-----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, Jswa+TAY6GRT/nJa21AQVdcffSapFXU1z5PCGFZhHaITLra/0UzBkj6xVFCw6Bq2 rxXGqQpeJicSuJNsxqTEXQ== 0000921530-01-000007.txt : 20010123 0000921530-01-000007.hdr.sgml : 20010123 ACCESSION NUMBER: 0000921530-01-000007 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20010117 GROUP MEMBERS: GEORGE SOROS GROUP MEMBERS: QIH MANAGEMENT INVESTOR, L.P. GROUP MEMBERS: QIH MANAGEMENT, INC. GROUP MEMBERS: QUANTUM INDUSTRIAL PARTNERS LDC GROUP MEMBERS: SFM DOMESTIC INVESTMENTS LLC GROUP MEMBERS: SOROS FUND MANAGEMENT LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MEDICALOGIC/MEDSCAPE INC CENTRAL INDEX KEY: 0000923899 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 930890696 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-57977 FILM NUMBER: 1509796 BUSINESS ADDRESS: STREET 1: 20500 NW EVERGREEN PARKWAY STREET 2: STE 400 CITY: HILLSBORO STATE: OR ZIP: 97124 BUSINESS PHONE: 5036456442 MAIL ADDRESS: STREET 1: 20500 NW EVERGREEN PARKWAY CITY: HILLSBORO STATE: OR ZIP: 97124 FORMER COMPANY: FORMER CONFORMED NAME: MEDICALOGIC INC DATE OF NAME CHANGE: 19990818 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SOROS FUND MANAGEMENT LLC CENTRAL INDEX KEY: 0001029160 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133914976 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 888 SEVENTH AVENUE 33RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10106 BUSINESS PHONE: 2128721054 MAIL ADDRESS: STREET 1: C/O AKIN, GUMP, STRAUSS,HAUER,FELD, STREET 2: 399 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D 1 0001.txt SCHEDULE 13D RE MEDICALOGIC/MEDSCAPE, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. )* MedicaLogic/Medscape, Inc. (F/K/A/MedicaLogic, Inc.) ---------------------------------------------------- (Name of Issuer) Common Stock, No Par Value -------------------------- (Title of Class of Securities) 584642102 --------------- (CUSIP Number) Stephen M. Vine, Esq. Akin, Gump, Strauss, Hauer & Feld, L.L.P. 590 Madison Avenue New York, New York 10022 (212) 872-1000 -------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) January 4, 2001 --------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Continued on following page(s) Page 1 of 92 Pages Exhibit Index: Page 16 SCHEDULE 13D CUSIP NO. 584642102 Page 2 of 92 Pages 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person QUANTUM INDUSTRIAL PARTNERS LDC 2 Check the Appropriate Box If a Member of a Group* a. [_] b. [x] 3 SEC Use Only 4 Source of Funds* 00 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Cayman Islands Number of 7 Sole Voting Power Shares 4,509,596 Beneficially Owned By 8 Shared Voting Power Each 0 Reporting Person 9 Sole Dispositive Power With 4,509,596 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 4,509,596 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [x] 13 Percent of Class Represented By Amount in Row (11) 7.70% 14 Type of Reporting Person* OO; IV *SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D CUSIP NO. 584642102 Page 3 of 92 Pages 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person QIH MANAGEMENT INVESTOR, L.P. 2 Check the Appropriate Box If a Member of a Group* a. [_] b. [x] 3 SEC Use Only 4 Source of Funds* AF 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware Number of 7 Sole Voting Power Shares 4,509,596 Beneficially Owned By 8 Shared Voting Power Each 0 Reporting Person 9 Sole Dispositive Power With 4,509,596 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 4,509,596 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [x] 13 Percent of Class Represented By Amount in Row (11) 7.70% 14 Type of Reporting Person* PN; IA *SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D CUSIP NO. 584642102 Page 4 of 92 Pages 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person QIH MANAGEMENT, INC. 2 Check the Appropriate Box If a Member of a Group* a. [_] b. [x] 3 SEC Use Only 4 Source of Funds* AF 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware Number of 7 Sole Voting Power Shares 4,509,596 Beneficially Owned By 8 Shared Voting Power Each 0 Reporting Person 9 Sole Dispositive Power With 4,509,596 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 4,509,596 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [x] 13 Percent of Class Represented By Amount in Row (11) 7.70% 14 Type of Reporting Person* CO *SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D CUSIP NO. 584642102 Page 5 of 92 Pages 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person SOROS FUND MANAGEMENT LLC 2 Check the Appropriate Box If a Member of a Group* a. [_] b. [x] 3 SEC Use Only 4 Source of Funds* AF 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware Number of 7 Sole Voting Power Shares 4,509,596 Beneficially Owned By 8 Shared Voting Power Each 0 Reporting Person 9 Sole Dispositive Power With 4,509,596 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 4,509,596 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [x] 13 Percent of Class Represented By Amount in Row (11) 7.70% 14 Type of Reporting Person* OO; IA *SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D CUSIP NO. 584642102 Page 6 of 92 Pages 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person SFM DOMESTIC INVESTMENTS LLC 2 Check the Appropriate Box If a Member of a Group* a. [_] b. [x] 3 SEC Use Only 4 Source of Funds* 00 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware Number of 7 Sole Voting Power Shares 4,509,596 Beneficially Owned By 8 Shared Voting Power Each 0 Reporting Person 9 Sole Dispositive Power With 4,509,596 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 4,509,596 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [x] 13 Percent of Class Represented By Amount in Row (11) 7.70% 14 Type of Reporting Person* 00 *SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D CUSIP NO. 584642102 Page 7 of 92 Pages 1 Name of Reporting Person S.S. or I.R.S. Identification No. of Above Person GEORGE SOROS (in the capacity described herein) 2 Check the Appropriate Box If a Member of a Group* a. [_] b. [x] 3 SEC Use Only 4 Source of Funds* AF 5 Check Box If Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization United States Number of 7 Sole Voting Power Shares 9,019,192 Beneficially Owned By 8 Shared Voting Power Each 0 Reporting Person 9 Sole Dispositive Power With 9,019,192 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 9,019,192 12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares* [ ] 13 Percent of Class Represented By Amount in Row (11) 14.66% 14 Type of Reporting Person* IA *SEE INSTRUCTIONS BEFORE FILLING OUT! Page 8 of 92 Pages This Statement on Schedule 13D relates to shares of Common Stock, no par value per share (the "Shares"), of MedicaLogic/Medscape, Inc. (f/k/a MedicaLogic, Inc.) (the "Issuer"). Certain of the securities reported herein were previously reported on Schedule 13G, the last amendment of which was filed on July 6, 2000. This Statement is being filed to report that certain of the Reporting Persons (as defined herein) have entered into an agreement with the Issuer, pursuant to which each of QIP and SFM Domestic (as such terms are defined herein) has acquired additional securities of the Issuer. Item 1. Security and Issuer. This Statement relates to the Shares. The address of the principal executive office of the Issuer is 20500 NW Evergreen Parkway, Hillsboro, Oregon 97124. Item 2. Identity and Background. This Statement is being filed on behalf of each of the following persons (collectively, the "Reporting Persons"): i) Quantum Industrial Partners LDC ("QIP"); ii) QIH Management Investor, L.P. (QIHMI"); iii) QIH Management, Inc. ("QIH Management"); iv) Soros Fund Management LLC ("SFM LLC"); v) SFM Domestic Investments LLC ("SFM Domestic"); and vi) Mr. George Soros ("Mr. Soros"). This Statement relates to the Shares held for the accounts of QIP and SFM Domestic. The Reporting Persons QIP, QIHMI and QIH Management ----------------------------- QIP is a Cayman Islands exempted limited duration company with its principal address at Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. The principal business of QIP is investment in securities. Current information concerning the identity and background of the directors and officers of QIP is set forth in Annex A hereto, which is incorporated by reference in response to this Item 2. QIHMI, an investment advisory firm organized as a Delaware limited partnership, is a minority shareholder of, and (pursuant to constituent documents of QIP) is vested with investment discretion with respect to the portfolio assets held for the account of, QIP. The principal business of QIHMI is to provide management and advisory services to, and to invest in, QIP. QIH Management, a Delaware corporation of which Mr. Soros is the sole shareholder, is the sole general partner of QIHMI. The principal business of QIH Management is to serve as the sole general partner of QIHMI. QIHMI and QIH Management have their principal offices at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. Current information concerning the identity and background of the directors and officers of QIH Management is set forth in Annex A hereto, which is incorporated by reference in response to this Item 2. QIHMI, by reason of its investment discretion over the securities owned by QIP, and QIH Management, as the sole general partner of QIHMI, may each be deemed the beneficial owner of the securities held for the account of QIP for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Act"). Page 9 of 92 Pages Mr. Soros has entered into an agreement dated as of January 1, 1997 with SFM LLC pursuant to which Mr. Soros has, among other things, agreed to use his best efforts to cause QIH Management, as the general partner of QIHMI, to act at the direction of SFM LLC, which agreement to so act shall terminate upon the earlier of (a) the assignment to SFM LLC of the legal and beneficial ownership interest in QIH Management and (b) the assignment to SFM LLC of the general partnership interest in QIHMI (the "QIP Contract"). SFM LLC, SFM Domestic and Mr. Soros ----------------------------------- SFM LLC, a Delaware limited liability company, has its principal office at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. Its principal business is to serve, pursuant to contract, as the principal investment manager to several foreign investment companies (the "SFM Clients"). Mr. Soros, as Chairman of SFM LLC, has the ability to direct the investment decisions of SFM LLC and as such may be deemed to have investment discretion over the securities held for the accounts of the SFM Clients. The principal occupation of Mr. Soros, a United States citizen, is his direction of the activities of SFM LLC, which is carried out in his capacity as Chairman of SFM LLC at SFM LLC's principal office. Pursuant to regulations promulgated under Section 13(d) of the Act, by virtue of the provisions of the QIP Contract, SFM LLC, and Mr. Soros, in his capacity as Chairman of SFM LLC, each may be deemed a beneficial owner of the securities held for the account of QIP. SFM Domestic is a Delaware limited liability company with its principal address at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. The principal business of SFM Domestic is investment in securities. Mr. Soros is the sole managing member of SFM Domestic and in such capacity may be deemed to be the beneficial owner of the securities held for the account of SFM Domestic. During the past five years, none of the Reporting Persons and, to the best of the Reporting Persons' knowledge, no other person identified in response to this Item 2 has been (a) convicted in a criminal proceeding or (b) a party to any civil proceeding as a result of which it or he has been subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration. The information set forth in Item 6 hereof is hereby incorporated by reference into this Item 3. The securities held for the accounts of QIP and SFM Domestic may be held through margin accounts maintained with brokers, which extend margin credit as and when required to open or carry positions in their margin accounts, subject to applicable federal margin regulations, stock exchange rules and such firms' credit policies. The positions which may be held in the margin accounts, including the Shares, are pledged as collateral security for the repayment of debit balances in the respective accounts. Item 4. Purpose of Transaction. All of the Shares reported herein as having been acquired for or disposed of from the accounts of QIP and/or SFM Domestic were acquired or disposed of for investment purposes. Except as set forth below and in Item 6, neither the Reporting Persons nor, to the best of their knowledge, any of the other persons identified in response to Item 2, has any plans or proposals that relate to or would result in any of the transactions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. Page 10 of 92 Pages Neal Moszkowski ("Mr. Moskowski"), an employee of Soros Private Funds Management LLC, an affiliate of SFM LLC, and a non-managing member of SFM Domestic, is a director of the Issuer. As a director of the Issuer, Mr. Moszkowski may have influence over the corporate activities of the Issuer, including activities which may relate to transactions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. The Reporting Persons reserve the right to acquire, or cause to be acquired, additional securities of the Issuer, to dispose of, or cause to be disposed, such securities at any time or to formulate other purposes, plans or proposals regarding the Issuer or any of its securities, to the extent deemed advisable in light of general investment and trading policies of the Reporting Persons, market conditions or other factors. Item 5. Interest in Securities of the Issuer. (a) (i) Each of QIP, QIHMI, QIH Management and SFM LLC may be deemed the beneficial owner of 4,509,596 Shares (approximately 7.70% of the total number of Shares outstanding assuming the exercise and conversion of all of the securities held for the account of QIP). This number consists of A) 1,568,421 Shares held for the account of QIP, B) 1,666,666 Shares issuable upon the conversion of 1,666,666 shares of Series 1 Convertible Redeemable Preferred Stock (the "Series 1 Preferred Stock") and C) 1,274,509 Shares issuable upon the exercise of warrants held for the account of QIP. (ii) SFM Domestic may be deemed to beneficial owner of 4,509,596 shares (approximately 7.70% of the total number of Shares outstanding assuming the exercise and conversion of all the securities held for its account). This number consists of A) 1,568,421 Shares held for its account, B) 1,666,666 Shares issuable upon the conversion of 1,666,666 shares of Series 1 Preferred Stock and C) 1,274,509 Shares issuable upon the exercise of warrants held for its account. (iii)Mr. Soros may be deemed the beneficial owner of 9,019,192 Shares (approximately 14.66% of the total number of Shares outstanding assuming the exercise and conversion of all of the securities held for the accounts of QIP and SFM Domestic). This number consists of A) 1,568,421 Shares held for the account of QIP, B) 1,568,421 Shares held for the account of SFM Domestic, C) 1,666,666 Shares issuable upon the conversion of the 1,666,666 shares of Series 1 Preferred Stock held for the account of QIP, D) 1,274,509 Shares issuable upon the exercise of warrants held for the account of QIP, E) 1,666,666 Shares issuable upon the conversion of the 1,666,666 shares of Series 1 Preferred Stock held for the account of SFM Domestic and F) 1,274,509 Shares issuable upon the exercise of warrants held for the account of SFM Domestic. (b) (i) Each of QIP, QIHMI, QIH Management, SFM LLC (by virtue of the QIP contract) and Mr. Soros (as a result of his position with SFM LLC) may be deemed to have the sole power to direct the voting and disposition of the 4,509,596 Shares held for the account of QIP (assuming the conversion of all Series 1 Preferred Stock and the exercise of all warrants held for the account of QIP.) (ii) Each of SFM Domestic and Mr. Soros (in his capacity as sole managing member of SFM Domestic) may be deemed to have sole power to direct the voting and disposition of the 4,509,596 Shares held for the account of SFM Domestic (assuming the conversion of all Series 1 Preferred Stock and the exercise of all warrants held for the account of SFM Domestic.) (c) Except as set forth in Item 6 below, there have been no transactions effected with respect to the Shares since November 17, 2000 (60 days prior to the date hereof) by any of the Reporting Persons. (d) (i) The shareholders of QIP, including Quantum Industrial Holdings, Ltd., a British Virgin Islands international business company, have the right to participate in the receipt of dividends from, or proceeds from the sales of, the Shares held for the account of QIP in accordance with their ownership interests in QIP. (ii) Certain members of SFM Domestic, including Mr. Soros, have the right to participate in the receipt of dividends from, or proceeds from the sale of, the Shares held for the account of SFM Domestic. Page 11 of 92 Pages (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. On December 22, 2000, QIP and SFM Domestic entered into a Preferred Stock and Warrant Purchase Agreement with the Issuer, as amended by the First Amendment, dated as of December 22, 2000 (the "Purchase Agreement"), (copies of which are incorporated by reference hereto as Exhibits D and G respectively, and incorporated herein by reference in response to this Item 6). Pursuant to the Purchase Agreement, each of QIP and SFM Domestic purchased (i) 1,666,666 shares of the "Series 1 Preferred Stock" and (ii) warrants to purchase up to an aggregate of 1,274,509 shares of common stock (the "Warrant Shares"), at an exercise price of $0.01 per share, for an aggregate purchase price of $4,999,998.00 each. (A form of the Common Stock Purchase Warrant is incorporated by reference hereto as Exhibit F and incorporated herein by reference in response to this Item 6.) The purchase price was paid via forgiveness of Demand Promissory Notes issued on December 29, 2000 by the Issuer in the same amounts to each of SFM Domestic and QIP. For a period of one year, neither the warrant nor the Warrant Shares are transferable separately from the associated number of shares of Series 1 Preferred Stock (for each Warrant Share, this equals 1.307603565 shares of Series 1 Preferred Stock). The preferred stock is convertible into common stock on a share for share basis at the election of the holders thereof or automatically if (i) at any time after the one year anniversary of the issuance of the Series 1 Preferred Stock, the market price of the common stock achieves a value which is at least five (5) times the value of the Series 1 Conversion Price (as defined in the Articles of Amendment to the 1999 Restated Articles of Incorporation of the Issuer filed with the Secretary of State of the State of Oregon on January 4, 2001 (the "Amended Articles") (a copy of which is incorporated by reference hereto as Exhibit H and incorporated herein by reference to this Item 6)), which is initially $3.00 or (ii) there is a merger, consolidation, reorganization or sale of all or substantially all of the Issuer's assets pursuant to which the then outstanding common stock shall be converted into or exchanged for cash and/or fully-registered marketable securities at a price per share at least equal to five (5) times the value of the Series 1 Conversion Price. The Series 1 Conversion Price is subject to adjustment for stock splits, dividends, combinations or other reclassifications of common stock, or equivalents of common stock and certain issuances of common stock or equivalents of common stock below the Series 1 Conversion Price. The Series 1 Preferred Stock is redeemable for 100% of the purchase price plus accrued but unpaid dividends only if (i) there is a change of control in which the then outstanding common stock is not converted into or exchanged for cash and/or fully-registered marketable securities at a price per share at least equal to five (5) times the value of the Series 1 Conversion Price or (ii) the Issuer fails to obtain the shareholder approval (the "Shareholder Approval") contemplated by Section 4.2(b) of the Purchase Agreement for the issuance of shares of common stock in excess of 20% of the amount of shares of common stock outstanding as of the closing to the holders of Series 1 Preferred Stock, if such issuance is required by operation of the anti-dilution provisions of the Amended Articles. The holders of Series 1 Preferred Stock are entitled to appoint a director to the Issuer's Board of Directors and, pursuant to Section 7 of the Amended Articles, a majority of such holders must approve (i) a liquidation of the Issuer, including a sale transaction deemed to be a liquidation pursuant to the Amended Articles, (ii) a transfer of more than 50% of the voting power of the Issuer, (iii) material transactions valued at more than $5,000,000, (iv) the declaration or payment of any dividends, (v) redemption of any shares or other indebtedness of the Issuer, (vi)affiliate transactions (other than with wholly owned subsidiaries) and (vii) adverse changes to the terms of the Series 1 Preferred Stock or the creation of a senior or pari passu class of stock. Pursuant to Section 3.1 of the 2000 Second Amended and Restated Investor Rights Agreement (the "Investor Rights Agreement") (a copy of which is incorporated by reference hereto as Exhibit E and incorporated herein by reference in response to this Item 6) entered into at closing, the shareholders signatory thereto agree to vote shares of common stock or preferred stock held by such shareholder in favor of the Shareholder Approval. Page 12 of 92 Pages From time to time, each of the Reporting Persons may lend portfolio securities to brokers, banks or other financial institutions. These loans typically obligate the borrower to return the securities, or an equal amount of securities of the same class, to the lender and typically provide that the borrower is entitled to exercise voting rights and to retain dividends during the term of the loan. From time to time, to the extent permitted by applicable laws, each of the Reporting Persons may borrow securities, including the Shares, for the purpose of effecting, and may effect, short sale transactions, and may purchase securities for the purpose of closing out short positions in such securities. The foregoing description of the Purchase Agreement, the Investor Rights Agreement, the Amended Articles and the Common Stock Purchase Warrant do not purport to be complete and are qualified in their entirety by the terms of each such document which are incorporated herein by reference. Except as set forth herein, the Reporting Persons do not have any contracts, arrangements, understandings or relationships with respect to any securities of the Issuer. Item 7. Material to be Filed as Exhibits. The Exhibit Index is incorporated herein by reference. Page 13 of 92 Pages SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this Statement is true, complete and correct. Date: January 16, 2001 QUANTUM INDUSTRIAL PARTNERS LDC By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Attorney-in-Fact Date: January 16, 2001 QIH MANAGEMENT INVESTOR, L.P. By: QIH MANAGEMENT, INC., its General Partner By: /S/ RICHARD D. HOLAHAN, JR. -------------------------------- Richard D. Holahan, Jr. Secretary Date: January 16, 2001 QIH MANAGEMENT, INC. By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Secretary Date: January 16, 2001 SOROS FUND MANAGEMENT LLC By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Assistant General Counsel Date: January 16, 2001 SFM DOMESTIC INVESTMENTS LLC By: George Soros Its Managing Member By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Attorney-in-Fact Page 14 of 92 Pages Date: January 14, 2001 GEORGE SOROS By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Attorney-in-Fact
Page 15 of 92 Pages ANNEX A Directors and Officers of Quantum Industrial Partners LDC Name/Title/Citizenship Principal Occupation Business Address - ---------------------- -------------------- ---------------- Curacao Corporation Managing Director of Kaya Flamboyan 9 Company N.V. Netherlands Antilles Willemstad Managing Director corporations Curacao, (Netherlands Antilles) Netherlands Antilles Inter Caribbean Services Limited Administrative services Citco Building Secretary Wickhams Cay (British Virgin Islands) Road Town Tortola British Virgin Islands Directors and Officers of QIH Management, Inc. Name/Title/Citizenship Principal Occupation Business Address - ---------------------- -------------------- ---------------- Frank V. Sica Managing Partner of Soros Private Equity 888 Seventh Avenue Director and President Partners LLC 28th Floor (United States) New York, NY 10106 Michael C. Neus Deputy General Counsel of SFM LLC and 888 Seventh Avenue Director and Vice President General Counsel of Soros Private Funds 33rd Floor (United States) Management LLC New York, NY 10106 Eve Mongiardo Chief Financial Officer of Soros Private 888 Seventh Avenue Director and Treasurer Funds Management LLC 28th Floor (United States) New York, NY 10106 Richard D. Holahan, Jr. Assistant General Counsel of 888 Seventh Avenue Secretary SFM LLC 33rd Floor (United States) New York, NY 10106 To the best of the Reporting Persons' knowledge /1/: (a) None of the above persons hold any Shares. /1/ (b) None of the above persons has any contracts, arrangements, understandings or relationships with respect to the Shares. /1/ - ---------- /1/ Certain persons may have an interest in SFM Domestic.
Page 16 of 92 Pages EXHIBIT INDEX Page No. ------- A. Joint Filing Agreement, dated as of January 16, 2001, by and among Quantum Industrial Partners LDC, QIH Management Investor, L.P., QIH Management, Inc., Soros Fund Management LLC, SFM Domestic Investments LLC and George Soros....................................................... 17 B. Power of Attorney, dated as of January 27, 2000, granted by Mr. George Soros in favor of Mr. Michael C. Neus and Mr. Richard D. Holahan, Jr...................................... 19 C. Power of Attorney, dated as of January 24, 2000, granted by Quantum Industrial Partners LDC in favor of Mr. Michael C. Neus and Mr. Richard D. Holahan, Jr......................... 20 D. Preferred Stock and Warrant Purchase Agreement, dated Dec 22, 2000, by and among MedicaLogic/Medscape, Inc. and certain investors, including Quantum Industrial Partners LDC and SFM Domestic Investments LLC............................ 21 E. 2000 Second Amended and Restated Investor Rights Agreement dated January 4, 2001, by and among MedicaLogic/Medscape, Inc. and certain investors, including Quantum Industrial Partners, LDC and SFM Domestic Investments LLC......................................................... 42 F. Form of Common Stock Purchase Warrant....................... 61 G. First Amendment to the Preferred Stock and Warrant Agreement dated as of December 22, 2000, by and among MedicaLogic/Medscape, Inc. and certain investors, including Quantum Industrial Partners LDC and SFM Domestic Investments LLC......................................................... 71 H. Articles of Amendment to the 1999 Restated Articles of Incorporation of MedicaLogic/Medscape, Inc. filed on January 4, 2001 .................................................... 76 EX-99.A 2 0002.txt EXHIBIT A Page 17 of 92 Pages EXHIBIT A JOINT FILING AGREEMENT The undersigned hereby agree that the statement on Schedule 13D with respect to the Common Stock of MedicaLogic/Medscape, Inc. (f/k/a MedicaLogic, Inc.) dated as of January 16, 2001, is, and any amendments thereto (including amendments on Schedule 13G) signed by each of the undersigned shall be, filed on behalf of each of us pursuant to and in accordance with the provisions of Rule 13d-1(k) under the Securities Exchange Act of 1934. Date: January 16, 2001 QUANTUM INDUSTRIAL PARTNERS LDC By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Attorney-in-Fact Date: January 16, 2001 QIH MANAGEMENT INVESTOR, L.P. By: QIH MANAGEMENT, INC., its General Partner By: /S/ RICHARD D. HOLAHAN, JR. -------------------------------- Richard D. Holahan, Jr. Secretary Date: January 16, 2001 QIH MANAGEMENT, INC. By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Secretary Date: January 16, 2001 SOROS FUND MANAGEMENT LLC By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Assistant General Counsel Page 18 of 92 Pages Date: January 16, 2001 SFM DOMESTIC INVESTMENTS LLC By: George Soros Its Managing Member By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Attorney-in-Fact Date: January 14, 2001 GEORGE SOROS By: /S/ RICHARD D. HOLAHAN, JR. ------------------------------------ Richard D. Holahan, Jr. Attorney-in-Fact EX-24 3 0003.txt EXHIBIT B Page 19 of 92 Pages EXHIBIT B POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that I, GEORGE SOROS, hereby make, constitute and appoint each of MICHAEL C. NEUS and RICHARD D. HOLAHAN, JR. acting individually, as my agent and attorney-in-fact for the purpose of executing in my name, (a) in my personal capacity or (b) in my capacity as Chairman of, member of or in other capacities with Soros Fund Management LLC ("SFM LLC") and each of its affiliates or entities advised by me or SFM LLC, all documents, certificates, instruments, statements, filings and agreements ("documents") to be filed with or delivered to any foreign or domestic governmental or regulatory body or required or requested by any other person or entity pursuant to any legal or regulatory requirement relating to the acquisition, ownership, management or disposition of securities or other investments, and any other documents relating or ancillary thereto, including but not limited to, all documents relating to filings with the United States Securities and Exchange Commission (the "SEC") pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934 (the "Act") and the rules and regulations promulgated thereunder, including: (1) all documents relating to the beneficial ownership of securities required to be filed with the SEC pursuant to Section 13(d) or Section 16(a) of the Act including, without limitation: (a) any acquisition statements on Schedule 13D or Schedule 13G and any amendments thereto, (b) any joint filing agreements pursuant to Rule 13d-1(k), and (c) any initial statements of, or statements of changes in, beneficial ownership of securities on Form 3, Form 4 or Form 5 and (2) any information statements on Form 13F required to be filed with the SEC pursuant to Section 13(f) of the Act. All past acts of the attorney-in-fact in furtherance of the foregoing are hereby ratified and confirmed. This power of attorney shall be valid from the date hereof until revoked by me. IN WITNESS WHEREOF, I have executed this instrument as of the 27th day of January, 2000. /s/ George Soros -------------------------- GEORGE SOROS EX-24 4 0004.txt EXHIBIT C Page 20 of 92 Pages EXHIBIT C QUANTUM INDUSTRIAL PARTNERS LDC POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned QUANTUM INDUSTRIAL PARTNERS LDC (the "Company"), an exempted limited duration company existing and operating under the laws of the Cayman Islands does, pursuant to a duly adopted resolution of its Managing Director, hereby designate, constitute and appoint: MICHAEL C. NEUS AND RICHARD D. HOLAHAN, JR. acting, singly and not jointly, as its true and lawful agent and attorney in fact for the purpose of executing in its name, all documents, certificates, instruments, statements, filings and agreements ("documents") to be filed with or delivered to any foreign or domestic governmental or regulatory body or required or requested by any other person or entity pursuant to any legal or regulatory requirement relating to the acquisition, ownership, management or disposition of securities or other investments, and any other documents relating or ancillary thereto, including but not limited to, all documents relating to filings with the United States Securities and Exchange Commission (the "SEC") pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934 (the "Act") and the rules and regulations promulgated thereunder, including: (1) all documents relating to the beneficial ownership of securities required to be filed with the SEC pursuant to Section 13(d) or Section 16(a) of the Act including, without limitation: (a) any acquisition statements on Schedule 13D or Schedule 13G and any amendments thereto, (b) any joint filing agreements pursuant to Rule 13d-1(k), and (c) any initial statements of, or statements of changes in, beneficial ownership of securities on Form 3, Form 4 or Form 5 and (2) any information statements on Form 13F required to be filed with the SEC pursuant to Section 13(f) of the Act. Each attorney-in-fact is hereby authorized and empowered to perform all other acts and deeds, which he or she in his or her sole discretion deems necessary or appropriate to carry out to the fullest extent the terms and the intent of the foregoing. All prior acts of each attorney-in-fact in furtherance of the foregoing are hereby ratified and confirmed. IN WITNESS WHEREOF, the Company has caused this document to be executed this 24th day of January, 2000. QUANTUM INDUSTRIAL PARTNERS LDC /s/ Curacao Corporation Company N.V. ---------------------------------------- Curacao Corporation Company N.V. Managing Director EX-99.D 5 0005.txt EXHIBIT D Page 21 of 92 Pages PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT THIS PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT is made as of December 22, 2000 by and among MedicaLogic/Medscape, Inc., an Oregon corporation (the "Company"), and the Investors listed on Schedule A attached hereto (the "Investors"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Preferred Stock and Warrants. 1.1 Sale and Issuance of Preferred Stock and Warrants. (a) The Company shall adopt and file with the Secretary of State of Oregon on or before the Closing (as defined below) the articles of amendment of its 1999 Restated Articles of Incorporation, as amended (the "Amended Articles") in the form attached hereto as Exhibit A. (b) Subject to the terms and conditions of this Agreement, the Investors severally and not jointly agree to purchase at the Closing, and the Company agrees to sell and issue to the Investors at the Closing, (i) that number of shares of the Company's Series 1 Convertible Redeemable Preferred Stock (the "Series 1 Preferred Stock") set forth opposite each Investor's name on Schedule A hereto for the purchase price set forth thereon, and (ii) a warrant to purchase that number of shares of the Company's Common Stock (the "Common Stock") set forth opposite each Investor's name on Schedule A hereto for the purchase price set forth thereon, such warrant to be in substantially the form attached hereto as Exhibit B (the "Warrants"). The rights, privileges and preferences of the Series 1 Preferred Stock will be as stated in the Amended Articles. 1.2 Closings. Unless this Agreement shall have terminated pursuant to Section 7, and subject to the satisfaction or waiver of the conditions set forth in Sections 5 and 6, the purchase and sale of the Series 1 Preferred Stock and Warrants shall take place at one or more closings at the offices of Stoel Rives LLP, 900 SW Fifth Avenue, Suite 2300, Portland, Oregon at such times and places as the Company and the Investors mutually agree upon orally or in writing (which times and places are designated as a "Closing"). At the Closing the Company shall deliver to each Investor purchasing Series 1 Preferred Stock and Warrants at such Closing Warrants and stock certificates representing the number of shares of Series 1 Preferred Stock and Warrants that such Investor is purchasing against payment of the purchase price therefor by check or wire transfer in immediately available funds. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to the Investors that, except as set forth on a Schedule of Exceptions (the "Schedule of Exceptions") furnished to the Investors, specifically identifying the relevant subparagraph hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Valid Existence and Qualification. The Company is a corporation duly organized and validly existing under the laws of the state of Oregon and has all Page 22 of 92 Pages requisite corporate power and authority to carry on its business as now conducted. Each of the corporations or other persons in which the Company, directly or indirectly, holds 50% or more of (i) the voting power of the outstanding voting equity securities or (ii) the outstanding economic equity interest (each, a "Subsidiary") is a corporation duly organized or limited liability company duly formed and validly existing under the laws of the state of its incorporation or formation, and has all requisite corporate or limited liability company power and authority to carry on its business as now conducted. The Company and each of its Subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business requires such qualification. 2.2 Subsidiaries. Neither the Company nor any Subsidiary presently owns or controls, directly or indirectly, any interest in any other corporation, association or other entity. Neither the Company nor any Subsidiary is a participant in any joint venture, partnership, or similar arrangement. 2.3 Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary for (a) the authorization, execution and delivery of this Agreement and the 2000 Second Amended and Restated Investor Rights Agreement of even date herewith, by and among the Company and the Investors (as defined therein) (the "Investors' Rights Agreement") and the Warrants (collectively, the "Transaction Documents"), (b) the performance of all obligations of the Company hereunder and thereunder, (c) the authorization, issuance (or reservation for issuance), sale and delivery of the Series 1 Preferred Stock and Warrants being sold pursuant to this Agreement and the Common Stock issuable upon conversion of the Series 1 Preferred Stock (the "Conversion Shares") and the exercise of the Warrants (the "Warrant Shares" and, together with the Conversion Shares, the "Shares"), and (d) the authorization and adoption of the Amended Articles has been taken or will be taken prior to the Closing, and the Transaction Documents constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investor Rights Agreement may be limited by applicable federal or state securities laws. 2.4 Valid Issuance of Preferred and Common Stock. (a) The Series 1 Preferred Stock that is being purchased by the Investors pursuant to this Agreement, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, will be issued in compliance with the registration and qualification requirements of all applicable federal and state securities laws and will be free and clear 2 Page 23 of 92 Pages of all Liens (as defined in Section 2.6) other than restrictions on transfer under the Amended Articles, this Agreement and the other Transaction Documents and under applicable state and federal securities laws. The Shares have been duly and validly reserved for issuance and, (i) in the case of the Conversion Shares, upon issuance in accordance with the terms of the Amended Articles and, (ii) in the case of the Warrant Shares, upon issuance in accordance with the terms of the Warrants, will be duly and validly issued, fully paid, and nonassessable and will be free and clear of all Liens other than restrictions on transfer under this Agreement and the other Transaction Documents and under applicable state and federal securities laws. (b) The issuance of the Series 1 Preferred Stock and the Warrants is not subject to any preemptive rights or similar rights and the issuance of the Conversion Shares upon the conversion of the Series 1 Preferred Stock and the Warrant Shares upon the exercise of the Warrants will not be subject to any preemptive rights or similar rights. The Company has denied preemptive rights to its shareholders as contemplated by Section 60.174 of the Business Corporation Act of Oregon, as amended. There are no approvals or consents required by Section 60.810 or Section 60.835 of the Oregon Business Corporation Act in order to consummate the transactions contemplated by the Transaction Documents. 2.5 Capitalization. (a) At the Closing the authorized capital stock of the Company shall consist of 100,000,000 shares of Common Stock, 50,000,000 shares of preferred stock, of which 5,766,666 shares shall have been designated Series 1 Preferred Stock. At December 17, 2000, 55,719,682 shares of Common Stock (which includes shares of restricted Common Stock described below) and no shares of preferred stock were issued and outstanding. At December 17, 2000, 2,287,844 shares of Common Stock remained available for issuance under the Company's 1999 Employee Stock Purchase Plan. At December 17, 2000, the aggregate number of shares of restricted stock and options to purchase shares of Common Stock available to be issued or granted pursuant to any stock option plan or stock incentive plan of the Company or any Subsidiary was 959,779. At December 17, 2000, options to purchase 9,143,282 shares of Common Stock were outstanding and 2,210,750 shares of restricted Common Stock had been issued under such plans. Except for the Series 1 Preferred Stock and the Warrants, shares issuable under the Company's 1999 Employee Stock Purchase Plan and the stock options referred to in the preceding sentence (as may be updated pursuant to Section 5.16), there are no options, warrants, conversion privileges, subscription or purchase rights or other rights presently outstanding to purchase or otherwise acquire (x) any authorized but unissued, unauthorized or treasury shares of the Company's capital stock or (y) any securities of the Company convertible into or exercisable or exchangeable for shares of Common Stock, and there are no commitments, contracts, agreements, arrangements or understanding by the Company to issue any such securities. (b) The Company owns all of the issued and outstanding capital stock of the Subsidiaries, free and clear of all Liens. All of such shares of capital stock are duly authorized, validly issued, fully paid and nonassessable, and were issued in compliance with the registration and qualification requirements of all applicable federal and state and foreign securities laws. There are no options, warrants, conversion privileges, subscription or purchase rights or other rights presently outstanding to purchase or otherwise acquire any authorized but unissued, unauthorized or treasury shares of capital stock or other securities of, or any proprietary interest in, any of the Subsidiaries, and there is no outstanding security of any kind convertible into or exchangeable for such shares or proprietary interest. 2.6 No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions 3 Page 24 of 92 Pages contemplated hereby and thereby (including, without limitation, the Company's issuance of the Series 1 Preferred Stock and Warrants and the reservation for issuance and issuance of the Shares) will not (i) result in a violation of the Company's 1999 Restated Articles of Incorporation, as amended by the Amended Articles and as in effect on the date hereof, or the Company's Bylaws, as amended and as in effect on the date hereof (the "Bylaws") or (ii) conflict with, or constitute a breach or default (or an event which with notice or lapse of time or both would result in a breach or default) under, or result in the creation of any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or preference, priority, right or other security interest or preferential arrangement of any kind or nature whatsoever (excluding preferred stock and equity related preferences) (each, a "Lien"), or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any Subsidiary is a party (except for possible conflicts, breaches, defaults, terminations, amendments or other events that would not result in a material adverse development in the business, properties, operations, financial condition, results of operations or prospects of the Company and its Subsidiaries, taken as a whole (a "Material Adverse Effect")), or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations), applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected. Except as specifically contemplated by this Agreement in connection with (i) the listing of the Shares on Nasdaq National Market ("Nasdaq"), (ii) registration of the resale of the Series 1 Preferred Stock and the Shares under the Securities Act of 1933, as amended (the "Act"), as contemplated by the Investors' Rights Agreement, and (iii) the filing of one of more Forms D with respect to the Series 1 Preferred Stock and the Shares as required under Regulation D, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents in accordance with the terms hereof or thereof. The Company is not, and upon consummation of the transactions contemplated by the Transaction Documents will not be, in violation of the listing requirements of Nasdaq. 2.7 Offering. Assuming the accuracy of the Investors' representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Units as contemplated by this Agreement are exempt from the registration requirements of the Act and from the qualification requirements of the Oregon Securities Law, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 2.8 SEC Documents; Financial Statements. As of the Closing, the Company shall have filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission ("SEC") pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or 4 Page 25 of 92 Pages omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Investors which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. 2.9 Absence of Certain Changes. Since the Company's Form 10-Q for the quarter ended September 30, 2000 (the "Most Recent Filing"), there has been no material adverse change and no development that would result in a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. 2.10 Liabilities. Neither the Company nor any Subsidiary has any direct or indirect obligation or liability and, to the Company's knowledge, there is no existing condition, event or arrangement that could reasonably be expected to give rise to such an obligation or liability, other than (a) those provided for in the financial statements included in the SEC Documents and (b) those incurred since the Most Recent Filing in the ordinary course of business consistent with past practices. 2.11 Material Contracts. Each of the agreements, contracts, leases and other commitments listed as an exhibit to any SEC Document filed since January 1, 2000 (each, a "Material Contract") is a legal, valid and binding agreement of the Company or a Subsidiary, and is in full force and effect, except to the extent such agreement has been fully performed or terminated pursuant to its terms, and, to the Company's knowledge, no party thereto is in default or breach, and there exists no event or circumstance that with notice or lapse of time or both would constitute a default or breach thereunder, except in each case for those defaults and breaches which could not reasonably be expected, either individually or in the aggregate, to result in a Material Adverse Effect. 2.12 Absence of Litigation. Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of the Company's or any Subsidiary's officers or directors in their capacities as such that would have a Material 5 Page 26 of 92 Pages Adverse Effect and, to the knowledge of the Company, there is no reasonable basis for any of the foregoing. 2.13 Intellectual Property. (a) The Company or one of its Subsidiaries owns, or has a valid license to use, all patents, trademarks, service marks, trade names, copyrights, trade secrets, domain names, software, technology, know-how and other intellectual property (the "Intellectual Property") necessary to or used in the conduct of the business of the Company and its Subsidiaries as now conducted and as proposed to be conducted. All Intellectual Property owned by the Company or any of its Subsidiaries is owned by them free and clear of all Liens. To the knowledge of the Company, the conduct of the business of the Company and its Subsidiaries does not conflict with or infringe upon any Intellectual Property rights of any other person and no claims of conflict or infringement are pending or threatened against the Company or any of its Subsidiaries which, in any event, would reasonably be expected to have a Material Adverse Effect. (b) All of the Intellectual Property licenses, sublicenses, distributor agreements and other agreements under which the Company or any Subsidiary is either a licensor, licensee or distributor (excluding those related to off-the-shelf software commercially available on a retail basis and used solely on the computers of the Company and/or any Subsidiary) are valid, enforceable and in full force and effect, and neither the Company nor any Subsidiary is required to pay any royalty payment pursuant to any such agreement (except for such agreements that were entered into in the ordinary course of business consistent with past practice). Except as set forth in the SEC Documents, no former employer of any employee of the Company or any Subsidiary, and no current or former client of any consultant of the Company or any Subsidiary, has made a claim against the Company or any Subsidiary or, to the Company's knowledge, against any other person, that such employee or consultant is utilizing Intellectual Property of such former employer or client. (c) The Company has policies and procedures that provide that all employees of the Company and each Subsidiary execute and deliver proprietary invention agreements with the Company, and be obligated under the terms thereof to assign all inventions made by them during the course of employment to the Company or such Subsidiary, and the Company uses its best efforts to abide by those policies and procedures. 2.14 Compliance with Other Instruments. Neither the Company nor any Subsidiary is in violation or default in any respect (i) of any provision of its 1999 Restated Articles of Incorporation, as amended by the Amended Articles (when filed), or Bylaws, or (ii) of any judgment, order, writ, decree to which it is a party or by which it is bound, or of any provision of any federal or state statute, rule or regulation applicable to it, or (iii) of any agreement, indenture or instrument to which it is a party (except for violations or defaults with respect to clauses (ii) and (iii) that would not have a Material Adverse Effect). The execution, delivery and performance of the Transaction Documents, and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an 6 Page 27 of 92 Pages event that results in the creation of any Lien upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties (except for violations, conflicts, defaults, liens, damages, encumbrances, suspensions, revocations, impairments or forfeitures that would not, either individually or in the aggregate, have a Material Adverse Effect). 2.15 Related-Party Transactions. Except as set forth in the SEC Documents, no 5% or greater shareholder of the Company, officer, or director of the Company or any Subsidiary or member of his or her immediate family is indebted to the Company in any material amount, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them in any material amount. To the best of the Company's knowledge, none of the Company's officers or directors has any direct or indirect ownership interest in any firm or corporation with which the Company or any Subsidiary is affiliated or with which the Company or any Subsidiary has a business relationship, or any firm or corporation that competes with the Company or any Subsidiary, except that officers or directors of the Company and members of their immediate families may own less than 2% of the outstanding stock in a publicly traded company that may compete with the Company. No member of the immediate family of any officer or director of the Company is directly or indirectly interested in any material contract with the Company. None of the foregoing transactions is currently contemplated by the Company. 2.16 Permits. The Company and each of its Subsidiaries have all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted or proposed to be conducted by it, the lack of which could result in a Material Adverse Effect. The Company is not in default in any material respect under any of such franchises, permits, licenses, or other similar authority. 2.17 Outstanding Borrowing. Except as set forth in the SEC Documents and incurred in the ordinary course of business consistent with past practices, since the Most Recent Filing, neither the Company nor any Subsidiary has (a) any obligation for borrowed money (including, without limitation, reimbursement or other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured), (b) any obligation to pay the deferred purchase price of property or services, except trade accounts payable and accrued commercial or trade liabilities arising in the ordinary course of business, (c) any payment obligation, whether periodic or upon the occurrence of a contingency, under any interest rate or currency swap, cap, collar or similar agreement or hedging device, (d) indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such party (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) any obligation under leases which have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (f) any indebtedness secured by any Lien (other than Liens in favor of lessors under leases other than leases included in clause (e)) on any property or asset owned or held by such party regardless of whether the indebtedness secured thereby shall have been assumed by that party or is nonrecourse to the credit of that party, and (g) any direct or indirect liability with respect to any obligation of a third party of the type described in clauses (a) through (e) of this section (the "Primary Obligation"), whether or not 7 Page 28 of 92 Pages contingent, (i) to purchase, repurchase or otherwise acquire such Primary Obligation or any property constituting direct or indirect 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 third party or to otherwise maintain the net worth or solvency of any balance sheet item, level of income or financial condition of such third party, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such Primary Obligation of the ability of such third party to make payment of such Primary Obligation, or (iv) to otherwise assure or hold harmless the owner of any such Primary Obligation against loss or failure or inability to perform in respect thereof. 2.18 Environmental and Safety Laws. The Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.19 Manufacturing and Marketing Rights. The Company has not granted rights to manufacture, produce, assemble, license, market or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 2.20 Disclosure. Neither the Transaction Documents nor any other statements or certificates made or delivered in connection therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made herein or therein not misleading. 2.21 Registration Rights. Except as provided in the Investor Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.22 Title to Property and Assets. The Company and each Subsidiary owns their respective properties and assets free and clear of all Liens, except such Liens that arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of the Company's knowledge, such leases are in full force and effect and the Company holds a valid leasehold interest free of any Liens. No other property or assets are necessary to the conduct of their respective businesses, as presently conducted or as proposed to be conducted. 2.23 Taxes. (a) The Company and each of its Subsidiaries has timely filed all income, franchise and other material tax returns, reports, forms and other such documents ("Tax Returns") required to be filed by it prior to the date hereof. Such Tax Returns are true and correct in all material respects. The Company and each of its Subsidiaries has paid or caused to be paid all Tax liabilities for all fiscal years that have not been examined and closed by any Tax authority (or closed by applicable statutes). No additional Tax assessment, Tax deficiency (whether assessed or unassessed) or claim for additional Taxes (including interest thereon and 8 Page 29 of 92 Pages penalties in connection therewith) has been heretofore proposed or threatened by any Tax authority and no audit is in progress and no extension of time is in force with respect to any date on which any Tax Return is to be filed and no waiver or agreement is in force for the extension of time for the assessment or payment of any Tax. Neither the Company nor any Subsidiary has made an election under Section 341(f) of the Code (b) There are no Liens for Taxes (other than for taxes not yet due and payable) upon the assets of the Company or any Subsidiary. (c) Neither the Company or any Subsidiary (i) is a party to or bound by, or has any obligations under, any tax allocation, sharing, indemnity or similar agreement or arrangement, (ii) is or has been a member of any consolidated, combined or unitary group of corporations, other than a group of which the Company is the common parent, for purposes of filing tax returns or paying taxes and (iii) other than as a result of being a member of a consolidated, combined or unitary group of corporations of which the Company is the common parent, is liable for the taxes of any other Person, under Treasury Regulations section 1.1502-6 (or any similar provision of foreign, state or local law) or as a transferee, successor or otherwise. (d) Neither the Company nor any Subsidiary is a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of section 280G of the Code or any similar provision of foreign, state or local law as a result of a transaction occurring on or before the date hereof. (e) Neither the Company nor any Subsidiary has ever been a "United States real property holding corporation" (a "USRPHC") as that term is defined in Section 897(c)(2) of the Code and the treasury regulations promulgated thereunder (the "Treasury Regulations"). (f) There are no (i) outstanding rulings of, or requests for rulings with, the Internal Revenue Service or any other Tax authority addressed to the Company or any Subsidiary, that are, or if issued would be, binding on the Company or any Subsidiary, (ii) closing agreements with any Tax authority and (iii) other binding agreements entered into with any Tax authority. The Company and each Subsidiary have provided the Investors with copies of any such rulings, ruling requests, closing agreement or other binding agreements. (g) Neither the Company nor any Subsidiary has been a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355 of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code in the two years prior to the date of this Agreement. (h) As used in this Agreement, "Tax" or "Taxes" means any federal, state, county, local, foreign and other taxes (including, without limitation, income, profits, premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, withholding, employment, unemployment compensation, payroll and property taxes, import duties and other governmental charges and assessments), whether or not measured in whole or in part by net income, and including deficiencies, interest, additions to tax or interest, and penalties with respect thereto, and 9 Page 30 of 92 Pages including expenses associated with contesting any proposed adjustments related to any of the foregoing, except that they do not contain footnotes or normal period-end adjustments. 2.24 Insurance. The Company and each of its Subsidiaries has in full force and effect insurance policies in such amounts and against such risks as are customarily maintained and insured against by comparable businesses. The Company has in full force and effect products liability and errors and omissions insurance in amounts customary for companies similarly situated. All such policies are listed on the Schedule of Exceptions, together with the effective date and coverage amounts with respect thereto. 2.25 Labor Agreements and Actions. Neither the Company nor any Subsidiary is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the best of the Company's knowledge, has sought to represent any of the employees, representatives or agents of the Company or any Subsidiary. There is no strike or other labor dispute involving the Company or any Subsidiary pending, or to the best of the Company's knowledge, threatened, that could have a Material Adverse Effect, nor is the Company aware of any labor organization activity involving its employees. To the best of the Company's knowledge, no officer or key employee, or any group of key employees, intends to terminate their employment with the Company or any Subsidiary. The employment of each officer and employee of the Company or any Subsidiary is terminable at the will of the Company or any Subsidiary, and neither the Company nor any Subsidiary has an employment agreement with any officer. The Company and each Subsidiary has complied in all respects with all applicable state and federal equal employment opportunity and other laws related to employment. 2.26 "Company's Knowledge" Defined. As used in this Section 2, the terms "to the best of the Company's knowledge," "to the best knowledge of the Company," or "known to the Company" shall mean the knowledge of the Company, its Subsidiaries and the officers, directors and management of each, after careful consideration of the matters set forth in the representation that is so qualified. 2.27 Eligibility. As of December 9, 2000, the Company will be eligible to register the resale of the Unit Shares on a registration statement on Form S-3 under the Act. 2.28 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974, as amended. 3. Representations and Warranties of the Investors. Each Investor severally and not jointly hereby represents and warrants that: 3.1 Authorization. Such Investor has full power and authority to enter into the Transaction Documents to which it is a party, and each such agreement constitutes its valid and legally binding obligation enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to 10 Page 31 of 92 Pages the extent the indemnification provisions contained in the Investor Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. This Agreement is made with the Investors in reliance upon such Investor's representations to the Company, that the Series 1 Preferred Stock and Warrant to be received by such Investor and the Shares (the "Securities") will be acquired for investment for such Investor's own account in the ordinary course of business, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention, agreements or understandings, directly or indirectly, of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, such Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. Such Investor represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series 1 Preferred Stock and Warrant and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of such Investor to rely thereon. 3.4 Investment Experience. Such Investor is an investor in securities of companies in the development stage and acknowledges that it can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series 1 Preferred Stock and Warrants. Such Investor has not been organized for the purpose of acquiring the Series 1 Preferred Stock and Warrants. 3.5 Accredited Investor. Such Investor is an "accredited investor" within the meaning of Rule 501 promulgated under the Act, as presently in effect. 3.6 Restricted Securities. Such Investor understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold, without registration under the Act, only in certain limited circumstances. In this connection, such Investor represents that it is familiar with Rule 144 promulgated under the Act, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, such Investor (and, by accepting delivery of the Securities, each transferee) further agrees not to make any disposition of all or any portion of the Securities that are "restricted securities" under the Act unless, if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Act. Such opinion shall not be required if there is then in effect a Registration Statement under the 11 Page 32 of 92 Pages Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement. 3.8 Legends. It is understood that the certificates evidencing the Securities may bear legends similar to the following: (a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. EACH INVESTOR SHOULD BE AWARE THAT IT MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT, UNLESS THE SECURITIES ARE RESOLD IN COMPLIANCE WITH RULE 144, AND ANY APPLICABLE STATE SECURITIES LAWS. (b) A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF THE SHARES OF EACH CLASS OF STOCK OF THE ISSUER, THE VARIATIONS IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF PREFERRED STOCK SO FAR AS FIXED AND DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE RECORD HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER AT ITS PRINCIPAL OFFICE. (c) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS AS SET FORTH IN A UNIT PURCHASE AGREEMENT TO WHICH THE ORIGINAL HOLDER OF THESE SHARES IS A PARTY, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. 4. Covenants of the Company. 4.1 Conduct of Business. From the date of this Agreement until the Closing, the Company will (a) conduct its business in a reasonable and prudent manner and in accordance with its normal practices; (b) engage in no transaction (including, without limitation, capital expenditures) out of the ordinary course of its business and consistent with past practices; (c) not dispose of any of its assets or properties except to the extent these are used, retired or replaced in the ordinary course of its business; (d) conduct its business in accordance with all applicable laws, regulations and ordinances; (e) maintain and keep in force any governmental licenses, permits, authorizations, consents or approvals required by the Company to own its assets and 12 Page 33 of 92 Pages properties or to carry on its business as currently conducted; (f) maintain and keep in force its Intellectual Property rights; (g) perform all material obligations required to be performed by it under any of the Material Contracts; (h) refrain from entering into transactions with affiliates of the Company; (i) not pay dividends to, or redeem the shares of, stockholders of the Company other than pursuant to existing restricted stock purchase agreement with current or former employees; and (j) not amend the 1999 Restated Articles of Incorporation or Bylaws of the Company. 4.2 Anti-dilution. (a) The Company shall not, without first obtaining shareholder approval, issue shares of Common Stock or Other Securities (as defined in the Amended Articles) for a per share consideration less than (i) the then-current Conversion Price (as defined in the Amended Articles) or (ii) the Fair Market Price (as defined in the Amended Articles) of the Common Stock at the time of such issuance, if such issuance would violate Nasdaq Marketplace Rule 4460(i)(1)(D)(i). (b) The Company shall use its best efforts to obtain the shareholder approval necessary to allow it to make any adjustments (i) to the Conversion Price or otherwise required by the anti-dilution provisions set forth in the Amended Articles and (ii) the Exercise Price (as defined in the Warrant) or otherwise required by the anti-dilution provisions set forth in the Warrant without any subsequent shareholder approval, in compliance with Nasdaq Marketplace Rule 4460(i)(1)(D)(i), at its next regularly scheduled annual meeting of shareholders following the Closing. 4.3 Registration. The Company shall use its efforts to prepare and file with the SEC, within sixty (60) days after the Closing and after giving Investors' legal counsel reasonable time to review and comment, a registration statement to register the resale of the Shares by the Investors from time to time under the Act. This filing and registration shall be treated as a request for registration pursuant to Section 1.2(a)(iii) of the Investors' Rights Agreement and shall otherwise be governed by the terms and conditions set forth in the Investors' Rights Agreement. 5. Conditions of Investors' Obligations at Closing. The obligations of the Investors under subsection 1.1(b) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 5.2 Performance. The Company shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 13 Page 34 of 92 Pages 5.3 Compliance Certificate. The President of the Company shall deliver to the Investors at the Closing a certificate stating that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating that there shall have been no material adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company since the date of the financial statements contained in the Most Recent Filing. 5.4 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. 5.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investors, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 5.6 Board of Directors. The directors of the Company as of Closing shall consist of the following individuals, and may include up to two other individuals to be appointed by the Board of Directors: Bruce Fried C. Martin Harris, M.D. Ronald H. Kase Mark Leavitt, M.D. Arthur Leibowitz, M.D. George Lundberg, M.D. David C. Moffenbeier Neal Moszkowski Mark A. Stevens 5.7 Articles of Amendment. The Company shall have filed the Amended Articles with the Secretary of State of Oregon and the Investors shall have received evidence of such filing prior to the Closing. 5.8 Opinion of Company Counsel. The Investors shall have received from Stoel Rives LLP, counsel for the Company, an opinion, dated as of the Closing, in the form attached hereto as Exhibit C. 5.9 Certificate of Existence. The Company shall have delivered to the Investors a certificate dated as of a recent date issued by the Secretary of State of the State of Oregon to the effect that the Company is validly existing. 5.10 Secretary's Certificate. The Company shall have delivered to the Investors a certificate executed by the Secretary of the Company dated as of the Closing, certifying the following matters: (a) resolutions adopted by the Company's Board of Directors relating to the transactions contemplated by this Agreement; (b) Amended Articles of the 14 Page 35 of 92 Pages Company; (c) Bylaws of the Company; (d) incumbency of officers of the Company; and (e) such other matters as the Investors may reasonably request. 5.11 Investor Rights Agreement. The Company, the Investors and the holders of a majority of the outstanding Registrable Securities (as defined in the 2000 Amended and Restated Investor Rights Agreement, dated May 19, 2000, among the Company and the shareholders signatory thereto) shall have entered into the Investor Rights Agreement in the form attached as Exhibit D. 5.12 Minimum Investment. The Company shall have received an aggregate minimum investment from the Investors of $17,000,000. 5.13 Nasdaq Approval. The Investors shall have received reasonably satisfactory evidence that Nasdaq has approved (i) the proposals set forth by the Company in (a) the letter dated December 6, 2000 and (b) the letter dated December 11, 2000 from the Company to the office of Nasdaq Listing Qualifications and (ii) the Shares for listing on the Nasdaq National Market. 5.14 Due Diligence. The Investor's counsel shall be reasonably satisfied with the results of its due diligence inquiry regarding the outstanding litigation of the Company and its Subsidiaries. 5.15 Adverse Change. There shall have been no material adverse change in the Company's business from that reported in the Most Recent Filing prior to the Closing. For purposes of this Section 5.13, "material adverse change" means a circumstance, fact, change, development or effect (i) that has been, could or could reasonably be expected to be materially adverse to the properties, business, prospects, results of operations or condition, financial or otherwise, of the Company taken as a whole or (ii) that adversely effects the ability of the Company to consummate the transactions contemplated by the Transaction Documents or materially impairs or delays the ability of the Company to effect the Closing or (iii) that could reasonably be expected to require a material expenditure by any of the Company, a Subsidiary or the Investors. 5.16 Capitalization Schedule. The Company shall have delivered to the Investors a schedule reasonably satisfactory to the Investors reflecting, after giving effect to the transactions contemplated by this Agreement, (i) the Company's authorized, issued and outstanding shares of Common Stock and Series 1 Preferred Stock and (ii) the aggregate number of shares of restricted stock and options to purchase shares of Common Stock which may be issued and which have been granted pursuant to any stock option plan or stock incentive plan of the Company or any Subsidiary or are issuable pursuant to the Company's 1999 Employee Stock Purchase Plan. The information in such Schedule shall be as of the Closing. 5.17 Viacom Waiver. The Investors shall have received a copy of a waiver, in form reasonably satisfactory to Investor's counsel, executed by Viacom waiving its right of participation in the transactions contemplated by this Agreement. 15 Page 36 of 92 Pages 6. Conditions of the Company's Obligations at Closing. The obligations of the Company to the Investors under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by the Investors: 6.1 Representations and Warranties. The representations and warranties of the Investors contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Payment of Purchase Price. The Investors shall have delivered the purchase price specified in Section 1. 6.3 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. 6.4 Minimum Investment. The Company shall have received an aggregate minimum investment from the Investors of $17,000,000. 7. Termination. 7.1 Right to Termination. This Agreement may be terminated and the proposed transactions abandoned: (a) At any time, by mutual written consent of the Company and Investors committed to purchase a majority of the Series 1 Preferred Stock; (b) At the option of an Investor and by notice to the Company stating the reasons for such action, (i) in the event the Closing shall not have occurred by January 31, 2001 (or any other date that the parties may designate by mutual agreement) by reason of the failure of any of the conditions set forth in Section 5 or (ii) at any time prior to the Closing, in the event of a material breach of any of the representations or warranties by the Company set forth in Section 2 or a material breach of any of the covenants of the Company set forth in Section 4; or (c) At the option of the Company and by notice to the Investors stating the reasons for such action, (i) in the event the Closing shall not have occurred by January 31, 2001 (or any other date that the parties may designate by mutual agreement) by reason of the failure of any of the conditions set forth in Section 6 or (ii) at any time prior to the Closing, in the event of a material breach of any of the representations or warranties of the Investors set forth in Section 3. 7.2 Effect of Termination. Termination by a party pursuant to subsection 7.1(b) or subsection 7.1(c) shall not adversely affect such party's other available rights and remedies. The rights and remedies of the party terminating this Agreement pursuant to subsection 7.1(b) or subsection 7.1(c), whether contained in this Agreement or conferred pursuant to applicable law or in equity, shall be cumulative and concurrent and may be pursued singly, successively or together, at the discretion of the holder thereof. 16 Page 37 of 92 Pages 8. Miscellaneous. 8.1 Survival of Warranties. The warranties, representations and covenants of the Company and the Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company. 8.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 8.3 Governing Law. This Agreement shall be governed by and construed under the laws of the state of Oregon. 8.4 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. 8.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.6 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered, certified mail, Federal Express, or other express courier, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. Any notice given to the Company under this Section 6.6 shall be copied via email to legal@medscapeinc.com. 8.7 Finder's Fee. Except for the Shemano Group and as otherwise as set forth in the Schedule of Exceptions, each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. The Investors agree to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investors or any of their officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless the Investors from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 8.8 Expenses. Each of the Company and the Investors shall bear their own legal and other expenses incurred with respect to this Agreement and the transactions 17 Page 38 of 92 Pages contemplated hereby; provided, however, that the Company shall pay up to an aggregate of $75,000 in the reasonable legal fees and expenses of counsel to the Investors, contingent upon the Closing. The Investors shall require their counsel to submit all invoices related to this Agreement and the transactions contemplated hereby to the Company's General Counsel for his review. 8.9 Attorneys' Fees. If any action at law or in equity is necessary to enforce or interpret the terms of the Transaction Documents, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 8.10 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term or condition of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investors that have purchased, or, prior to the Closing, have agreed to purchase, a majority of the Shares. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company. 8.11 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.12 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 8.13 Restriction on Separate Transfer of Warrants and Series 1 Preferred Stock. Until the first anniversary of the Closing, no holder of Series 1 Preferred Stock shall transfer, sell, assign or hypothecate any such shares without also transferring, selling, assigning or hypothecating (a) Warrants to purchase a number of shares of Common Stock or (b) a number of shares of Common Stock issued upon the exercise of Warrants, in either case equal to one-half of the number of shares of Series 1 Preferred Stock so transferred. 18 Page 39 of 92 Pages IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MEDICALOGIC/MEDSCAPE, INC. By: _____________________________________ Printed Name: David Moffenbeier Title: Chief Executive Officer Address: 20500 NW Evergreen Parkway Hillsboro, Oregon 97124 INVESTORS: QUANTUM INDUSTRIAL PARTNERS LDC By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: c/o Curacao Corporation Company NV Kaya Flamboyan 9, Villemstad, Curacao Netherlands Antilles SFM DOMESTIC INVESTMENTS LLC By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: c/o Soros Private Equity Partners 888 Seventh Avenue New York, NY 10106 19 Page 39 of 92 Pages PALLADIN GROUP By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ GRUBER & McBAINE INTERNATIONAL By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ HBK INVESTMENTS LP By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ COLEMAN SWENSON HOFFMAN BOOTH IV, LP By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ 20 Page 40 of 92 Pages CROSSLINK CROSSOVER FUND III, LP By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ OFFSHORE CROSSLINK CROSSOVER FUND III, LP By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ DELTA GROWTH, LP By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ 21 Page 41 of 92 Pages RITCHIE CAPITAL MANAGEMENT By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ CRANSHIRE CAPITAL By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ LAGUNITAS PARTNERS LP By: ______________________________________ Its: ______________________________________ Printed name: _____________________________ Address: __________________________________ __________________________________ __________________________________ 22 EX-99.E 6 0006.txt EXHIBIT E Page 42 of 92 Pages 2000 SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT THIS 2000 SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT is made as of the 4th day of January 2001, by and between MedicaLogic/Medscape, Inc., an Oregon corporation (the "Company"), and the shareholders of the Company listed on the signature pages hereof. RECITALS A. As of May 28, 1999, the Company entered into a 1999 Amended and Restated Investor Rights Agreement with certain investors (as amended and supplemented, the "1999 MedicaLogic Agreement") that, among other things, provided certain registration rights to holders of capital stock of the Company. B. As of August 4, 1999, Medscape, Inc., a Delaware corporation ("Medscape"), entered into an Amended and Restated Stockholders Agreement with certain of its stockholders (as amended and supplemented, the "1999 Medscape Agreement") that, among other things, provided certain registration rights to holders of Medscape capital stock. C. As of August 3, 1999, Medscape entered into a Registration Rights Agreement (the "CBS Agreement") with CBS Corporation ("CBS") that provided certain registration rights to CBS with respect to Medscape common stock owned by CBS. D. As of August 25, 1999 and September 8, 1999, the 1999 Medscape Agreement was amended, among other things, to provide certain registration rights to America Online, Inc. ("AOL") with respect to Medscape common stock underlying warrants issued to AOL by Medscape. E. As of February 21, 2000, the Company, Medscape and Moneypenny Merger Corp., a Delaware corporation, entered into an Agreement of Reorganization and Merger (the "Merger Agreement") under which Medscape will become a wholly owned subsidiary of the Company (the "Merger") and the Company's name will be changed to MedicaLogic/Medscape, Inc. F. In accordance with the Merger Agreement, as of May 19, 2000, the Company entered into a 2000 Amended and Restated Investor Rights Agreement (the "2000 Agreement") with the parties having registration rights prior to the Merger. G. The Company proposes to sell and issue up to 5,933,332 shares of Series 1 Convertible Redeemable Preferred Stock, without par value (the "Series 1 Preferred Stock"), and warrants to purchase up to 4,537,254 shares of common stock, without par value (the "Series 1 Warrant Shares") in a closing pursuant to the Preferred Stock and Warrant Purchase Agreement (the "Series 1 Agreement") among the Company and certain investors listed on Signature Page I dated as of December 22, 2000, as amended (the "Series 1 Purchasers"). Page 43 of 92 Pages H. As a condition of entering into the Series 1 Agreement, the Series 1 Purchasers have requested that the Company extend to them registration rights and other rights with respect to the Series 1 Preferred Stock and the Series 1 Warrant Shares. I. The undersigned shareholders include the holders of more than fifty percent (50%) of the Company's common stock subject to the 2000 Agreement on the date hereof as required by Sections 3.7 and 1.14 of the 2000 Agreement. AGREEMENT In consideration of the mutual promises and covenants set forth herein, the parties hereto agree to amend and restate the 2000 Agreement to eliminate parties that are no longer subject hereto and to further provide as follows: 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Common Stock" means the common stock of the Company. (c) The term "Existing Registrable Securities" means all the shares of Common Stock of Medscape, other than Investor Registrable Securities, that were owned on the date of the Merger by any Holder who was a party to the 1999 Medscape Agreement. (d) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (e) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof. (f) The term "Investor Registrable Securities" means all the shares of Common Stock of Medscape issued upon the conversion of the shares of the Series C Preferred Stock or Series D Preferred Stock of Medscape; excluding in all cases, however, (i) any Investor Registrable Securities sold pursuant to registration under the Act or (ii) any Investor Registrable Securities sold, subsequent to Medscape's initial public offering of securities registered under the Act, pursuant to SEC Rule 144 (or similar or successor rule) promulgated under the Act. (g) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (h) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in 2 Page 44 of 92 Pages compliance with the Act and the declaration or ordering of effectiveness of such registration statement or document. (i) The term "Registrable Securities" means (i) the Common Stock of the Company issued upon conversion of the Company's Series A Preferred Stock, Series A-1 Preferred Stock, Series C Preferred Stock, Series C-1 Preferred Stock, Series E Preferred Stock, Series E-1 Preferred Stock, Series F Preferred Stock, Series F-1 Preferred Stock, Series J Preferred Stock, and Series J-1 Preferred Stock as listed on Signature Page A hereto; (ii) the Common Stock of the Company purchased pursuant to the Common Stock Purchase Agreement by and among the Company, Mark A. Leavitt, Richard Samco, Sequoia Capital Growth Fund, Sequoia Technology Partners III, New Enterprise Associates VI, Limited Partnership and Stanford University, dated August 3, 1994, as listed on Signature Page B hereto; (iii) the Common Stock of the Company issued in the Merger upon conversion of the Existing Registrable Securities and Investor Registrable Securities ; (iv) the Common Stock of the Company issued upon exercise of the Medscape warrants issued to AOL (the "Warrant Shares"); (v) the Series 1 Preferred Stock; (vi) the Common Stock of the Company issued or issuable upon conversion of the Series 1 Preferred Stock; (vii) the Series 1 Warrant Shares; and (viii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i), (ii), (iii), (iv), (v), (vi) or (vii) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which such person's rights under this Section 1 are not assigned or assignable and any Registrable Securities sold to the public or sold pursuant to Rule 144 promulgated under the Act. (j) The number of shares of "Registrable Securities then outstanding" shall be (x) the aggregate number of shares of Common Stock outstanding which are Registrable Securities plus (y) the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are Registrable Securities. (k) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 Request for Registration. (a) If (i) the Company shall receive a written request from (A) Holders of at least fifteen percent (15%) of the Registrable Securities then outstanding referred to in clauses (i) and (ii) of subsection 1.1(i) or (B) Holders of at least thirty percent (30%) of the Registrable Securities then outstanding held by the former holders of the Company's Series J Preferred Stock (a "Series J Investor") that the Company file a registration statement under the Act covering the registration of the Registrable Securities then outstanding, or (ii) the Company shall receive a written request from (W) Holders of at least fifty percent (50%) of the Registrable Securities then outstanding held by 3 Page 45 of 92 Pages the former holders of Investor Registrable Securities (excluding Holders described in clause (X), (Y) or (Z) hereof) as listed on Signature Page C hereto, (X) any Holder who purchased more than 650,000 shares of the Series D Preferred Stock of Medscape (a "Series D Holder"), (Y) any Holder who purchased more than 260,000 shares of the Series E Preferred Stock of Medscape as listed on Signature Page E hereto (a "Series E Holder"), or (Z) any Holder of Warrant Shares, that the Company file a registration statement on Form S-1 (or similar successor forms) under the Act covering the registration of Registrable Securities issued in exchange for Investor Registrable Securities, or (iii) the Company shall receive a written request from Holders of at least twenty-five percent (25%) of the Registrable Securities issued or issuable upon conversion of the Series 1 Preferred Stock that the Company file a registration statement under the Act covering the Registrable Securities held by such Holders, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders in accordance with Section 3.5 (the "Notice of Demand") and shall, subject to the limitations of subsection 1.2(b), use its reasonable best efforts to effect as soon as practicable, and in any event within one hundred twenty (120) days) (or sixty (60) days if such registration under the Act is on Form S-3) of the receipt of such request, the registration under the Act of all Registrable Securities that the Holders request to be registered within twenty (20) days of the receipt of the Notice of Demand, provided that the Registrable Securities requested by the Holders to be registered pursuant to such request must have an anticipated aggregate public offering price of not less than $5,000,000. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by the Initiating Holders and shall be reasonably acceptable to the Company, provided that such underwriter shall be of nationally recognized standing and shall agree to firmly underwrite such offering. In such event, the right of any Holder to include Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provisions of this Section 1.2, if the underwriter, with respect to a registration requested under subsection 1.2(a), advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then such Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including such Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in 4 Page 46 of 92 Pages such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting; and provided, further, that (i) Registrable Securities held by Holders referred to in subsection 1.2(a)(ii) shall be entirely excluded from the underwriting before any Registrable Securities held by Holders referred to in subsections 1.2(a)(i) and 1.2(a)(iii) and (ii) all Registrable Securities held by Holders referred to in subsection 1.2(a)(i) shall be entirely excluded from the underwriting before any Registrable Securities held by Holders referred to in subsection 1.2(a)(iii) are excluded. In a registration pursuant to subsection 1.2(a), if Registrable Securities held by a Series J Investor are excluded from the registration pursuant to the previous sentence as a result of election of Holders other than Series J Investors to participate in the registration, then that registration will not be deemed to be a registration requested by the Series J Investors for the purposes of Section 1.2(d)(i). (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other material transaction involving the Company and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. (d) In addition, the Company shall not be obligated to effect, or to take any action to effect, (i) any registration pursuant to subsection 1.2(a)(i): (A) After the Company has effected three (3) registrations pursuant to subsection 1.2(a)(i), two (2) of which may only be initiated by Series J Investors under subsection 1.2(a)(i)(B), and such registrations have been declared or ordered effective; or (B) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date ninety (90) days after the effective date of, a registration subject to Section 1.3 hereof, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (ii) any registration pursuant to subsection 1.2(a)(ii): (A) After the Company has effected seven (7) registrations pursuant to subsection 1.2(a)(ii), two (2) of which may only be initiated by a Series D Holder, one (1) of which may only be initiated by a Series E Holder, two (2) of which may only be initiated by a Holder of Warrant Shares, and two (2) of which may only be initiated by Holders who are not Series D Holders, Series E Holders or Holders of Warrant Shares; or 5 Page 47 of 92 Pages (B) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date ninety (90) days after the effective date of, a registration subject to Section 1.3 hereof, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (C) If the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 1.12 hereof. (iii) any registration pursuant to subsection 1.2(a)(iii): (A) After the Company has effected three (3) registrations pursuant to subsection 1.2(a)(iii); or (B) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date ninety (90) days after the effective date of, a registration subject to Section 1.3 hereof, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective 1.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly, but at least thirty (30) days prior to filing such registration statement, give each Holder written notice of such registration in accordance with Section 3.5 (the "Piggy-Back Notice"). Upon the written request of each Holder given within twenty (20) days after receipt of the Piggy-Back Notice, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its diligent efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one 6 Page 48 of 92 Pages hundred eighty (180) days; provided, however, that (i) such 180-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 180-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis; and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (I) includes any prospectus required by Section 10(a)(3) of the Act or (II) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (I) and (II) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the registration statement. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 7 Page 49 of 92 Pages (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6 Expenses of Demand Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2 (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, qualification, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that such counsel shall submit reasonably detailed invoices for review by the Company's General Counsel prior to payment; and provided further, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Initiating Holders agree to forfeit the applicable demand registration right pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, 8 Page 50 of 92 Pages then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. 1.7 Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, qualification, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders; provided, however, that such counsel shall submit reasonably detailed invoices for review by the Company's General Counsel prior to payment; but excluding underwriting discounts and commissions relating to Registrable Securities. 1.8 Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Holders of a majority of the Registrable Securities that indicated they would like to be included in the underwriting, the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled and requested to be included therein owned by each selling shareholder or in such other proportions as shall mutually be agreed to by such selling shareholders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, or (ii) notwithstanding (i) above, Section 1.2 governs the exclusion of shares being sold by a shareholder exercising a demand registration right granted thereunder. For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and shareholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling shareholder," and any pro-rata reduction with respect to such "selling shareholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling shareholder," as defined in this sentence. 1.9 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 9 Page 51 of 92 Pages 1.10 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law, or any rule or regulation promulgated under the Act, and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person or any such underwriter or Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, however, that in no event shall any indemnity under this subsection 1.10(b) exceed the net proceeds from the offering received by such Holder. 10 Page 52 of 92 Pages (c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. Notwithstanding the foregoing, (i) no Holder shall be required to contribute any amount in excess of the public offering price of all Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: 11 Page 53 of 92 Pages (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Act, and the 1934 Act, or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.12 Form S-3 Registration. In case the Company shall receive from any Holder or Holders a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders in accordance with Section 3.5 (the "S-3 Notice"); and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of the S-3 Notice; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is not available for offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other material transaction involving the Company, in which event the Company shall have the 12 Page 54 of 92 Pages right to defer the filing of the Form S-3 registration statement for a period of not more than one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (4) if the Company has, within the six (6) month period preceding the date of such request, already effected one registration on Form S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. The Company shall bear and pay all expenses incurred in connection with a registration requested pursuant to Section 1.12, including (without limitation) all registration, filing, qualification, printer's and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holder or Holders; provided, however, that such counsel shall submit reasonably detailed invoices for review by the Company's General Counsel prior to payment; but excluding underwriting discounts and commissions relating to Registrable Securities; and provided further, that the Company shall not be obligated to pay registration expenses under this paragraph if the Company has already effected two registrations on Form S-3 pursuant to this Section 1.12 after the date hereof. Registrations effected pursuant to this Section 1.12 shall not be counted as registrations effected pursuant to Section 1.2 or 1.3. 1.13 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities, provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee acquires from the Holder more than 100,000 shares; (c) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.15 below; and (d) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. 1.14 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. If the Company grants registration rights to holders of any security of 13 Page 55 of 92 Pages the Company which are more favorable to such holders than the registration rights granted hereunder without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, then such more favorable registration rights shall also be deemed to be granted to the Holders of Registrable Securities hereunder, and the Company covenants and agrees to take any and all steps necessary to modify the terms of this Agreement to so provide. 1.15 [Deleted] 1.16 Termination of Registration Rights. (a) No Holder shall be entitled to exercise any right provided for in this Section 1 after December 10, 2009. (b) In addition, the right of any Holder to request registration or inclusion in any registration pursuant to Section 1 shall terminate on such date that all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any 90-day period; provided, however, that the provisions of this Section 1.16(b) shall not apply to any Holder who owns at least one percent (1%) of the Company's outstanding Common Stock. 2. Covenants of the Company. 2.1 Right of First Offer. Subject to the terms and conditions specified in this Section 2.1, the Company hereby grants to each holder of at least 300,000 shares of Series 1 Preferred Stock or Common Stock issued upon the conversion of shares of Series 1 Preferred Stock (or a combination thereof) a right of first offer to purchase its Pro Rata Share (as hereinafter defined) (in whole or in part) with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.1, a holder's "Pro Rata Share" of Shares shall mean that number of Shares that equals the proportion that (i) the number of shares of Common Stock issuable upon conversion of the Series 1 Preferred Stock plus the Series 1 Warrant Shares plus any other shares of Common Stock, in each case, held by such holder (other than shares purchased in the open market or directly from the Company not pursuant to this Section 2.1) bears to (ii) the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all convertible or exercisable securities then outstanding). Each time the Company proposes to offer any shares of, or securities convertible into, exercisable or exchangeable for any shares of any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each such holder of Series 1 Preferred Stock in accordance with the following provisions: (a) The Company shall deliver a notice by confirmed facsimile transmission, certified mail or a nationally recognized overnight courier service ("Notice") to each holder of Series 1 Preferred Stock stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and a summary of the terms, if any, upon which it proposes to offer such Shares. 14 Page 56 of 92 Pages (b) By written notification received by the Company within ten (10) calendar days after receipt of the Notice, each holder of Series 1 Preferred Stock may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to its Pro Rata Share of such Shares. (c) If all Shares that the holders of Series 1 Preferred Stock are entitled to obtain pursuant to Section 2.1(b) are not elected to be obtained as provided in Section 2.1(b) hereof, the Company may, during the sixty (60)-day period following the expiration of the period provided in Section 2.1(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the holders of Series 1 Preferred Stock in accordance herewith. (d) The right of first offer in this Section 2.1 shall not be applicable to (i) shares of Common Stock issued pursuant to a dividend or distribution to shareholders generally, including a split or subdivision of the outstanding shares of the Company; (ii) shares of Common Stock issuable or issued to employees, consultants or directors of this corporation pursuant to a stock option plan or stock purchase plan approved by the Board of Directors of the Corporation on or prior to the date of this Agreement; (iii) shares of Common Stock issued to Baylor College of Medicine or assignees in connection with the sale of software licenses by the Corporation in the Houston, Texas market through December 31, 2002; (iv) shares of Common Stock issuable or issued in consideration for services rendered to the Corporation or its subsidiaries (other than shares issuable or issued pursuant to (ii) above), in an aggregate amount not to exceed 200,000 shares per annum; (v) shares of Common Stock issuable or issued in connection with acquisitions, business combinations or strategic alliances, including corporate partnering agreements, not to exceed 500,000 shares in the aggregate (as adjusted for stock dividends, splits and combinations); (vi) shares of Common Stock the issuance of which has been approved in writing by the holders of at least a majority of the then outstanding shares of Series 1 Preferred Stock; (vii) shares of Common Stock issuable upon (w) the conversion of the Series 1 Preferred Stock, (x) the exercise of the Series 1 Warrants, (y) the exercise of the warrant dated February 15, 2000, issued to Lazard Freres & Co. LLC, not to exceed 32,300 shares in the aggregate (as adjusted for stock dividends, splits and combinations), or (z) the exercise of the warrants dated September 3, 1999, issued to America Online, not to exceed 727,911 shares in the aggregate (as adjusted for stock dividends, splits and combinations); (viii) the exercise of the Warrant dated September 14, 1999, issued to Stoel Rives LLP, not to exceed 10,000 shares (as adjusted for stock dividends, splits, and combinations); or (ix) shares of Common Stock issued pursuant to Sections 2.3 and 2.4 of the Stock Purchase Agreement, dated April 17, 2000, between the Company and the founders of AnywhereMD.com, Inc. (including pursuant to employment agreements of even date therewith between the Company and such founders), not to exceed 600,000 shares in the aggregate (as adjusted for stock dividends, splits and combinations). 15 Page 57 of 92 Pages 2.2 Tax Matters. (a) The Company covenants that it will not become a U.S. real property holding corporation ("USRPHC") at any time while any Series 1 Purchaser owns any Registrable Securities or any securities exercisable or convertible into Registrable Securities (the "Stock"). (b) In the event that a Series 1 Purchaser desires to sell or dispose of any Stock, and upon demand by such Series 1 Purchaser, the Company agrees to deliver to such Series 1 Purchaser a letter (the "Letter") which complies with Sections 1.1445-2(c)(3) and 1.897-2(h) of the Treasury Regulations during the period equal to the lesser of (i) the period beginning five years prior to the date of the Letter through the date of the Letter and (ii) the period from the date of this Agreement through the date of the Letter. The Letter shall be delivered to the Series 1 Purchaser one business day prior to the close of any sale or disposition of the Stock by the Series 1 Purchaser (the "Delivery Date"). The Letter shall be dated as of the Delivery Date and signed by a corporate officer who must verify under penalties of perjury that the statement is correct to his knowledge and belief pursuant to Section 1.897-2(h) of the Treasury Regulations. (c) The parties hereto agree and acknowledge that, unless in the opinion of outside counsel to the relevant party such action is necessary to comply with its obligations under the Internal Revenue Code of 1986, as amended (the "Code"), (i) no party hereto will take the position that any amount will be includable in income with respect to the Series 1 Preferred Stock under Section 305 of the Code and that no parties shall file Tax Returns (as defined in the Series 1 Agreement) to the contrary (the "Reporting Agreement") and (ii) no party hereto shall take any position inconsistent with the Reporting Agreement upon examination of any Tax Return in any refund claim, in any litigation or otherwise. 3. Agreement to Vote Shares. 3.1 Voting. Each of the undersigned shareholders agrees that at any meeting of the shareholders of the Company, however called, and in any action taken by written consent of shareholders of the Company without a meeting, the shareholder shall vote the shareholder's shares of Common Stock and/or Series 1 Preferred Stock, and shall cause any holder of record of the shareholder's shares of Common Stock or Series 1 Preferred Stock, to vote in favor of the shareholder approval contemplated by Section 4.2(b) of the Preferred Stock and Warrant Purchase Agreement dated as of December __, 2000 between the Company and certain investors named therein. 4. Miscellaneous. 4.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, 16 Page 58 of 92 Pages obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 4.2 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Oregon. 4.3 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. 4.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 4.5 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid or upon delivery to a recognized courier service and addressed to the party to be notified at the address indicated for such party on the signature pages hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. Any notice given to the Company under this Section 3.5 shall be copied via email to legal@medscapeinc.com. 4.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 4.7 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of more than two-thirds (2/3) of the Registrable Securities then outstanding, except as follows: (a) any amendment or waiver affecting only the rights of holders of Registrable Securities described in subsection 1.1(i)(i) shall require only the consent of the Company and the holders of more than fifty percent (50%) of such Registrable Securities, except that any amendment or waiver affecting the rights of Series J Investors shall require the consent of the holders of more than fifty percent (50%) of the Registrable Securities held by the Series J Investors; (b) any amendment or waiver affecting only the rights of holders of Registrable Securities held by former Holders of Investor Registrable Securities, excluding Series D Holders and Series E Holders, shall require only the consent of the Company and the holders of more than sixty-six and two-thirds percent (66 ?%) of such Registrable Securities; 17 Page 59 of 92 Pages (c) any amendment or waiver affecting only the rights of holders of Registrable Securities who were Series D Holders shall require only the consent of the Company and the holders of more than sixty-six and two-thirds percent (66 2/3%) of such Registrable Securities; (d) any amendment or waiver affecting only the rights of holders of Registrable Securities who were Series E Holders shall require only the consent of the Company and the holders of more than fifty percent (50%) of such Registrable Securities; and (e) any amendment or waiver affecting only the rights of holders of Registrable Securities described in subsections 1.1(i)(v), 1.1(i)(vi) and 1.1(i)(vii) shall require only the consent of the Company and the holders of more than sixty-six and two-thirds percent (66 2/3%) of such Registrable Securities, acting as a single class. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of such Registrable Securities and the Company. 4.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 4.9 Aggregation of Stock. All shares of Registrable Securities (including the Common Stock issuable upon conversion thereof), as applicable, held or acquired by a Holder shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 4.10 Entire Agreement; Amendment; Waiver. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and supersedes the 2000 Agreement. 18 Page 60 of 92 Pages IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: MEDICALOGIC, INC. By: --------------------------------------- Printed Name: David Moffenbeier Title: Chief Executive Officer SHAREHOLDERS: See Attached Signature Pages 19 EX-99.F 7 0007.txt EXHIBIT F Page 61 of 92 Pages THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE CORPORATION MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT, UNLESS THE SECURITIES ARE RESOLD PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE ACT, AND ANY APPLICABLE STATE SECURITIES LAWS. COMMON STOCK PURCHASE WARRANT MedicaLogic/Medscape, Inc. THIS CERTIFIES that for good and valuable consideration received, ______________________, or registered assigns (each herein sometimes called the "Holder"), is entitled, upon the terms and subject to the conditions hereinafter set forth, to acquire from MedicaLogic/Medscape, Inc., an Oregon corporation (the "Corporation") up to __________ validly issued fully paid and nonassessable shares of common stock, no par value per share, of the Corporation, as may be adjusted from time to time pursuant to Section 11 (the "Warrant Shares") at a purchase price per share (the "Exercise Price") of $0.01. This Warrant is being issued in connection with the issuance and sale by the Corporation of ________ shares of the Corporation's Series 1 Preferred Stock (the "Series 1 Preferred Stock") and this Warrant, pursuant to the Preferred Stock and Warrant Purchase Agreement, dated as of December __, 2000 among the Corporation and the Investor parties thereto (the "Purchase Agreement"). 1. Term of Warrant Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or from time to time in part, at any time on or after the date hereof (the "Initial Exercise Date") and at or prior to 11:59 p.m., Pacific Standard Time, on December __, 2005 (the "Expiration Time"), unless otherwise extended by the Corporation. 2. Exercise of Warrant (a) The purchase rights represented by this Warrant are exercisable by the registered Holder hereof, in whole or in part, at any time and from time to time at or prior to the Expiration Time by the surrender of this Warrant and the Notice of Exercise form attached hereto duly executed to the office of the Corporation at 20500 NW Evergreen Parkway, Hillsboro, Oregon 97124 (or such other office or agency of the Corporation as it may designate by notice in writing to the registered Holder hereof at the address of such Holder appearing on the books of the Corporation), and, subject to Section 2(b) upon payment of the Exercise Price for the shares thereby purchased (by cash or by check or bank draft payable to the order of the Corporation or by cancellation of indebtedness of the Corporation to the Holder hereof, if any, at the time of exercise in an amount equal to the purchase price of the shares thereby purchased); whereupon the Holder of this Warrant shall be entitled to receive from the Corporation a stock certificate in proper form representing the number of Warrant Shares so purchased. (b) In lieu of the payment of the aggregate Exercise Price, the Holder shall have the right (but not the obligation), to require the Corporation to convert this Warrant, in whole or in part, into shares of Common Stock (the "Conversion Right") as provided for in this Section 2. Upon exercise of the Conversion Right, the Corporation shall -1- Page 62 of 92 Pages deliver to the Holder (without payment by the Holder of any of the Exercise Price) that number of shares of Common Stock equal to the quotient obtained by dividing (i) the value of the Warrant or portion thereof at the time the Conversion Right is exercised (determined by subtracting the aggregate Exercise Price at the time of the exercise of the Conversion Right from the aggregate Current Market Price for the shares of Common Stock issuable upon exercise of the Warrant at the time of the exercise of the Conversion Right) by (ii) the Current Market Price of one share of Common Stock at the time of the exercise of the Conversion Right. "Current Market Price" shall mean, as of the date of determination, (x) the average of the closing prices of the Common Stock on The Nasdaq National Market (or other principal securities exchange on which the Common Stock is then traded) over the thirty day period ending on such date or (y) if the Common Stock is not listed on a principal securities exchange, the fair market value thereof, as determined mutually by the Corporation's Board of Directors and such Holder, or if the Board of Directors and such Holder shall fail to agree, at the Corporation's expense by an appraiser chosen by the Board of Directors of the Corporation and reasonably acceptable to such Holder. The Conversion Right may be exercised by the Holder on any business day prior to the Expiration Time by surrender of this Warrant to the Company, with a duly executed Exercise Form with the conversion section completed, exercising the Conversion Right and specifying the total number of shares of Common Stock that the Holder will be issued pursuant to such conversion. 3. Issuance of Shares; No Fractional Shares Certificates for shares purchased hereunder shall be delivered to the Holder hereof by the Corporation's transfer agent at the Corporation's expense within five (5) business days after the date on which this Warrant shall have been exercised in accordance with the terms hereof. Each certificate so delivered shall be in such denominations as may be requested by the Holder hereof and shall be registered in the name of such Holder or, subject to applicable laws, other name as shall be requested by such Holder. If, upon exercise of this Warrant, fewer than all of the Warrant Shares evidenced by this Warrant are purchased prior to the Expiration Time, one or more new warrants substantially in the form of, and on the terms in, this Warrant will be issued for the remaining number of Warrant Shares not purchased upon exercise of this Warrant. The Corporation hereby represents and warrants that all Warrant Shares which may be issued upon the exercise of this Warrant will, upon such exercise, be duly and validly authorized and issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issuance thereof (other than liens or charges created by or imposed upon the holder of the Warrant Shares). The Corporation agrees that the shares so issued shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered for exercise in accordance with the terms hereof. No fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon the exercise of this Warrant, an amount equal to such fraction multiplied by the Current Market Price of one share of Common Stock at the time of such exercise shall be paid in cash to the Holder of this Warrant. 4. Charges, Taxes and Expenses Issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Corporation, and such certificates shall be issued in the name of the Holder of this Warrant or in such name or names as may be directed by the Holder of this Warrant; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder hereof. -2- Page 63 of 92 Pages 5. No Rights as Shareholders This Warrant does not entitle the Holder hereof to any voting rights or other rights as a shareholder of the Corporation prior to the exercise hereof. 6. Registration Rights A holder of Warrant Shares may become a "Holder," as defined in the 2000 Second Amended and Restated Investor Rights Agreement dated as of December __, 2000 between the Corporation and the parties listed on the signature pages thereto (the "Investor Rights Agreement"), upon compliance with the requirements of such agreement. 7. Exchange and Registry of Warrant This Warrant is exchangeable, upon the surrender hereof by the registered Holder at the above-mentioned office or agency of the Corporation, for a new Warrant of like tenor and dated as of such exchange. The Corporation shall maintain at the above-mentioned office or agency a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange, transfer or exercise, in accordance with its terms, at such office or agency of the Corporation, and the Corporation shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 8. Loss, Theft, Destruction or Mutilation of Warrant Upon receipt by the Corporation of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction of indemnity or security reasonably satisfactory to it, and upon reimbursement to the Corporation of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Corporation will make and deliver a new Warrant of like tenor and dated as of such cancellation, in lieu of this Warrant. 9. Saturdays, Sundays and Holidays If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 10. Merger, Sale of Assets, Etc. If at any time the Corporation proposes to merge or consolidate with or into any other corporation, effect any reorganization, or sell or convey all or substantially all of its assets to any other entity, then, as a condition of such reorganization, consolidation, merger, sale or conveyance, the Corporation or its successor, as the case may be, shall enter into a supplemental agreement to make lawful and adequate provision whereby the Holder shall have the right to receive, upon exercise of the Warrant, the kind and amount of equity securities which would have been received upon such reorganization, consolidation, merger, sale or conveyance by a holder of a number of shares of common stock equal to the number of shares issuable upon exercise of the Warrant immediately prior to such reorganization, consolidation, merger, sale or conveyance. If the property to be received upon such reorganization, consolidation, merger, sale or conveyance is not equity securities, the Corporation shall give the Holder of this Warrant ten (10) business days prior written notice of the proposed effective date of such transaction, and if this Warrant has not been exercised by or on the effective date of such transaction, it shall terminate. -3- Page 64 of 92 Pages 11. Certain Adjustments 11.1 Adjustment of Warrant Shares. The number, class and Exercise Price per share of securities for which this Warrant may be exercised are subject to adjustment from time to time upon the happening of certain events as hereinafter provided: (a) Recapitalization. If the outstanding shares of the Corporation's common stock are divided into a greater number of shares or if the Corporation shall effect a stock dividend, the number of Warrant Shares shall be proportionately increased and the Exercise Price per share shall be proportionately reduced. Conversely, if the outstanding shares of the Corporation's common stock are combined into a smaller number of shares of common stock, the number of shares of common stock purchasable upon the exercise of this Warrant shall be proportionately reduced and the Exercise Price per share shall be proportionately increased. The increases and reductions provided for in this Section 11.1(a) shall be made with the intent and, as nearly as practicable, the effect that neither the percentage of the total equity of the Corporation obtainable on exercise of this Warrant nor the aggregate price payable for such percentage shall be affected by any event described in this Section 11.1(a). (b) Merger or Reorganization, Etc. In the event of any change in the Corporation's common stock through merger, consolidation, reclassification, reorganization, partial or complete liquidation or other change in the capital structure of the Corporation (not including the issuance of additional shares of capital stock other than by stock dividend or stock split), then, the Holder of this Warrant will have the right thereafter to receive upon the exercise of this Warrant the kind and amount of shares of stock or other securities or property to which it would have been entitled if, immediately before the merger, consolidation, reclassification, reorganization, recapitalization or other change in the capital structure, it had held the number of shares of common stock obtainable upon the exercise of this Warrant. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 11 with respect to the rights of the Holder after the merger, consolidation, reclassification, reorganization, recapitalization or other change to the end that the provisions of this Section 11 (including adjustment of the Exercise Price then in effect and the number of shares issuable upon exercise of this Warrant) shall be applicable after that event as nearly equivalent as may be practicable. (c) Adjustment for Dividends or Distributions of Stock or Other Securities or Property. In case the Corporation shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution with respect to the Warrant Shares (or any shares of stock or other securities at the time issuable upon exercise of the Warrant) payable in (i) securities of the Corporation (other than as provided for in Section 11.1(a) or (b) above) or any other entity or (ii) assets (excluding cash dividends paid or payable solely out of retained earnings), then, in each such case, upon exercise of this Warrant at any time after the consummation, effective date or record date of such dividend or other distribution, the Holder shall receive, in addition to the Warrant Shares (or such other shares or securities) issuable on such exercise prior to such date, and without the payment of additional consideration therefor, the securities or such other assets of the Corporation to which such Holder would have been entitled upon such date if such Holder had exercised this Warrant on the Initial Exercise Date and had thereafter, during the period from the Initial Exercise Date to and including the date of such exercise, retained such shares and/or all other additional stock or securities available by it as aforesaid during such period giving effect to all adjustments called for by this Section 11. (d) Adjustment in Respect of Spin-Off. In case of any spin-off by the Corporation of another person (the "Spin-off Entity") at any time after the issuance of this Warrant but prior to the exercise hereof, the Corporation shall issue to the Holder a new warrant entitling the Holder to purchase, at a nominal exercise price, the number of shares of common stock or other proprietary interest in the Spin-off Entity that the Holder would have owned had the Holder, immediately prior to such spin-off, exercised this Warrant. (e) Anti-Dilution. The number of Warrant Shares shall at all times be determined by the following formula: -4- Page 65 of 92 Pages WS = OWS x S10IP ----- S1CP Where WS = Warrant Shares; OWS = the number of shares originally subject to this Warrant (as such number may be adjusted to account for stock splits, stock dividends, combinations and other recapitalizations of the Common Stock); S10IP = Series 1 Original Issuance Price (as defined in the Corporation's 1999 Restated Articles of Incorporation, as amended (the "Articles"); and S1CP = Series 1 Conversion Price (as defined in the Articles and as may be adjusted from time to time pursuant to the Articles). 11.2 Notice of Adjustment. Whenever an event occurs requiring any adjustment to be made pursuant to Section 11.1, the Corporation shall promptly file with its Secretary or an assistant secretary at its principal office and with its stock transfer agent, if any, a certificate of its President or Chief Financial Officer specifying such adjustment, setting forth in reasonable detail the acts requiring such adjustment, and stating such other facts as shall be necessary to show the manner and figures used to compute such adjustment. Such certificate shall be made available at all reasonable times for inspection by the Holder. Promptly (but in no event more than 30 days) after each such adjustment, the Corporation shall give a copy of such certificate by certified mail to the Holder. 12. Transferability; Compliance with Securities Laws 12.1 This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Corporation, if requested by the Corporation). Subject to such restrictions, and the restrictions set forth in Sections 12.2 and 12.3 below, prior to the Expiration Time, this Warrant and all rights hereunder are transferable by the Holder hereof, in whole or in part, to transferees, including without limitation entities controlling, controlled by or under common control with [insert name of Holder] at the office or agency of the Corporation referred to in Section 1 hereof. Any such transfer shall be made in person or by the Holder's duly authorized attorney, upon surrender of this Warrant together with the Assignment Form attached hereto properly endorsed. 12.2 The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the Warrant Shares issuable upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that: (a) the Holder will not offer, sell or otherwise transfer this Warrant or any Warrant Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act of 1933 (the "Act"), as amended, or any state securities laws; and (b) until the first anniversary of the Initial Exercise Date (the "First Anniversary"), the Holder will not offer, sell or otherwise transfer this Warrant or any Warrant Shares to be issued upon exercise hereof without also offering, selling or otherwise transferring a number of shares of Series 1 Preferred Stock equal to 1.307603565 the number of Warrant Shares which the Holder shall then be eligible to purchase hereunder (in the case of any offer, sale or other disposition of this Warrant), or 1.307603565 the number of such Warrant Shares (in the case of any offer, sale or other disposition of Warrant Shares), as the case may be. If the shareholders of the Corporation fail to approve the issuance of the Series 1 Preferred Stock and the Warrant, and the anti-dilution provisions relating thereto and prior to the First Anniversary the Holder of this Warrant elects to have its shares of Series 1 Preferred Stock redeemed pursuant to Article II.D.4.B. of the Corporation's 1999 Restated Articles of Incorporation, as amended, then the Holder of this Warrant shall forfeit to the Corporation for no additional consideration the right to purchase Common Stock pursuant to this Warrant, or Warrant Shares, as the case may be, in a number equal to .764705778 multiplied by the number of shares of Series 1 Preferred Stock being redeemed. Upon exercise of this Warrant, the Holder shall, if requested by the Corporation, confirm in writing, in a form satisfactory to the Corporation, that the Warrant Shares so purchased are being acquired -5- Page 66 of 92 Pages solely for the Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale. 12.3 The Warrant Shares have not been and, except as otherwise provided in the Investor Rights Agreement, will not be registered under the Securities Act of 1933, as amended, and this Warrant may not be exercised except by (i) the original purchaser of this Warrant from the Corporation or (ii) an "accredited investor" as defined in Rule 501(a) under the Securities Act of 1933, as amended. Each certificate representing the Warrant Shares or other securities issued in respect of the Warrant Shares upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE CORPORATION MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE 1933 ACT, UNLESS THE SECURITIES ARE RESOLD IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE ACT, AND ANY APPLICABLE STATE SECURITIES LAWS. Notwithstanding the foregoing, the Holder may require the Corporation to issue a warrant or a certificate for Warrant Shares, in each case without a legend, if either (i) such Warrant or such Warrant Shares, as the case may be, have been registered for resale under the Act, (ii) the Holder has delivered to the Corporation an opinion of legal counsel (from a firm reasonably satisfactory to the Corporation) which opinion shall be addressed to the Corporation and be reasonably satisfactory in form and substance to the Corporation's counsel, to the effect that such registration is not required with respect to such Warrant or such Warrant Shares, as the case may be or (iii) such Warrant or Warrant Shares may be sold pursuant to Rule 144(k) (or any successor provision then in effect) under the Act. 13. Representations and Warranties The Corporation hereby covenants, represents and warrants to the Holder hereof that: (a) during the period this Warrant is outstanding, the Corporation will reserve from its authorized and unissued common stock a sufficient number of shares to provide for the issuance of Warrant Shares upon the exercise of this Warrant; (b) the issuance of this Warrant shall constitute full authority to the Corporation's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares issuable upon exercise of this Warrant; (c) the Corporation has all requisite legal and corporate power to execute and deliver this Warrant, to issue the common stock issuable upon exercise of this Warrant and to carry out and perform its obligations under the terms of this Warrant; (d) all corporate action on the part of the Corporation, its directors and shareholders necessary for the authorization, execution, delivery and performance of this Warrant by the Corporation, the authorization, sale, issuance and delivery of the Warrant Shares, the grant of registration rights as provided herein and the performance of the Corporation's obligations hereunder has been taken; -6- Page 67 of 92 Pages (e) the Warrant Shares, when issued in compliance with the provisions of this Warrant and the Corporation's 1999 Restated Articles of Incorporation (as they may be amended from time to time (the "Articles"), will be validly issued, fully paid and nonassessable, and free of all taxes, liens or encumbrances with respect to the issue thereof, and will be issued in compliance with all applicable federal and state securities laws; and (f) the issuance of the Warrant Shares will not be subject to any preemptive rights, rights of first refusal or similar rights. 14. Corporation The Corporation will not, by amendment of its Articles or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of the Warrant against impairment. -7- Page 68 of 92 Pages 15. Governing Law This Warrant shall be governed by and construed in accordance with the laws of the State of Oregon. 16. Amendments Any provision of this Warrant may be amended and the observance thereof waived only with the written consent of the Corporation and the Holder. 17. Miscellaneous (a) Entire Agreement. This Warrant and the Preferred Stock and Warrant Purchase Agreement constitute the entire agreement between the Corporation and the Holder with respect to the Warrant and supersedes all prior agreements and understanding with respect to the subject matter of this Warrant. (b) Binding Effect; Benefits. This Warrant shall inure to the benefit of and shall be binding upon the Corporation and the Holder and their respective permitted successors and assigns. Nothing in this Warrant, expressed or implied, is intended to or shall confer on any person other than the Corporation and the Holder, or their respective permitted successors or assigns, any rights, remedies, obligations or liabilities under or by reason of this Warrant. (c) Severability. Any term or provision of this Warrant which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the terms and provisions of this Warrant or affecting the validity or enforceability of any of the terms or provisions of this Warrant in any other jurisdiction. IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by its duly authorized officer. Dated: ___________, 2000 MEDICALOGIC/MEDSCAPE, INC. By: --------------------------------- Name: Title: -8- Page 69 of 92 Pages NOTICE OF EXERCISE To: MedicaLogic/Medscape, Inc. (1) The undersigned hereby elects to purchase ________ shares of common stock of MedicaLogic/Medscape, Inc. pursuant to the terms of the attached Warrant, and [tenders herewith payment of the purchase price in full/hereby exercises the Conversion Right]. (2) In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of common stock to be issued upon exercise hereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned will not offer, sell or otherwise dispose of any such shares of common stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (3) Please issue a certificate or certificates representing said shares of common stock in the name of the undersigned or in such other name as is specified below: ------------------------------ (Name) ------------------------------ (Address) (4) The undersigned represents that (a) he, she or it is the original purchaser from the Corporation of the attached Warrant or an "accredited investor" within the meaning of Rule 501(a) under the Securities Act of 1933, as amended and (b) the aforesaid shares of common stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. - ------------------------- ------------------------------ (Date) (Signature) -9- Page 70 of 92 Pages ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of common stock of MedicaLogic/Medscape, Inc. set forth below: Name of Assignee Address No. of Shares - ---------------- ------- ------------- and does hereby irrevocably constitute and appoint Attorney _____________________ to make such transfer on the books of MedicaLogic/Medscape, Inc., maintained for the purpose, with full power of substitution in the premises. The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. Further, the Assignee shall, if requested by the Corporation, confirm in writing, in a form satisfactory to the Corporation, that the shares of stock so purchased are being acquired for investment and not with a view toward distribution or resale. Dated: ----------------------------------------- Holder's Signature: ---------------------------- Holder's Address: ----------------------------------------------- ----------------------------------------------- Guaranteed Signature: NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. -10- EX-99.G 8 0008.txt EXHIBIT G Page 71 of 92 Pages FIRST AMENDMENT TO PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT This First Amend ment to Preferred Stock and Warrant Purchase Agreement (the "Amendment") is made as of December 22, 2000 between MedicaLogic/Medscape, Inc., an Oregon corporation (the "Company"), and the Investors listed on Schedule A hereto (the "Investors"). The Company and the Investors are parties to a Preferred Stock and Warrant Purchase Agreement dated as of December 22, 2000 (the "Agreement"). The parties wish to amend the Agreement to reflect the purchase of additional securities by one of the Investors. NOW, THEREFORE, the parties agree as follows: 1. All capitalized terms used herein and are defined herein shall have the meanings assigned to such terms in the Agreement. 2. Section 2.5(a) of the Agreement is amended and restated to read in its entirety as follows: "(a) At the Closing the authorized capital stock of the Company shall consist of 100,000,000 shares of Common Stock, 50,000,000 shares of preferred stock, of which 5,933,332 shares shall have been designated Series 1 Preferred Stock. At December 17, 2000, 55,719,682 shares of Common Stock (which includes shares of restricted Common Stock described below) and no shares of preferred stock were issued and outstanding. At December 17, 2000, 2,287,844 shares of Common Stock remained available for issuance under the Company's 1999 Employee Stock Purchase Plan. At December 17, 2000, the aggregate number of shares of restricted stock and options to purchase shares of Common Stock available to be issued or granted pursuant to any stock option plan or stock incentive plan of the Company or any Subsidiary was 959,779. At December 17, 2000, options to purchase 9,143,282 shares of Common Stock were outstanding and 2,210,750 shares of restricted Common Stock had been issued under such plans. Except for the Series 1 Preferred Stock and the Warrants, shares issuable under the Company's 1999 Employee Stock Purchase Plan and the stock options referred to in the preceding sentence (as may be updated pursuant to Section 5.16), there are no options, warrants, conversion privileges, subscription or purchase rights or other rights presently outstanding to purchase or otherwise acquire (x) any authorized but unissued, unauthorized or treasury shares of the Company's capital stock or (y) any securities of the Company convertible into or exercisable or exchangeable for shares of Common Stock, and there are no commitments, contracts, agreements, arrangements or understanding by the Company to issue any such securities." Page 72 of 92 Pages 3. Schedule A to the Agreement is amended and restated to read in its entirety as attached as Schedule A hereto. ---------- 4. Exhibit A to the Agreement is amended as follows: (a) the first paragraph of Section D is amended and restated to read in its entirety as follows: "D. Series 1 Preferred Stock. This Article II.D sets forth ---------------------------- the designation, relative rights, preferences and limitations of a new series of Preferred Stock of the Corporation as determined by the Board of Directors of the Corporation pursuant to its authority under ORS 60.134 and Article II.C. above. The shares of such series shall be designated Series 1 Convertible Redeemable Preferred Stock ("Series 1 Preferred Stock") and the number of shares ------------------------ constituting such series shall be 5,933,332." (b) Section (D)(7) is amended and restated to read in its entirety as follows: "7. Protective Provisions. So long as 2,966,666 shares of ---------------------- Series 1 Preferred Stock are outstanding (subject to adjustment for stock dividends, splits or combinations or other recapitalizations), the Corporation shall not without first obtaining the approval, by vote or written consent (which consent need not be unanimous and may be obtained without a shareholders' meeting), of the holders of at least a majority of the then outstanding shares of Series 1 Preferred Stock: (a) authorize any voluntary liquidation under applicable bankruptcy legislation, any dissolution, liquidation or winding up of the Corporation or any deemed dissolution, liquidation or winding up within the meaning of Section 3(b); (b) effect or taking any action to facilitate any transaction or series of transactions resulting in the disposition of more than 50% of the voting power of the Corporation; (c) authorize any merger, acquisition or consolidation with any other corporation or joint venture involving consideration (determined in accordance with Section 3(c)) in excess of $5,000,000; (d) declare or pay any dividends or other distributions on the Corporation's capital stock (other than a dividend payable solely in shares in Common Stock or a dividend accruing pursuant to Section 2(b) hereof) or redeem, purchase or otherwise acquire any share or shares of Preferred Stock (except as provided in Section 4) or Common Stock; provided, however, that this restriction -------- ------- shall apply neither to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment; 2 Page 73 of 92 Pages (e) permit any subsidiary to issue and sell securities having a fair market value (as determined in accordance with Section 3(c)) in excess of $5,000,000; (f) sell more than $5,000,000 in its assets in a single or series of related transactions or create or suffer to be imposed any lien, mortgage, security interest or other charge on or against more than $5,000,000 of assets; (g) incur any indebtedness for borrowed money in excess of $5,000,000 in aggregate principal amount; (h) redeem, purchase or otherwise acquire any indebtedness of the Corporation (unless such indebtedness is otherwise due in accordance with its terms); (i) authorize any transactions with any affiliates (other than wholly-owned subsidiaries of the Corporation); or (j) amend or repeal any provision of the Corporation's Articles of Incorporation or Restated Bylaws if such action would adversely affect the relative rights, preferences and privileges of the Series 1 Preferred Stock (including, without limitation, (A) the authorization, creation or issuance of any Senior Capital Stock or Parity Capital Stock or any obligation or security convertible into or exchangeable into, or evidencing a right to purchase, shares of any class or series of Senior Capital Stock or Parity Capital Stock, (B) the increase of the directors on the Corporation's Board of Directors to a number greater than 12, or (C) the designation and issuance after the Series 1 Purchase Date of any additional shares of Series 1 Preferred Stock)." 5. The first paragraph of Exhibit C to the Agreement is amended and restated to read in its entirety as follows: "We have acted as counsel to MedicaLogic/Medscape, Inc., an Oregon corporation (the "Company"), in connection with the sale by the Company to you of an aggregate of 5,933,332 shares of the Company's Series 1 Convertible Redeemable Preferred Stock, without par value, and Common Stock Purchase Warrants (the "Warrants") to purchase an aggregate of 4,537,254 shares of its Common Stock, without par value, pursuant to the Preferred Stock and Warrant Purchase Agreement dated as of December 22, 2000, as amended (the "Agreement"). This opinion is delivered to you pursuant to Section 4.8 of the Agreement. Capitalized terms not otherwise defined in this opinion shall have the meanings ascribed to them in the Agreement or in the Legal Opinion Accord of the ABA Section of Business Law (1991) (the "Accord")." 3 Page 74 of 92 Pages 6. Recital G of Exhibit D to the Agreement is amended and restated to read in its entirety as follows: G. The Company proposes to sell and issue up to 5,933,332 shares of Series 1 Convertible Redeemable Preferred Stock, without par value (the "Series 1 Preferred Stock"), and warrants to purchase up to 4,537,254 shares of common stock, without par value (the "Series 1 Warrant Shares") in a closing pursuant to the Preferred Stock and Warrant Purchase Agreement (the "Series 1 Agreement") among the Company and certain investors listed on Signature Page I dated as of December 22, 2000, as amended (the "Series 1 Purchasers")." 7. Except as expressly modified by this Amendment, the Agreement remains in full force and effect as written. 8. This Amendment shall be governed by and construed under the laws of the state of Oregon. 9. This Amendment 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. (Signature page follows.) 4 Page 75 of 92 Pages IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and years first written above. MEDICALOGIC/MEDSCAPE, INC. By: ________________________________ Name: David Moffenbeier Title: Chief Executive Officer QUANTUM INDUSTRIAL PARTNERS LDC By: ________________________________ Name: Title: SFM DOMESTIC INVESTMENTS LLC By: ________________________________ Name: Title: RAM TRADING, LTD. By: ________________________________ Name: Title: 5 EX-99.H 9 0009.txt EXHIBIT H Page 76 of 92 Pages ARTICLES OF AMENDMENT TO THE 1999 RESTATED ARTICLES OF INCORPORATION OF MEDICALOGIC/MEDSCAPE, INC. (f/k/a MedicaLogic, Inc.) 1. The name of the Corporation is MedicaLogic/Medscape, Inc. 2. The 1999 Restated Articles of Incorporation of the Corporation, as amended, are amended to add a new Article II.D to the end of Article II to read in its entirety as follows: "D. Series 1 Preferred Stock. This Article II.D sets forth ------------------------ the designation, relative rights, preferences and limitations of a new series of Preferred Stock of the Corporation as determined by the Board of Directors of the Corporation pursuant to its authority under ORS 60.134 and Article II.C. above. The shares of such series shall be designated Series 1 Convertible Redeemable Preferred Stock ("Series 1 Preferred Stock") and the number of shares ------------------------ constituting such series shall be 5,933,332. 1. Rank. The Series 1 Preferred Stock will rank (i) junior ---- in right of payment to all existing and future debt obligations of the Corporation upon liquidation, dissolution or winding up of the Corporation, (ii) junior in right of payment to each class or series of capital stock of the Company hereafter created, the terms of which expressly provide that such class or series of capital stock will rank senior to the Series 1 Preferred Stock as to dividends and upon liquidation, dissolution or winding up of the Corporation ("Senior Capital Stock"), (iii) pari passu in right of payment with each class --------------------- of capital stock or series of Preferred Stock established hereafter by the Corporation's Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Series 1 Preferred Stock as to dividend rights and upon liquidation, dissolution or winding up of the Corporation ("Parity Capital Stock") and (iv) senior in right of payment as to --------------------- dividend rights and upon liquidation, dissolution or winding up of the Corporation as to its Common Stock and any capital stock of the Corporation hereafter created that expressly provides that it will rank junior to the Series 1 Preferred ("Junior Capital Stock"). -------------------- Page 77 of 92 Pages 2. Dividends. --------- (a) If the Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property, other than shares of Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation), the Corporation shall also declare and pay to the holders of Series 1 Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of the Series 1 Preferred Stock had all of the outstanding Series 1 Preferred Stock been converted immediately prior to the record date for such dividend, or, if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. Such dividends shall be cumulative. Declared but unpaid dividends with respect to a share of Series 1 Preferred Stock shall be mandatorily paid upon liquidation, dissolution or winding up of the Corporation or the conversion of such share to Common Stock, to the extent assets are legally available therefor. Payment of such dividends shall be, at the election of the Corporation, either in cash or in Common Stock (valued at the fair market value as determined in accordance with subsection (c) of Section 3 on the date of payment). Any amounts for which assets are not legally available shall be paid promptly as assets become legally available therefor. (b) The holders of the Series 1 Preferred Stock will also be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Junior Capital Stock and pari passu with dividends payable to the holders of shares of Parity Capital Stock, at the rate of $0.27 per share per annum, (as adjusted for stock splits, stock dividends, combinations or other recapitalizations of the Series 1 Preferred Stock) payable upon the occurrence of any of the events specified in Sections 3 (liquidation or deemed liquidation), 4 (certain redemption events) or 6 (conversion) hereof. Except for payments of dividends upon the occurrence of any of the events specified in Section 3 or 4 (in which case dividends shall be paid solely in cash), payment of such dividends shall be, at the election of the Corporation, in cash or in Common Stock (valued at the fair market value as determined in accordance with subsection (c) of Section 3 hereof on the date of payment). Such dividends shall be cumulative and shall compound annually and shall be computed on the basis of a 360-day year of twelve 30-day months and shall be deemed to accrue from the date the Series 1 Preferred Stock is first issued (the "Series 1 Purchase Date") on a daily basis. ---------------------- 3. Liquidation Preference. In the event of any ------------------------ liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, after payment in full of the outstanding debt obligations of the Corporation and the liquidation preference (and any accrued and unpaid dividends) on any Senior Capital Stock, distributions to the holders of the Series 1 Preferred Stock shall be made in the following manner: 2 Page 78 of 92 Pages (a) Each holder of Series 1 Preferred Stock shall be entitled to receive, out of the assets of the Corporation available for distribution, before any distribution is made to the holders of any Junior Capital Stock, an amount ("Series 1 Preference") equal to the greater of (i) the ------------------- sum of $3.00 per outstanding share of Series 1 Preferred Stock held by such holder (as such amount may be adjusted to account for stock splits, stock dividends, combinations or other recapitalizations of the Series 1 Preferred Stock, the "Series 1 Original Issue Price"), plus an amount equal to the accrued ----------------------------- and unpaid dividends on the Series 1 Preferred Stock to the date fixed for liquidation, dissolution or winding up and (ii) the amount that such holder would be entitled to receive if it were to convert all of the shares of Series 1 Preferred Stock held by such holder into shares of Common Stock (calculated in accordance with Section 6 hereof) immediately prior to such liquidation, dissolution or winding up. After payment in full of the Series 1 Preference to which holders of Series 1 Preferred Stock are entitled, such holders will not be entitled to any further participation in any distribution of assets of the Corporation. (b) For purposes of this Section 3, unless otherwise agreed by holders of at least a majority of the then outstanding shares of Series 1 Preferred Stock, a merger, consolidation or sale of all or substantially all of the assets of the Corporation which will result in the Corporation's shareholders immediately prior to such transaction not holding (by virtue of such shares or securities issued solely with respect thereto) at least a majority of the voting power of the surviving, continuing or purchasing entity, shall be deemed to be a liquidation, dissolution or winding up within the meaning of this Section 3. (c) Whenever a distribution of assets provided for in this Section 3 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined mutually by the Corporation's Board of Directors and the holders of the majority of the shares of Series 1 Preferred Stock then outstanding; or, if the Board of Directors and the holders of the majority of the shares of the Series 1 Preferred Stock then outstanding shall fail to agree, at the Corporation's expense by an appraiser chosen by the Board of Directors of the Corporation and reasonably acceptable to the holders of a majority of the shares of Series 1 Preferred Stock then outstanding, provided that any securities shall be valued as follows: (i) Securities not subject to investment letter or other similar restrictions on free marketability covered by Section 3(c)(ii) below: (A) If traded on a securities exchange or through The Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty (30) day period ending three (3) days prior to the date of distribution; and (B) In all other cases, the value shall be the fair market value thereof, as determined mutually by the Corporation's Board of Directors and the holders of the majority of the shares of the Series 1 Preferred Stock then outstanding or, if the Board of Directors and the holders of the majority of the shares of Series 1 Preferred Stock then outstanding shall fail to agree, at the Corporation's expense by an appraiser chosen by the Board of Directors of the Corporation and reasonably acceptable to the holders of a majority of the shares of Series 1 Preferred Stock then outstanding. 3 Page 79 of 92 Pages (ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in Sections 3(c)(i)(A) or 3(c)(i)(B) to reflect the approximate fair market value thereof. (d) If, upon any liquidation, dissolution or winding up of the Corporation, the amounts payable pursuant to this Section 3 with respect to the Series 1 Preferred Stock and the Parity Capital Stock are not paid in full, the holders of the Series 1 Preferred Stock and the Parity Capital Stock will share equally and ratably in any distribution of assets of the Corporation in proportion to the full liquidation preference and all accumulated and unpaid dividends to which each such holder is entitled. (e) Written notice of a liquidation, dissolution or winding up of the Corporation stating a payment or payments and the place where such payment or payments shall be payable, shall be delivered in person, mailed by certified mail, return receipt requested, mailed by overnight mail or sent by telecopier, not less than ten (10) days prior to the earliest payment date stated therein, to the holders of record of the Series 1 Preferred Stock, such notice to be addressed to each such holder at its address as shown by the records of the Corporation. 4. Certain Redemption Events. ------------------------- A. Change of Control ----------------- (a) In the event of a Change of Control (as defined in subsection (g) of this Section 4), each holder of the then outstanding Series 1 Preferred Stock shall have the right to require the Corporation to purchase, from any source of funds legally available therefor, all or a portion of such holder's Series 1 Preferred Stock (the "Change of Control Offer") as of the date ----------------------- that is no earlier than 30 days and no more than 60 days after the Change of Control Notice Date (as defined in subsection (b) of this Section 4) (the "Change of Control Purchase Date") for a purchase price (the "Change of Control -------------------------------- Purchase Price") equal to 100% of the Series 1 Original Issue Price together with accrued and unpaid dividends to but not including the Change of Control Purchase Date. (b) Within 15 days after the occurrence of a Change of Control, the Corporation shall mail to all holders of record of the Series 1 Preferred Stock a written notice of the Change of Control, such date being the "Change of Control Notice Date." The notice shall include the form of Change of ------------------------------ Control Purchase Notice (as defined in subsection (c) of this Section 4) to be completed by the holder and shall state: (i) the date of such Change of Control and, briefly, the events causing such Change of Control; 4 Page 80 of 92 Pages (ii) the date by which the Change of Control Purchase Notice pursuant to this Section 4 must be given; (iii) the Change of Control Purchase Date; (iv) the Change of Control Purchase Price; (v) the name and address of the paying agent for the Series 1 Preferred Stock appointed by the Corporation (the "Paying Agent"); ------------ (vi) that Series 1 Preferred Stock as to which a Change of Control Purchase Notice has been given may be converted into Common Stock only to the extent that the Change of Control Purchase Notice has been withdrawn in accordance with the terms of this Section 4; (vii)the procedures that the holder must follow to exercise rights under this Section 4; and (viii) the procedures for withdrawing a Change of Control Purchase Notice, including a form of notice of withdrawal. (c) A holder may exercise its rights specified in subsection (a) of this Section 4 upon delivery of a written notice of the exercise of such rights (a "Change of Control Purchase Notice") to the Paying ----------------------------------- Agent at any time prior to the close of business on the business day next preceding the Change of Control Purchase Date, stating: (i) the name of the holder; (ii) the certificate numbers of the Series 1 Preferred Stock that the holder will deliver to be purchased; (iii)the number of shares of Series 1 Preferred Stock that the holder will deliver to be purchased; and (iv) that such Series 1 Preferred Stock shall be purchased pursuant to the terms and conditions specified in this Section 4. The delivery of such Series 1 Preferred Stock to the Paying Agent (together with all necessary endorsements) at the office of the Paying Agent shall be a condition to the receipt by the holder of the Change of Control Purchase Price therefor; provided, however, that such Change of Control Purchase -------- ------- Price shall be so paid pursuant to this Section 4 only if the Series 1 Preferred Stock so delivered to the Paying Agent shall conform in all material respects to the description thereof set forth in the related Change of Control Purchase Notice and provided, further, that the Corporation shall be required to give -------- ------- written notice to any holder in the event the delivered stock does not conform in all material respects to the description thereof, in sufficient time, if practicable, prior to the Change of Control Purchase Date such that such holder may reasonably be expected to correct such delivery and resubmit such stock. 5 Page 81 of 92 Pages Notwithstanding anything herein to the contrary, any holder delivering to the Paying Agent the Change of Control Purchase Notice shall have the right to withdraw such Change of Control Purchase Notice at any time prior to the close of business on the business day immediately preceding the Change of Control Purchase Date by delivery of a written notice of withdrawal to the Paying Agent in accordance with subsection (e) of this Section 4. The Corporation will comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and any other securities laws and regulations to the extent those laws and regulations are applicable in connection with the purchase of the Series 1 Preferred Stock by the Corporation pursuant to this Section 4. To the extent that the provisions of any such securities laws or regulations conflict with any provisions of this Section 4, the Corporation will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 4. (d) On the Change of Control Purchase Date, the Corporation will, to the extent lawful: (i) accept for payment all shares of Series 1 Preferred Stock properly tendered; and (ii) cause the Paying Agent to deliver to any transfer agent appointed by the Corporation such shares of Series 1 Preferred Stock accepted by the Corporation for purchase. The Corporation will not be required to administer the Change of Control Offer upon the occurrence of a Change of Control if a third party (x) makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements described in this Section 4 and (y) purchases all shares of Series 1 Preferred Stock validly tendered and not withdrawn. (e) Upon receipt by the Paying Agent of the Change of Control Purchase Notice specified in subsection (c) of this Section 4, the holder of the Series 1 Preferred Stock in respect of which such Change of Control Purchase Notice was given shall (unless such Change of Control Purchase Notice is withdrawn as specified below) thereafter be entitled to receive solely the Change of Control Purchase Price with respect to such Series 1 Preferred Stock. Such Change of Control Purchase Price shall be paid to such holder promptly following the Change of Control Purchase Date with respect to such Series 1 Preferred Stock (provided the conditions in subsections (c) and (d) of this Section 4 required to be in prior to the Purchase Date have been satisfied). Series 1 Preferred Stock in respect of which a Change of Control Notice has been given by the holder thereof may not be converted into shares of Common Stock on or after the date of delivery of such Change of Control Purchase Notice unless such Change of Control Purchase Notice has first been validly withdrawn. A Change of Control Purchase Notice may be withdrawn by means of a written notice of withdrawal delivered by the holder to the office of the Paying Agent at any time prior to the close of business on the business day immediately preceding the Change of Control Purchase Date, specifying: (i) the name of the holder; (ii) the certificate numbers of the Series 1 Preferred Stock in respect of which such notice of withdrawal is being submitted; (iii) the number of shares of Series 1 Preferred Stock with respect to which such notice of withdrawal is being submitted; and (iv) the number of shares, if any, of such Series 1 Preferred Stock that remains subject to the original Change of Control Purchase Notice and that has been or will be delivered for purchase by the Corporation. 6 Page 82 of 92 Pages (f) On or prior to the time for payment required by subsection (e) of this Section 4, the Corporation shall deposit with the Paying Agent an amount of money sufficient to pay the aggregate Change of Control Purchase Price of all of the shares of Series 1 Preferred that are to be purchased as of such Change of Control Purchase Date. (g) A Change of Control shall be deemed to have occurred if any of the following occurs: (i) any "person" or "group" (as such terms are used in Section 13(d) or 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 or 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the total outstanding voting stock of the Corporation (except that the person or group shall not be deemed the "beneficial owner" of shares tendered pursuant to a tender or exchange offer made by that person or group or any of their affiliates until the tendered shares are accepted for purchase or exchange) or has, directly or indirectly, the right to elect or designate a majority of the Board of Directors of the Corporation, (ii) the Corporation consolidates with, or merges with or into, another person, or sells substantially all of its assets to any person pursuant to a transaction in which the "beneficial owners" (as defined above) of the voting stock of the Corporation immediately before such transaction own, directly or indirectly, immediately after such transaction, less than a majority of the voting power of all voting stock of the surviving, continuing or purchasing entity, or (iii) individuals who on the date of the original issuance of this Series 1 Preferred Stock constituted the Board of Directors of the Corporation (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Corporation was approved by a vote of the majority of the directors of the Corporation then still in office who were either directors on the original issuance date of the Series 1 Preferred Stock or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office. No inference shall be created that officers or employees of the Corporation are acting as a "person" or "group" (as such terms are used in Sections 13(d) or 14(d) of the Exchange Act) with the power to designate a majority of the members of the Board solely because such officers or employees constitute a majority of the members of the Board. Notwithstanding the foregoing, a Change of Control will be deemed not to have occurred in connection with any transaction pursuant to which the then outstanding Common Stock is converted into or exchanged for cash and/or fully-registered marketable securities at a price per share (determined in accordance with Section 3(c)(i)) at least equal to five (5) times the Series 1 Conversion Price (as defined in Section 6 hereof) in effect immediately preceding such transaction. 7 Page 83 of 92 Pages B. Trigger Event ------------- (a) If the Company fails to obtain the shareholder approval contemplated by Section 4.2(b) of the Preferred Stock and Warrant Purchase Agreement dated on or about December 22, 2000 between the Corporation and the original holders of the Series 1 Preferred Stock (a "Trigger Event"), -------------- each holder of the then outstanding Series 1 Preferred Stock shall have the right to require the Corporation to purchase, from any funds legally available therefor, all or a portion of such holder's Series 1 Preferred Stock (the "Trigger Event Offer") as of the date that is no earlier than 30 days and no --------------------- more than 60 days after the Trigger Event Notice Date (as defined below) (the "Trigger Event Purchase Date") for a purchase price equal to 100% of the Series ---------------------------- 1 Original Issue Price together with accrued and unpaid dividends thereon to but not including the Trigger Event Purchase Date. The Trigger Event Offer shall otherwise be conducted in accordance with the terms of Section 4.A above, mutatis mutandis. "Trigger Event Notice Date" shall mean the date on ---------------------------- which the Corporation delivers notice to each holder of record of Series 1 Preferred Stock of the occurrence of a Trigger Event. 5. Voting Rights. ------------- (a) The holder of each share of Series 1 Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series 1 Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of this Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series 1 Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) The holders of a majority of the outstanding Series 1 Preferred Stock shall be entitled to elect one (1) Class III director of the Corporation at each election of such directors. 6. Conversion Rights. The holders of the Series 1 ------------------- Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series 1 Preferred ---------------- Stock shall be convertible, at the option of the holder thereof, at any time after the Series 1 Purchase Date and prior to the close of business on the business day immediately preceding any purchase by the Corporation of such share of Series 1 Preferred Stock pursuant to Section 4, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series 1 Original Issue Price plus all accrued and unpaid dividends thereon by the Series 1 Conversion Price applicable to such share (determined as hereafter provided) in effect on the date the certificate is surrendered for conversion. The initial Series 1 Conversion Price per share for shares of Series 1 Preferred Stock shall be the Series 1 Original Issue Price. The Series 1 Conversion Price for the Series 1 Preferred Stock shall be subject to adjustment as set forth in Section 6(d). 8 Page 84 of 92 Pages (b) Automatic Conversion. Each share of Series 1 --------------------- Preferred Stock shall automatically be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series 1 Original Issue Price plus all accrued and unpaid dividends thereon by the Series 1 Conversion Price at the time in effect immediately upon the earlier of (i) the date, which shall be no sooner than one year from the date the Series 1 Preferred Stock is first issued, on which the last sale price of the Common Stock traded through The Nasdaq National Market has been at least five times the Series 1 Conversion Price in effect on such date for thirty (30) consecutive trading days, with a minimum average trading volume per day of two percent (2%) of the number of issued and outstanding shares of Common Stock not held by affiliates of the Corporation or (ii) the date immediately prior to the closing of any merger, consolidation, reorganization, or sale of all or substantially all of the Corporation's assets pursuant to which the then outstanding Common Stock is converted into or exchanged for cash and/or fully-registered marketable securities at a price per share at least equal to five times the Series 1 Conversion Price (as defined in Section 6 hereof) in effect immediately preceding such transaction. (c) Mechanics of Conversion. Before any holder of ------------------------- Series 1 Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series 1 Preferred Stock, and shall give written notice by mail, postage prepaid, to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series 1 Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series 1 Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (d) Adjustments to Series 1 Conversion Price for -------------------------------------------------- Certain Dilutive Issues; Splits and Combinations. The Series 1 Conversion Price - ------------------------------------------------ shall be subject to adjustment from time to time as follows: (i) Stock Issuances. --------------- (A) If the Corporation shall issue, after the Series 1 Purchase Date, any Series 1 Additional Stock (as defined below) without consideration or for a consideration per share less than $1.70 (subject to adjustment for stock splits, stock dividends, combinations or other recapitalizations of the Series 1 Preferred Stock) or the fair market value per share of such Series 1 Additional Stock (as determined in accordance with Section 3(c)) (the "Fair Market Price") in effect immediately prior to the ------------------- issuance of such Series 1 Additional Stock, then, and in each such case, the Series 1 Conversion Price in effect immediately prior to each such issuance shall forthwith be adjusted as follows: 9 Page 85 of 92 Pages (1) If the issuance is for less than $1.70 per share, then the Series 1 Conversion Price in effect immediately prior to each such issuance shall be adjusted to a price determined by multiplying such Series 1 Conversion Price by a fraction, the numerator of which shall be equal to the sum of (a) the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to Sections 6(d)(i)(E)(1) or 6(d)(i)(E)(2)) plus (b) the number of shares of Common Stock that the aggregate consideration received by this Corporation for such issuance would purchase at 56.67% of the Series 1 Conversion Price in effect immediately prior to such issuance (determined in accordance with Section 6(d)(i)(E)); and the denominator of which shall be equal to the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to Sections 6(d)(i)(E)(1) or 6(d)(i)(E)(2)) plus (y) the number of shares of such Series 1 Additional Stock. (2) If the issuance is for less than the Fair Market Price immediately prior to such issuance, then such Series 1 Conversion Price shall forthwith (except as otherwise provided in this Section 6(d)) be adjusted to a price determined by multiplying such Series 1 Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to Sections 6(d)(i)(E)(1) or 6(d)(i)(E)(2)) plus the number of shares of Common Stock that the aggregate consideration received by this Corporation (determined in accordance with Section 6(d)(i)(E)) for such issuance would purchase at the Fair Market Price immediately prior to such issuance; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (including shares of Common Stock deemed to be issued pursuant to Sections 6(d)(i)(E)(1) or 6(d)(i)(E)(2)) plus the number of shares of such Series 1 Additional Stock. (3) If the issuance is for less than $1.70 per share and the Fair Market Price immediately prior to such issuance, then the adjustment paragraph resulting in the lower Series 1 Conversion Price shall control. (B) No adjustment of the Series 1 Conversion Price shall be made in an amount less than one cent per share, provided that any adjustments that are not required to be made by reason of this sentence shall be carried forward and shall be either taken into account in any subsequent adjustment made prior to three (3) years from the date of the event giving rise to the adjustment being carried forward, or shall be made at the end of three (3) years from the date of the event giving rise to the adjustment being carried forward. Except to the limited extent provided for in Sections 6(d)(i)(E)(4) and 6(d)(i)(E)(5), no adjustment of such Series 1 Conversion Price pursuant to this Section 6(d)(i) shall have the effect of increasing the Series 1 Conversion Price above the Series 1 Conversion Price in effect immediately prior to such adjustment. 10 Page 86 of 92 Pages (C) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation in connection with the issuance and sale thereof. (D) In the case of the issuance of the Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as mutually determined by the Board of Directors and the holders of the majority of the shares of the Series 1 Preferred Stock then outstanding or, if the Board of Directors and the holders of the majority of the shares of Series 1 Preferred Stock then outstanding shall fail to agree, at the Corporation's expense by an appraiser chosen by the Board of Directors of the Corporation and reasonably acceptable to the holders of a majority of the shares of Series 1 Preferred Stock then outstanding. (E) In the case of the issuance (whether before, on or after the Series 1 Purchase Date) of options to purchase or rights to subscribe for Common Stock, securities by their terms convertible into, exchangeable or exercisable for Common Stock or options to purchase or rights to subscribe for such convertible, exchangeable or exercisable securities (collectively, "Other Securities"), the following provisions shall apply for all purposes of this Section 6(d)(i) and Section 6(d)(ii): (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential antidilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Sections 6(d)(i)(C) and 6(d)(i)(D)), if any, received by the Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential antidilution adjustments) for the Common Stock covered thereby. (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion of, or in exchange or exercise (assuming the satisfaction of any conditions to convertibility or exchangeability, including, without limitation, the passage of time, but without taking into account potential antidilution adjustments) for, any such convertible or exchangeable or exercisable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable or exercisable securities and subsequent conversion or exchange or exercise thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential antidilution adjustments) upon the conversion, exchange or exercise of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Sections 6(d)(i)(C) and 6(d)(i)(D)). 11 Page 87 of 92 Pages (3) In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to the Corporation upon exercise of such options or rights or upon conversion of or in exchange for such convertible or exchangeable or exercisable securities, including, but not limited to, a change resulting from the antidilution provisions thereof, the Series 1 Conversion Price, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities. (4) Upon the expiration of any such options or rights, the termination of any such rights to convert, exchange or exercise or the expiration of any options or rights related to such convertible, exchangeable or exercisable securities, the Series 1 Conversion Price, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities. (5) The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Sections 6(d)(i)(E)(1) and 6(d)(i)(E)(2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 6(d)(ii)(E)(3) or 6(d)(i)(E)(4). (ii) "Series 1 Additional Stock" shall mean any --------------------------- shares of Common Stock or Other Securities issued (or deemed to have been issued pursuant to Section 6(d)(i)(E)) by this corporation after the Series 1 Purchase Date other than: (A) shares of Common Stock issued pursuant to a transaction described in Section 6(d)(iii) hereof; (B) shares of Common Stock or Other Securities issuable or issued to employees, consultants or directors of this corporation pursuant to a stock option plan or stock purchase plan approved by the Board of Directors of the Corporation on or prior to the Series 1 Purchase Date; 12 Page 88 of 92 Pages (C) shares of Common Stock issued to Baylor College of Medicine or assignees in connection with the sale of software licenses by the Corporation in the Houston, Texas market through December 31, 2002; (D) shares of Common Stock or Other Securities issuable or issued in consideration for services rendered to the Corporation or its subsidiaries (other than shares issuable or issued pursuant to Section 6(d)(ii)(B)), in an aggregate amount not to exceed 200,000 shares per annum; (E) shares of Common Stock or Other Securities issuable or issued in connection with acquisitions, business combinations or strategic alliances, including corporate partnering agreements, in each case not to exceed 500,000 shares in the aggregate; (F) shares of Common Stock or Other Securities the issuance of which has been approved in writing by the holders of at least the majority of the then outstanding shares of Series 1 Preferred Stock; (G) shares of Common Stock issuable upon (i) the conversion of the Series 1 Preferred Stock, (ii) the exercise of the warrants, dated the Series 1 Purchase Date, issued to holders of Series 1 Preferred Stock, (iii) the exercise of the warrant, dated February 15, 2000, issued to Lazard Frere & Co. LLC, not to exceed 32,300 shares in the aggregate (subject to adjustment for stock dividends, splits or combinations or other recapitalizations); (iv) the exercise of the warrants, dated September 3, 1999, issued to America Online, Inc., not to exceed 727,911 shares in the aggregate (subject to adjustment for stock dividends, splits or combinations or other recapitalizations) or (v) the exercise of the warrant, dated September 14, 1999, issued to Stoel Rives LLP, not to exceed 10,000 shares (subject to adjustment for stock dividends, splits, combinations or other recapitalizations); or (H) shares of Common Stock issued pursuant to Sections 2.3 and 2.4 of the Stock Purchase Agreement, dated April 17, 2000, between the Corporation and the founders of AnywhereMD.com, Inc. (including pursuant to employment agreements of even date therewith between the Corporation and such founders), not to exceed 600,000 shares in the aggregate (subject to adjustment for stock dividends, splits or combinations or other recapitalizations); (iii)If the Corporation at any time or from time to time after the Series 1 Purchase Date fixes a record date for a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder ------------------------ for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, and in each such case as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Series 1 Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Series 1 Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. 13 Page 89 of 92 Pages (iv) If the number of shares of Common Stock outstanding at any time after the Series 1 Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, and in each such case following the record date of such combination, the Series 1 Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. (e) Recapitalizations. If at any time or from time to time ----------------- there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 6 or in Section 3), provision shall be made so that the holders of the Series 1 Preferred Stock shall be entitled to receive in exchange for the Series 1 Preferred Stock a security identical to (and not less favorable to such holders than) the Series 1 Preferred Stock. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 6 with respect to the rights of the holders of the Series 1 Preferred Stock after the recapitalization to the end that the provisions of this Section 6 (including adjustment of the Series 1 Conversion Price then in effect and the number of shares receivable upon conversion of the Series 1 Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (f) No Impairment. This Corporation will not, by amendment ------------- of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the Series 1 Conversion Rights against impairment. (g) No Fractional Shares and Certificate as to -------------------------------------------------- Adjustments. ----------- (i) No fractional shares shall be issued upon the conversion of any share or shares of the Series 1 Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series 1 Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. 14 Page 90 of 92 Pages (ii) Upon the occurrence of each adjustment or readjustment of the Series 1 Conversion Price pursuant to this Section 6, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series 1 Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series 1 Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Series 1 Conversion Price at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series 1 Preferred Stock. (h) Reservation of Stock Issuable Upon Conversion. The --------------------------------------------- Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series 1 Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series 1 Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series 1 Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this certificate. (i) Notices. Any notice required by the provisions of ------- this Section 6 to be given to the holders of shares of Series 1 Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. 7. Protective Provisions. So long as 2,966,666 shares of ---------------------- Series 1 Preferred Stock are outstanding (subject to adjustment for stock dividends, splits or combinations or other recapitalizations), the Corporation shall not without first obtaining the approval, by vote or written consent (which consent need not be unanimous and may be obtained without a shareholders' meeting), of the holders of at least a majority of the then outstanding shares of Series 1 Preferred Stock: (a) authorize any voluntary liquidation under applicable bankruptcy legislation, any dissolution, liquidation or winding up of the Corporation or any deemed dissolution, liquidation or winding up within the meaning of Section 3(b); (b) effect or taking any action to facilitate any transaction or series of transactions resulting in the disposition of more than 50% of the voting power of the Corporation; 15 Page 91 of 92 Pages (c) authorize any merger, acquisition or consolidation with any other corporation or joint venture involving consideration (determined in accordance with Section 3(c)) in excess of $5,000,000; (d) declare or pay any dividends or other distributions on the Corporation's capital stock (other than a dividend payable solely in shares in Common Stock or a dividend accruing pursuant to Section 2(b) hereof) or redeem, purchase or otherwise acquire any share or shares of Preferred Stock (except as provided in Section 4) or Common Stock; provided, however, that this restriction shall apply neither to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment; (e) permit any subsidiary to issue and sell securities having a fair market value (as determined in accordance with Section 3(c)) in excess of $5,000,000; (f) sell more than $5,000,000 in its assets in a single or series of related transactions or create or suffer to be imposed any lien, mortgage, security interest or other charge on or against more than $5,000,000 of assets; (g) incur any indebtedness for borrowed money in excess of $5,000,000 in aggregate principal amount; (h) redeem, purchase or otherwise acquire any indebtedness of the Corporation (unless such indebtedness is otherwise due in accordance with its terms); (i) authorize any transactions with any affiliates (other than wholly-owned subsidiaries of the Corporation); or (j) amend or repeal any provision of the Corporation's Articles of Incorporation or Restated Bylaws if such action would adversely affect the relative rights, preferences and privileges of the Series 1 Preferred Stock (including, without limitation, (A) the authorization, creation or issuance of any Senior Capital Stock or Parity Capital Stock or any obligation or security convertible into or exchangeable into, or evidencing a right to purchase, shares of any class or series of Senior Capital Stock or Parity Capital Stock, (B) the increase of the directors on the Corporation's Board of Directors to a number greater than 12, or (C) the designation and issuance after the Series 1 Purchase Date of any additional shares of Series 1 Preferred Stock). 8. Status of Converted Stock. If any shares of Series 1 --------------------------- Preferred Stock are converted pursuant to Section 6 hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation." 16 Page 92 of 92 Pages 3. The amendment to the Articles was approved by the Board of Directors of the Corporation on December 20, 2000. Shareholder approval was not required. Dated: January 4, 2001. MEDICALOGIC/MEDSCAPE, INC. By: ---------------------------------------- Printed Name: Mark Boulding Title: Secretary and Executive Vice President 17 -----END PRIVACY-ENHANCED MESSAGE-----