Joseph C. Williams
President
Dialogos, Inc.
3674 Clifton Avenue
Cincinnati, Ohio 45220
RE: MedPlus, Inc. Financing Commitment to and Possible
Acquisition of Common Stock of Dialogos, Inc.
Dear Mr. Williams:
Pursuant to this Letter of Agreement between MedPlus, Inc., an
Ohio corporation ("MedPlus") and Dialogos, Inc., a Delaware
corporation (the "Company"), MedPlus agrees to provide or obtain
specified financing for the operations of the Company, and the
Company agrees to issue to MedPlus or grant MedPlus an option to
purchase, as the case may be, a certain percentage of the Company's
common stock (all of the Company's common stock hereinafter referred
to as the "Common Shares") in exchange for such financing. Now,
therefore, and in consideration of the mutual covenants and
agreements herein contained, the Company and MedPlus hereby agree as
follows:
1. MedPlus shall, on or before January 31, 1997, either (a)
agree to pay $1.65 million to the Company as consideration for 75%
of the Common Shares or (b) secure a funding commitment for the
Company's operations in the amount of $1.65 million from investors
("Investors") and/or lenders ("Lenders") with financing terms
reasonably agreed to by the Company and MedPlus ((a) and (b)
collectively are the "Obligation"). In the event MedPlus secures a
funding commitment from Investors and/or Lenders, the Company shall
grant MedPlus the option, which option shall be immediately
exercisable and remain open until December 31, 1999, to purchase 75%
of the Common Shares (the "MedPlus Option").
2. Prior to exercising the MedPlus Option, MedPlus shall have
entered into an agreement to either (a) pay to any Investors and/or
Lenders an amount equal to their investment, including appreciation
thereof as indicated in such agreement, or their loan, including any
interest accrued with respect thereto, made by them in or to the
Company (such payment hereinafter referred to as the "Buy-Out
Amount") or (b) pay to the Company an amount equal to the Buy-Out
Amount. The exercise price of the MedPlus Option shall be equal to
the Buy-Out Amount. Immediately upon actual payment of the Buy-Out
Amount to either the Investors and/or Lenders or the Company,
MedPlus shall receive 75% of the Common Shares.
3. The Common Shares will be transferred to MedPlus free,
clear and unencumbered.
4. MedPlus shall fund the general operations of the Company
from the date of this Letter of Agreement until the Obligation has
been satisfied and funding has actually begun pursuant to either
paragraph 1(a) or (b) above (the "Interim Funding"). The Interim
Funding shall be provided from time to time in amounts reasonably
requested by the Company, which amounts are consistent with funding
required to execute the financial plan provided to MedPlus by the
Company during June, 1996. In the event MedPlus agrees to pay $1.65
million to the Company as consideration for 75% of the Common Shares
pursuant to paragraph 1(a) above, such $1.65 million purchase price
shall be reduced by any and all monies paid to or on behalf of the
Company by MedPlus to effect the Interim Funding, plus Interest (as
hereinafter defined). In the alternative, if MedPlus secures a
funding commitment for the Company's operations in the amount of
$1.65 million from Investors and/or Lenders pursuant to paragraph
1(b) above, then, immediately upon the Company's receipt of such
funding, the Company shall reimburse MedPlus for any and all monies
paid to or on behalf of the Company by MedPlus to effect the Interim
Funding, plus Interest. For purposes of this paragraph 4,
"Interest" shall mean interest equal to the prime rate, as announced
from time to time by the Provident Bank, Cincinnati, Ohio, plus 1%
per annum.
5. Immediately following execution of this Letter of Agreement
by the Company, MedPlus will enter into a consulting agreement with
Joseph C. Williams, President and sole stockholder of the Company
("Williams"), in substantially the form attached hereto as Exhibit
A. Furthermore, the Company shall require each employee and/or
consultant thereto to execute a confidentiality agreement,
reasonably similar to confidentiality agreements executed by
employees and/or consultants in the technology industry, with
respect to information obtained by him or her as a result of his or
her relationship with the Company.
6. It is a condition precedent to the obligations of MedPlus
hereunder that Williams shall have executed a voting agreement, in
the form attached hereto as Exhibit B, whereby Williams agrees to
vote all Common Shares owned by him in favor of electing one person
designated by MedPlus as member of the Company's Board of Directors.
In addition, the holders of any and all shares issued by the Company
before the earlier of (i) the exercise of the MedPlus Option, (ii)
the Rejection, as hereinafter defined, or (iii) the expiration of
the MedPlus Option shall be required by the Company to execute a
voting agreement in substantially the form attached hereto as
Exhibit B.
7. In the event MedPlus exercises the MedPlus Option, MedPlus
and the Company agree that the Company shall amend any existing
employment agreements with Williams and other senior executives of
the Company (the "Executive Employees") to provide that, for each
year during the three-year period ending December 31, 1999, the
Executive Employees may be granted options to purchase Common Shares
("Incentive Shares"). Specifically, prior to January 15th of each
of the afore-mentioned years of each Amended Employment Agreement,
the Company shall establish a basis for determining whether any
Incentive Shares shall be granted to the Executive Employee
following the close of such year. The determination of whether to
grant Incentive Shares in any such year shall be based on the
achievement of the Contribution Margin (as hereinafter defined) of
the Company as budgeted for that fiscal year. (For purposes hereof,
"Contribution Margin" shall mean "operating income" as used by
MedPlus in its internal financial reporting system.) Furthermore,
the exercise price per share of any options granted as Incentive
Shares shall be determined by an independent appraiser selected by
the Company; in no event, however, shall such exercise price be less
than the price per share paid by MedPlus in exercising the MedPlus
Option. Finally, in no event shall the number of shares subject to
options granted as Incentive Shares to all Executive Employees for
each of the following years exceed in the aggregate (i) 3% of all
Common Shares outstanding at December 31, 1997 and 1998 and (ii) 4%
of all Common Shares outstanding at December 31, 1999.
8. The Company agrees that it shall be operated in the normal
and ordinary course until January 1, 1999, that all necessary
corporate and other actions will be taken pursuant to law, and that
all applicable laws and governmental regulations will be complied
with.
9. MedPlus contemplates the expenditure of substantial sums of
time and money in connection with legal, accounting, financial, and
due diligence work to be performed in conjunction with the
transaction(s) proposed herein. As consideration therefor, during
the period from the date of acceptance of this letter to MedPlus'
satisfaction of the Obligation or January 31, 1997, whichever is
earlier, the Company shall not, directly or indirectly, initiate or
hold discussions with any person or entity (other than MedPlus)
concerning a purchase, affiliation, or other transfer of any part of
the Company's business, directly or indirectly, whether by sale of
common shares, merger, consolidation, sale or lease of material
assets, affiliation, joint venture, or other material transaction.
After January 31, 1997 and until MedPlus affirmatively declines to
exercise the MedPlus Option (the "Rejection") or until December 31,
1999, whichever is earlier, the Company shall not accept financial
support for any reason from any third party without first offering
MedPlus the opportunity to provide such financial support on terms
reasonably similar to those offered by such third party. MedPlus
shall then have 30 days from the date of such offer to elect to
provide such financial support. If the offer is affirmatively
rejected by MedPlus or such 30 day period expires, then the Company
may accept financial support from such third party on the same terms
and conditions contained in the third party's original financing
offer.
10. The Company agrees to permit MedPlus' representatives,
agents, accountants and attorneys to have reasonable access during
regular business hours to the Company's books, records and
properties for the purpose of making a detailed examination of the
financial condition, assets, liabilities, legal compliance, affairs,
business and the conduct of the Company prior to MedPlus' exercise
of the MedPlus Option or the Rejection, whichever occurs first. In
addition, prior to MedPlus' exercise of the MedPlus Option or the
Rejection, whichever occurs first, Dialogos shall have its
financial statements audited annually by KPMG Peat Marwick.
It is understood and agreed that any public announcement of
this transaction will be through a mutually agreed upon joint
release.
Very truly yours,
MEDPLUS, INC.
/s/ Daniel A. Silber
Daniel A. Silber, Vice-President
of Finance and Chief Financial
Officer
Accepted by:
DIALOGOS, INC.
/s/ Joe Williams
Joe Williams, President