.01(e) Consents to be Obtained by GENCC 5.02(e) Consents to be Obtained by the Company Exhibit ss. Ref. Description ------- -------- ----------- A 3.01(c)(i) Form of Certificate of Merger AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of May 17, 1995, between MEDE AMERICA CORPORATION, a Delaware corporation (the "Company"), and GENCC HOLDINGS CORPORATION, a Delaware corporation ("GENCC"). The Company and GENCC are hereinafter sometimes referred to as the "Constituent Corporations" and the Company as the "Surviving Corporation." WHEREAS, the Company and GENCC desire that GENCC merge with and into the Company (the "Merger"), upon the terms and subject to the conditions set forth herein and in accordance with the General Corporation Law of the State of Delaware (the "Dela- ware GCL") with the result that the Company shall continue as the surviving corporation and the separate existence of GENCC (except as it may be continued by operation of law) shall cease; and WHEREAS, the Company and GENCC desire that upon the Merger, at the Effective Time (as hereinafter defined) (i) all outstanding shares of Common Stock, $.01 par value, of GENCC ("GENCC Common Stock"), and all outstanding shares of Preferred Stock, $.01 par value, of GENCC ("GENCC Preferred Stock") (excluding any shares of capital stock of GENCC held in the treasury of GENCC) be converted into the right to receive, as to a portion thereof, a cash payment, and as to the balance thereof, units consisting of fully paid and nonassessable shares of Common Stock, $.01 par value, of the Surviving Corporation ("Surviving Corporation Common Stock"), and fully paid and non-assessable shares of Preferred Stock, $.01 par value, of the Surviving Corporation ("Surviving Corporation Preferred Stock"), together with cash in lieu of fractional interests, and (ii) all outstanding shares of Common Stock, $.01 par value, of the Company (the "Company Common Stock") (excluding Dissenting Shares (as hereinafter defined)) be converted into the right to receive, at the election of the holder, either (i) a cash payment or (ii) units (the "Units"), each consisting of (y) one-half of one share of fully paid and nonassessable shares of Surviving Corporation Common Stock and (z) five one-thousandths of a share of fully paid and nonassessable shares of Surviving Corporation Preferred Stock, together with cash in lieu of fractional interests, as hereinafter provided; and WHEREAS, all the outstanding shares of GENCC Common Stock and all outstanding shares of GENCC Preferred Stock are held by Welsh, Carson, Anderson & Stowe V, L.P. and certain of its affiliates (collectively, "WCAS") and certain of such WCAS holders are also holders of shares of Company Common Stock; WHEREAS, as soon as practicable after the date hereof, the Company shall circulate a Proxy Statement/Offering Memorandum, (the "Proxy/Offering Memorandum"), in which the Company shall offer to sell, pursuant to a Subscription Agreement (the "Subscription Agreement") to be consummated contemporaneously with the Effective Time, additional Units ("Additional Units") to certain stockholders of the Company who qualify as "accredited investors" (within the meaning of Rule 501 under the Securities Act of 1933, as amended (the "Securities Act")) (offerees who so subscribe being referred to as the "Participants") which would permit each Participant to maintain the same percentage ownership of the Surviving Corporation as it currently has in the Company; and WHEREAS, the respective Boards of Directors of the Company and GENCC have approved the Merger; and WHEREAS, in connection with the Merger, William Blair Leveraged Capital Fund, Limited Partnership, the members of WCAS who hold Company Common Stock and GENCC (as holder of 100% of the outstanding shares of Preferred Stock, $.01 par value, of the Company ("Company Preferred Stock")), have entered into a Merger Consideration Election Agreement (the "Election Agreement"), pursuant to which they have agreed to vote in favor of the Merger and to elect to receive Units in exchange for all the shares of Company Common Stock held by them at the Effective Time. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants, agreements and conditions contained herein, and in order to set forth the terms and conditions of the Merger and the mode of carrying the same into effect, the parties hereto hereby agree as follows: ARTICLE I THE MERGER SECTION 1.011 The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time, in accordance with this Agreement and the Delaware GCL, GENCC shall be merged with and into the Company, the separate existence of GENCC (except as it may be continued by operation of law) shall cease, and the Company shall continue as the surviving corporation under the corporate name of "MedE America Corporation." SECTION 1.012 Effect of the Merger. Upon the effectiveness of the Merger, the Surviving Corporation shall possess all the rights, privileges, powers and franchises, as well of a public as of a private nature, and be subject to all the restrictions, disabilities and duties, of each of the Constituent Corporations; and all and singular, the rights, privileges, powers and franchises of each of the Constituent Corporations, 2 and all property, real, personal and mixed, and all debts due to any of the Constituent Corporations on whatever account, as well for stock subscriptions as all other things in action or belonging to each of the Constituent Corporations, shall be vested in the Surviving Corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of the Constituent Corporations, and the title to any real estate vested by deed or otherwise in any of the Constituent Corporations shall not revert or be in any way impaired by reason of the Merger; but all rights of creditors and all liens upon any property of any of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Corporations shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it. SECTION 1.013 Consummation of the Merger. As soon as practicable after the satisfaction or waiver of the conditions to the obligations of the parties to effect the Merger set forth herein, provided that this Agreement has not been terminated previously, the parties hereto will cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware a properly executed Certificate of Merger (the time of such filing being the "Effective Time"). SECTION 1.014 Charter; By-Laws; Directors and Officers. The Certificate of Incorporation of the Surviving Corporation from and after the Effective Time shall be the Certificate of Incorporation of the Company, as amended by the Certificate of Merger (as hereinafter defined) and in effect immediately prior to the Effective Time, until thereafter amended in accordance with the provisions thereof and as provided by the Delaware GCL. The By-laws of the Surviving Corporation from and after the Effective Time shall be the By-laws of the Company as in effect immediately prior to the Effective Time, continuing until thereafter amended in accordance with the provisions thereof and the Certificate of Incorporation of the Surviving Corporation and as provided by the Delaware GCL. The initial directors and officers of the Surviving Corporation shall be the directors and officers, respectively, of the Company immediately prior to the Effective Time, in each case until their respective successors are duly elected and qualified. SECTION 1.015 Further Assurances. If at any time after the Effective Time the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, its right, title or interest in, to or under any of the rights, privileges, powers, fran- 3 chises, properties or assets of either of the Constituent Corporations, or (b) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of either of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and do, in the name and on behalf of such Constituent Corporation, all such other acts and things necessary, desirable or proper to vest, perfect or confirm its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of such Constituent Corporation and otherwise to carry out the purposes of this Agreement. ARTICLE II CONVERSION OF SECURITIES SECTION 2.021 Conversion of Securities of the Company. By virtue of the Merger and without any action on the part of the holders of the capital stock of the Company, at the Effective Time, all outstanding shares of the capital stock of the Company (other than Dissenting Shares and outstanding shares of Company Preferred Stock (which shall be canceled as provided in paragraph (b) below)) shall be converted into the right to receive either the MedE Stock Consideration or the MedE Cash Consideration (as each such term is hereinafter defined), as follows: (a) Company Common Stock. Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares) shall be converted into the right to receive either (i) $1.00 in cash, without interest (the "MedE Cash Consideration") or (ii) a Unit consisting of (x) one-half (.5) of one fully paid and nonassessable share of Surviving Corporation Common Stock and (y) five one- thousandths (.005) of one fully paid and nonassessable share of Surviving Corporation Preferred Stock, together with cash in lieu of fractional interests in such shares as provided in Section 2.05(c) hereof (collectively, the "MedE Stock Consideration"), in each case, as the holder thereof shall have elected, or be deemed to have elected, in accordance with Section 2.04 hereof. (b) Company Preferred Stock. Each share of Company Preferred Stock issued and outstanding immediately prior to the Effective Time shall be canceled and retired, and no capital stock of the Company, cash or other consideration shall be paid or delivered in exchange therefor. SECTION 2.022 Stock Options, Warrants, Etc. At the Effective Time, the terms and provisions of each outstanding stock option, warrant or other right to purchase Company Common Stock shall continue in full force and effect and the holder 4 thereof shall be entitled to receive, upon the exercise thereof and subject to such other terms and provisions, a number of shares of Surviving Corporation Common Stock equal to the number of shares of Company Common Stock that would have been issued if such option, warrant or other right had been exercised immediately prior to the Effective Time. SECTION 2.023 Conversion of Securities of GENCC. (a) GENCC Common Stock and GENCC Preferred Stock. At the Effective Time, each unit (a "GENCC Unit") consisting of ten (10) shares of GENCC Common Stock and one (1) share of GENCC Preferred Stock, in each case, issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger, automatically and without any action on the part of the holder thereof, be converted into the right to receive either (x) $200 in cash, without interest (the "GENCC Cash Consideration") or (y) shares of the capital stock of the Surviving Corporation at a rate of 200 Units (the "GENCC Stock Consideration"). GENCC Units shall be converted into the right to receive the GENCC Cash Consideration to the extent only that the Surviving Corporation shall have allocated cash to the payment thereof, and the remain- ing GENCC Units shall be converted into GENCC Stock Consider- ation. The Surviving Corporation shall allocate cash to the payment of GENCC Cash Consideration in respect of GENCC Units in an amount equal to the excess of (i) the aggregate cash proceeds received by the Surviving Corporation as of the Effective Time from the sale of Additional Units pursuant to Subscription Agreements, over (ii) the sum of (a) the total Mede Cash Consid- eration to be paid pursuant to Section 2.01(a)(i) hereof and (b) $5 million. Prior to the Effective Time, the Company shall confirm in writing to each holder of GENCC Units the amount of GENCC Cash Consideration and GENCC Stock Consideration to be received by such holder in the Merger. SECTION 2.024 Election Procedures. (a) Prior to the Effective Time, each holder of shares of Company Common Stock (other than Dissenting Shares, if any) shall elect, in accordance with Section 2.04(b) hereof, to receive in the Merger either the MedE Cash Consideration or the MedE Stock Consideration in exchange for such shares. Shares of Company Common Stock in respect of which the holder does not submit an effective notice of election shall be deemed by the Company to be shares in respect of which the holder has elected to receive the MedE Stock Consideration. (b) Elections shall be made by notice given to the Company in a form to be provided by the Company for that purpose to holders of Company Common Stock, at the time of mailing to such holders of the Proxy/Offering Memorandum. To be effective, a notice of election must be properly completed as provided in the form of notice included in the Proxy/Offering Memorandum, 5 signed and submitted to the Company at the office designated on the form of notice so provided, on or before the deadline specified therein, which shall be no less than seven (7) days after the date on which the Proxy/Offering Memorandum is mailed by the Company to stockholders of the Company. SECTION 2.025 Fractional Interests. No certificates representing fractional shares of Surviving Corporation Common Stock or Surviving Corporation Preferred Stock shall be issued in connection with the Merger, and such fractional interests will not entitle the owner thereof to any rights of a stockholder of the Surviving Corporation. In lieu of any such fractional interests, each holder of shares of Company Common Stock exchanged pursuant to Section 2.01(a) who would otherwise have been entitled to receive a fraction of a share of Surviving Corporation Common Stock or Surviving Corporation Preferred Stock (after taking into account all shares of Company Common Stock then held of record by such holder) shall receive (a) cash (without interest) in an amount equal to the product of such fractional part of a share of Surviving Corporation Common Stock or Surviving Corporation Preferred Stock, as the case may be, multiplied by $1.00 and $100, respectively. SECTION 2.026 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, shares of capital stock of the Company that are outstanding immediately prior to the Effective Time and that are held by stockholders who have not voted such shares in favor of the approval and adoption of this Agreement and who shall have delivered a written demand for appraisal of such shares in the manner provided in Section 262 of the Delaware GCL ("Dissenting Shares") shall not be converted into or be exchangeable for the right to receive the MedE Cash Consideration or the MedE Stock Consideration, as provided in Section 2.01 of this Agreement, but the holders of such shares shall be entitled to payment of the appraised value of such shares in accordance with the provisions of Section 262 of the Delaware GCL; provided, however, that (i) if any holder of Dissenting Shares shall subsequently deliver a written withdrawal of his demand for appraisal of such shares (with the written approval of the Surviving Corporation, if such withdrawal is not tendered within 60 days after the Effective Time), or (ii) if any holder fails to perfect or loses his appraisal rights as provided in Section 262 of the Delaware GCL, or (iii) if any holder of Dissenting Shares fails to demand payment within the time period provided in Section 262 of the Delaware GCL, such holder or holders (as the case may be) shall forfeit the right to appraisal of such shares and such shares shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive MedE Stock Consideration as provided in Section 2.01 of this Agreement. 6 SECTION 2.027 Surrender and Exchange of Shares. (a) At the Effective Time, each holder of an outstanding certificate or certificates, which prior thereto represented shares of Company Common Stock, GENCC Common Stock or GENCC Preferred Stock shall surrender the same to the Surviving Corporation, and each such holder shall be entitled upon such surrender to receive in exchange therefor, without cost to it, the amount of MedE Cash Consideration, MedE Stock Consideration, GENCC Cash Consideration or GENCC Stock Consideration, as applicable, into which the shares theretofore represented by the certificate so surrendered shall have been converted as provided in Section 2.01 and 2.03 hereof, and the certificate or certificates so surrendered in exchange for such consideration shall forthwith be canceled by the Surviving Corporation. (b) If a holder of shares of Company Common Stock, GENCC Common Stock or GENCC Preferred Stock has lost the certificate evidencing such shares owned by such holder, then such holder shall submit an affidavit describing the lost certificate, the number of shares evidenced thereby and affirming the loss of that certificate in lieu of surrendering the lost certificate to the Surviving Corporation, which shall deem such lost certificate canceled. Until so surrendered, the outstanding certificates that, prior to the Effective Time, represented shares of the capital stock of the Company or GENCC that shall have been converted as aforesaid shall be deemed for all corporate purposes, except as hereinafter provided, to evidence the ownership of the consideration into which such shares have been so converted. SECTION 2.028 Dissenting Shares After Payment of Fair Value. Dissenting Shares, if any, after payments of fair value in respect thereto have been made to dissenting stockholders of the Company pursuant to the Delaware GCL, shall be canceled. SECTION 2.029 Closing of Stock Transfer Books. At and after the Effective Time there shall be no transfers on the stock transfer books of the Company or GENCC of shares of capital stock of the Company or GENCC that were issued and outstanding immediately prior to the Effective Time. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.031 Representations and Warranties of the Company and GENCC. Each of the Company and GENCC (being hereinafter referred to, collectively, as the "Merger Parties" and, individually, as a "Merger Party") represents and warrants, only as to itself and its subsidiaries to the other Merger Party as follows: 7 (a) Organization, Power, Etc. (i) Such Merger Party is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified or licensed and is in good standing to do business as a foreign corporation in each jurisdiction in which the property owned, leased or operated by it or the nature of its business, as now being conducted, makes such qualification or licensing necessary (other than any such jurisdictions in which the failure to be so qualified would not, in the aggregate, have a material adverse effect on its business, properties or condition (financial or other)), and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now being conducted and to execute, deliver and perform this Agreement. (b) Subsidiaries. Except as set forth in Schedule 3.01(b) hereto, in Part I thereof in the case of the Company and in Part II thereof in the case of GENCC, neither such Merger Party nor any of its subsidiaries owns of record or beneficially, directly or indirectly, (i) any shares of outstanding capital stock or securities convertible into capital stock of any other corporation or (ii) any participating interest in any partnership, joint venture or other non-corporate business enterprise. Each subsidiary of such Merger Party is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as it is now being conducted. Each such subsidiary is duly qualified or licensed and is in good standing to do business as a foreign corporation in each jurisdiction in which the property owned, leased or operated by it or the nature of its business as now being conducted makes such qualification or licensing necessary (other than any such jurisdiction in which the failure to be so qualified would not, in the aggregate, have a material adverse effect on the business, properties or condition (financial or other) of such Merger Party and its subsidiaries, taken as a whole). All the outstanding shares of capital stock of such Merger Party's subsidiaries are validly issued, fully paid and nonassessable and are owned by such Merger Party or by a wholly-owned subsidiary of such Merger Party, free and clear of any liens, claims, charges or encumbrances, and there are no irrevocable proxies outstanding with respect to any such shares. For purposes of this Agreement, the term "subsidiary" shall mean any corporation or other business entity a majority of the outstanding voting stock of which is entitled to vote for the election of directors is at the time owned by such Merger Party and/or one or more other subsidiaries. (c) Capitalization. (i) The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, 8 $.01 par value, and 11,000 shares of Preferred Stock, $.01 par value, of which 20,000,000 shares of such Common Stock and 11,000 shares of such Preferred Stock are issued and outstanding, fully paid and nonassessable and 2,500,000 shares of the Company Common Stock are reserved for issuance under the stock option and restricted stock purchase plan of the Company. After filing the Certificate of Merger with the Secretary of State of the State of Delaware, in the form attached hereto as Exhibit A (the "Certificate of Merger"), the authorized capital stock of the Surviving Corporation will consist of 24,000,000 shares of Surviving Corporation Common Stock and 215,000 shares of Surviving Corporation Preferred Stock. (ii) The authorized capital stock of GENCC consists of 2,750,000 shares of Common Stock, $.01 par value, and 125,000 shares of Preferred Stock, $.01 par value, of which 1,150,000 shares of such Common Stock and 115,000 shares of such Preferred Stock are issued and outstanding, fully paid and nonassessable. (iii) Schedule I hereto, in Part I thereof in the case of the Company and Part II thereof in the case of GENCC, contains a true and complete list of all the holders of shares of capital stock of such Merger Party and their respective share holdings, and all outstanding options, warrants, calls or other rights to subscribe for or purchase or acquire from such Merger Party, or any plans, contracts or commitments providing for the issuance of, or the granting of rights to acquire (i) any capital stock of such Merger Party or (ii) any securities convertible into or exchangeable for any capital stock of such Merger Party. Except as set forth in said Schedule I, such Merger Party is not contractually obligated to repurchase, redeem or otherwise acquire any of its outstanding shares of capital stock or options to acquire such stock and, except for the Election Agreement, there are no agreements among the stockholders of such Merger Party regarding the voting of securities of such Merger Party. (d) Authorization of Agreements, Etc. (i) The execution, delivery and performance by such Merger Party of this Agreement, and the consummation by it of the transactions contemplated hereby have been duly and effectively authorized by all requisite corporate action. This Agreement constitutes the legal, valid and binding obligation of such Merger Party, enforceable against such Merger Party in accordance with its terms subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws affecting the enforcement of creditors' rights in general and to general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law. (ii) The issuance and delivery by the Company of the shares of the Surviving Corporation Common Stock and the Surviv- 9 ing Corporation Preferred Stock upon the consummation of the Merger at the Effective Time, as contemplated herein, have been duly and effectively authorized by all requisite corporate action, and such shares, when issued and delivered in accordance with this Agreement, will be validly issued and outstanding, fully paid and nonassessable shares of Surviving Corporation Common Stock and Surviving Corporation Preferred Stock, as the case may be. The issuance and delivery of the shares of Surviving Corporation Common Stock and Surviving Corporation Preferred Stock, under the circumstances contemplated by this Agreement, are not subject to any preemptive rights of stockholders of the Company or to any right of first refusal or other similar right in favor of any person and are exempt from the registration requirements of the Securities Act. (e) Effect of Agreements. The execution and delivery by such Merger Party of this Agreement, and performance by it of its obligations hereunder will not violate, in any material respect, any provision of any statute or regulation, the Certificate of Incorporation or By-laws of such Merger Party or any of its subsidiaries or any order of any court or other agency of government, or any judgment, award or decree or any indenture, agreement or other instrument to which such Merger Party or any of its subsidiaries is a party, or by which such Merger Party or any of its subsidiaries or any of their respective properties or assets is bound, or conflict with in any material respect, result in a material breach of or constitute (with due notice or lapse of time or both) a material default under, any such indenture, or any agreement or other instrument, or result in the creation or imposition of any lien, charge, security interest or encumbrance of any nature whatsoever upon any of the material properties or assets of such Merger Party and its subsidiaries, taken as a whole. (f) Financial Statements. (i) The Company has furnished to GENCC: (A) the unaudited consolidated statement of financial position of the Company and its subsidiaries as of February 28, 1995 and the related statements of operations for the eight months then ended, certified by the principal financial officer of the Company. (ii) GENCC has furnished to the Company: (A) the consolidated statements of the financial position of General Computer Corporation ("GCC") and its subsidiaries for each of the three fiscal years ended May 31, 1992, 1993 and 1994 and the related statements of operations, changes in stockholders' equity and cash flows for the fiscal years then ended, certified by KPMG Peat Marwick, LLP, the independent public accountants then retained by GCC and (B) the unaudited consolidated balance sheet of GCC as of November 30, 1994, and the related unaudited statements of operations, change in stockholders' equity and cash flows for 10 the six months then ended, certified by the principal financial officer of GCC. (iii) All such financial statements of such Merger Party (including any related schedules and/or notes, if any) have been prepared in accordance with generally accepted accounting principles consistently applied and consistent with prior periods, except that such interim statements are subject to year end adjustments (which consist of normal recurring accruals) and do not contain footnote disclosures. Except as set forth in Schedule 3.01(f) hereto, in Part I thereof in the case of the Company and Part II thereof in the case of GCC, each of such statements of financial position of the Company and its subsidiaries or GCC, as the case may be, fairly present in all material respects the financial position of the applicable Merger Party and its subsidiaries as of their respective dates, and such statements of operations, changes in stockholders' equity and cash flows fairly present in all material respects the results of operations of the applicable Merger Party and its subsidiaries for the respective periods then ended, subject, in the case of unaudited financial statements, to normal year-end adjustments and the absence of footnote disclosure. Except (i) as set forth in the financial statements of such Merger Party and its subsidiaries, (ii) as incurred in the ordinary course of business and consistent with past practice, or (iii) as set forth on said Schedule 3.01(f), to such Merger Party's knowledge, such Merger Party and its subsidiaries have not incurred any material liabilities or obligations of any kind or nature, whether known or unknown (whether absolute, secured, contingent or otherwise) and whether due or to become due since February 28, 1995, in the case of the Company and its subsidiaries, and since November 30, 1994, in the case of GCC and GENCC. (g) Absence of Certain Changes or Events. Except as otherwise set forth in Schedule 3.01(g) hereto, in Part I thereof in the case of the Company and Part II thereof in the case of GENCC, since February 28, 1995, in the case of the Company and its subsidiaries, and since November 30, 1994, in the case of GCC and GENCC, neither such Merger Party nor any of its subsidiaries has: (i) incurred any obligation or liability (fixed or contingent), except normal trade or business obligations incurred in the ordinary course of business and consistent with past practice, none of which, individually or in the aggregate, is materially adverse, and except in connection with this Agreement and the transactions contemplated hereby; (ii) discharged or satisfied any lien, security interest, charge or other encumbrance or paid any obligation or 11 liability (fixed or contingent), other than in the ordinary course of business and consistent with past practice; (iii) mortgaged, pledged or subjected to any lien, security interest, charge or other encumbrance any of its assets or properties with a value in excess of $100,000 (other than mechanic's, materialman's and similar statutory liens arising in the ordinary course of business and purchase money security interests arising as a matter of law between the date of delivery and payment); (iv) transferred, leased or otherwise disposed of any of its assets or properties except for a fair consideration in the ordinary course of business and consistent with past practice or, except in the ordinary course of business and consistent with past practice, acquired any assets or properties; (v) authorized, declared or paid any dividend or made any other distribution on or in respect of any class of its capital stock or established a record date for any of the foregoing; (vi) canceled or compromised any debt or claim greater than $100,000 individually, other than in the ordinary course of business consistent with past practice; (vii) waived or released any rights of material value; (viii) transferred or granted any rights under any concessions, leases, licenses, agreements, patents, inventions, trademarks, trade names, servicemarks or copyrights or with respect to any know-how other than in the ordinary course of business consistent with past practice; (ix) made or granted any wage or salary increase applicable to any group or classification of employees generally, entered into any employment contract with, or made any loan to, or entered into any material transaction of any other nature with, any officer or employee of such Merger Party or any of its subsidiaries or affiliates; (x) entered into any transaction, contract or commitment that, individually or in the aggregate, are material, except (A) contracts listed, or which pursuant to the terms hereof are not required to be listed, on Schedule 3.01(i) hereto, (B) this Agreement and the transactions contemplated hereby and (C) as permitted by Section 4.01 hereof; (xi) suffered any casualty loss or damage (whether or not such loss or damage shall have been covered by insur- 12 ance) which affects in any material respect its ability to conduct its business; or (xii) suffered any material adverse change in its business, operations or condition (financial or other). ARTICLE IV COVENANTS SECTION 4.01 Certain Covenants. During the period from the date of this Agreement to the Effective Time, each Merger Party will conduct its business and operations in the ordinary course consistent with past practice and use its reasonable efforts to preserve its relationships with business partners, suppliers, employees and customers. Without limiting the generality of the foregoing, except as otherwise contemplated by this Agreement, each of the parties hereto agrees that, from and after the date of this Agreement and until the Effective Time, without the prior written consent of the other party hereto, it will not, nor will it permit any of its Subsidiaries to, do any of the acts or things of the kind described in Section 3.01(g) above. SECTION 4.02 Proxy/Offering Memorandum. (a) As soon as reasonably practicable following the execution and delivery of this Agreement, the Company shall prepare the Proxy/Offering Memorandum with respect to the Subscription Agreement and the Merger and the shares of Surviving Corporation Common Stock and Surviving Corporation Preferred Stock to be issued pursuant to the Subscription Agreement and in the Merger. GENCC shall cooperate fully with the Company in the preparation of the Proxy/Offering Memorandum and any amendments and supplements thereto. The Proxy/Offering Memorandum shall not be distributed and no amendment or supplement thereto shall be made by the Company, without the prior consent of GENCC and its counsel. (b) As soon as reasonably practical following the execution and delivery of this Agreement, GENCC shall solicit the written consent of its stockholders to approve and adopt this Agreement and the Merger and for such other purposes as many be necessary and desirable. SECTION 4.03 Other Agreements. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including, without limitation, using all reasonable efforts to obtain all necessary waivers, consents and approvals and to 13 effect all necessary registrations and filings and submissions of information requested by governmental authorities. SECTION 4.044 Notification of Certain Matters. Each party shall give prompt notice to the other party hereto of (i) the occurrence, or failure to occur, of any event which such party believes would be likely to cause any of its representations or warranties contained in this Agreement to be untrue or inaccurate at any time from the date hereof to the Effective Time and (ii) any failure of such party, or of any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that failure to give such notice shall not constitute a waiver of any defense that may be validly asserted. SECTION 4.045 Consents. Each party will use its reasonable efforts to obtain the written consents of all persons and governmental authorities required to be obtained by such party and necessary to the consummation of the transactions contemplated by this Agreement. ARTICLE V CONDITIONS PRECEDENT TO THE MERGER SECTION 5.051 Conditions Precedent to the Merger Relating to the Company. The obligations of the Company to effect the Merger are subject to the satisfaction (or, at its option, the waiver (except that the conditions contained in paragraphs d, e, f, g, and h may not be waived) at or prior to the Effective Time of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of GENCC contained in this Agreement or in any certificate or document delivered to the Company pursuant hereto shall be true and correct on and as of the Effective Time as though made at and as of that date, and GENCC shall have delivered to the Company a certificate to that effect. (b) Compliance with Covenants. GENCC shall have performed and complied with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by them at or prior to the Effective Time, and GENCC shall have delivered to the Company a certificate to that effect. (c) All Proceedings to Be Satisfactory. All proceedings to be taken by GENCC in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and its counsel, and the Company and said counsel shall have received 14 all such counterpart originals or certified or other copies of such documents as it or they may reasonably request. (d) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby or which would, if adversely decided, have a material adverse affect on the business, properties or condition (financial or other) or prospects of GENCC and its subsidiaries. (e) Consents. The applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") shall have expired and the other consents and actions set forth in Schedule 5.01(e) hereto shall have been obtained or consummated, as the case may be. (f) Stockholder Approval. This Agreement and the Merger shall have been approved and adopted by the stockholders of the Company and GENCC in accordance with the Delaware GCL and their respective Certificates of Incorporation and By-laws. (g) Subscription Agreement. The Subscription Agreement shall have been executed and delivered by the parties thereto and each of the parties thereto shall have consummated the transactions contemplated thereby. (h) The Certificate of Merger. Certificate of Merger shall have been filed with the Secretary of State of Delaware. (i) Supporting Documents. On or prior to the Effective Time, the Company and its counsel shall have received copies of the following supporting documents: (i) (1) copies of the Certificate of Incorporation of GENCC and all amendments thereto, certified as of a recent date by the Secretary of State of the State of Delaware, and (2) a certificate of said Secretary dated as of a recent date as to the due incorporation and good standing of GENCC and listing all documents of GENCC on file with said Secretary, and (3) confirmation from said Secretary as of the close of business on the next business day preceding the Effective Time as to the continued good standing of GENCC and to the effect that no amendment to its Certificate of Incorporation has been filed since the date of the certificate referred to in clause (2) above; and (ii) a certificate of the Secretary or an Assistant Secretary of GENCC dated the Effective Time and certifying: (1) that attached thereto is a true and complete copy of the By-laws of GENCC as in effect on the date of such certification; (2) that attached thereto is a true and complete copy 15 of the resolutions adopted by the Board of Directors and the stockholders of GENCC authorizing the execution, delivery and performance of this Agreement and the Merger and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; (3) that the Certificate of Incorporation of GENCC has not been amended since the date of the last amendment referred to in the certificate delivered pursuant to clause (i)(2) above; and (4) as to the incumbency and specimen signature of each officer of GENCC executing this Agreement and any certificate or instrument furnished pursuant hereto, and a certification by another officer of GENCC as to the incumbency and signature of the officer signing the certificate referred to in this paragraph (ii). All such documents shall be satisfactory in form and substance to the Company and its counsel. SECTION 5.02 Conditions Precedent to the Merger Relating to GENCC. The obligation of GENCC to effect the Merger is subject to the satisfaction (or, at its option, the waiver (except that the conditions contained in paragraphs d, e, f, g, and h may not be waived) at or prior to the Effective Time of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of the Company contained in this Agreement or in any certificate or document delivered to GENCC pursuant hereto shall be true and correct on and as of the Effective Time as though made at and as of that date, and the Company shall have delivered to GENCC a certificate to such effect. (b) Compliance with Covenants. the Company shall have performed and complied with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by it at or prior to the Effective Time, and the Company shall have delivered to GENCC a certificate to that effect. (c) All Proceedings to Be Satisfactory. All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to GENCC and its counsel, and GENCC and said counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. (d) Legal Actions or Proceedings. No legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated hereby or which would, if 16 adversely decided, have a material adverse affect on the business, properties or condition (financial or other) or prospects of the Company and its subsidiaries. (e) Consents. The applicable waiting period under the HSR Act shall have expired and the other consents and actions set forth in Schedule 5.02(e) hereto shall have been obtained or consummated as the case may be. (f) Stockholder Approval. This Agreement and Merger shall have been approved and adopted by the stockholders of the Company and GENCC in accordance with the Delaware GCL and their respective Certificates of Incorporation and By-laws. (g) The Certificate of Merger. The Certificate of Merger shall have been filed with the Secretary of State of Dela- ware. (h) Subscription Agreement. The Subscription Agreement shall have been executed and delivered by the parties thereto and each of the parties thereto shall have consummated the transactions contemplated thereby. (i) Supporting Documents. On or prior to the Effective Time, GENCC and its counsel shall have received copies of the following supporting documents: (i) (1) copies of the Certificate of Incorporation of the Company and all amendments thereto, certified as of a recent date by the Secretary of State of the State of Dela- ware, (2) a certificate of said Secretary dated as of a recent date as to the due incorporation and good standing of the Company and listing all documents of the Company on file with said Secretary, and (3) confirmation from said Secretary as of the close of business on the next business day preceding the Effective Time as to the continued due incorporation and good standing of the Company and to the effect that no amendment to its Certificate of Incorporation has been filed since the date of the certificate referred to in clause (2) above (other than the Certificate of Merger); and (ii) a certificate of the Secretary or an Assistant Secretary of the Company dated the Effective Time and certifying: (1) that attached thereto is a true and complete copy of the By-laws of the Company as in effect on the date of such certification; (2) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and that all such resolutions are still in full force and effect and are all the resolutions adopted in connection with the transactions contemplated by this Agreement; (3) that the Certificate of 17 Incorporation of the Company has not been amended since the date of the last amendment referred to in the certificate delivered pursuant to clause (i)(2) above (other than the Certificate of Merger); and (4) as to the incumbency and specimen signature of each officer of the Company executing this Agreement and any certificate or instrument furnished pursuant hereto, and a certification by another officer of the Company as to the incumbency and signature of the officer signing the certificate referred to in this paragraph (ii). All such documents shall be satisfactory in form and substance to GENCC and its counsel. ARTICLE VI TERMINATION AND ABANDONMENT SECTION 6.01 Termination and Abandonment. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after approval by the stockholders of the Company and GENCC: (a) By mutual action of the Boards of Directors of the Company and GENCC; (b) By the Company, if the conditions set forth in Section 5.01 shall not have been complied with or performed in any material respect and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) by GENCC on or before June 30, 1995; or (c) By GENCC, if the conditions set forth in Section 5.02 shall not have been complied with or performed in any material respect and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) by the Company on or before June 30, 1995. SECTION 6.02 Effect of Termination. In the event of the termination of this Agreement and the abandonment of the Merger pursuant to Section 6.01, this Agreement shall thereafter become void and have no effect, and no party hereto shall have any liability to any other party hereto or its stockholders or directors or officers in respect thereof, and each party shall be responsible for its own expenses, except that nothing herein shall relieve any party from liability for any willful breach hereof. 18 ARTICLE VII MISCELLANEOUS SECTION 7.01 Expenses, Etc. Unless the transactions contemplated by this Agreement are consummated, neither of the parties hereto shall have any obligation to pay any of the fees and expenses of the other party incident to the negotiation, preparation and execution of this Agreement, including the fees and expenses of counsel, accountants, investment bankers and other experts. At the Effective Time, the Surviving Corporation shall become obligated to pay all such fees and expenses incurred by each of the Constituent Corporations. SECTION 7.02 Publicity. The parties hereto agree to cooperate in issuing any press release or other public announcement concerning this Agreement or the transactions contemplated hereby. Each party shall furnish to the other drafts of all such press releases or announcements prior to their release. Nothing contained herein shall prevent any party from at any time furnishing any information required by any government authority. SECTION 7.03 Execution in Counterparts. For the convenience of the parties, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 7.04 Notices. All notices which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and delivered or mailed by registered or certified mail, postage prepaid, as follows: If to the Company, to: MedE America Corporation 333 Ovington Boulevard Mitchel Field, New York 11553 Attention: President with a copy to: Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 Attention: Robert A. Schwed, Esq. 19 If to GENCC, to: GENCC Holdings Corporation c/o Welsh, Carson, Anderson & Stowe One World Financial Center 200 Liberty Street New York, New York 10281 Attention: President with a copy to: Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 Attention: Robert A. Schwed, Esq. or such other address or addresses as either party hereto shall have designated by notice in writing to the other party hereto. SECTION 7.05 Waivers. Either party hereto may, by written notice to the other party hereto, (i) extend the time for the performance of any of the obligations or other actions of the other party under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other party contained in this Agreement or in any document delivered pursuant to this Agreement; (iii) waive compliance with any of the conditions or covenants of the other contained in this Agreement; or (iv) waive performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation any investigation by or on behalf of either party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by either party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. SECTION 7.06 Amendments, Supplements, Etc. (a) Subject as set forth in paragraph (b) below, at any time this Agreement may be amended or supplemented by such additional agreements, articles or certificates, as may be determined by the parties hereto to be necessary, desirable or expedient to further the purposes of this Agreement, or to clarify the intention of the parties hereto, or to add to or modify the covenants, terms or conditions hereof or to effect or facilitate any governmental approval or acceptance of this Agreement or to effect or facilitate the filing or recording of this Agreement or the 20 consummation of any of the transactions contemplated hereby. Any such instrument must be in writing and signed by both parties. (b) This Agreement may be varied or amended at any time before or after the approval and adoption of this Agreement by the stockholders of the Company and GENCC by action of the respective Boards of Directors of the Company and GENCC, without action by the stockholders thereof, provided that after approval and adoption of this Agreement by the stockholders of the Company or GENCC, no such variance or amendment shall, without consent of such stockholders, reduce the consideration that the holders of shares of the capital stock of either of the Constituent Corporations shall be entitled to receive upon the Effective Time pursuant to Section 2.01 and Section 2.03 hereof. SECTION 7.07 Entire Agreement. This Agreement, its Exhibits and Schedules, and the documents executed at the Effective Time in connection herewith, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. No representation, warranty, promise, inducement or statement of intention has been made by either party which is not embodied in this Agreement or such other documents, and neither party shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement or statement of intention not embodied herein or therein. The representations and warranties contained in this Agreement shall not survive after the Effective Time. SECTION 7.08 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7.09 Binding Effect, Benefits. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 7.10 Assignability. Neither this Agreement nor any of the parties' rights hereunder shall be assignable by either party hereto without the prior written consent of the other party hereto. 21 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the day and year first above written. MEDE AMERICA CORPORATION By ------------------------- ATTEST: - --------------------- GENCC HOLDINGS CORPORATION By ------------------------- ATTEST: - --------------------- 22 SCHEDULE I Part I ------ Stockholders of the Company --------------------------- 23 SCHEDULE I Part II ------- Stockholders of GENCC --------------------- Shares of Shares of GENCC Pre- Common Stockholder ferred Stock Stock - ----------- ------------ ----- Welsh, Carson, Anderson 109,315 1,093,150 & Stowe V, L.P. WCAS Information 2,000 20,000 Partners Patrick J. Welsh 500 5,000 Russell L. Carson 500 5,000 Bruce K. Anderson 750 7,500 Richard H. Stowe 75 750 Delaware Charter Trust 75 750 Co. Trustee For Richard H. Stowe Andrew M. Paul 350 3,500 Thomas E. McInerney 750 7,500 Laura VanBuren 10 100 James B. Hoover 125 1,250 Robert H. Minicucci 400 4,000 Anthony J. deNicola 150 1,500 ------- --------- Total 115,000 1,150,000 ======= ========= 24 SCHEDULE 3.01(b) Part I Subsidiaries of the Company MedE America, Inc. Medical Processing Center, Inc. Wellmark Incorporated Part II Subsidiaries of GENCC General Computer Corporation Mavis Industries, Inc. GCC Cognitive Service Network, Inc. 25 SCHEDULE 5.01(e) Consents to be Obtained by GENCC None SCHEDULE 5.02(e) Consents to be Obtained by the Company None 26 CERTIFICATE OF MERGER OF GENCC HOLDINGS CORPORATION WITH AND INTO MEDE AMERICA CORPORATION MEDE AMERICA CORPORATION ("MedE"), organized under and existing by virtue of the General Corporation Law of the State of Delaware (the "DGCL") does hereby certify as follows: FIRST: The name and state of incorporation of each of the constituent corporations (the "Constituent Corporations") are as follows: Name State of Incorporation ---- ---------------------- ENCC Holdings Corporation Delaware MedE America Corporation Delaware SECOND: An Agreement and Plan of Merger dated as of May , 1995 (the "Merger Agreement"), between MedE and GENCC Holdings Corporation ("GENCC"), providing for the merger of GENCC with and into MedE (the "Merger"), has been approved, adopted, certified, executed and acknowledged by each of the Constituent Corporations in accordance with the requirements of Section 251 of the DGCL. THIRD: The name of the surviving corporation is MedE America Corporation (the "Surviving Corpor-tion"). FOURTH: The following amendments to the Certificate of Incorporation of the Surviving Corporation shall be effected by the Merger and the capital of the Surviving Corporation will not be decreased on account of such amendments: Article FOURTH of the Certificate of Incorporation of the Surviving Corporation shall be amended to read in its entirety as follows: 'FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 30,240,000 shares, consisting of 240,000 shares of Preferred Stock, $.01 par value ("Preferred Stock") and 30,000,000 shares of Common Stock, $.01 par value ("Common Stock"). All cross-references in each subdivision of this Article FOURTH refer to other paragraphs in such subdivision unless otherwise indicated. 27 The following is a statement of the designations, and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of each class of stock of the Corporation: I. PREFERRED STOCK 1. Cumulative Dividends. (i) The holders of Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available for such purpose, cash dividends at the rate of $10.00 per share per annum, and no more. In the event such dividends are declared, the dividend payment dates with respect thereto shall be the immediately succeeding September 30. (ii) In no event, so long as any Preferred Stock shall remain outstanding, shall any dividend whatsoever be declared or paid upon, nor shall any distribution be made upon, any Common Stock, other than a dividend or distribution payable in shares of Common Stock, nor, without the written consent of the holders of 66 2/3% of the outstanding Preferred Stock, shall any shares of Common Stock be purchased or redeemed by the Corporation, nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of any Common Stock, unless in each instance cumulative dividends accrued and unpaid on all outstanding shares of the Preferred Stock for all past dividend periods shall have been paid in full. 2. Redemption. 2A. Mandatory Redemptions. (i) The Preferred Stock shall be redeemed in full in two equal installments on September 30, of each of 2001 and 2002, at the Redemption Price (as defined below). (ii) Upon the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offering and sale of the Corporation's Common Stock pursuant to which the Corporation receives aggregate net proceeds of at least $15 million (after underwriters', brokers' and dealers' fees and commissions and underwriters' discounts and any other offering expenses required to be disclosed in Part II of the applicable registration statement) (a "Qualified Public Offering"), the Corporation shall redeem all then outstanding shares of Preferred Stock at the Redemption Price. 2B. Optional Redemptions. The Preferred Stock may be redeemed in whole at any time or in part from time to time, at the option of the Corporation, at the Redemption Price. 2C. Redemption Date; Redemption Price. Any date on which the Corporation elects or is required to redeem Preferred Stock under 28 this paragraph 2 shall be referred to as a "Redemption Date." The per share "Redemption Price" of the Preferred Stock to be redeemed on a Redemption Date shall be the sum of (x) $100.00 per share, plus (y) any accrued but unpaid dividends thereon to the date of such redemption. 2D. Notice of Redemption. Not less than 30 days before any Redemption Date, written notice shall be given by mail, postage prepaid to the holders of record of the Preferred Stock to be redeemed, addressed to each such stockholder at his or its post office address as shown by the records of the Corporation, specifying the number of shares to be redeemed, the subparagraph or subparagraphs of this paragraph 2 pursuant to which such redemption shall be made, the Redemption Price and the place at which and the date, which date shall not be a day on which banks in the City of New York are required or authorized to close, on which the shares of Preferred Stock will be redeemed. If such notice of redemption shall have been duly given and if on or before such Redemption Date the funds necessary for redemption shall have been set aside so as to be and continue to be available therefor, then, notwithstanding that any certificate for shares of Preferred Stock to be redeemed shall not have been surrendered for cancellation, after the close of business on such Redemption Date, such shares shall no longer be deemed outstanding, the dividends thereon shall cease to accrue, and all rights with respect to such shares shall forthwith after the close of business on the Redemption Date, cease, except only the right of the holders thereof to receive the Redemption Price for such shares, without interest. 2E. Redeemed or Otherwise Acquired Shares to be Retired. Any shares of Preferred Stock redeemed pursuant to this paragraph 2 or otherwise acquired by the Corporation in any manner whatsoever shall be permanently retired and shall not under any circumstances be reissued; and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized Preferred Stock accordingly. 2F. Shares to be Redeemed, Purchased or Retired. In case of the redemption, purchase or retirement, for any reason, of only a part of the outstanding shares of the Preferred Stock on a Redemption Date, all shares of Preferred Stock to be redeemed, purchased or retired shall be selected pro rata, and there shall be so redeemed, purchased or retired from each registered holder in whole shares, as nearly as practicable to the nearest share, the proportion of all the shares to be redeemed, purchased or retired which the number of shares held of record by such holder bears to the total number of shares of Preferred Stock at the time outstanding. 3. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or the sale of all or substantially all the assets of the Corporation (each such event being referred to as a "Liquidation"), a holder of the shares of Preferred Stock shall be entitled, before any distribution or payment is made upon any Common Stock, to 29 receive out of the assets of the Corporation (x) $100.00 per share, plus (y) any accrued but unpaid dividends thereon to the date of such redemption, for each share of Preferred Stock held by such holder. If upon such Liquidation, the assets to be distributed among the holders of Preferred Stock shall be insufficient to permit payment to the holders of Preferred Stock of that amount distributable as aforesaid, then the entire assets of the Corporation to be distributed shall be distributed ratably among the holders of Preferred Stock. Upon any such Liquidation, after the holders of the Preferred Stock shall have been paid in full the amounts to which they shall be entitled, the holders of the Common Stock will share the remaining net assets of the Corporation. Written notice of such Liquidation, stating a payment date, the aggregate amount of the payments to which such holder of Preferred Stock is entitled and the place where said sums shall be payable shall be given by mail, postage prepaid, not less than 30 days prior to the payment date stated therein, to the holders of record of the Preferred Stock, such notice to be addressed to each stockholder at its post office address as shown by the records of the Corporation. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the reduction of the capital stock of the Corporation, shall be deemed to be a Liquidation. 4. Voting Rights. Except as otherwise provided by law or this Certificate of Incorporation, the holders of Preferred Stock shall not be entitled to vote on matters presented to the stockholders of the Corporation. 5. Restrictions. At any time when shares of Preferred Stock are outstanding, except where the vote or written consent of the holders of a greater number of shares of the Corporation is required by law or by this Certificate of Incorporation, and in addition to any other vote required by law, without the prior consent of the holders of 66 2/3% of the outstanding Preferred Stock, given in person or by proxy, either in writing or at a special meeting called for that purpose, at which meeting the holders of the shares of Preferred Stock shall vote together as a class: (i) The Corporation will not create or authorize the creation of any additional class of shares unless the same ranks junior to the Preferred Stock both as to dividends and as to the distribution of assets on Liquidation, or increase the authorized amount of the Preferred Stock, or increase the authorized amount of any additional class of shares unless the same ranks junior to the Preferred Stock both as to dividends and as to the distribution of assets on Liquidation, or create or authorize any obligations or securities convertible into or exchangeable for shares of Preferred Stock or into shares of any other class unless the same ranks junior to the Preferred Stock both as to dividends and as to the distribution of assets on Liquidation, whether any such creation or authorization or increase shall be by means of amendment of the Certificate of Incorporation, merger, consolidation, recapitalization or otherwise. 30 (ii) The Corporation will not amend, alter or repeal the Corporation's Certificate of Incorporation or By-laws in any manner, or file any directors' resolutions pursuant to Section 151(g) of the Delaware General Corporation Law containing any provision, in either case which affects the respective preferences, voting power, qualifications, special or relative rights or privileges of the Preferred Stock or the Common Stock or which in any manner adversely affects the Preferred Stock or the Common Stock or the holders thereof. II. COMMON STOCK All shares of Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges: 1. Dividends When and as dividends are declared upon the Common Stock, whether payable in cash, in property or in shares of stock of the Corporation, the holders of Common Stock shall be entitled to share equally, share for share, in such dividends. 2. Voting Rights Each holder of Common Stock shall be entitled to one vote per share.' FIFTH: Effective upon the filing of this Certificate of Merger with the Secretary of State of the State of Delaware (the "Effective Time"), each share of Common Stock, $.01 par value, of MedE issued and outstanding at the Effective Time shall be reclassified into a unit consisting of (i) .5 shares of Common Stock and (ii) .005 shares of Preferred Stock and all shares of Preferred Stock, $.01 par value, of MedE shall be canceled. Pursuant to Section 155 of the DGCL, the Board of Directors has determined that no fractional shares of Common Stock will be issued in connection with the reclassification described above, and that in lieu of the issuance of any fractional shares, the Surviving Corporation shall pay, in cash, to those entitled thereto the fair value of fractional interests as of the time when those entitled to receive such fractions are determined. SIXTH: The executed Merger Agreement is on file at the principal place of business of the Surviving Corporation. The address of the principal place of business of the Surviving Corporation is 333 Ovington Boulevard, Suite 702, Mitchel Field, New York 11553. SEVENTH: A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stock- holder of either of the Constituent Corporations. EIGHTH: The effective date of the Merger shall be , 1995. 31 IN WITNESS WHEREOF, MedE America Corporation has caused this Certificate of Merger to be executed as of this day of , 1995. MEDE AMERICA CORPORATION By: --------------------------- Name: Title: 32 CERTIFICATE OF AMENDMENT to CERTIFICATE OF INCORPORATION of MEDE AMERICA CORPORATION MEDE AMERICA CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: that the following resolutions were duly adopted by unanimous written consent of the Board of Directors of the Corporation, setting forth proposed amendments to the Certificate of Incorporation of the Corporation; determining that the capital of the Corporation will not be decreased on account of such amendments; and declaring such amendments to be advisable and directing that such amendments be submitted to the stockholders of the Corporation for its approval. The resolutions are as follows: "RESOLVED, that there is hereby adopted an amendment to the Corporation's Certificate of Incorporation pursuant to which the authorized capital stock of the Corporation shall be changed from 24,215,000 shares, consisting of 215,000 shares of Preferred Stock, $.01 par value ("Preferred Stock"), and 24,000,000 shares of Common Stock, $.01 par value ("Common Stock"), to 29,250,000 shares, consisting of 250,000 shares of Preferred Stock and 29,000,000 shares of Common Stock and, in connection with such changes, the first paragraph of Article FOURTH of the Certificate of Incorporation of the Corporation shall be amended to read in its entirety as follows: 'FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 29,250,000 shares, consisting of 250,000 shares of Preferred Stock, $.01 par value ("Preferred Stock") and 29,000,000 shares of Common Stock, $.01 par value ("Common Stock").' "RESOLVED that the Board of Directors determines that the capital of the Corporation will not be decreased on account of the foregoing amendment, declares the foregoing amendment to the Corporation's Certificate of Incorporation to be advisable and directs that the amendment be submitted to the stockholders of the Corporation for their approval pursuant to Section 242(b) of the General Corporation Law of the State of Delaware." SECOND: that the Amendment of the Certificate of Incorporation effected by this Certificate was duly authorized by the holders of a majority of the outstanding capital stock of the Corporation entitled to vote thereon, after first having been declared advisable by the Board of Directors of the Corporation, all in accordance with the provisions of Section 242 of the Delaware General Corporation Law. THIRD: that the capital of the Corporation will not be reduced under, or by reason of, the foregoing amendment to the Certificate of Incorporation of the Corporation. IN WITNESS WHEREOF, MEDE AMERICA CORPORATION has caused its corporate seal to be hereunto affixed and this certificate to be signed by its , who hereby acknowledges under penalties of perjury that the facts herein stated are true and that this certificate is his act and deed, this day of , 1995. MEDE AMERICA CORPORATION By: ------------------------------ Name: Title: EX-4.2 6 EXHIBIT 4.2 ================================================================================ NOTE AND SHARE PURCHASE AGREEMENT Between MEDE AMERICA CORPORATION and WCAS CAPITAL PARTNERS II, L.P. Dated as of February 14, 1997 ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I. PURCHASE AND SALE OF SECURITIES....................... 1 SECTION 1.01 Issuance, Sale and Delivery of the Securities................................. 1 SECTION 1.02 Payment for the Securities....................... 1 SECTION 1.03 Closing Date..................................... 1 ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ 2 SECTION 2.01 Organization, Qualifications and Corporate Power.................... 2 SECTION 2.02 Authorization of Agreements, Etc................. 2 SECTION 2.03 Validity......................................... 2 SECTION 2.04 Authorized Capital Stock......................... 3 SECTION 2.05 Governmental Approvals........................... 3 SECTION 2.06 Use of Proceeds.................................. 3 SECTION 2.07 Offering of the Securities....................... 3 SECTION 2.08 Compliance With Law.............................. 4 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER............................... 4 SECTION 3.01 Certain Securities Laws Matters.................. 4 ARTICLE IV. CONDITIONS TO THE OBLIGATION OF PURCHASER.................................. 5 ARTICLE V. CONDITIONS TO THE OBLIGATION OF THE COMPANY................................ 6 ARTICLE VI. MISCELLANEOUS......................................... 6 SECTION 6.01 Expenses......................................... 6 SECTION 6.02 Survival of Agreement............................ 6 SECTION 6.03 Brokerage........................................ 6 SECTION 6.04 Parties in Interest.............................. 7 SECTION 6.05 Notices.......................................... 7 SECTION 6.06 Law Governing.................................... 7 SECTION 6.07 Entire Agreement; Amendments..................... 7 SECTION 6.08 Successors and Assigns........................... 8 SECTION 6.09 Counterparts..................................... 8 SECTION 6.10 Headings......................................... 8 i INDEX TO EXHIBITS Exhibit Description - ------- ----------- EXHIBIT A Form of 10% Senior Subordinated Note EXHIBIT B Form of Registration Rights Agreement INDEX TO SCHEDULES Schedule Description - -------- ----------- 2.02(a) Defaults 2.04(b) Capital Stock, Options, Warrants, Etc. ii NOTE AND SHARE PURCHASE AGREEMENT, dated as of February 14, 1997, by and between MEDE AMERICA CORPORATION, a Delaware corporation (the "Company"), and WCAS CAPITAL PARTNERS II, L.P., a Delaware limited partnership ("Purchaser"). WHEREAS the Company wishes to issue and sell to Purchaser (i) its 10% Senior Subordinated Note in the principal amount of $25,000,000 and (ii) 1,700,000 shares (collectively, the "Shares") of common stock, $.01 par value ("Common Stock"), of the Company, subject to the conditions set forth herein; and WHEREAS Purchaser wishes to purchase said securities, all on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: I. PURCHASE AND SALE OF SECURITIES SECTION 1.01 Issuance, Sale and Delivery of the Securities. On the Closing Date (as defined herein) the Company shall issue, sell and deliver to Purchaser, and Purchaser shall purchase from the Company, (i) a 10% Senior Subordinated Note of the Company, substantially in the form attached hereto as Exhibit A, registered in the name of Purchaser, in the principal amount of $25,000,000 (said note, and any notes issued in exchange or substitution therefor, being hereinafter collectively called the "Subordinated Notes"), and (ii) the Shares, to be evidenced by a stock certificate of the Company registered in the name of the Purchaser. The Shares and the Subordinated Notes are sometimes collectively referred to herein as the "Securities". SECTION 1.02 Payment for the Securities. As payment in full for the Securities being purchased by it hereunder, and against delivery thereof as aforesaid, on the Closing Date Purchaser shall pay to the Company, by wire transfer to an account designated in writing by the Company, the sum of $25,000,000. SECTION 1.03 Closing Date. The closing of the sale and purchase of the Securities shall take place at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York, at 10 a.m., New York time, on February 14, 1997, or at such other date and time as may be mutually agreed upon by Purchaser and the Company (such date and time of closing being herein called the "Closing Date"). II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Purchaser as follows: SECTION 2.01 Organization, Qualifications and Corporate Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business or the ownership of its properties makes such licensing or qualification necessary, except where the failure to be so licensed or qualified would not have a material adverse effect on the business, assets, operations or condition (financial or other) of the Company (a "Material Adverse Effect"). The Company has the corporate power and authority to own and hold its properties and to carry on its business as currently conducted, to execute, deliver and perform this Agreement and a Registration Rights Agreement substantially in the form of Exhibit B hereto (the "Registration Rights Agreement") and to issue, sell and deliver the Securities. SECTION 2.02 Authorization of Agreements, Etc. (a) The execution and delivery by the Company of this Agreement and the Registration Rights Agreement, the performance by the Company of its obligations hereunder and thereunder and the issuance, sale and delivery of the Securities have been duly authorized by all requisite corporate action and, except as set forth in Schedule 2.02(a) hereto, will not (x) violate any provision of law applicable to the Company, any order of any court or other agency of government, the Certificate of Incorporation or By-laws of the Company or any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound; (y) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument; or (z) result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company that, in any such case, would have a Material Adverse Effect. (b) The Shares will, when issued and paid for in accordance with the terms hereof, be validly issued, fully paid and nonassessable shares of Common Stock. The issuance, sale and delivery of the Securities is not subject to any preemptive rights of stockholders of the Company or to any right of first refusal or other similar right in favor of any person. SECTION 2.03 Validity. Each of this Agreement and the Registration Rights Agreement has been duly executed and 2 delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. SECTION 2.04 Capital Stock. (a) The authorized capital stock of the Company consists of (i) 250,000 shares of Preferred Stock, $.01 par value, of which an aggregate 239,956 shares are validly issued and outstanding, fully paid and nonassessable, and (ii) 29,000,000 shares of Common Stock, $.01 par value, of which an aggregate 24,235,038 shares are validly issued and outstanding, fully paid and nonassessable. (b) Except as set forth in Schedule 2.04(b) hereto and as contemplated by this Agreement, (i) no subscription, warrant, option, convertible security or other right (contingent or other) to purchase or acquire any shares of any class of capital stock from the Company is authorized or outstanding, (ii) there is no commitment of the Company to issue any shares, warrants, options or other such rights or to distribute to holders of any class of its capital stock any evidences of indebtedness or assets and (iii) the Company has no obligation (contingent or other) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. SECTION 2.05 Governmental Approvals. No registration or filing with, or consent or approval of, or other action by, any federal, state or other governmental agency or instrumentality is or will be necessary for (i) the valid execution, delivery and performance of this Agreement and the Registration Rights Agreement or (ii) the issuance, sale and delivery of the Securities. SECTION 2.06 Use of Proceeds. None of the transactions contemplated by this Agreement (including, without limitation, the use of the proceeds from the sale of the Subordinated Notes), will violate or result in a violation of (a) Section 7 of the Securities Exchange Act of 1934, as amended, or of any regulations issued pursuant thereto, or (b) Regulations G, T and X of the Board of Governors of the Federal Reserve System. None of the proceeds from the sale of the Subordinated Notes will be used to purchase or carry (or refinance any borrowings the proceeds of which were used to purchase or carry) any "margin security" within the meaning of said Regulation G, or for any other purpose which would constitute the transactions contemplated by this Agreement a "purpose credit" within the meaning of said Regulation G. SECTION 2.07 Offering of the Securities. Neither the Company nor any person acting on its behalf has taken or will take any action (including, without limitation, any offer, issuance or sale of any securities under circumstances which 3 might require the integration of such securities with the Subordinated Notes and/or the Shares under the Securities Act of 1933, as amended (the "Securities Act"), or the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder) which might subject the offering, issuance or sale of the Subordinated Notes and/or the Shares to the registration provisions of the Securities Act. SECTION 2.08 Compliance With Law. The Company is not in default in any material respect under any order of any court, governmental authority or arbitration board or tribunal or under any laws, ordinances, governmental rules or regulations to which the Company is subject. The Company has not failed to obtain any material licenses, permits, franchises or other governmental authorizations necessary to the ownership of its properties or to the conduct of its business. III. REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.01 Certain Securities Law Matters. Purchaser represents and warrants to the Company as follows: (i) that it is acquiring the Securities and for its own account for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof; (ii) that it is an "accredited investor" within the meaning of Regulation D as promulgated by the Commission under the Securities Act; (iii) that it understands that (a) neither the Subordinated Notes nor the Shares have been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof, (b) the Securities must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration, (c) the Subordinated Notes and the Shares will bear a legend to such effect and (d) the Company will make notations on its transfer books to such effect; (iv) that it is a sophisticated investor with knowledge and experience in business and financial matters, is able to evaluate the risks and benefits of the investment in the Subordinated Notes and the Shares, has received certain information concerning the Company and has had the opportunity to obtain additional information as desired in 4 order to evaluate the merits of and the risks inherent in purchasing the Securities; and (v) that it understands that the exemption from registration afforded by Rule 144 under the Securities Act depends on the satisfaction of various conditions and that, if applicable, Rule 144 affords the basis of sales of the Securities in limited amounts under certain conditions. IV. CONDITIONS TO THE OBLIGATION OF PURCHASER The obligation of Purchaser to purchase and pay for the Securities to be purchased by it hereunder on the Closing Date is, at its option, subject to the satisfaction, on or before such date, of the following conditions: (i) Representations and Warranties to Be True and Correct. The representations and warranties contained in Article II hereof shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of such date. (ii) Performance. The Company shall have performed and complied with all agreements and conditions contained herein required to be performed or complied with by it prior to or at the Closing Date. (iii) Opinion of Counsel. Purchaser shall have received an opinion of counsel to the Company, in form and substance reasonably satisfactory to Purchaser and its counsel, as to the matters set forth in Sections 2.01, 2.02, 2.03, 2.04 and 2.05 hereof. (iv) Registration Rights Agreement. The Company shall have executed and delivered the Registration Rights Agreement, and the same shall be in full force and effect. (v) All Proceedings to Be Satisfactory. All corporate and other proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in form and substance to Purchaser and its counsel, and Purchaser and said counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 5 V. CONDITIONS TO THE OBLIGATION OF THE COMPANY The obligation of the Company to issue, sell and deliver the Securities on the Closing Date is, at the Company's option, subject to the satisfaction, on or before such date, of the following conditions: (i) Representations and Warranties to Be True and Correct. The representations and warranties contained in Article III hereof shall be true and correct on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of such date. (ii) Performance. Purchaser shall have performed and complied with all agreements and conditions contained herein required to be performed or complied with by it prior to or at the Closing Date. (iii) All Proceedings to Be Satisfactory. All proceedings to be taken by Purchaser in connection with the transactions contemplated hereby and all documents incident thereto shall be satisfactory in form and substance to the Company and its counsel, and the Company and said counsel shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request. VI. MISCELLANEOUS SECTION 6.01 Expenses. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby, whether or not such transactions shall be consummated; provided, however, that the Company shall pay the fees and disbursements of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for Purchaser. SECTION 6.02 Survival of Agreement. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the issuance, sale and delivery of the Securities pursuant hereto, and all statements contained in any certificate or other instrument delivered by the Company hereunder shall be deemed to constitute representations and warranties made by the Company. SECTION 6.03 Brokerage. Each party hereto will indemnify and hold harmless the others against and in respect of 6 any claim for brokerage or other commissions relative to this Agreement or to the transactions contemplated hereby. SECTION 6.04 Parties in Interest. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns or legal representatives of the parties hereto whether so expressed or not. SECTION 6.05 Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be delivered personally, sent by nationally recognized overnight carrier, sent by facsimile or mailed by first-class registered mail, postage prepaid, addressed as follows: (a) if to the Company, to it at: 90 Merrick Avenue Suite 502 East Meadow, New York 11554 Attention: David M. Goldwin, Esq. Fax: (516) 542-4508; (b) if to Purchaser, to it at: c/o Welsh, Carson, Anderson & Stowe 320 Park Avenue Suite 2500 New York, New York 10022 Attention: Mr. Anthony J. de Nicola Fax: (212) 945-2016 with a copy to: Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 Attention: Mark J. Tannenbaum, Esq. Fax: (212) 841-5725 SECTION 6.06 LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW PROVISIONS. SECTION 6.07 Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified or amended except by a writing signed by the Company and approved by the holders of not less than 66-2/3% of the then outstanding 7 principal amount of the Subordinated Notes. SECTION 6.08 Successors and Assigns. All of the terms, covenants and provisions of this Agreement and of the agreements delivered hereunder shall be binding upon and inure to the benefit of any successors, assigns, legal representatives, or beneficiaries hereof, as the case may be. SECTION 6.09 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 6.10 Headings. The headings of the Sections and subsections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 8 IN WITNESS WHEREOF, each of the Company and Purchaser has executed this Note and Share Purchase Agreement as of the day and year first above written. MEDE AMERICA CORPORATION By: -------------------------------------- President and Chief Executive Officer WCAS CAPITAL PARTNERS II, L.P. By: WCAS CP II Partners, General Partner By: -------------------------------------- General Partner 10 Schedule 2.02(a) Defaults The issuance of the Notes shall constitute an event of default under the Credit Agreement, dated December 18, 1995, between the Company and Bank of America Illinois. 11 Schedule 2.04(a) Capital Stock, Options, Warrants, Etc. The Company has issued warrants to acquire an aggregate 324,972 shares of Common Stock to four stockholders. The Company has issued options to acquire an aggregate 2,101,500 shares of Common Stock to certain former and current employees, stockholders and consultants. 12 EX-4.3 7 EXHIBIT 4.3 AGREEMENT dated as of October 31, 1997, among MEDE AMERICA CORPORATION, a Delaware corporation (the "Company"), WELSH, CARSON, ANDERSON & STOWE V, L.P., a Delaware limited partnership ("WCAS V"), WELSH, CARSON, ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("WCAS VI"), WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited partnership, ("Blair LF") and WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware limited partnership, ("Blair V"; WCAS V, WCAS VI, Blair LF and Blair V being hereinafter referred to individu- ally as a "Guarantor" and collectively as the "Guarantors"). WHEREAS, the Guarantors are collectively the owners of approximately 90% of the outstanding common and preferred stock of the Company; WHEREAS, the Company and Bank of America Illinois (the "Bank") are parties to a Credit Agreement, dated as of December 18, 1995 (the "Credit Agreement"), as amended, providing for the extension by the Bank to the Company of a revolving line of credit (the "Line of Credit"); WHEREAS, the maximum amount of Line of Credit was originally $10,000,000, which was increased to $13.5 million as of February 10, 1997 and subsequently decreased to $5 million. WHEREAS, in connection with the establishment of the Line of Credit and the February 10, 1997 increase in the maximum amount thereof, the Guarantors gave certain guarantees to the Bank with respect to the Line of Credit and, in consideration thereof, were issued warrants to purchase shares of its Common Stock; WHEREAS, the Company and the Bank have entered into the Third Amendment to Credit Agreement, dated as of October 31, 1997 (the "Third Amendment"), providing, among other things, for (i) an increase in the Line of Credit of $15,000,000 (the "Additional Indebtedness"), which will permit the Bank to advance a total of $20,000,000 thereunder, (ii) an extension of the maturity date for all moneys borrowed under the Credit Agreement; WHEREAS, in order to induce the Bank to increase and extend the Line of Credit, the Bank, WCAS VI and Blair V, as well as the other Guarantors, have agreed to modify the Guarantor Percentages provided for in the Credit Agreement, with the effect that, effective as of the date hereof, only WCAS VI and Blair V will be liable to the Bank on the Guaranty; WHEREAS, WCAS VI and Blair V are willing to assume the additional financial risk associated with the Additional Indebtedness under the Guaranty, and in consideration thereof, the Company is willing to issue to WCAS VI and Blair V an additional 156,720 warrants to purchase shares of its Common Stock, on the terms and conditions hereinafter set forth; WHEREAS, as a result of the forgoing, the Guarantors wish to amend and extend the previous agreements among themselves with respect to the manner in which they will bear the economic incidence of any payments made by any of them under the Guaranty; WHEREAS, the Guarantors hereby confirm that they are assuming the financial risk associated with the Guaranty and the Line of Credit (including but not limited to the financial risk associated with the Additional Indebtedness) in order to protect their existing substantial equity investments in the Company and to ensure the Company's future financial viability; and NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereby agree as follows: I. ISSUANCE OF WARRANTS Section 1.001. Issuance of Warrants. (a) In consideration of the assumption by WCAS VI and Blair V of the additional financial risk associated with the Additional Indebtedness under the Guaranty, the Company shall execute and deliver to each of WCAS VI and Blair a warrant in the form annexed hereto as Exhibit 1 (individually a "Warrant" and collectively the "Warrants") to purchase shares of the Company's Common Stock, $.01 par value ("Common Stock"), at an initial exercise price of $1.25 per share. WCAS VI shall be entitled to a Warrant to purchase a 125,376 shares of Common Stock and Blair V shall be entitled to a Warrant to purchase 31,344 shares of Common Stock. Section 1.002. Tax and Accounting Treatment. The Company, WCAS VI and Blair V agree that for federal, state and local income tax as well as for financial accounting purposes, the issuance of the Warrants by the Company to WCAS VI and Blair V is in the nature of a dividend distribution and is not compensation (or a payment) for any services, and each hereby agrees to treat the issuance of the Warrants in such manner for all such purposes, all to the maximum extent permitted by applicable law. 2 II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to, and agrees with, WCAS VI and Blair V as follows: Section 2.001. Organization. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to do business as a foreign corporation in good standing in each of the jurisdiction in which it owns or leases any real property or in which the nature of business transacted by it makes such licensing or qualification necessary and where the failure to be so licensed or qualified would have a material adverse affect on the business, operations or financial condition of the Company. The Company has the corporate power and authority to own and hold its properties and to carry on its business as currently conducted, to execute, deliver and perform this Agreement and the Warrants and to issue, sell and deliver the shares of Common Stock issuable upon the exercise of the Warrants (the "Warrant Shares"). Section 2.002. Authorization of Agreement, etc. (a) The execution, delivery and performance by the Company of this Agreement and the Warrants, and the issuance, sale and delivery of the Warrant Shares upon exercise of the Warrants, have been duly authorized by all requisite corporate action and will not (i) violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or By-laws of the Company, or any provision of any indenture, agreement or other instrument by which the Company or any of its subsidiaries or any of their respective properties or assets is bound or affected; (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default any such indenture, agreement or other instrument; or (iii) result in the creation or imposition of any lien, charge or incumbrance of any nature upon any of the properties or assets of the Company or any of its subsidiaries. (b) The Warrant Shares have been duly reserved for issuance upon exercise of the Warrants and, when so issued, will be duly authorized, validly issued and outstanding, fully paid and non assessable shares of Common Stock. Neither the execution and delivery of the Warrants nor the issuance and delivery of the Warrant Shares upon exercise thereof is subject to any preemptive rights of shareholders of the Company or to any right of first refusal or other similar right in favor of any person. Section 2.003. Validity. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in 3 accordance with its terms. The Warrants, when executed in accordance with this Agreement, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms. III. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS Each of WCAS VI and Blair V represents and warrants to the Company that it is acquiring the Warrants, and will, upon exercise thereof, acquire the Warrant Shares, for its own account for purpose of investment and not with a view to or for sale in connection with any distribution thereof. Each of WCAS VI and Blair V further represents that it understands (i) that neither the Warrants nor the Warrant Shares have been registered under the Securities Act of 1933, as amended (the "Securities Act"), by reason of their issuance in transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof, (ii) the Warrants and, upon exercise thereof, the Warrant Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is otherwise exempt from such registration, (iii) the Warrants and the Warrant Shares will bear a legend to such effect and (iv) the Company will make a notation on its transfer books to such effect. Each of WCAS VI and Blair V further understands that the exemption from registration afforded by Rule 144 under the Securities Act depends on the satisfaction of various conditions and that, if applicable, affords the basis of sales of the Warrants and/or the Warrant Shares in limited amounts under certain conditions. Each of WCAS VI and Blair V (i) acknowledges that it has had a full opportunity to request from the Company to review and has received all information deemed relevant in making a decision to enter into this Agreement and consummate the transactions contemplated thereby and (ii) will comply with the restrictions on transferability of the Warrants and Warrant Shares contained in the Warrant. Each of WCAS VI and Blair V is an "Accredited Investor" within the meaning of Rule 501(a) of the Securities Act. IV. AGREEMENTS AMONG THE GUARANTORS The Guarantors agree that, as among themselves, the liability for any and all payments made by any of them pursuant to the Guaranty will be allocated to and borne by them, as follows: (i) 39.9% to WCAS VI, 39.9% to WCAS V, 13.5% to Blair V and 6.7% to Blair LF with respect to the first $5 million of principal indebtedness (and any interest, penalties and other charges thereon); and (ii) 80% to WCAS VI and 20% to Blair V with respect to any payments in excess of $5 million of principal 4 indebtedness (and any interest, penalties and other charges thereon). Each of the Guarantors agrees to indemnify each of the other Guarantors for any payments made pursuant to the Guaranty (or to indemnify other Guarantors in accordance with this Article IV) by such other Guarantor that were in excess of such other Guarantor's pro rata share of all amounts paid by the Guarantors under the Guaranty, determined in accordance with the first sentence of this Article IV, but only to the extent of the excess, if any, of its own payments made pursuant to the Guaranty plus the indemnity payments made by it to other Guarantors in accordance with this Article IV, over its pro rata share of all amounts paid by the Guarantors under the Guaranty, determined in accordance with the first sentence of this Article IV. The foregoing shall apply irrespective of which of the Guarantors has actually made or is liable to make payment under the terms and provisions of the Guaranty and without regard to the release of any Guarantor of its obligations under the Guaranty by the Bank or any assignee thereof. V. AGREEMENTS OF THE COMPANY The Company covenants and agrees that any right to payment received by the Guarantors in respect of the Credit Agreement, as amended, and their guaranty thereof, whether by way of purchase, subrogation or otherwise, and regardless whether and to what extent the same shall be subordinated to other indebtedness to the Banks or shall have been waived pending certain events, may be applied, both as to principal and accrued and unpaid interest, dollar for dollar, by the Guarantors, or any of them, as the purchase price of any equity securities offered by the Company to investors for cash. In addition, in the event that the Company shall be unable to make a payment under the Credit Agreement, as amended, the Guarantors shall have the right (but not the obligation) (i) to purchase additional equity securities of the Company and (ii) to require the Company to use the net proceeds of such purchase to make such payment under the Credit Agreement, as amended. The right set forth in the preceding sentence may only be exercised upon joint approval by the Guarantors, and the securities so purchased shall be issued at fair value, based upon current market conditions for the issuance of equity securities. The Company shall use its best efforts to provide the Guarantors with sufficient notice in advance of a payment default under the Credit Agreement, as amended, to enable the Guarantors to exercise their rights under this Article V. 5 VI. MISCELLANEOUS Section 6.001. Expenses. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby, whether or not such transactions shall be consummated; provided, however, that the Company shall pay the fees and disbursements of the Guarantors' special counsel, Messrs. Reboul, MacMurray, Hewitt, Maynard & Kristol. Section 6.002. Survival of Agreements. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the Warrants and the issuance, sale and delivery of the Warrant Shares. Section 6.003. Parties in Interest. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Section 6.004. Notices. All notices, requests, consent and other communications hereunder shall be in writing and shall be mailed by first class registered mail, postage prepaid, or sent by a recognized courier service addressed as follows: If to the Company to it at: 90 Merrick Avenue, Suite 501 East Meadow, New York 11554 Fax: (516) 542-4508 Attention: David M. Goldwin, Esq. If to WCAS V or WCAS VI to it at 320 Park Avenue Suite 2500 New York, New York 10022 Attention: Anthony J. de Nicola If to Blair LF or Blair V to it at 222 W. Adams Street Chicago, Illinois 60606 Attention: Timothy M. Murray or, in any such case, at such other address or addresses as shall have been furnished in writing my such party to the others. 6 SECTION 6.005. LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 6.006. Entire Agreement. This Agreement constitutes the entire Agreement of the parties with respect to the subject matter hereof and may not be modified or amended except in writing. Section 6.007. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the Company and the Guarantors have executed this Agreement as of the day and year first above written. MEDE AMERICA CORPORATION By -------------------------------------- Thomas P. Staudt President and Chief Executive Officer WELSH, CARSON, ANDERSON & STOWE V, L.P. By WCAS V Partners, General Partner By -------------------------------------- General Partner WELSH, CARSON, ANDERSON & STOWE VI, L.P. By WCAS VI Partners, L.P., General Partner By -------------------------------------- General Partner WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP By William Blair Leveraged Capital Management, L.P. 7 By William Blair & Company, General Partner By -------------------------------------- WILLIAM BLAIR CAPITAL PARTNERS V, L.P. By William Blair Capital Partners, LLC, General Partner By -------------------------------------- 8 THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe October 31, 1997 for 125,376 shares Void After October 30, 2007 THIS CERTIFIES that, for value received, WELSH, CARSON, ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.25 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to October 30, 2007, up to ONE HUNDRED TWENTY-FIVE THOUSAND THREE HUNDRED SEVENTY-SIX (125,376) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement, dated as of October 31, 1997 (the "Agreement"), among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". Section 1. Exercise of Warrant. (a) Method of Exercise. The rights represented by this Warrant may be exercised by the holder hereof, in whole at any time or from time to time in part, but not as to a fractional share of Common Stock, by the surrender of this Warrant (properly endorsed) at the office of the Corporation as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation, and as further provided below in this Section 1: (i) Cash Exercise. By payment to the Corporation of the Warrant Exercise Price in cash or by certified or offi- cial bank check, for each share being purchased; (ii) Surrender of Indebtedness of or Claims Against Corporation. By surrender to the Corporation for cancellation of any indebtedness of or claim against the Corporation (including without limitation any claim against the Corporation as subrogee in the event the Holder shall have performed under its guarantee under the First Amendment, as contemplated by the Agreement), or of any portion thereof, for which credit shall be given toward the Warrant Exercise Price for each share being acquired on a dollar-for-dollar basis with reference to the principal amount canceled; (iii) Net Issue Exercise. By an election to receive shares the aggregate fair market value of which as of the date of exercise is equal to the fair market value of this Warrant (or the portion thereof being exercised) on such date, in which event the Corporation, upon receipt of notice of such election, shall issue to the holder hereof a number of shares of the Corporation's Common Stock equal to (A) the number of shares of Common Stock acquirable upon exercise of all or any portion of this Warrant being exercised, as at such date, multiplied by (B) the balance remaining after deducting (x) the Warrant Exercise Price, as in effect on such date, from (y) the fair market value of one share of the Corporation's Common Stock as at such date and dividing the result by (C) such fair market value; or (iv) Combined Payment Method. By satisfaction of the Warrant Exercise Price for each share being acquired in any combination of two or more of the methods described in clauses (i), (ii) and (iii) above. (b) Mandatory Exercise. Upon the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as 2 amended (the "Securities Act"), covering the sale of the Corporation's Common Stock at a price to the public of $3.00 or more (such price as from time to time to be adjusted in the manner provided for in paragraphs (d), (h) and (j) for the adjustment of the Warrant Exercise Price), this Warrant, to the extent not previously exercised, shall be surrendered (properly endorsed) at the office of the Corporation as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation, accompanied by payment to the Corporation of the Warrant Exercise Price by one or more of the methods specified in clauses (a)(i)-(iv) above; and to the extent not so surrendered, it shall be deemed exercised in the manner provided in clause (a)(iii) above and, upon delivery of the shares of Common Stock determined in accordance therewith, this Warrant shall be canceled. (c) Definition of Fair Market Value. For the purposes of this Section 1, "fair market value" shall mean, as to any security, as follows: if that security is listed or admitted to trading on one or more national securities exchanges, the average of the last reported sales prices per share regular way or, in case no such reported sales takes place on any such day, the average of the last reported bid and asked prices per share regular way, in either case on the principal national securities exchange on which that security is listed or admitted to trading, for the 20 trading days immediately preceding the date upon which the fair market value is determined (the "Determination Date"); if that security is not listed or admitted to trading on a national securities exchange but is quoted by the NASD Automated Quotation System ("NASDAQ"), the average of the last reported sales prices per share regular way or, in case no reported sale takes place on any such day or the last reported sales prices are not then quoted by NASDAQ, the average for each such day of the last reported bid and asked prices per share, for the 20 trading days immediately preceding the Determination Date as furnished by the National Quotation Bureau Incorporated or any similar successor organization; and if that security is not listed or admitted to trading on a national securities exchange or quoted by NASDAQ or any other nationally recognized quotation service, the "fair market value" shall be the fair value thereof determined jointly by the Corporation and the registered holders of Warrants outstanding representing a majority of the shares of Common Stock acquirable upon exercise of the Warrants, provided, however, that if such parties are unable to reach agreement within a reasonable time, the "fair market value" shall be determined in good faith by an independent investment banking firm selected jointly by the Corporation and the registered holders of Warrants outstanding representing a majority of the shares of Common Stock 3 issuable upon exercise of the Warrants or, if that selection cannot be made within 15 days, by an independent investment banking firm selected by the American Arbitration Association in accordance with its rules. Anything in this paragraph (c) to the contrary notwithstanding, the fair market value of this Warrant or any portion thereof as of any Determination Date shall be equal to (i) the fair market value of the shares of Common Stock issuable upon exercise of this Warrant (or such portion thereof), (determined in accordance with the foregoing provisions of this paragraph (c)), minus (ii) the aggregate Warrant Exercise Price of this Warrant (or such portion thereof). (d) Delivery of Certificates, Etc. In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the holder, shall be delivered to the holder hereof within a reasonable time, not exceeding ten days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Exercise Price and any applicable taxes was made, except that, if the date of such surrender and payment is a date on which the stock transfer books of the Corporation are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. Section 2. Adjustment of Number of Shares. Upon each adjustment of the Warrant Exercise Price as provided in Section 3, the holder of this Warrant shall thereafter be entitled to purchase, at the Warrant Exercise Price resulting from such adjustment, the number of shares (calculated to the nearest tenth of a share) obtained by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment. 4 Section 3. Adjustment of Price Upon Issuance of Common Stock. If and whenever the Corporation shall issue or sell any shares of its Common Stock for a consideration per share less than the Warrant Exercise Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale the Warrant Exercise Price shall be reduced to the price (calculated to the nearest $.01) determined by dividing (i) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including as outstanding all shares of Common Stock issuable upon conversion of all outstanding Convertible Securities (as hereinafter defined) or exercise of outstanding Warrants multiplied by the then existing Warrant Exercise Price, and (b) the consideration, if any, received by the Corporation upon such issue or sale, by (ii) the total number of shares of Common Stock outstanding immediately after such issue or sale (including as outstanding all shares of Common Stock issuable upon conversion of all outstanding Convertible Securities or exercise of outstanding Warrants). No adjustments of the Warrant Exercise Price, however, shall be made in an amount less than $.01 per share, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. For purposes of this Section 3, the following paragraphs (a) to (p), inclusive, shall also be applicable: (a) Issuance of Rights or Options. In case at any time the Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options", and such convertible or exchangeable stock or securities being herein called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options 5 or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Warrant Exercise Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in paragraph (c), no adjustment of the Warrant Exercise Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. (b) Issuance of Convertible Securities. In case the Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of all such Convertible Securities) shall be less than the Warrant Exercise Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (i) except as otherwise provided in paragraph (c) below, no adjustment of the Warrant Exercise Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and (ii) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of the Warrant Exercise Price have been or are to be made pursuant to other provisions of this Section 3, no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale. (c) Change in Option Price or Conversion Rate. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in paragraph (a), the additional consideration, if any, payable 6 upon the conversion or exchange of any Convertible Securities referred to in paragraph (a) or (b), or the rate at which any Convertible Securities referred to in paragraph (a) or (b) are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution), the Warrant Exercise Price in effect at the time of such event shall forthwith be readjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Warrant Exercise Price then in effect hereunder shall forthwith be increased to the Warrant Exercise Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such Option referred to in paragraph (a) or the rate at which any Convertible Securities referred to in paragraph (a) or (b) are convertible into or exchangeable for Common Stock, shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then in case of the delivery of Common Stock upon the exercise of any such Option or upon conversion or exchange of any such Convertible Security, the Warrant Exercise Price then in effect hereunder shall forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Security never been issued as to such Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered as aforesaid, but only if as a result of such adjustment the Warrant Exercise Price then in effect hereunder is thereby reduced. (d) Stock Dividends. In case the Corporation shall declare a dividend or make any other distribution upon any stock of the Corporation payable in Common Stock, Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued in a subdivision of outstanding shares as provided in paragraph (h) below. (e) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor 7 shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. The amount of consideration deemed to be received by the Corporation pursuant to the foregoing provisions of this paragraph (e) upon any issuance and/or sale, pursuant to an established compensation plan of the Corporation, to directors, officers or employees of the Corporation in connection with their employment of shares of Common Stock, Options or Convertible Securities, shall be increased by the amount of any tax benefit realized by the Corporation as a result of such issuance and/or sale, the amount of such tax benefit being the amount by which the Federal and/or State income or other tax liability of the Corporation shall be reduced by reason of any deduction or credit in respect of such issuance and/or sale. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration. In case any shares of Common Stock, Options or Convertible Securities shall be issued in connection with any merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value as determined by the Board of Directors of the Corporation of such portion of the assets and business of the non-surviving corporation as such Board shall determine to be attributable to such Common Stock, Options or Convertible Securities, as the case may be. In the event of any consolidation or merger of the Corporation in which the Corporation is not the surviving corporation or in the event of any sale of all or substantially all of the assets of the Corporation for stock or other securities of any corporation, the Corporation shall be deemed to have issued a number of shares of its Common Stock for stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and for a consideration equal to the fair market value on the date of such transaction of such stock or securities of the other corporation, and if any such calculation results in adjustment of the Warrant Exercise Price, the determination of the number of shares of Common Stock 8 receivable under this Warrant immediately prior to such merger, consolidation or sale, for purposes of paragraph (j), shall be made after giving effect to such adjustment of the Warrant Exercise Price. (f) Record Date. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (g) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purposes of this Section 3. (h) Subdivision or Combination of Stock. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination shall be proportionately increased. (i) Certain Issues of Common Stock Excepted. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Warrant Exercise Price in the case of the issuance of shares of Common Stock upon exercise of employee stock options approved by the Board of Directors of the Corporation. (j) Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization or reclassification of the capital stock of the Corporation or any consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or 9 sale, lawful and adequate provisions shall be made whereby each holder of the Warrants shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Corporation immediately theretofore receivable upon the exercise of such Warrant or Warrants, such shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Warrant Exercise Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such exercise rights (including an immediate adjustment, by reason of such reorganization or reclassification, of the Warrant Exercise Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such reorganization or reclassifica- tion). In the event of a merger or consolidation of the Corporation as a result of which a greater or lesser number of shares of common stock of the surviving corporation are issuable to holders of Common Stock of the Corporation outstanding immediately prior to such merger or consolidation, the Warrant Exercise Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Corporation. The Corporation will not effect any such consolidation, merger or any sale of all or substantially all of its assets of properties, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to each holder of the Warrants at the last address of such holder appearing on the books of the Corporation, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. (k) Notice of Adjustment. Upon any adjustment of the Warrant Exercise Price, then and in each such case, the Corporation shall give written notice thereof, by first class mail, postage prepaid, addressed to each holder of the Warrants at the address of such holder as shown on the books 10 of the Corporation, which notice shall state the Warrant Exercise Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (l) Certain Events. If any event occurs as to which in the opinion of the Board of Directors of the Corporation the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the exercise rights of this Warrant, in accordance with the essential intent and principles of such provisions to protect against dilution, then such Board of Directors shall in good faith make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such exercise rights as aforesaid. (m) Stock to Be Reserved. The Corporation will at all times reserve and keep available out of its authorized Common Stock or its treasury shares, solely for the purpose of issue upon the exercise of this Warrant as herein provided, such number of shares of Common Stock as shall then be issuable upon the exercise of this Warrant. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective Warrant Exercise Price. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Corporation may be listed. The Corporation will not take any action which results in any adjustment of the Warrant Exercise Price if the total number of shares of Common Stock issued and issuable after such action upon exercise of this Warrant would exceed the total number of shares of Common Stock then authorized by the Corporation's Articles of Incorporation. The Corporation has not granted and will not grant any right of first refusal with respect to shares issuable upon exercise of this Warrant, and there are no preemptive rights associated with such shares. (n) Issue Tax. The issuance of certificates for shares of Common Stock upon exercise of the Warrants shall be made without charge to the holders of such Warrants for any issuance tax in respect thereof provided that the Corporation shall not be required to pay any tax which may be 11 payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of any holder of the Warrants. (o) Closing of Books. The Corporation will at no time close its transfer books against the transfer of the shares of Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. (p) Definition of Common Stock. As used herein the term "Common Stock" shall mean and include the Common Stock, $.01 par value, of the Corporation as authorized on the date hereof and also any capital stock of any class of the Corporation hereinafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, provided, however, that the shares purchasable pursuant to this Warrant shall include only shares designated as Common Stock, $.01 par value, of the Corporation on the date hereof, or shares of any class or classes resulting from any reclassification or reclassifications thereof which are not limited to any such fixed sum or percentage and are not subject to redemption by the Corporation and, in case at any time there shall be more than one such resulting class, the shares of each class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. Section 4. Notices of Record Dates. In the event of (1) any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution (other than cash dividends out of earned surplus), or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (2) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation or any transfer of all or substantially all the assets of the Corporation to or consolidation or merger of the Corporation with or into any other corporation, or 12 (3) any voluntary or involuntary dissolution, liquidation or winding-up of the Corporation, then and in each such event the Corporation will give notice to the holder of this Warrant specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock will be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassifi- cation, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be given at least 20 days and not more than 90 days prior to the date therein specified, and such notice shall state that the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act or to a favorable vote of stockholders, if either is required. Section 5. [omitted] Section 6. No Stockholder Rights or Liabilities. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Corporation. No provi- sion hereof, in the absence of affirmative action by the holder hereof to purchase shares of Common Stock, and no mere enumera- tion herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Warrant Exercise Price or as a stockholder of the Corporation, whether such liability is asserted by the Corporation or by creditors of the Corporation. Section 7. Investment Representation and Legend. The holder, by acceptance of the Warrant, represents and warrants to the Corporation that it is acquiring the Warrant and the shares of Common Stock (or other securities) issuable upon the exercise hereof for investment purposes only and not with a view towards the resale or other distribution thereof and agrees that (a) it will not offer, sell, transfer, encumber or otherwise dispose of the Warrant or any of the shares of Common Stock (or other securities) issuable upon the exercise hereof unless either (i) there is an effective registration statement under said Act relating thereto or (ii) the Corporation has received an opinion of counsel, reasonably satisfactory in form and substance to the Corporation, stating that such registration is not required; and (b) the Corporation may affix upon this Warrant the following legend: 13 "This Warrant has been issued in reliance upon the representation of the holder that it has been acquired for investment purposes and not with a view towards the resale or other distribution thereof. Neither this Warrant nor the shares issuable upon the exercise of this Warrant have been registered under the Securities Act of 1933." The holder, by acceptance of this Warrant, further agrees that the Corporation may affix the following legend to certificates for shares of Common Stock issued upon exercise of this Warrant: "The securities represented by this certificate have been issued in reliance upon the representation of the holder that they have been acquired for investment and not with a view toward the resale or other distribution thereof, and have not been registered under the Securities Act of 1933. Neither the securities evidenced hereby, nor any interest therein, may be offered, sold, transferred, encumbered or otherwise disposed of unless either (i) there is an effective registration statement under said Act relating thereto or (ii) the Corporation has received an opinion of counsel, reasonably satisfactory in form and substance to the Corporation, stating that such registration is not required." Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to indemnity or otherwise as it may in its discretion reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. Section 9. Notices. All notices, requests and other communications required or permitted to be given or delivered hereunder shall be in writing, and shall be delivered, or shall be sent by certified or registered mail, postage prepaid and addressed, if to the holder to such holder at the address shown on such holder's Warrant or at such other address as shall have been furnished to the Corporation by notice from such holder. All notices, requests and other communications required or permitted to be given or delivered hereunder shall be in writing, and shall be delivered, or shall be sent by certified or registered mail, postage prepaid and addressed to the Corporation at such address as shall have been furnished to the holder by notice from the Corporation. 14 IN WITNESS WHEREOF, MedE America Corporation has executed this Warrant on and as of the day and year first above written. MEDE AMERICA CORPORATION By ------------------------------------- 15 SUBSCRIPTION To: Dated: The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to subscribe for and purchase shares of Common Stock of MedE America Corporation, a Delaware Corporation (the "Corporation") covered by such Warrant, and makes payment herewith in full therefor [at the price per share provided by such Warrant [in cash] [by surrender of indebtedness of the Corporation as provided in Section 1(a)(ii) of such Warrant] [as provided in Section 1(a)(iii) of such Warrant]. Signature ------------------------------ ---------------------------------------- Address -------------------------------- ---------------------------------------- THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe October 31, 1997 for 31,344 shares Void After October 30, 2007 THIS CERTIFIES that, for value received, WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.25 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to October 30, 2007, up to THIRTY-ONE THOUSAND THREE HUNDRED FORTY-FOUR (31,344) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement, dated as of October 31, 1997 (the "Agreement"), among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". Exhibit 1 Form of Warrant THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe October , 1997 for [ ] shares Void After October , 2007 THIS CERTIFIES that, for value received, [ ], a [ ] limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.25 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to October [ ], 2007, up to [ ] ([ ]) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement, dated as of October [ ], 1997 (the "Agreement"), among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". EX-4.4 8 EXHIBIT 4.4 AGREEMENT AGREEMENT dated as of January 10, 1997, among MEDE AMERICA CORPORATION, a Delaware corporation (the "Company"), WELSH, CARSON, ANDERSON & STOWE V, L.P., a Delaware limited partnership ("WCAS V"), WELSH, CARSON, ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("WCAS VI"), WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited partnership, ("Blair LF") and WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware limited partnership, ("Blair V"; WCAS V, WCAS VI, Blair LF and Blair V being hereinafter referred to individually as a "Guarantor" and collectively as the "Guarantors"). WHEREAS, the Guarantors are collectively the owners of approximately 90% of the outstanding common and preferred stock of the Company; WHEREAS, the Company and Bank of America Illinois (the "Bank") are parties to a Credit Agreement, dated as of December 18, 1995 (the "Credit Agreement"), providing for the extension by the Bank to the Company of a revolving line of credit in the amount of $10,000,000 (the "Line of Credit"); WHEREAS, the Company and the Guarantors have determined that it is imperative to the future viability of the Company that the Company enter into that certain First Amendment to Credit Agreement, dated as of January 10, 1997 (the "First Amendment"), between the Company and the Bank, providing for the amendment of the amount of the Line of Credit to enable the Bank to extend up to an additional $3,500,000 in credit to the Company (the "Additional Indebtedness"), up to an aggregate $13,500,000, to extend the maturity date for all moneys borrowed under the Credit Agreement and to amend certain other provisions of the Credit Agreement; WHEREAS, the Bank is unwilling to enter into the First Amendment or to extend the Additional Indebtedness to the Company unless the payment of the Company's obligations to the Bank thereunder is guaranteed by the Guarantors; WHEREAS, in order to protect their existing substantial equity investments in the Company and to ensure the Company's future financial viability, the Guarantors are willing to assume additional financial risk in their role as stockholders of the Company by giving certain guarantees to the Bank with respect to the Line of Credit and the Additional Indebtedness; and WHEREAS, in consideration of the Guarantors assuming such additional financial risk by making such guarantees the Company is willing to issue to the Guarantors warrants to pur- chase shares of its Common Stock; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereby agree as follows: I. ISSUANCE OF WARRANTS Section 1.001. Issuance of Warrants. (a) Upon the agreement by each Guarantor to guarantee payment of the Additional Indebtedness, as evidenced by such Guarantor's execution of the First Amendment, the Company shall execute and deliver to such Guarantor a warrant or warrants, in the form annexed hereto as Exhibit 1 (individually a "Warrant" and collectively the "Warrants") to purchase shares of the Company's Common Stock, $.01 par value ("Common Stock"), at an initial exercise price of $1.25 per share. Each Guarantor shall be entitled to Warrants to purchase a number of shares of Common Stock equal to 84,000 shares multiplied by the percentage shown opposite such Guarantor's name in Exhibit 2 hereto in the column headed "Percentage" (hereinafter called such Guarantor's "Percentage"). Section 1.002. Tax and Accounting Treatment. The Company and the Guarantors agree that for federal, state and local income tax as well as for financial accounting purposes, the issuance of the Warrants by the Company to the Guarantors is in the nature of a dividend distribution and is not compensation (or a payment) for any services, and each hereby agrees to treat the issuance of the Warrants in such manner for all such purposes, all to the maximum extent permitted by applicable law. II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to, and agrees with, the Guarantors as follows: Section 2.001. Organization. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to do business as a foreign corporation in good standing in each of the jurisdiction in which it owns or leases any real property or in which the nature of business transacted by it makes such licensing or qualification necessary and where the failure to be so licensed or qualified would have a material adverse affect on the business, operations or financial condition 2 of the Company. The Company has the corporate power and authority to own and hold its properties and to carry on its business as currently conducted, to execute, deliver and perform this Agreement and the Warrants and to issue, sell and deliver the shares of Common Stock issuable upon the exercise of the Warrants (the "Warrant Shares"). Section 2.002. Authorization of Agreement, etc. (a) The execution, delivery and performance by the Company of this Agreement and the Warrants, and the issuance, sale and delivery of the Warrant Shares upon exercise of the Warrants, have been duly authorized by all requisite corporate action and will not (i) violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or By-laws of the Company, or any provision of any indenture, agreement or other instrument by which the Company or any of its subsidiaries or any of their respective properties or assets is bound or affected; (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default any such indenture, agreement or other instrument; or (iii) result in the creation or imposition of any lien, charge or incumbrance of any nature upon any of the properties or assets of the Company or any of its subsidiaries. (b) The Warrant Shares have been duly reserved for issuance upon exercise of the Warrants and, when so issued, will be duly authorized, validly issued and outstanding, fully paid and non assessable shares of Common Stock. Neither the execution and delivery of the Warrants nor the issuance and delivery of the Warrant Shares upon exercise thereof is subject to any preemptive rights of shareholders of the Company or to any right of first refusal or other similar right in favor of any person. Section 2.003. Validity. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. The Warrants, when executed in accordance with this Agreement, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms. III. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS Each Guarantor represents and warrants to the Company that it is acquiring the Warrants, and will, upon exercise thereof, acquire the Warrant Shares, for its own account for purpose of investment and not with a view to or for sale in connection with any distribution thereof. Each Guarantor further represents that it understands (i) that neither the Warrants nor the Warrant Shares have been registered under the Securities Act 3 of 1933, as amended (the "Securities Act"), by reason of their issuance in transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof, (ii) the Warrants and, upon exercise thereof, the Warrant Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is otherwise exempt from such registration, (iii) the Warrants and the Warrant Shares will bear a legend to such effect and (iv) the Company will make a notation on its transfer books to such effect. Each Guarantor further understands that the exemption from registration afforded by Rule 144 under the Securities Act depends on the satisfaction of various conditions and that, if applicable, affords the basis of sales of the Warrants and/or the Warrant Shares in limited amounts under certain conditions. Each Guarantor (i) acknowledges that it has had a full opportunity to request from the Company to review and has received all information deemed relevant in making a decision to enter into this Agreement and consummate the transactions contemplated thereby and (ii) will comply with the restrictions on transferability of the Warrants and Warrant Shares contained in the Warrant. Each Guarantor is an "Accredited Investor" within the meaning of Rule 501(a) of the Securities Act. IV. AGREEMENTS AMONG THE GUARANTORS The Guarantors agree with one another that all payments made by them pursuant to their respective guarantees hereunder shall be allocated between them in the proportions shown opposite their respective names on Exhibit 2, regardless of whether claims shall have been asserted under one Guarantor's guarantee and not the other, and without regard to any release of any guarantee by any beneficiary thereof. V. AGREEMENTS OF THE COMPANY The Company covenants and agrees that any right to payment received by the Guarantors in respect of the Credit Agreement, as amended, and their guaranty thereof, whether by way of purchase, subrogation or otherwise, and regardless whether and to what extent the same shall be subordinated to other indebtedness to the Banks or shall have been waived pending certain events, may be applied, both as to principal and accrued and unpaid interest, dollar for dollar, by the Guarantors, or any of them, as the purchase price of any equity securities offered by the Company to investors for cash. In addition, in the event that the Company shall be unable to make a payment under the Credit Agreement, as amended, the Guarantors shall have the right 4 (but not the obligation) (i) to purchase additional equity securities of the Company and (ii) to require the Company to use the net proceeds of such purchase to make such payment under the Credit Agreement, as amended. The right set forth in the preceding sentence may only be exercised upon joint approval by the Guarantors, and the securities so purchased shall be issued at fair value, based upon current market conditions for the issuance of equity securities. The Company shall use its best efforts to provide the Guarantors with sufficient notice in advance of a payment default under the Credit Agreement, as amended, to enable the Guarantors to exercise their rights under this Article V. VI. MISCELLANEOUS Section 6.001. Expenses. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby, whether or not such transactions shall be consummated; provided, however, that the Company shall pay the fees and disbursements of the Guarantors' special counsel, Messrs. Reboul, MacMurray, Hewitt, Maynard & Kristol. Section 6.002. Survival of Agreements. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the Warrants and the issuance, sale and delivery of the Warrant Shares. Section 6.003. Parties in Interest. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Section 6.004. Notices. All notices, requests, consent and other communications hereunder shall be in writing and shall be mailed by first class registered mail, postage prepaid, or sent by a recognized courier service addressed as follows: If to the Company to it at: 90 Merrick Avenue, Suite 501 East Meadow, New York 11554 Fax: (516) 542-4508 Attention: David M. Goldwin, Esq. If to any Guarantor, to it at its address as set forth in Exhibit 2 5 or, in any such case, at such other address or addresses as shall have been furnished in writing my such party to the others. SECTION 6.005. LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 6.006. Entire Agreement. This Agreement constitutes the entire Agreement of the parties with respect to the subject matter hereof and may not be modified or amended except in writing. Section 6.007. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6 IN WITNESS WHEREOF, the Company and the Guarantors have executed this Agreement as of the day and year first above written. MEDE AMERICA CORPORATION By ------------------------------------ Thomas P. Staudt President and Chief Executive Officer WELSH, CARSON, ANDERSON & STOWE V, L.P. By WCAS V Partners, General Partner By ----------------------------------- General Partner WELSH, CARSON, ANDERSON & STOWE VI, L.P. By WCAS VI Partners, L.P., General Partner By ------------------------------------ General Partner WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP By William Blair Leveraged Capital Management, L.P. By William Blair & Company, General Partner By ----------------------------------- WILLIAM BLAIR CAPITAL PARTNERS V, L.P. By William Blair Capital Partners, LLC, General Partner By ----------------------------------- 7 Exhibit 2 Name and Address of Guarantor Percentage -------------------- ---------- Welsh, Carson, Anderson & Stowe V, L.P. 40% 320 Park Avenue Suite 2500 New York, New York 10022 Attention: Anthony J. de Nicola Welsh, Carson, Anderson & Stowe VI, L.P. 40 320 Park Avenue Suite 2500 New York, New York 10022 Attention: Anthony J. de Nicola William Blair Leveraged 6.7 Capital Fund Limited Partnership 222 W. Adams Street Chicago, Illinois 60606 Attention: Timothy M. Murray William Blair Capital 13.3 Partners V, L.P. 222 W. Adams Street Chicago, Illinois 60606 Attention: Timothy M. Murray 100.0% ====== THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe January 10, 1997 for 33,600 shares Void After January 10, 2007 --------------------------- --------------------- THIS CERTIFIES that, for value received, WELSH, CARSON, ANDERSON & STOWE V, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.25 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to January 10, 2007, up to THIRTY-THREE THOUSAND SIX HUNDRED (33,600) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement, dated as of January 10, 1997 (the "Agreement"), among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". Section 1. Exercise of Warrant. (a) Method of Exercise. The rights represented by this Warrant may be exercised by the holder hereof, in whole at any time or from time to time in part, but not as to a fractional share of Common Stock, by the surrender of this Warrant (properly endorsed) at the office of the Corporation as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation, and as further provided below in this Section 1: (i) Cash Exercise. By payment to the Corporation of the Warrant Exercise Price in cash or by certified or offi- cial bank check, for each share being purchased; (ii) Surrender of Indebtedness of or Claims Against Corporation. By surrender to the Corporation for cancellation of any indebtedness of or claim against the Corporation (including without limitation any claim against the Corporation as subrogee in the event the Holder shall have performed under its guarantee under the First Amendment, as contemplated by the Agreement), or of any portion thereof, for which credit shall be given toward the Warrant Exercise Price for each share being acquired on a dollar-for-dollar basis with reference to the principal amount canceled; (iii) Net Issue Exercise. By an election to receive shares the aggregate fair market value of which as of the date of exercise is equal to the fair market value of this Warrant (or the portion thereof being exercised) on such date, in which event the Corporation, upon receipt of notice of such election, shall issue to the holder hereof a number of shares of the Corporation's Common Stock equal to (A) the number of shares of Common Stock acquirable upon exercise of all or any portion of this Warrant being exercised, as at such date, multiplied by (B) the balance remaining after deducting (x) the Warrant Exercise Price, as in effect on such date, from (y) the fair market value of one share of the Corporation's Common Stock as at such date and dividing the result by (C) such fair market value; or (iv) Combined Payment Method. By satisfaction of the Warrant Exercise Price for each share being acquired in any combination of two or more of the methods described in clauses (i), (ii) and (iii) above. (b) Mandatory Exercise. Upon the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as 2 amended (the "Securities Act"), covering the sale of the Corporation's Common Stock at a price to the public of $3.00 or more (such price as from time to time to be adjusted in the manner provided for in paragraphs (d), (h) and (j) for the adjustment of the Warrant Exercise Price), this Warrant, to the extent not previously exercised, shall be surrendered (properly endorsed) at the office of the Corporation as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation, accompanied by payment to the Corporation of the Warrant Exercise Price by one or more of the methods specified in clauses (a)(i)-(iv) above; and to the extent not so surrendered, it shall be deemed exercised in the manner provided in clause (a)(iii) above and, upon delivery of the shares of Common Stock determined in accordance therewith, this Warrant shall be canceled. (c) Definition of Fair Market Value. For the purposes of this Section 1, "fair market value" shall mean, as to any security, as follows: if that security is listed or admitted to trading on one or more national securities exchanges, the average of the last reported sales prices per share regular way or, in case no such reported sales takes place on any such day, the average of the last reported bid and asked prices per share regular way, in either case on the principal national securities exchange on which that security is listed or admitted to trading, for the 20 trading days immediately preceding the date upon which the fair market value is determined (the "Determination Date"); if that security is not listed or admitted to trading on a national securities exchange but is quoted by the NASD Automated Quotation System ("NASDAQ"), the average of the last reported sales prices per share regular way or, in case no reported sale takes place on any such day or the last reported sales prices are not then quoted by NASDAQ, the average for each such day of the last reported bid and asked prices per share, for the 20 trading days immediately preceding the Determination Date as furnished by the National Quotation Bureau Incorporated or any similar successor organization; and if that security is not listed or admitted to trading on a national securities exchange or quoted by NASDAQ or any other nationally recognized quotation service, the "fair market value" shall be the fair value thereof determined jointly by the Corporation and the registered holders of Warrants outstanding representing a majority of the shares of Common Stock acquirable upon exercise of the Warrants, provided, however, that if such parties are unable to reach agreement within a reasonable time, the "fair market value" shall be determined in good faith by an independent investment banking firm selected jointly by the Corporation and the registered holders of Warrants outstanding representing a majority of the shares of Common Stock 3 issuable upon exercise of the Warrants or, if that selection cannot be made within 15 days, by an independent investment banking firm selected by the American Arbitration Association in accordance with its rules. Anything in this paragraph (c) to the contrary notwithstanding, the fair market value of this Warrant or any portion thereof as of any Determination Date shall be equal to (i) the fair market value of the shares of Common Stock issuable upon exercise of this Warrant (or such portion thereof), (determined in accordance with the foregoing provisions of this paragraph (c)), minus (ii) the aggregate Warrant Exercise Price of this Warrant (or such portion thereof). (d) Delivery of Certificates, Etc. In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the holder, shall be delivered to the holder hereof within a reasonable time, not exceeding ten days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Exercise Price and any applicable taxes was made, except that, if the date of such surrender and payment is a date on which the stock transfer books of the Corporation are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. Section 2. Adjustment of Number of Shares. Upon each adjustment of the Warrant Exercise Price as provided in Section 3, the holder of this Warrant shall thereafter be entitled to purchase, at the Warrant Exercise Price resulting from such adjustment, the number of shares (calculated to the nearest tenth of a share) obtained by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment. 4 Section 3. Adjustment of Price Upon Issuance of Common Stock. If and whenever the Corporation shall issue or sell any shares of its Common Stock for a consideration per share less than the Warrant Exercise Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale the Warrant Exercise Price shall be reduced to the price (calculated to the nearest $.01) determined by dividing (i) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including as outstanding all shares of Common Stock issuable upon conversion of all outstanding Convertible Securities (as hereinafter defined) or exercise of outstanding Warrants multiplied by the then existing Warrant Exercise Price, and (b) the consideration, if any, received by the Corporation upon such issue or sale, by (ii) the total number of shares of Common Stock outstanding immediately after such issue or sale (including as outstanding all shares of Common Stock issuable upon conversion of all outstanding Convertible Securities or exercise of outstanding Warrants). No adjustments of the Warrant Exercise Price, however, shall be made in an amount less than $.01 per share, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. For purposes of this Section 3, the following paragraphs (a) to (p), inclusive, shall also be applicable: (a) Issuance of Rights or Options. In case at any time the Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options", and such convertible or exchangeable stock or securities being herein called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options 5 or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Warrant Exercise Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in paragraph (c), no adjustment of the Warrant Exercise Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. (b) Issuance of Convertible Securities. In case the Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of all such Convertible Securities) shall be less than the Warrant Exercise Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (i) except as otherwise provided in paragraph (c) below, no adjustment of the Warrant Exercise Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and (ii) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of the Warrant Exercise Price have been or are to be made pursuant to other provisions of this Section 3, no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale. (c) Change in Option Price or Conversion Rate. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in paragraph (a), the additional consideration, if any, payable 6 upon the conversion or exchange of any Convertible Securities referred to in paragraph (a) or (b), or the rate at which any Convertible Securities referred to in paragraph (a) or (b) are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution), the Warrant Exercise Price in effect at the time of such event shall forthwith be readjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Warrant Exercise Price then in effect hereunder shall forthwith be increased to the Warrant Exercise Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such Option referred to in paragraph (a) or the rate at which any Convertible Securities referred to in paragraph (a) or (b) are convertible into or exchangeable for Common Stock, shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then in case of the delivery of Common Stock upon the exercise of any such Option or upon conversion or exchange of any such Convertible Security, the Warrant Exercise Price then in effect hereunder shall forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Security never been issued as to such Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered as aforesaid, but only if as a result of such adjustment the Warrant Exercise Price then in effect hereunder is thereby reduced. (d) Stock Dividends. In case the Corporation shall declare a dividend or make any other distribution upon any stock of the Corporation payable in Common Stock, Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued in a subdivision of outstanding shares as provided in paragraph (h) below. (e) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor 7 shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. The amount of consideration deemed to be received by the Corporation pursuant to the foregoing provisions of this paragraph (e) upon any issuance and/or sale, pursuant to an established compensation plan of the Corporation, to directors, officers or employees of the Corporation in connection with their employment of shares of Common Stock, Options or Convertible Securities, shall be increased by the amount of any tax benefit realized by the Corporation as a result of such issuance and/or sale, the amount of such tax benefit being the amount by which the Federal and/or State income or other tax liability of the Corporation shall be reduced by reason of any deduction or credit in respect of such issuance and/or sale. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration. In case any shares of Common Stock, Options or Convertible Securities shall be issued in connection with any merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value as determined by the Board of Directors of the Corporation of such portion of the assets and business of the non-surviving corporation as such Board shall determine to be attributable to such Common Stock, Options or Convertible Securities, as the case may be. In the event of any consolidation or merger of the Corporation in which the Corporation is not the surviving corporation or in the event of any sale of all or substantially all of the assets of the Corporation for stock or other securities of any corporation, the Corporation shall be deemed to have issued a number of shares of its Common Stock for stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and for a consideration equal to the fair market value on the date of such transaction of such stock or securities of the other corporation, and if any such calculation results in adjustment of the Warrant Exercise Price, the determination of the number of shares of Common Stock 8 receivable under this Warrant immediately prior to such merger, consolidation or sale, for purposes of paragraph (j), shall be made after giving effect to such adjustment of the Warrant Exercise Price. (f) Record Date. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (g) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purposes of this Section 3. (h) Subdivision or Combination of Stock. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination shall be proportionately increased. (i) Certain Issues of Common Stock Excepted. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Warrant Exercise Price in the case of the issuance of shares of Common Stock upon exercise of employee stock options approved by the Board of Directors of the Corporation. (j) Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization or reclassi- fication of the capital stock of the Corporation or any consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or 9 sale, lawful and adequate provisions shall be made whereby each holder of the Warrants shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Corporation immediately theretofore receivable upon the exercise of such Warrant or Warrants, such shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Warrant Exercise Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such exercise rights (including an immediate adjustment, by reason of such reorganization or reclassification, of the Warrant Exercise Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such reorganization or reclassifica- tion). In the event of a merger or consolidation of the Corporation as a result of which a greater or lesser number of shares of common stock of the surviving corporation are issuable to holders of Common Stock of the Corporation outstanding immediately prior to such merger or consolidation, the Warrant Exercise Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Corporation. The Corporation will not effect any such consolidation, merger or any sale of all or substantially all of its assets of properties, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to each holder of the Warrants at the last address of such holder appearing on the books of the Corporation, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. (k) Notice of Adjustment. Upon any adjustment of the Warrant Exercise Price, then and in each such case, the Corporation shall give written notice thereof, by first class mail, postage prepaid, addressed to each holder of the Warrants at the address of such holder as shown on the books 10 of the Corporation, which notice shall state the Warrant Exercise Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (l) Certain Events. If any event occurs as to which in the opinion of the Board of Directors of the Corporation the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the exercise rights of this Warrant, in accordance with the essential intent and principles of such provisions to protect against dilution, then such Board of Directors shall in good faith make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such exercise rights as aforesaid. (m) Stock to Be Reserved. The Corporation will at all times reserve and keep available out of its authorized Common Stock or its treasury shares, solely for the purpose of issue upon the exercise of this Warrant as herein provided, such number of shares of Common Stock as shall then be issuable upon the exercise of this Warrant. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective Warrant Exercise Price. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Corporation may be listed. The Corporation will not take any action which results in any adjustment of the Warrant Exercise Price if the total number of shares of Common Stock issued and issuable after such action upon exercise of this Warrant would exceed the total number of shares of Common Stock then authorized by the Corporation's Articles of Incorporation. The Corporation has not granted and will not grant any right of first refusal with respect to shares issuable upon exercise of this Warrant, and there are no preemptive rights associated with such shares. (n) Issue Tax. The issuance of certificates for shares of Common Stock upon exercise of the Warrants shall be made without charge to the holders of such Warrants for any issuance tax in respect thereof provided that the Corporation shall not be required to pay any tax which may be 11 payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of any holder of the Warrants. (o) Closing of Books. The Corporation will at no time close its transfer books against the transfer of the shares of Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. (p) Definition of Common Stock. As used herein the term "Common Stock" shall mean and include the Common Stock, $.01 par value, of the Corporation as authorized on the date hereof and also any capital stock of any class of the Corporation hereinafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, provided, however, that the shares purchasable pursuant to this Warrant shall include only shares designated as Common Stock, $.01 par value, of the Corporation on the date hereof, or shares of any class or classes resulting from any reclassification or reclassifications thereof which are not limited to any such fixed sum or percentage and are not subject to redemption by the Corporation and, in case at any time there shall be more than one such resulting class, the shares of each class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. Section 4. Notices of Record Dates. In the event of (1) any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution (other than cash dividends out of earned surplus), or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (2) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation or any transfer of all or substantially all the assets of the Corporation to or consolidation or merger of the Corporation with or into any other corporation, or 12 (3) any voluntary or involuntary dissolution, liquidation or winding-up of the Corporation, then and in each such event the Corporation will give notice to the holder of this Warrant specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock will be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassifi- cation, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be given at least 20 days and not more than 90 days prior to the date therein specified, and such notice shall state that the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act or to a favorable vote of stockholders, if either is required. Section 5. [omitted] Section 6. No Stockholder Rights or Liabilities. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Corporation. No provi- sion hereof, in the absence of affirmative action by the holder hereof to purchase shares of Common Stock, and no mere enumera- tion herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Warrant Exercise Price or as a stockholder of the Corporation, whether such liability is asserted by the Corporation or by creditors of the Corporation. Section 7. Investment Representation and Legend. The holder, by acceptance of the Warrant, represents and warrants to the Corporation that it is acquiring the Warrant and the shares of Common Stock (or other securities) issuable upon the exercise hereof for investment purposes only and not with a view towards the resale or other distribution thereof and agrees that (a) it will not offer, sell, transfer, encumber or otherwise dispose of the Warrant or any of the shares of Common Stock (or other securities) issuable upon the exercise hereof unless either (i) there is an effective registration statement under said Act relating thereto or (ii) the Corporation has received an opinion of counsel, reasonably satisfactory in form and substance to the Corporation, stating that such registration is not required; and (b) the Corporation may affix upon this Warrant the following legend: 13 "This Warrant has been issued in reliance upon the representation of the holder that it has been acquired for investment purposes and not with a view towards the resale or other distribution thereof. Neither this Warrant nor the shares issuable upon the exercise of this Warrant have been registered under the Securities Act of 1933." The holder, by acceptance of this Warrant, further agrees that the Corporation may affix the following legend to certificates for shares of Common Stock issued upon exercise of this Warrant: "The securities represented by this certificate have been issued in reliance upon the representation of the holder that they have been acquired for investment and not with a view toward the resale or other distribution thereof, and have not been registered under the Securities Act of 1933. Neither the securities evidenced hereby, nor any interest therein, may be offered, sold, transferred, encumbered or otherwise disposed of unless either (i) there is an effective registration statement under said Act relating thereto or (ii) the Corporation has received an opinion of counsel, reasonably satisfactory in form and substance to the Corporation, stating that such registration is not required." Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to indemnity or otherwise as it may in its discretion reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. Section 9. Notices. All notices, requests and other communications required or permitted to be given or delivered hereunder shall be in writing, and shall be delivered, or shall be sent by certified or registered mail, postage prepaid and addressed, if to the holder to such holder at the address shown on such holder's Warrant or at such other address as shall have been furnished to the Corporation by notice from such holder. All notices, requests and other communications required or permitted to be given or delivered hereunder shall be in writing, and shall be delivered, or shall be sent by certified or registered mail, postage prepaid and addressed to the Corporation at such address as shall have been furnished to the holder by notice from the Corporation. 14 IN WITNESS WHEREOF, MedE America Corporation has executed this Warrant on and as of the day and year first above written. MEDE AMERICA CORPORATION By ----------------------------- 15 SUBSCRIPTION AGREEMENT To: Dated: The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to subscribe for and purchase shares of Common Stock of MedE America Corporation, a Delaware Corporation (the "Corporation") covered by such Warrant, and makes payment herewith in full therefor [at the price per share provided by such Warrant [in cash] [by surrender of indebtedness of the Corporation as provided in Section 1(a)(ii) of such Warrant] [as provided in Section 1(a)(iii) of such Warrant]. Signature ------------------------- ----------------------------------- Address ---------------------------- ----------------------------------- THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe January 10, 1997 for 33,600 shares Void After January 10, 2007 --------------------------- ------------------- THIS CERTIFIES that, for value received, WELSH, CARSON, ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.25 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to January 10, 2007, up to THIRTY-THREE THOUSAND SIX HUNDRED (33,600) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement, dated as of January 10, 1997 (the "Agreement"), among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe January 10, 1997 for 5,628 shares Void After January 10, 2007 --------------------------- ------------------- THIS CERTIFIES that, for value received, WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.25 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to January 10, 2007, up to FIVE THOUSAND SIX HUNDRED TWENTY-EIGHT (5,628) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement, dated as of January 10, 1997 (the "Agreement"), among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. Stock Subscription Warrant Warrant to Subscribe January 10, 1997 for 11,172 shares Void After January 10, 2007 --------------------------- ------------------- THIS CERTIFIES that, for value received, WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.25 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to January 10, 2007, up to ELEVEN THOUSAND ONE HUNDRED SEVENTY-TWO (11,172) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement, dated as of January 10, 1997 (the "Agreement"), among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". Exhibit 1 Form of Warrant --------------- THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe January , 1997 for [ ] shares Void After January , 2007 ------------------------- ---------------------- THIS CERTIFIES that, for value received, [ ], a [ ] limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.25 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to January [ ] , 2007, up to [ ] ([ ]) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the provisions Corporation (hereinafter called the "Common Stock"), subject, however, to the and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement, dated as of January [ ], 1997 (the "Agreement"), among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". EX-4.5 9 EXHIBIT 4.5 AGREEMENT AGREEMENT dated as of December 18, 1995, among MEDE AMERICA CORPORATION, a Delaware corporation (the "Company"), WELSH, CARSON, ANDERSON & STOWE V, L.P., a Delaware limited partnership ("WCAS V"), WELSH, CARSON, ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("WCAS VI"), WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited partnership, ("Blair LF") and WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware limited partnership, ("Blair V"; WCAS V, WCAS VI, Blair LF and Blair V being hereinafter referred to individually as a "Guarantor" and collectively as the "Guarantors"). WHEREAS, the Guarantors are collectively the owners of 80% of the outstanding common and preferred stock of the Company; and WHEREAS, the Company and the Guarantors have determined that it is imperative to the future viability of the Company that the Company enter into that certain Credit Agreement dated as of December 18, 1995 (the "Credit Agreement") between the Company and Bank of America Illinois (the "Bank"), providing for the extension by the Bank to the Company of a revolving line of credit in the amount of $10,000,000 (the "Line of Credit"); and WHEREAS, the Bank is unwilling to enter into the Credit Agreement or make the Line of Credit available to the Company unless the payment of the Company's obligations to the Bank thereunder is guaranteed by the Guarantors; WHEREAS, in order to protect their existing substantial equity investments in the Company and to ensure the Company's future financial viability, the Guarantors are willing to assume additional financial risk in their role as stockholders of the Company by giving certain guarantees to the Bank with respect to the Line of Credit; and WHEREAS, in consideration of the Guarantors assuming such additional financial risk by making such guarantees the Company is willing to issue to the Guarantors the warrants to purchase shares of its Common Stock. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereby agree as follows: I. ISSUANCE OF WARRANTS Section 1.01. Issuance of Warrants. (a) Upon the execution and delivery by each Guarantor of its guarantee in substantially the form annexed hereto as Exhibit 1 (the "Guarantee" and collectively the "Guarantees"), the Company will execute and deliver to each Guarantor a warrant or warrants, in the form annexed hereto as Exhibit 2 (individually a "Warrant" and collectively the "Warrants") to purchase shares of the Company's Common Stock, $.01 par value ("Common Stock"), at an initial exercise price of $1.00 per share, as follows: Each Guarantor shall be entitled to Warrants to purchase a number of shares equal to 240,000 shares multiplied by the percentage shown opposite such Guarantor's name in Schedule I hereto in the column headed "Percentage" (hereinafter called such Guarantor's "Percentage"). Section 1.02. Tax and Accounting Treatment. The Company and the Guarantors agree that for federal, state and local income tax as well as for financial accounting purposes, the issuance of the Warrants by the Company to the Guarantors is in the nature of a dividend distribution and is not compensation (or a payment) for any services, and each hereby agrees to treat the issuance of the Warrants in such manner for all such purposes, all to the maximum extent permitted by applicable law. II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to, and agrees with, the Guarantors as follows: Section 2.01. Organization. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to do business as a foreign corporation in good standing in each of the jurisdiction in which it owns or leases any real property or in which the nature of business transacted by it makes such licensing or qualification necessary and where the failure to be so licensed or qualified would have a material adverse affect on the business, operations or financial condition of the Company. The Company has the corporate power and authority to own and hold its properties and to carry on its business as currently conducted, to execute, deliver and perform this Agreement and the Warrants and to issue, sell and deliver the shares 2 of Common Stock issuable upon the exercise of the Warrants (the "Warrant Shares"). Section 2.02. Authorization of Agreement, etc. (a) The execution, delivery and performance by the Company of this Agreement and the Warrants, and the issuance, sale and delivery of the Warrant Shares upon exercise of the Warrants have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or By-laws of the Company, or any provision of any indenture, agreement or other instrument by which the Company or any of its subsidiaries or any of their respective properties or assets is bound or affected, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or incumbrance of any nature upon any of the properties or assets of the Company or any of its subsidiaries. (b) The Warrant Shares have been duly reserved for issuance upon exercise of the Warrants and, when so issued, will be duly authorized, validly issued and outstanding, fully paid and non assessable shares of Common Stock. Neither the execution and delivery of the Warrants nor the issuance and delivery of the Warrant Shares upon exercise thereof is subject to any preemptive rights of shareholders of the Company or to any right of first refusal or other similar right in favor of any person. Section 2.03. Validity. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. The Warrants, when executed in accordance with this Agreement, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms. III. REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS Each Guarantor represents and warrants to the Company that it is acquiring the Warrants, and will, upon exercise thereof, acquire the Warrant Shares, for its own account for purpose of investment and not with a view to or for sale in connection with any distribution thereof. Each Guarantor further represents that it understands (i) that neither the Warrants nor the Warrant Shares have been registered under the Securities Act by reason of their issuance in transactions exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof, (ii) the Warrants and, upon exercise thereof, the Warrant Shares must be held indefinitely unless a 3 subsequent disposition thereof is registered under the Securities Act or is otherwise exempt from such registration, (iii) the Warrants and the Warrant Shares will bear a legend to such effectand (iv) the Company will make a notation on its transfer books to such effect. Each Guarantor further understands that the exemption from registration afforded by Rule 144 under the Securities Act depends on the satisfaction of various conditions and that, if applicable, affords the basis of sales of the Warrants and/or the Warrant Shares in limited amounts under certain conditions. Each Guarantor (i) acknowledges that it has had a full opportunity to request from the Company to review and has received all information deemed relevant in making a decision to enter into this Agreement and consummate the transactions contemplated thereby and (ii) will comply with the restrictions on transferability of the Warrants and Warrant Shares contained in the Warrant. Each Guarantor is an "Accredited Investor" within the meaning of Rule 501(a) of the Securities Act. IV. AGREEMENTS AMONG THE GUARANTORS The Guarantors agree with one another that all payments made by them pursuant to their respective Guarantees shall be allocated between them in the proportions shown opposite their respective names on Schedule I, regardless of whether claims shall have been asserted under one Guarantor's Guarantee and not the other, and without regard to any release of any Guarantee by any beneficiary thereof. V. AGREEMENTS OF THE COMPANY The Company covenants and agrees that any right to payment received by the Guarantors in respect of the Credit Agreement and their guaranty thereof, whether by way of purchase, subrogation or otherwise, and regardless whether and to what extent the same shall be subordinated to other indebtedness to the Banks or shall have been waived pending certain events, may be applied, both as to principal and accrued and unpaid interest, dollar for dollar, by the Guarantors, or any of them, as the purchase price of any equity securities offered by the Company to investors for cash. In addition, in the event that the Company shall be unable to make a payment under the Credit Agreement, the Guarantors shall have the right (but not the obligation) (i) to purchase additional equity securities of the Company and (ii) to require the Company to use the net proceeds of such purchase to make such payment under the Credit Agreement. The right set forth in the preceding sentence may only be exercised upon joint approval by the Guarantors, and the securities so purchased shall 4 be issued at fair value, based upon current market conditions for the issuance of equity securities. The Company shall use its best efforts to provide the Guarantors with sufficient notice in advance of a payment default under the Credit Agreementto enable the Guarantors to exercise their rights under this Article V. VI. MISCELLANEOUS Section 6.001. Expenses. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby, whether or not such transactions shall be consummated, provided, however, that the Company shall pay the fees and disbursements of the Guarantors' special counsel, Messrs. Reboul, MacMurray, Hewitt, Maynard & Kristol and Kirkland & Ellis. Section 6.002. Survival of Agreements. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the Warrants and the issuance, sale and delivery of the Warrant Shares. Section 6.003. Parties in Interest. All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Section 6.004. Notices. All notices, requests, consent and other communications hereunder shall be in writing and shall be mailed by first class registered mail, postage prepaid, or sent by a recognized courier service addressed as follows: If to the Company to it at: 333 Ovington Boulevard, Suite 702 Mitchell Field, New York 11553 Attention: Thomas P. Staudt, Chief Executive Officer If to any Guarantor, to it at its address as set forth in Schedule 1, or, in any such case, at such other address or addresses as shall have been furnished in writing my such party to the others. Section 6.005. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 5 Section 6.006. Entire Agreement. This Agreement constitutes the entire Agreement of the parties with respect to the subject matter hereof and may not be modified or amended except in writing. Section 6.07. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6 IN WITNESS WHEREOF, the Company and the Guarantors have executed this Agreement as of the day and year first above written. MEDE AMERICA CORPORATION By ------------------------------------- Thomas P. Staudt, Chief Executive Officer WELSH, CARSON, ANDERSON & STOWE V, L.P. By WCAS V Partners, General Partner By ------------------------------------- General Partner WELSH, CARSON, ANDERSON & STOWE VI, L.P. By WCAS VI Partners, L.P., General Partner By ------------------------------------- General Partner WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP By William Blair Leveraged Capital Management, L.P. By William Blair & Company, General Partner By ------------------------------------- WILLIAM BLAIR CAPITAL PARTNERS V, L.P. By William Blair Capital Partners, LLC, General Partner By ------------------------------------- 7 Schedule 1 Name and Address of Guarantor Percentage - ------------------- ---------- Welsh, Carson, Anderson & Stowe V, L.P. 40% One World Financial Center Suite 3601 New York, N.Y. 10281 Attention: Anthony J. de Nicola Welsh, Carson, Anderson & Stowe VI, L.P. 40 One World Financial Center Suite 3601 New York, N.Y. 10281 Attention: Anthony J. de Nicola William Blair Leveraged 6.7 Capital Fund Limited Partnership 222 W. Adams Street Chicago, Illinois 60606 Attention: Timothy M. Murray William Blair Capital 13.3 Partners V, L.P. 222 W. Adams Street Chicago, Illinois 60606 Attention: Timothy M. Murray 100.00% ====== 8 THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe December 18, 1995 for 96,000 shares Void After December 17, 2005 ---------------------------- ----------------------- THIS CERTIFIES that, for value received, WELSH, CARSON, ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.00 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to December 18, 2005, up to NINETY SIX THOUSAND (96,000) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement dated as of December 18, 1995 (the "Agreement") among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". 1 Section 1. Exercise of Warrant. (a) Method of Exercise. The rights represented by this Warrant may be exercised by the holder hereof, in whole at any time or from time to time in part, but not as to a fractional share of Common Stock, by the surrender of this Warrant (properly endorsed) at the office of the Corporation as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation, and as further provided below in this Section 1: (i) Cash Exercise. By payment to the Corporation of the Warrant Exercise Price in cash or by certified or offi- cial bank check, for each share being purchased; (ii) Surrender of Indebtedness of or Claims Against Corporation. By surrender to the Corporation for cancellation of any indebtedness of or claim against the Corporation (including without limitation any claim against the Corporation as subrogee in the event the Holder shall have performed under its Guarantee, as defined in the Agreement), or of any portion thereof, for which credit shall be given toward the Warrant Exercise Price for each share being acquired on a dollar-for-dollar basis with reference to the principal amount cancelled; (iii) Net Issue Exercise. By an election to receive shares the aggregate fair market value of which as of the date of exercise is equal to the fair market value of this Warrant (or the portion thereof being exercised) on such date, in which event the Corporation, upon receipt of notice of such election, shall issue to the holder hereof a number of shares of the Corporation's Common Stock equal to (A) the number of shares of Common Stock acquirable upon exercise of all or any portion of this Warrant being exercised, as at such date, multiplied by (B) the balance remaining after deducting (x) the Warrant Exercise Price, as in effect on such date, from (y) the fair market value of one share of the Corporation's Common Stock as at such date and dividing the result by (C) such fair market value; or (iv) Combined Payment Method. By satisfaction of the Warrant Exercise Price for each share being acquired in any combination of two or more of the methods described in clauses (i), (ii) and (iii) above. (b) Mandatory Exercise. Upon the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, covering 2 the sale of the Corporation's Common Stock at a price to the public of $3.00 or more (such price as from time to time to be adjusted in the manner provided for in paragraphs (d), (h) and (j) for the adjustment of the Warrant Exercise Price), this Warrant, to the extent not previously exercised, shall be surrendered (properly endorsed) at the office of the Corporation as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation, accompanied by payment to the Corporation of the Warrant Exercise Price by one or more of the methods specified in clauses (a)(i)-(iv) above; and to the extent not so surrendered, it shall be deemed exercised in the manner provided in clause (a)(iii) above and, upon delivery of the shares of Common Stock determined in accordance therewith, this Warrant shall be cancelled. (c) Definition of Fair Market Value. For the purposes of this Section 1, "fair market value" shall mean, as to any security, as follows: if that security is listed or admitted to trading on one or more national securities exchanges, the average of the last reported sales prices per share regular way or, in case no such reported sales takes place on any such day, the average of the last reported bid and asked prices per share regular way, in either case on the principal national securities exchange on which that security is listed or admitted to trading, for the 20 trading days immediately preceding the date upon which the fair market value is determined (the "Determination Date"); if that security is not listed or admitted to trading on a national securities exchange but is quoted by the NASD Automated Quotation System ("NASDAQ"), the average of the last reported sales prices per share regular way or, in case no reported sale takes place on any such day or the last reported sales prices are not then quoted by NASDAQ, the average for each such day of the last reported bid and asked prices per share, for the 20 trading days immediately preceding the Determination Date as furnished by the National Quotation Bureau Incorporated or any similar successor organization; and if that security is not listed or admitted to trading on a national securities exchange or quoted by NASDAQ or any other nationally recognized quotation service, the "fair market value" shall be the fair value thereof determined jointly by the Corporation and the registered holders of Warrants outstanding representing a majority of the shares of Common Stock acquirable upon exercise of the Warrants, provided, however, that if such parties are unable to reach agreement within a reasonable time, the "fair market value" shall be determined in good faith by an independent investment banking firm selected jointly by the Corporation and the registered holders of Warrants outstanding representing a majority of the shares of Common Stock 3 issuable upon exercise of the Warrants or, if that selection cannot be made within 15 days, by an independent investment banking firm selected by the American Arbitration Association in accordance with its rules. Anything in this paragraph (c) to the contrary notwithstanding, the fair market value of this Warrant or any portion thereof as of any Determination Date shall be equal to (i) the fair market value of the shares of Common Stock issuable upon exercise of this Warrant (or such portion thereof), (determined in accordance with the foregoing provisions of this paragraph (c)), minus (ii) the aggregate Warrant Exercise Price of this Warrant (or such portion thereof). (d) Delivery of Certificates, Etc. In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the shares of Common Stock so purchased, registered in the name of the holder, shall be delivered to the holder hereof within a reasonable time, not exceeding ten days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. The person in whose name any certificate for shares of Common Stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which the Warrant was surrendered and payment of the Warrant Exercise Price and any applicable taxes was made, except that, if the date of such surrender and payment is a date on which the stock transfer books of the Corporation are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. Section 2. Adjustment of Number of Shares. Upon each adjustment of the Warrant Exercise Price as provided in Section 3, the holder of this Warrant shall thereafter be entitled to purchase, at the Warrant Exercise Price resulting from such adjustment, the number of shares (calculated to the nearest tenth of a share) obtained by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment. 4 Section 3. Adjustment of Price Upon Issuance of Common Stock. If and whenever the Corporation shall issue or sell any shares of its Common Stock for a consideration per share less than the Warrant Exercise Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale the Warrant Exercise Price shall be reduced to the price (calculated to the nearest $.01) determined by dividing (i) an amount equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including as outstanding all shares of Common Stock issuable upon conversion of all outstanding Convertible Securities (as hereinafter defined) or exercise of outstanding Warrants multiplied by the then existing Warrant Exercise Price, and (b) the consideration, if any, received by the Corporation upon such issue or sale, by (ii) the total number of shares of Common Stock outstanding immediately after such issue or sale (including as outstanding all shares of Common Stock issuable upon conversion of all outstanding Convertible Securities or exercise of outstanding Warrants). No adjustments of the Warrant Exercise Price, however, shall be made in an amount less than $.01 per share, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. For purposes of this Section 3, the following paragraphs (a) to (p), inclusive, shall also be applicable: (a) Issuance of Rights or Options. In case at any time the Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options", and such convertible or exchangeable stock or securities being herein called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options 5 or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Warrant Exercise Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in paragraph (c), no adjustment of the Warrant Exercise Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. (b) Issuance of Convertible Securities. In case the Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of all such Convertible Securities) shall be less than the Warrant Exercise Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (i) except as otherwise provided in paragraph (c) below, no adjustment of the Warrant Exercise Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and (ii) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of the Warrant Exercise Price have been or are to be made pursuant to other provisions of this Section 3, no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale. (c) Change in Option Price or Conversion Rate. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in paragraph (a), the additional consideration, if any, payable 6 upon the conversion or exchange of any Convertible Securities referred to in paragraph (a) or (b), or the rate at which any Convertible Securities referred to in paragraph (a) or (b) are convertible into or exchangeable for Common Stock shall change at any time (other than under or by reason of provisions designed to protect against dilution), the Warrant Exercise Price in effect at the time of such event shall forthwith be readjusted to the Warrant Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Warrant Exercise Price then in effect hereunder shall forthwith be increased to the Warrant Exercise Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such Option referred to in paragraph (a) or the rate at which any Convertible Securities referred to in paragraph (a) or (b) are convertible into or exchangeable for Common Stock, shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then in case of the delivery of Common Stock upon the exercise of any such Option or upon conversion or exchange of any such Convertible Security, the Warrant Exercise Price then in effect hereunder shall forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Security never been issued as to such Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered as aforesaid, but only if as a result of such adjustment the Warrant Exercise Price then in effect hereunder is thereby reduced. (d) Stock Dividends. In case the Corporation shall declare a dividend or make any other distribution upon any stock of the Corporation payable in Common Stock, Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. (e) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation 7 therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. The amount of consideration deemed to be received by the Corporation pursuant to the foregoing provisions of this paragraph (e) upon any issuance and/or sale, pursuant to an established compensation plan of the Corporation, to directors, officers or employees of the Corporation in connection with their employment of shares of Common Stock, Options or Convertible Securities, shall be increased by the amount of any tax benefit realized by the Corporation as a result of such issuance and/or sale, the amount of such tax benefit being the amount by which the Federal and/or State income or other tax liability of the Corporation shall be reduced by reason of any deduction or credit in respect of such issuance and/or sale. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration. In case any shares of Common Stock, Options or Convertible Securities shall be issued in connection with any merger or consolidation in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value as determined by the Board of Directors of the Corporation of such portion of the assets and business of the non-surviving corporation as such Board shall determine to be attributable to such Common Stock, Options or Convertible Securities, as the case may be. In the event of any consolidation or merger of the Corporation in which the Corporation is not the surviving corporation or in the event of any sale of all or substantially all of the assets of the Corporation for stock or other securities of any corporation, the Corporation shall be deemed to have issued a number of shares of its Common Stock for stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and for a consideration equal to the fair market value on the date of such transaction of such stock or securities of the other corporation, and if any such calculation results in adjustment of the Warrant Exercise Price, the determination of the number of shares of Common Stock receivable under this Warrant immediately prior to such 8 merger, consolidation or sale, for purposes of paragraph (j), shall be made after giving effect to such adjustment of the Warrant Exercise Price. (f) Record Date. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (g) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purposes of this Section 3. (h) Subdivision or Combination of Stock. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Warrant Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the Warrant Exercise Price in effect immediately prior to such combination shall be proportionately increased. (i) Certain Issues of Common Stock Excepted. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Warrant Exercise Price in the case of the issuance of shares of Common Stock upon exercise of employee stock options approved by the Board of Directors of the Corporation. (j) Reorganization, Reclassification, Consolidation, Merger or Sale. If any capital reorganization or reclassi- fication of the capital stock of the Corporation or any consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provisions shall be made whereby 9 each holder of the Warrants shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Corporation immediately theretofore receivable upon the exercise of such Warrant or Warrants, such shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Warrant Exercise Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such exercise rights (including an immediate adjustment, by reason of such reorganization or reclassification, of the Warrant Exercise Price to the value for the Common Stock reflected by the terms of such reorganization or reclassification if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such reorganization or reclassifica- tion). In the event of a merger or consolidation of the Corporation as a result of which a greater or lesser number of shares of common stock of the surviving corporation are issuable to holders of Common Stock of the Corporation outstanding immediately prior to such merger or consolidation, the Warrant Exercise Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Corporation. The Corporation will not effect any such consolidation, merger or any sale of all or substantially all of its assets of properties, unless prior to the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and mailed or delivered to each holder of the Warrants at the last address of such holder appearing on the books of the Corporation, the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. (k) Notice of Adjustment. Upon any adjustment of the Warrant Exercise Price, then and in each such case, the Corporation shall give written notice thereof, by first class mail, postage prepaid, addressed to each holder of the Warrants at the address of such holder as shown on the books of the Corporation, which notice shall state the Warrant 10 Exercise Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (l) Certain Events. If any event occurs as to which in the opinion of the Board of Directors of the Corporation the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the exercise rights of this Warrant, in accordance with the essential intent and principles of such provisions to protect against dilution, then such Board of Directors shall in good faith make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such exercise rights as aforesaid. (m) Stock to Be Reserved. The Corporation will at all times reserve and keep available out of its authorized Common Stock or its treasury shares, solely for the purpose of issue upon the exercise of this Warrant as herein provided, such number of shares of Common Stock as shall then be issuable upon the exercise of this Warrant. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective Warrant Exercise Price. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Corporation may be listed. The Corporation will not take any action which results in any adjustment of the Warrant Exercise Price if the total number of shares of Common Stock issued and issuable after such action upon exercise of this Warrant would exceed the total number of shares of Common Stock then authorized by the Corporation's Articles of Incorporation. The Corporation has not granted and will not grant any right of first refusal with respect to shares issuable upon exercise of this Warrant, and there are no preemptive rights associated with such shares. (n) Issue Tax. The issuance of certificates for shares of Common Stock upon exercise of the Warrants shall be made without charge to the holders of such Warrants for any issuance tax in respect thereof provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance 11 and delivery of any certificate in a name other than that of any holder of the Warrants. (o) Closing of Books. The Corporation will at no time close its transfer books against the transfer of the shares of Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. (p) Definition of Common Stock. As used herein the term "Common Stock" shall mean and include the Common Stock, $.01 par value, of the Corporation as authorized on December 18, 1995 and also any capital stock of any class of the Corporation hereinafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, provided, however, that the shares purchasable pursuant to this Warrant shall include only shares designated as Common Stock, $.01 par value, of the Corporation on December 18, 1995, or shares of any class or classes resulting from any reclassification or reclassifications thereof which are not limited to any such fixed sum or percentage and are not subject to redemption by the Corporation and, in case at any time there shall be more than one such resulting class, the shares of each class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. Section 4. Notices of Record Dates. In the event of (1) any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution (other than cash dividends out of earned surplus), or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (2) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation or any transfer of all or substantially all the assets of the Corporation to or consolidation or merger of the Corporation with or into any other corporation, or (3) any voluntary or involuntary dissolution, liquidation or winding-up of the Corporation, 12 then and in each such event the Corporation will give notice to the holder of this Warrant specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock will be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassifi- cation, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be given at least 20 days and not more than 90 days prior to the date therein specified, and such notice shall state that the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act of 1933 or to a favorable vote of stockholders, if either is required. Section 5. [omitted] Section 6. No Stockholder Rights or Liabilities. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a stockholder of the Corporation. No provi- sion hereof, in the absence of affirmative action by the holder hereof to purchase shares of Common Stock, and no mere enumera- tion herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Warrant Exercise Price or as a stockholder of the Corporation, whether such liability is asserted by the Corporation or by creditors of the Corporation. Section 7. Investment Representation and Legend. The holder, by acceptance of the Warrant, represents and warrants to the Corporation that it is acquiring the Warrant and the shares of Common Stock (or other securities) issuable upon the exercise hereof for investment purposes only and not with a view towards the resale or other distribution thereof and agrees that (a) it will not offer, sell, transfer, encumber or otherwise dispose of the Warrant or any of the shares of Common Stock (or other securities) issuable upon the exercise hereof unless either (i) there is an effective registration statement under said Act relating thereto or (ii) the Corporation has received an opinion of counsel, reasonably satisfactory in form and substance to the Corporation, stating that such registration is not required; and (b) the Corporation may affix upon this Warrant the following legend: "This Warrant has been issued in reliance upon the representation of the holder that it has been acquired for investment purposes and not with a view towards the resale 13 or other distribution thereof. Neither this Warrant nor the shares issuable upon the exercise of this Warrant have been registered under the Securities Act of 1933." The holder, by acceptance of this Warrant, further agrees that the Corporation may affix the following legend to certificates for shares of Common Stock issued upon exercise of this Warrant: "The securities represented by this certificate have been issued in reliance upon the representation of the holder that they have been acquired for investment and not with a view toward the resale or other distribution thereof, and have not been registered under the Securities Act of 1933. Neither the securities evidenced hereby, nor any interest therein, may be offered, sold, transferred, encumbered or otherwise disposed of unless either (i) there is an effective registration statement under said Act relating thereto or (ii) the Corporation has received an opinion of counsel, reasonably satisfactory in form and substance to the Corporation, stating that such registration is not required." Section 8. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to indemnity or otherwise as it may in its discretion reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. Section 9. Notices. All notices, requests and other communications required or permitted to be given or delivered hereunder shall be in writing, and shall be delivered, or shall be sent by certified or registered mail, postage prepaid and addressed, if to the holder to such holder at the address shown on such holder's Warrant or at such other address as shall have been furnished to the Corporation by notice from such holder. All notices, requests and other communications required or permitted to be given or delivered hereunder shall be in writing, and shall be delivered, or shall be sent by certified or registered mail, postage prepaid and addressed to the Corporation at such address as shall have been furnished to the holder by notice from the Corporation. 14 IN WITNESS WHEREOF, MedE America Corporation has executed this Warrant on and as of the day and year first above written. MEDE AMERICA CORPORATION By ---------------------------------- 15 SUBSCRIPTION AGREEMENT To: Dated: The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to subscribe for and purchase [ ] shares of Common Stock of MedE America Corporation, a Delaware Corporation (the "Corporation") covered by such Warrant, and makes payment herewith in full therefor [at the price per share provided by such Warrant [in cash] [by surrender of indebtedness of the Corporation as provided in Section 1(a)(ii) of such Warrant] [as provided in Section 1(a)(iii) of such Warrant]. Signature --------------------------- ------------------------------------ Address ----------------------------- ------------------------------------ THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe December 18, 1995 for 96,000 shares Void After December 17, 2005 ---------------------------- ----------------------- THIS CERTIFIES that, for value received, WELSH, CARSON, ANDERSON & STOWE VI, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.00 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to December 18, 2005, up to NINETY SIX THOUSAND (96,000) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement dated as of December 18, 1995 (the "Agreement") among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe December 18, 1995 for 96,000 shares Void After December 17, 2005 ---------------------------- ------------------------ THIS CERTIFIES that, for value received, WELSH, CARSON, ANDERSON & STOWE V, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.00 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to December 18, 2005, up to NINETY SIX THOUSAND (96,000) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement dated as of December 18, 1995 (the "Agreement") among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe December 18, 1995 for 16,080 shares Void After December 17, 2005 ---------------------------- ------------------- THIS CERTIFIES that, for value received, WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP, an Illinois limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.00 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to December 18, 2005, up to SIXTEEN THOUSAND EIGHTY (16,080) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement dated as of December 18, 1995 (the "Agreement") among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". THIS WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MEDE AMERICA CORPORATION Stock Subscription Warrant Warrant to Subscribe December 18, 1995 for 32,640 shares Void After December 17, 2005 ---------------------------- ----------------------- THIS CERTIFIES that, for value received, WILLIAM BLAIR CAPITAL PARTNERS V, L.P., a Delaware limited partnership ("Holder"), or its registered assigns, is entitled to subscribe for and purchase from MEDE AMERICA CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), at the price of $1.00 per share (such price as from time to time to be adjusted as hereinafter provided being hereinafter called the "Warrant Exercise Price"), at any time prior to December 18, 2005, up to THIRTY TWO THOUSAND SIX HUNDRED FORTY (32,640) (subject to adjustment as hereinafter provided) fully paid and nonassessable shares of Common Stock, $.01 par value, of the Corporation (hereinafter called the "Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and any warrant or warrants subsequently issued upon exchange or transfer hereof and each other warrant issued pursuant to the Agreement dated as of December 18, 1995 (the "Agreement") among the Corporation and the stockholders of the Corporation named therein, and any warrant or warrants subsequently issued upon exchange or transfer thereof, are hereinafter collectively called the "Warrants". EX-10.1 10 EXHIBIT 10.1 MEDE AMERICA CORPORATION AND ITS SUBSIDIARIES STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN Section 1. Purpose. The purpose of the MedE America Corporation and its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan") is to promote the interests of MedE America Corporation, a Delaware corporation (the "Company"), and any Subsidiary thereof and the interests of the Company's stockholders by providing an opportunity to selected employees, officers and directors of the Company or any Subsidiary thereof as of the date of the adoption of the Plan or at any time thereafter to purchase Common Stock of the Company. By encouraging such stock ownership, the Company seeks to attract, retain and motivate such employees and other persons and to encourage such employees and other persons to devote their best efforts to the business and financial success of the Company. It is intended that this purpose will be effected by the granting of "non-qualified stock options" and/or "incentive stock options" to acquire the Common Stock of the Company and/or by the granting of rights to purchase the Common Stock of the Company on a "restricted stock" basis. Under the Plan, the Committee shall have the authority (in its sole discretion) to grant "incentive stock options" within the meaning of Section 422(b) of the Code, "non-qualified stock options" as described in Treasury Regulation Section 1.83-7 or any successor regulation thereto, or "restricted stock" awards. Section 2. Definitions. For purposes of the Plan, the following terms used herein shall have the following meanings, unless a different meaning is clearly required by the context: 2.1. "Award" shall mean an award of the right to purchase Common Stock granted under the provisions of Section 7 of the Plan. 2.2. "Board of Directors" shall mean the Board of Directors of the Company. 2.3. "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.4. "Committee" shall mean the committee of the Board of Directors referred to in Section 5 hereof; provided, that if no such committee is appointed by the Board of Directors, the Board of Directors shall have all of the authority and obligations of the Committee under the Plan. 2.5. "Common Stock" shall mean the Common Stock, $.01 par value, of the Company. 2.6. "Employee" shall mean (i) with respect to an ISO, any person, including, without limitation, an officer or director of the Company, who, at the time an ISO is granted to such person hereunder, is employed on a full-time basis by the Company or any Parent or Subsidiary of the Company, and (ii) with respect to a Non-Qualified Option and/or an Award, any person employed by, or performing services for, the Company or any Parent or Subsidiary of the Company, including, without limitation, directors and officers. 2.7. "ISO" shall mean an Option granted to a Participant pursuant to the Plan that constitutes and shall be treated as an "incentive stock option" as defined in Section 422(b) of the Code. 2.8. "Non-Qualified Option" shall mean an Option granted to a Participant pursuant to the Plan that is intended to be, and qualifies as, a "non-qualified stock option" as described in Treasury Regulation Section 1.83-7 or any successor regulation thereto and that shall not constitute or be treated as an ISO. 2.9. "Option" shall mean any ISO or Non-Qualified Option granted to an Employee pursuant to the Plan. 2.10. "Participant" shall mean any Employee to whom an Award and/or an Option is granted under the Plan. 2.11. "Parent" of the Company shall have the meaning set forth in Section 424(e) of the Code. 2.12. "Subsidiary" of the Company shall have the meaning set forth in Section 424(f) of the Code. Section 3. Eligibility. Awards and/or Options may be granted to any Employee. The Committee shall have the sole authority to select the persons to whom Awards and/or Options are to be granted hereunder, and to determine whether a person is to be granted a Non-Qualified Option, an ISO or an Award or any combination thereof. No person shall have any right to participate in the Plan. Any person selected by the Committee for participation during any one period will not by virtue of such participation have the right to be selected as a Participant for any other period. Section 4. Common Stock Subject to the Plan. 4.1. Number of Shares. The total number of shares of Common Stock for which Options and/or Awards may be granted under 2 the Plan shall not exceed in the aggregate Three Million One Thousand Four Hundred (3,501,400) shares of Common Stock (subject to adjustment as provided in Section 8 hereof). 4.2. Reissuance. The shares of Common Stock that may be subject to Options and/or Awards granted under the Plan may be either authorized and unissued shares or shares reacquired at any time and now or hereafter held as treasury stock as the Committee may determine. In the event that any outstanding Option expires or is terminated for any reason, the shares allocable to the unexercised portion of such Option may again be subject to an Option and/or Award granted under the Plan. If any shares of Common Stock issued or sold pursuant to an Award or the exercise of an Option shall have been repurchased by the Company, then such shares may again be subject to an Option and/or Award granted under the Plan. 4.3. Special ISO Limitations. (a) The aggregate fair market value (determined as of the date an ISO is granted) of the shares of Common Stock with respect to which ISOs are exercisable for the first time by an Employee during any calendar year (under all incentive stock option plans of the Company or any Parent or Subsidiary of the Company) shall not exceed $100,000. (b) No ISO shall be granted to an Employee who, at the time the ISO is granted, owns (actually or constructively under the provisions of Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, unless (i) the option price is at least 110% of the fair market value (determined as of the time the ISO is granted) of the shares of Common Stock subject to the ISO and (ii) the ISO by its terms is not exercisable more than five years from the date it is granted. 4.4. Limitations Not Applicable to Non-Qualified Options or Awards. Notwithstanding any other provision of the Plan, the provisions of Sections 4.3(a) and (b) shall not apply, nor shall be construed to apply, to any Non-Qualified Option or Award granted under the Plan. Section 5. Administration of the Plan. 5.1. Administration. The Plan shall be administered by a committee of the Board of Directors (the "Committee") established by the Board of Directors and consisting of no less than three persons. All members of the Committee shall be "disinterested persons" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended 3 (the "Exchange Act"). The Committee shall be appointed from time to time by, and shall serve at the pleasure of, the Board of Directors. 5.2. Grant of Options/Awards. (a) Options. The Committee shall have the sole authority and discretion under the Plan (i) to select the Employees who are to be granted Options hereunder; (ii) to designate whether any Option to be granted hereunder is to be an ISO or a Non-Qualified Option; (iii) to establish the number of shares of Common Stock that may be subject to each Option; (iv) to determine the time and the conditions subject to which Options may be exercised in whole or in part; (v) to determine the amount (not less than the par value per share) and the form of the consideration that may be used to purchase shares of Common Stock upon exercise of any Option (including, without limitation, the circumstances under which issued and outstanding shares of Common Stock owned by a Participant may be used by the Participant to exercise an Option); (vi) to impose restrictions and/or conditions with respect to shares of Common Stock acquired upon exercise of an Option; (vii) to determine the circumstances under which shares of Common Stock acquired upon exercise of any Option may be subject to repurchase by the Company; (viii) to determine the circumstances and conditions subject to which shares acquired upon exercise of an Option may be sold or otherwise transferred, including, without limitation, the circumstances and conditions subject to which a proposed sale of shares of Common Stock acquired upon exercise of an Option may be subject to the Company's right of first refusal (as well as the terms and conditions of any such right of first refusal); (ix) to establish a vesting provision for any Option relating to the time when (or the circumstances under which) the Option may be exercised by a Participant, including, without limitation, vesting provisions that may be contingent upon (A) the Company's meeting specified financial goals, (B) a change of control of the Company or (C) the occurrence of other specified events; (x) to accelerate the time when outstanding Options may be exercised, provided, however, that any ISOs shall be deemed "accelerated" within the meaning of Section 424(h) of the Code; and (xi) to establish any other terms, restrictions and/or conditions applicable to any Option not inconsistent with the provisions of the Plan. Notwithstanding anything in the Plan to the contrary, in no event shall any Option granted to any director or officer of the Company who is subject to Section 16 of the Exchange Act become exercisable, in whole or in part, prior to the date that is six months after the date such Option is granted to such director or officer. (b) Awards. The Committee shall have the sole authority and discretion under the Plan (i) to select the 4 Employees who are to be granted Awards hereunder; (ii) to determine the amount to be paid by a Participant to acquire shares of Common Stock pursuant to an Award, which amount may be equal to, more than, or less than 100% of the fair market value of such shares on the date the Award is granted (but in no event less than the par value of such shares); (iii) to determine the time or times and the conditions subject to which Awards may be made; (iv) to determine the time or times and the conditions subject to which the shares of Common Stock subject to an Award are to become vested and no longer subject to repurchase by the Company; (v) to establish transfer restrictions and the terms and conditions on which any such transfer restrictions with respect to shares of Common Stock acquired pursuant to an Award shall lapse; (vi) to establish vesting provisions with respect to any shares of Common Stock subject to an Award, including, without limitation, vesting provisions which may be contingent upon (A) the Company's meeting specified financial goals, (B) a change of control of the Company or (C) the occurrence of other specified events; (vii) to determine the circumstances under which shares of Common Stock acquired pursuant to an Award may be subject to repurchase by the Company; (viii) to determine the circumstances and conditions subject to which any shares of Common Stock acquired pursuant to an Award may be sold or otherwise transferred, including, without limitation, the circumstances and conditions subject to which a proposed sale of shares of Common Stock acquired pursuant to an Award may be subject to the Company's right of first refusal (as well as the terms and conditions of any such right of first refusal); (ix) to determine the form of consideration that may be used to purchase shares of Common Stock pursuant to an Award (including, without limitation, the circumstances under which issued and outstanding shares of Common Stock owned by a Participant may be used by the Participant to purchase the Common Stock subject to an Award); (x) to accelerate the time at which any or all restrictions imposed with respect to any shares of Common Stock subject to an Award will lapse; and (xi) to establish any other terms, restrictions and/or conditions applicable to any Award not inconsistent with the provisions of the Plan. 5.3. Interpretation. The Committee shall be authorized to interpret the Plan and may, from time to time, adopt such rules and regulations, not inconsistent with the provisions of the Plan, as it may deem advisable to carry out the purposes of the Plan. 5.4. Finality. The interpretation and construction by the Committee of any provision of the Plan, any Option and/or Award granted hereunder or any agreement evidencing any such Option and/or Award shall be final and conclusive upon all parties. 5 5.5. Expenses, Etc. All expenses and liabilities incurred by the Committee in the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons in connection with the administration of the Plan. The Company, and its officers and directors, shall be entitled to rely upon the advice, opinions or valuations of any such persons. No member of the Committee shall be liable for any action, determination or interpretation taken or made in good faith with respect to the Plan or any Option and/or Award granted hereunder. Section 6. Terms and Conditions of Options. 6.1. ISOs. The terms and conditions of each ISO granted under the Plan shall be specified by the Committee and shall be set forth in an ISO agreement between the Company and the Participant in such form as the Committee shall approve. The terms and conditions of each ISO shall be such that each ISO issued hereunder shall constitute and shall be treated as an "incentive stock option" as defined in Section 422(b) of the Code. The terms and conditions of any ISO granted hereunder need not be identical to those of any other ISO granted hereunder. The terms and conditions of each ISO shall include the following: (a) The option price shall be fixed by the Committee but shall in no event be less than 100% (or 110% in the case of an Employee referred to in Section 4.3(b) hereof) of the fair market value of the shares of Common Stock subject to the ISO on the date the ISO is granted. For purposes of the Plan, the fair market value per share of Common Stock as of any day shall mean the average of the closing prices of sales of shares of Common Stock on all national securities exchanges on which the Common Stock may at the time be listed or, if there shall have been no sales on any such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day the Common Stock shall not be so listed, the average of the representative bid and asked prices quoted in the NASDAQ system as of 3:30 p.m., New York time, on such day, or, if on any day the Common Stock shall not be quoted in the NASDAQ system, the average of the high and low bid and asked prices on such day in the over-the-counter market as reported by National Quotation Bureau Incorporated, or any similar successor organization. If at any time the Common Stock is not listed on any national securities exchange or quoted in the NASDAQ system or the over-the-counter market, the fair market value of the shares of Common Stock subject to an Option on the date the ISO is granted shall be the fair market value thereof determined in good faith by the Board of Directors. 6 (b) ISOs, by their terms, shall not be transferable otherwise than by will or the laws of descent and distribution, and, during a Participant's lifetime, an ISO shall be exercisable only by the Participant. (c) The Committee shall fix the term of all ISOs granted pursuant to the Plan (including, without limitation, the date on which such ISO shall expire and terminate); provided, however, that such term shall in no event exceed ten years from the date on which such ISO is granted (or, in the case of an ISO granted to an Employee referred to in Section 4.3(b) hereof, such term shall in no event exceed five years from the date on which such ISO is granted). Each ISO shall be exercisable in such amount or amounts, under such conditions and at such times or intervals or in such installments as shall be determined by the Committee in its sole discretion; provided, however, that in no event shall any ISO granted to any director or officer of the Company who is subject to Section 16 of the Exchange Act become exercisable, in whole or in part, prior to the date that is six months after the date such ISO is granted to such director or officer. (d) To the extent that the Company or any Parent or Subsidiary of the Company is required to withhold any Federal, state or local taxes in respect of any compensation income realized by any Participant as a result of any "disqualifying disposition" of any shares of Common Stock acquired upon exercise of an ISO granted hereunder, the Company shall deduct from any payments of any kind otherwise due to such Participant the aggregate amount of such Federal, state or local taxes required to be so withheld or, if such payments are insufficient to satisfy such Federal, state or local taxes, such Participant will be required to pay to the Company, or make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of any such taxes. All matters with respect to the total amount of taxes to be withheld in respect of any such compensation income shall be determined by the Board of Directors, in its sole discretion. (e) In the sole discretion of the Committee the terms and conditions of any ISO may (but need not) include any of the following provisions: (i) In the event a Participant shall cease to be employed by the Company or any Parent or Subsidiary of the Company on a full-time basis for any reason other than as a result of his death or "disability" (within the meaning of Section 22(e)(3) of the Code), the unexercised portion of any ISO held by such Participant at that time may only be exercised within one month after the date on which the Participant ceased to be so employed, and only to the extent 7 that the Participant could have otherwise exercised such ISO as of the date on which he ceased to be so employed. (ii) In the event a Participant shall cease to be employed by the Company or any Parent or Subsidiary of the Company on a full-time basis by reason of his "disability" (within the meaning of Section 22(e)(3) of the Code), the unexercised portion of any ISO held by such Participant at that time may only be exercised within one year after the date on which the Participant ceased to be so employed, and only to the extent that the Participant could have otherwise exercised such ISO as of the date on which he ceased to be so employed. (iii) In the event a Participant shall die while in the employ of the Company or a Parent or Subsidiary of the Company (or within a period of one month after ceasing to be an Employee for any reason other than his "disability" (within the meaning of Section 22(e)(3) of the Code) or within a period of one year after ceasing to be an Employee by reason of such "disability"), the unexercised portion of any ISO held by such Participant at the time of his death may only be exercised within one year after the date of such Participant's death, and only to the extent that the Participant could have otherwise exercised such ISO at the time of his death. In such event, such ISO may be exercised by the executor or administrator of the Participant's estate or by any person or persons who shall have acquired the ISO directly from the Participant by bequest or inheritance. 6.2. Non-Qualified Options. The terms and conditions of each Non-Qualified Option granted under the Plan shall be specified by the Committee, in its sole discretion, and shall be set forth in a written option agreement between the Company and the Participant in such form as the Committee shall approve. The terms and conditions of each Non-Qualified Option will be such (and each Non-Qualified Option Agreement shall expressly so state) that each Non-Qualified Option issued hereunder shall not constitute nor be treated as an "incentive stock option" as defined in Section 422(b) of the Code, but will be a "non-qualified stock option" for Federal, state and local income tax purposes. The terms and conditions of any Non-Qualified Option granted hereunder need not be identical to those of any other Non-Qualified Option granted hereunder. The terms and conditions of each Non-Qualified Option Agreement shall include the following: (a) The option (exercise) price shall be fixed by the Committee and may be equal to, more than or less than 100% of the fair market value of the shares of Common Stock subject to the 8 Non-Qualified Option on the date such Non-Qualified Option is granted. (b) The Committee shall fix the term of all NonQualified Options granted pursuant to the Plan (including, without limitation, the date on which such Non-Qualified Option shall expire and terminate). Such term may be more than ten years from the date on which such Non-Qualified Option is granted. Each Non-Qualified Option shall be exercisable in such amount or amounts, under such conditions (including, without limitation, provisions governing the rights to exercise such NonQualified Option), and at such times or intervals or in such installments as shall be determined by the Committee in its sole discretion; provided, however, that in no event shall any NonQualified Option granted to any director or officer of the Company who is subject to Section 16 of the Exchange Act become exercisable, in whole or in part, prior to the date that is six months after the date such Non-Qualified Option is granted to such director or officer. (c) Non-Qualified Options shall not be transferable otherwise than by will or the laws of descent and distribution, and during a Participant's lifetime a Non-Qualified Option shall be exercisable only by the Participant. (d) To the extent that the Company is required to withhold any Federal, state or local taxes in respect of any compensation income realized by any Participant in respect of a Non-Qualified Option granted hereunder or in respect of any shares of Common Stock acquired upon exercise of a Non-Qualified Option, the Company shall deduct from any payments of any kind otherwise due to such Participant the aggregate amount of such Federal, state or local taxes required to be so withheld or, if such payments are insufficient to satisfy such Federal, state or local taxes, or if no such payments are due or to become due to such Participant, then, such Participant will be required to pay to the Company, or make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of any such taxes. All matters with respect to the total amount of taxes to be withheld in respect of any such compensation income shall be determined by the Board of Directors, in its sole discretion. 7. Terms and Conditions of Awards. The terms and conditions of each Award granted under the Plan shall be specified by the Committee, in its sole discretion, and shall be set forth in a written agreement between the Participant and the Company, in such form as the Committee shall approve. The terms and provisions of any Award granted hereunder need not be identical to those of any other Award granted hereunder. 9 The terms and conditions of each Award shall include the following: (a) The amount to be paid by a Participant to acquire the shares of Common Stock pursuant to an Award shall be fixed by the Committee and may be equal to, more than or less than 100% of the fair market value of the shares of Common Stock subject to the Award on the date the Award is granted (but in no event less than the par value of such shares). (b) Each Award shall contain such vesting provisions, such transfer restrictions and such other restrictions and conditions as the Committee, in its sole discretion, may determine, including, without limitation, the circumstances under which the Company shall have the right and option to repurchase shares of Common Stock acquired pursuant to an Award. (c) Stock certificates representing Common Stock acquired pursuant to an Award shall bear a legend referring to any restrictions imposed on such Stock and such other matters as the Committee may determine. (d) To the extent that the Company is required to withhold any Federal, state or local taxes in respect of any compensation income realized by the Participant in respect of an Award granted hereunder, in respect of any shares acquired pursuant to an Award, or in respect of the vesting of any such shares of Common Stock, then the Company shall deduct from any payments of any kind otherwise due to such Participant the aggregate amount of such Federal, state or local taxes required to be so withheld, or if such payments are insufficient to satisfy such Federal, state or local taxes, or if no such payments are due or to become due to such Participant, then such Participant will be required to pay to the Company, or make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of any such taxes. All matters with respect to the total amount of taxes to be withheld in respect of any such compensation income shall be determined by the Committee, in its sole discretion. Section 8. Adjustments. (a) In the event that, after the adoption of the Plan by the Board of Directors, the outstanding shares of the Company's Common Stock shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another entity through reorganization, merger or consolidation, recapitalization, reclassification, stock split, split-up, combination or exchange of shares or declaration of any dividends payable in Common Stock, the Board of Directors shall appropriately adjust (i) the number of shares of Common Stock (and the option price per share) subject to the 10 unexercised portion of any outstanding Option (to the nearest possible full share); provided, however, that the limitations of Section 424 of the Code shall apply with respect to adjustments made to ISOs, (ii) the number of shares of Common Stock to be acquired pursuant to an Award which have not become vested, and (iii) the number of shares of Common Stock for which Options and/or Awards may be granted under the Plan, as set forth in Section 4.1 hereof, and such adjustments shall be effective and binding for all purposes of the Plan. (b) If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another entity, or the sale of all or substantially all its assets to another entity, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, subject to Section 8(c) below, each holder of an Option shall thereafter have the right to purchase, upon the exercise of the Option in accordance with the terms and conditions specified in the option agreement governing such Option and in lieu of the shares of Common Stock immediately theretofore receivable upon the exercise of such Option, such shares of stock, securities or assets (including, without limitation, cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore so receivable had such reorganization, reclassification, consolidation, merger or sale not taken place. (c) Notwithstanding Section 8(b) hereof (but only if expressly provided in any option agreement), in the event of (i) any offer to holders of the Company's Common Stock generally relating to the acquisition of all or substantially all of their shares, including, without limitation, through purchase, merger or otherwise, or (ii) any proposed transaction generally relating to the acquisition of substantially all of the assets or business of the Company (herein sometimes referred to as an "Acquisition"), the Board of Directors may, in its sole discretion, cancel any outstanding Options (provided, however, that the limitations of Section 424 of the Code shall apply with respect to adjustments made to ISO's) and pay or deliver, or cause to be paid or delivered, to the holder thereof an amount in cash or securities having a value (as determined by the Board of Directors acting in good faith) equal to the product of (A) the number of shares of Common Stock (the "Option Shares") that, as of the date of the consummation of such Acquisition, the holder of such Option had become entitled to purchase (and had not purchased) multiplied by (B) the amount, if any, by which (1) the formula or fixed price per share paid to holders of shares of Common Stock pursuant to such Acquisition exceeds (2) the option price applicable to such Option Shares. 11 Section 9. Effect of the Plan on Employment Relationship. Neither the Plan nor any Option and/or Award granted hereunder to a Participant shall be construed as conferring upon such Participant any right to continue in the employ of (or otherwise provide services to) the Company or any Subsidiary or Parent thereof, or limit in any respect the right of the Company or any Subsidiary or Parent thereof to terminate such Participant's employment or other relationship with the Company or any Subsidiary or Parent, as the case may be, at any time. Section 10. Amendment of the Plan. The Board of Directors may amend the Plan from time to time as it deems desirable; provided, however, that, without the approval of the holders of a majority of the outstanding capital stock of the Company entitled to vote thereon or consent thereto, the Board of Directors may not amend the Plan (i) to increase (except for increases due to adjustments in accordance with Section 8 hereof) the aggregate number of shares of Common Stock for which Options and/or Awards may be granted hereunder, (ii) to decrease the minimum exercise price specified by the Plan in respect of ISOs or (iii) to change the class of Employees eligible to receive ISOs under the Plan. Section 11. Termination of the Plan. The Board of Directors may terminate the Plan at any time. Unless the Plan shall theretofore have been terminated by the Board of Directors, the Plan shall terminate ten years after the date of its initial adoption by the Board of Directors. No Option and/or Award may be granted hereunder after termination of the Plan. The termination or amendment of the Plan shall not alter or impair any rights or obligations under any Option and/or Award theretofore granted under the Plan. Section 12. Effective Date of the Plan. The Plan shall be effective as of March 22, 1995, the date on which the Plan was adopted by the Board of Directors of the Company. * * * * * 12 EX-10.2 11 EXHIBIT 10.2 ================================================================================ CREDIT AGREEMENT BETWEEN MEDE AMERICA CORPORATION AND BANK OF AMERICA ILLINOIS DATED: DECEMBER 18, 1995 ================================================================================ TABLE OF CONTENTS SECTION PAGE ARTICLE I DEFINITIONS 1.01 Certain Defined Terms................................................... 1 1.02 Other Interpretive Provisions........................................... 10 1.03 Accounting Principles................................................... 11 ARTICLE II THE CREDITS 2.01 The Revolving Credit.................................................... 11 2.02 Loan Accounts........................................................... 11 2.03 Procedure for Borrowing................................................. 11 2.04 Conversion and Continuation Elections................................... 11 2.05 Voluntary Termination or Reduction of Commitment........................ 12 2.06 Optional Prepayments.................................................... 13 2.07 Repayment............................................................... 13 2.08 Interest................................................................ 13 2.09 Fees.................................................................... 13 (a) Commitment Fees......................................... 13 (b) Other Fees.............................................. 14 2.10 Computation of Fees and Interest........................................ 14 2.11 Payments by the Company................................................. 14 ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 3.01 Taxes................................................................... 15 3.02 Illegality.............................................................. 16 3.03 Increased Costs and Reduction of Return................................. 16 3.04 Funding Losses.......................................................... 16 3.05 Inability to Determine Rates............................................ 17 3.06 Survival................................................................ 17 ARTICLE IV CONDITIONS PRECEDENT 4.01 Conditions of Initial Loans............................................. 17 (a) Credit Agreement........................................ 17 (b) Resolutions; Incumbency................................. 17 (c) Organization Documents; Good Standing................... 18 (d) Legal Opinions.......................................... 18 (e) Payment of Fees......................................... 18 (f) Guaranties.............................................. 18 (g) Certificate............................................. 18 (h) Existing Agreement...................................... 19 4.02 Conditions to All Borrowings............................................ 19 i SECTION PAGE (a) Notice of Borrowing..................................... 19 (b) Continuation of Representations and Warranties.......... 19 (c) No Existing Default..................................... 19 ARTICLE V REPRESENTATIONS AND WARRANTIES 5.01 Corporate Existence and Power........................................... 19 5.02 Corporate Authorization; No Contravention............................... 20 5.03 Governmental Authorization.............................................. 20 5.04 Binding Effect.......................................................... 20 5.05 Litigation.............................................................. 20 5.06 No Default.............................................................. 20 5.07 ERISA Compliance........................................................ 20 5.08 Use of Proceeds; Margin Regulations..................................... 21 5.09 Title to Properties..................................................... 21 5.10 Taxes................................................................... 21 5.11 Financial Condition..................................................... 21 5.12 Regulated Entities...................................................... 22 5.13 Copyrights, Patents, Trademarks and Licenses, etc....................... 22 5.14 Subsidiaries............................................................ 22 5.15 Solvency................................................................ 22 5.16 Full Disclosure......................................................... 22 ARTICLE VI AFFIRMATIVE COVENANTS 6.01 Financial Statements.................................................... 23 6.02 Certificates; Other Information......................................... 23 6.03 Notices................................................................. 24 6.04 Preservation of Corporate Existence, Etc................................ 25 6.05 Maintenance of Property................................................. 25 6.06 Insurance............................................................... 25 6.07 Payment of Obligations.................................................. 25 6.08 Compliance with Laws.................................................... 26 6.09 Compliance with ERISA................................................... 26 6.10 Inspection of Property and Books and Records............................ 26 6.11 Environmental Laws...................................................... 26 6.12 Use of Proceeds......................................................... 26 6.13 Further Assurances...................................................... 26 ARTICLE VII NEGATIVE COVENANTS 7.01 Limitation on Liens..................................................... 27 7.02 Disposition of Assets................................................... 28 7.03 Consolidations and Mergers.............................................. 28 7.04 Loans and Investments................................................... 28 ii SECTION PAGE 7.05 Limitation on Indebtedness.............................................. 29 7.06 Transactions with Affiliates............................................ 29 7.07 Use of Proceeds......................................................... 29 7.08 Contingent Obligations.................................................. 29 7.09 Joint Ventures.......................................................... 29 7.10 Lease Obligations....................................................... 30 7.11 Restricted Payments..................................................... 30 7.12 ERISA................................................................... 30 7.13 Change in Business...................................................... 30 7.14 Accounting Changes...................................................... 30 7.15 Maximum Leverage Ratio.................................................. 30 7.16 Minimum Interest Coverage Ratio......................................... 30 ARTICLE VIII EVENTS OF DEFAULT 8.01 Event of Default........................................................ 31 (a) Non-Payment............................................. 31 (b) Representation or Warranty.............................. 31 (c) Specific Defaults....................................... 31 (d) Other Defaults.......................................... 31 (e) Cross-Default........................................... 31 (f) Insolvency; Voluntary Proceedings....................... 31 (g) Involuntary Proceedings................................. 32 (h) ERISA................................................... 32 (i) Monetary Judgments...................................... 32 (j) Non-Monetary Judgments.................................. 32 (k) Change of Control....................................... 32 (l) Loss of Licenses........................................ 32 (m) Guarantor Defaults...................................... 33 8.02 Remedies................................................................ 33 8.03 Rights Not Exclusive.................................................... 33 ARTICLE IX MISCELLANEOUS 9.01 Amendments and Waivers................................................ 33 9.02 Notices............................................................... 33 9.03 No Waiver; Cumulative Remedies........................................ 34 9.04 Costs and Expenses.................................................... 34 9.05 Company Indemnification............................................... 35 9.06 Marshalling; Payments Set Aside....................................... 35 9.07 Successors and Assigns................................................ 36 9.08 Assignments, Participations, etc...................................... 36 9.09 Confidentiality....................................................... 37 9.10 Set-off............................................................... 37 9.11 Counterparts.......................................................... 37 iii SECTION PAGE 9.12 Severability.......................................................... 37 9.13 No Third Parties Benefited............................................ 37 9.14 Governing Law and Jurisdiction........................................ 38 9.15 Waiver of Jury Trial.................................................. 38 9.16 Entire Agreement...................................................... 38 iv SCHEDULES Schedule 5.05 Litigation Schedule 5.07 ERISA Schedule 5.13 Intellectual Property Matters Schedule 5.17 Subsidiaries and Minority Interests Schedule 7.01 Permitted Liens Schedule 7.05 Certain Indebtedness Schedule 7.08 Contingent Obligations Schedule 9.02 Lending Office; Addresses for Notices EXHIBITS Exhibit A Form of Compliance Certificate Exhibit B Form of Notice of Borrowing Exhibit C Form of Notice of Conversion/Continuation Exhibit D-1 Form of Legal Opinion of Company's Counsel Exhibit D-2 Form of Legal Opinion of Guarantor's Counsel Exhibit E Form of Guaranty v CREDIT AGREEMENT This CREDIT AGREEMENT is entered into as of December 18, 1995 between MEDE AMERICA CORPORATION (the "Company") and Bank of America Illinois (the "Bank"). WHEREAS, the Bank has agreed to make available to the Company a revolving credit facility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 Certain Defined Terms. The following terms have the following meanings: "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise. "Agreement" means this Credit Agreement. "Applicable Margin" means (i) with respect to Base Rate Loans, .25%; (ii) with respect to Offshore Rate Loans, 1.25%. "Assignee" has the meaning specified in subsection 9.08(a). "Attorney Costs" means and includes all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Bank" means Bank of America Illinois. Unless the context otherwise clearly requires, references to the Bank shall also include any of the Bank's "Affiliates" that may at any time of determination be a party to a Swap Contract with the Company. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. ss.101, et seq.). "Base Rate" means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by the Bank in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by the Bank based upon various factors including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loan" means a Loan that bears interest based on the Base Rate. "Borrowing Date" means any date on which a Loan is disbursed. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or San Francisco, California are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Change of Control" means the Guarantors shall cease to own 75% of the shares of the Company. "Closing Date" means the date on which all conditions precedent set forth in Section 4.01 are satisfied or waived by the Bank (or, in the case of subsection 4.01(e), waived by the Person entitled to receive such payment). "Code" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "Compliance Certificate" means a certificate substantially in the form of Exhibit A. "Contingent Obligation" means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such 2 materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered; and (d) in respect of Swap Contracts. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion/Continuation Date" means any date on which, under Section 2.04, the Company (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United States. "EBITDA" means net income (or loss) plus consolidated interest, income taxes, depreciation, amortization and other non-cash charges. "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 3 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Event of Default" means any of the events or circumstances specified in Section 8.01. "Exchange Act" means the Securities Exchange Act of 1934, and regulations promulgated thereunder. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Bank of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Bank. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to Section 3.01. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or 4 pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantor" means each of WCAS V,WCAS VI, WB Capital Partners and WB Leveraged Capital. "Guarantor's Support Percentage" shall mean, as of the Closing Date, (i) with respect to WCAS V, 40%, (ii) with respect to WCAS VI, 40%, (iii) with respect to WB Leveraged Capital, 6.7%, and (iv) with respect to WB Capital Partners, 13.3%. "Guaranty Obligation" has the meaning specified in the definition of "Contingent Obligation." "Indebtedness" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations with respect to capital leases; (g) all indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (h) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above. "Indemnified Liabilities" has the meaning specified in Section 9.05. "Indemnified Person" has the meaning specified in Section 9.05. "Independent Auditor" has the meaning specified in subsection 6.01(a). "Insolvency Proceeding" means, with respect to any Person, (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment Date" means, as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last 5 Business Day of each calendar quarter and each date such Loan is converted into another Type of Loan, provided, however, that if any Interest Period for an Offshore Rate Loan exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "Interest Period" means, as to any Offshore Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation, provided that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period pertaining to an Offshore Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. "Investments" has the meaning specified in Section 7.04. "Lending Office" means the office or offices of the Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on the signature pages of this Agreement, or such other office or offices as the Bank may from time to time notify the Company. "Leverage Ratio" means, at any date, the ratio of (i) Indebtedness outstanding on such date to (ii) EBITDA for the preceding six month period multiplied by a factor of two. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. 6 "Loan" means an extension of credit by the Bank to the Company under Article II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a "Type" of Loan). "Loan Documents" means this Agreement, any Notes, fee letters, and all other documents delivered to the Bank in connection with the transactions contemplated by this Agreement. "Margin Stock" means "margin stock" as such term is defined in Regulation G, T, U or X of the FRB. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Company or any Subsidiary to perform under any Loan Document and to avoid any Event of Default; or (c) a material adverse effect upon (i) the legality, validity, binding effect or enforceability against the Company or any Subsidiary of any Loan Document. "Minimum Interest Coverage Ratio" means the ratio of (i) EBITDA to (ii) cash interest expense, each for the preceding six month period. "Multiemployer Plan" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "Notice of Borrowing" means a notice in substantially the form of Exhibit B. "Notice of Conversion/Continuation" means a notice in substantially the form of Exhibit C. "Obligations" means all advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company to the Bank or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offshore Rate" means, for any Interest Period, with respect to an Offshore Rate Loan, the rate of interest per annum (rounded upward to the next 1/16th of 1%) determined by the Bank as follows: Offshore Rate = IBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any Interest Period the 7 maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to the Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and "IBOR" means the rate of interest per annum determined by the Bank as the rate at which dollar deposits in the approximate amount of the Bank's Offshore Rate Loan for such Interest Period would be offered by the Bank's Grand Cayman Branch, Grand Cayman B.W.I. (or such other office as may be designated for such purpose by the Bank), to major banks in the offshore dollar interbank market at their request at approximately 11:00 a.m. (New York City time) two Business Days prior to the commencement of such Interest Period. The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "Offshore Rate Loan" means a Loan that bears interest based on the Offshore Rate. "Organization Documents" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "Other Taxes" means any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "Participant" has the meaning specified in subsection 9.08(b). "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "Permitted Liens" has the meaning specified in Section 7.01. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. 8 "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief executive officer or the president of the Company, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of the Company, or any other officer having substantially the same authority and responsibility. "Revolving Commitment" means $10,000,000. "Revolving Termination Date" means the earlier to occur of: (a) May 15, 1997; and (b) the date on which the Revolving Commitment terminates in accordance with the provisions of this Agreement. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Solvent" means, as to any Person at any time, that (a) the fair value of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code and, in the alternative, for purposes of the New York Uniform Fraudulent Transfer Act; (b) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting 9 stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Swap Documents" means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing. "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of the Bank, taxes imposed on or measured by the Bank's net income by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office. "Type" has the meaning specified in the definition of "Loan." "Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "United States" and "U.S." each means the United States of America. "WB Capital Partners" means William Blair Capital Partners V, L.P., a Delaware limited partnership. "WB Leveraged Capital" means William Blair Leveraged Capital Fund, Limited Partnership, a Delaware limited partnership. "WCAS V" means Welsh, Carson, Anderson & Stowe V, L.P., a Delaware limited partnership. "WCAS VI" means Welsh, Carson, Anderson & Stowe VI, L.P., a Delaware limited partnership. "Wholly-Owned Subsidiary" means any corporation in which (other than directors' qualifying shares required by law) 100% of the capital stock of each class having ordinary 10 voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more of the other Wholly-Owned Subsidiaries, or both. 1.02 Other Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (d) The term "including" is not limiting and means "including without limitation." (e) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." 1.03 Accounting Principles. Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. ARTICLE II THE CREDITS 2.01 The Revolving Credit. The Bank agrees, on the terms and conditions set forth herein, to make Loans to the Company from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding the Revolving Commitment. Within the limits of the Revolving Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section, prepay under Section 2.06 and reborrow under this Section. 2.02 Loan Accounts. The Loans made by the Bank shall be evidenced by one or more loan accounts or records maintained by the Bank in the ordinary course of business. The loan accounts or records maintained by the Bank shall be conclusive absent manifest error of the amount of the Loans made by the Bank to the Company and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans. 2.03 Procedure for Borrowing. Each Loan shall be made upon the Company's irrevocable written notice delivered to the Bank in the form of a Notice of Borrowing (which notice must be received by the Bank prior to 12:00 noon (New York time) (i) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans; and (ii) one Business Day prior to the 11 requested Borrowing Date, in the case of Base Rate Loans, specifying: (a) The amount of the Loan, which shall be in a minimum amount of $1,000,000 or any multiple of $250,000 in excess thereof; (b) The requested Borrowing Date, which shall be a Business Day; (c) Whether the Loan is to be an Offshore Rate Loan, or a Base Rate Loan; (d) The duration of the Interest Period applicable to the Loan included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for an Offshore Rate Loan, such Interest Period shall be three months. 2.04 Conversion and Continuation Elections. (a) The Company may, upon irrevocable written notice to the Bank in accordance with subsection 2.04(b): (1) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of any other Type of Loans, to convert any such Loans (or any part thereof in an amount not less than 1,000,000, or that is in an integral multiple of $250,000 in excess thereof) into Loans of any other Type; or (2) elect, as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $1,000,000, or that is in an integral multiple of $250,000 in excess thereof); provided, that if at any time the amount of an Offshore Rate Loan is reduced, by payment, prepayment, or conversion of part thereof to be less than $250,000], such Offshore Rate Loan shall automatically convert into a Base Rate Loan, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into Offshore Rate Loans, shall terminate. (b) The Company shall deliver a Notice of Conversion/Continuation to be received by the Bank not later than 12:00 noon (New York time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans; and (ii) one Business Day in advance of the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (1) The proposed Conversion/Continuation Date; (2) The aggregate amount of Loans to be converted or continued; (3) The Type of Loans resulting from the proposed conversion or continuation; and 12 (4) Other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans, the Company has failed to select timely a new Interest Period to be applicable to such Offshore Rate Loans or if any Default or Event of Default then exists, the Company shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) Unless the Bank otherwise consents, during the existence of a Default or Event of Default, the Company may not elect to have a Loan converted into or continued as an Offshore Rate Loan. 2.05 Voluntary Termination or Reduction of Commitment. The Company may, upon not less than one Business Day's prior notice to the Bank, terminate the Revolving Commitment, or permanently reduce the Revolving Commitment by a minimum amount of $1,000,000 or any multiple of $1,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the then-outstanding principal amount of the Loans would exceed the amount of the Revolving Commitment then in effect. Once reduced in accordance with this Section, the Revolving Commitment may not be increased. All accrued commitment fees to, but not including the effective date of any reduction or termination of the Revolving Commitment, shall be paid on the effective date of such reduction or termination. 2.06 Optional Prepayments. Subject to Section 3.04, the Company may, at any time or from time to time, upon not less than three Business Days' irrevocable notice to the Bank, ratably prepay Loans in whole or in part, in minimum amounts of $1,000,000 or any multiple of $250,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.04. 2.07 Repayment. The Company shall repay to the Bank in full on the Revolving Termination Date the aggregate principal amount of Loans outstanding on such date. 2.08 Interest. (a) Each Loan shall bear interest on the outstanding principal amount thereof from its Borrowing Date at a rate per annum equal to the Offshore Rate or the Base Rate, as the case may be (and subject to the Company's right to convert to other Types of Loans under Section 2.04), plus the Applicable Margin. (b) Accrued but unpaid interest on each Loan shall be paid in arrears on each Interest Payment Date.Interest shall also be paid on the date of any prepayment of Loans under Section 2.06 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, accrued but 13 unpaid interest shall be paid on demand of the Bank. (c) Notwithstanding subsection (a) of this Section, while any Event of Default set forth in paragraph (a), (f) or (g) of Section 8.01exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations, at a rate per annum which is determined by adding 2% per annum to the Applicable Margin then in effect for such Loans; provided, however, that, on and after the expiration of any Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%. 2.09 Fees. (a) Commitment Fees. The Company shall pay to the Bank a commitment fee on the average daily unused portion of the Bank's Revolving Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Bank, equal to 3/8 of 1% per annum. Such commitment fee shall accrue from the Closing Date to the Revolving Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter commencing on December 31, 1995 through the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination of Revolving Commitment under Section 2.05, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The commitment fees provided in this subsection shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article IV are not met. (b) Other Fees. The Company shall pay a facility fee of $25,000, on the Closing Date. In addition, the Company shall pay an additional fee of $10,000, payable on the date of any voluntary termination of the Revolving Commitment by the Company prior to December 18, 1996. 2.10 Computation of Fees and Interest. (a) All computations of interest for Base Rate Loans when the Base Rate is determined by the Bank's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Bank shall be conclusive and binding on the Company in the absence of manifest error. 14 2.11 Payments by the Company. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Bank at the place indicated as the place of payment in the signature pages of this Agreement or such other address as the Bank may specify in writing to the Company from time to time, and shall be made in dollars and in immediately available funds, no later than 12:00 noon (New York time) on the date specified herein. Any payment received by the Bank later than 12:00 noon (New York time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY 3.01 Taxes. (a) Any and all payments by the Company to the Bank under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes. (b) If the Company shall be required by law to deduct or withhold any Taxes, Other Taxes, or Further Taxes from or in respect of any sum payable hereunder to the Bank, then: (1) The sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), the Bank receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made; (2) The Company shall make such deductions and withholdings; (3) The Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (4) The Company shall also pay to the Bank at the time interest is paid, Further Taxes in the amount that the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes, or Further Taxes had not been imposed. (c) The Company agrees to indemnify and hold harmless the Bank for the full 15 amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes, or Further Taxes had not been imposed and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes, or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank makes written demand therefor. (d) Within 30 days after the date of any payment by the Company of Taxes, Other Taxes, or Further Taxes, the Company shall furnish the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank. (e) If the Company is required to pay any amount to the Bank pursuant to subsections (b) or (c) of this Section, then the Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the sole judgment of the Bank is not otherwise disadvantageous to the Bank. 3.02 Illegality. (a) If the Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for the Bank or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by the Bank to the Company, any obligation of the Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the Company that the circumstances giving rise to such determination no longer exist. (b) If the Bank determines that it is unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from the Bank, prepay in full such Offshore Rate Loans of the Bank then outstanding, together with interest accrued thereon and amounts required under Section 3.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Company shall borrow from the Bank, in the amount of such repayment, a Base Rate Loan. 3.03 Increased Costs and Reduction of Return. (a) If the Bank determines that, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to the Bank of agreeing to make or making, funding or maintaining any Offshore Rate Loans, then the Company shall be liable for, and shall from time to time, upon demand, pay to the Bank, additional amounts as are sufficient to compensate the Bank for such increased costs. 16 (b) If the Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration the Bank's or such corporation's policies with respect to capital adequacy and the Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Revolving Commitment, Loans, credits or Obligations under this Agreement, then, upon demand of the Bank to the Company, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 3.04 Funding Losses. The Company shall reimburse the Bank and hold the Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) The failure of the Company to make on a timely basis any payment of principal of any Offshore Rate Loan; (b) The failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation; (c) The failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.06; (d) The prepayment or other payment (including after acceleration thereof) of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) The automatic conversion under Section 2.04 of any Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. 3.05 Inability to Determine Rates. If the Bank determines that for any reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or that the Offshore Rate applicable pursuant to subsection 2.08(a) for any requested Interest Period with respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to the Bank of funding such Loan, the Bank will promptly so notify the Company. Thereafter, the obligation of the Bank to make or maintain Offshore Rate Loans hereunder shall be suspended until the Bank revokes such notice in writing. Upon receipt of such notice, the Company may, without penalty or charge, revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, 17 the Bank shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. 3.06 Survival. The agreements and obligations of the Company in this Article III shall survive the payment of all other Obligations. ARTICLE IV CONDITIONS PRECEDENT 4.01 Conditions of Initial Loans. The obligation of the Bank to make its initial Loan hereunder is subject to the condition that the Bank shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Bank: (a) Credit Agreement. This Agreement executed by each party hereto; (b) Resolutions; Incumbency. (1) Copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (2) A certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder; (c) Organization Documents; Good Standing. Each of the following documents: (1) The articles or certificate of incorporation and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and (2) A good standing and tax good standing certificate for the Company from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and each state where the Company is qualified to do business as a foreign corporation as of a recent date, together with a bring-down certificate by facsimile, dated the Closing Date; (d) Legal Opinions. (1) An opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel to the Company and addressed to the Bank, substantially in the form of Exhibit D-1; (2) An opinion of each of Reboul, MacMurray, Hewitt, Maynard & Kristol and Kirkland & Ellis, counsel to the Guarantors and addressed to the Bank, substantially in the form of Exhibit D-2. 18 (e) Payment of Fees. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date, together with Attorney Costs of the Bank to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute the Bank's reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Company and the Bank) including any such costs, fees and expenses arising under or referenced in Sections 2.09 and 9.04; (f) Guaranties. The Guaranties executed by each of the Guarantors in substantially the form of Exhibit E, together with resolutions and incumbency certificates substantially similar to those delivered in connection with 4.01(b) above. (g) Certificate. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (1) the representations and warranties contained in Article V are true and correct on and as of such date, as though made on and as of such date; (2) no Default or Event of Default exists or would result from the disbursement of the initial Loan; and (3) there has occurred since September 30, 1995, no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect; (h) Existing Agreement. Evidence that the loan agreement with Society National Bank is being terminated simultaneously with the effectiveness of this Agreement and all commitments thereunder are being cancelled and all obligations thereunder are being fully repaid with the proceeds of the Loans made on the Closing Date and all liens in favor of Society National Bank have been released simultaneously herewith. 4.02 Conditions to All Borrowings. The obligation of the Bank to make any Loan to be made by it (including its initial Loan) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date; (a) Notice of Borrowing. The Bank shall have received a Notice of Borrowing; (b) Continuation of Representations and Warranties. The representations and warranties in Article V shall be true and correct on and as of such Borrowing Date with the same effect as if made on and as of such Borrowing Date; (c) No Existing Default. No Default or Event of Default shall exist or shall result from the making of such Loan; and Each Notice of Borrowing submitted by the Company hereunder shall constitute a representation and 19 warranty by the Company hereunder, as of the date of each such notice and as of each Borrowing Date, that the conditions in this Section 4.02 are satisfied. ARTICLE V REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Bank that: 5.01 Corporate Existence and Power. The Company and each of its Subsidiaries: (a) Is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) Has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents to which it is a party; (c) Is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) Is in compliance with all Requirements of Law; except, in each case referred to in clause (c) or clause (d), to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. 5.02 Corporate Authorization; No Contravention. The execution, delivery and performance by the Company and its Subsidiaries of this Agreement and each other Loan Document to which the Company is party, have been duly authorized by all necessary corporate action, and do not and will not: (a) Contravene the terms of any of the Company's Organization Documents; (b) Conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or its property is subject; or (c) Violate any Requirement of Law. 5.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company or any of its Subsidiaries of the Agreement or any other Loan Document to which it is a party. 5.04 Binding Effect. This Agreement and each other Loan Document to which the Company is a party constitute the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by 20 applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 5.05 Litigation. Except as specifically disclosed in Schedule 5.05, there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) if there is a reasonable possibility of an adverse decision to the Company or its Subsidiaries, which would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 5.06 No Default. No Default or Event of Default exists or would result from the incurring of any Obligations by the Company. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect. 5.07 ERISA Compliance. Except as specifically disclosed in Schedule 5.07: (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under 21 Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 5.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 6.12 and Section 7.07. Neither the Company nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 5.09 Title to Properties. The Company and each Subsidiary have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the property of the Company and its Subsidiaries is subject to no Liens, other than Permitted Liens. 5.10 Taxes. The Company and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. 5.11 Financial Condition. (a) The unaudited consolidated financial statements of the Company and its Subsidiaries dated September 30, 1995, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the fiscal quarter ended on that date: (1) Were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (2) Fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (3) Show all material indebtedness and other liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Contingent Obligations. (b) Since September 30, 1995, there has been no Material Adverse Effect. 5.12 Regulated Entities. None of the Company, any Person controlling the Company, any Guarantor or any Subsidiary, is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 22 5.13 Copyrights, Patents, Trademarks and Licenses, etc. The Company or its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person except where the failure to own or otherwise have the right to use such property could not reasonably be expected to have a Material Adverse Effect. Except as specifically disclosed in Schedule 5.13, to the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. Except as specifically disclosed in Schedule 5.13, no claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 5.14 Subsidiaries. The Company has no Subsidiaries other than those specifically disclosed in part (a) of Schedule 5.14 hereto and has no equity investments in any other corporation or entity other than those specifically disclosed in part (b) of Schedule 5.14. 5.15 Solvency. The Company and its Subsidiaries are Solvent. 5.16 Full Disclosure. None of the representations or warranties made by the Company or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Bank prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. ARTICLE VI AFFIRMATIVE COVENANTS So long as the Bank shall have any Revolving Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Bank waives compliance in writing: 6.01 Financial Statements. The Company shall deliver to the Bank, in form and detail satisfactory to the Bank: (a) (No later than January 31, 1996, for the fiscal year ended June 30, 1995), thereafter, as soon as available, but not later than 90 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Deloitte & Touche or another nationally-recognized independent public accounting firm ("Independent Auditor") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied 23 on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records; (b) As soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year (commencing with the fiscal quarter ended December 31, 1995, a copy of the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Company and the Subsidiaries; 6.02 Certificates; Other Information. The Company shall furnish to the Bank: (a) Concurrently with the delivery of the financial statements referred to in subsection 6.01(a), a certificate of the Independent Auditor stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) Concurrently with the delivery of the financial statements referred to in subsections 6.01(a) and (b), a Compliance Certificate executed by a Responsible Officer together with written management discussions and analysis of the operating results and financial condition of the Company; (c) Promptly, copies of all financial statements and reports that the Company sends to its shareholders generally, and copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that the Company or any Subsidiary may make to, or file with, the SEC; and (d) Promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary as the Bank, may from time to time reasonably request. 6.03 Notices. The Company shall promptly notify the Bank: (a) Of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (b) of (i) any breach or non-performance of, or any default under, any Contractual Obligation by the Company or any of its Subsidiaries which could result in a Material Adverse Effect; and (ii) any material dispute, litigation, investigation, proceeding or suspension which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority; (c) Of the commencement of, or any material development in, any litigation or 24 proceeding affecting the Company or any Subsidiary (i) in which the amount of damages claimed is $3,000,000 (or its equivalent in another currency or currencies) or more, (ii) in which injunctive or similar relief is sought and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect, or (iii) in which the relief sought is an injunction or other stay of the performance of this Agreement or any Loan Document; (d) Of any other litigation or proceeding affecting the Company or any of its Subsidiaries which the Company would be required to report to the SEC pursuant to the Exchange Act, within four days after reporting the same to the SEC; (e) Of the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Bank a copy of any notice with respect to such event which is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (1) An ERISA Event; (2) a material increase in the Unfunded Pension Liability of any Pension Plan; (3) The adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate; or (4) The adoption of any amendment to a Pension Plan or other Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability; (f) of any material change in accounting policies or financial reporting practices by the Company or any of its consolidated Subsidiaries. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under subsection 6.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 6.04 Preservation of Corporate Existence, Etc. The Company shall, and shall, except as otherwise permitted under Section 7.03, cause each Subsidiary to: (a) Preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) Preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business; 25 (c) Use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) Preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 6.05 Maintenance of Property. The Company shall maintain, and shall cause each Subsidiary to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. The Company and each Subsidiary shall use the standard of care typical in the industry in the operation and maintenance of its facilities. 6.06 Insurance. The Company shall maintain, and shall cause each of its Subsidiaries to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons; including workers' compensation insurance, public liability and property and casualty insurance. 6.07 Payment of Obligations. The Company shall, and shall cause each Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) All tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; (b) All lawful claims which, if unpaid, would by law become a Lien upon its property; and (c) All indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. 6.08 Compliance with Laws. The Company shall comply, and shall cause each Subsidiary to comply, in all material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 6.09 Compliance with ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required 26 contributions to any Plan subject to Section 412 of the Code. 6.10 Inspection of Property and Books and Records. The Company shall maintain and shall cause each Subsidiary to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall permit, and shall cause each Subsidiary to permit, representatives and independent contractors of the Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants, all at the expense of the Bank and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided, however, when an Event of Default exists the Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice. 6.11 Environmental Laws. The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws. Upon the written request of the Bank, the Company shall submit and cause each of its Subsidiaries to submit, to the Bank, at the Company's sole cost and expense, at reasonable intervals, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue that could, individually or in the aggregate, result in liability in excess of $3,000,000. 6.12 Use of Proceeds. The Company shall use the proceeds of the Loans to refinance certain existing Indebtedness, including repayment of promissory notes in favor of WCAS V and WCAS VI, repayment of the Company's obligations to Society National Bank, for working capital, acquisitions and other general corporate purposes not in contravention of any Requirement of Law or of any Loan Document. 6.13 Further Assurances. The Company shall ensure that all written information, exhibits and reports furnished by the Company or any Subsidiary to the Bank do not and will not contain any untrue statement of a material fact and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will promptly disclose to the Bank and correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement or recordation thereof. ARTICLE VII NEGATIVE COVENANTS So long as the Bank shall have any Revolving Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, unless the Bank waives compliance in writing: 7.01 Limitation on Liens. The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"): 27 (a) Any Lien existing on property of the Company or any Subsidiary on the Closing Date and set forth in Schedule 7.01 securing Indebtedness outstanding on such date; (b) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 6.07, provided that no notice of lien has been filed or recorded under the Code; (c) Carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (d) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (e) Liens on the property of the Company or its Subsidiary securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business, provided all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect; (f) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Company and its Subsidiaries do not exceed $3,000,000; (g) Easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Company and its Subsidiaries. (h) additional Liens not otherwise permitted hereunder which secure Indebtedness permitted under Section 7.05 not exceeding $2,500,000 in aggregate amount at any time outstanding. 7.02 Disposition of Assets. The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) Dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) The sale of equipment to the extent that such equipment is exchanged for credit 28 against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; and (c) The sale of other disposition of assets not otherwise permitted hereunder, provided that the value of all assets so sold or disposed of does not exceed in the aggregate $2,500,000 during the term of the Revolving Loan Commitment. 7.03 Consolidations and Mergers. The Company shall not, and shall not suffer or permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) Any Subsidiary may merge with the Company, provided that the Company shall be the continuing or surviving corporation, or with any one or more Subsidiaries, provided that if any transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and (b) Any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Company or another Wholly-Owned Subsidiary. 7.04 Loans and Investments. The Company shall not purchase or acquire, or suffer or permit any Subsidiary to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Company (together, "Investments"), except for: (a) Investments held by the Company or Subsidiary in the form of cash equivalents [or short term marketable securities]; (b) Extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; or (c) Extensions of credit by the Company to any of its Wholly-Owned Subsidiaries or by any of its Wholly-Owned Subsidiaries to another of its Wholly-Owned Subsidiaries or to the Company; or (d) Acquisitions in an amount not exceeding $2,500,000 for any individual acquisition or $7,500,000 in the aggregate for all acquisitions, provided that, the Company shall provide a compliance certificate executed by a Responsible Officer, showing pro forma compliance with the covenants herein after giving effect to each such acquisition. 7.05 Limitation on Indebtedness. The Company shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; 29 (b) Indebtedness consisting of Contingent Obligations permitted pursuant to Section 7.08; (c) Indebtedness existing on the Closing Date and set forth in Schedule 7.05; (d) Indebtedness incurred in connection with leases permitted pursuant to Section 7.10; and (e) other Indebtedness not otherwise permitted hereunder in an amount not to exceed $2,000,000 at any time. 7.06 Transactions with Affiliates. The Company shall not, and shall not suffer or permit any Subsidiary to, enter into any transaction with any Affiliate of the Company, except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary. 7.07 Use of Proceeds. The Company shall not, and shall not suffer or permit any Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act. 7.08 Contingent Obligations. The Company shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligations except: (a) Endorsements for collection or deposit in the ordinary course of business; (b) Contingent Obligations of the Company and its Subsidiaries existing as of the Closing Date and listed in Schedule 7.08; and (c) Contingent Obligations of any Person, including any Wholly-Owned Subsidiary, provided that the value of such Contingent Obligations shall not exceed $2,000,000. 7.09 Joint Ventures. The Company shall not, and shall not suffer or permit any Subsidiary to enter into any joint venture, other than in the ordinary course of business. 7.10 Lease Obligations. The Company shall not, and shall not suffer or permit any Subsidiary to, create or suffer to exist any obligations for the payment of rent for any property under lease or agreement to lease, except for: (a) Leases of the Company and of Subsidiaries in existence on the Closing Date; (b) Operating leases entered into by the Company or any Subsidiary after the Closing Date in the ordinary course of business with aggregate annual rental payments not to exceed $2,500,000; 30 (c) Capital leases other than those permitted under clauses (a) of this Section, entered into by the Company or any Subsidiary after the Closing Date to finance the acquisition of equipment; provided that the aggregate annual rental payments for all such capital leases shall not exceed in any fiscal year $2,500,000. 7.11 Restricted Payments. The Company shall not, and shall not suffer or permit any Subsidiary to, (a) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding, except that (i) the Company may declare and make dividend payments or other distributions payable solely in its common stock and (ii) any Wholly-Owned Subsidiary may make any dividend payment to the Company, provided, that such Wholly-Owned Subsidiary would be Solvent after giving effect to such dividend payment; and (b) purchase, redeem or otherwise prepay any existing Indebtedness other than the Indebtedness hereunder. 7.12 ERISA. The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably expected to result in liability of the Company in an aggregate amount in excess of $3,000,000; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 7.13 Change in Business. The Company shall not, and shall not suffer or permit any Subsidiary to, engage in any material line of business substantially different from those lines of business carried on by the Company and its Subsidiaries on the date hereof. 7.14 Accounting Changes. The Company shall not, and shall not suffer or permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company or of any Subsidiary. 7.15 Maximum Leverage Ratio. The Leverage Ratio at the end of each quarterly period shall not exceed the ratio set forth below for the periods set forth below: Quarter Ending Maximum Ratio -------------- ------------- December 31, 1995 (9.0) March 31, 1996 5.65 June 30, 1996 2.30 September 30, 1996 and thereafter 2.00 For purposes of calculating the Leverage Ratio hereunder, (i) EBITDA shall include EBITDA of the Company and its Subsidiaries adjusted, on a pro forma basis, to include the EBITDA for the applicable period of any business acquired by the Company; and (ii) Indebtedness shall include Indebtedness of the Company and its Subsidiaries. 31 7.16 Minimum Interest Coverage Ratio. The Minimum Interest Coverage Ratio for each fiscal quarter shall not be less than the ratio set forth below at the end of each fiscal quarter for the periods set forth below: Quarter Ending Maximum Ratio -------------- ------------- December 31, 1995 (3.75) March 31, 1996 2.35 June 30, 1996 4.90 September 30, 1996 and thereafter 6.00 For purposes of calculating the Minimum Interest Coverage Ratio hereunder, EBITDA and cash interest expense shall include, respectively, EBITDA and cash interest expense of the Company and its Subsidiaries adjusted, on a pro forma basis, to include the EBITDA and incremental projected cash interest expense, if any, with respect to the acquisition of any business acquired by the Company during the two fiscal quarters prior to the date of calculation of the Minimum Interest Coverage Ratio. ARTICLE VIII EVENTS OF DEFAULT 8.01 Event of Default. Any of the following shall constitute an "Event of Default": (a) Non-Payment. The Company fails to make, (i) when and as required to be made herein, payments of any amount of principal of any Loan, or (ii) within 3 days after the same becomes due, payment of any interest, fee or any other amount payable hereunder or under any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by the Company or any Subsidiary made or deemed made herein, in any other Loan Document or which is contained in any certificate, document or financial or other statement by the Company, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. The Company fails to perform or observe any term, covenant or agreement contained in any of Section 6.03 or in Article VII (other than Sections 7.01, 7.04 and 7.06 thereof); or (d) Other Defaults. The Company fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 20 days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Company by the Bank; or (e) Cross-Default. The Company or any Subsidiary (A) fails to make any payment in 32 respect of any Indebtedness or Contingent Obligation, having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $1,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (B) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Obligation, if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded. (f) Insolvency; Voluntary Proceedings. The Company or any Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $3,000,000; or (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $3,000,000; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $3,000,000; or (i) Monetary Judgments. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $3,000,000 or more, and the same shall remain 33 unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after the entry thereof; or (j) Non-Monetary Judgments. Any non-monetary judgment, order or decree is entered against the Company or any Subsidiary which does or would reasonably be expected to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) Change of Control. There occurs any Change of Control; or (l) Loss of Licenses. Any other Governmental Authority revokes or fails to renew any material license, permit or franchise of the Company or any Subsidiary, or the Company or any Subsidiary for any reason loses any material license, permit or franchise, or the Company or any Subsidiary suffers the imposition of any restraining order, escrow, suspension or impound of funds in connection with any proceeding (judicial or administrative) with respect to any material license, permit or franchise, in each case where such event could reasonably be expected to have a Material Adverse Effect; or (m) Guarantor Defaults. Any Guarantor fails in any material respect to perform or observe any term, covenant or agreement in its Guaranty or any Guaranty is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or any Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder; or any event described at subsections (f) or (g) of this Section occurs with respect to any Guarantor. 8.02 Remedies. If any Event of Default occurs, the Bank may: (a) Declare its commitment to make Loans to be terminated, whereupon such commitment shall be terminated; (b) Declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) Exercise on behalf of itself all rights and remedies available to it under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in subsection (f) or (g) of Section 8.01 (in the case of clause (i) of subsection (g) upon the expiration of the 60-day period mentioned therein), the obligation of the Bank to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Bank. 8.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan 34 Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE IX MISCELLANEOUS 9.01 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Bank and the Company, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 9.02 Notices. (a) All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 9.02, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 9.02; or, as directed to the Company or the Bank, to such other address as shall be designated by such party in a written notice to the other party, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the other party. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II to the Bank shall not be effective until actually received by the Bank. (c) Any agreement of the Bank herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Bank shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Bank shall not have any liability to the Company or other Person on account of any action taken or not taken by the Bank in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Bank to receive written confirmation of any telephonic or facsimile notice or the receipt by the Bank of a confirmation which is at variance with the terms understood by the Bank to be contained in the telephonic or facsimile notice. 9.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or 35 privilege. 9.04 Costs and Expenses. The Company shall: (a) Whether or not the transactions contemplated hereby are consummated, pay or reimburse the Bank within five Business Days after demand (subject to subsection 4.01(e)) for all costs and expenses incurred by the Bank in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by the Bank with respect thereto; and (b) Pay or reimburse the Bank within five Business Days after demand (subject to subsection 4.01(e)) for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding); and (c) Pay or reimburse the Bank within five Business Days after demand (subject to subsection 4.01(e)) for all appraisal (including the allocated cost of internal appraisal services), audit, environmental inspection and review (including the allocated cost of such internal services), search and filing costs, fees and expenses, incurred or sustained by the Bank in connection with the matters referred to under subsections (a) and (b) of this Section. 9.05 Company Indemnification. (a) Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify, defend and hold the Bank, each of its Affiliates, and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 36 (b) The Company shall indemnify, defend and hold harmless each Indemnified Person, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs and the allocated cost of internal environmental audit or review services), which may be incurred by or asserted against such Indemnified Person in connection with or arising out of any pending or threatened investigation, litigation or proceeding. No action taken by legal counsel chosen by the Bank in defending against any such investigation, litigation or proceeding or requested remedial, removal or response action shall vitiate or any way impair the Company's obligation and duty hereunder to indemnify and hold harmless the Bank. (c) The obligations in this Section shall survive payment of all other Obligations. At the election of any Indemnified Person, the Company shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person's sole discretion, at the sole cost and expense of the Company. All amounts owing under this Section shall be paid within 30 days after demand. 9.06 Marshalling; Payments Set Aside. The Bank shall be under no obligation to marshall any assets in favor of the Company or any other Person or against or in payment of any or all of the Obligations. To the extent that the Company makes a payment to the Bank, or the Bank exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred. 9.07 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Bank. 9.08 Assignments, Participations, etc. (a) The Bank may, with the written consent of the Company at all times other than during the existence of an Event of Default which consent of the Company shall not be unreasonably withheld, at any time assign and delegate to one or more Persons (provided that no written consent of the Company shall be required in connection with any assignment and delegation by the Bank to a Person that is an Affiliate of the Bank) (each an "Assignee") all, or any ratable part of all, of the Loans, the Revolving Commitment and the other rights and obligations of the Bank hereunder. (b) The Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating interests in any Loans, the Revolving Commitment of the Bank and the other interests of the Bank hereunder and under the other Loan Documents; provided, however, that (i) the Bank's obligations under this Agreement shall remain unchanged, (ii) the Bank shall remain solely responsible for the performance of such obligations, (iii) the Company shall continue to deal solely and directly 37 with the Bank in connection with the Bank's rights and obligations under this Agreement and the other Loan Documents. In the case of any such participation, the Participant shall be entitled to the benefit of Sections 3.01, 3.03 and 9.05 as though it were also the Bank hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as the Bank under this Agreement. (c) Each Participant that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. federal income tax purposes, shall, (i) prior to becoming a Participant, provide to the Company two original signed copies of United States Internal Revenue Service Form 4224 or Form 1001 certifying to such Participant's entitlement to a complete exemption from United States withholding tax with respect to any sums payable to such Participant under this Agreement or any other Loan Document, and (ii) prior to the date any such form expires or becomes obsolete, provide to the Company reasonably sufficient documentation demonstrating that such Participant remains entitled to such complete exemption from United States withholding tax. Notwithstanding the provisions of Section 3.01 herein, neither the Company nor any Subsidiary shall be required to pay any additional amounts in respect of this Agreement or any other Loan Document to the extent that the obligation to pay such amounts results from the failure of any Participant to comply with this paragraph (c). 9.09 Confidentiality. The Bank agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any Subsidiary, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Company or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however, that the Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of the Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Bank or its respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to the Bank's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Bank hereunder; (H) as to the Bank or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any Subsidiary is party or is deemed party with the Bank or such Affiliate; and (I) to its Affiliates. 9.10 Set-off. In addition to any rights and remedies of the Bank provided by law, if an Event of 38 Default exists or the Loans have been accelerated, the Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, the Bank to or for the credit or the account of the Company against any and all Obligations owing to the Bank, now or hereafter existing, irrespective of whether or not the Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. 9.11 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 9.12 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 9.13 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Bank, the Bank's Affiliates, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 9.14 Governing Law and Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY AND THE BANK EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. 9.15 Waiver of Jury Trial. THE COMPANY AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED 39 UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AFFILIATE OF THE BANK, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 9.16 Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Company and the Bank and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. 40 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in New York by their proper and duly authorized officers as of the day and year first above written. MEDE AMERICA CORPORATION By: /s/ Elias M. Nemnom Title: Chief Financial Officer BANK OF AMERICA ILLINOIS By: /s/ Linda A. Carper Title: Managing Director 41 FIRST AMENDMENT TO CREDIT AGREEMENT This Amendment, dated as of January 10, 1997 (this "Amendment") is entered into by and between MEDE AMERICA CORPORATION, a Delaware corporation (the "Company") and BANK OF AMERICA ILLINOIS (the "Bank"). RECITALS The Company and the Bank are parties to a Credit Agreement dated as of December 18, 1996 (the "Credit Agreement") pursuant to which the Bank extended a revolving credit facility and made revolving loans. Capitalized terms used and not otherwise defined or amended in this Amendment shall have the meanings respectively assigned to them in the Credit Agreement. The Company has requested that the Bank increase the amount of its commitment, extend the maturity date and modify certain covenants. _The Company has requested that the Bank enter into this Amendment in order to approve and reflect the foregoing, and the Bank has agreed to do so, all upon the terms and provisions and subject to the conditions hereinafter set forth. AGREEMENT In consideration of the foregoing and the mutual covenants and agreement hereinafter set forth, the parties hereto mutually agree as follows: A. AMENDMENTS 1. Amendment of Section 1.01 Section 1.01 is hereby amended by restating the following definitions in their entirety: "Revolving Commitment" means $13,500,000. "Revolving Termination Date" means the earlier to occur of (a) August 31, 1997; and (b)_the date on which the Revolving Commitment terminates in accordance with the provisions of this Agreement. 2. Amendment of Section 2.03(a) Section 2.03(a) is hereby amended and restated in its entirety as follows: (a)the amount of the Loan, which shall be in a minimum amount of $250,000 or any multiple of $50,000 in excess thereof; 3. Amendment of Section 2.04(a) Section 2.04(a) is hereby amended and restated in its entirety as follows: (a) The Company may, upon irrevocable written notice to the Bank in accordance with subsection 2.04(b): (1) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of any other Type of Loans, to convert any such Loans (or any part thereof in an amount not less than $250,000, or that is in an integral multiple of $50,000 in excess thereof) into Loans of any other Type; or (2) elect, as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $250,000, or that is in an integral multiple of $50,000 in excess thereof); provided, that if at any time the amount of an Offshore Rate Loan is reduced, by payment, prepayment, or conversion of part thereof to be less than $250,000, such Offshore Rate Loan shall automatically convert into a Base Rate Loan, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into Offshore Rate Loans, shall terminate. 4. Amendment of Section 2.06 Section 2.06 is hereby amended and restated in its entirety as follows: 2.06 Optional Prepayments. Subject to Section 3.04, the Company may, at any time or from time to time, upon not less than three Business Days' irrevocable notice to the Bank, ratably prepay Loans in whole or in part, in minimum amounts of $250,000 or any multiple of $50,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together -2- with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.04. 5. Amendment of Section 7.15 Section 7.15 is hereby amended and restated in its entirety as follows: Maximum Leverage Ratio. Beginning with the quarterly period ending December 31, 1996, the Leverage Ratio at the end of each quarterly period shall not exceed the ratio set forth below for the periods set forth below: Quarter Ending Maximum Ratio ------------------------------------------------ December 31, 1996 20.00 March 31, 1997 11.50 June 30, 1997 5.75 For purposes of calculating the Leverage Ratio hereunder, (i) EBITDA shall include EBITDA of the Company and its Subsidiaries adjusted, on a pro forma basis, to include the EBITDA for the applicable period of any business acquired by the Company; and (ii) Indebtedness shall include Indebtedness of the Company and its Subsidiaries. This covenant shall not apply to the quarterly periods ending June 30, 1996 and September 30, 1996. 6. Amendment of Section 7.16. Section 7.16 is hereby amended and restated in its entirety as follows: Minimum Interest Coverage Ratio. Beginning with the quarterly period ending December 31, 1996, the Minimum Interest Coverage Ratio for each fiscal quarter shall not be less than the ratio set forth below at the end of each fiscal quarter for the periods set forth below: -3- Quarter Ending Minimum Ratio ------------------------------------------------ December 31, 1996 0.75 March 31, 1997 1.50 June 30, 1997 3.00 For purposes of calculating the Minimum Interest Coverage Ratio hereunder, EBITDA and cash interest expense shall include, respectively, EBITDA and cash interest expense of the Company and its Subsidiaries adjusted, on a pro forma basis, to include the EBITDA and incremental projected cash interest expense, if any, with respect to the acquisition of any business acquired by the Company during the two fiscal quarters prior to the date of calculation of the Minimum Interest Coverage Ratio. This covenant shall not apply to the quarterly periods ending June 30, 1996 and September 30, 1996. B. REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Bank that: 1. No Event of Default specified in the Credit Agreement and no event which with notice or lapse of time or both would become such an Event of Default has occurred and is continuing; 2. Except as otherwise indicated on Schedule I attached hereto, the representations and warranties of the Company pursuant to the Credit Agreement are true on and as of the date hereof as if made on and as of said date; 3. The making and performance by the Company of this Amendment have been duly authorized by all corporate action; and 4. No consent, approval, authorization, permit or license from any federal or state regulatory authority is required in connection with the making or performance by the Company of the Credit Agreement as amended hereby. C. CONDITIONS PRECEDENT This Amendment will become effective as of January 10, 1997 provided that the Bank shall have received in form and substance satisfactory to the Bank, all of the following: -4- 1. A copy of a resolution passed by the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of the Credit Agreement as hereby amended. 2. A certificate of incumbency certifying the names of the officers of the Company authorized to sign this Amendment, together with the true signatures of such officers. 3. Executed counterparts of this Amendment. 4. An amendment fee of $15,000. D. MISCELLANEOUS 1. This Amendment may be signed in any number of counterparts, each of which shall be an original, with same effect as if the signatures thereto and hereto were upon the same instrument. 2. Except as herein specifically amended, all terms, covenants and provisions of the Credit Agreement shall remain in full force and effect and shall be performed by the parties hereto according to its terms and provisions and all references therein or in the Exhibits shall henceforth refer to the Credit Agreement as amended by this Amendment. 3. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first written. MEDE AMERICA CORPORATION By: ------------------------------------ Title: --------------------------------- -5- BANK OF AMERICA ILLINOIS By: ------------------------------------ Title: --------------------------------- CONSENTED AND ACKNOWLEDGED: WELSH, CARSON, ANDERSON & STOWE V, L.P. By: WCAS V PARTNERS,L.P. Its General Partner By: ------------------------------- General Partner WELSH, CARSON, ANDERSON & STOWE VI, L.P. By: WCAS VI PARTNERS, L.P. Its General Partner By: ------------------------------- General Partner WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP By: WILLIAM BLAIR LEVERAGED CAPITAL MANAGEMENT, L.P. By: WILLIAM BLAIR & COMPANY, General Partner By: ------------------------------- -6- WILLIAM BLAIR CAPITAL PARTNERS V, L.P. By: WILLIAM BLAIR CAPITAL PARTNERS, LLC, General Partner By: ------------------------------- -7- SECOND AMENDMENT TO CREDIT AGREEMENT This Amendment, dated as of April 4, 1997 (this "Amendment") is entered into by and between MEDE AMERICA CORPORATION, a Delaware corporation (the "Company") and BANK OF AMERICA ILLINOIS (the "Bank"). RECITALS The Company and the Bank are parties to a Credit Agreement dated as of December 18, 1996 as amended (the "Credit Agreement") pursuant to which the Bank extended a revolving credit facility and made revolving loans. Capitalized terms used and not otherwise defined or amended in this Amendment shall have the meanings respectively assigned to them in the Credit Agreement. The Company has requested that the Bank decrease the amount of its commitment and modify certain covenants. _The Company has requested that the Bank enter into this Amendment in order to approve and reflect the foregoing, and the Bank has agreed to do so, all upon the terms and provisions and subject to the conditions hereinafter set forth. In consideration of the foregoing and the mutual covenants and agreement hereinafter set forth, the parties hereto mutually agree as follows: A. AMENDMENTS 1. Amendment of Section 1.01 Section 1.01 is hereby amended by restating the following definitions in their entirety: "Revolving Commitment" means $5,000,000. 2. Amendment of Section 7.15 Section 7.15 is hereby amended and restated in its entirety as follows: Maximum Leverage Ratio. Beginning with the quarterly period ending March 31, 1997, the Leverage Ratio at the end of each quarterly period shall not exceed the ratio set forth below for the periods set forth below:
Quarter Ending Maximum Ratio -------------- ------------- March 31, 1997 51.00 June 30, 1997 13.00
For purposes of calculating the Leverage Ratio hereunder, (i) EBITDA shall include EBITDA of the Company and its Subsidiaries adjusted, on a pro forma basis, to include the EBITDA for the applicable period of any business acquired by the Company; and (ii) Indebtedness shall include Indebtedness of the Company and its Subsidiaries. This covenant shall not apply to the quarterly periods ending June 30, 1996, September 30, 1996 or December 31, 1996. 3. Amendment of Section 7.16. Section 7.16 is hereby amended and restated in its entirety as follows: Minimum Interest Coverage Ratio. Beginning with the quarterly period ending March 31, 1997, the Minimum Interest Coverage Ratio for each fiscal quarter shall not be less than the ratio set forth below at the end of each fiscal quarter for the periods set forth below:
Quarter Ending Minimum Ratio March 31, 1997 0.25 June 30, 1997 0.75
For purposes of calculating the Minimum Interest Coverage Ratio hereunder, EBITDA and cash interest expense shall include, respectively, EBITDA and cash interest expense of the Company and its Subsidiaries adjusted, on a pro forma basis, to include the EBITDA and incremental projected cash interest expense, if any, with respect to the acquisition of any business acquired by the Company during the two fiscal quarters prior to the date of calculation of the Minimum Interest Coverage Ratio. This covenant shall not apply to the quarterly periods ending June 30, 1996, September 30, 1996 or December 31, 1996. B. WAIVER The Company has requested that the Bank waive the restrictions of Sections 7.04(d) and 7.05(e) in order to permit its acquisition of Time Share Computers ("TCS"). The Bank hereby waives Sections 7.04(d) and 7.05(e) with respect to the TCS Acquisition. -2- C. REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Bank that: 1. No Event of Default specified in the Credit Agreement and no event which with notice or lapse of time or both would become such an Event of Default has occurred and is continuing; 2. The representations and warranties of the Company pursuant to the Credit Agreement are true on and as of the date hereof as if made on and as of said date; 3. The making and performance by the Company of this Amendment have been duly authorized by all corporate action; and 4. No consent, approval, authorization, permit or license from any federal or state regulatory authority is required in connection with the making or performance by the Company of the Credit Agreement as amended hereby. D. CONDITIONS PRECEDENT This Amendment will become effective as of April 4, 1997 (except with respect to the amendment to Section 1.01, which shall be effective as of March 14, 1997) provided that the Bank shall have received in form and substance satisfactory to the Bank, all of the following: 1. A copy of a resolution passed by the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of the Credit Agreement as hereby amended. 2. A certificate of incumbency certifying the names of the officers of the Company authorized to sign this Amendment, together with the true signatures of such officers. 3. Executed counterparts of this Amendment. E. MISCELLANEOUS 1. This Amendment may be signed in any number of counterparts, each of which shall be an original, with same effect as if the signatures thereto and hereto were upon the same instrument. -3- 2. Except as herein specifically amended, all terms, covenants and provisions of the Credit Agreement shall remain in full force and effect and shall be performed by the parties hereto according to its terms and provisions and all references therein or in the Exhibits shall henceforth refer to the Credit Agreement as amended by this Amendment. 3. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first written. MEDE AMERICA CORPORATION By: --------------------------------- Title: ------------------------------ BANK OF AMERICA ILLINOIS By: --------------------------------- Title: ------------------------------ CONSENTED AND ACKNOWLEDGED: WELSH, CARSON, ANDERSON & STOWE V, L.P. By: WCAS V PARTNERS, L.P. Its General Partner By: ------------------------ General Partner WELSH, CARSON, ANDERSON & STOWE VI, L.P. By: WCAS VI PARTNERS, L.P. Its General Partner By: ------------------------ General Partner -4- WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP By: WILLIAM BLAIR LEVERAGED CAPITAL MANAGEMENT, L.P. By: WILLIAM BLAIR & COMPANY, General Partner By: ------------------------- WILLIAM BLAIR CAPITAL PARTNERS V, L.P. By: WILLIAM BLAIR CAPITAL PARTNERS, LLC, General Partner By: -------------------------- -5- THIRD AMENDMENT TO CREDIT AGREEMENT This Amendment, dated as of October __, 1997 (this "Amendment") is entered into by and between MEDE AMERICA CORPORATION, a Delaware corporation (the "Company") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as successor by merger to Bank of America Illinois) (the "Bank"). RECITALS The Company and the Bank are parties to a Credit Agreement dated as of December 18, 1995, as amended (the "Credit Agreement"), pursuant to which the Bank extended a revolving credit facility. Capitalized terms used and not otherwise defined or amended in this Amendment shall have the meanings respectively assigned to them in the Credit Agreement. The Company has requested that the Bank extend the maturity date, increase the commitment and modify the financial covenants. In order to induce the Bank to agree to the foregoing, the Bank has requested, and the Company has agreed, to pay an Amendment fee. The Company has requested that the Bank enter into this Amendment in order to approve and reflect the foregoing, and the Bank has agreed to do so, all upon the terms and provisions and subject to the conditions hereinafter set forth. AGREEMENT In consideration of the foregoing and the mutual covenants and agreement hereinafter set forth, the parties hereto mutually agree as follows: A. AMENDMENTS 1. Amendment of Section 1.01. Section 1.01 is hereby amended by amending the definitions of: (a) "Revolving Commitment" by deleting the amount "$5,000,000" and substituting the amount "$20,000,000" therefor; and (b) "Revolving Termination Date" by deleting the date "May 15, 1997" and substituting the date "October 31, 1999". 2. Amendment of Section 7.15. Section 7.15 is hereby amended and restated as follows: 7.15 Maximum Leverage Ratio. The Leverage Ratio at the end of each quarterly period shall not exceed the ratio set forth below for the periods set forth below:
Quarter Ending Maximum Ratio December 31, 1997 11.00 March 31, 1998 6.75 June 30, 1998 5.00 September 30, 1998 3.00 and thereafter
For purposes of calculating the Leverage Ratio hereunder, (i) EBITDA shall include EBITDA of the Company and its Subsidiaries adjusted, on a pro forma basis, to include the EBITDA for the applicable period of any business acquired by the Company; and (ii) Indebtedness shall include Indebtedness of the Company and its Subsidiaries. 3. Amendment of Section 7.16. Section 7.16 is hereby amended and restated as follows: 7.16 Minimum Interest Coverage Ratio. The Minimum Interest Coverage Ratio for each fiscal quarter shall not be less than the ratio set forth below at the end of each fiscal quarter for the periods set forth below:
Quarter Ending Maximum Ratio December 31, 1997 1.20 March 31, 1998 1.90 June 30, 1998 2.30 September 30, 1998 3.00 and thereafter
For purposes of calculating the Minimum Interest Coverage Ratio hereunder, EBITDA and cash interest expense shall include, respectively, EBITDA and cash interest expense of the Company and its Subsidiaries adjusted, on a pro forma basis, to include the EBITDA and incremental projected cash interest expense, if any, with respect to the acquisition of any business acquired by the Company during the two fiscal quarters prior to the date of calculation of the Minimum Interest Coverage Ratio. B. REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Bank that: 1. No Event of Default specified in the Credit Agreement and no event which with notice or lapse of time or both would become such an Event of Default has occurred and is continuing; -2- 2. The representations and warranties of the Company pursuant to the Credit Agreement are true on and as of the date hereof as if made on and as of said date; 3. The making and performance by the Company of this Amendment have been duly authorized by all corporate action; and 4. No consent, approval, authorization, permit or license from any federal or state regulatory authority is required in connection with the making or performance of the Credit Agreement as amended hereby. C. CONDITIONS PRECEDENT This Amendment will become effective as of October __, 1997 provided that the Bank shall have received in form and substance satisfactory to the Bank, all of the following: 1. A copy of a resolution passed by the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, authorizing the borrowing herein provided for and the execution, delivery and performance of the Credit Agreement as hereby amended. 2. A certificate of incumbency certifying the names of the officers of the Company authorized to sign this Amendment, together with the true signatures of such officers. 3. Executed counterparts of this Amendment. 4. Payment of an amendment fee in the amount of $25,000. 5. A copy of the executed asset purchase agreement among the Company, General Computer Corporation, The Stockton Group, Inc. and James S. Smith for a total consideration of $13,000,000 (the "Asset Purchase"). 6. Evidence that all conditions to the closing of the Asset Purchase have occurred and all documents and agreements required thereby have been executed and delivered. D. MISCELLANEOUS 1. This Amendment may be signed in any number of counterparts, each of which shall be an original, with same effect as if the signatures thereto and hereto were upon the same instrument. -3- 2. Except as herein specifically amended, all terms, covenants and provisions of the Credit Agreement shall remain in full force and effect and shall be performed by the parties hereto according to its terms and provisions and all references therein or in the Exhibits shall henceforth refer to the Credit Agreement as amended by this Amendment. 3. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. -4- IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first written. MEDE AMERICA CORPORATION By: ------------------------------------- Title: ---------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ------------------------------------- Title: ---------------------------------- ACKNOWLEDGED AND AGREED: WELSH, CARSON, ANDERSON & STOWE V, L.P. By: WCAS V PARTNERS Its General Partner By: ----------------------------------- Its General Partner WELCH, CARSON, ANDERSON & STOWE VI, L.P. By: WCAS VI PARTNERS Its General Partner By: ----------------------------------- Its General Partner -5- WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP By: WILLIAM BLAIR LEVERAGED CAPITAL MANAGEMENT, L.P. By: WILLIAM BLAIR & COMPANY, General Partner By: ------------------------------ WILLIAM BLAIR CAPITAL PARTNERS V, L.P. By: WILLIAM BLAIR CAPITAL PARTNERS, LLC, General Partner By: ------------------------------ -6- FOURTH AMENDMENT TO CREDIT This Amendment, dated as of December 29, 1997 (this "Amendment") is entered into by and between MEDE AMERICA CORPORATION, a Delaware corporation (the "Company") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank"). RECITALS The Company and the Bank are parties to a Credit Agreement dated as of December 18, 1995, as amended (the "Credit Agreement"), pursuant to which the Bank extended a revolving credit facility. Capitalized terms used and not otherwise defined or amended in this Amendment shall have the meanings respectively assigned to them in the Credit Agreement. The Guarantors have requested that the Bank agree to a redistribution of the guarantee amount within the respective funds currently providing the Guaranty. The Company has requested that the Bank enter into this Amendment in order to approve and reflect the foregoing, and the Bank has agreed to do so, all upon the terms and provisions and subject to the conditions hereinafter set forth. AGREEMENT In consideration of the foregoing and the mutual covenants and agreement hereinafter set forth, the parties hereto mutually agree as follows: A. AMENDMENTS Amendment of Section 1.01. Section 1.01 is hereby amended by amending and restating the definition of "Guarantor's Support Percentage" as follows: "Guarantor's Support Percentage" shall mean (i) with respect to WCAS V, 0%, (ii) with respect to WCAS VI, 80%, (iii) with respect to WB Leveraged Capital, 1.6%, and (iv) with respect to WB Capital Partners, 18.4%. B. REPRESENTATIONS AND WARRANTIES The Company hereby represents and warrants to the Bank that: 1. No Event of Default specified in the Credit Agreement and no event which with notice or lapse of time or both would become such an Event of Default has occurred and is continuing; 2. The representations and warranties of the Company pursuant to the Credit Agreement are true on and as of the date hereof as if made, except as otherwise previously disclosed to the Bank, on and as of said date; 3. The making and performance by the Company of this Amendment have been duly authorized by all corporate action; and 4. No consent, approval, authorization, permit or license from any federal or state regulatory authority is required in connection with the making or performance of the Credit Agreement as amended hereby. C. CONDITIONS PRECEDENT This Amendment will become effective as of December 29, 1997 provided that the Bank shall have received in form and substance satisfactory to the Bank executed counterparts of this Amendment. D. MISCELLANEOUS 1. This Amendment may be signed in any number of counterparts, each of which shall be an original, with same effect as if the signatures thereto and hereto were upon the same instrument. 2. Except as herein specifically amended, all terms, covenants and provisions of the Credit Agreement shall remain in full force and effect and shall be performed by the parties hereto according to its terms and provisions and all references therein or in the Exhibits shall henceforth refer to the Credit Agreement as amended by this Amendment. 3. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first written. MEDE AMERICA CORPORATION By: --------------------------------- Title: ------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ---------------------------------- Title: ------------------------------- 2 ACKNOWLEDGED AND AGREED: WELSH, CARSON, ANDERSON & STOWE V, L.P. By: WCAS V PARTNERS General Partner By: ---------------------------------------- General Partner WELSH, CARSON, ANDERSON & STOWE VI, L.P. By: WCAS VI PARTNERS General Partner By: ---------------------------------------- General Partner WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP By: WILLIAM BLAIR LEVERAGED CAPITAL MANAGEMENT, L.P. By: WILLIAM BLAIR & COMPANY, General Partner By: ------------------------------- WILLIAM BLAIR CAPITAL PARTNERS V, L.P. By: WILLIAM BLAIR CAPITAL PARTNERS, LLC, General Partner By: ------------------------------- -3- EX-10.6 12 EXHIBIT 10.6 EXHIBIT 10.6 BANK OF AMERICA LETTERHEAD June 3, 1998 Mr. Richard P. Bankosky Chief Financial Officer MedE America Corporation The Financial Center 90 Merrick Avenue, Suite 501 East Meadow, NY 11554 Re: Credit Facility Dear Mr. Bankosky: This letter will serve to confirm our conversation earlier today. As we discussed, Bank of America hereby commits to provide MedE America with a $10MM revolving credit facility to be effective upon the consummation of MedE America's IPO and upon substantially the same terms and conditions as are contained in the current credit agreement. You requested and we have agreed to release the Welsh Carson and William Blair guarantees following the IPO. To effect the change, we would propose an amendment to the existing credit facility. Best Regards, EX-21.1 13 EXHIBIT 21.1 Subsidiaries of the Registrant: MEDE America Corporation of Ohio EX-23.1 14 EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE MEDE America Corporation East Meadow, New York We consent to the use in this Registration Statement of MEDE America Corporation on Form S-1 of our report dated May 8, 1998 (June 2, 1998 as to Note 13) relating to the consolidated financial statements of MEDE America Corporation as of June 30, 1996 and 1997 and March 31, 1998 and for each of the three years in the period ended June 30, 1997 and the nine months ended March 31, 1998 appearing in the Prospectus, which is a part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. Our audits of the consolidated financial statements of MEDE America Corporation referred to in our aforementioned report also included the financial statement schedule of MEDE America Corporation listed in Part II at Item 16(b). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Jericho, New York June 2, 1998 EX-23.2 15 EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT MEDE America Corporation East Meadow, New York We consent to the use in this Registration Statement of MEDE America Corporation on Form S-1 of our report dated October 7, 1997 relating to the statement of income of The Stockton Group, Inc. for the year ended June 30, 1997, appearing in the Prospectus, which is a part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Charlotte, North Carolina June 2, 1998 EX-27.1 16 FDS 5
5 0001062779 MedE America Corporation 1,000 U.S. Dollars 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 1 1,455 0 8,421 958 240 11,149 9,931 4,987 54,179 7,873 0 30,623 0 57 (25,394) 54,179 30,189 30,189 0 31,293 13 265 2,470 (3,587) 37 (3,624) 0 0 0 (3,624) (0.96) 0
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